Kenya's ARM Cement says clinker plant will boost margins.

Sep 21, 2015 Kenya’s ARM Cement has expressed optimism that its profit will increase after it started producing its own clinker, an essential material for cement production. The company, which has subsidiaries operating in Kenya, Tanzania, South Africa and Rwanda, recently posted a pretax loss of 473.5 million shillings in the first six months, which they blamed on unrealized foreign exchange losses.

Pradeep Paunrana, the company’s Managing Director said a new clinker plant has the capacity to produce 1.2 million tons a year and was currently operating at about 75 percent capacity.

“Throughout 2013 and 2014 we were importing clinker but this has now been supplemented with clinker that is produced in Tanga, in both Kenya and Tanzania. What this essentially means is that our production cost has come down drastically because imported clinker is much more expensive, at least 70, 80 percent more expensive than what we are producing locally so, we expect an improvement in our margins both in Kenya and in Tanzania,”

According to Thomson Reuters data, the company’s operating margin was 13.4 percent in 2014 which falls short of the industry median of 15.5 percent.

The managing director went on to add that ARM was also selling clinker to other companies in Tanzania, Democratic Republic of Congo, Rwanda and Burundi.

“Our total capacity now is 2.5 million tons of cement. Kenya is one million tons, Tanzania 1.5 million tons. We have 100,000 tons capacity in Kigali as well so that makes it 2.6 million tons. We are self-sufficient in clinker for this entire capacity,” said Paunrana.

The company is expecting an improved financial performance in the second half of the year, citing the 9 percent rise in earnings before interest, tax, depreciation and amortization in the first half to 1.94 billion shillings.

“Results in the first half showed an unrealized exchange loss and therefore showing a net loss but if you analyse the results further, our bid tax generation earnings before interest tax depreciation were 1.9 billion shillings, nearly 19 and a half million dollars, and profit after tax but before foreign exchange loss was nearly 8 million dollars. So the company is still very profitable on a run rate, especially now that we have more clinker production and more volume growth in the second half of the year, we expect those numbers to improve,” he said.

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