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February 23, 2019

ARM sees little impact of interest on building activities

ARM Cement chief executive Pradeep Paunrana.
ARM Cement chief executive Pradeep Paunrana. Photo/FILE

ARM Cement says high interest rates and depreciation of the shilling is not likely to slow down activities in the construction sector, even as official data appears to suggest otherwise.

In a financial performance statement on Monday, the firm said the fundamentals for the sector are intact.

This is despite the challenges related to the weakening of the shilling against the US dollar and high cost of borrowing.

During the first nine months of the year, demand for its cement rose by 10 per cent.

The increased demand however failed to prevent ARM, Kenya’s third largest cement maker, from plunging into a loss. It reported a net loss of Sh469.07 million in the nine months to September from Sh1.11 billion in the same period last year.

In a note to investors, however, ARM blamed its poor performance on unrealised loss of Sh2 billion from its 10-year, dollar-denominated convertible debt from Africa Finance Corporation of Nigeria.

The company listed on the Nairobi Securities Exchange borrowed $50 million in March 2012 which was equivalent to Sh4.2 billion then.

Under prevailing exchange rates the debt is now valued at Sh5.11 billion. It further goes up when interest is factored.

ARM said it earned Sh11.71 billion in sales during the first nine months of the year – 7.04 per cent higher compared to the same time last year.

It did not break down its revenue sources, but cement production is its core business. It also manufactures fertiliser under the Mavuno brand and industrial minerals.

“Cement sales have been increasing each month in both Kenya and Tanzania with a marked increase in the last two quarters [January to March and April to June], when Tanga clinker plant became operational,” the statement signed by company secretary Ramesh Vora on behalf of the Board said.

Data collated by the Kenya National Bureau of Statistics showed cement manufacturers in August cut their production by 8,877 tonnes to 531,618 tonnes compared to July. Use of the commodity rose by 34,647 tonnes to 455,700 tonnes.

Production of cement was 4.11 million metric tonnes in eight months to August. That was an increase of 9.02 per cent compared to a similar period last year, but slower than the double-digit growth in recent years.

Consumption of cement rose by a slower pace of 7.78 per cent [compared to production] over the same period to 3.60 million tonnes from 3.34 million tonnes.

The slowdown in the sector is further underpinned by the lower value of building plans approved by the Nairobi county government – where development of offices, residences, retail space and warehouses is concentrated.

The county cleared building plans valued at Sh101.75 billion over the eight-month period. That was a quarter or Sh35.06 billion less than the Sh136.81 billion worth of residential and non-residential buildings the county approved in the same period last year.

Reduced activities in the sector was one of the major reasons the overall expansion in the economy dropped to 5.5 per cent in the second of this year [April to June] from six per cent last year.

The sector’s growth decelerated to 9.9 per cent over the review period from 16.6 per cent, the KNBS said.

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