Kenya Power woes deepen as earning set to plummet

In several instances, the firm reviewed downwards reported earnings, which raised the red flag of creative accounting in financial circles. [File, Standard]

Troubled Kenya Power promises bitter returns for investors after announcing profit warning despite enjoying a monopoly in its line of business.

Acting managers who took over from predecessors facing criminal charges are having a difficult time as they ponder on how to share out the poor performance for the year ending June 30 with investors.

Normally, information covering the trading results is sent out by mid-October.

Acting Managing Director Jared Othieno heaped the blame on several factors including the 2017 general elections but did not show the link in expected decline to electricity consumption.

It will, however, be four months next Tuesday since the close of the accounting period, and all the firm revealed is that profits will fall by at least Sh1.8 billion.

The financial period 2016 was the best year for the firm when it reported Sh7.5 billion in profits before the latest slide started.

“Revenue growth in the year was constrained by the depressed economic environment, poor hydrological conditions in 2017 and the protracted electioneering period,” said the company boss.

However, poor rains, as per his statement, means there was less electricity generated from hydro-generation, one of the firm’s cheapest source of electricity.

This is despite the firm being cushioned from shocks associated with generating power from expensive sources as the extra cost is passed on to the consumer through higher bills.

He added that the business environment in the year was sluggish, which caused a significant decline in the financial performance. It would also appear that the heavy borrowing of the recent years had come to bite.

“…increased financing costs and delayed review of retail electricity tariffs led to reduced earnings,” Othieno added.

Access to electricity

Kenya Power spent Sh5.8 billion to repay interest on 21 loans, with cumulatively amounts to Sh111 billion.

An aggressive government-initiated plan to increase access to electricity throughout the country in programmes such as the Last Mile pushed the firm to borrow heavily.

Its lenders include Standard Chartered Bank, Equity Bank, Stanbic Bank South Africa’s First Rand Bank and China’s Exim Bank, among others.

In several instances, the firm reviewed downwards reported earnings, which raised a red flag of creative accounting in financial circles.

Investors yesterday reacted to the profit warning with heavy selling of the firm’s shares and low interest that saw its share price drop by nearly a tenth at the Nairobi Securities Exchange (NSE).

If you bought the utility firm’s shares yesterday morning for Sh100,000, your worth would be just about Sh90,100 by Monday evening.

People who put their money on the company’s shares have seen their wealth sharply erode over the last one year, following a series of negative events, including the fraudulent procurement of faulty equipment that impacted negatively on the firm's shares.

Suspended chief executive Ken Tarus and his predecessor Ben Chumo are among the bosses who have been charged in court over malpractices that could have cost the firm Sh4.5 billion.

To weather the storm, Othieno said plans are underway to diversify existing revenue streams by improving on customer experience, leveraging on technology and innovation to spur growth.

“This, together with the improvement in operational and network efficiency are expected to boost returns and drive the future success of the company,” he said.

KPLC is the latest among NSE-listed firms that have issued profit warnings this year. Investment firm, Centum, in May also projected earnings drop in 2018, citing lower asset valuations, political uncertainty.