Companies

14 companies issue profit warning in turbulent year

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At least 14 companies have issued profit warnings this year, with most blaming the economic fallout from the Covid-19 pandemic for their weaker earnings. FILE PHOTO | NMG

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Summary

  • Britam Holdings, Absa Bank Kenya, East African Breweries Limited (EABL), Kenya Power, East African Cables, Kenya Orchards, Longhorn Publishers, Nairobi Business Ventures, Nation Media Group and Unga Group are among the companies that have warned investors of reduced earnings
  • Others are NCBA Group, TPS Eastern Africa, I&M Holdings and Standard Chartered Bank Kenya.

At least 14 companies have issued profit warnings this year, with most blaming the economic fallout from the Covid-19 pandemic for their weaker earnings.

Britam Holdings #ticker:BRIT, Absa Bank Kenya #ticker:ABSA, East African Breweries Limited #ticker:EABL (EABL), Kenya Power #ticker:KPLC, East African Cables #ticker:CABL, Kenya Orchards #ticker:ORCH, Longhorn Publishers #ticker:LKL, Nairobi Business Ventures #ticker:NBV, Nation Media Group #ticker:NMG and Unga Group #ticker:UNGA are among the companies that have warned investors of reduced earnings

Others are NCBA Group #ticker:NCBA, TPS Eastern Africa #ticker:TPSE, I&M Holdings #ticker:I&M  and Standard Chartered Bank Kenya #ticker:SCBK.

Double blow

The move sets up investors for dividend cuts at a time when most stocks have depreciated by double digits, dealing them a double blow. Listed banks alone have been paying annual dividends of more than Sh30 billion, indicating the size of lost income investors are staring at.

Some of the companies such as EABL have already announced the weaker earnings they were bracing for, with most of the diminished profits expected in the first quarter of next year for firms whose financial year is ending this month.

The tally of profit alerts, usually defined by earnings falling by 25 percent or more, is expected to increase in the coming weeks as firms prepare to announce their end year results.

Companies are required by law to issue profit warnings at least 24 hours before they publish full year results which show that their earnings have dropped by a quarter or more compared to the prior year.

The Capital Markets Authority (CMA), however, encourages listed firms to issue such notices as soon as their managers become aware of the likely drop in profits.

Such announcements are meant to give existing and prospective shareholders a guide to a company’s performance well in advance of what would otherwise be shocking results.

Biggest victim

EABL is one of the biggest victims of the measures taken to control the spread of the pandemic.

The brewer’s after-tax profit fell 39 percent to Sh7 billion in the year ended June, hurt by closure of bars and other entertainment venues.

Its net sales dropped nine percent to Sh74.9 billion, contributing to the weaker bottom-line.

“The first half of the year was characterised by a stable operating environment which resulted in EABL reporting volume growth of five percent, sales growth of 10 percent and operating profit growth of nine percent versus the prior period,” the brewer said when announcing the results.

“This trend was sustained through to February 2020. In March 2020, as the Covid-19 pandemic spread globally, the first cases were reported in East Africa, leading the respective governments to put in place measures to contain the spread of the virus. As a result, there was a significant decline in sales following the closure of outlets and restrictions on movement primarily in Kenya and Uganda.”

Measures taken to fight the pandemic have since spread to hurt the broader economy, with banks restructuring an unprecedented Sh1.38 trillion or 46.5 percent of their combined loan book by end of October.

Double-digit drop

Lenders’ provisions for the anticipated surge in defaults is what has seen most of them report a double-digit drop in earnings in the nine months to September, prompting the profit warnings for the full year.

“It has been a challenging year with the protracted health pandemic and economic crisis, and against this backdrop, SCBK’s current performance forecast indicates a substantial decline in the profit after tax for the year ending December 31, 2020 compared to the prior year,” StanChart said in a notice.