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Question one The Mise and Fall of ARM Cement ARM Cenneen Limited, formerly Athi River Miaing Limsied, was one of last and Cenaral Africa's largest cemeen producers boasting operationo in Kenya, Tanmetia, Rwanda and South Africa. ARM also owned the largest clinker plant in the region at the height of its cxistence, enabling the company to scll and export clinker to other countries. ARM recorded significant growth from its Initial Public Offer (IFD) in 1997, with its revenue growing at a 10 -ycar Compounded Annual Growth Rate (CAGR) of 21% from 2005 to 2015. Cement production also recotded significant growth, growing to 2.6mn Tonnes Por Anewam (TPA) in 2014, from 60,000 TRA in 1996, an 18-ycar CAGR of 23%. The significant grewth in tivenue and cement preduction points to the substantial investracet made by the company over the years as it aimed 40 be the largest centent manufacturer in East and Central Africa. In 2008,ARM troke greand en a 1.5man TPA cemens plant in Tanga, Tanzania, intending to sigaificantly increase the company"s pecience in East Africa and with the expectation that the plant, aleng with the epcrations in Kenya, would double the company's tamever and peofitability. ARM acquircd a USD 1.0 ma fong term loan to finasse the plant in 2008, which was wecured against the plant. The Tanga cement plant was owned by Mawcai Lirncetone Ltd, a 100\%, owned subsidiary of ARM Kenya. Before the conopletion of the Tanga Cement, ARM had managed to double its turnover and peofit by 2012, with its nevenue inereasing to Kshs 11.2 be in 2012, from Kshs 4.6 bo in 2008 , while Profit Bcfoec Tax (PBT) increased to Kahs 1.8 be in 2012, freen Kohs 0.7 bn in 2008. This growth instilled confidence ia the managerment and spurred further investment in Tancania. The Tanga cement plass however experieneed delays, and the plan was offieially opened in 2014, compared so expectations that the plant would be up and running by 2012. By the time the plam was opened in 2014, ARM"s Debt so Assets bad increased to 0.74x from 0.67x in 2008 , while the Debt to Equity rose to 2.9x, from 2.0x in 2008. ARM's main challenges began in 2014, the same year the elinker plant in Tanga, Tanvania, was commissioned. Competition in the Tanzanian market was heating up, and the company found itself in a price war amid a battle for market chare in the country. Tarrania's GDP and cement consurription had becn growing faster than in Kenya, consequenaly aferacting new players inte the matket. This alwo included imports from China and Pakistan. The cempany mandared a greup of lead arrangers (Barelays Brank of Kema, CFC Stanbie Bank and Standard Chartered Batk) to assist the Ceenpany in eaisiag its medium to loeg term furding fequerements and to refinance its shoet-term bofroming in 2014. the first sign of weeking capital distress. By this time, shon term boerowings were 73 \% more than long term borrowings, with the Kahs 1.6 bn Equity linked noee secured in 2010 maturing in 2015 and the Keshs 1.8 bn Aurcos Income note also maturing in 2015 . ARM was under pressare to refieance the shorteterm debt as well as sette Kshs 3,4 bn within a short period of time and amid a liguidity crunch. In 2016, ARM's astitors raiscd cencerns about the company's ability to operatc as a going concem due to its negative working capital position. ARM's working caputal had becn deteriocating since 2013 to a ncgative position of Kshs 13.5 bn in 2017, CDC's itwestment assisted in reducing the deficit and repaying the outstanding debt, but ARM's negative capial postion persisted. In 2017, the finm's financial distress contienkd, with the Loss ABter Tax growing to Kshs 6.5 ba, from a loss of Kshs 2.8 bn in 2016. The managensent attributed the loss 10 the byegh market conditioes folkwing the 2017 elections in Kenya, the impert bas for coal in Tanzania, and the group's deteriorating noeking capital. ARM's current labelities during the period were Kshs 17.2bn, with the current assets at Kshe 3.7 ba. To improve their capital position, the managcment proposed to sell their Nen-Cemest Business, L.e, Mavwno Fertilisers Limsited to Omya (Schweiz) AG and Pinner Ilcights Kenya Limited (PIIL). through a circular to sharcholders dated 22 ind Docember 2017 . The sale was also PH3. catcelled the acquisition. In August 2018, followieg ARM's default of approximasely Kishs 500 ma overtaft factity from United Bark of Africa (LBA). ARM was put under administration, with Mr Muaiu Thoiti and Mr George Wera being apointed as joint administrations, The administration peocess led to the suspensice of trading of ARM's ahares in the Nairobi Sectarities Exchange (NSE) for 6 months. In 23nd Febraary 2019, NSI exiended the suspension of tradiag of the shares on the bourse for a further 6 months: In Q4'2019, the administrators successfully seld all ARM censent and non-cement assets to National Cement at a price of Kishs 5.6bn. The Kenya Reveves Authority (KRA) however froce Kish 4.3mn of the procects as tas elaims. In 2020, ARM eompleted the sale of all its shares in Maweni Limesoone to Huaxin Cement for USD 116 min, however, the Tanxania Revenue Authority imposed a USJ 22 mn Capital Giain Tax, Thetefece, the ale of these asets was not cnough to pay off the Kahs 32.1 be ARM owed its crediters. ARM retrained under admenistratise for more than two years, and in 2021, followithe the completion of the ale of ARM's asscts, the liquidation process began, ARM's creditors lost appeoximatcly Kshs 11.5 ba daring the liquidation process, with Sayani Investments, an unsecured creditoc, taking a 93.8% haircut of the amount claimed. BII, who held approximstely 42\%e shares in the company, ane also among the biggest lesers in the finm. Requirod 1. 1. Download ARM Cement Lienited 2016 annual repect thesps:ilafricantinancials.comidocument ke-arm-2016-aroon. 2. Calculate and analyze any five ratios that you can use to etahate the case ahove. (20 marks) 1. 3. Using Altman Z. Score model, evaluate the business financial diutress fot years 2015 and 2016 . (10 marks) Question one The Mise and Fall of ARM Cement ARM Cenneen Limited, formerly Athi River Miaing Limsied, was one of last and Cenaral Africa's largest cemeen producers boasting operationo in Kenya, Tanmetia, Rwanda and South Africa. ARM also owned the largest clinker plant in the region at the height of its cxistence, enabling the company to scll and export clinker to other countries. ARM recorded significant growth from its Initial Public Offer (IFD) in 1997, with its revenue growing at a 10 -ycar Compounded Annual Growth Rate (CAGR) of 21% from 2005 to 2015. Cement production also recotded significant growth, growing to 2.6mn Tonnes Por Anewam (TPA) in 2014, from 60,000 TRA in 1996, an 18-ycar CAGR of 23%. The significant grewth in tivenue and cement preduction points to the substantial investracet made by the company over the years as it aimed 40 be the largest centent manufacturer in East and Central Africa. In 2008,ARM troke greand en a 1.5man TPA cemens plant in Tanga, Tanzania, intending to sigaificantly increase the company"s pecience in East Africa and with the expectation that the plant, aleng with the epcrations in Kenya, would double the company's tamever and peofitability. ARM acquircd a USD 1.0 ma fong term loan to finasse the plant in 2008, which was wecured against the plant. The Tanga cement plant was owned by Mawcai Lirncetone Ltd, a 100\%, owned subsidiary of ARM Kenya. Before the conopletion of the Tanga Cement, ARM had managed to double its turnover and peofit by 2012, with its nevenue inereasing to Kshs 11.2 be in 2012, from Kshs 4.6 bo in 2008 , while Profit Bcfoec Tax (PBT) increased to Kahs 1.8 be in 2012, freen Kohs 0.7 bn in 2008. This growth instilled confidence ia the managerment and spurred further investment in Tancania. The Tanga cement plass however experieneed delays, and the plan was offieially opened in 2014, compared so expectations that the plant would be up and running by 2012. By the time the plam was opened in 2014, ARM"s Debt so Assets bad increased to 0.74x from 0.67x in 2008 , while the Debt to Equity rose to 2.9x, from 2.0x in 2008. ARM's main challenges began in 2014, the same year the elinker plant in Tanga, Tanvania, was commissioned. Competition in the Tanzanian market was heating up, and the company found itself in a price war amid a battle for market chare in the country. Tarrania's GDP and cement consurription had becn growing faster than in Kenya, consequenaly aferacting new players inte the matket. This alwo included imports from China and Pakistan. The cempany mandared a greup of lead arrangers (Barelays Brank of Kema, CFC Stanbie Bank and Standard Chartered Batk) to assist the Ceenpany in eaisiag its medium to loeg term furding fequerements and to refinance its shoet-term bofroming in 2014. the first sign of weeking capital distress. By this time, shon term boerowings were 73 \% more than long term borrowings, with the Kahs 1.6 bn Equity linked noee secured in 2010 maturing in 2015 and the Keshs 1.8 bn Aurcos Income note also maturing in 2015 . ARM was under pressare to refieance the shorteterm debt as well as sette Kshs 3,4 bn within a short period of time and amid a liguidity crunch. In 2016, ARM's astitors raiscd cencerns about the company's ability to operatc as a going concem due to its negative working capital position. ARM's working caputal had becn deteriocating since 2013 to a ncgative position of Kshs 13.5 bn in 2017, CDC's itwestment assisted in reducing the deficit and repaying the outstanding debt, but ARM's negative capial postion persisted. In 2017, the finm's financial distress contienkd, with the Loss ABter Tax growing to Kshs 6.5 ba, from a loss of Kshs 2.8 bn in 2016. The managensent attributed the loss 10 the byegh market conditioes folkwing the 2017 elections in Kenya, the impert bas for coal in Tanzania, and the group's deteriorating noeking capital. ARM's current labelities during the period were Kshs 17.2bn, with the current assets at Kshe 3.7 ba. To improve their capital position, the managcment proposed to sell their Nen-Cemest Business, L.e, Mavwno Fertilisers Limsited to Omya (Schweiz) AG and Pinner Ilcights Kenya Limited (PIIL). through a circular to sharcholders dated 22 ind Docember 2017 . The sale was also PH3. catcelled the acquisition. In August 2018, followieg ARM's default of approximasely Kishs 500 ma overtaft factity from United Bark of Africa (LBA). ARM was put under administration, with Mr Muaiu Thoiti and Mr George Wera being apointed as joint administrations, The administration peocess led to the suspensice of trading of ARM's ahares in the Nairobi Sectarities Exchange (NSE) for 6 months. In 23nd Febraary 2019, NSI exiended the suspension of tradiag of the shares on the bourse for a further 6 months: In Q4'2019, the administrators successfully seld all ARM censent and non-cement assets to National Cement at a price of Kishs 5.6bn. The Kenya Reveves Authority (KRA) however froce Kish 4.3mn of the procects as tas elaims. In 2020, ARM eompleted the sale of all its shares in Maweni Limesoone to Huaxin Cement for USD 116 min, however, the Tanxania Revenue Authority imposed a USJ 22 mn Capital Giain Tax, Thetefece, the ale of these asets was not cnough to pay off the Kahs 32.1 be ARM owed its crediters. ARM retrained under admenistratise for more than two years, and in 2021, followithe the completion of the ale of ARM's asscts, the liquidation process began, ARM's creditors lost appeoximatcly Kshs 11.5 ba daring the liquidation process, with Sayani Investments, an unsecured creditoc, taking a 93.8% haircut of the amount claimed. BII, who held approximstely 42\%e shares in the company, ane also among the biggest lesers in the finm. Requirod 1. 1. Download ARM Cement Lienited 2016 annual repect thesps:ilafricantinancials.comidocument ke-arm-2016-aroon. 2. Calculate and analyze any five ratios that you can use to etahate the case ahove. (20 marks) 1. 3. Using Altman Z. Score model, evaluate the business financial diutress fot years 2015 and 2016 . (10 marks)