• ARM Cement Plc

  • XNAI_ARM NAIROBI/Kenya
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ARM Cement Limited, formerly Athi River Mining Limited, but commonly referred to as ARM is a mining and manufacturing company in Kenya, the largest economy in the East African Community. The company is headquartered in Nairobi and its stock is listed on the Nairobi Stock Exchange

ARM Cement PLC is engaged in the manufacture and sale of cement, mining and processing of industrial minerals and chemicals, trading in other building products and the sale of fertilizers. The Company’s segments include Cement and lime, and Other products. The Company produces a range of industrial mineral products for use in the manufacturing industry. The Company also manufactures sodium silicate, which is used in manufacture of soaps and detergents, and as a flocculent in water treatment. The Company’s brands include RX3, RX4, RX4S, RX5, Rhinofix and Rhino Lime. The Company operates in Kenya, Tanzania and South Africa. The Company’s subsidiaries include ARM (Tanzania) Limited, which is engaged in extraction and processing of limestone; ARMSA (Pty) Limited, which is engaged in the manufacture of silicate liquid; Mavuno Fertilizer Limited, which is engaged in the manufacture of fertilizer, and Maweni Limestone Limited, which is engaged in the manufacture of cement.

Chairman’s Statement

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Dear Shareholders,
I present to you my report for the Financial Year ended 31st December 2017.
Background
As you are aware ARM Cement PLC was founded in 1973. It started as a mineral mining company, which processed the minerals it mined into value added products. The Company, over the years increased the degree of value addition to the minerals it mined and finally started a cement- manufacturing unit in 1996. Cement manufacturing is a capital extensive
business and to support the expansion into the cement business the company went public and listed its shares on the Nairobi Stock Exchange in 1997.
The Company saw a rapid growth in its cement production capacity in the period 2005 – 2015, during which period,the
Company expanded its cement manufacturing capacity nearly 10 fold The Company built five new state of the art modern
technology cement plants in the region. The Company also diversified its operations with cement plants in Tanzania and
Rwanda and the acquisition of Mafeking Cement Company in South Africa.
The rapid growth was driven by the increased cement demand throughout the region. The entire East African region’s
cement demand had tripled since the year 2000 and was growing at an average growth rate of 14% per annum. During
those years, ARM not only set up new cement capacity to meet the increased local demand from housing and infrastructure,
but also built the largest clinker capacity in the region to reduce the region’s dependence on imported clinker. Currently,
40% of the region’s clinker requirement is met through imports.
The investment into the growth of capacity was funded through dollar-based debt instruments. In the middle of 2015,
the economy saw some major macroeconomic changes. There was a sharp depreciation in both the Kenyan and Tanzanian
currencies. Interest rates doubled and the liquidity in the markets reduced significantly. This impacted negatively on the
cash flow of the Company. The economic climate was further weakened by the developments in the banking sector in
Kenya in 2016 and the power situation in Tanzania. As these issues were resolved at the end of 2016, and the Company’s
Balance sheet was strengthened by CDC’s investment of one hundred and forty million USD in September 2016.

Economic & Business Review
The year 2017 was challenging for the Group owing to several factors. Demand for cement in Kenya was subdued, largely
due to the elections. The first elections were held in August 2017 and the Presidential repeat in November 2017 which
had tremendous impact on demand, especially in the second half of the year. The liquidity in the Kenyan market was tight
and the excess capacity in the market resulted in price pressures with every manufacturer embarking on price reduction
strategy to maintain volumes. The construction sector in Kenya declined and the overall demand for cement dropped by
about 7.8%.
The Tanzanian cement industry was also operating in a very challenging environment. The Tanzania government banned
coal imports and this led to significant impact on production at the Tanga clinker plant. Production of coal in Tanzania is
located in Songea, about 1400 kilometers away from the Tanga Clinker plant and logistics planning was a major challenge
for the Company. In addition, new cement players started operations in Southern Tanzania who increased capacity and
the overall cement supply was significantly higher than demand. In such a competitive market, some of the manufacturers
used a price reduction strategy in an attempt to maintain or increase sales and this resulted in cement prices falling by
more than 30% in Tanzania. The net impact was that the Group performance was impacted by coal in terms of capacity
utilization and price in terms of profitability. The Group continued to operate in selected market segments to ensure
market presence and market stability.
Sale of Non-Cement Business
In 2016, a strategic review was carried out and Board decided to sell the entire Non Cement Businesses of ARM in order
to focus on and grow the cement business.
On 7 September 2017, the Company announced that an agreement had been executed with Omya and PHL Mauritius,
subject to shareholders’ approval and approvals by CMA and the Competition Authority of Kenya, to sell a 100 per cent
of the issued share capital of Mavuno to Omya and PHL Mauritius after completion of the transfer of ARM’s industrial
minerals, fertilisers business, mining business and silicates business to Mavuno Fertilizers Limited and its subsidiaries for sixteen million USD. On 22nd January 2018 an EGM was held where this
transaction was approved by you. We expect this transaction to be completed in the third quarter of 2018. The expected
proceeds from this transaction will be applied towards repayment of outstanding debt of the Company.
Changes in the Board
The Board is in the process of being strengthened to bring in more financial and turnaround expertise .Accordingly
CDC nominated Ms Sofia Bianchi and Mr Rohit Anand, who bring in substantial experience in turnaround situations and
financial restructuring in emerging markets. In addition, Mr Konstantin Makarov was appointed to bring on board his
experience in Merger and Acquisitions.
Outlook 2018
The Kenyan cement market is expected to grow driven by the evidenced stability of the Government and investment in
infrastructure and housing. The power supply in Kenya has been stable and volumes as well as prices have stabilized on
the back of growing markets.
The Group has engaged with the Tanzania Government and other stake holders to resolve the coal situation so as to
improve availability. The Coal production at the existing mine and the supply position has improved. In the meanwhile,
the prices have firmed up and stabilized and demand has started growing driven mainly by the investments in the
infrastructure segment and the construction of the new SGR. The Group has started supplying clinker to several cement
manufacturers in Tanzania, Kenya, Rwanda, Burundi and DRC. The Group hopes to significantly improve the capacity
utilization in Tanzania this year.
The Directors have embarked on a financial restructuring plan of the Group which includes equity injection and replacement
of the expensive short-term loans with long-term loan facilities.
Environment, Safety and Governance
ARM continues to improve standards in areas such as energy efficiency, health and safety and its engagement with local
communities, in particular, supporting the Groups’ excellent provision of health, education and environmental services to
local communities through the Rhino Cement Foundation.
Ethical Business and Anti Corruption Policy
The Board and the Group are committed to observing the best practices .The ethics policy is based on 4 pillars which are
as under
1. Conducting business in an honest and ethical manner.
2. Zero tolerance to bribery and corruption
3. Acting fairly and with Integrity in all our business dealings
4. Enforcing effective systems to counter bribery.
The Group is also undertaking a policy review to ensure that all practices are fully aligned with international best practise
and the revised governance and ethics policy statement will be signed by employees at all levels. The Group has also
started identifying areas which could create potential risks and has developed mechanisms to address these risks. The
Group will undertake training programs to effectively implement the ethics policy throughout the company and to with
all our business partners. The Group has also developed a ‘straight information’ policy which will allows staff to directly
communicate confidentially to the Board and/or the MD, on non-compliance with the Ethics policy.
Shareholder Value and Share Performance
The Board is focused on the debt restructure and working with the DFI who has offered us the long term package. This
will allow the Company to increase the tenure and reduce the cost of finance. The long term facility will provide the
optimum capital structure to strengthen the operations and come back to profitability.

I take this opportunity to thank management and all our employees for their perseverance and efforts during the difficult
operating conditions and their unwavering commitment to the vision of the Group.
I also acknowledge the guidance and support of my Boards in Kenya and in Tanzania for their wise counsel remains to
your Group’s progress.
Sincerely,
Eng. Wilfred Murungi

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Website

www.armcement.com

Address

9th Floor, The Westwood, Ring Road, Westlands

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KEY STOCK DATA

  • Profits (TTM)
  • $-72.64M
  • P/E Ratio
  • -0.81
  • Return on Equity
  • -31.47%
  • Dividend Yield
  • 0.00%

VALUATION

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FINANCIAL ANALYSIS
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20 December 2021