ARM Cement Eyes Ambitious Growth Strategy With a Strategic Investor
Kenya’s cement maker ARM Cement PLC’s (NSE: ARM) is looking for a strategic investor to provide equity capital.
“The process is open and it may be an injection of equity, it may be a partial sale. It could be any structure the board will decide on,” says Pradeep Paunrana, the company CEO.
According to Paunrana, “We have a solid brand, good assets, a new plant and significant limestone deposits.”
The CEO notes that limestone deposit guarantees future growth of its business.
“The strategic investor will be willing to pay the right price for our assets.” The firm says the three main pillars of its turnaround are in restructuring its balance sheet, reducing its debt, but not at the cost of its shareholders.”
ARM says Tanzania’s situation has also improved and its plants in Dar-es-Salaam and Tanga are now back into operation. It says coal supply has been restored and prices have started improving.
“The Government of Tanzania has also banned the importation of clinker as well and this is positive for our Tanzanian market. We think that we are on the right track to repair the business and we are doing it in a way that is best for all shareholders,” he says.
The CEO remains optimistic about the manufacturing sector in the region.
“Kenya alone, cement consumption is between 6.6 million to 6.7 million tonnes from an estimated population of 42 million. This is low compared to other developing countries. Kenya alone has a potential of 12-15 million tonnes per year in the next 10-15 years, but this is not a long life for a cement company. It requires a strong balance sheet and ability to withstand shocks.”
However, what cost ARM Cement’s perfect growth strategy to post losses in recent years as returns from its expansion into Tanzania?
Unreliable power supply, devaluation of the currency, regulatory uncertainties and challenges from international players all conspired to ruin regional cement maker ARM Cement PLC’s (NSE: ARM) perfect growth strategy.
Talking to the ARM Cement Chief executive Pradeep Paunrana on what his ambition and strategy is in the cement business, he says, “Right from the onset, we decided we did not want to be a grinding plant only. We wanted to own the entire value chain and services associated with the cement business.”
Pradeep noted that grinding plants have come and gone and most rely on clinker. “The price of imported clinker in the last 1o years only have gone to highs of 90USD per tonne to lows of 40 USD per tonne,” he notes all subjected to other factors too.
“We did not just want a grinding plant with imported clinker,” he added.
The East African region remains attractive as an investment hub given the high economic growth rates compared to Sub Saharan Africa averages. This has mainly been driven by infrastructure development, increased output in agriculture and an expanding services sector.
The region is one of the key cement frontiers in SSA attracting international cement companies looking to offset the slowed growth in other countries.
“Kenya produces approximately 6.5mT of cement per year compared to 2.1mT, 3.3mT, and 0.8mT in Uganda, Tanzania and Rwanda respectively,” according to August 2016 data from AIB Capital.
“Post 2008, Tanzania was a good market for growth to be in. Compared to Kenya, Tanzania’s market volume was but with a higher growth rate. Between 2012- 2013, Tanzania was really attractive,” says Pradeep. “Cement consumption was growing faster than in Kenya at about 14 per cent year-on-year. In Kenya, the growth was about 9 to 10 per cent at the time.”
In 2014, it commissioned its Ksh 14.6 billion cement manufacturing plant in Tanga, Tanzania. But with its clinker in place, the firm was able to supply in Tanzania, Nairobi, Kigali. “With Kenya consuming 2 million tonnes of clinker annually, Rwanda half a million, “Tanga was a strategic location based on the EC perspective,” Says Pradeep.