Cement manufacturers in the region are going through turbulent times, with profits falling and some going into loss territory, as a result of stiff competition from cheap imports, high power costs and low demand in the housing and construction sectors.
Bamburi, part of the Lafarge Group, and the region’s largest cement firm, saw its net profit for 2017 drop by $39 million to $19.7 million due to lower sales in the Kenyan market, blamed on the prolonged election cycle, tightened liquidity occasioned by the interest rate capping law, drought and delayed infrastructure projects.
Its revenues dropped by six per cent to $359 million compared with $383 million in 2016.
“The group’s turnover decreased following lower sales in Kenya due to the contracted market following lower sales in Kenya due to contracted market. Uganda sales were broadly flat in both domestic and export markets,” the company said in a statement.
The Kenya-based ARM Cement, producers of the Rhino brand, lead the sector in lose making, posting a loss of $35 million in 2017, becoming one of the regional cement firms to have sunk deep in the red, having posted a loss of $28 million in 2016 and $28.9 million in 2015.
The firm blamed its dwindling fortunes on high operating costs and a credit squeeze, which has forced it to seek for equity investors to shore up its capital base.
Last month, operations at its Kigali plant, Rwanda’s second largest, were suspended because of a shortage of raw materials. The plant has an annual capacity of 100,000 tonnes.
In the Kenyan market, the firm is facing seen stiff competition, through vicious price wars from firms like Mombasa and National Cement, reducing its market share even as the sector also gets battered by the decline in the construction sector which posted a 4.9 per cent growth in the last quarter of 2017, down from 7.8 per cent in 2016.
Cement consumption decreased by 13.1 per cent to 1.4 million tonnes from 1.6 million in 2016 greatly impacting manufacturers.
Other producers in Tanzania also saw their margins drop as a result of the price wars and overcapacity. Tanzania Portland Cement Company (TPCC) operating under the brand name Twiga, saw its net profit drop to $15.6 million last year, from $17.6 million recorded in 2016. This was almost half of its 2015 profit of $24.88 million.
Twiga said the fall in profit was occasioned by an increase in income tax and a decrease in price and sales costs.
The firm saw its income tax nearly double to $13.21 million last year from $7.75 million in 2016, while costs of sale also went up to $81.03 million last year, up from $74.86 million in 2016.
“Last year was characterised by a very competitive market, with extra capacity and challenging economic environment,” Hakan Gurdal, TPCC board chairman said.
The cement manufacturer also saw its revenue drop to $118.3 million from $122.08 million in the previous year, a fall it attributed to the general low market price of cement.
Tanga Cement Company Ltd, which trades under the Simba brand, dropped to a loss making position in the six months to June last year to $7.75 million from a profit of $4.88 million the previous year due to its the capital investment that raised its finance costs to $6.65 million from $264,244 the previous year.
“Accordingly, the capital investment impacted our operating profit with a depreciation charge of $4.1 million compared with the previous half year depreciation of $1.5 million. Despite challenging market conditions we remain positive for the medium term outlook with our highly focused sales strategy and improvement in market share. Market competition is expected to remain high and management is actively engaged in innovative sales initiatives to maximize sales volumes and prices to improve margins,” Lau Masha, Tangas cement board chair said.
The Tanzania cement sector has seen a complete disruption through the entry of Dangote Cement, with its discount pricing that has unsettled the large cement players.
In December, Dangote said Ethiopia was the most profitable market for its cement, selling more than 1.7 million tonnes to push the firm’s sales volumes across its Pan-African operations by 7.5 per cent to seven million tonnes.
“Our factories continued to consolidate their market shares across Africa. Pan-African gross profit increased by 43.5 per cent to $88.6 million. Pan-African operations sold about 42 per cent of total group cement volumes, provided nearly 32 per cent of group revenues before inter-company eliminations,” the firms outgoing chief executive officer Onne van der Weijde said in the financial report.
Uganda is currently experiencing a supply glitch, an indication of an increased demand which has set off price increases amongst dealers.
The country’s two biggest cement producers; Tororo Cement fin eastern Uganda and Hima Cement in Kasese, with an 80 per cent market share, have attributed their decline in production on reduced electricity supply that has affected their plant operations.
Tororo Cement’s factory executive director Morgan Gagranihe, said that the electricity the factory has been receiving is insufficient, affecting its production.
“Our production has halved by 600,000 tonnes to 1.2 million which, combined with increased competition for raw material by cement producers has constrained output,” Mr Gagranihe said.
“We have a challenge in getting steady power supply given that our production process is power intensive; this affects production and the cement stock dispatch to the market. We are in constant engagement with the power utility firm to see how we can stabilise our supply for the long term,” Hima’s country chief executive Nicolas George said.
The EastAfrican also understands one of the two market leaders has not produced cement for two months due to ongoing maintenance works, which has greatly contributed to the supply hitch in the Ugandan market, setting off price increases among dealers.
Rwanda is also experiencing a shortage of cement that has driven the retail prices up even as one of its largest plants, Cimerwa undergoes maintenance.
The country’s multibillion dollars infrastructure projects, including the $418 million Bugesera International Airport, which is is estimated to consume 50,000 tonnes per day of cement will see the regional cement firms angling to reap from Kigali’s rising cement demand.
According to the Rwanda Revenue Authority, the country imported 79,573 tonnes last year from Tanzania and 164,814 tonnes from Uganda.
“Rwanda’s cement demand has reached 50,000 tonnes per month with at least 23,000 tonnes imported while Cimerwa produces 27,000 tonnes,” Annette Karenzi, director-general of industries in the Ministry of Trade and Industry said.
Cimerwa Cement majority shareholding is owned by Pretoria Portland Cement (PPC) and its boasts of an annual installed capacity of 600,000 tonnes although its production oscillates between 60 per cent and 70 per cent.
Kigali is also banking on getting a third local manufacturer, Prime Cement, after it signed a deal with a Danish company FL Smidth mid last year to build the $65 million plant.
Even as the manufactures struggle with either reduced revenues, production challenges and high cost of doing business, the region is expecting to see an increased production capacity as cement manufactures angle to expand further.
Currently, the estimated plant utilisation rate within the region is 61.7 per cent but Dyer & Blair Investment Bank predicts that this will fall to 45.4 per cent by the end of this year, putting into doubt the effectiveness of these expansion moves.
Kenya accounts for 53.2 per cent of the 21.1 million tonne installed capacity in the region followed by Tanzania with an annual installed capacity of 8.3 million tonnes against the current annual demand of 4.3 million tonnes.
Tororo Cement is due to finish the construction of $40 million factory later this year, which will push its installed capacity with an additional 1.2 million tonnes to three million tonnes.
Savannah Cement also plans to increase its capacity spending $10 million on the venture that will see its installed capacity from the current 1.2 million tonne to 2.4 million tonne annually. It expects to complete this upgrade mid-2018.
In Tanzania, TPCC has also expanded its capacity through rehabilitating the old clinker lines. In Uganda, Kenyan Simba Cement is constructing its grinding plant in which it hopes to commission later this year.
Hima Cement is also expected to start production by June this year of its $40 million plant in the same location.