Major cement producers profit margin decline in 2016

MAJOR cement producers struggled in the market last year with declining profit after sales revenue slumped due to intense competition and lower government spending on infrastructure projects.

The producers, Tanzania Portland Cement Company (TPCC) trading as Twiga Cement and Tanga Cement Company Limited, trading as Simba Cement recorded reduced profit margins due to increased competition in market following the entry of new players who boosted installed production capacity beyond the current domestic demand.

The situation is also blamed on low government spending on infrastructure projects that would have boosted cement demand and ease pressure from overcapacity in the market. For TCCL, net profit dropped by half to 4.2bn/- in the year under review compared to 8.2bn/- in 2015, according to financial statement for the year ending 31st December 2016.

The company’s operating profit declined by 0.3 per cent to 19.8bn/-compared to 19.9bn/- of the previous year due to anticipated 198 per cent increase in depreciation resulting from the extensive capital expansion of the new integrated production line commissioned in 2016.

Profit before tax dropped to 5.7bn/- from 8.7bn/- of the prior year due to increased financing cost of the senior debt which financed the expansion of the production capacity.

For Twiga Cement, TPCC profit for the year slowed by 29 per cent to 39.8bn/- in the year under review compared to 56.2bn/- of the year before. Similarly, operating profit reached 53.8bn/-, which is below 27 per cent compared to 73.7bn/- of the preceding year due to revenue fall and assets impairment.

However, TPCC achieved similar cost of sales in 2015 due to high production efficiency, recruitment of new distributors, improved internal processes and enhanced product portfolio.

To capitalise on the growing demand for cement in Tanzania and East African region, TPCC has expanded its capacity, rehabilitated old clinker lines, improved grinding and packing facilities, internal system integration and process improvements.

The cement industry is experiencing supply excess despite strong domestic consumption with installed production capacity at 8.3 million tonnes per annum against current demand of 4.3 million tonnes per annum, by mid last year.

The local market continues to attract new investors as the local producers are struggling to retain their market share with strategies to cut on costs and improve efficiency. However the prospects in the industry are buoyed by launching of major road and railway infrastructure projects late last year and in 2017 which are expected to drive business and boost growth.