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ARM boss paid Sh114m in year of Sh6.5bn loss

ARM CEMENT CEO PRADEEP PAUNRANA. FILE PHOTO | NMG
ARM CEMENT CEO PRADEEP PAUNRANA. FILE PHOTO | NMG  

ARM Cement #ticker:ARM chief executive Pradeep Paunrana’s pay rose by Sh20 million to Sh114.7 million in the year ended December 2017, even as his company fell deeper into financial trouble with a Sh6.5 billion net loss and a major share price erosion that has ruined long-term investors.

Mr Paunrana’s pay rose 22 per cent from Sh94 million the previous year, driven by allowances he claimed while on a series of foreign trips in search of prospective investors.

Details of Mr Paunrana’s compensation are disclosed in the Nairobi Securities Exchange-listed firm’s latest annual report, which also shows that the deputy CEO, Surendra Bhatia, was paid Sh73.2 million in the review period, up from Sh72.4 million the previous year.

The two executives, together with the company’s director in charge of strategy, Navishka Paunrana, are also on course to take up an aggregate of 70 million shares currently valued at Sh192 million in the medium term as an additional element of their compensation.

“As per the staff remuneration policy, the remuneration package comprises a basic salary, gratuity and other benefits designed to recognise skills, experience and attention required to run the company,” ARM says in the report. The executive directors are also entitled to performance-based remuneration in form of a share option plan.

ARM is bearing the heaviest burden of executive pay relative to performance among its cement peers and the wider universe of NSE-listed firms.

Bruno Pescheux, the former CEO of Bamburi #ticker:BAMB, Kenya’s most profitable cement manufacturer, earned a total of Sh68.2 million or 60 per cent of Mr Paunrana’s cash compensation in the nine months ended September last year.

Bamburi made a net profit of Sh1.6 billion in the year ended December, a 68.5 per cent drop from Sh5.2 billion the year before.

In contrast to debt-laden ARM, Bamburi has minimal borrowings and a cash hoard of more than Sh3 billion from which it earns interest income running into hundreds of millions of shillings annually.

ARM’s net losses over the same period widened 2.3 times to Sh6.5 billion and short-term liabilities exceeded current assets by Sh13.4 billion, prompting its external auditor Deloitte & Touche to withhold its opinion on the firm’s published accounts.

At Sh114.7 million, Mr Paunrana’s cash compensation beats that of CEOs of more profitable NSE-listed firms, including BAT Kenya #ticker:BAT, Barclays Bank of Kenya #ticker:BBK and Standard Chartered Bank #ticker:SCBK.

His deputy, Mr Bhatia, also earns more than CEOs of firms like Total Kenya #ticker:TOTL, Britam #ticker:BRIT and BAT Kenya #ticker:BAT.

The company’s cash crunch, which has led to delayed salaries and suspension of pension contributions, has also roped in the two executives, who are still claiming part of their entitlements.

Mr Paunrana’s remuneration in the review period comprised a salary of Sh94 million or Sh7.8 million per month and allowances of Sh20.7 million. He had received a total of Sh93.8 million as of December and was left claiming Sh20.9 million.

His salary stood at the same level in the previous year when he was not paid allowances. Mr Bhatia’s earnings in the review period comprised a salary of Sh67.6 million or Sh5.6 million per month and allowances of Sh5.6 million. By close of the year, he had been paid a total of Sh46.8 million and was left claiming the balance of Sh26.4 million.

Mr Bhatia’s total cash compensation rose marginally from the previous year when he earned a salary of Sh60.4 million or Sh5 million per month and allowances of Sh12 million. ARM’s survival and future prosperity now hang on a timely execution of a three-pronged strategy of selling assets, raising capital from a new strategic investor and renegotiating the terms of loans whose covenants it has already breached.

The cement manufacturer’s deeper losses ate into its shareholder funds, which dropped by Sh7 billion to Sh20.7 billion.

The company’s share price has fallen steadily from highs of Sh90 in 2014, with the stock closing at Sh2.7 on Friday in what assigned it a market value of Sh2.6 billion. This translates to a paper loss of Sh42 billion, enough to buy about 64 million 50kg bags of cement.

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