Kenya's ARM Cement expects profitability to improve now it produces its own clinker for its east African cement plants, its managing director said on Friday.
ARM Cement, east Africa's second biggest producer behind Bamburi cement, posted a pretax loss of 473.5 million shillings ($4.5 million) in the first six months, which the firm blamed on unrealised foreign exchange losses associated with borrowing for its new clinker plant, a vital raw material for cement.
Currencies in east Africa, where infrastructure and other construction projects are pushing up demand for cement, have been weakening this year, partly as a result of a global shift away from emerging markets and into the U.S. dollar.
Managing Director Pradeep Paunrana told Reuters a new plant to produce clinker had capacity of 1.2 million tonnes a year and was operating at about 75 percent capacity since production began in April.
"What this essentially means is that our production cost has come down drastically because imported clinker is much more expensive -- at least 70 or 80 percent more expensive than what we are producing locally," he said in an interview.
"So we expect improvement in our margins both in Kenya and in Tanzania with the production of our own clinker," he said, adding that ARM was also selling clinker to other companies in Tanzania, Democratic Republic of Congo, Rwanda and Burundi.
ARM's operating margin was 13.4 percent in 2014 according to Thomson Reuters data, compared with an industry median of 15.5 percent.
Paunrana said he expected an improved financial performance in the second half of the year, citing the 9 percent rise in earnings before interest, tax, depreciation and amortisation (EBITDA) in the first half to 1.94 billion shillings.
"The company is still very profitable, especially now that we have more clinker production and more volume growth," he said, adding that earnings in foreign exchange were rising.
He said ARM now had an advantage over some rivals. "We are keeping our margins steady and are now becoming a lot more competitive against those who import either clinker or finished cement," he said.
ARM would approach the capital markets to borrow the equivalent of between $50 million and $75 million in local currency to replace some short-term debt in the future, Paunrana said, without giving details on exact timings.