Business
Now Japan-backed Mombasa Cement rocks local industry
As much as one-off gains boosted profits last year, investors are now likely to turn the spotlight on the quality of Bamburi’s core earnings. Photo/FILE
Posted Monday, March 8 2010 at 00:00
Mombasa Cement, an upstart in the Kenyan cement industry, has muddied the waters in what used to be a cosy co-existence with market giant Bamburi through its aggressive growth strategies.
Bamburi, a subsidiary of France Lafarge — which owns Hima Cement in Uganda — has long controlled over 50 per cent of the market.
With its 14 per cent shareholding in rival Athi River Mining and 41 per cent in East African Portland Cement, Lafarge has been the only game in town.
Faced with a market controlled by few producers on its entry into Kenya last year, Mombasa Cement, which is producing with the help of Taiheiyo Cement Corporation — the largest cement producer in Japan — waged a price war and capitalised on Bamburi’s shifting strategy to adapt to economic recession to build its market share.
It did not help that the economic recession forced consumers to be price conscious.
Bamburi cut costs aggressively and even disposed of its 10 per cent stake in the Athi River Mining on the Nairobi Stock Exchange for $15.5 million in October 2009 to a consortium of foreign investors.
This saw Bamburi post a 96 per cent surge in pretax profits in 2009 to $132 million.
“The group returned strong financial results mainly due to cost containment measures together with a major one-off divestment gain,” Bamburi said in a statement accompanying the results.
As much as one-off gains boosted profits last year, investors are now likely to turn the spotlight on the quality of Bamburi’s core earnings — without the extraordinary events — which define the ability of a business to maintain its momentum.
The year ahead looks tough with competitors focusing on price and value added services.
For instance, in the past Bamburi would deliver cement to customers but it does not do so any more.
Mombasa Cement took up this “weakness” and now delivers to customers while charging less per bag.
While Bamburi is selling the cement for about Ksh700 ($9.33) per bag, Mombasa is offering the same, under its Nyumba brand, for about Ksh690 ($9.20).
“We were losing by transporting to customers; people can come and pick up their own products at much better rates,” said Hussein Mansi, managing director of Bamburi Cement.
Mombasa Cement said distributors have to pick the goods from their factories but their entry advantage has been on the pricing.
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