ARM Cement Chief Executive Pradeep Paunrana will leave the company founded by his father in a management shake-up orchestrated by majority shareholder CDC Group. The British Development Finance Institution owns a 42 percent stake in the troubled cement maker which has recorded losses for the past three financial years.
The company reported a loss of KSh6.5 billion ($64.56 million) in 2017, the same year it paid Pradeep Paunrana Sh114.7 million ($1.14 million). The company’s auditors Deloitte & Touche noted that the company’s current liabilities exceeded its current assets by Sh13.4 billion and has additional accumulated losses amounting to Sh2.9 billion.
“These conditions combined with the historical performance of the group indicate that a material uncertainty exists, which may cast significant doubts on the group’s ability to continue as a going concern,” the auditors said.
Deloitte & Touche, which refused to issue an opinion on the company’s annual reports, accused ARM Cement of not being truthful in declaration of its financial health over the years.
Research analysts at Standard Investment Bank (SIB) in a note also described the cement maker’s 0.22 liquidity ratio as “distressing”, as it indicates “that the company can barely meet its immediate obligations”.
To salvage the situation, CDC wants to get more involved in the running of the business, with key changes already made to the company’s board. Businessman Linus Gitahi will take over as chairman, joining new executives who have joined in recent months, as the Paunrana family which still holds a significant stake in the company is further pushed aside.
“The board has identified a new CEO and is at an advanced negotiation to finalise the contract of employment,” ARM said in a regulatory filing signed by Company secretary John Maonga, who also recently joined the company following the resignation of long-serving Ramesh Vora.
“Once appointed, the new CEO will join the board and announcement to that effect will be communicated accordingly,” the statement said.
CDC is also providing $20 million (Sh2 billion) to save ARM. The cement maker will get another $120 million from the International Finance Corporation as part of efforts to ease its debt burden. The IFC loan, which has a maturity of 10 years, will be repaid at an interest rate of about six percent.
Cement demand in Kenya declined in 2017 and this significantly affected the industry. A price war war waged by new private companies such as National Cement, Mombasa Cement and Savannah Cement also affected the industry where supply now outstrips demand.
However, cement makers in the East African country will be hoping for a rebound in the market as the government rolls out its agenda to increase housing by 1 million units in five years. There is also the second Phase of the Standard Gauge Railway (SGR) project to Naivasha, as well as the expansion of various ports.
SIB notes that while hope seems to be in sight, “competition will remain intense as cement companies increase their capacities in an oversupplied regional market”.