Athi River Mining Cement on Monday appointed Linus Gitahi as a non executive director and the company’s board Chairman, tasked to ensure a turnaround of the company’s performance as well as restore investor confidence.
“I wish to welcome Mr. Linus Gitahi and Mr. Thierry Metro. Mr. Gitahi will take over as Board Chair while Mr. Metro’s experience in the Cement business will be critical as the board takes the lead in spearheading the turnaround of the company.” Noted outgoing Chairman Mr. Wilfred Murungi.
This marks an important inflection point for the company given the skills sets the two gentlemen will bring on board to lead a return to better top and bottom-line momentum in the long run.
At the same time, Mr Surendra Bhatia announced his retirement as Deputy Managing Director.
A look at the past
ARM Cement is a familiar name to many households in Kenya with its flagship Rhino Cement. The name provides nostalgic memories to the Nairobi Securities investors whom it hypnotized with its dazzling performances in the 2000s running into early 2010s.
During this period ARM Mining Cement was a darling of NSE investors as it did more than a 10bagger, something that rarely happens in the stock exchange. Growth stock investors yearn for such opportunities! The company’s revenue grew more than six fold from just KES 2.2b in the year 2005 to KES 14.1b in the year 2013. Its profits followed the same trend growing from KES 199M to KES 1.3b. Based on this spectacular performance, ARM Cement was easily the king of the mountain amongst listed Cement manufacturing companies and a top dog in capital gains in the whole bourse. For a company that was listed only in the year 1997 the run to 2014 was incredible and investors who held the shares over this period were handsomely rewarded with capital gains.
The Slump
In an unprecedented turn out of events, the company announced a loss of KES 2.8b in the year 2015 followed by a similar loss a year after. This period was characterized by delayed project completion of the Tanga clinker plant in Tanzania. Clinker is a vital raw material for cement production.
There was also the issue of dollar denominated loans that was exacerbated by currency fluctuations in East Africa in 2015. The company found itself in the middle of a hodgepodge of issues that required restructuring of their balance sheet and the business as a whole. They brought in a strategic investor CDC who pumped in USD 140M as a strategic investor to help with the turnaround. This plus many other efforts put by management are yet to bear fruits and investors remain bearish on the company. The business numbers are still on a slump coupled with the tight competition in the industry and a decreasing demand for cement in the sector.
Turnaround
ARM Cement has hugely been controlled business and indeed the founding family still controls a significant stake.
Family controlled businesses due tend to struggle transitioning from one generation to another and we are of the opinion that this is the best time for the company to try to bring qualified and competent high level managers and board. A business is like a living thing and it is important to feed it with fresh and new ideas if it is to transitions across generations.
The company’s move to restructure the board and senior management with experienced executives will ensure a turnaround of the business.
For instance, Linus Gitahi is an experienced business leader having served as the CEO of Nation Media Group and sits in the board of several companies across the region.
On the other hand, Mr. Thierry Metro has held several positions at Lafarge, one of the world’s largest cement producers. He brings on board significant leadership, experience, operational expertise as well as insights and perspectives about the cement business from a global standpoint. He currently serves as a director at Lafarge.
Indeed, the market is optimistic that the company still has a great chance to restructure its balance sheet and business operations and be able to compete favorably. This will require a lot of effort, goodwill and flexibility from its majority and minority shareholders. The ball really is in the court of its board and top shareholders. The company needs a catalyst and it remains in our watch list.
