UK investors in last-ditch effort to save stricken ARM

A United Kingdom investment firm has brought in turnaround managers after their investment in Kenya’s Athi River Mining (ARM) plummeted over 90 per cent in just three years.

British development financiers CDC have replaced Ketso Gordhan and Pepe Meijer with Sophia Bianchi and Rohit Anand at the loss-making cement maker.

ARM Friday fell further into the red posting a Sh6.9 billion loss in 2017 from a loss of Sh3.1 billion in 2016.

“The replacement of two board nominees…bring in substantial experience in turnaround situations and financial restructuring in emerging markets,” the board said in a notice.

The British firm bought a 42 per cent stake in ARM in April 2016 for Sh14 billion when the company’s shares were trading at Sh37 with a market capitalisation of Sh35 billion.

In a steep descent, the share price stood at Sh2.95 by Thursday’s closing with the firm’s market capitalisation of Sh2.8 billion putting the CDC investment at about Sh1.1 billion.

This raises concern over the level of scrutiny conducted by the UK firm on ARM’s books which has been shrouded by soaring loans, price wars and underutilisation of its clinker plant in Tanzania due to a government ban on coal imports.

Efforts to get a response from CDC’s Yashica Singh, personal assistant to Ketso Gordhan and office manager for the Africa office went unanswered.

ARM says in notes accompanying the financial results that the experience last year was “the most challenging since the company’s listing in the Nairobi Securities Exchange in 1997”.

According to the financials, money generated from operations fell by more than 70 per cent from Sh1.6 billion in 2016 to Sh473 million last year.

Although ARM said it continued to operate in select segments to ensure market presence, data from the industry indicates that it is being cannibalised by competition at home.

A GFK Bimonthly Retail Report showed that between January and February 2018, Athi River Mining’s Rhino Cement and East African Portland Cement’s Blue Triangle brands lost ground to rivals Bamburi, National and Mombasa.

Bamburi grew 33 per cent, while Mombasa and National Cement gained to close 20.3 per cent and 19.3 per cent respectively in Feb 2018.

Across the border, ARM said the entry of a new player in southern Tanzania sparked a price war that slashed prices by about 30 per cent.

“Two of the existing players increased capacity and the overall supply in cement was significantly higher than demand,” said the firm.

“Most manufacturers used price reduction in an attempt to maintain or increase sales and this resulted in prices falling by more than 30 per cent.”

ARM cannot meet short-term liabilities with current assets at Sh3 billion while current liabilities were Sh17 billion, sending them to a negative cash position.

Cash and cash equivalents which stood at Sh1.8 billion in 2016 are now at negative Sh2.6 billion.

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