Agony as Kenyan companies lose a third of profit in four years

Selected companies

NAIROBI, KENYA: In the last five years, the profits of most Kenyan companies have shrunk by a third. Consequently, managers have had to execute painful cost-cutting measures like job losses and other panic strategies to stay afloat.

An analysis by Financial Standard (FS) also reveals that 2013 was the best year for most listed companies in Kenya. Cumulatively, since 2013 when Jubilee under President Uhuru Kenyatta came to power, the 56 companies whose results FS analysed, have lost Sh61.27 billion from their earnings.

Most of these companies had bloomed in the decade (2003-2012) Mwai Kibaki-first under Narc coaliton and then the Grand Coalition-was president.

As the market awaits the full results for 2017, already the results of the few companies that have reported their financials show a persistent trend in the profit fall. Despite the confidence exuded by many of the chief executives interviewed by FS for the 2018 maiden issue, growing profits appears an elusive art for many of them.

On many occasions, what has initially been described by many executives as “good year” fades into a challenging year.

Of 13 of the listed companies which have already reported their full-year net earnings for 2017, four are in the loss-making territory, while three have seen a drop in profits from their 2016 performance.

From the best performance of Sh210.3 billion in 2012, profits of most companies have been chipping away year in year out since then.

In 2016, the same set of companies only managed a combined profit of Sh149 billion, being nearly a third (29 per cent) below the profits posted in 2013. 

Listed Banks

Only Safaricom and most of the 11 listed banks have managed to grow their profits consistently during this period. But even so, a quarter of all the combined made last year belongs to Safaricom. In fact, Safaricom’s profit in 2016 is 42 per cent of what the 11 listed banks posted.

In fact, Safaricom and the 11 banks commanded Sh128.3 billion (86 per cent of the profits), leaving out the rest of the 44 companies to share Sh20.6 billion.

Since 2007, profits of the 56 companies were consistently growing. It reached a peak in 2013.  Since then, the profits have stagnated, for the unlucky ones, losses.

Disruption from technology and changes in legislation are now proving a disaster for media companies and financial institutions. The digital age has come with a prize. The instinct to protect their profits has forced the two sectors to think anew. The heaviest casualties have been employees. In particular, banks have been sending home employees as they switch to digital services from the ‘brick and mortar’ banking. The latest supervision report from Central Bank of Kenya notes that in 2016, banks shed a record 2,517 jobs.

Telecoms

Safaricom’s trend has been enigmatic, consistently growing profits even in the testing moments in the aftermath of the 2007/08 post-election violence. That year, the same period it launched M-Pesa service, it posted a profit of Sh12 billion. By 2010, its profits had hit Sh15 billion and Sh23 billion four years later.

Last year, it closed the financial year with another record profit of Sh48.4 billion. Its share price has also outdone itself on the Nairobi bourse, setting an all-time high of Sh28.25 in November.

It was listed at Sh5 per share in 2008.

Yet despite that, the rosy picture at the Safaricom Centre has not spread to other corporates.

Half of the agricultural companies have faced losses at least twice in the last four years. Limuru Tea and Williamson Tea returned losses of Sh19.7 million and Sh261.6 million respectively in 2016.

Indications of a poor outing last year are written in the air.

After six months of trading in 2017, Limuru Tea Ltd returned a loss of Sh4.51 million. This was attributed to long spells of drought experience in the year. It is safe to say that earnings for the sector have been unpredictable, giving CEOs hard times in planning.

For instance, while over 18 companies issued profit warnings in 2015, it was the year agricultural firms had a successful run. Combined, their profits hit Sh2.28 billion from just Sh62 million in the previous year. However, 2016 saw depressed profits of Sh1.28 billion or 44 per cent lower than in 2015.

Motoring sector

 In the car and accessories industry, 2016 was the worst run in a decade. The going has been tough with CMC Motors delisting from the Nairobi Securities Exchange (NSE) in 2015. Last year, Marshalls East Africa followed suit by limping out of NSE.

“Marshalls has declared losses for a number of years. In order to reposition the business to face these challenges, the board has recommended that the company seek to delist from the NSE,” the firm announced before it commenced delisting.

Tyre-maker Sameer Africa, followed suit, delisting from the NSE but its trail of losses is documented. The company has posted losses since 2014, with its decision to close the tyre manufacturing plant not helping it back to profitability. In 2016, it posted a loss of Sh652 million, being wider by 417 times compared to the Sh15.7 million loss posted in the preceding year. It had grown its bottom line consecutively since 2010 to a peak of Sh401 million recorded in 2013 before a streak of losses set in.

Car & General, the only remaining auto firm that is listed is also on a downward trend. Since 2013, its profits have been dropping. In fact, 2016 saw it leave a nine-digit profit, making it the worst return since 2007. Its profits dipped by a third to Sh88.9 million.  

In Commercial and Allied Services segment, CEOs are back to the drawing board. Half (five) of the companies under that segment are in losses, at least going by 2016 returns.

New entrants on the NSE, Deacons East Africa and Nairobi Business Ventures have not had an impressive run. They have issued a profit warning implying at least a 25 per cent drop in profits for 2017.

Their counterpart, Atlas Africa Ltd has also seen subdued profits. Its shares on NSE remain suspended and it also got delisted from the London Stock Exchange.

For Eveready East Africa, one has to go back to 2013 the last time they posted a profit.

Logistics firm, Express Kenya, also sails in this boat. Since 2013, their losses have been widening.

Eveready closed 2016 with a loss of Sh206.5 million. The court battle with Energizer, stock-outs and the influx of cheap products, the management, says, has complicated its fortunes.

It even closed its Nakuru plant opting instead to import its products. This is yet to translate to good numbers.  

Commercial and service sector

For Kenya Airways, it last booked profits six years ago. Its fortunes started dimming in 2012 as reports of mismanagement and debt came up. Its earnings halved to Sh1.66 billion. Then losses set in throwing it into more turbulence.

Two CEOs have since been hired with the latest being a Polish national. But profits remain elusive for the debt-ridden airline whose latest loss is Sh10.2 billion.

In the media industry, Nation Media Group has recorded a drop in the bottom line since 2013 while its counterpart Standard Group Plc (the publisher of The Standard) has had mixed fortunes, posting a Sh395.8 million loss in 2015.

For non-listed firms- Radio Africa and Royal Media Services- jobs have also been shed. TPS Eastern Africa, which runs Serena Hotels, has also seen a drop in profit, sinking into loss in 2015, the first time in over eight years.

Uchumi Supermarkets, once Kenya’s success story of retail chains has also been in losses for the last three years. From cooking of books to conflicts of interest at management level, its rosy affair with profits was halted in 2014.

Another player in the retail space, Nakumatt Holdings is also battling for its survival. Over 120 suppliers are on its neck as it grapples with a debt estimated at Sh40 billion. And all it has done in the recent days is sack employees and shut down branches.

In construction and allied segment, two firms - ARM Cement and East African Cables - have been in losses since 2015. ARM has initiated changes in management, in a bid to save its fortunes.

Cement market leader, Bamburi has Standard Gauge Railway to thank for its good performance in 2015 and 2016.

However, in the absence of benefits from this project and a challenging environment, it has issued a profit warning, meaning that its earnings for 2017 will be lower than that of previous one.

“The expected decrease is mainly attributable to weaker performance of business as a result of contraction of the cement market partly due to poor private sector credit growth, drought conditions together with effects of pre-and post-election periods,” the firm said.

East African Portland Cement lost Sh3 billion or 42 per cent of its profits, to settle at Sh4.13 billion in 2016. That left Crown Paints as the only firm whose profits grew even as the five firms in that segment lost Sh2.7 billion combined in a space of one year.

In insurance, two-thirds of the listed firms recorded a drop in profits when you compare the 2015 to 2016 performance. Britam, which bounced from a loss position in 2015 into a profit of Sh2.5 billion has issued a profit warning for the 2017 earnings. Ahead of changes in accounting standards for insurance firms, many of them find themselves without enough capital and may be in the market in search of fresh one.

Investment firms have not done any different. From a combined profit of Sh83.8 billion in 2013, their star has dimmed to Sh802 million in 2016. This net return is 104 times lower than what it was in 2013.

That was also the last time Trans-Century posted a profit. Since then, it has been piling losses.

 “In 2016, the business faced an extremely challenging environment due to limited access to credit largely as a result of perceived uncertainties around the group’s ability to pay or refinance a maturing Eurobond,” observed CEO Nganga Njiinu.

Home Afrika has been making losses for the last two years. For Centum, whose profits have been rising since 2013, last year proved hard to replicate the same. Its bottom line slowed by 14 per cent to Sh1.57 billion.

Manufacturing

In the manufacturing and allied firms, five out of the eight listed firms saw a drop in profits in 2016 even as one – Mumias Sugar- widened its losses. Since tasting profit of Sh2 billion in 2012, losses have set in, widening each year. Last year, it closed with a loss of Sh6.8 billion.

Last year, Unga Group posted a Sh32.3 million loss from a full year profit of Sh508.9 million forcing it to issue a profit warning as so did Flame Tree Group.

BOC Kenya, Carbacid Investments, East African Breweries and Kenya Orchards all saw a drop in profits in 2017.

For firms in the Energy and Petroleum segments, it has been a heart-warming story of rising profits since 2011 with Total Kenya and KenolKobil pulling out of losses. However, KenGen lost Sh4.8 billion or 42 per cent of its bottom-line in 2016.

As CEOs of these 56 listed companies and many other unlisted ones press every possible button to steady the ships, the good performance of the years up to 2013 remain a treasured memory.