Bamburi links drop in profit to market wars

Sluggish sales and increased competition saw Bamburi Cement’s half year results drop by 23 per cent.

The cement maker said on Thursday it recorded Sh3.3 billion in the first half of 2010 compared to Sh4.3 billion recorded in the corresponding period last year because of poor sales in Kenya and Uganda.

Managing director Hussein Mansi attributed the reduced profits to lower turnover and increased production costs, led by expensive electricity.

“Turnover was impacted by a drop in market share,” said Mr Mansi.

The cement maker said its sales reduced to Sh13 billion from Sh16.2 billion during the same period last year.

Increased cement stocks in the market, brought about by new entrants and existing players expanding their capacity, set the stage for bruising turf wars.

As a result, the price of cement dropped to Sh700 for per 50kg bag compared to Sh780 in the same half last year.

The new entrants include CATIC of China, Mombasa Cement, and Devji Steel Limited who are challenging the dominance of East Africa Portland Cement, Bamburi Cement, and Athi River Mining (ARM).

Mombasa Cement has, for instance, set the price of a 50kg bag at Sh630, setting the stage for further price cuts.

Data from the Kenya National Bureau of Statistics indicates consumption of 1.1 million tonnes of cement in the five months to May this year compared to one million tonnes in the same period last year.

This is an indicator that Bamburi, which controls about 59 per cent of the market, lost market share to rivals.

The impact of slow sales was made worse by expensive electricity given that energy costs account for about 35 per cent of the company’s production costs.

Recent decline in the cost of electricity has given the manufacturers more headroom to cut prices without hurting their profit margins.

Electricity tariffs had gone up by 50 per cent, driven by fuel cost charges — a varying item on the power bill that is linked to the amount of power on the national grid that is generated from expensive thermal sources.