Corporate News
Sugarcane is delivered for milling at Mumias Sugar Company. The miller
is one of six NSE-listed companies that have issued profit warnings this
year. PHOTO | FILE
By VICTOR JUMA, vjuma@ke.nationmedia.com
In Summary
- Car & General, Mumias Sugar, East African Cables, Express Kenya, Standard Group, and Uchumi Supermarkets have warned investors to expect a fall in their profit by at least 25 per cent.
- The profit alerts mean some of the firms will post losses or record significant declines in their profit, which in most cases leads to a freeze or cut in dividend payouts.
Six NSE-listed companies have issued profit warnings
this year, setting up investors for a dividend drought at a time when
the stock market is in a bear run.
Car & General, Mumias Sugar, East African Cables, Express Kenya, Standard Group, and Uchumi Supermarkets
have warned investors to expect a fall in their profit by at least 25
per cent, attributing it mainly to the weakening currency and high
operating costs.
The announcements mean some of the firms will post
losses or record significant declines in their profit, which in most
cases leads to a freeze or cut in dividend payouts.
Companies that prefer to retain most of their
earnings to fund new investments are also likely to cut the amount of
cash to be distributed as dividends.
Cigarette manufacturer British American Tobacco
is the only firm at the Nairobi Securities Exchange (NSE) with a
publicly stated policy of paying out its entire profit as dividends.
Reduced earnings also have the effect of cooling
off demand for companies’ stock unless investors see it as a temporary
phenomenon – thereby limiting capital gains for investors.
The Capital Markets Authority (CMA) requires
companies to issue profit warnings to caution investors of the risks of
capital losses and reduced dividend as a result of the profit fall.
Uchumi was the latest NSE firm to issue a warning
on Monday, indicating that it expects a maximum net profit of Sh288.2
million in the year ended June compared to a net profit of Sh384.2
million it made the year before.
The company had already sank into losses in the half year ended December at a pre-tax loss of Sh262.3 million.
“The challenges that led to an adverse performance
for year 2015 were mainly attributed to challenges on the working
capital,” the retailer said in a statement.
Uchumi, which is replacing its top management team fired earlier in the year, has suffered from stockouts and a high debt load.
Standard Group’s profit warnings means the company
expects a maximum pre-tax profit of Sh244.5 million in the year ending
December compared to a pre-tax profit of Sh326 million the year before.
The company has reported an 89.6 per cent drop in
pre-tax profit to Sh21.3 million in the half-year ended June, driven by a
seven per cent fall in revenue to Sh2.2 billion.
“Specific challenges that adversely affected the
group’s performance in the first half of the year included business
disruptions that resulted from the digital migration process,” the media
firm said in a statement.
The company said it also marked down the value of analogue television equipment, besides raising provisions for bad debts.
Power cables manufacturer EAC expects its net profit not to
exceed Sh255.8 million in the year ending December compared to last
year’s net profit of Sh341.1 million.
The company already sunk into losses in the
half-year ended June at a net loss of Sh70.9 million as revenue declined
22 per cent to Sh2 billion.
“The reason for reduced earnings has been due to
significant interruptions in our production output at our Kitui Road
factory,” EAC said in a statement.
Mumias’s earnings alert means the miller is
anticipating its net losses to widen to at least Sh3.3 billion in the
year ended June compared to the net loss of Sh2.7 billion the year
before.
The miller has suffered from fraud and
mismanagement, while also taking a hit from sugarcane shortages that has
affected its operations.
Car & General expects a maximum net profit of
Sh208.7 million in the year ending September compared to a net profit of
Sh278.3 million the year before on the effect of weak regional
currencies.
Express Kenya, which is transforming from a
transport company to a real estate developer, has also issued a profit
warning for the half-year ended June and has since announced a net loss
of Sh23.2 million in the period.
This narrowed the Sh82.1 million net loss recorded in the same period last year.
The six companies are part of more than 25 firms —
comprising 40 per cent of all listed companies — that have posted losses
and profit declines this year.
The spreading earnings weaknesses among the
publicly traded companies is expected to worsen the bear run, with the
main indices having already dropped by double-digits year-to-date.
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