ARM to spin off non cement arm as profit rises 328pc

Cement maker Athi River Mining has announced a four-fold growth in net profit for the nine months to September as the firm prepares to spin off non-cement business.

The firm said its net profit stood at Sh826 million compared to Sh192 million in the same period last year, helped by a foreign exchange gain of Sh42 million compared to a loss of Sh681 million last year on its dollar dominated borrowing.

The company plans to spin off its non-cement business which is dominated by fertiliser production with the possibility of listing it as a separate entity. ARM’s deputy managing director Surendra Bhatia attributed the growth in profit to forex gains on its dollar-denominated cash reserves and revenues from other markets within East Africa which is booked in dollars.

“The stable exchange rate has reversed the unrealised forex losses that we had provisioned for in the last financial year, and even earned an exchange gain,” said Mr Bhatia.

“The non-cement business has consistently taken the back burner, but we now want a different approach involving a joint venture with an established global player.”
The shilling has gained by about a third against the dollar since last year to the current Sh85-range, which has helped ARM cut provisions on its dollar loan. ARM has been using dollar-denominated loans to fund the construction of new cement plants in the region. The firm did not declare a dividend, but its share has risen 55 per cent in the past year to the current price of Sh235, outperforming the market and rivals Bamburi (9.68 per cent) and Portland cement (20 per cent drop).
Earlier, ARM said that it was holding talks with private equity companies on providing $20-$25 million for a 30 to 50 per cent stake in the fertiliser subsidiary, which would then be listed in three to five years. The money was to be used to build a new fertiliser plant.

Strategic investor
Mr Bhatia said that the firm was keen on bringing on board a strategic investor. “The businesses are intricately related and dependent, therefore it would not be in the benefit of the company to have independent management,” said Mr Bhatia.
Focus on the cement business is informed by the lucrative opportunities presented through growing demand across East Africa as the region raises spending on infrastructure.
This helped increase sales of ARM 29 per cent to Sh7.74 billion in the nine months to September. ARM has commissioned a new cement plant with an annual capacity of 750,000mt in Dar es Salaam. Last month, the firm received a $50-million (Sh4.2 billion) loan from Africa Finance Corporation (AFC) to rump up production.
AFC will own an equivalent of 13.6 per cent of ARM in the event it exercises the right to convert the debt to equity.
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