Nairobi bourse net profit drops to Sh305 million

The Nairobi Securities Exchange has reported a marginal drop in profitability after falling victim to the volatile interest rates last year that slowed trading activity.

Large investors who are typically the largest traders of bonds and shares stayed away, starving NSE of its most critical revenue stream and resulting in a 4 per cent drop in net profits to Sh305 million. Chief Executive Officer Geoffrey Odundo yesterday told an investor briefing that the firm would give one bonus share for every three held, in a move to capitalise the retained earnings.

"We are proposing to issue a bonus share to increase the minimum paid up capital," Mr Odundo announced, after releasing the 2015 trading results.

A sharp drop in trading activity on shares and bonds led to a decline in the bourse's revenues which are generated per transaction.

The value of bonds traded at the NSE last year fell by nearly half, following the sharp devaluations on account of the high interest rate environment. Total revenues fell 2 per cent to Sh808 million, the chief executive reported, citing that the dip in transaction levies more than offset by improved interest income.

Total interest income earned last year by the NSE was Sh101 million, compared to Sh40 million in 2014, while transaction levies fell by Sh29 million.

NSE was until last week entitled to 1.78 per cent of the value of any buy or sale of securities that it has facilitated. It is the first time that the NSE, which self-listed in 2014, was reporting its operating results as a public company.

Since its listing, its initial owners who are mainly the 22 stock brokerage firms have cashed out to significantly reduce their collective control of the market.

Despite the fall in profits, NSE will pay an enhanced dividend of Sh0.49 per share – 29 per cent more than the pay out in the previous year.

Odundo explained the bigger dividend saying the NSE was a cash-generating business that did not quite need to keep huge reserves in retained earnings. "We shall keep up the dividend policy because ours is a cash-generating business."

NSE is now betting on the start of trading on derivatives – instruments whose price or value are dependent on an underlying asset, and other securities to grow their revenues moving forward. At the South African stock market for instance, derivative trading accounts for more than 60 per cent of all transactions and revenues.