Business Daily (Nairobi)
Washington Gikunju
10 February 2008
Cable manufacturer East African Cables (EAC) has sent home 25 of its permanent staff in an operational restructuring programme and economic effects of the current post-election crisis.
The managing director, Mr Mugo Kibati, termed the retrenchment programme as a one-off exercise and sought to assure remaining staff that the management did not have any more employee cutback plans.
"This is a one-off exercise and I have assured all the affected staff that they will be treated fairly in accordance with the terms of their contracts," says Mr Kibati.
Speculation that the East African cable manufacturing giant was in financial distress has been rife since the management revealed that it intended to lay off 8.5 per cent of its 293 permanent staff with some attributing the financial squeeze to its rapid expansion plan.
The speculation sent the Nairobi Stock Exchange quoted company's share prices tumbling from a high of Sh48 on December 5 last year to a low of Sh39.25 as at close of trading on Wednesday last week.
EAC has in recent years expanded its operations to Mozambique, Tanzania, Uganda and Rwanda.
The firm in October last year announced an increase of almost one billion shillings in its current and long-term liabilities portfolio for the comparative third quarter period ending September 30.
The firm's management attributes the rising debts to its ongoing expansion and restructuring programme but says that it was comfortably servicing all its debts and it had not requested for a rescheduling of its debts with any of its lenders.
"The increase in the level of liabilities is due to borrowings related to the expansion programme," says Mr Kibati.
"This has resulted in an increase in finance costs whose impact on cash flows we expect to be mitigated by improved business together with statutory investment related concessions."
The MD says that the company's attainment of an AA- credit rating (which is above average) from the South African based 'Global Credit Rating' Agency was proof that the cables manufacturer was in a position to finance its short and long term debt obligations.
Part of the restructuring programmes that have rendered a fraction of the Nairobi-based manufacturer's staff redundant is the appointment of exclusive distributors and the adoption of information technology systems within the Group's operations.
The company has installed a Wide Area Network (WAN) system, which is expected to ease its communication needs.
The WAN covers two locations in Nairobi and one each in Mombasa, Kampala and Dar-es-Salaam.
Mr Kibati says that the current political standoff triggered by the disputed December presidential election had affected its performance targets for January and heightened the need to implement the restructuring process "expeditiously."
The MD, however, argues that its regional expansion strategy would cushion it against any possible downturn in Kenya's economy.
The Group recorded a 68 per cent growth in turnover in the comparative third quarter period to September last year from Sh1.5 billion to Sh2.5 billion and a 27 per cent increase in profit before tax to Sh435.8 million in the same period.
Mr Kibati attributes the growth in business to its foray in regional markets and says that any likely loss of local business would be moderated by growth in its sales outside Kenya.
"The decline in the third quarter of aluminium business from the local utility was more than mitigated by robust growth in sales in Tanzania and Uganda, a clear indication that the Group's diversification strategy is beginning to bear fruits."
EAC is a major supplier of copper and aluminium wires to the local energy distribution monopoly, the Kenya Power and Lighting Company accounting for about 13 per cent of KPLC's annual supply.
Its business with KPLC has lately come under competition from Doshi and Company and other international suppliers who are said to be selling their wires at cheaper prices.
But Mr Kibati says that EAC was already used to the competition from rivals for KPLC business which accounts for only about 20 per cent of its total turnover.
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