Cement manufacturer East African Portland Cement(EAPCC) is set to retrench more than two thirds of its staff in a restructuring plan that will cost the State-owned company about Sh2 billion.
The Nairobi Securities Exchange-listed firm, which has been ruled technically insolvent by the auditor-general, says it plans to lay off over 1,000 employees, reducing its staff count to 500.
The loss-making company has offered the government 2,000 acres of its idle land for Sh10 billion to be used to turn around its fortunes, including paying for the voluntary retirement programme.
“We are overly overstaffed with our employee numbers at over 1,500 and close to 2,000. By benchmarking with the rest of the industry we need only 500,” said Bill Lay, Portland’s chairman.
Mr Lay said staff reduction was a major priority as it was an investment with a shorter payback period with payroll savings expected to recoup the cost in two years.
Portland reported an operational loss of Sh1.6 billion for the year ended June with staff costs representing 31 per cent of its revenue at Sh2.7 billion.
The company owns more than 14,000 acres of land which has attracted the attention of the government which has plans to build industrial parks and extend the Export Processing Zone.
The government holds a 25.3 per cent stake in Portland while the National Social Security Fund has 27 per cent. LafargeHolcim, which also has a stake in Portland’s rival Bamburi Cement, owns a 41.7 per cent stake.
Machine breakdowns and operational inefficiencies have seen the company fortunes turn for the worse and its market share shrink to 11 per cent from 23 per cent three years ago.
The cement maker plans to spend Sh6 billion of the cash it raises from mortgaging its land holdings to settle outstanding debts with the balance of Sh2 billion going towards its production plant upgrade.
Portland’s current liabilities of Sh4.96 billion have grossly exceeded its current assets of Sh2.1 billion indicating that if its creditors recalled their debt the firm would not be in position to settle them.
Mr Lay disclosed the company is also looking for cash from international financiers even as it urges the government to sell some of its shareholding.
Portland’s rival Bamburi reduced its staff numbers by 71 last year following layoffs and voluntary early retirements. Bamburi, which enjoys the largest market share in the industry has 851 employees with a payroll of Sh1.9 billion.
Several other manufacturing companies have announced plans to cut jobs underlining concerns over the health of East Africa’s largest economy.
Mr Lay said the company plans to close its factory in March next year to allow it refurbish its kiln in an attempt to increase its capacity.
The factory has a capacity of 450,000 metric tonnes an year — but it produced 380,000 metric tonnes in the year to June due to breakdowns. It expects to increase capacity to 480,000 after the refurbishment.
Ernst & Young is currently conducting a forensic audit at Portland in an effort to seal operational gaps that may have been exploited by unscrupulous employees to enrich themselves.