Kenya Power issues profit alert as business declines

Kenya Power has issued a profit alert after seeing a plunge in demand for electricity, signalling the wider struggle for all other businesses amid the Covid-19 lockdown.

Energy consumption is a key barometer used to gauge economic activity, with increase or decrease in demand indicating shifts in level of production.

Kenya Power in a notice advised its shareholders that net earnings for the full-year ending June 30 will drop by at least 25 per cent, signalling a wider, grim economic outlook.

“The Covid-19 pandemic has adversely affected our business operations leading to slow growth in electricity sales and an increase in financing costs resulting in reduced earnings,” the firm said in a statement last week.

This is the third earnings cautionary statement in a row that the Nairobi Securities Exchange (NSE) listed utility firm has issued, raising eyebrows on the state of its financial affairs.

Kenya Power’s profit after tax for the 12-month period to June 30 this year is projected to decline to at least Ksh196.5 million ($1.96 million), from Ksh262 million ($2.62 million) last year.

The electricity distributor’s net earnings dropped by 92 per cent to Ksh262 million ($2.62 million) from Ksh3.26 billion ($32.6 million) in 2018, with earnings per share plummeting by the same margin to Ksh0.13 ($0.001) from Ksh1.67 ($0.016) in the same period, according to its audited financial statements.

DEPRESSED DEMAND

On Wednesday the energy firm’s stock on the NSE fell by 7.8 per cent to Ksh2.01 ($0.02) per share from Ksh2.18 ($0.021 per share on Tuesday (June 16).

Data from the Kenya National Bureau of Statistics shows that the firm’s electricity sales during the first four months (January-April) of this year reminded relatively flat at 2.92 billion Kwh compared to 2.95 billion Kwh in the same period last year.

During the same period the amount of electricity generated also remained flat at 3.7 billion Kwh.

“Based on a review of the company’s financial performance, the board of directors has determined that the earnings for the financial year ending June 30, 2020, are projected to be lower than the earnings for the previous year,” said Kenya Power.

Kenya reported its first case of coronavirus on March 13, and since then the number of infections have risen to more than 4,000.

The government’s containment measures including social distancing and restriction of movements have negatively impacted performance and productivity of private businesses and State agencies.

The latest World Bank Kenya Economic Update report predicts gross domestic product growth of 1.5 per cent in 2020, with a potential downside scenario of a contraction to one per cent, if Covid-19-related disruptions on economic activity last any longer.

“Economic growth projection remains highly uncertain and the outcome will hinge on how the pandemic plays out internationally and within Kenya, along with policy actions taken to mitigate the situation,” says the World Bank.

According to the Capital Markets Authority (CMA) regulations, listed firms are required to issue cautionary statements when they expect their full-year earnings to decline by at least 25 per cent.

Kenya Power said its board and Management are focused on enhancing the company’s financial performance through improving operational efficiency, growing sales, reducing system losses and managing costs.

RUNAWAY COSTS

The company’s total power purchase costs last year increased to Ksh90.15 billion ($901.5 million) from Ksh84.1 billion ($841 million) in 2018 while transmission and distribution costs fell to Ksh41.04 billion ($410.4 million) from Ksh44.54 billion ($445.4 million) in the same period.

According to Kenya’s Economic Survey report (2020) the country’s total electricity demand increased by 3.9 per cent to 11,620.7 GWh last year (2019) from 11,182.0 GWh in 2018, with domestic demand for electricity increasing to 8,854 GWh from 8,702.3 GWh in the same period.

Transmission and distributive losses stood at 2,750.5 GWh, accounting for 24.1 per cent of total local generation last year.

On the other hand, the country’s total electricity generated including imports expanded by 3.9 per cent to 11,620.7 GWh in 2019.

Total installed electricity capacity increased from 2,711.7 MW in 2018 to 2,818.9 MW in 2019.

Wind power generation recorded the largest increase last year, becoming Kenya’s third-largest source of energy.

The report notes that while thermal oil power has always been deployed over the years when there is drought hence reduced hydro power generation, wind power production increased more than fourfold last year to 1,562.7 GWh following full operationalisation of Turkana Wind Power Plant, compared with 1,313.3 GWh for thermal oil energy.

Geothermal generation remains the major source of electricity in Kenya accounting for 45 per cent of total generation followed by hydro then wind, thermal and solar respectively.

Last year, 98.3 per cent of all electricity supplied was produced domestically, with 88.5 per cent of domestically produced electricity being renewable.