Category Archives: Athi River Mining

Cement Moment: CDC Buys into ARM

ARM (Athi River Mining) Cement seems to have been grappling with a short-term debt burden. It was reported that an Indian firm Ultratech was interested in investing $125 million, a few weeks ago for a stake in the firm. But today’s results announced by ARM, which show a full-year loss of Kshs 3.5 billion, 9blamed on an unrealised exchange loss  of Kshs 3.7 billion) also came with a notice that the CDC Group, the UK  government-owned development finance institution, has committed to invest Kshs 14 billion (~$140 million) for equity in the listed company.

CDC will become the largest shareholder in ARM and the company will use $110 million of the new funding to reduce their short-term debt (payments stand at about $1.5 million per month) and which totaled $200 million at the end of 2015. ARM shares have lost 2/3 of their value, now at 30 after trading as high as 80 in 2013

A few days ago, CDC also announced an acquisition of 10.7% of I&M Holdings, the parent group of I&M Bank. More detail here about ARM’s debt and fund-raising history, and when they kicked Bamburi, then a large shareholder, off their board.

Other Cement Companies

An Oxford Group report notes that The growth in (Kenya) construction activity has been a boon for producers, but the scope for further increases in the near term is sizeable, given that Kenya’s per-capita consumption remains well below that of other major economies on the continent. Annual per-capita demand for cement averages 100 kg, according to sector players, compared with 506 kg in Egypt and 230 kg in South Africa…However, the rise in domestic demand has not necessarily translated to a healthier balance sheet for the country’s producers. The average net profit margins for Kenya’s cement firms hit an all-time low of 11% last year, according to ARM Cement.

  • Bamburi: A recent investor note about Bamburi mentions that its shares have gained 25% in the last year and it increased its’ profit by 45% in an industry which recorded a decline in average net profits. Bamburi also has a generous dividend policy and has paid an increasing level of divided since 2011.
  • EAPCC East African Portland Cement is said to be trying to negotiate with the government to use some of their vast land holdings in Athi River / Kajiado area to restructure the company.
  • Dangote: Is still interested in investing in Kenya? Media reports say there’s a grinding plant in Kenya with others planned.
  • Savannah Cement completed a major plant upgrade to boost the firm’s production and efficiency.

Banking on Other Income

It’s crunch time in Kenya’s economy and many companies are feeling the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders and they will look to unconventional, or other income opportunities to deliver by year-end:

some examples; 

East African Portland Cement: Went from a profit warning issued at their ½ year to a full-year profit increase thanks to a property revaluation exercise.

Mumias Sugar: Full-year profits were attained due to a tax credit they gained from investing in electricity co-generation.

Scangroup: Profit in the ½ year was credited to income from their investment in Government bonds.

Access Kenya: Profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings – and most of their revenue is dollar-denominated.

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.

  • Tax breaks from listing – Safaricom.
  • Green energy – carbon credits, co-generation – Kengen, Safaricom.
  • Fibre cable/IT investment writebacks.
  • Property and investment revaluations.
  • Forex: a weak shilling is usually good for Kenya Airways and tea companies.

Kengen & other Nairobi Bonds

Lots of questions abound about whether its time to invest in bonds at the Nairobi stock exchange. From late last year when Mabati Rolling Mills launched a bond, 2009 has really been the year of the bond with the clincher being the successful Kenya government infrastructure bond of February 2009.

Now ongoing now is the Kengen PIBO for which Kainvestor reviews the prospectus. It offers a 12.5% and the minimum subscription is 100,000 shillings (~$1,316)

Next expected next is a Safaricom bond, a Centum bond ( 2 billion), and more tranches from CFC Stanbic and Barclays. It’s quite a turnaround from 2007 when companies like Athi River Mining, Safaricom and Celtel Kenya (now Zain) all redeemed /repaid bond investors at a time of low-interest rates.

Track all the corporate bonds at the NSE daily bond report and these include East African development Bank, Barclays, Faulu Kenya, Mabati, PTA Bank, Athi River Mining, Sasini and CFC Stanbic

Buy bonds directly from stockbroker agents, but if still unsure of the process, consider investing through bonds funds such as those from Old Mutual Kenya and Dyer & Blair Investment Bank – Kachwanya reports that investors can even access the Kengen Bond at ½ the prescribed price – paying just Kshs 50,000 (~$650) instead of the subscription minimum of 100,000.

Stocks versus bonds? in the long run, as shown by this stockskenya thread, shares are likely to outperform bonds – even the generous 12% Kengen bond.

EDIT also on offer is Uchumi Bond 10% convertible shareholders’ debenture is on. Press reports say it was valued at 12 shillings each by KPMG and is available at a discount of 10/= to shareholders of the company. The funds raised will be used to restructure the balance sheet, which should lead to the end the receivership, and re-listing of the company’s shares at the NSE.

Uchumi Financial Results

published by Specialized Receiver Manager – September 2009

Kutwa Tuesday: Corporate Mysteries

and other Bank Twits

Twitter is a micro-blogging tool that is really nifty for doing mini-posts, forwards and other remarks that (are on any subject) and are maybe not worthy of a full blog post. Here’s a summary of my week on Twitter where there was some interesting discussions, but so far yet to unravel mysteries at Kenya airways, Safaricom and Athi river mining? and some replies

June 15: nairobbery Reading about a Nairobi scam where people actually throw themselves on the windscreens of slow moving cars and later ask for compensation
Kenya central bank study shows popularity of MPesa; users rate it cheap, fast, reliable & accessible

June 16: Media mystery: what happened to the Bamburi vs. Athi story? there were many reporters there but was story buried? replies @nakeel It’s called the power of advertising and who pays your bills..

June 17: Economist says Africa’s next country South Sudan “will fail before it has even been born”
DT Dobie advertising that a Mercedes E200 kompressor is 1796cc and therefore compliant with new Kenya Government rules for Ministers cars
Anti-corruption initiatives falter around Africa
Racial Discrimination at World Bank?
CNBC TV show President Obama killed a fly during an interview. Take it away FOX
Is the Kenya rugby safari sevens tourney over-priced at 1,500 ($19) per season ticket?
Two new independent (non stockbroker) directors at Nairobi Stock Exchange – NSE Board

June18 KPLC is going to increase the birth rate in kenya if they keep failing to supply electricity.

June 19: Kenya and Uganda Catholic churches in a race to hell with simultaneous abuse scandals; media coverage in UG is NSFW
Michela Wrong to visit the World Bank

June 20 Discovering the mysterys of white cap, EABLs no.2 that survives recessions without any advertising
replies @coldtusker I didn’t say it ‘failed’ but IMHO its core consumer base isn’t GenX but my mzee’s generation. What happened to WC lite? White Cap’s demographics are skewed to stable, older, wealthier, ‘old dogs’ market. It has failed among the ‘younger’ drinkers. @Fintradecapital thats really true. Its drinkers r consistent.
I use nivea creams, but all their posters and adverts scream i am soooò not their target customer!
replies @uhusiano is cos they are all jungus? @coldtusker Are you thinking of doing a chaz bono? re: nivea – not their target market… LOL… @devonwhittle I’m also a Nivea customer, but their “skin whitening” products and ads worry me – @karuoro I use Nivea shower gel but prefer Vaseline lotion..find nivea lotions too..sticky (don’t know if that makes sense) @Ethnicsupplies I’ve never liked the smell @Shiko_Msa we the target customers that is. feel welcome. Even though they dont welcome we do.
Stomping through kilelewshwa – many apartment complexes have ‘to let’ signs

june 21 Safaricom selling cheap internet ready phones including nokia 1680 for $38 replies @alykhansatchu I was reading that @ thinking 13m Subs converts to 2m x $1.00 a day internet
@coldtusker also former Kenya Airways director is CEO air uganda. Seems KQ is now finishing school for sub-saharan airline bosses. replies @coldtusker Hugh Fraser (ex-KQ now CEO of Air Uganda) was in the very important Commercial Director post @ coldtusker Neil Canty (former CFO-KQ) went to Gulf Air though he has left them for another gig. Africa again?

R/T @airlineroute KLM to operate MD11s on Nairobi-amsterdam for Kenya Airways from july to september! What will the 777s be doing?

Unexpected dividend cheque from stanbic uganda ~$15 in the mail today #migingo
replies @PinkM How do you cash your Stanbic UG cheques?I haven’t cashed for 2 years now. Thanks.Will try that. I wish it was possible to bank at CFC Stanbic even for CFC a/c holders

Kenya retain rugby revens title, but Is that DJ CK on pitch with team at #safarisevens? He’s kenya’s top gate crasher replies @kenyanpundit hehehe, DJ CK was EVERYWHERE at the WEF in Capetown @kachwanya you just made me remember almost similar incident sometime back during Orange launch..yeah he somehow did that

June 22 Kenya’ anti-aid author envious of @dambisamoyo
replies @kainvestor Many African anti-aid champions see sinister agendas in the success of @dambisamoyo. She wasn’t the 1st to write against aid >>>
Safaricom shares pick up after managers visit Europe & US fund investment firms #safaricom #investorrelations
Family Bank 25th anniversary
President @mwaikibaki encourages banks to use mobile phones to reach beyond the 22% ‘banked’ kenyans
Have more twitter followers than feedburner subsribers; what does that mean?
people who vandalised the Kenya Railways Kibera railway, may also have got paid to fix it after

June 23 Any well wishers to donate a PC or laptop to Mamamikes who were recently robbed?…
59% of small business owners rely on credit cards for working capital! scary

Athi River Mining Board evicts Bamburi Cement as Director

Excerpts from the 2009 Athi River Mining annual general meeting (AGM)

Athi River Mining, Kenya’s 3rd largest cement company held its annual general meeting (AGM) on June 11, 2009, at the Grand Laico Regency Hotel. It was mainly presided over by the Chairman Mr. Palle Rune and Managing Director Pradeep Paunrana.

After the finance director gave a review of 2008 performance – sales of 4.6 billion ($58 million) and a profit of 503 million ($6.3 million) (but had an error column labeled 2009 numbers and skipped over the net current assets position instead focusing on global credit rating A1 rating of the company)), the MD took over and outlined his plans for the company going forward along with a talk on the state of the cement business in East Africa.

ARM Outlook
– ARM had no cement growth in 2008 because they are at full capacity and same with fertilizer. Fertilizer sales rose sharply to almost 1 billion shillings, but that was because the price of fertilizer shot up in Keya. It is mainly sold o tea farmers, cheaper than fertilizer imported by KTDA and gives better yield. Silicate sold mainly export markets Mozambique, Malawi, SA
– 26% of ARM sales were from exports but were hampered by the strong shilling.
– Project to have sales of 6 billion in 2010 rising to 13.4 billion by 2012
– Currently, they produce 1,000 tons per day for the Kenya market that has 5,000 tones per day production capacity. With the new plant in Tanzania, ARM will go to 2,000 tons per day from January 2010 – the new plant in Tanzania will be the largest plant in East Africa.
– improved production efficiency: now have the best margins in cement production in Kenya, ahead of Bamburi and a distant EAPC.
– improved energy efficiency in cement production – East Africa. Saved 16% (about25m) in 2008 and expect to save about 50 million in 2009 – they have achieved international benchmarks
– building their own clinker plant in Tanzania, locally produced clinker cheaper than imported clinker by about 1/3

Cement in EA
– Cement a growth business, and there’s great demand in this part of Africa for building work, and in the future for roads
– Cement grows at 2x GDP in East Africa, and has been at about 15% p.a. for last few years
– Comparing cement companies across region shows a variation in pre-tax profit margins ranging from 36% at PPC (South Africa) and Tanga (Tanzania), while in Kenya Bamburi was 18%, ARM 17%, and EAPC -13%
– Egypt became a net importer of cement in 2008

Shareholder Q&A
– Borrowing costs are high and growing, why? high borrowing for expansion- they chose that route instead of the equity one. which will probably strengthen Bamburi’s position
– acquired minority shares in Tanzania subsidiary, but did not get Kenya shareholder approval, why not? Chairman said they’d never get anything done if they had to bring such things to a vote
– Why not sell cement in South Sudan and Rwanda? Won’t go for those markets, they are focused now on the highly profitable Tanzania market, and less profitable S. Sudan market is better served by rivals (Tororo and Hima)
– when will shareholders visit new Kaloleni plant as promised by the board? perhaps AGM next year will be held there, but its open year round for any shareholder to visit
– why is ARM cement and fertilizer not seen in retail shops around the country? MD explained that virtually all their product was sold to repeat customers – e.g. contractors who took the cement from the factory to building sites, and same with tea farmers

Hot Button moment: director elections
Three directors were up for re-election – Bamburi Cement, Michael Gondwe and the deputy chairman H. Paunrana, none of whom were present or represented.

Bamburi Cement, a rival and Kenya’s largest cement producer own almost 14% of the company and are the second largest shareholder in the company. Bamburi had not sent a representative, and their reserved seat at the board dais was empty.
– The Chairman recommended that shareholders vote against the re-election of Bamburi. He said it was clear that Bamburi does not want ARM to grow or produce more cement. They have been trying to sabotage ARM in international circles. I noticed in the minutes of last years meeting, for the vote to split the company management, Bamburi had requested a poll vote be taken. Chairman summed it up by saying that the board was not comfortable disusing ARM company business in the presence of a Bamburi representative
– One shareholder queried if the company had obtained legal advice to which chairman answered yes the board had even got two opinions
– Another shareholder feared that if Bamburi were voted out and then dumped their shares, it would affect other investors; the deputy MD replied that snares would be snapped up quickly and said Bamburi rights as a shareholder and director were separate unrelated matters
– Another shareholder asked about an ongoing land dispute between ARM and Bamburi for limestone deposits; CEO summed it up as follows: ARM scouted and located a deposit of limestone. Signed a lease for 540 acres with Kitui town council. Bamburi tried to get this overturned, and the former Local Govt. Minister Musikari Kombo had tried to broker a sharing arrangement. Bamburi got High Court injunction and ARM and Kitui Council have now gone to Court of Appeal, a process that may take years. Both the Courts and government tried to broker a settlement, but the two companies are too far apart.
– After the arguments, shareholders present unanimously voted against the re-election of Bamburi as a director of the company.
– The two other directors, though absent, were re-elected unanimously. Mr. Gondwe of PTA, the company’s bankers had given his apologies as he was involved with other bank business on that day, while Mzee (old man) Paunrana, though over 70 was described by other directors as being a key guide in day to day management of company (not just an honorary deputy chair)

Goodies: T-shirt, tote-bag, keychain, lunchbox from the Laico