Companies

ARM Cement issues profit warning

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ARM CEMENT CEO PRADEEP PAUNRANA. FILE PHOTO | NMG

ARM Cement #ticker:ARM is now the latest firm to issue a profit warning for the 2017 financial year, meaning that the NSE-listed company will post a loss of at least Sh3.5 billion.

According to a notice sent Monday, the cement maker anticipates that its last year’s earnings will sink further into the red by at least 25 per cent.

“The Group’s performance has been adversely affected by difficult market conditions and import ban for coal in Tanzania, by the prolonged and disruptive election period in Kenya, as well as a strain on the Group’s working capital. The Board of Directors also anticipates negative year-end provisions for contingencies and impairments of inventories and assets,” said the statement in part.

In 2016, the company posted a 2.8 billion loss, continuing a trend that saw its profits sharply decline by 294 per cent in 2015 when it recorded Sh2.89 billion loss.

Other firms that have issued profit warnings for 2017 include TransCentury #ticker:ICDC, Britam #ticker:BRIT, Mumias Sugar #ticker:BRIT and Unga Group #ticker:UNGA.

Kenya in January lowered its economic growth outlook - from 5.1 per cent to 4.38 per cent - citing drought and politics.

Failure of operations

ARM, which manufactures the Rhino brand of cement, is suffocating under the failure of several of its businesses, combined with a slow construction industry.

The company’s troubles can be traced to its decision to finance its Tanzania expansion through debt, only to meet huge operational challenges in the new market.

To further cut operating costs and bounce back to profitability, ARM announced termination of contracts for employees working at its non-cement processing subsidiaries, which it is in the process of selling for Sh1.6 billion.

The company says the staff will be offered new jobs by buyers of the business units; Swiss industrial firm Omya and Pinner Heights Kenya, an investment vehicle owned by the family of ARM’s chief executive Pradeep Paunrana.

The non-cement operations will be packaged into three subsidiaries — Mavuno Fertilisers, ARM Energy and ARM Minerals and Chemicals — before their sale to the two acquirers.

Through a series of agreements between Omya, ARM and PHL, ARM Energy will end up fully-owned by the Paunrana family while Mavuno Fertiliser will be owned jointly by the two buyers.

READ: TransCentury falls deeper in the red with profit warning