Devaluation takes toll on listed companies

A recent sharp devaluation of the Malawi kwacha and its subsequent flotation of the exchange rate regime has adversely affected the performance of listed companies most of which have chalked lower profits in the first half of the year.

Nation Online has established that in the aftermath of 49 percent devaluation and weakening of the kwacha on flotation most listed companies incurred huge losses on account of resultant increases in finance charges.

It has also been learnt that after the devaluation, most listed firms that had loans denominated in foreign currency or had foreign debt servicing obligations have coughed more money to service the loans, thereby affecting their balance sheets in the first half of the year.

Nico Holdings Limited, Press Corporation Limited (PCL), Malawi Properties and Investment Company (Mpico) and TNM are some of the companies adversely affected by the devaluation.

Not so rosy

But Malawi Stock Exchange (MSE) operations manager John Kamanga on Tuesday painted a rosy picture, saying profitability of the listed companies is bound to increase as the exchange rate stabilises.

Nico Holdings Limited has forecast that profit-after-tax for the period ended June 30 2012 will be lower than the same period last year because of the performance of the economy in the wake of the devaluation

Conglomerate PCL has also advised in a cautionary statement that its profit-after-tax for the first half of the year is expected to be 40 percent lower than the same period last year.

“This is largely due to foreign exchange losses incurred following the recent sharp devaluation of the Malawi kwacha during the second quarter of the year,” reads a PCL trading statement released last week.

Mpico has also warned in its trading statement for the first half of the year that its performance will be lower than that of the corresponding period last year.

The company has already hinted that profit-after-tax is expected to decline by 20 percent owing to significant interest charges on facilities obtained to finance its Gateway Shopping Mall in Lilongwe, currently under construction.

Victim of devaluation

Another victim of devaluation is TNM whose company secretary Christina Mwansa has said in a statement that its profit-after-tax for the first six months will be 30 percent lower than that of the same period last year on account of foreign exchange losses due to the devaluation.

Explaining the performance, Kamanga said the devaluation meant that an increase in import arrears which led to the shrinking of kwacha supply for payments of imports affected most of the listed counters.

“With stability, things are bound to change and at the moment banks have foreign exchange which is accessible to importers. This would mean an increase in production capacity and will see more people being re-employed,” he said.

He argued that much as share prices are trading downwards, most of the listed counters are still realising profits which, of course, is not as high as that of the first half of last year.

He also stated that despite the companies incurring low profitability in the first half of 2012, most of them are still able to payout dividends which he said was good to existing shareholders.

But it is not all gloom on the MSE as the banking index is doing well despite the harsh environment for the real sector.

National Bank of Malawi, Standard Bank and FMB have all issued profit warnings, cautioning that their net earnings will be higher than projected. NBS is the only listed bank that has cautioned that its profits may dip.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said last week that currently, most private sector players are now recalling and recruiting more employees in the wake of the relative accumulation of foreign currency.

Economic experts blamed the chronic shortage of foreign cash on the overvaluation of the kwacha to other major trading currencies which they said made Malawi exports uncompetitive on the global market and at the same time making imports cheap, thereby draining foreign currency.

Meanwhile, Nico Asset Managers has warned that a floated exchange rate regime will likely pose as a challenge to most businesses in planning for their expenditures due to the volatile operating environment.