Leading cement makers have blamed the reduction in their net earnings in the first half of the year on a spike in interest rates during the second half of last year.
The firms, in their financial performance reports, said the rise in lending rates after Treasury Bills rose as much as 22 per cent, hurt demand for cement and increased their interest expenses, eating into their profits as a result.
Bamburi Cement, the giant firm controlled by France’s Lafarge Group, said “higher level of interest rates” slowed construction activity mainly in the individual home builder segment. This flattened its sales, which dropped by a marginal 1.08 per cent to Sh19.11 billion, while net earnings over the period dropped 5.8 per cent to Sh2.90 billion from Sh3.08 billion in the same period last year.
“This slight decrease, felt in the first quarter of 2016, was due to slowed construction activity, mainly in the individual home builder segment in Kenya, which was affected by the higher level of interest rates experienced in the last half of 2015, together with the slight reduction in exports to inland African markets,” managing director Bruno Pescheux said in a statement.
Real estate sector posted the largest growth in bad debt during the first quarter, the Central Bank said in quarterly economic review report on July 3. Non-performing loans in the sector surged 42.3 per cent quarter-on-quarter to Sh19.78 billion due to a slowdown in demand for finished units.
During the quarter, growth in the construction sector slowed to 9.9 per cent from 12.6 per cent the year before, the Kenya National Bureau of Statistics said in its quarterly report on June 30.
“The deceleration in the growth of this sector was reflected in the production and consumption of cement whose growth slowed to 5.2 per cent and 8.3 per cent during the quarter compared to expansions of 11.0 per cent and 17 per cent, respectively, over similar period,” KNBS said.
Third-largest cement maker, ARM Cement, reported a 13.26 per cent drop in revenues to Sh6.67 billion in half-year period ended June 30.
“During the period, the finance costs increased to Sh1.5 billion (from Sh627 million) due to interest costs previously capitalised in 2015 (and) now expensed post commissioning of the Tanga plant,” ARM said.