Longhorn posts a loss four months after NSE listing
Longhorn Publishers made a net loss of Sh22.4 million in the year ended June 2012.
What you need to know:
The firm made a net loss of Sh22.4 million in the review period to reverse the net profit of Sh127.4 million last year as it suffered from reduced orders from the government, which buys more than 80 per cent of all textbooks.
Longhorn’s sales dropped 29.4 per cent to Sh775.9 million compared to Sh1.1 billion last year, hurting its earnings despite a significant drop in costs. It cut its cost of sales to Sh438.7 million from Sh552.6 million.
This is the first time Longhorn is putting a freeze on dividends in five years having paid shareholders between Sh39.4 million and Sh11.7 million over the period. In the year to June it paid Sh1.50 a share in dividends.
The company attributed the reduced spend by the government on textbooks to macroeconomic challenges in the review period such as the weakened shilling and high inflation.
Longhorn Publishers dipped into a loss in the year ended June, months after listing on the Nairobi Securities Exchange on reduced book orders.
The firm made a net loss of Sh22.4 million in the review period to reverse the net profit of Sh127.4 million last year as it suffered from reduced orders from the government, which buys more than 80 per cent of all textbooks.
“In an environment where government funding accounts for over 80 per cent of textbook buying ... reduced fund allocation and disbursements resulted in a commensurate reduction in textbook market size,” Longhorn said.
The company said it also took a hit from a drastic reduction in revenues from exports to the regional market.
Longhorn’s sales dropped 29.4 per cent to Sh775.9 million compared to Sh1.1 billion last year, hurting its earnings despite a significant drop in costs. It cut its cost of sales to Sh438.7 million from Sh552.6 million.
This is the first time Longhorn is putting a freeze on dividends in five years having paid shareholders between Sh39.4 million and Sh11.7 million over the period. In the year to June it paid Sh1.50 a share in dividends.
This is set to hit hardest investors who bought its stock after its listing in May since the share has shed 16 per cent to its current price of Sh15. Its listing price was Sh14 for each share.
The company attributed the reduced spend by the government on textbooks to macroeconomic challenges in the review period such as the weakened shilling and high inflation.
These challenges, the company said, saw the government reorganise its priority spending to the loss of publishers.
Longhorn’s sales dropped 29.4 per cent to Sh775.9 million compared to Sh1.1 billion last year, hurting its earnings despite a significant drop in costs. It cut its cost of sales to Sh438.7 million from Sh552.6 million.
The company said it expects a better performance in the current financial year on resumed high spending by the government as economic indicators like cost of credit and inflation drops.
“These developments should see more textbook funds being released by the government,” Longhorn said.
“In addition, the prospects for export sales are expected to improve in the 2012/2013 financial year,” the company said.
Longhorn had warned investors of its weaker performance last Wednesday, but analysts had not expected the book publisher to sink into losses.
The publisher becomes the eighth company listed at the Nairobi bourse to issue a profit warning this year, a drop that is set to hit investors who got only two earning alerts last year.
Last year, only Total and CMC Holdings issued profit warnings — highlighting the challenges corporate Kenya is facing in an economy feeling the weight of expensive credit, high inflation and political jitters linked to next General Election.
“The elections, high interest and inflation rates are the major challenges for businesses in the short-term,” said Nikhil Hira, a partner at Deloitte.
Though commercial banks have in the two months cut their lending rates in line with Central Bank of Kenya’s monetary easing stance, the average base rate of the top banks at 19 per cent is still high compared to last year’s 14 per cent.
This has reduced the appetite for credit and cut consumers’ purchasing power, which were behind the slower pace of economic growth in the three months to March at 3.5 per cent compared to 5.1 per cent in a similar period a year earlier.
Analysts at Kestrel Capital reckon that firms that have not issued profit alerts are set to record lower earnings growth or drops in performance.
The drop in profit means shareholders will be paid lower dividends and miss out on the share appreciation as investors focus on blue chip firms like BAT, Equity Bank and Standard Chartered Bank.
So far, Kenya Airways, Centum Investment and EAPCC have trailed the Nairobi bourse index that has gained 15.9 per cent in the past six months. Kenya Airways stock is down 27.4 per cent and Centum 14.7 per cent.
