Two-thirds of companies that are active on the Nairobi bourse reported losses or reduced earnings in their last financial year, a review by Nation Newsplex reveals.
Fifteen of the 64 companies that traded on the stock exchange reported losses, two less than in the 2015 financial year, while 25 of the companies, or 39 per cent, recorded falling after-tax profits. Another 23 firms, or a third, declared increased profits.
One company, Stanlib Fahari, declared its first full year of trading on the NSE. Fiscal years end in different months for various companies, which is followed by the release of their audited financial reports.
The analysis also finds that a third of the companies announced reduced revenues including eight firms that were profitable.
The performance of NSE-listed companies is a barometer of national economic performance. “When a large number of companies record reduced revenue and earnings it means the economy is doing less than expected,” says Mr Joseph Karogo, a corporate finance specialist with Ventures and Gains Ltd.
The listed companies are well known, most-preferred brands in Kenya that customers are willing to buy, according to Mr Karogo. Reduced spending on these products and services therefore indicates diminished spending power of consumers and clients. He says increased competition can also affects a company’s turnover.
Other factors that affect earnings include operational costs including personnel costs, energy costs and prices of other inputs.
Karogo told Newsplex that the poor performance of most listed companies is mainly due to low circulation of money in the economy. “The Jubilee Government has concentrated on a few flagship projects which have taken up the bulk of its expenditure resulting in lower money velocity as opposed to previous governments like the Grand Coalition, which spread out their spending among many projects and contractors which resulted in a multiplier effect.
“While grand projects pay off in the long run, fewer big projects results in lower velocity of money while many smaller projects increase multiplier effect of the money paid.”
The listed firms on the NSE are leaders in various sectors, including agriculture, automobiles and accessories, banking, commercial and services, construction and allied, manufacturing and allied, insurance, investment, investment services, exchange traded funds , real estate investment trusts, energy and petroleum, and telecommunications.
RETURN TO PROFITABILITY
The commercial and services sector was the worst hit, and includes seven of the companies that recorded losses or dwindling profits. Five companies in the sector made losses, while two reported reduced profits, finds the Newsplex analysis.
The manufacturing and allied sector also had a rough year with six companies announcing reduced profits and two announcing losses. It was followed by the banking sector in which five of the listed banks announced reduced earnings.
The banking sector had mixed fortunes as six of the banks reported increased profits. All eleven listed banks recorded increased revenues.
Kenya Airways made the largest loss of all the listed companies, followed by Mumias Sugar and Uchumi Supermarkets. In the financial year ended March 31, 2017, the national carrier posted a net loss of Sh10.2 billion, a 61 per cent improvement over the previous year’s loss of Sh26.1 billion. Revenues, however, fell by nine per cent to Sh106.3 billion.
The company, which has been struggling to return to profitability in the last few years, attributed the reduced losses to an increase in passenger numbers by more than five per cent, to 4.5 million, and the rationalisation of operations which resulted in a decline in direct operating costs by Sh2.5 billion to Sh65.2 billion.
In the financial year ended March 2016, the airline, which is in the commercial and services sector, reduced its headcount by 132 to 3,870 staff members.
Mumias Sugar, a sugar processing company in the manufacturing and allied sector, reported the second-worst loss of NSE-listed firms despite a noticeable 14 per cent increase in revenue.
It made a turnover of Sh6.3 billion and a loss of Sh4.7 billion in the financial year ended June 2016, compared to Sh4.6 billion the previous fiscal year. Mumias Sugar is yet to announce audited results for the year ended June 2017.
According to the company, which attributed the losses to a shortage of sugar cane, decrease in cane production is caused by farmers abandoning cane for other crops due to low returns from cane farming. Higher volume sales of ethanol and higher sugar prices were responsible for its increased revenues.
Uchumi Supermarkets posted the third-worst loss of Sh2.8 billion in the financial year ending June 30, 2016, over half a billion shillings less than its loss the previous fiscal year. The loss was accompanied by a 50 per cent slump in turnover and a reduction of employee numbers by 747 to 2,317.
Uchumi is in the commercial and services sector. Other companies in the sector that suffered losses include Express Ltd, which recorded a loss of Sh97 million, Atlas Development and Support Services (Sh216 million), and Deacons (East Africa) Plc. (Sh276 million).
Limuru Tea Company reported a seven-fold drop in earnings, the worst percentage decline recorded. The company suffered a net loss of Sh19 million in the financial year ended December 2016, from a net profit of Sh2.5 million the previous year.