Nairobi Securities Exchange Sector and Benchmark Index Performance (2011)

© 2012 PK Mwangi Global Consulting 1

Macro-environment (2011)

The resilience of the Kenyan economy was extensively tested in 2011 in the face of various global and domestic political,

economic and social challenges. Global macro-economic instability, fuelled by the social unrest and geopolitical

uncertainty in the Middle East and North Africa, contributed to an escalation in oil prices while economic difficulties in

Western Europe (symbolised by the Euro-zone debt crisis) curtailed the demand for exports further exacerbating the

situation. However, despite these challenges the economy grew by a respectable 4.3 per cent but considerably lower than

the 5.6 per cent growth rate recorded in 2010.

Inflation was up peaking at nearly 20 per cent towards the end of the year fuelled by both the steep rise in energy costs

and a hike in food prices, the latter prompted by poor weather conditions. Headline inflation rose from a low of 5.4 per

cent in January 2011 to peak at 19.7 per cent in November 2011 while the average annual inflation rate for 2011 stood at

14.0 per cent compared to 4.1 per cent in 2010. Short-term interest rates also increased significantly during the year

with the benchmark 91- day Treasury bill closing at 18.9 per cent compared to 2.3 per cent in 2010 while the interbank

lending rate, which stood at an average rate of 1.2 per cent in January 2011, rose to an average rate of 21.8 per cent by

the end of the year. Production of tea, coffee and horticultural produce, which account for a significant portion of the

country’s exports, was also affected.

Global economic instability drove investors to seek the perceived safety of the U.S. Dollar and other safe assets like gold.

This flight to safety led the Kenya shilling to decline considerably against the major currencies and in particular against

the U.S. Dollar falling by 25 per cent from the beginning of the year to KES 107 by October. However, the local currency

was able to recover by year-end as a result of tightening monetary policy by the Central Bank of Kenya (CBK) which

increased the base lending rate from 5.75per cent to 18per cent aggressively mopping up excess liquidity from the

money markets.


Overall performance Figure 1: NSE sector index performance (2011)

Source: Bloomberg; myStocks! Agriculture was the only sector to finish the year in positive territory while Automobiles and Consumer Services also led

the market to close 4 per cent and 11 per cent respectively in the red. Subdued market activity saw most sectors- notably Telecommunications, Consumer Goods, Transport and Utilities underperform the benchmark indices- the NSE-20

index and the NSE All-share index which closed the year 30 per cent and 32 per cent lower respectively. Financials was

re-based three times during the year to take into account the initial public offerings involving CFC Insurance Holdings

Ltd., British-American Investment Co. Ltd. and TransCentury Ltd. finishing 2 per cent lower between October and

December. ‘Other Industrials’ and Media & Advertising were overall the best performing sub-sectors finishing the year

10 per cent and 12 per cent lower respectively while Technology retreated the most to close 64 per cent lower for the

year.

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Agriculture

Agriculture continued to outperform the market and all other sectors closing 7 per cent up for the year and was the only

sector to close the year in the green. The sector, however, saw a mixed picture with Kapchorua Tea Co. Ltd., Limuru

Tea Co. Ltd. and Williamson Tea Kenya Ltd. finishing 25 per cent, 12 per cent and 53 per cent respectively in positive

territory while Eagads Ltd., Kakuzi Ltd. and Rea Vipingo Ltd. were down 37 per cent, 14 per cent and 22 per cent

respectively for the year. Sasini Tea & Coffee Ltd. finished almost flat down a mere 1 per cent.

Williamson Tea Kenya Ltd. - the flagbearer of the sector rally saw full-year revenue to March 2011 up 21 per cent to KES

3.28 billion while pre-tax profit rose 1 per cent in the same period. Profit after tax advanced 76 per cent to KES 805.7

million in the six months through September 2011. Revenue increased 3.3 per cent to KES 1.56 billion during the same

period buoyed by the sale of the firm’s headquarters along Ngong Road- Williamson House for an estimated KES 500

million in a deal that saw shareholders earn a special dividend. In contrast Limuru Tea Ltd. saw revenue drop 17 per

cent from KES 123.9 million in 2010 to KES 102.5 million in the year ending December 2011. The company posted a

42.6 per cent drop in 2011 pre-tax profit to KES 59.8 million (in spite of a net gain of KES 21.8 million in the fair value

of its biological assets). However, this did not dampen investor confidence with the stock closing higher for the year.

Both Rea Vipingo Ltd. and Sasini Tea & Coffee finished the year lower despite strong underlying numbers. A better than

normal leaf position leading to high volumes of good quality sisal and a weak Kenya shilling helped boost exports for

Rea Vipingo Ltd. Group turnover was up from KES 1.44 billion to KES 2.11 billion. Profit before tax for the year

increased to KES 679 million which included a fair value gain from the application of IAS 41 – Agriculture. Despite a 76

per cent drop in financing costs (after the tea grower retired its KES 540 million corporate bond in February) Sasini Tea

& Coffee Ltd. reported a 60 per cent drop in net earnings to KES 391 million citing a lower harvest and devaluation of its

tea and coffee bushes. Despite the weak numbers the stock closed the year almost flat- down 1 per cent.

Kakuzi Ltd. saw revenue in the year ending December 2011 rise to KES 2.38 billion from KES 2.11 billion shillings in

2010 while pre-tax profit rose 65 per cent to KES 920.1 million (2010: KES 558.6 million) down to a weak Kenya shilling

and favourable tea and avocado prices. The stock, however, came under pressure to close 14 per cent down for the yea


Industrials

Figure 2: Industrials sector and sub-sector index performance (2011)

Source: Bloomberg; myStocks!

Overall the Industrial sector saw raw material prices driven higher by increases in fuel prices, transportation costs and

inflation. However the Kenyan construction industry continued on a growth trajectory extending 10.7 per cent in the

first quarter of 2011 alone with the trend set to continue as a result of increasing population and major infrastructure

projects. Opening of a regional market through COMESA and the East African Community will be an additional plus to

do business across the borders more freely and hence generate more business.

The sector declined 19 per cent for the year outperforming both benchmark indices with ‘other Industrials’ and

Beverages the best performing sub-sectors down 10 per cent and 13 per cent respectively. East African Breweries Ltd.,

the sole constituent within the Beverages sub-sector, saw increased commercial activities in the neighbouring countries

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of Rwanda and Burundi especially for its Tusker brand with profit before tax rising 6 per cent on the previous year. The

stock traded 16 per cent lower for the year.

‘Other Industrials’ saw British America Tobacco Kenya Ltd. post a 65 per cent rise in full year pre-tax profit to KES 4.48

billion and revenue rise to KES 20.14 billion in the year ending December 2011 (2010: KES 13.54) buoyed by a weaker

Kenya shilling, higher sales and a new revenue line of exports of Cut Rag to Egypt. The stock closed the year 11 per cent

in the red to become the best-performing stock within the sector. In contrast Eveready E.A Ltd. reported revenue for the

year ended December 2011 lower 16 per cent to KES 1.37 billion compared to KES 1.63 billion in 2010 on decline in the

sales performance of the locally manufactured D battery hit by pricing pressures and competition from illegal

substitutes.

Building & Construction and Food Processors were the sector laggards closing the year 28 per cent and 44 per cent in

negative territory respectively. Among the Food Processors Mumias Sugar Ltd. was down 46 per cent with gross revenue

remaining flat at KES 18.81 billion in the year ending June 2011 but dropping to KES 6.9 billion from KES 7.3 billion in

the six months to December 2011. Profit after tax rose 23 per cent to KES 1.93 billion for the first half of the year and 4.5

per cent in the latter half of the year to stand at KES 866.6 million. Unga Group Ltd. saw net income rise to KES 441.o4

million (2010: KES 236.2 million) with the stock, however, down 14 per cent for the year on the back of drought that

saw wheat prices pushed higher.

Building and Construction sub-sector fell 28 per cent with Bamburi Cement Ltd. and E.A Cables Ltd. the worst-

performing counters at 34 per cent and 33 per cent down respectively. Athi River Mining Ltd. led the sub-sector down

12 per cent. Group revenue rose 37 per cent to KES 8.2 billion in the year ended December 2011 with the company

acquiring a controlling stake in Kigali Cement with plans to build a cement factory in South Africa. Bamburi Cement

Ltd. saw revenue rise to KES 16.42 billion in the half-year ended June 2011 from KES 13.05 in 2010- a 26 per cent

increase- down to strong growth in sales in Uganda and improved exports to inland African markets. Pre-tax profit rose

22 per cent to stand at KES 4.26 billion (2010: KES 3.5 billion) during the same period due to exchange gains on

deposits.

E.A Portland Cement Ltd. and East African Cables Ltd. both saw their stocks retreat with the former declining 30 per

cent amidst boardroom wrangles that saw Industrialization Minister Amason Kingi dismiss the entire board of directors

with plans to sell the company’s 1,000 acres of land in Athi River. East African Cables Ltd. fell 33 per cent despite strong

corporate data with revenue up 38 per cent and profit after tax up 71 per cent compared to 2010 down to new product

lines and growth in export markets. Despite its strong performance that saw a 26 per cent growth in revenue for the year

ended December 2011 (2010: KES 3.1 billion) and pre-tax profits up 18 per cent to KES 200.54 million Crown Berger

(K) Ltd., Kenya’s leading paint-maker, saw its stock decline 37 per cent to become one of the sector laggards for the year.


Financials

Figure 3: Financials sector and sub-sector performance index (2011)


The Kenyan banking industry performed relatively well in 2011 mainly driven by Government measures to strengthen

access to credit complemented by continued licensing of microfinance institutions and a review of the legal, regulatory

and supervisory frameworks for the financial sector to improve them. The sector also underwent significant change

including the introduction of faster cheque clearing times, expansion of both mobile and internet banking, expanding

branch and ATM networks and the increased use of credit reference bureaus and agency outlets by banks. Within the

insurance sector, global trends remained a matter of concern with agricultural insurance already experiencing increased

claims arising from prevailing weather conditions. The sector also witnessed increased competition and innovation in

product offer as most companies came up with unconventional products and services to meet the needs in the

marketplace. The emergence of takaful business, microinsurance, agricultural insurance and political risk cover further

necessitated the provision of reinsurance services in the industry.

The Banks sub-sector fell shy of expectations to close the year down 26 per cent. Sub-sector leaders were Kenya

Commercial Bank Ltd., Diamond Trust Bank of Kenya Ltd. and Co-operative Bank of Kenya Ltd. which finished 25 per

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cent, 34 per cent and 36 per cent respectively in negative territory. Sub-sector laggards were NIC Bank Ltd., National

Bank of Kenya Ltd. and Barclays Bank of Kenya Ltd. losing 48 per cent, 49 per cent and 80 per cent1 of their values

respectively.

Most banks saw an improvement in their top-line led by the Big 5. Both Equity Bank Ltd. and Kenya Commercial Bank

Ltd. saw revenues and profitability boosted by network growth and cost efficiencies. In the 12 months to December 2011,

Equity Bank Ltd. saw net interest income climb to KES 19.3 billion (from KES 13.8 billion in 2010) and net profit surge

44 per cent to KES 10.3 billion on higher lending especially to SMEs and growth in customer numbers drawn in by new

distribution channels (in particular mobile phone banking). Kenya Commercial Bank Ltd. saw pre-tax profit for the year

ended December 2011 rise 54 per cent from KES 9.8 billion in 2010 to KES 15.13 billion on the back of a 21 per cent rise

in interest income. Total assets rose to KES 330.7 billion from KES 251.4 billion shillings largely due to a boom in

business loans and mortgages from operations in South Sudan, Tanzania, Uganda and Rwanda.

Standard Chartered Bank of Kenya Ltd. and Co-operative Bank of Kenya also reported improved numbers. Total

revenue for the former grew to KES 15.9 billion for the year ended December 2011, driven mainly by a 60 per cent

increase in interest income on loans and advances due to higher interest rates. Profit before taxation rose by 7 per cent

to KES 8.3 billion during the same period (2010: KES 7.7 billion). In the year ended December 31, 2011, Co-operative

Bank of Kenya Ltd. reported profit before tax of KES 6.36 billion- a 10.2 per cent increase on the KES 5.77 billion in

2010 while at the same time opening seven additional banking outlets with plans to open a further 35 in 2012. Barclays

Bank of Kenya Ltd., however, saw revenue for the full year 2011 up a meagre 1.2 per cent to KES 26.3 billion while

underlying pre-tax profit stood at KES 12 billion up 11 per cent due to the sale of its custodial business.

The second tier banks, led by Diamond Trust Bank of Kenya Ltd. also reported an improvement in performance. Group

net revenue for Diamond Trust Bank of Kenya Ltd. rose 23 per cent to KES 9.57 billion in the year ending December

2011 while pre-tax profit increased to KES 4.3 billion. The NIC Bank Group also saw profit before tax rise to KES 3.6

billion for the year ended 31st December 2011- an increase of 38 per cent down to rising income from corporate lending

and foreign exchange trading.

Within the insurance sub-sector Jubilee Insurance Ltd., East Africa’s oldest and largest insurance group, was the only

counter to outperform the benchmark indices for the year closing 21 per cent lower. Sub-sector peers underperformed

the market led by Pan Africa Insurance Holdings Ltd. and new market entrant CFC Insurance Holdings Ltd., which both

closed 69 per cent and 59 per cent in negative territory respectively for the year. Jubilee Insurance Ltd. reported a

Group pre-tax profit of KES 2.14 billion in the year ended December 2011, an increase of 4.4 per cent from KES 2.1

1 Barclays Bank of Kenya Ltd. undertook a 1:4 share split during the year to make the company more accessible to individual buyers. The share dilution saw the share price fall dramatically which adversely affected the company’s share performance for the year (down 80 per cent).


billion in 2010, down to a renewed focus on its core business activity, enhanced risk management practices and an

aggressive expansion campaign that has seen a strengthening of its operations in Burundi and Mauritius.

Pan Africa Insurance Holdings Ltd. saw revenue decline to KES 3.3 billion (2010: KES 3.54 billion) for the year ending

December 2011 while pre-tax profit declined 17 per cent to KES 552 million hit by lower valuations of its marked-to-

market bonds and equities portfolios. Newly listed CFC Insurance Holdings Ltd., a Kenya-based holding company

offering life and property/casualty insurance coverage, reported a Group pre-tax profit of KES 950 million for the year

ending 31 December 2011 up from KES 260 million in 2010. Both Kenya Reinsurance Corporation Ltd. and newly listed

British-American Investment Co. Ltd. also saw their stocks decline despite mixed corporate results for both. The former

saw net income rise 24 per cent to KES 8 billion for the year ended December 2011 while profit before tax rose 23 per

cent to KES 1.9 billion. British-American Investment Co. Ltd. saw its share value drop below its IPO price of KES 9.00 to

KES 5.60 by the close of the year down to falling equity prices in the market. The Group made a loss before tax of KES

1.7 billion compared to a profit before tax of KES 2.9 billion in 2010.

Within the Investment space City Trust Ltd. backed the sector and sub-sector trends to finish the year a whopping 75

per cent in positive territory. It was also the best-performing stock in the year. Sub-sector peers however finished the

year in negative territory led by Olympia Holdings Ltd. and Centum Investments Ltd. which closed the year 46 per cent

and 43 per cent in the red respectively.

Centum Investment Co., Kenya’s largest investment company, saw profit decline 6.3 per cent in the first half of the year

as share prices of listed stocks fell leading the company to both cut its equity holdings and increase its cash holdings.

Net income dropped to KES 793 million in the six months through September 2011 from KES 846 million a year earlier.

Olympia Capital Holdings Ltd. saw net income total KES 35.1 million in the 12 months through February, compared

with a loss of KES 14.6 million during the same period in 2010. Revenue grew 7.8 per cent to KES 666.6 million while

finance costs dropped 41 per cent to KES 12.4 million during the same period down to aggressive cost-cutting. The stock

however continued to lose momentum from 2010 dropping 46 per cent for the year. TransCentury Ltd., a Kenyan

investor in infrastructure projects, which achieved a listing on the NSE during the year, saw revenue rise for the year

ended December 2011 from KES 6.8 billion to KES 10.7 billion- a 57 per cent increase while profit before tax rose 38 per

cent to KES 869 million. Net Asset Value grew 117 per cent to KES 11.5 billion.

City Trust Ltd. outperformance came despite wrangles between shareholders and the board over the deadline for the

payment of its dividend. Shareholders had a cut-off date of December 29 to be entitled to a dividend while the company

planned to pay the dividend on or about January 27, 2012. The stock was however given major impetus by talks in

October to acquire a regional bank in exchange for shares.

The Real Estate industry continued to see demand for housing in Kenya increase after the central bank cut its

benchmark interest rate eight times between December 2008 and January 2011 to help boost economic growth.


Despite the demand drivers Housing Finance Ltd., Kenya’s only publicly-traded mortgage company, closed the

year 56 per cent lower to become the fourth worst-performing stock within the Financials sector with Real Estate

sub-sector closing lower by the same margin. The company saw its mortgage book total KES 20.4 billion in the first

quarter of 2011 with profit up 65 per cent to KES 120.1 million and net interest income up 32 per cent to KES 434.6

million during the same period.

Energy (Oil & Gas)

2011 started with unrest in the Middle East that affected petroleum product prices in the international market. The

Kenya oil industry was not spared the effects of this turmoil and as a result prices of petroleum products remained high

for most of the year. Coupled to this, the local oil industry continued to face numerous unfavourable market conditions

down to inefficiencies in the fuel supply chain.

The Energy (Oil & Gas) sector closed the year 24 per cent lower with KenolKobil Ltd. the best performing stock down 1

per cent. The company saw a stellar performance for the year ending December 2011 with net revenue up 119 per cent

and profit after tax up 71 per cent compared to 2010 despite an increase in exchange losses during the year.

Total Kenya Ltd. and Carbacid Investments Ltd. were the sector laggards closing 50 per cent and 41 per cent in the red

for the year and underperforming both the benchmark indices. Total Kenya Ltd. saw sales volume drop by 3 per cent on

the back of reduced sales of diesel to emergency power producers leading to a decline in the company’s inland market

share. High international oil prices and a weak Kenya shilling however saw the top-line rise 44 per cent but profit before

tax fell to KES 58 million (2010: KES 1.39 billion) which after taxation resulted in a net loss of KES 71 million. Carbacid

Investments Ltd. reported a rise in revenue to KES 576.09 million for the year ending July 2011 while pre-tax profit rose

to KES 374.21 million during the same period. Net profit fell to KES 302.2 million at year end reflecting an increase in

both distribution costs and administrative expenses and a decrease in operating profit.

BOC Kenya Ltd. saw revenue rise a meagre 3.4 per cent for the year ending December 2011 to KES 1.2 billion. Pre-tax

profit however rose an impressive 87 per cent during the same period to KES 214.95 million from KES 114.69 million a

year earlier with operating margin more than doubling. The stock, however, fell shy of expectations to close the year 29

per cent in negative territory.


Telecommunications

The number of mobile-phone users in Kenya grew at the fastest pace in 2010 rising to 25 million by December 2010 as

the cost of calls continued to fall. In June 2011, however, President Mwai Kibaki ordered a halt to further cuts in call

tariffs after companies including Safaricom Ltd. and rival Telkom Kenya Ltd. opposed the reductions. Other competitors

include Airtel Kenya Ltd., a unit of New Delhi-based Bharti Airtel Ltd. and Essar Telecom Kenya Ltd. Network charges

had been expected to drop to KES 1.44 at the beginning of July from KES 2.21.

Safaricom Ltd., 40 per cent-owned by Vodafone Plc- the world’s biggest mobile-phone operator, saw revenue rise 12.9

per cent to KES 94.83 billion in the year ending March 2011 with Voice revenue making the biggest contribution at KES

63.50 billion. EBITDA, however, fell from KES 36.60 billion to KES 35.71 billion while EBITDA margin fell from 43.6

per cent to 37.7 per cent despite increasing call tariffs for the first time in 11 years amid a weakening currency and rising

inflation. In the year ending March 2012 revenue rose to KES 107 billion- a 13 per cent increase.

Early in 2011 the company signed a partnership with KCB Group Ltd. aimed at easing access to business development

loans by M-Pesa agents. Under the agreement, M-Pesa agents will acquire bank overdrafts and loans from KCB for the

purposes of business expansion and float availability at favourable rates. The company announced a final dividend of

KES 22.0 per share for fiscal year 2011 which will be payable on December 11, 2012. Despite these positive developments

the counter closed 36 per cent in the red to underperform the benchmark indices as did the Telecommunications sector

overall.

Automobiles

Most of the challenges experienced by the sector were driven by external factors including the global recession and

widespread unrest in some of the major oil-producing countries. The weakening of the Kenya Shilling over this period

had an added adverse effect on imports and foreign currency dominated expenses. The situation was exacerbated by

congestion at the Mombasa port and the rising price of fuel continued to put pressure on inbound and distribution costs.

These headwinds impacted negatively on the sector which closed down 4 per cent for the year. All sector constituents,

with the exception of CMC Holdings Ltd., also closed the year in negative territory.

Car & General Ltd. and Sameer Africa Ltd. were the sector underperformers with the counters closing the year 49 per

cent and 44 per cent in the red respectively. Car & General Ltd. reported revenue growth to KES 6.09 billion for the year

ended September 2011 from KES 4.78 billion a year earlier on the back of increased sales of the company’s TVS two


wheelers in Kenya, growth of all the company’s core brands, particularly Cummins, and the further streamlining of

business in Ethiopia, Djibouti, Eritrea and Seychelles through dealers. Profit before tax grew to KES 427.9 million

(2010: KES 329.2 million) during the period. Tyremaker Sameer Africa Ltd. saw top-line grow 10 per cent from KES

3.35 billion in 2010 to KES 3.68 billion in the year ended December 2011 with Yana Tyre sales growing by 33 per cent

and export sales by 17 per cent. The company posted a 139 per cent growth in pre-tax profit for 2011 to KES 148.45

million following a hard-knuckle approach that saw the company hold costs at 2 per cent below 2010 levels and improve

profit from operations.

A disputed loan saw Marshalls East Africa Ltd. return to profitability despite the troubled auto dealer’s revenue having

dropped 56 per cent in the year to March 2011 with net profit at KES 181.5 million during the same period compared to

a loss of KES 344.72 million in a similar period in 2010. Performance was buoyed by the waiver of a KES 401 million

loan borrowed from Kenya Commercial Bank following a spat over control of the firm which saw Marshalls Kenya Ltd.

end up with six CEOs in three years. The firm reported a net loss of Sh319 million excluding the one- off loan waiver—

extending its loss making streak to four years. The stock however rode the wave of negative sentiment to finish 11 per

cent lower outperforming the market.

During September CMC Holdings Ltd., Kenya’s biggest publicly traded auto dealer, was suspended from trading on the

Nairobi Stock Exchange for seven trading sessions after a dispute over fees paid to a freight-forwarding company which

had overcharged it by as much as KES 2 billion shillings over the past five years. First-half profit slipped on slower

government orders at home while in Uganda general elections in February ensured the business got off to a slow start to

the year there. Revenue fell 11 per cent to KES 6.118 billion during this period. However, the company which has

exclusive distribution contracts for brands like Land Rover and Ford in the local and regional market saw it register

stronger sales in the second half of its financial year with the stock closing the year 8 per cent higher.

Consumer Goods

Immediately following resumption on the NSE on May 31 2011, after a five-year suspension, Uchumi Supermarkets Ltd.

tumbled 32 per cent weighted down by shareholders seeking a rapid exit. This was despite strong company

fundamentals and strong foreign demand for the country’s equities from investors keen to play Africa’s consumer story.

The Kenya Government remained the biggest shareholder in Uchumi with a 13.4 per cent direct stake through Treasury

while also holding an 18.75 per cent indirectly through Kenya Wines Agencies Limited and a further 7.78 per cent

through Industrial Commercial & Development Corporation.

Revenue grew 14 per cent to KES 9.8 billion in the nine months through March 2011 compared with a year earlier. Profit

before tax in the year through June 2011 rose 25 per cent on growth in customers, products and outlets. The retailer


continued to show outstanding loans of KES 243 million on its balance sheet which weighted down on the stock to close

the year 35 per cent lower.

Consumer Services

Figure 4: Consumer Services sector and sub-sector index performance (2011)


On the tourism front there were fears during the year that the debt crisis in the Eurozone and a sluggish economic

recovery in the United States, traditionally the main source markets for tourists, would dampen arrivals. However

demand for traditional safari and beach holidays steadily increased and this was complemented by increased activity

within the East African corporate sector and domestic market segment. The technology sub-sector (including the data

industry) witnessed increasing competition and price wars as key players grappled with how best to maximise

shareholder value at a time when both retail and wholesale capacity pricing had significantly reduced but the

requirements for capital investment to grow network capacity remained high.

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On the back of this the Consumer Services sector finished the year 11 per cent in the red to outperform the market but

with all sub-sectors closing the year lower. Media & Advertising was the outperformer among the sub-sectors tracking

the performance of the wider sector to close the year 12 per cent lower. Nation Media Group Ltd. was both the sector

and sub-sector leader- down 13 per cent at year end and outperforming both its sub-sector peers- ScanGroup Ltd. and

Standard Group Ltd. (which closed 32 per cent and 45 per cent lower respectively) despite their strong corporate data.

In the year ended 31 December 2011 Nation Media Group Ltd. revenue increased by 17.1 per cent to KES 11.25 billion

with profit before tax rising to KES 2.8 billion- a 30.9 per cent increase from 2010 on the back of higher newspaper

circulation volumes and an increase in advertising revenues and market share. Its youngest publication- ‘The Business

Daily’ alone recorded an 881 per cent growth in operating profit.

Top marketing services company ScanGroup Ltd. saw revenue for the year ending December 2011 rise 53 per cent to

KES 3.6 billion (2010: KES 2.3 billion) while its sub-sector peer- Standard Group Ltd. saw revenue, during the same

period, remain largely the same at KES 3.17 billion compared to KES 3.1 billion in 2010 on the back of heightened

competition. Pre-tax profit for ScanGroup Ltd. jumped 53 per cent to KES 1.28 billion in the same period thanks to a

pick-up in consumer advertising on the continent while profit after tax attributable to shareholders for Standard Group

Ltd. fell to KES 219 million from KES 249 million in 2010 despite a strengthening of the Group’s financial base. The

company also announced the appointment of a new chief executive officer- Paul Melly, the former chief strategist at the

company.

Group revenue for TPS Serena Group Ltd. for the year ended December 2011 rose to KES 5.5 billion (2010: KES 4.5

billion) down to higher tourist arrivals and a vibrant local events and conferences business environment while profit

before tax also rose to KES 853 million (2010: KES 693 million), a 23 per cent improvement. Earlier in the year the

government had declared its intention to sell 11 hotels through strategic partnerships or share issues among them the

Intercontinental and Hilton Hotels. This seemed to have spooked investors with the stock closing the year 20 per cent

lower.

Revenue for Access Kenya Group Ltd. for the year ended December 2011 grew 18 per cent from KES 1.71 billion in 2010

to KES 1.74 billion thanks to a growth in corporate customer numbers from 3,900 leased lines at the end of 2010 to

4,700 at the end of 2011. Market share remained at approximately 40 per cent in the corporate data market with net

profit for the year at KES 109 million, a significant improvement from the loss of KES 7.95 million in 2010. AccessKenya

Ltd. provides internet access via its fibre-optic network to corporate and so-called high-end residential customers in the

country. Despite the tailwinds the counter was one of the worst-performing in the year closing 64 per cent lower.

Transport


The high cost of jet fuel continued to impact on profitability in the aviation industry while political unrest in parts of the

Middle East and the military intervention in Libya had an even bigger and more immediate impact on the industry. The

last quarter of the financial year ended with an average of $106 per barrel, which translates to a 33 per cent increase on

the $79.4 average in the previous quarters. Fuel already accounts for about a third of an airline’s cost structure and

according to IATA, each dollar increase in the price of oil challenges airlines to recover $ 1.6 billion in added costs.

The sector was the worst-performing during the year trading 54 per cent lower to drag the overall market deeper into

negative territory. Kenya Airways Ltd. retreated 56 per cent while Express Kenya Ltd. was down 50 per cent. For the

year ended 31 March 2011 Kenya Airways Ltd. however managed to surpass the 3 million passenger mark with revenue

rising to a record high of KES 85.8 billion- a 21 per cent increase on prior year revenue of KES 70.7 billion. This was

down to improved economic conditions, regained customer loyalty, improved On Time Performance and the

introduction of new destinations. Profit after tax increased to KES 3.5 billion from KES 2.03 billion with net profit

margin rising to 4.1 per cent from 2.9 per cent in 2009/10. Despite the rebound in service demand the stock continued

to play catch-up with the rest of the market.

Express Kenya Ltd. which provides clearing and forwarding services for both air and sea as well as warehousing and

logistics saw a drastic fall in the size of the order book with Group revenue declining to KES 450 million for the year

ended December 2011 from KES 857 million a year earlier- a 90 per cent slump. Net loss for the same period grew from

KES 15 million to KES 222 million with an impairment provision in the year 0f KES 56 million. As in the previous year

no dividend was paid out to investors in 2011 with increasing pessimism among them about the future of the company

weighing heavily on its stock performance.

Utilities

Natural gas is increasingly becoming a popular fuel for electric power generation. This is primarily due to its lower price

driven down partly by its lesser environmental emissions compared to other fuel oils. The Government of Kenya has

continued to finance the drilling of wells through substantial budgetary allocations and the doubling of the current

budget for the energy sector has increased funds for geothermal development. Furthermore utility companies have

continued to roll-out transmission and distribution networks as they strive to meet their stated objectives of addressing

the low access to electricity across the region. Kenya Power & Lighting Co. Ltd., for instance, increased connections by

389,000 to 1.7 million in 2011 with increasing urbanisation of populations and industrialisation increasing demand for

electricity.

Electricity revenue for Kenya Power & Lighting Company Ltd. for the year ended June 2011 rose 8.6 per cent from KES

39 billion in 2010 to KES 42 billion while profit after tax figure stood at KES 4.22 billion compared to KES 3.72 billion


the previous year, an increase of 13 per cent. Its capital asset base grew to KES 83.43 billion (2010: KES 64.44 billion)

owing to continuing capital investment in projects aimed at improving the quality of power supply and increasing

connection of new customers. The company had earlier in the year seen an oversubscription on its rights issue raising

KES 9.83 billion. The stock however closed the year 31 per cent in the red.

KenGen Ltd. installed capacity increased steadily with the injection of 120MW from Kipevu III in March 2011 and

20MW from Tana Redevelopment as the firm continued its transformation from hydro to weather resistant geothermal

generation. KenGen Ltd. has been continually growing its geothermal generation to meet current demand. Revenue for

the year ended June 2011 rose to KES 14.4 billion from KES 11 billion in 2010- a 31 per cent increase while pre-tax profit

rose 47 per cent to KES 3.65 billion(2010: KES 2.48 billion).The stock however fell shy of expectations to close the year

48 per cent lower.

Conclusion

Kenyan stocks, sub-Saharan Africa’s worst performers in 2011 saw both the NSE All-Share index and the NSE-20 index

par 2010’s gains closing the year 32 per cent and 30 per cent lower respectively. Geopolitical concerns and inflation,

triple the central bank’s target, drove investors to protect capital through buying government bonds, with yields at a

nine-year high. The Kenya Shilling sunk to a record low during the year (forcing the government to hike interest rates)

amid a drought that cut agricultural yields forcing the government to raise food imports. Despite strong corporate data

across the board most stocks and sectors closed the year in the red indicative of the general wave of negative sentiment.

However, this market pull-back ought to present a value proposition to investors given the strength the corporate

underlying numbers and an improving regional macroeconomic environment.


Appendix

Table 1: Re-configuration of the sectors on the Nairobi Stock Exchange (NSE)

NSE sector reclassification

Sector Sub-sector Stock

Agriculture Eagads Ltd.

Kakuzi Ltd.

Kapchorua Tea Co. Ltd.

Limuru Tea Co. Ltd.

Rea Vipingo Ltd.

Sasini Tea & Coffee Ltd.

Williamson Tea Kenya Ltd.

Industrials

Building & Construction

Athi River Mining Ltd

Bamburi Cement Ltd.

Crown Berger (K) Ltd.

E.A Cables Ltd.

E.A Portland Cement Co. Ltd.

Beverages

E.A. Breweries Ltd.

Food Processors

Kenya Orchards Ltd.

Mumias Sugar Company Ltd.

Unga Group Ltd.

other Industrials

British-American Tobacco Kenya Ltd.

Eveready East Africa Ltd.

A. Baumann & Co.Ltd.

Financials

Banks

Barclays Bank of Kenya Ltd.

CFC Stanbic Bank Ltd.

Diamond Trust Bank of Kenya Ltd.

Equity Bank Ltd.


Kenya Commercial Bank Ltd.

National Bank of Kenya Ltd.

NIC Bank Ltd.

Standard Chartered Bank Kenya Ltd.

The Co-operative Bank of Kenya Ltd.

Insurance

British-American Investments Co. Ltd.

CFC Insurance Holding Ltd.

Jubilee Holdings Ltd.

Kenya Re-Insurance Corporation Ltd.

Pan Africa Insurance Holdings Co. Ltd

Investment

Centum Investment Ltd.

City Trust Ltd.

Olympia Capital Holdings Ltd

Real Estate

TransCentury Ltd.

Housing Finance Ltd.

Oil & Gas (Energy)

BOC Kenya Ltd

Carbacid Investments Ltd.

KenolKobil Ltd.

Total Kenya Ltd.

Telecommunications

Safaricom Ltd.

Automobiles

Car & General Ltd.

CMC Holdings Ltd.

Marshalls E.A Ltd.

Sameer Africa Ltd.

Consumer Goods

General Retailers

Uchumi Supermarkets Ltd.


Consumer Services

Media & Advertising

Nation Media Group Ltd

ScanGroup Ltd.

Standard Group Ltd.

Leisure, Entertainment & Hotels

TPS (Serena) Ltd.

Technology

Access Kenya Group

Transport

Kenya Airways Ltd.

Express Ltd

Utilities

Kenya Power & Lighting Co. Ltd.

KenGen Ltd.

Table 2: Sector index and benchmark index performance (2011)

DATE

03/1/

11

31/1/

11

28/2/

11

31/3/

11

29/4/

11

31/5/

10

30/6/

10

29/7/

10

31/8/

10

30/9/

10

31/10/

10

30/11/

10

30/12/

10

annu

al %

chan

ge

Agriculture 104 109 103 92 93 100 99 93 92 95 118 114 111 7

Building &

Construction 95 103 101 89 89 90 92 89 83 78 79 72 68 -28

Beverages 120 108 110 109 122 126 116 110 104 98 92 95 104 -16

Food Processors 66 59 55 49 52 51 49 48 43 45 50 35 37 -44

Other Industrials 177 181 189 176 168 163 172 171 155 152 153 149 160 -10

Industrials 109 106 106 100 106 108 104 100 94 89 87 84 88 -19

Banks 50 57 58 52 54 54 52 48 42 37 42 36 37 -26

Insurance 74 80 80 78 100* 84 79 80 73 100* 99 90 89 -11

Investment 78 88 83 80 86 84 86 100* 94 78 84 77 76 -24

Real Estate 58 60 66 56 59 55 51 44 38 36 35 30 26 -56

Financials 52 58 59 53 100* 65 62 100* 87 100* 111 96 98 -2


Energy (Oil &

Gas) 114 114 110 107 108 104 112 112 98 92 97 87 87 -24

Telecommunic

ations 64 59 54 52 54 53 54 48 41 40 41 38 41 -36

Automobiles 66 68 58 55 59 62 57 55 57 64 64 62 63 -4

Consumer

Goods - - - - - 100 96 81 66 69 70 59 65 -35

Media & Advertising 71 78 76 75 82 76 76 70 64 60 61 62 62 -12

Leisure,

Entertainment &

Hotels 123 116 115 119 118 124 119 111 100 103 105 91 98 -20

Technology 58 56 41 31 39 35 31 27 25 23 25 22 23 -64

Consumer

Services 72 81 79 78 83 79 78 72 65 63 63 62 64 -11

Transport 71 71 62 50 57 63 58 51 48 40 37 31 33 -54

Utilities 105 100 91 87 90 91 86 82 76 69 75 63 70 -33

NSE-20 share

index 87 86 81 75 78 79 77 72 66 64 68 61 61 -30

NSE All-share

index 122 121 119 111 115 114 112 104 92 86 90 81 83 -32

Table 3: Best and worst-performing stocks in 2011

Best

performing

stocks

annual %

change

Worst

performing

stocks

annual %

change

Sector Sub-sector Sector Sub-sector

Agriculture

Kapchorua Tea Co. Ltd.

25

Limuru Tea Co. Ltd. 12

Sasini Tea & Coffee -1


Ltd.

Williamson Tea Kenya Ltd.

53

Financials Financials

Investment Banks

City Trust Ltd. 75 Barclays Bank of Kenya Ltd.

-80

Insurance

CFC Insurance Holding Ltd.

-59

Pan Africa Insurance Holding Co. Ltd.

-69

Real Estate

Housing

Finance Ltd. -56

Energy (Oil & Gas)

KenolKobil Ltd. -1

Automobiles

CMC Holdings Ltd. 8

Consumer Services

Technology

Access Kenya Group

-64

Transport

Kenya Airways Ltd.

-56

Nairobi Securities Exchange Sector and Benchmark Index Performance (2011)

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