Displaying items by tag: ARM Cement
Losses mount at ARM Cement in 2017
04 June 2018Kenya: ARM Cement’s net loss more than doubled to US$55m in 2017 due to poor demand in Kenya and Tanzania. Its sales fell by 32% year-on-year to US$85m from US$127m. Elections in Kenya reduced cement demand, a coal import ban in Tanzania caused production issues at its Tanga cement plant and both countries saw increased competition.
“2017 was the most challenging for the group since the company’s listing on the Nairobi Securities Exchange in 1997. Whilst the management has navigated many business difficulties well in the past, raised capital for expansion, increased net profits and market capitalisation continuously over a 14 year period up to 2015, the challenges of the past year have been unprecedented,” the company said in a statement.
The cement producer says it is undergoing a ‘significant’ review of its current operations, asset base and financing structure to address its problems. It has also been cutting staff benefits as part of its plan to save money.
UK-government investor CDC Group, which holds a 41% stake in the company, has also replaced its board members Ketso Gordhan and Pepe Meijer with Sofia Bianchi and Rohit Anand.
ARM Cement cuts staff benefits to save money
23 May 2018Kenya: ARM Cement has cut its staff pension plan and medical insurance scheme due to cash flow problems. The staff schemes have been suspended from the end of June 2018 until further notice, according to the Business Daily newspaper. The suspension of the two benefits follows erratic salary payments and failure to pay pension contributions since June 2017. The cement producer has attempted to raise funds from asset sales and find a strategic investor. Its executive director Rick Ashley resigned in early May 2018 citing personal reasons.
New plants coming to Kenya
21 November 2017Kenya: The founder of Devki Group, Narendra Raval, plans to invest in the construction of a 0.75Mt/yr cement plant in Mariakani, Kilifi County, in direct competition with ARM Cement’s facility in the county. The project, which represents a US$290m investment, will be built on a 20 hectare site. “Construction of a new cement plant will further bring down prices while reducing the long distances lorries must cover to deliver cement to Kenyans on their doorstep,” said Raval, according to Business Daily Africa.
In separate news, Global Choice has concluded plans to build a grinding plant in Athi River, Machakos County. The US$48m facility has a capacity of 1Mt/yr.
Update on Kenya – September 2017
06 September 2017ARM Cement’s declining fortunes this week may signal the end of the current growth cycle in the Kenyan cement industry. The cement producer posted a 20% year-on-year drop in its sales revenue to US$52m for the first half of 2017. Its financial returns have been turbulent since 2015. However, inward investment from the UK’s CDC Group in 2016 had appeared to help the company enabling it to pay of debts and even consider an upgrade project to the grinding capacity at its Athi River plant.
Graph 1: Cement production in Kenya for first half of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.
Graph 2: Cement consumption in Kenya for first five months of year, 2013 - 2017. Source: Kenya National Bureau of Statistics.
Unfortunately it now appears that the Kenyan cement market may have peaked in 2016. As can be seen from Kenya National Bureau of Statistics figures in Graph 1 and 2, production hit a high of 3.31Mt in the first half of 2016 and it has fallen to 3.18Mt for the same period in 2017. Consumption too has fallen, to 2.5Mt for the first five months of 2017. At the same time the value of building plans approved by the Nairobi City Council dropped by 12% to US$1.02bn for the first five months of 2017 with falls in both residential and non-residential applications although the decline in residential was more pronounced. One of the country’s larger infrastructure projects, the Standard Gauge Railway from Mombasa to Nairobi entered its final stage of construction towards the end of 2016 with the completion of track laying.
Bamburi Cement has also reported falling revenue and profit so far in 2017. Its turnover fell by 8% to US$170 and its profit decreased by 36% to US$18m for the half year. Bamburi blamed it on a contracting market, low private sector investment leading to residential sector issues, delays in some infrastructure projects and droughts. The drought also hit the company’s operating profit via higher energy costs. On the plus side though Bamburi’s subsidiary in neighbouring Uganda did record a good performance.
It’s likely that the general election in Kenya in early August 2017 has slowed down the construction industry through uncertainty about infrastructure investment and general fears about political unrest. Thankfully these latter concerns have appeared unfounded so far but the memory of the disorder following the poll in 2007, where over 1000 people died, remains acute. And of course the 2017 election is not over yet following the intervention of the Supreme Court to nullify the result of the first ballot and call for a second. A longer election period with the impending rerun will further add to the pressure on the construction and cement industries.
An industry report on East Africa in February 2017 by the Dyer & Blair Investment Bank fleshes out much of the situation in the region. One particular point it makes though is that, as it stands at present, building materials may be too expensive to grow the market fully. Dyer & Blair suggest that lower construction costs and more affordable home ownership methods might be the key to driving low end housing demands and in turn this might grow cement consumption.
With lots of new production capacity coming online both locally and in neighbouring countries such as Uganda and Ethiopia, the Kenyan cement market faces the dilemma of trying to balance the medium to long-term demographics with the picture on the ground. Low per capita cement consumption suggests growing markets but if the demand isn’t present in the short term then the impetus for cement producers to expand shrivels especially with aggressive imports, rising energy costs and growing local competition. Once the election period finishes the picture will be clearer but the boom times may have abated for now.
ARM Cement revenue down by 20% to US$52m in first half of 2017
05 September 2017Kenya: ARM Cement’s revenue fell by 20% year-on-year to US$52m in the first half of 2017 from US$65m in the same period in 2016. Its loss for the period grew to US$14m from US$2.6m. Cement production dropped by 3.93% to 3.18Mt in the half year of 2017 according to data from the Kenya National Bureau of Statistics reported by the Kenyan Star newspaper. Cement consumption also fell during the first five months of the year, by 2.34% to 2.5Mt.
ARM Cement to increase grinding capacity in Kenya by early 2018
24 February 2017Kenya: ARM Cement plans to increase its grinding capacity by 50% at its 1Mt/yr cement plant at Athi River. Pradeep Paunrana, the managing director of ARM Cement, made the comments in an interview reported on by Reuters. The new grinding capacity will use clinker from the company’s plant at Tanga in Tanzania. The upgrade plans follow an equity deal in late 2016 with the CDC Group to secure US$140m in funding. However, most of this money has been used to pay off debts.
Paunrana noted that cement demand in the East African region is expected to rise at 8 – 10%/yr. The cement producer is preparing to build a new cement plant at Kitui in Kenya but it wants to increase its capacity utilisation rate from its plant in Tanzania first.
ARM Cement secures US$140m from CDC Group
07 October 2016Kenya: ARM Cement has completed an equity deal to secure US$140m in funding from CDC Group. The investment is believed to be the largest equity deal in Kenya and East Africa in 2016, and one of the largest equity deals in Kenya to date. The cement producer intends to use the investment to build a new cement plant in Kitui County.
“This deal is indicative of the increased infrastructure development in the East African region. The demand for quality and sustainably produced cement has never been higher, and this deal capacitates ARM to meet this demand head-on. The deal is good news as it is expected to create jobs due to increased production and opportunities all along the supply chain,” said Paras Shah, a partner with Bowmans Kenya, the firm that advised ARM on the legal aspects of the transaction.
ARM Cement appoints three new board members
28 September 2016Kenya: ARM Cement has appointed John Ngumi, Pepe Meijer and Ketso Gordhan as non-executive directors of the company. They replace Atul Mathur, Michael Turner and Daniel Ndonye, who have resigned as directors following an extraordinary general meeting of shareholders held on 26 August 2016.
John Ngumi holds a BA degree in Philosophy, Politics and Economics from the University of Oxford, UK. He started his banking career at National Westminster Bank, London and has since worked variously for Grindlays Bank, Barclays Bank, Citibank and CfC Stanbic Bank/Standard Bank of South Africa. In between he also co-founded one of Africa's first indigenous investment banking groups, Loita Capital Partners. Ngumi left CfC Stanbic Bank in 2015 upon his appointment by President Uhuru Kenyatta as non executive chair of the Board of Directors, Kenya Pipeline Company Limited.
Pepe Meijer is a Commonwealth Development Corporation (CDC) Advisor and former Managing director for PPC International up-to November 2015. During his PPC tenure Meijer also held various Executive, General, Senior and Middle management positions across PPC’s cement operations that spanned over 28 years. Prior to joining PPC, he worked in the gold mining industry as section engineer and in the fishing/processing /frozen-food industry as group projects manager.
Ketso Gordhan joined CDC in April 2016 as the Head of Africa. He previously spent several years as Chief Executive Officer of PPC Cement, South Africa’s largest cement company. At PPC, Gordhan led the expansion of the company into sub-Saharan Africa, helping build the footprint outside South Africa into Democratic Republic of the Congo, Rwanda, Ethiopia and Zimbabwe. Before PPC, Gordhan spent almost 10 years leading RMB’s private equity business. He has also held a number of public sector roles, including City Manager of Johannesburg and Director General of the Ministry of Transport, where he led major infrastructure projects, such as the South Africa’s N4 Toll Road.
Update on Kenya
14 September 2016Tensions have boiled over regarding imports of cement to Kenya in recent weeks as different importers have received opprobrium in the local press. Last week Dangote Cement was attacked for importing cheap cement into the country from Ethiopia, allegedly off the back of a cheap electricity deal. This week, Chinese imports have been in the firing line, following data reportedly seen by the Business Daily newspaper that showed that the value of Chinese cement imports rose tenfold year-on-year in the first half of 2016.
At the heart of these rows lies a strong demand for cement: Kenya had a cement production utilisation rate of 90% in 2015 according to Kenya National Bureau of Statistics (KNBS) data. It produced 6.35Mt in that year and used 5.71Mt for consumption and stocks. Its utilisation rate has been rising steadily since 2012. It was 93% for the first six months of 2016.
Unfortunately for the local producers this kind of demand attracts competition from within and without. Nigeria’s Dangote Cement is planning to build a 3Mt/yr plant at Kitui and Cemtech Kenya, a subsidiary of India’s Sanghi Group, is planning to build a 1.2Mt/yr plant at Pakot.
Local producer ARM Cement reported both falling turnover and a loss for the first half of 2016. It blamed this on increased competition in Tanzania. However, in 2015 it increased its turnover in Kenya by importing clinker over the border from its new Tanga plant in Tanzania. It also noted a ‘competitive landscape’ in Kenya and lamented the effects of currency devaluation on its financies as a whole. East African Portland Cement had a tougher time of it for its half-year that ended on 31 December 2015, issuing a profit warning of a loss and expected reduced profits despite a rise of 12% in sales revenue. By contrast, Bamburi Cement, LafargeHolcim’s subsidiary, reported both increases in revenue and operating profit in 2015. Although it too noted problems with interest rates and currency depreciation in the country during this period.
The focus on Chinese imports follows Chinese contractors winning some of the biggest infrastructure projects in the country. The China Rail & Bridge Corporation (CRBC), for example, is building a railway between Mombasa and Nairobi. The Business Daily newspaper has found data showing that Chinese cement imports worth US$19.8m to Kenya in the first half of 2016 compared to US$1.99m in the same period of 2015. The background to this is that China has more than doubled the value of all of its imports to Kenya since 2011 according to the KNBS. Total import volumes of clinker from all foreign countries increased by 51% in 2015 from 1.31Mt in 2014, the largest increase in at least five years.
If local cement producers are being locked out of supplying these kind of deals no wonder they are getting angry. However, another angle on what’s happening here might be that local producers who are suffering from increased competition, falling prices and a precarious national financial situation are lashing out at the easiest target. The local press doesn’t appear to have criticised ARM Cement for moving its Tanzanian clinker north of the border for example. Likewise, a Bamburi Cement spokesperson previously said that the producer had supplied 300,000t of cement to the rail project since September 2014, earning it nearly US$10m. Kenya needs cement as it builds its infrastructure. Fortunes will be made and tempers will be lost as it does so.
ARM Cement seeks US$138m investment from CDC Group
26 August 2016Kenya: ARM Cement intends to use US$138m investment from the UK government-owned fund CDC Group to finance the construction of a new cement plant in Kitui County. The cement producer is Chief executive Pradeep Paunrana said that more details on the proposed 2.5Mt/yr plant would be released after shareholders’ approval of the development finance institution’s proposed investment in return for a 40.66% stake in the cement manufacturer, according to the Daily Nation newspaper. The project is planned to be completed by 2021. Nigerian company Dangote Cement is also building a cement plant in the same area.