Kenya Airways board to share recovery plan with shareholders
Kenya Airways CEO Mbuvi Ngunze during the release of the airline's full year financial results in Nairobi on July 21, 2016. PHOTO | JEFF ANGOTE
What you need to know:
The negative capital position has seen the Nairobi Securities Exchange-listed firm rely on the goodwill of creditors to continue operating, with its auditors emphasising uncertainty as to its ability to carry on as a going concern.
The Kenya Airways’ board and top management is set to face shareholders later this month with a plan on how the carrier intends to resolve its negative capital position, becoming the first public company to do so as required by the Companies Act 2015.
The new law states that if the net assets of a public company are half or less of its called-up capital, the directors shall convene a general meeting to “consider how to deal with the situation.”
Such a meeting does not allow any other issue to be considered but KQ, as the airline is known by its international code, has lumped the matter with its other AGM agenda items for the September 29 meeting.
“Notification of loss of capital and remedial steps being taken by the company as required under section 416 of the Companies Act, No. 17 of 2015,” reads part of the airline’s AGM notice.
“To note steps taken by directors with regard to the turnaround strategy set out in paragraph six of the directors’ report contained in the financial statements for the year ended March 31, 2016 in order to address the net assets position of the company.”
The law requires such a meeting to be held not later than 56 days from the date directors of a public company become aware of the depleted asset position, with failure to do so amounting to an offence carrying a fine of Sh500,000 for each of the board members.
Goodwill of creditors
The airline set a new record in wiping out shareholders’ equity in the review period, with the company’s net worth receding to a negative Sh35.6 billion from the previous year’s negative Sh5.9 billion.
The negative capital position has seen the Nairobi Securities Exchange-listed firm rely on the goodwill of creditors to continue operating, with its auditors emphasising uncertainty as to its ability to carry on as a going concern.
The mounting liabilities came as the airline made a record net loss of Sh26.2 billion in the review period, widening the Sh25.7 billion net loss the year before. Its revenue increased to Sh116.1 billion from Sh110.1 billion in the same period, trailing the increase in costs. The company suffered a Sh9.7 billion foreign exchange loss and an acceleration of other costs including interest expenses.
KQ says it is focusing on revenue growth, cutting costs and restructuring its capital base including through asset sales, debt renegotiation and possible capital-raising from shareholders.
The company has moved to reduce its fleet by selling aircraft and sub-leasing others. It has also let go of scores of employees including pilots besides terminating some routes.
The airline’s major owners, the Treasury and Koninklijke Luchtvaart Maatschappij (KLM) are expected to play a major role in shepherding the company back to profitability.
The fortunes of small shareholders, most of who bought KQ’s shares in the open market, is likely to depend on the actions of major owners.
