Kenya’s listed firms are banking on renewed confidence in the economy in the second quarter to grow their profitability further, after defying a harsh business climate last year to post impressive results in the current reporting period.

Of the 11 Nairobi Securities Exchange (NSE) listed firms which had by Friday reported their full year results for the period ending December 2012, seven posted double digit growth in profits.

An analysis of the full-year results shows that whereas the banking industry continues to post impressive results, firms in other service industries and those in manufacturing are struggling to balance between expansion, stability and shareholder returns, with a good number of the companies opting to suspend dividends payments as they seek to manage their financials.

In the first half of 2012, firms faced the full impact of the high interest rates, inflation and volatile currencies that obtained in the last quarter of 2011.

Pan Africa Insurance, the only insurance firm that had released its results by last Friday, was the biggest gainer in profitability, growing its earnings 14 times last year.

READ: Pan Africa Insurance shares hit new high on profit, dividend

Equity Bank, KCB, Co-operative Bank, NIC Bank, Housing Finance and Barclays posted 17, 11.2, 44, 12, 19.4 and eight per cent increases in after tax profits respectively.

BAT Kenya posted a 5.5 per cent rise while East African Cables reported their profits had risen by 66 per cent. However, cement maker Bamburi said its profits dropped by 16.68 per cent while advertising company ScanGroup saw its profits dip by 18.81 per cent.

Eight firms — East African Breweries, Unga Group, Kenya Power, KenGen, East African Portland Cement, Uchumi, Longhorn Publishers and Mumias — also released their half-year results for the period ending December 2012.

While EABL saw its profits fall 14 per cent, Kenya Power posted a 36 per cent jump and KenGen 11 per cent. EAPC and Longhorn recovered from a loss-making zone to post profits of Ksh300 million ($3.4 million) and Ksh16.9 million ($186,500) respectively. Mumias moved into losses while Uchumi saw its profits drop 35 per cent and Unga’s profits fell 43 per cent.

The results, released ahead of the General Election on March 4, came on the back of increased confidence among the business community that the polls would not disrupt business.

A survey released last Thursday by market research firm Ipsos Synovate showed business leaders’ confidence index currently stands at 59.2 points, up from 53.8 in September 2012.

Ipsos said the increase in the confidence index could be an indication that the business community is more optimistic about the post-election period than they were five months ago.

“In terms of political favourability, 71 per cent of the business leaders stated that the political landscape in Kenya is conducive. This is not different from the September 2012 survey when 70 per cent stated the same. This could be an indication that the business community continues to be resilient regardless of the current political climate,” said Ipsos Synovate.

Banks seem to have weathered the high interest rate regime that hit the region from mid-2011 through June last year when central banks started easing monetary policy.

Manufacturing and construction firms have been operating in an environment of very high operating costs, unfavourable legislation, escalating finance charges and high competition for raw materials at a time when revenues have been growing slowly.

Companies in the commercial services sector have however been spreading their wings into the region and the rest of Africa and set-up costs have eaten into their profits.

“We expect that the economy will pick up further after the election,” said James Mwangi, Equity Bank’s chief executive officer. “For the first time, the country has delinked economic and politics. In the past, the macroeconomic indicators — inflation, interest rates and exchange rates — have tended to get worse, but in this year we have seen them getting better,” he said.

But not all executives are as optimistic. “Continued volatility in international oil prices, balance of payments pressure, spillover effects of the global economic slowdown and the cost of settling down the new government after the March elections are likely to impact on business in the short to medium term,” said Longhorn in a statement.

KCB posted Ksh12.2 billion ($141.8 million) in net profits compared with Ksh10.9 billion ($131.1 million) the previous year, beating Equity, which recorded Ksh12.1 billion ($140.4 million) compared with Ksh10.3 billion ($123.3 million) the previous year.

Barclays Bank came third posting Ksh8.7 billion ($101.6 million), up from Ksh8.1 billion ($96.9 million) in 2011 while Co-operative Bank came fourth with Ksh7.7 billion ($89.5 million), up from Ksh5.4 billion ($64 million).

NIC Bank posted Ksh3 billion ($35 million) up from Ksh2.7 ($32.3 million) while Housing Finance recorded Ksh743 million ($8.6 million), up from Ksh622 million ($7.4 million).

The lenders are expecting business to continue growing as they cut costs and leverage on technology and cheaper distribution methods this year. “Our agenda is to bring down our cost to income ratio from 57.4 per cent to lower than 50 per cent, to increase profitability from our international business,” said KCB chairman Musa Ndeto.

The impressive results mean companies are in position to reward shareholders with higher dividends payment compared with a year ago.

Whereas EABL, Scan Group and Barclays have opted to lower their dividends, directors at Kengen, Kenya Power, Mumias and Uchumi are proposing to withhold dividends as they look to increase their cash positions to fund growth and improve their financial position.

Equity, KCB and Co-op Bank intend to pay increased dividends boosted by a drop in costs and increased net income margins.

EABL, whose cash position had been impacted by a rise in financing costs and expansion spending, has said its interim dividends will drop by 40 per cent to Ksh1.50, compared with Ksh2.50 in 2011.

“The brewer is repaying the loan using cash flow — and since it’s growing its investment, the only way it can boost its cash flow is through short-term borrowing and cutting down on dividends,” said Kuria Kamau, an analyst at Kestrel Securities.

Though Kenya Power’s net earnings for the first half of the current year jumped 36 per cent to Ksh3 billion ($36 million), the company said it would not pay any dividends. The utility expects to post weaker results in the second half, projecting full year results will drop 53.4 per cent to Ksh4 billion ($46.49 million) as operating costs race ahead of revenue growth.

KenGen, the country’s largest electricity generator, will not pay any interim dividends as it seeks to boost its cash position, which has dropped to Ksh293 million ($3.4 million) compared with Ksh7 billion ($81.36 million) in 2011.

The announcement came even as the utility said half year net earnings had risen from Ksh1.4 billion to Ksh1.6 billion.

Scan group’s net earnings dropped to Ksh744 million in the year to December, compared with Ksh916 million ($10.64 million) in the same period in 2011.

British American Tobacco in Kenya and its Uganda counterpart, which is listed on the Uganda Securities Exchange, said that they have been facing unfavourable regulatory regimes, marginal growth of revenues and stiff competition for raw materials while at the same time battling counterfeit products.

BAT Kenya posted Ksh3.27 billion ($37.93 million) in profits after tax as at December 2012, up from Ksh3.09 billion ($35.92 million) the previous year.

Mumias Sugar, reported a Ksh1.1 billion shilling ($12.86 million) loss after tax for the half ended December 2012 compared with a Ksh881.30 million ($10.52 million) profit posted over the same period the previous year, and issued a profit warning for the full year that ends in June 2013.

By David Mugwe and Peterson Thiong’o