Category Archives: Bamburi

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 were 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 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 it’s 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.

East African Portland Cement 2009 AGM

The 2009 East African Portland Cement Company (EAPC) annual general meeting (AGM) was held at the company sports club in Athi River on November 19. Company is the second largest cement producer in the country, but one of the smallest shareholding bases at just 996 shareholders. One of its largest shareholders is rival cement company Lafarge who were evicted from the board of Athi River mining, another cement company, earlier this year.

What would have been a tough year for the company was smoothened over by an ‘other income’ boost

shareholder questions
How will Portland compete with the many new opening cement companies in the country? – Mombasa Cement launched plant in Athi River, while ARM building new large cement plant in Tanzania

– By externally increasing sales in the region Ð to Uganda, South Sudan, Burundi, and democratic republic of Congo (DRC)
– More media advertising to promote the cement brand (Blue Triangle) and are relocating sales& marketing department from Athi River to Nairobi
– Internally improving processes e.g. use cheaper fuel, apply cheaper distribution methods. also plan to install a new kiln to produce clinker for the companyÕs operations and sell the excess to export to other cement companies (they have appointed consultants to begin the process of commissioning the 5,000 metric tones per day plant)
– By Going Green initiatives: cement companies not associated with environment causes, but rival Bamburi (Lafarge) was able to create a beautiful Wildlife park (Haller Park) from a depleted quarry. Now Portland has signed up with the JP Morgan climate care program, and by reducing fuel oil they use in operations and carbon emissions , the company earns about 80 million per year (~$1 million). Also for some of their exhausted land in Athi River, they have applied for a Kshs. 250 million environmental grant from the (Kenya) prime ministers office towards the planting of 4 million jatropha trees whose seed oil will be used in kiln operations and earn more carbon credits

What will happen to idle plant/asset/farm?
– Farm animals were sold as it was loss making and animals would have died of drought if they had been kept. Idle farm will be planted with jatropha forest, to prevent squatter encroachment
– Useable old mill machinery will be shifted to other countries to reduce cost of production of some cement, unusable plant parts (old technology) were to be sold, but global economic crunch meant that steel prices plummeted and so they have halted this until prices pick up later

Poor dividend and share price DPS is always 1.30 , while EAPC shares rarely trade/move up or down
– Shareholding structure is government of Kenya – 50%, and Lafarge (France) – 42% and what is traded is from the small 6% owned by the public. board did not answer if they would emulate ARM and boo Lafarge (more difficult to do here)
– Reserves are there but some canÕt be paid out i.e. asset evaluation reserves,

Yen-denominated Japan loan Portland received a 20 year 2.5% loan from Government of Japan that has now become a burden to pay as the Japanese Yen has gotten stronger over the years (lost them 921 million in 2008, and still has 10 years to go with the loan). Board is aware of constraints and shareholder concerns and so company will look at hedging to resolve the costly loan issue by next year

Sticky Issues shareholders asked why they were being asked to re-elect directors who skipped AGMÕs – Titus Naikuni (CEO of Kenya Airways) and Joseph Kinyua (Permanent Secretary, Ministry of Finance) , and why the Government Controller & Auditor General was listed as the Portland auditor and gave an opinion, yet contracted the audit function to audit firms (this year was by Ernst & young, previously by deloitte)

Goodies: buffet lunch, umbrella, tote bag (with cap, polo shirt)

Odd moment: prayer by famous shareholder Mr. Chami before and after the meeting

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 http://tinyurl.com/nozxe3

June 16: Media mystery: what happened to the Bamburi vs. Athi story? there were many reporters there but was story buried? http://tinyurl.com/n2k5o8 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” http://tinyurl.com/kwlw9w
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 http://www.nytimes.com/
Racial Discrimination at World Bank?http://bit.ly/fNXUy
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? http://tinyurl.com/m9yhmb
Two new independent (non stockbroker) directors at Nairobi Stock Exchange – NSE Board http://tinyurl.com/n8qqvx

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 http://www.redpepper.ug
Michela Wrong to visit the World Bank http://bit.ly/LpJHy

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 http://bit.ly/mBdFg
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 http://tinyurl.com/lewfyn #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 http://tinyurl.com/c9ykra

June 23 Any well wishers to donate a PC or laptop to Mamamikes who were recently robbed? http://www.mamamikes.com/bl…
59% of small business owners rely on credit cards for working capital! scary http://preview.tinyurl.com/

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 assts 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 strong shilling
– Project to haves sales of 6 billion in 2010 rising to 13.4 billion by 2012
– Currently produce 1,000 tons per day for the Kenya market that has 5,000 tones per day production capacity. With new plant in Tanzania, ARM will go to 2,000 tons per day from January 2010 – the new plant in Tanzania will be 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 (SAfrica) and Tanga (Tanzania), while in Kenya Bamburi was 18%, ARM 17% and EAPC -13%
– Egypt became a new 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 strenthen 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? Wont 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 at 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 reprsented.

Bamburi Cement, a rival and Kenya’s largest cement producer own almost 14% of company, and are second largest shareholder in company. Bamburi had not sent a representative, and their reserved seat at the board dais was empty
– The Chairman recommend 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 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 investor; 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 least 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. Courts and government tried to broker a settlement, but 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 a honorary deputy chair)

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