Kenya's ARM Cement sees profit up 35 pct this year due regional growth

Thu Oct 3, 2013 9:38am EDT

Related Topics

* Additional capacity in Tanzania to boost earnings

* To invest $250-300 mln in Kenya and Rwanda

* Falling margins put pressure on cement firms

By Duncan Miriri

NAIROBI, Oct 3 (Reuters) - Second biggest Kenyan cement firm ARM Cement expects earnings to grow at a slightly faster rate this year after a new plant in Tanzania has pushed up capacity, its chief executive said on Thursday.

East African cement consumption is growing thanks to vibrant economies, drawing in foreign firms like Nigeria's Dangote Cement, which plans a $400 million plant in Kenya.

The market remains competitive, even if governments are looking to spend on projects like roads, ports and airports.

"This year we are looking at increasing our top line and bottom line by 35 percent over last year and next year we expect a similar growth," Pradeep Paunrana told Reuters in his office, referring to his expectations for profitability and sales.

ARM posted a 31 percent jump in pretax profit in 2012 to 1.76 billion shillings ($20.29 million).

Demand for cement in east Africa is expected to rise due to the large infrastructure projects planned by governments.

ARM's new cement grinding plant in Tanzania's commercial capital of Dar es Salaam, commissioned a year ago, had added 750,000 tonnes of production capacity to the existing 1 million tonnes in Kenya, Paunrana said.

Another plant in Tanga, which will be able to make 1.2 million tonnes a year of clinker, used in cement making, was nearing completion and it will start production early next year.

"The economy and the construction sector was at a standstill for 25 years in Tanzania. When it opened up about 10-12 years ago, cement consumption rate was growing at a faster rate than even Kenya," Paunrana said, alluding to long socialist rule.

Tanzania, whose annual consumption stands at 3.2 million tonnes compared with Kenya's 4.7 million tonnes, was growing at a rate of 14 percent per year, he said.

ARM, one of the top 12 largest firms by market value on the Nairobi bourse, spent close to $200 million on the Tanzanian investments, raised through a mix of debt and equity.

ARM will turn its sights on Rwanda, where it hopes $15-20 million in planned investments will help double its share to about a third of the 450,000 tonnes a year market, he said.

COMPETITION

The investment in the Great Lakes region will be part of a $250-300 million investment over three years that will include a new cement and clinker plant in Kitui in eastern Kenya.

"We have a lot of support and we will be making some kind of announcement very shortly on fund raising," he said.

Despite his optimism, Paunrana warned foreign firms eyeing a bonanza that they faced a competitive market, with falling margins, forcing firms to control costs aggressively.

"If we were building our plants at $400-500 million a throw, then it would be impossible to compete in this market," he said.

"Everybody in the cement business and the construction sector is looking at the same set of economic data and the prospects so it is a very competitive area."

A tonne of cement costs $280-$350 in Nigeria, leaving firms with a margin of $90. In Kenya it costs as little as $110, leaving firms with a margin of less than $25, he said.

"The biggest challenge to the growth of the cement industry in east Africa remains power," he said, blaming low supply and ageing grids for frequent blackouts that disrupt production.

($1 = 86.7500 Kenyan shillings) (Reporting by Duncan Miriri; Editing by James Macharia)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.