VARIOUS-TANZANIA/ARM CEMENT Kenya's ARM Cement says clinker plant will boost margins

Record ID: 141096

  • Title: VARIOUS-TANZANIA/ARM CEMENT Kenya's ARM Cement says clinker plant will boost margins
  • Date: 15th September 2015
  • Summary: PHOTO OF DOLLARS DISPLAYED OUTSIDE A FOREX BUREAU
  • Embargoed: 30th September 2015 13:00
  • Keywords:
  • Location: Kenya
  • Country: Kenya
  • Topics: General
  • Reuters ID: LVA6MUYZPGJWSE7RHMMNVL7K7UTZ
  • Aspect Ratio: 16:9
  • Story Text: Kenya's ARM Cement expects profitability to improve now that the company produces its own clinker for its east African cement plants, its managing director has said.
    ARM Cement, east Africa's second biggest producer behind Bamburi cement, posted a pretax loss of 473.5 million shillings ($4.5 million) in the first six months, which the firm blamed on unrealised foreign exchange losses associated with borrowing for its new clinker plant, a vital raw material for cement.
    Managing Director Pradeep Paunrana told Reuters a new plant to produce clinker had capacity of 1.2 million tonnes a year and was operating at about 75 percent capacity since production began in April.
    "Throughout 2013 and 2014 we were importing clinker but this has now been supplemented with clinker that is produced in Tanga, in both Kenya and Tanzania. What this essentially means is that our production cost has come down drastically because imported clinker is much more expensive, at least 70, 80 percent more expensive than what we are producing locally so, we expect an improvement in our margins both in Kenya and in Tanzania," he said in an interview, adding that ARM was also selling clinker to other companies in Tanzania, Democratic Republic of Congo, Rwanda and Burundi.
    ARM's operating margin was 13.4 percent in 2014 according to Thomson Reuters data, compared with an industry median of 15.5 percent.
    "Our total capacity now is 2.5 million tonnes of cement. Kenya is one million tonnes, Tanzania 1.5 million tonnes. We have 100,000 tonnes capacity in Kigali as well so that makes it 2.6 million tonnes. We are self sufficient in clinker for this entire capacity," said Paunrana.
    Currencies in east Africa, where infrastructure and other construction projects are pushing up demand for cement, have been weakening this year, partly as a result of a global shift away from emerging markets and into the U.S. dollar.
    Paunrana said he expected an improved financial performance in the second half of the year, citing the 9 percent rise in earnings before interest, tax, depreciation and amortisation (EBITDA) in the first half to 1.94 billion shillings.
    "Results in the first half showed an unrealised exchange loss and therefore showing a net loss but if you analyse the results further, our bid tax generation earnings before interest tax depreciation were 1.9 billion shillings, nearly 19 and a half million dollars, and profit after tax but before foreign exchange loss was nearly 8 million dollars. So the company is still very profitable on a run rate, especially now that we have more clinker production and more volume growth in the second half of the year, we expect those numbers to improve," he said.
    Paunrana said ARM now had an advantage over some rivals and are keeping their margins steady and are now becoming a lot more competitive against those who import either clinker or finished cement.
    ARM would approach the capital markets to borrow the equivalent of between $50 million and $75 million in local currency to replace some short-term debt in the future, Paunrana said, without giving details on exact timings.
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