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