Centum profit plunge catches investors by surprise

Investment firm Centum Tuesday posted a 48.4 per cent drop in full-year net profit on bearish run at the Nairobi bourse, despite not warning investors earlier as required.

The firm said its net profit dropped to Sh1.18 billion in the year to March compared to Sh2.29 billion, but it failed to issue a profit warning as set for listed companies that expect their full-year profit to fall by at least 25 per cent.

Its share prices at the Nairobi Securities Exchange (NSE) fell 9.8 per cent to Sh13.30 at Tuesday’s trading on what brokers attributed to reduced demand for a counter whose interest is pegged on capital gains since the firm does not pay dividends.

The company had not issued a profit warning so the results come as a surprise to the market,” Standard Investment Bank said in an investor note to its clients.

James Mworia, the CEO of Centum, said the investment firm is exempted from the profit rule, adding that some transactions were not completed in time to factor in its report and that its performance is driven by external factors.

(Read: Centum seeks key investors for Sh30bn real estate fund)

He defended the failure to issue a profit warning on a lower than expected revaluation of its land in Nairobi.

“(The) principal driver for the decline was a lower than expected value uplift on the our real estate investment portfolio,” said Mr Mworia.

He added that the valuation of the investment portfolio took place after year end.  

 “With the approval of the master plan and the change of use (for the land in) Two Rivers, we had expected to book a significantly higher value uplift”

“Centum is exempt from the requirement to issue a profit warning in this situation because there was no material activity internally that would have helped us project a more than 25 per cent drop in profits,” said Mr Mworia in a telephone interview with the Business Daily.

“Also, our performance is also pegged to the returns of other companies, whose operations we cannot project.”

Its growth plans

But Centum’s peer, investment firm British America Investment Company, issued a profit warning in January 11 for the year ended December and announced its profits in March 21.

“The requirement is to issue a profit warning within the financial year, after the closure, we are required to release results,” said Mr Mworia. Centum said reduced gains from lower share prices and increased loan costs hurt its profit as its investment income dropped to Sh1.27 billion in the year to March compared with Sh2.2 billion a year earlier.