12 firms could lose over Sh8 billion profit

Mumias Sugar company workers arrange processed sugar at the warehouse on November 5, 2017. The company excludes confidence soaring back into its lost glory and is currently crushing 400 to 500 tonnes per day. [Benjamin Sakwa| Standard]

The challenging business landscape in 2017 has left at least 12 companies with depressed bottom lines as the chief executives turn focus to the new year.

Company filings show that in the best case scenario, the firms will lose Sh8.12 billion from their earnings in a year that was punctuated by a lengthy political season.

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Three of them – Mumias Sugar, Unga Group and Deacons – are in negative position even as they make another leap of faith that 2018 will turn around their fortunes.

Mumias Sugar suffered a loss of Sh4.71 billion at the end of the financial year ended June 2016. However, in mid-2017, the western Kenya-based miller announced a loss of Sh6.77 billion, being 42 per cent worse off than the previous year.

Acute shortage

The performance was blamed on acute sugar shortage that saw the amount of cane crushed drop by more than half.

Deacons East Africa, which deals in fashion-related goods and services, expects to widen its losses from Sh276 million to a least Sh345 million.

The drawback, the firm said, was due to political uncertainty, drought and non-performance and closure of some branches.  

In the same year, Unga Group also announced a profit warning and went ahead to sink into a loss of Sh32.3 million. This was in contrast to a profit of Sh508.8 million announced in the previous financial year.

Its dismal performance was blamed on adverse weather and “difficulties in the modern trade.”

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Yesterday, Britam, one of the major insurance firms issued a warning to prepare its investors that profits for the financial year ended December 2017 are going to be at least 25 per cent lower than in 2016.

“The expected decline in earnings is mainly due to a change, in 2016, of valuation method of the long term liabilities to gross premium valuation methodology from the previously applied net premium valuation,” said the company.

In the banking sector, Housing Finance Corporation has joined Standard Chartered Bank and Family Bank in issuing profit warnings. Combined, in the best case scenario, the three will see their full-year earnings fall by about Sh2.6 billion against the 2016 returns. Standard Chartered said its performance will be weighed down by the interest rate cap law that took away the power of banks to freely price the cost of credit.

The same reason was given by the two other lenders even as they cited a challenging election year. In construction, market leader Bamburi Cement also expects to lose at least Sh1.5 billion when compared to the Sh5.89 billion posted in 2016.  

“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. Others who are sailing in the same boat of profit warnings include BOC Group, Nairobi Business Ventures and Flame Tree Group. With companies having different financial cycles and with half-year performance for many of them having dipped, more warnings could follow.

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