Auditor warns Portland Cement is on the brink

Cash-strapped East African Portland Cement Company (EAPCC) #ticker:PORT has revalued its land holdings 134 times higher, booking a Sh11.3 billion gain, which helped it to post a profit in the year ended June despite operating losses having widened about three times to Sh3.55 billion.

EAPCC which published its results on Friday past the capital markets regulator’s deadline, posted a Sh7.79 billion net profit up from a loss of Sh1.47 billion in the previous financial year.

Fair value gain on investment property grew from Sh84.2 million to Sh11.34 billion. EAPC had in the previous financial year disclosed its investment properties as three pieces of leasehold land held by the group under long-term lease arrangements and a freehold parcel in Kikambala.

Concealed in this improved bottom-line is a 25 per cent drop in revenue to Sh5.18 billion as the firm struggled with a worsened negative working capital position.

“The revenue for the year declined by 25 per cent over the same period last year driven by constraints on working capital, increase in competitive pressure and high cost of production which combined to reduced output cement prices,” said EAPC.

Its current liabilities outstripped current assets by Sh6 billion, a worse off position than the gap of Sh4.2 billion it had in the previous financial year. Selling, general and administrative costs rose by 69.4 per cent to Sh3.86 billion on account of court case with workers.

The firm says that it had to make a Sh1.5 billion one-off provisioning for staff costs to reflect the money awarded by Employment and Labour Relations Court to implement the 2012-2015 collective bargaining agreement on rationalised salaries.

Auditor General Edward Ouko has cast doubt on the ability of the state-owned cement maker to continue as a going concern based on the widened operating loss and negative working capital.

“These events or conditions, along with other matters---indicate that a material uncertainty exists that may cast significant doubt on the EAPC’s ability to continue as a going concern,” says Mr Ouko to shareholders.

But the board says that it has restructured its bank loans to reduce the strain on cash flow and is at tail end of realising the proceeds of balance sheet restructuring. It’s also keen on disposing part of its land.

“The company is in consultation with and awaiting requisite approvals from the national Government for the sale of a portion of its fully mined and idle land to raise funds to refinance the company,” says the board.