KQ cuts dividends 46.7pc as net profit halves on expenses

Kenya Airways has cut its dividend pay-out by 46.7 per cent as its net profit dropped by more than half in the year ended March due to high operating costs.

The national carrier said its net profit stood at Sh1.7 billion in the year to March compared to Sh3.5 billion in a similar period last year as its costs raced ahead of its revenues.

This saw the company’s dividend payout drop to Sh369 million from Sh693 million it paid last year — translating to a dividend of Sh0.25 a share on 1.47 billion shares compared to Sh1.50 it paid last year on 461.6 million shares it had in 2010 before this year’s rights issue.

The rights issue allocated shareholders 16 new shares for every five held and the offer helped KQ to raise Sh14 billion against a target of Sh20.6 billion to fund its expansion.

Minority shareholders who did not take up their rights will earn less dividend because they face a 70 per cent dilution in their pay and voting power.

“Though we managed to achieve an increase in total revenue the overall benefit of this was reversed by the high cost of fuel and increased overhead costs,” said Titus Naikuni, the CEO of Kenya Airways.

“You can’t let costs run away with you,” he told an investor briefing on Thursday, adding that the airline will cut costs this year to protect its bottom line.

The national carrier said it will target procurement, staff productivity and fuel costs in a bid to return to growth in turbulent aviation market.

Expensive labour and oil prices saw its direct costs jump 44 per cent to Sh77 billion with total expenses rising 32.5 per cent to Sh106.5 billion, which climbed faster compared to sales. Its revenues increased 25.6 per cent to Sh107.8 billion.

But gains from fuel hedging, which rose to Sh2.5 billion compared to Sh298 million last year, increased income from Tanzania’s Precision Air where KQ has a stake, helped to soften the impact of the rising costs on its income. 

It received Sh489 million in the year to March from zero a year earlier with Sh238 million coming in as share of associate income and the remaining Sh251 million in gains on disposal of assets.  

“While hedging is part and parcel of the airline business but investors would prefer if money was being made through the ordinary channels of business, which is not the case,” said Johnson Nderi, a research analyst at Suntra Investment Bank.

Its operating profit — a true measure of a company’s performance of its core business — dropped 77.5 per cent to Sh1.3 billion, highlighting the impact of fuel hedges on its net profit.

Its share at the Nairobi Securities Exchange (NSE) remained unchanged at Sh14 and has shed 63 per cent in the past year, making it the worst performing stock at the bourse over the 12 months.

Kenya Airways said a move to bring together carriers under the African Airlines Association to buy fuel in bulk would save it $2 million (Sh170 million) this year, adding they would also carry on with fuel hedges to manage the costs.