Listed batteries distributor Eveready East Africa has issued a profit warning for the year ended September 2022, attributing it to a reversal of tax benefits of Sh38 million in the review period.
The firm said it anticipates its earnings to decline by at least a quarter, indicating that it will make a net loss larger than the Sh34.6 million it reported the year before.
“The board wishes to inform the shareholders of the company and potential investors that the company’s financial net results for the year ended 30th September 2022 are expected to be lower as compared to the same period in 2021,” the company said in a statement.
“The main contributor to the reduction in profitability levels in the period was the impact of the de-recognition of the deferred tax asset in the amount of Sh38 million.”
Deferred tax assets are used to lower taxes in the future when a company makes a profit.
De-recognition of the asset is an indicator that the company does not expect to return to profitability in the near future.
“Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilized,” Eveready says in its latest available annual report.
“Recognised and unrecognised deferred tax assets are reassessed at the end of each reporting period and, if appropriate, the recognised amount is adjusted to reflect the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.”
The Nairobi Securities Exchange-listed firm noted that it expects to report an operating loss before tax of Sh12 million in the review period which will mark an improvement from Sh39 million a year earlier.
Eveready said that operating costs were reduced by 13 percent.
Eveready has been making losses in recent years as it struggles in the business of distributing dry cell and car batteries besides other goods such as tyres, washing detergents and flashlights.
Its pivot to distribution came after increased electrification and competition forced it to shut down its dry cell battery Nakuru factory in 2014.
