The outbreak of the coronavirus pandemic this year has presented the private sector with the biggest existential threat in modern history.
For the first time in more than 20 years, Kenya’s economy has gone into recession, with both production and consumption stunted for the foreseeable future.
This has translated into a drop in revenues of up to 90 per cent in some industries like hospitality and entertainment, resulting in job cuts across the board.
However, the fortunes for some companies have continued to rise despite the economic storm wrought by the pandemic.
One such company is investment firm Centum. In June this year, Centum posted Sh7.4 billion in after-tax profit, a 79 per cent increase from last year, excluding one-off impairment provisions.
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Total income for the year ended March 31, 2020 stood at Sh15.86 billion, an increase of 33 per cent from the previous year.
The same month and at the height of the pandemic, Centum fully repaid Sh6.6 billion that was outstanding on its five-year corporate bond, saving up some Sh1.8 billion in annual finance costs.
Group Chief Executive James Mworia said the company had worked on building resilience even before Covid-19, and this had helped sustain the investment firm even as the market turns bearish.
“Overall, our assessment indicates that 79 per cent of the portfolio will remain neutral to the impact of Covid-19 or position for opportunities that may arise even in the middle of this crisis,” he said.
Last year, Centum completed the sale of its 53.9 per cent shareholding in Almasi Beverages Ltd and 27.6 per cent in Nairobi Bottlers Ltd to Coca Cola for Sh19.5 billion. This translated into Sh16.8 billion in value considering Centum’s historical cost in investing in the two bottling firms was Sh3.6 billion.
“These funds were partially utilised to retire outstanding Centum debt and the balance was reinvested in marketable securities,” explaine Mworia.
“The cash interest savings realised from the decision to retire debt will be approximately Sh1.8 billion a year, while we expect to realise an additional Sh900 million in interest income from the investments in marketable securities.”
Mworia said the decision to sell off the shareholding in ABL and NBL was to preserve capital.
“In our view, we had optimised the value of our investments in the bottling business and to enhance the recurrent cash flows of the company by reducing cash outflows the most significant of which were cash interest expenses and by enhancing cash interest income,” he explained.
“The economic impact of the Covid-19 pandemic has validated this strategy, which significantly enhanced Centum’s resilience to weather the pandemic.”
At the same time, the company has registered several gains in the real estate sector despite a slump in the market.
This year, Centum completed the construction and sale of 1,442 residential units and launched new projects, including the Elmer in Kasarani and 365 Pavilion near the United States International University (USIU), adding more than 600 units to the project.
As of March 2020, the investment firm has also sold more than Sh3 billion worth of land and development rights within its land banks and is in the process of completing deed transfers.
“We aim to maintain an optimal balance in the portfolio with diversification in private equity (30-40 per cent), real estate (45-55 per cent) and marketable securities (10-20 per cent),” said Mworia.
“The portfolio is rebalanced on a continuous basis and our current focus, for example, is to monetise our real estate portfolio and redeploy the proceeds into marketable securities and private equity to achieve the desired strategic allocations.”
However, not all has been rosy in the investment firm’s portfolio. In August, US conglomerate General Electric (GE) announced it would be backing out of the Lamu Coal power project being driven by the Amu Power consortium.
The exit of GE came months after the African Development Bank, one of the potential financiers of the project made a similar announcement.
Centum is one of the key financial partners in the Sh200 billion project and the challenges dogging the project have reflected in the company’s books.
“We made a full provision with respect to our investment in Amu Power for the year ended March 31, 2020 out of prudence and due to the uncertainties surrounding the possible outcome of the appeal of the National Environmental tribunal’s decision at the High Court,” said Mworia.
“This means that we currently carry the asset in our books at a zero value, hence no further adverse impact can be expected going forward on account of this asset in Centum’s future profitability.” In regards to its portfolio of marketable securities, Mworia is confident the strong performance of the Nairobi Securities Exchange in the months following the outbreak of the pandemic will safeguard returns.
“Fixed income yields have remained stable, providing a critical buffer to our marketable securities portfolio which has remained approximately 90 per cent fixed income during the Covid-19 disruption,” he said.