Kenya: ARM will look to improve margins

ARM Cement posted a pretax loss of KES473.5m (US$4.5 m) in the first six months, which the firm attributed to unrealised foreign exchange losses associated with borrowing for its new clinker plant.

Managing Director, Pradeep Paunrana, told Reuters that the new 1.2Mta clinker plant has only been operating at about 75 per cent capacity since production began in April. "What this essentially means is that our production cost has come down drastically because imported clinker is much more expensive - at least 70 or 80 per cent more expensive than what we are producing locally," he said in an interview.

"So we expect improvement in our margins both in Kenya and in Tanzania with the production of our own clinker," he said, adding that ARM was also selling clinker to other companies in Tanzania, Democratic Republic of Congo, Rwanda and Burundi.

ARM's operating margin was 13.4 per cent in 2014, according to Thomson Reuters data, compared with an industry median of 15.5 per cent.

ARM's Tanzania plant has capacity to produce 1.5Mta of cement, while its Kenyan plant can produce 1Mta and its Rwanda plant can make 100,000tpa. 

The company still expects to raise its margins in the coming months as currency exchange rates improve. Mr Paunrana said ARM now had an advantage over some rivals. "We are keeping our margins steady and are now becoming a lot more competitive against those who import either clinker or finished cement," he said.

ARM would approach the capital markets to borrow the equivalent of between US$50m and US$75m in local currency to replace some short-term debt in the future, Mr Paunrana said, without giving details on exact timings.