The dangers of debt
In this month’s Technical Forum, Dr Michael Clark considers how the history of the Kenyan cement industry can serve as a case study for some of the dos and don’ts of the sector. Going forward, impaired sales performances may increase company debt levels but this is far from the only reason why debt can be easily accrued.
ARM Cement fell into bankruptcy after building up debt through an ambitious expansion
programme and then being hit by both a demand contraction and price war in 2017
Last month’s Technical Forum warned of the reliance of cement companies on cement sales and associated revenues to cover their costs, service their debts, fund their business strategies and make returns to their shareholders. It also noted that all cement companies are likely to experience impaired sales and revenues following the COVID-19 crisis. Some will struggle to cover their costs and service their debts, let alone pursue growth strategies, while others are likely to go bankrupt. The most likely candidates are those that are carrying the greatest amount of debt on their balance sheet. As a consequence, we can predict that some famous names of the international cement industry will be lost as a consequence of the pandemic.
