Wednesday, October 07, 2009

Banking on Other Income

It's crunch time in Kenya’s economy and many companies are feelign the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders to they will look to unconventional income opportunities to deliver by year end:

some examples

East African Portland Cement: went from a profit warning issued at their ½ year to a full year profit increase thanks to a property revaluation exercise.

Mumais Sugar: full year profits were attained due to a tax credits they gained from investing in electricity co-generation.

Scangroup: profit in the ½ year was credited to income from their investment in Government bonds

Access Kenya: profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings - and most of their revenue is dollar denominated

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.
- Tax breaks from listing - Safaricom
- Green energy – carbon credits, co-generation - Kengen, Safaricom
- Fibre cable/IT investment writebacks
- Property and investment revaluations
- Forex: a weak shilling is usualy good for Kenya Airways and tea companies


Anonymous said...

Enronitis - For instance is EAPC really gonna pay a dividend from those "profits"?

Riba Capital said...

This is in the same spirit when Porsche played the markets and made more profits trading VW shares that at one point VW was the most valuable company in the world, before all came crashing down.
The question is always, what are the key competencies of a company? and its management at large? Is it playing markets or the core business?

Remember KQ also brunt their fingers hedging(though this is necessary in their industry they didn't do it right). But KQ could be in the black also because of these same hedges come end of period.

Remember also EA Portland burnt their fingers accessing cheap loans from Japan without considering the currency fluctuation risk.

Sometimes it works, but companies should know what their core competency is before they start playing markets....

MainaT said...

Some of this pure accounting BS aka profit smoothening.EAPC will now have to devalue that property seeing as property prices are now falling...

Tenders said...

I predict that green energy is going to be used a lot to get tax breaks. Green energy is the hot new thing and is going to be taken advantage of by companies looking for tax reductions!

bankelele said...

Riba: things are thick, so its time to play a few tricks
MainaT: EAPC need to dump that Japan loan
Tenders: hope so; now that Mumias and Kengen have shown the possibilities

coldtusker said...

EAPCC - I disagree... the Yen is (unlikely) to get stronger vs KES unless the GoK/politicians does something stupid... again...

Well, based on my last comment (GoK)... I may be wrong...


Related Posts with Thumbnails