ARM Cement plunges into the red with Sh2.9bn full-year loss

ARM Cement has plunged into the red, posting a full-year net loss of Sh2.9 billion for the 12 months to December weighed by expensive short-term loans.

The NSE-listed cement maker’s performance represented a sharp decline of 294 per cent from the Sh1.49 billion net profit reported during a similar period the previous year.

ARM, which on Friday announced a Sh14 billion equity injection from UK-based financier CDC, took a Sh2.3 billion financing expense hit during the period, dragging the firm into loss-making territory.

“Profit before tax and unrealised gains stood at Sh178 million after finance costs of Sh2.3 billion,” the company said.

The cement-maker’s current liabilities, most of which are made up of short-term loans taken to finance expansion, grew by 15.8 per cent to close the year at Sh20.3 billion.

The firm’s financials, which were scanty on details of expenses incurred during the period under review, show that long-term liabilities increased by nearly Sh5 billion to Sh14.8 billion.

ARM’s debt issues are complicated further as the weakening of the shilling and the firm’s deferment of interest payments on its loans has seen the liabilities bloat considerably from their original amounts.

“The sharp depreciation of the Kenyan and Tanzanian currencies in the second half of 2015 resulted in the unrealised exchange loss of Sh3.7 billion from our dollar-dominated borrowings,”

ARM in 2014 took bank overdrafts running into billions of shillings to complete its new clinker plant in Tanzania, loans which have continued to put pressure on its cash flow even forcing it to postpone plans to build a new plant in Kitui.

READ: British financier acquires 40pc ARM Cement stake

ARM initiated a capital-raising drive last year seeking funds to pay off the crippling debt and which culminated in last week’s capital injection by CDC with a majority of the funds (Sh11.1 billion) going towards settling the loans.

ARM’s revenues to December grew seven per cent to Sh31.12 billion, with the last three months of the year contributing just Sh3 billion to this amount, short of projections by analysts at Standard Investment Bank (SIB).

“Guided by strong quarter three performance we were optimistic quarter four would deliver positive growth. This was not the case as revenue declined 25.5 per cent quarter on quarter,” SIB analysts said in a note to investors.

SIB also highlighted continued weakness in ARM core business, as cement sales as a percentage of group sales slumped to 76 per cent, which is a four-year low for the Kenyan firm.

The analysts noted that while the entry of the well-funded CDC iGroup will boost the cement maker’s international competitiveness, it is likely that the “more structured owner will dampen ARM’s entrepreneurial spirit.”