Car & General profit down 54.2pc on weak shilling

What you need to know:

Car & General made a net profit of Sh127.1 million in the year ended September compared to Sh278.3 million the year before.
The firm is among several at the NSE that have seen their earnings fall significantly due to the weakening of regional currencies, which have also raised finance costs for those with loans denominated in foreign currencies.
They include ARM Cement and tyre manufacturer Sameer Africa and TPS Eastern Africa.

Car & General (C&G) posted a 54.2 per cent drop in net profit in the year ended September, taking a hit from the weakening of currencies in markets where it operates.

The company, which has a diversified business including poultry, real estate and motorcycle dealership, made a net profit of Sh127.1 million in the period compared to Sh278.3 million the year before, with its net foreign exchange losses rising nearly 60 times to Sh290.4 million.

C&G said it incurred the losses from devaluations of the Kenya shilling by 17 per cent, Tanzania shilling (29 per cent), and Uganda shilling (16 per cent).

“Furthermore, due to competitive and consumer pressures, we were unable to increase prices to keep pace with these devaluations, resulting in margin compression,” the Nairobi Securities Exchange-listed firm said in a statement.

The performance saw C&G suspend dividends, having declared a payout of Sh0.60 on the earnings for the preceding year.

The company’s sales rose 19.6 per cent to Sh9.9 billion but the forex and other expenses eroded its margins, resulting in the profit decline.
Its cost of goods sold, for instance, jumped 21.7 per cent to Sh8.3 billion from Sh6.8 billion.

C&G’s share price has lost 28 per cent over the past one year to trade at Sh39.5.

The company is among several at the NSE that have seen their earnings fall significantly due to the weakening of regional currencies, which have also raised finance costs for those with loans denominated in foreign currencies. They include ARM Cement and tyre manufacturer Sameer Africa and TPS Eastern Africa.

READ: Slump hits Kenya’s private sector on weak shilling

The depreciation of the local currency has been linked to the huge current account deficit that has been beset by lower export and tourism earnings and a stronger performance of the US economy, which has seen the dollar appreciate.

C&G, which has a presence in 10 countries in Eastern Africa, had one of the largest exposures to the currency swings. The company says the short term outlook remains subdued owing to the persistent macroeconomic challenges and geopolitical disruptions.

“We foresee challenges in the economic environment given the state of the global economy and governance issues across the region,” C&G said, adding that it is focusing on boosting efficiency.