Tax credit eases East African Portland Cement Company’s financial situation

The firm reported a sales growth of 8% to Sh.10.1 billion and a net profit of Sh.561 million in the year to June, compared to a previous loss of Sh.284 million.

The return to profit was attributed to a Sh.680 million tax credit that wiped a pre-tax loss of Sh.119 million under a government initiative which rewards companies that install energy conserving equipment.

Last year the company was not able to pay out a dividend, and as an obvious sign of health, this year, a dividend of Sh.0.50 a share was offered. The share shed 59.4% over the past year to trade at Sh.55.

“A tax credit of Sh.680 million arose from reduction in deferred tax liability following the commissioning of the coal firing plant,” EAPCC said in a statement to the Nairobi Securities Exchange (NSE).

EAPCC hopes the coal plant—which cut its energy costs by 35% in the second half—will reduce its energy costs by half in the year to June 2012 and help rev up its profits.

In recent years, the depreciation of the Kenyan shilling against the Japanese yen has hurt the company, as it has pushed up the cost of repayment of a yen-denominated loan.

The company took out a Sh.1.7 billion loan in 1990 at a concessional rate of 2.5%, but despite servicing it since 2000, it still has Sh.3 billion to settle. EAPCC has hedged 25% of the loan and is seeking to swap the remaining yen loans with either shilling or dollar-dominated this year to reduce exchange losses.

A swap involves exchanging the principal and interest in one currency for the same in another currency.

The shilling has lost 33.4% to the yen since the year opened to settle at Sh.132.6 – which is a higher depreciation compared to the euro at 30% and the dollar at 25% over the same period.

In the year to June, the firm’s operating profits stood at Sh.653 million compared to Sh.90 million in similar period last demonstrating that the firm’s core operations are healthy. However, exchange losses coupled with rising financing costs ate into the earnings resulting in the Sh.119 million before tax loss.

The cement manufacturer has stated it is betting on the growing demand for cement on the back of the region’s red-hot real estate market.

“Market demand for cement remains strong and the company expects improved productions and sales volume in the coming year,” said EAPCC in the statement.

Rising rent and home prices have sparked high interests in Kenya’s construction sector over the past year, lifting demand for products such as cement, but the manufacturers have not benefited much due to the price wars.

These price wars saw cement prices drop by about 15% over the last 18 months.

Read the article online at: https://www.worldcement.com/africa-middle-east/28102011/tax_credit_eases_east_african_portland_cement_company%E2%80%99s_financial_situation/