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Question one The Mise and Fall of ARM Cement ARM Cenneet Limited, formerly Athi River Miaing Limined, was one of last and Cenural Africa's largest cemert producers boasting eperations in Kenya, Tanmania, Rwanda and South Africa. ARM also owecd the largest clinker plant in the region at the height of its existence, enabling the company to scll and cyport clinker to other countries. ARM recorded signiffeant growth from its Initial Public Offer (IPD) in 1997, with its revenue growing at a 10 -ycar Compounded Annual Girewth Rate (CAGR) of 21% from 2005 to 2015. Cement production also recorded significant growth, growing to 2.6mn Tonnes Por Anewn (TPA) in 2014, from 60,000 TRA in 1996, an 18-ycar CAGR of 23%. The significant growth in fivenue and cemstut production points to the substantial investacat made by the company over the years as it aimed to be the largest cenient manufacturer in East and Central Africa. In 2008 , ARM troke greand ew a 1.5man TPA cemens plant in Tanga, Tanzania, intending to sizaificantly increase the company"s pecterce in East Africa and with the expectation that the plant, along with the eperations in Kenya, weald double the company's tumever and profitability. ARM acquired a USD 1.0 ma long term loan to finasce the plant in 2008, which was wecured against the plant. The Tanga cement plant was owned by Mawcai Limcstone Lad, a 1005, owned subsidiary of ARM Kenya, Before the conopletion of the Tanga Cement, ARM had managed to dowhle its turnover and peofit by 2012, with its revenue ineriasing to Kshs 11.2 be in 2012 , from Kshs 4.6 bn in 2008 , while Profit Bcfoec Tax (PBT) inereased to Kahs 1.8 be in 2012, freen Kshs 0.7 bn in 2008. This growth instilled confidence in the managermed and spurred further itvestencen in Tancania. The Tanga cement plans however experienced delayx, and the plan was oficially opened in 2014, compared so expectations that the plant would be up and running by 2012 . By the time the plant was opened in 2014, ARM"s Debt to Assets bad increased to 0.74x from 0.67x in 200s, while the Debt to Equity rose to 2.9x, from 2.0x in 2008. ARM's main challenger began in 2014, the same year the elinker plast 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 share in the country. Tarrania's GDP and cement consuraption had becn growing faster than in Kenya, censequenaly ateracting new players into the matket. This alwo included impoets from China and Pakistan. The cempany mandated a group of lead arrangers (Barelays Baak of Kema. CFC Stanhic Bank and Standard Chartered Batk) to in 2014. the first sign of weaking capital distress. By this time, short term boerowings were 73% mote than long term borrowings, with the Kash 1.6 bn Equity linked note secured in 2010 maturing in 2015 and the Keshs 1.8 bn Aurcos Income note also maturing in 2015 . ARM was under pressure to refieance the short-term debt as well as setle Kaths 3.4 bn within a short period of time and amid a liguidity crunch. In 2016, ARM's asditors raistd cencerns about the coenpany's ability to operate as a going concem duc to its negative working capital position. ARM's working capital had been deteriorating since 2013 to a ncgative position of Kshs 13.5 bn in 2017. CDC's itwestment assisted in fodecing the deficit and repaying the eutstanding debt, but ARM's negative capial postion persislod. In 2017, the finm's financial distress contienkd, with the Loss AAter Tax growing to Kshs 6.5 bn, from a loss of Kshs 2.8 bn in 2016. The manuyensent attributed the koss 10 the toyeh marked conditiees folkwing the 2017 elections in Kenya, the impert bas for coal in Tanzania, and the group's deteriorating woeking capital. ARM's curtent labelities during the period were Kshe 17.2bn, with the current assets at Kshe 3.7 ba. To impoove their capital position, the management proposed to sell their Noe-Cemem Business, i.e. Mavwno Fertilisers Limsited to Omya (Schweiz) AG and Pinner Ilcights Kenya Limited (P1IL). through a circular to sharcholders dated 22ed Docember 2017. The sale was also PH1. carkelled this acquisitien. In August 2018, following ARM's default of approximasely K'shs 500 ma overkaft factity from United Bank of Africa (LBA). ARM was put under administration, with Mr Muaiu Thoiti and Mr George Wera being apointed as joint administrations. The administration process Jed to the suspension of trading of ARM's shares in the Nairobi \$ecterities Exchange (NSE) for 6 menths. In 23nd Febraary 2019, NSI exiended the suspension of trading of the shares on the bourse for a further 6 months: In Q4'2019, the administrators successfully sold all ARM censent and non-cement assets to National Cement at a price 2020, ARM completed the sale of all its shares in Maweni Limesione to Huaxin Cement for USD 1l6 mn, however, the Tanxania Revenue Authority imposed a L51 22mn Capital Gain Tax, Thetefere, the ale of these asces was not snough to pay off the K.les 32.1 be ARM owed its creditedx. ARM retrained under admenistratise for more that two years, and in 2021, followiag the completion of the sale 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 credited, taking a 93.8% haircut of the amount claimed. BII, who held approximately 42*6 shares in the company, ane also anong the biggest losers in the firm. Required 1. 1. Download ARM Cement Lienited 2016 annual repert thesps:ilafricantinancialsccen idocument ke-arm-2016-aroon. 2. Calculate and analyze any five ratios that you can use to etahase the case ahove. (20 marks) 1.3. Using Altman Z. Score model, evaluate the business financial dittress for years 2015 and 2016 , (10 marks) Question one The Mise and Fall of ARM Cement ARM Cenneet Limited, formerly Athi River Miaing Limined, was one of last and Cenural Africa's largest cemert producers boasting eperations in Kenya, Tanmania, Rwanda and South Africa. ARM also owecd the largest clinker plant in the region at the height of its existence, enabling the company to scll and cyport clinker to other countries. ARM recorded signiffeant growth from its Initial Public Offer (IPD) in 1997, with its revenue growing at a 10 -ycar Compounded Annual Girewth Rate (CAGR) of 21% from 2005 to 2015. Cement production also recorded significant growth, growing to 2.6mn Tonnes Por Anewn (TPA) in 2014, from 60,000 TRA in 1996, an 18-ycar CAGR of 23%. The significant growth in fivenue and cemstut production points to the substantial investacat made by the company over the years as it aimed to be the largest cenient manufacturer in East and Central Africa. In 2008 , ARM troke greand ew a 1.5man TPA cemens plant in Tanga, Tanzania, intending to sizaificantly increase the company"s pecterce in East Africa and with the expectation that the plant, along with the eperations in Kenya, weald double the company's tumever and profitability. ARM acquired a USD 1.0 ma long term loan to finasce the plant in 2008, which was wecured against the plant. The Tanga cement plant was owned by Mawcai Limcstone Lad, a 1005, owned subsidiary of ARM Kenya, Before the conopletion of the Tanga Cement, ARM had managed to dowhle its turnover and peofit by 2012, with its revenue ineriasing to Kshs 11.2 be in 2012 , from Kshs 4.6 bn in 2008 , while Profit Bcfoec Tax (PBT) inereased to Kahs 1.8 be in 2012, freen Kshs 0.7 bn in 2008. This growth instilled confidence in the managermed and spurred further itvestencen in Tancania. The Tanga cement plans however experienced delayx, and the plan was oficially opened in 2014, compared so expectations that the plant would be up and running by 2012 . By the time the plant was opened in 2014, ARM"s Debt to Assets bad increased to 0.74x from 0.67x in 200s, while the Debt to Equity rose to 2.9x, from 2.0x in 2008. ARM's main challenger began in 2014, the same year the elinker plast 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 share in the country. Tarrania's GDP and cement consuraption had becn growing faster than in Kenya, censequenaly ateracting new players into the matket. This alwo included impoets from China and Pakistan. The cempany mandated a group of lead arrangers (Barelays Baak of Kema. CFC Stanhic Bank and Standard Chartered Batk) to in 2014. the first sign of weaking capital distress. By this time, short term boerowings were 73% mote than long term borrowings, with the Kash 1.6 bn Equity linked note secured in 2010 maturing in 2015 and the Keshs 1.8 bn Aurcos Income note also maturing in 2015 . ARM was under pressure to refieance the short-term debt as well as setle Kaths 3.4 bn within a short period of time and amid a liguidity crunch. In 2016, ARM's asditors raistd cencerns about the coenpany's ability to operate as a going concem duc to its negative working capital position. ARM's working capital had been deteriorating since 2013 to a ncgative position of Kshs 13.5 bn in 2017. CDC's itwestment assisted in fodecing the deficit and repaying the eutstanding debt, but ARM's negative capial postion persislod. In 2017, the finm's financial distress contienkd, with the Loss AAter Tax growing to Kshs 6.5 bn, from a loss of Kshs 2.8 bn in 2016. The manuyensent attributed the koss 10 the toyeh marked conditiees folkwing the 2017 elections in Kenya, the impert bas for coal in Tanzania, and the group's deteriorating woeking capital. ARM's curtent labelities during the period were Kshe 17.2bn, with the current assets at Kshe 3.7 ba. To impoove their capital position, the management proposed to sell their Noe-Cemem Business, i.e. Mavwno Fertilisers Limsited to Omya (Schweiz) AG and Pinner Ilcights Kenya Limited (P1IL). through a circular to sharcholders dated 22ed Docember 2017. The sale was also PH1. carkelled this acquisitien. In August 2018, following ARM's default of approximasely K'shs 500 ma overkaft factity from United Bank of Africa (LBA). ARM was put under administration, with Mr Muaiu Thoiti and Mr George Wera being apointed as joint administrations. The administration process Jed to the suspension of trading of ARM's shares in the Nairobi \$ecterities Exchange (NSE) for 6 menths. In 23nd Febraary 2019, NSI exiended the suspension of trading of the shares on the bourse for a further 6 months: In Q4'2019, the administrators successfully sold all ARM censent and non-cement assets to National Cement at a price 2020, ARM completed the sale of all its shares in Maweni Limesione to Huaxin Cement for USD 1l6 mn, however, the Tanxania Revenue Authority imposed a L51 22mn Capital Gain Tax, Thetefere, the ale of these asces was not snough to pay off the K.les 32.1 be ARM owed its creditedx. ARM retrained under admenistratise for more that two years, and in 2021, followiag the completion of the sale 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 credited, taking a 93.8% haircut of the amount claimed. BII, who held approximately 42*6 shares in the company, ane also anong the biggest losers in the firm. Required 1. 1. Download ARM Cement Lienited 2016 annual repert thesps:ilafricantinancialsccen idocument ke-arm-2016-aroon. 2. Calculate and analyze any five ratios that you can use to etahase the case ahove. (20 marks) 1.3. Using Altman Z. Score model, evaluate the business financial dittress for years 2015 and 2016 , (10 marks)