notes to the financial statements for the year ... - Investing In Africa

CHAIRMAN’S STATEMENTEast African Portland Cement Co. Ltd Annual Report and Financial Statements FY 2008/20096Mark K ole KarboloCHAIRMANDear ShareholderIt is my great pleasure to welcome you to the 77th AnnualGeneral Meeting of the East African Portland CementCompany Limited.I wish to thank you all for your continued interest and alsoexpress my gratitude to the many new shareholders whodecided to invest in our Company during the past year.It was a momentous period that saw the Company improveits performance while continuing to invest in our staff,technology as well as contributing to the numerous activitiesin the communities we operate in.Cement Sector ReviewAs government gears towards achieving Vision 2030,the country will see further growth in cement demand.The planned public sector infrastructure spend, whichincludes long-term investments in electricity generation anddistribution capacity, airports, ports and rail infrastructures,water schemes, roads and telecommunications projectsbodes well for the construction industry over the next threeto fi ve years.The excess cement demand in the East African region hastriggered capacity expansion projects and entry of newplayers. As a result of improved governance, internationalorganizations are also funding many new projects. Howevernew entrants are setting up grinding capacity rather thanclinker capacity. Regional demand from neighbouringcountries, e.g. Sudan, DRC and Uganda, is expected tocontinue. Hence new capacity installation in Kenya willresult in pricing pressures while higher exports to otherregional markets are expected to provide a safety margin tomitigate this.The Kenyan market profi le is expected to realign followingentry of other companies with investments in capacity andcost effi ciency, making it more competitive. Our Companyis currently the second largest producer of cement in theKenyan market and with the expansion programme nowunder way, we will maintain this position in the coming years.However, we face greater challenges in an adverse tradingenvironment of maintaining competitiveness in the face ofincreasing costs of production. To this end, EAPCC will focuson technology, value adding business models, alternative fuelsand research to boost competitiveness.Commitment to Growth and TransformationEAPCC remains committed to creating value for itsshareholders and employees, at the same time creating moreemployment opportunities, caring for the environment andsupporting community upliftment projects as a priority.Growth Through ExpansionThe Company commissioned a new state of the art closedcircuit mill in June this year. The increased grinding annualcapacity of 1.3 million metric tons of cement has enabledEAPCC to double its current production capacity and meetboth local and export demand as it capitalizes on the boom inthe construction industry. We believe the expanded capacitywill help the Company address the problem of cementshortage while strongly positioning us in the increasinglycompetitive regional market.Growth ProspectsThe past year has seen strong growth in the constructionsector with cement volumes growing ahead of expectations.Going forward, we are relentlessly and continually searchingfor better ways to improve in order to grow more effi cientlyand profi tably. Our growth strategy will involve growingexisting markets, expanding and deepening cement shareof the construction industry and taking advantage ofopportunities across the value chain.Financial Performance 2008/09The year under review saw operating profi t increase by18% over the previous period. Internally, we focused ourenergies on minimizing our production costs, maximizing ouroperation effi ciency, streamlining our procurement processesand initiating a wide range of cost saving measures. Thesecoupled with a stringent fi nancial discipline saw us registerimpressive results during the year with a profi t beforeforeign currency exchange and taxation of the Kshs. 2.8bcompared to Kshs. 1.13b the previous year. This was wellwithin our performance target signed with the Governmentand in excess of the Company’s fi nancial estimates. Pleasetherefore join me in congratulating the management for thisachievement.Our effort and desire is to invest in all areas of our business,our people, our plant and our product. Therefore, in thisperiod substantial investments were undertaken and othersinitiated toward building a sustainable basis for futureoperations for the Company. I am confi dent that we willcontinue to translate these efforts into sustainable value foryou. Revaluation of Company assets was carried out duringthe year and certain leasehold properties were reclassifi edas Investment Properties, commissioned cement Mill 5 wascommissioned and work on the coal grinding plant installationis ongoing thereby increasing assets by Kshs. 2.5b (39%)compared with prior year.