Corporates plunge into losses in excess of Sh60bn

It was a terrible last week for chief executive officers of listed companies some having to pose before cameras to reveal losses in billions of shillings offering a glimpse into the gravity of Covid-19 on corporate Kenya.

As companies rushed to beat the April 30 reporting deadline, it emerged that corporate Kenya has booked losses of over Sh60 billion and counting.

Zero dividends

So far companies that have made losses include Kenya Airways, Britam, Housing Finance, Kenya Orchards, Kenya Power, Standard Group, Airtel Kenya, Madison Life, UAP Life, Spire Bank, Old Mutual Assurance, CIC Group, Eveready East Africa, Real People Kenya, Occidental Insurance and Homeboyz Entertainment among others.

This now makes 2020 one of the most painful years for investors on the Nairobi Securities Exchange (NSE), who now have to deal with the twin problem of capital flight, which has depressed share prices on the bourse, and a cash drought as directors vote to declare zero dividends to preserve the much-needed cash to fight the pandemic.

The Kenya Revenue Authority (KRA) should also expect less money from income taxes collected from public companies. What is worse, the rate of unemployment is set to worsen given that firms struggling to keep afloat may have to offload staff or freeze new hiring until the sky is clearer.

Investors were treated to an agonising reporting period, reading financial statements of listed companies as they lined up to post record-breaking losses in a streak of negative performance ever to be witnessed in recent times. 

First it was Kenya Airways that sent shivers through the Capital Markets when it reported a staggering Sh36.2 billion full year loss in March.  The national carrier had broken its own record, to report its worst performance in history. Though it had been expected that the airline was going to take a beating from the lockdown, not even analysts expected it would be nearly three times the Sh12.9 billion loss it made in 2019.

At a global level, 2020 was one of the worst years for aviation sector following the unrelenting march of the Covid-19 virus around the world, which saw countries shut their borders to fight the pandemic.

Then Britam Holdings Plc came in last week, breaking its own record, after it reported a Sh9.1 billion full year loss. This was a huge change of fortunes compared to the Sh3.5 billion profit it made in 2019.

Declining fortunes

Britam blamed its poor performance on a Sh2.3 billion fair valuation loss, and another Sh2 billion loss came from its investment in property.

It also took a Sh823 million hit from its investment in HF Group Plc, whose performance was impacted by the pandemic and the declining fortunes in the real estate sector.

This means that even the sectors that were seen as the safest bets in investment such as the real estate are also hurting.

Britam Group’s new boss Tavaziva Madzinga who had the unenviable task of announcing the losses last week, said the company is looking to grow its customer base by developing new targeted and customised products.

The Zimbabwean replaced long-serving Benson Wairegi at the helm of the company in February.

“Britam is well-placed to tap emerging opportunities with its underlying financial strength and a diversified business model,” Mr Madzinga said.

Though not listed on the NSE, Airtel Kenya made a loss of Sh5.6 billion in the financial year to March last year according to disclosures by its parent company, Bharti Airtel Limited. It is yet to report the full year to March this year. But looking at the direction of its earnings, the company is highly unlikely to pull out of the red in a Covid year.

The telco is now insolvent to the tune of Sh46.93 billion after the gap between its liabilities and assets widened further from the Sh43.34 billion recorded in the previous year.

By September last year, investment company Centum had posted losses of Sh1.98 billion. The firm is yet to report its full year results but it already issued a profit warning meaning that its earnings will be significantly lower than what it reported in 2019.

Spire Bank, which is owned by teachers, reported a Sh1.2 billion loss while Kenya Power made a Sh939 million loss in the year to December 31, 2020.

Madison Life Assurance also sunk deeper into the red after it doubled its losses to Sh692 million in 2020.

On its part, UAP Life Assurance made a Sh484 million loss, while its sister company Old Mutual Assurance recorded a Sh662 million full year loss. The Standard Group booked a Sh301 million full year comprehensive loss, Allianz Insurance Company made a Sh300 million loss while CIC Group reported a Sh296 million loss in the year ended December 31, 2020.

On its part, Real People Kenya Limited reported a Sh171.4 million loss while Occidental insurance made a Sh80.9 million loss compared to a Sh248 million profit in 2019.

For some such as Real People Kenya and Kenya Power, the loss making could not have come at a worse time given the fact that they are carrying heavy debt burdens that are threatening to sink them further.

“Our Capital remains below the minimum covenant requirements hence our continued engagement with debt and equity providers with a view to alleviating the debt and interest burden borne by the company and to placing the company on a path to sustainable profitability,” Real People said in a statement to the financial markets on Friday last week.

Kenya Power, which had made profits for over17 years slipped in the loss making territory last year and its fortunes continue to dwindle after it booked Sh16 billion in system losses. Last week, the firm, which is owned 50.1 percent by the Government of Kenya, started scouting for a deep-pocketed financial institution to refinance its commercial debt.

Its current annual level of debt service costs is over Sh20 billion.

“The company seeks proposals to help achieve this through extending existing tenors,” it said in its expression of interest document released last week.

The utility company also wants to mitigate its foreign exchange risk given that over 85 percent of the company’s debt is unhedged on a long-term basis and denominated in foreign currency while its income is denominated in Kenya shillings.

If this performance is a reflection of what is happening in the private companies, which are not obliged to make public their earnings, then the country should expect more job cuts in the coming days.

A number of companies among them paint maker Crown Paints Kenya Plc, East African Cables and Home Afrika have asked for more time from the Capital Markets Authority (CMA) to announce their results. It is only after this happens that the full impact of 2020 on earnings will be known.

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