Listed firms start last half of year with optimism, caution amid losses

Publicly listed companies in East Africa are under pressure to ensure decent returns to shareholders despite a challenging business environment that has seen a drop in the issuance of interim dividends.

Weakening of local currencies against the US dollar, surging inflation, high interest rates, political instability in Burundi and rising political temperatures in Tanzania, Uganda and Rwanda ahead of the planned presidential polls paint a grim outlook for listed firms.

Quoted companies are cautiously optimistic of improved performance during the six months to December.

“The immediate future (June-December) looks good for us but that depends on so many things some of which are out of the control of the bank,” said Ngeny Biwott, chairman of the KCB Group.

KCB is the region’s largest bank by branch network and has operations in Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan.

The group posted 13 per cent growth in profit during the six months period to June 30 with 90 per cent of the income coming from Kenyan operations.

KCB profit before tax climbed to Kshs13.2 billion ($127.22 million) from Kshs11.67 billion ($112.47 million) in the same period last year, largely driven by interest income and fees and commissions levied on banking transactions.

“In the first six months of 2015, the business operating environment has been slightly unstable in comparison with last year. We had a relatively tough macroeconomic and political environment in most of the markets the bank operates in,” Mr Biwott said last week.

During the period under review, Uganda, Kenya and Tanzania were impacted by currency depreciation and high inflation while the economies of South Sudan and Burundi suffered due to political tensions.

Rwanda, on the other hand, had a relatively stable operating environment.

READ: Region’s central banks target rates to check falling currencies, inflation

Kenyan private sector firms are optimistic of an improved business environment in the remainder of 2015 due to continued investment in infrastructure, credit growth to key sectors and improved confidence in the economy.

But they are worried about the rise in inflation triggered by exchange rate movements and increases in fuel prices, according to a market perceptions survey by the Central Bank of Kenya.

Cement manufacturer ARM recorded a net loss of Ksh 355.8 million ($3.42 million) compared with a net profit of Ksh847.22 million ($8.16 million) in a period last year.

The company’s unrealised foreign-exchange losses occasioned by a weak local currency increased to Ksh1.41 billion ($13.58 million) from Ksh25.81 million ($248,761).

“The sharp depreciation of both the Kenyan and Tanzania currencies in the past few weeks has resulted in a loss of Ksh1.4 billion ($13.6 million) from Kenya’s US dollar denominated borrowings which include the convertible loan notes issued to the Africa Finance Corporation,” said Ramesh Vora, company secretary.

Mortgage lender Housing Finance decided to pay an interim dividend of Ksh0.65 ($0.0062) per share even after reporting a 2.77 per cent dip in profit to Ksh658.98 million ($6.35 million) from Ksh678 million ($6.53 million).

“My main worry is probably interest rates going up in the third and fourth quarter of the year because the ability of the banks to lend is going to be a challenge,” said Samuel Wachira, an agent at Kestrel Capital Ltd.

“The construction sector is contracting. The exchange rate and interest rates are the two key factors to battle with, and are currently very unpredictable,” he added.

In Tanzania Acacia Mining Plc. which is listed on the Dar Salaam Stock Exchange, recorded a 60 per cent drop in profit during the six months to June 30. Its profit before tax fell to $24.99 million from $62.18 million in the same period last year. Gross earnings declined 26 per cent to $97 million.

The mining company however declared an interim dividend of US cents 1.4 per share payable to shareholders in September.

British American Tobacco (BAT) Kenya’s profit grew 8per cent to   Ksh2.77 billion ($27 million) from Ksh2.56 billion ($25 million) amid concerns over taxes and a tough regulatory environment.

Inflation increased to 7.03 per cent in June 2015 from 6 per cent in December 2014.

Interbank rates — the rate at which commercial banks lend to each other overnight— increased to 14.7 per cent from 7.2 per cent in the same period. Average lending rate declined slightly from 16 per cent to 15.2 per cent.