CMA slaps Centum with fine for failure to issue profit alert
Posted Wednesday, June 27 2012 at 20:54
The markets regulator has penalised investment firm Centum for failing to issue a profit warning before announcing a 48.4 per cent drop in its full-year net profit.
Capital Markets Authority (CMA) chief executive Stella Kilonzo said the regulator was not convinced by Centum’s explanation that it was difficult for it to issue the profit alert because its property valuations came through after the financial year.
Last Tuesday, Centum said its net profit dropped to Sh1.18 billion in the year ending March compared to Sh2.29 billion the year before on lower valuation of its real estate assets, catching investors and analysts by surprise.
“We have already taken action on Centum for the violation and it is in form of a fine,” Mrs Kilonzo said without giving details.
“They gave us their position on the matter, but as a regulator we found they had not adhered to the legal requirements,” she said.
Companies listed at the Nairobi Securities Exchange (NSE) are required to warn investors if their full-year profits will drop by more than 25 before actual announcements, with the law stating that offenders will pay a fine set at the discretion of the regulator.
The earnings alert should be sent to the NSE, CMA, and the public at least 24 hours before announcement of the results, a rule Centum did not adhere to.
“An issuer who fails to comply with any continuing obligation within the prescribed time shall be liable to pay a penalty at the rate prescribed by the authority,” says the CMA public disclosure requirement.
CMA chairman Kungú Gatabaki reckoned that the fines runs into hundreds of thousands of shillings, but added that the regulator is seeking enhanced powers to deal with breaches on obligations attached to firms listed at the Nairobi bourse.
“Financial penalty is not the issue here, but the recognition that Centum broke the law and it does not adhere to set corporate governance standards,” said Mr Gatabaki in a separate interview with the Business Daily.
“We have forwarded amendments to Treasury that will allow CMA to reprimand directors who fail in the duty to protect investors’ interest. Its impunity that Centum’s board had prior information on results since they were audited but opted to ignore the law.”
The CMA had given Centum two days to say why it never issued a profit warning. But the firm said it was difficult to issue the profit alert because its valuations on its real estate investments were known after the end of the financial year.
“It was not possible to anticipate the quantum of the revaluation movements on investment property within the year. This amount only becomes known after the end of the financial year,” he said.
He added that the firm’s profits before tax would have been Sh1.01 billion in the year to March, compared to Sh1.29 billion a year earlier after excluding the changes in the property valuations in the two years.