Investment firm Centum is set to be fined by the Capital Markets Authority (CMA) for failing to issue a profit warning beforehand, despite announcing that its full-year profit had dropped 48.4 per cent.
The market regulator yesterday said that Centum broke the law by not issuing the earnings alert — exposing the firm to fines for failing to meet the obligations attached to Nairobi Securities Exchange-listed companies.
CMA requires companies listed at the NSE to publicly issue a profit warning if they expect their full year profit to fall by at least 25 per cent.
“Centum has broken the law and (we) will be issuing a statement on our official position later in the day,” said a senior official at CMA whose sought anonymity since he is not authorised to speak to the press.
But the regulator had not published the statement by the time of going to press.
However, based on the public disclosure requirements for listed firms to inform the regulator, the Nairobi bourse and the public at least 24 hours before announcing the results, Centum is likely to be fined.
“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.
The firm said on Tuesday its net profit dropped to Sh1.18 billion in the year to March, compared to Sh2.29 billion on lower valuation of its real estate assets, catching investors and analysts by surprise.
James Mworia, the CEO of Centum on Wednesday sent a notice to the NSE clarifying its financial report, hinting that it was difficult to issue the profit alert because the property valuations were known after the end of the financial year.
“It was not possible to anticipate the quantum of the revaluation movements on the investment property within the year. The amount only become known after the end of the financial year,” said Mr Mworia.
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.
This could have reflected a change of 21.5 per cent, added Centum.
The valuations on the property rose by Sh1 billion in the year to March 2011 compared to Sh356 million in the same period this year.
Its share prices at the NSE increased to Sh13.35 at the close of trading yesterday compared to Tuesday’s close of Sh13.30 when it fell 9.8 per cent. Analysts reckon that Centum’s defence has been weakened by the fact that the law provides for companies to inform the market at least 24 hours before announcing its results.
“These are audited results and Centum was surely aware of the numbers last week and it could have been within the law had it issued a warning on Monday morning before the commencement of trading,” said an analyst who requested anonymity.
Centum has a portfolio of over Sh15 billion invested across asset classes, from blue chip companies like Nairobi Bottlers, UAP Insurance and General Motors to prime residential land in Nairobi to unlisted firms.
“The requirement is to issue a profit warning within the financial year, after the closure, we are required to release results,” Mr Mworia told the Business Daily on Tuesday.
Centum also suffered from reduced gains from lower share prices at the Nairobi bourse and increased loan costs as its investment income dropped to Sh1.27 billion in the year to March compared with Sh2.2 billion a year earlier.
This come as the firm continued to reduce its quoted securities to stand at Sh1.6 billion in March from Sh3.4 billion in March 2011.
The company is betting on the region’s property market and buying more shares in companies listed outside Nairobi to grow its profit —which will reduce the influence of stock market cycles and dividend payouts on its earnings.
The firm does not pay dividends since it prefers to re-invest profit into the business.
It last paid a dividend of Sh0.40 in 2008 and it last year told investors that its strategy of reinvesting profits will go beyond 2014.