Dividends paid out to multinationals for their controlling stakes in Nairobi Securities Exchange-listed firms are set to drop by 21 percent this year as a few blue-chips reduced their payouts by significant amounts.
Multinational firms including Vodacom Group, Diageo Plc, WPP Plc and BAT Plc have received or are set to get a total of Sh38.4 billion based on the latest distribution announcements.
This will be Sh10.2 billion lower compared to last year’s payout of Sh48.6 billion, but a boost to the cash flow of the mainly European-based multinationals who are freezing dividends and shoring up reserves as the coronavirus pandemic threatens to tip the world into a deep recession.
The reduction could be mitigated if East African Breweries Limited (EABL) #ticker:EABL pays a final dividend for the year ending June. The brewer last week issued a profit warning, suggesting that its net earnings for the year ending June are likely to decline by 25 percent compared to the previous period, hurt by coronavirus.
Safaricom #ticker:SCOM, BOC Kenya #ticker:BOC, Bamburi #ticker:BAMB, BAT Kenya #ticker:BAT and Liberty Holdings #ticker:CFCI were among the NSE-listed companies that suspended or reduced their payouts in their latest results, lowering cash returns for their parent firms.
Safaricom is set to pay Vodacom Group and Vodafone Plc —its top shareholders with a combined 40 percent stake — a total of Sh22.4 billion on November 1 based on its performance for the year ended March. This represents a reduction of Sh7.5 billion compared to last year when they earned a dividend of Sh29.9 billion from the telco.
Safaricom’s upcoming payout is equivalent to a distribution of Sh1.40 per share, down from last year’s Sh1.87 per share (which included a special dividend of Sh1.25).
The telco reported a net profit of Sh74.7 billion in the year ended March, up 19.5 percent from Sh62.4 billion the year before.
LafargeHolcim will not get a dividend from its 58.6 percent stake in Bamburi Cement for the year ended December 2019. The multinational received Sh1 billion from the cement manufacturer for the prior year.
Bamburi paid a dividend of Sh5.1 per share for the year ended December 2018 and suspended payouts in the subsequent period after its net earnings fell 37.2 percent to Sh359 million on a higher tax charge.
The firm’s tax bill rose 7.6 times to Sh369 million after the expiry of tax incentives for new capital investments in its regional subsidiaries.
“The absence of the investment deduction allowance benefit for Hima in 2019, plus the suspension of Rwanda operations, led to a higher tax charge in 2019 due to the amortisation of the associated deferred tax asset, the disallowing for tax purposes of costs associated with the discontinuation of Rwanda operations, and the derecognition of a previously recognised deferred tax asset for Rwanda,” Bamburi said in a statement.
“The combined impact of these is an effective tax rate of 50.6 percent (2018: 7.7 percent).” Liberty Kenya Holdings also suspended its dividend for the year ended December, having paid Sh0.5 per share for the previous year that saw its South Africa-based parent company Liberty Holdings receive Sh154.6 million for its 57.7 percent stake in the insurer.
BAT Kenya reduced its payout to Sh33.5 per share in the year ended December compared to Sh35 the year before, cutting cash returns for its parent firm BAT Plc to Sh2 billion from Sh2.1 billion.
Several companies including Kakuzi #ticker:KUKZ, Stanbic Holdings #ticker:CFC and Standard Chartered Bank Kenya #ticker:SCBK raised their payouts significantly, but this was not enough to offset the impact of dividend reductions and suspensions by the likes of Safaricom and Bamburi.
The total dividend this year could rise from the current Sh38.4 billion if EABL makes a final payout. The brewer paid an interim dividend of Sh3 per share for the half year ended December, earning its parent company, Diageo Plc, Sh1.1 billion for its 50.03 percent equity.
Diageo received an aggregate of Sh3.3 billion last year when EABL made an interim and final distributions amounting to Sh8.50 per share.
EABL, which reported a net profit of Sh11.5 billion in the year ended June 2019, has issued a profit warning for the current fiscal year citing the impact of the Covid-19 global pandemic, which has among other things led to closure of bars and eateries.
“The Covid-19 global pandemic and the subsequent response measures taken across the region have impacted our business negatively,” the brewer said. “Consequently, the board of directors of the company hereby informs its shareholders and the general public that EABL’s current performance forecast indicates a decline in profit after tax of approximately 25 percent for the financial year ending 30 June 2020 versus prior year.”