Centum Investment released the audited financial results for the year ended 31 March 2020. The Group reported a growth in profit to KSh7.38 billion compared to KSh4.12 billion on 31 March 2019.
The Group’s total assets recorded marginal growth from Ksh101.764 billion in March 2019 to Ksh101.861 billion in March 2020. Investment income for the period under review was Ksh14.996 billion compared to the Ksh9.549 billion in 2019.
The Group recorded a marginal decline in total liabilities from Ksh50.188 billion in March 2019 to Ksh49.239 billion in the period under review.
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Centum Company
The company’s operating profit increased from KSh827 million to KSh985 million for the year ended 31 March 2020, representing a 19% growth relative to the prior year. This was primarily attributable to the gains of KSh2.7 billion booked following the disposal of Almasi Beverages Limited and Nairobi Bottlers Limited.
The company has recorded one-off impairment provisions of KSh3.6 billion, including the provision on Amu Power Company Ltd, among other assets.
As of 31 March 2020, the only long term borrowing on the company’s balance sheet was the five-year KSh6.6 billion corporate bond. On 8 June 2020, Centum repaid the full amount outstanding. With this repayment, the company has now fully retired all its medium and long term debt, having earlier repaid $75 million (Ksh7.8 billion) of USD Dollar-denominated bank debt in September 2019.
James Mworia, Centum CEO, says that the impressive results reflect the Group’s turnaround five- year strategy period to the year 2024 dubbed ‘Centum 4.0’. He added that the Group structure and operating model is focused on four business units; Marketable Securities, Private Equity, Real Estate, and Development.
Marketable Securities
Centum Group held Ksh9 billion in marketable securities and cash deposits as of 31 March 2020 (Excluding the cash and securities held by Sidian Bank limited), representing a 119% growth from Ksh4.1 billion held in 2019.
This portfolio has recorded a realized cash investment income of KSh450 million over the last 12 months. Mworia says that as of 31 March 2020, 90% of marketable securities portfolio was held in fixed income securities and interest-earning cash deposits.
Private Equity
Centum reports that during the year, it made KSh19.6 billion following the disposal of its entire equity stakes at Almasi Beverages Limited, Nairobi Bottlers limited, and King Beverage Limited. Centum used the proceeds from the exit to pay off its US Dollar bank debt and local currency revolving credit facilities, with the balance invested in the cash-generating marketable securities portfolio.
Mworia says that the disposal of Almasi Beverages and Nairobi Bottlers achieved a combined average Investment Return Rate (IRR) of 31% over the last ten years. Between the years 2014 and 2019, the average annual dividends from the two businesses amounted to Ksh299 million.
The aggregate profitability of the remaining underlying portfolio in which the Group has a controlling stake increased by 2.7x year on year, driven primarily by the performance of Sidian Bank Limited, which returned to profitability in the year.
Excluding the beverage business, the portfolio companies paid a dividend of KSh318 million to Centum, representing a growth of 27% from the prior year.
READ ALSO: Centum shareholders approve the sale of Almasi and King Beverages
Real Estate
Centum real estate business is now valued at KSh36.88 billion, representing 65% of the firm’s total assets. Mworia explains that the real estate business relates to the development and sale of infill developments, sale of development rights, management of rental assets, and development on third party sites on a joint-venture basis.
- Development and Sale of Infill Residential Projects
Centum is pursuing a sales-led development model and is currently constructing 1,442 residential units across its three mixed-use developments. Of the 1,442 units under construction, 999 units, with a revenue potential of KSh7.8 billion had been sold as at 31 March 2020, representing a pre-sale level of 70%. The business has collected over 27% in cash deposits for these pre-sold units and was, therefore, holding a receivable of KSh5.7 billion, which fully covers the construction cost and profits.
Mworia expects Centum to complete and hand over 426 of the units under construction in the financial year ending 31 March 2021. He further says that both Vipingo and Pearl Marina developments were fully funded through shareholders’ funds with the underlying subsidiaries having an asset to debt ratio of 4.8x and are therefore under-leveraged.
- Sale of Development Rights
Besides, Mworia says that Centum had converted bulk land sales worth KSh2.8 billion as of 31 March 2020, with the sales at different legal documentation phases. The business has booked a net fair value gain on properties amounting to KSh1.8 billion, representing a decrease of 76% from the gain booked in the prior year, on account of property market movements.
- Management of Rental Assets
The primary asset under this business line is the Two Rivers Mall and two office towers. As of March 2020, the mall leasing level was at 81%, while both office towers were at 20% compared to 71% and 8%, respectively, as of March 2019. Of the leased space, trading tenants constituted 73% and 20% of the mall and offices gross leasable area, respectively, compared to 62% and 8% in the prior year.
- Development of Joint Venture Projects
As of 31 March 2020, the Group had signed a joint venture agreement for a 965-unit development along Thika Road, which is now under market validation.
Development
Centum recorded a one-off impairment provision against the debt instrument investment in Amu Power Company Limited during the period under review.
As at 31 March 2020, Amu Power Company had completed negotiations for the Operations and Maintenance (O&M) and the Engineering, Procurement, and Construction (EPC) contracts, secured a Power Purchase Agreement with Kenya Power Limited, negotiated a debt term sheet and obtained a Government of Kenya Letter of Support.
Further, while the company had obtained the relevant environmental approvals, the same is currently under litigation before the High Court of Kenya following an appeal from the National Environment Tribunal. Mworia says a full provision has been recorded, taking into account the uncertainties surrounding the timing of the closure of these matters and the classification of the investment as a debt instrument.
The Board of Directors recommended a dividend payment of KSh1.20 per share for the financial year ended 31 March 2020.
