11 May 2017

East Africa: ARM Cement to Dispose of Fertiliser Factory

Regional cement maker ARM Cement Ltd plans to sell its fertiliser manufacturing business after an expansion pushed the firm into debts and left several subsidiaries dormant.

The Mavuno Fertiliser plant, valued at Ksh7.25 million ($72,500) was acquired in 2005, but the firm began operations four years ago, making its contribution to group revenue insignificant.

It will be sold to a strategic investor between July and September. The EastAfrican has established that ARM Cement Ltd, formerly Athi River Mining Ltd, acquired 13 firms out of which only five were operational by the end of 2015 despite huge acquisition costs, with debts mounting to Ksh24 billion ($240 million).

The inactive firms that are not contributing anything to ARM's revenues include Mafeking Cement (Pty) Ltd of South Africa, ARM Rwanda Ltd, ARM Africa Cement (Mauritius) Ltd and ARM Rhino Cement Ltd (Mauritius).

Others are Sukam Development Company Ltd (Kenya), ARM Energy Ltd (Kenya), ARM Minerals & Chemicals Ltd (Kenya) and ARM Zambia Ltd (Zambia).

The ones that are operational are ARM (Tanzania) Ltd, ARMSA (Pty) Ltd of South Africa, Mavuno Fertiliser Ltd (Kenya), Maweni Limestone Ltd (Tanzania) and Kigali Cement Company Ltd (Rwanda).

Last year, CDC, the UK government-owned development finance institution, injected $140 million into the business in exchange for a stake of 41 per cent, making it the largest shareholders of the company.

Part of the funds were used to reduce ARM's debt from Ksh24 billion ($240 million) to Ksh13 billion ($130 million) while the balance of the investments will be used to strengthen and grow the group's cement business.

"The investment from CDC Group will be used for capacity expansion and to retire their short-term debt. This will significantly reduce financing costs and improve cash flow and profitability," said Cytonn Investments Ltd.

ARM's acquisition began during the company's 2001-2005 strategic review period, when the cement-maker chose to grow and consolidate various product lines into business divisions, diversify regionally with new manufacturing plants in Tanzania and South Africa and introduce new products and businesses.

According to ARM's annual report of 2015, the company's total investment in five firms -- ARM (Tanzania), Kigali Cement Company, Mafeking Cement (Pty) Ltd, ARM SA (Pty) Ltd, Mavuno Fertiliser Ltd and Maweni Limestone Ltd -- is estimated at Ksh530.86 million ($5.3 million).

The company commenced operations in Tanzania in January 2004 and South Africa in September 2004. Last week, the company announced it is exiting its fertiliser business by selling it to a strategic investor.

"In order to remain focused on the cement business, and to raise cash and release a significant amount of working capital locked in Mavuno Fertilisers, the board has decided to exit all of its non-cement businesses," the company said in statement.

"We expect revenues to grow at a decreasing rate owing to reducing prices brought about by increased competition," said an AIB Capital market report dated August 2016.

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