How investors should look at Portland’s mass layoff

CREDIT| Portland Cement

East African Portland Cement (PORT) has announced a plan for a massive staff layoff and salary cuts. On Thursday last week, Portland Cement declared all of its staff redundant and said it would begin hiring afresh.

Portland says it currently has 800 employees. But it wants to operate with less than 600 employees, meaning the company wants to drop at least 25% of its current workforce. In addition to shrinking the workforce, Portland also wants to cut staff salaries. The company plans to pay its new staff 40% less than what it pays its current workers.

Generally, Portland wants to cut its operating costs and take more control of its destiny. From shrinking its workforce to cutting salaries, Portland has set out to drop a huge financial burden. According to Portland CEO Stephen Nthei, the company loses Ksh8 million daily on staff-related costs. The management looked at this staff cost and decided they must do something to prevent the company from collapsing.

Portland Cement wants to avoid the fate of ARM Cement
While cutting jobs in the Kenyan economy that is already suffering serious employment shortage isn’t a great thing, Portland’s management has had to make difficult decisions. It has been a choice between allowing the company to keep losing money until it is no more or jettisoning some loads to save the ship from capsizing.

For investors, what Portland plans to do is a big deal. Failure to control costs quickly led to the collapse of ARM Cement, which resulted in shareholders taking massive financial losses. Portland’s management looks determined not to allow the company to go ARM’s way. Cutting costs as it has set out to do should help Portland stabilise its business and create more value for shareholders. Portland has not paid it shareholders dividends for a long time because of its soaring operating costs.

Portland shares fell 0.34% on Friday to close the week at Ksh14.45. Bamburi Cement (BAMB) shares dropped 0.68% on Friday to close the week at Ksh108.75.