ARM in profit warning, cites coal ban
Tuesday March 20 2018
ARM’s cement plant in Tanga, Tanzania. The cement manufacturer has put out a profit warning, indicating that full-year results for 2017 will be at least 25 per cent lower than the earnings it realised in 2016. FILE PHOTO | NATION
Regional cement manufacturer ARM last week put out a profit warning, indicating that full-year results for the period ending December 31, 2017 will be at least 25 per cent lower than the earnings it realised in 2016.
In 2016, the company posted a net loss of $27.4 million, so the profit warning is a signal to shareholders to brace for bigger losses.
Its share price on the Nairobi Securities Exchange has plummeted from a high of Ksh91 ($0.91) in 2014 to Ksh10.30 ($0.1) and its market capitalisation has fallen from $368 million to $103 million — a 72 per cent drop.
ARM management blames its woes on external factors, including the ban on coal imports from Tanzania and Kenya’s long electioneering last year.
“The group’s performance has been adversely affected by difficult market conditions and import ban for coal in Tanzania,” the company in a statement this week. It also cited a strain on its working capital as a factor in the projected performance plunge.
Internal decisions
Willis Nalwenge, senior research analyst at AIB Capital, says that ARM’s problems could be traced to some internal decisions by the management, such as taking out short-term loans to finance long-term projects.
“This put pressure on the company’s financial position when the loans matured,” he said.
The company opted for short-term bank loans and commercial paper to finance a $225.7 million 1.5 million-tonne cement plant and 1.2 million-tonne per annum clinker plant in Tanga, Tanzania.
ARM Cement also expanded its capacity in Kenya from 750 million tonnes to one million tonnes annually and entered Rwanda by acquiring a controlling stake in Kigali Cement, which has an annual capacity of 100,000 tonnes.
By 2015, ARM Cement owed banks $92.2 million, with Africa Finance Corporation and Stanbic Bank Kenya claiming $53.9 million and $30.4 million respectively.
The company then issued a $245.4 million bond to restructure its debt. This move, however, did not resolve its debt predicament, forcing it to turn to equity investors.
In 2016, UK sovereign wealth fund CDC Group injected $140 million into its books for a 40.6 per cent equity stake. Although the company used part of the money to repay some of the short-term loans and reduce its commercial paper obligations, it also needed working capital.