The exchange losses won't impact on ARM's performance alone. Kestrel said the following about KenolKobil:
"While the company is 50 percent hedged on its dollar liabilities, we hold the view that there is high likelihood of significant forex losses in 2011 as a result of the depreciation of the shilling,"

This sounds like music to my ears.

I hope this doesn't trigger anything.

The ARM results have elicited a varied reaction from the investor public and I am loving the discussion. Let me share my two cents, the results were generally good considering the harsh economic environment. A 37% increase in its turnover is respectable and I expect this turnover to continually grow as the cement plant in Tanga and the grinding plant in Dar are expected to be operational next year.
The construction sector in Kenya is expected to continue to be a key pillar to drive this country towards Vision 2030. The continued spending infrastructure, real estate in Kenya then there's the newest country in Africa who need to build their infrastructure necessitating ARM to strategise on a regional basis which it is doing so professionally.
I will expect activity on the counter to pick up based on the results, don't expect too much downward pressure or pull back as its core business is still strong and viable.

Maybe the share rose because Mr. Market understood that ARM performed well. The profits were down to exchange losses and not because of poor performance.

There 3 choices in this case:

1) Hedging the FX Loan in its entirety which can be pricey thus negating the advantage of borrowing in FX (US$) vs KES.

2) Hedging the FX CASH FLOWS - which can be pricey as well since ARM has to find a counterparty whose premiums/costs may negate the advantage of borrowing in FX (US$) vs KES.

3) "Natural" hedging the FX CASH FLOWS - These are through sales of goods & services in FX.

The 'loss' made by ARM is a Mark-To-Market loss but as most export sales are made in US$ the 'loss' will be reduced by the difference in increased KES per US$ earned. The 'problem' arises if US$ sales drop.

4Q 2011 will probably see another MTM loss but hopefully ARM can export more cement/goods priced in US$.

KQ is another firm that faces this accounting 'problem' since the Loans (in US$) are MTM during the period to account for KES depreciation. The income in US$ (used to pay the Loan) comes in over several years.

So for all practical purposes, this is a Balance Sheet adjustment not a P&L item.