ARM uses pricing to secure 16 p.c profit increase

Athi River Mining announced a 16 per cent rise in net profits on increased cement sales, signalling that the firm is building market share over its rivals who have reported reduced sales.

The firm — which also deals in fertilizer, sodium silicate and lime — said its net profit grew to Sh347.9 million in the six months to June, compared to Sh300.2 million in the same period a year earlier.

This came days after its rival Bamburi Cement announced a 23 per cent drop in profits for the same period, blaming it on a market share plunge that cut its sales to Sh13 billion from Sh16.2 billion.

East Africa Portland Cement (EAPCC) is yet to announce its results, but its board reported below target sales for this year that culminated in the resignation of its CEO in July.

ARM grew its revenues 19 per cent to Sh2.8 billion in the half, attributing growth to a 20 per cent increase from its cement business — which accounts for 53 per cent of the turnover.

Financial analysts reckon that ARM’s pricing advantage has made it grow market-share at the expense of its rivals. “ARM is turning out to be a big player gaining significant market share from rivals,” said Mr Robert Bunyi, an analyst at Mavuno Capital.

ARM’s board did not propose an interim dividend as its share price stood at Sh168 at the close of trading on Monday, compared to Sh167 on Friday.

Pricing has emerged as a weapon for market share in the cement sector due to increased cement stocks in the market.

Fresh capacity from new entrants and production enhancement by existing players has set the stage for bruising turf wars.

Price of cement

As a result, the price of cement has dropped to Sh700 for a 50 kilo bag compared to Sh780 in the same half last year.

The new entrants include CATIC of China, Mombasa Cement, and Devji Steel Limited who are challenging the dominance of EAPCC, Bamburi and ARM.

The cut-throat competition saw Bamburi lose market share as EAPCC pushed 826,000 tonnes compared to a target of 1.3 million tonnes.

The East Africa Cement Association — the cement producers’ lobby — estimates the surplus in the market will grow to 2.4 million tonnes in 2012 from the current 200,000 tonnes.

Managing Director Hussein Mansi attributed the reduced profits to lower turnover and increased production costs, led by expensive electricity, when announcing the firm’s result last Thursday.