Thousands of jobs at risk as firms try to protect profits

Sunday November 19 2017

A demo in Nairobi to push for creation of more jobs by the government. Seven out of 17 firms which have released their financial performance statements since September have made losses. PHOTO | anthony omuya

A demo in Nairobi to push for creation of more jobs by the government. Seven out of 17 firms which have released their financial performance statements since September have made losses. PHOTO | anthony omuya 

By CONSTANT MUNDA
More by this Author

The softening economy has put thousands of jobs in corporate Kenya on the line, as chief executives increasingly come under pressure to cut costs to protect profit margins for shareholders.

Elevated political uncertainty on the back of a slowdown in credit growth and a biting drought earlier in the year has dampened expansion in national wealth, cutting down net earnings for companies.

Seven out of 17 firms which have released their financial performance statement since September have made a loss, filings with the Nairobi Securities Exchange, where their shares trade, show.

Some six companies posted a reduction in net profit, with only four returning growth in profit for shareholders, according to the results for the half-year, nine-month or full-year trading period, depending on individual firms’ reporting cycle.

Firms which remained in loss-making territory include ARM Cement (Sh1.41 billion for six months to June), Uchumi Supermarkets (Sh1.7 billion full-year period to June), Kenya Airways (Sh3.8 billion for six months to September) and Unga Group (Sh32.29 million full-year to June).

When revenue comes under pressure, companies largely resort to cutting operating expenses to protect returns for investors. Staff costs — the largest component in the cost structure of a firm — usually become the easy target for firms.

A monthly survey based on feedback from about 400 firms showed earlier this month the health of companies in October deteriorated at the sharpest rate since January 2014.

The Stanbic Bank Kenya Purchasing Manager’s Index (PMI) — an indicator of private sector activity — suggested firms suffered a decline in activity for the sixth month in a row in October.

“The overall downturn reflected survey-record declines in output, new orders, employment and stocks of purchases,” the report states. “On the price front, firms raised selling prices for the first time in six months as their ability to absorb higher input costs was restricted.”

Most of the firms cited elevated political instability which delayed their investment decisions, hurting growth in the economy which is now projected to expand at the slowest pace since 2012.

Growth in the economy is projected at between 4.7 per cent and five per cent this year, the lowest rate since 4.6 per cent in 2012 — a year before the Jubilee administration took the reins of power.

“2017 has been a difficult year because of the time we have spent on electioneering to the point that businesses have been put on a wait-and-see mode,” Treasury Secretary Henry Rotich said late last month when he downgraded growth outlook to five per cent.

“We had set ourselves to grow at six per cent, but this prolonged electioneering period has cost us about one percentage point of our GDP, and that has also affected our revenue collection.”

The Supreme Court will on Monday deliver its verdict on the constitutionality and legality of President Uhuru Kenyatta’s win in the October 26 poll, which was boycotted by main opposition presidential candidate Raila Odinga allegedly because of lack of adequate electoral reforms.

Companies which have reported a loss or drop in profit since September have largely blamed reduced demand for their products because of prolonged uncertainty over the presidency, which unlike other electoral seats has been extended for three months.

Standard Chartered Bank, Kenya’s fourth largest lender by market share, and industrial gas manufacturer BOC Kenya, this week issued profit warnings to investors, meaning their full-year net income may fall by 25 per cent.

They joined Standard Group, which issued a similar alert on November 6, citing a “prolonged and disruptive period” which has hurt cash circulation in the economy.

The woes for StanChart are, however, more of loan defaults by its largely corporate clients, which rose to Sh11.14 billion in September from Sh10.20 billion a year earlier, than reduced lending because of the rate cap on loan charges introduced in September 2016, explained the bank’s chief executive Lamin Manjang said earlier in the week.

“The impairment charge continues to be elevated and the turnaround of the affected accounts is not expected to be achieved before year-end,” the bank’s chief executive Lamin Manjang said earlier in the week. “The bank has taken assertive actions to manage NPLs (non-performing loans.