East Africa: EA Cement Makers' Fortunes Fall As Deep-Pocketed Players Come Calling

The region's biggest cement firm, Bamburi Cement, will for the second year in a row see its profits fall below $14.22 million -- its lowest earnings in over 10 years.

This would not have come at a worse time, given that deep-pocketed international players have their eyes on the region's cement sector.

For example, the region's top supplier of clinker, Omani company Raysut Cement, has lined up more than $100 million through acquisitions in Kenya and Uganda.

Bamburi, owned by the French giant Lafarge, last week issued its second profit warning, barely a year after it reported a 67 per cent drop in profits to $19.06 million.

"The company wishes to inform the shareholders and potential investors that, based on the preliminary assessment of the unaudited consolidated management accounts, the 2018 full year earnings of the Group are expected to decrease by more than 25 per cent, compared with the year ended December 31, 2017," the board said.

The firm blames this drop in profits on difficult market conditions and escalating international energy prices in Kenya and Uganda.

The region's cement manufacturers are going through turbulent times, with some falling into loss-making territory as they face stiff competition from cheap imports and high power costs amid slowing demand in the housing and construction sectors.

East Africa Portland Cement, for instance, is barely surviving, hoping for cash injection through asset sale to redeem its market share, while once top performer Athi River Mining is under administration, saddled with debt running to $140 million.

Tanzanian cement firms are also reporting a drop in their margins as a result of price wars and overcapacity.

As they grapple with these problems, deep-pocketed investors are circling, seeking quick acquisitions.

Buy out bid

On Tuesday, Oman's Raysut put forward a $100 million bid to buy out troubled ARM Cement, as part of its investment strategy in the region, with planned acquisition of Kampala Cement on the cards too.

"We are looking to becoming a global company by way of expansion, and moving with a major focus on East and Central Africa and Georgia," Joey Ghose, Rayut's chief executive officer, told The Hindu Business Line.

Raysut is now eyeing ARM Cement of Kenya as part of the company's aggressive strategy to expand in East and Central Africa.

Athi River Mining was placed under receivership in August by Nigeria's United Bank of Africa Group over a $3.5 million loan, as part of a total debt of over $140 million; and now Dangote Cement and Raysut are competing to snap it up.

Raysut expressed its interest to the administrators in acquiring 70 per cent of the troubled firm at $100 million.

Proximity to consumers

The acquisition, Raysut said will complement its efforts to manufacture clinker in proximity to the markets it supplies in the region, including Tanzania and Uganda.

Raysut Cement is already in the process of setting up a grinding unit in Somaliland and Mogadishu, Somalia with a Dubai-based partner.

The company is also in discussions to acquire various cement producers in Uganda and Djibouti.

It also plans to build a million-tonne per annum cement plant in Berbera, Somalia and the construction work could start as early as January 2019.

Raysut is one of the major clinker suppliers to the region and the ARM assets will fit very well with its plans for East Africa where, in the last quarter alone, it supplied over 300,000 tonnes of clinker from its home plant at Salalah, Oman to Kenya and Tanzania.

Tripling production

With these expansion plans, to be funded through internal funds and bank loans, Raysut intends to more than triple its production capacity to 20 million-tonne from its current six million tonnes.

If successful, Raysut will have regional operations in Kenya, Uganda, Tanzania and Rwanda.

However, the Oman-based firm will also have to contend with competition from Nigeria-based Dangote, which is also eyeing an entry into Kenya and Rwanda via a buyout of the ARM assets.

Last month, Dangote said it planned to buy out troubled regional cement firm, Athi River Mining Cement before mid-next year, effectively giving it control the region's cement market.

Bidding war

The buyout if successful, will see the Nigerian firm abandon its original plan to construct two plants in Rwanda, three in Dar es Salaam, and one in Burundi, with another in Jinja, Uganda.

It had also planned to start producing cement in Kenya through its Kitui-based plant with an annual production capacity of three million tonnes.

"We plan to list our business at the London Stock Exchange. In preparation, we are consolidating our cement business. This has seen us increase capacity in various markets and make several acquisitions ahead of the IPO. There is also a cement company with operations in Tanzania, Kenya and Rwanda and we hope to take them over," Dangote Group chairman Aliko Dangote told Bloomberg.

Dangote is vying with three other African competitors LafargeHolcim, Heidelberg Cement AG, and Titan Cement Co. SA of Greece for the acquisition of ARM Cement.

Even as cement manufacturers struggle with either reduced revenues, production challenges or the high cost of doing business, the region is expecting to see an increased production capacity.

The estimated plant utilisation rate within the region is 61.7 per cent but Dyer & Blair Investment Bank predicts that this will fall to 45.4 per cent by the end of month, casting doubt on the effectiveness of these expansion moves.

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