Industry

CMA clarifies profit warning requirements amid breaches

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Capital Markets Authority (CMA) CEO Wyckliffe Shamiah on April 29, 2021. PHOTO | LUCY WANJIRU | NMG

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Summary

  • The regulator says in a new circular that the notices will be based on the projected earnings after tax, improving on a 2016 directive that did not say whether the alerts will be on the basis of gross or net earnings.
  • The regulator has now specified that chief executive officers will be responsible for complying with the profit warning publications.
  • The regulator has previously fined companies as little as Sh50,000 for failing to issue profit warnings.

The Capital Markets Authority (CMA) has clarified that listed companies must issue a profit warning beforehand if they expect that their full-year net income will drop by at least 25 percent.

The regulator says in a new circular that the notices will be based on the projected earnings after tax, improving on a 2016 directive that did not say whether the alerts will be on the basis of gross or net earnings.

“For avoidance of any doubt the Authority clarifies…that the level of earnings for purposes of issuing profit warnings…shall be earnings after tax,” said CMA chief executive Wyckliffe Shamiah in the circular to Nairobi Securities Exchange #ticker:NSE -listed firms.

The regulator has now specified that chief executive officers will be responsible for complying with the profit warning publications.

The regulator also reiterated that listed companies will be required to issue a profit warning within 24 hours of becoming aware that their net earnings will drop by a quarter or more for their respective financial year results.

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.

Failure to do so will result in penalties being set at the discretion of the regulator. The regulator has previously fined companies as little as Sh50,000 for failing to issue profit warnings.

The new circular comes as some firms have recently come under the spotlight for failing to warn investors that their net income will drop by at least 25 percent.

KenGen #ticker:KEGN , for example, did not issue a profit warning prior to publication of its results for the year ended June 2021 when it announced a 93.5 percent net earnings drop to Sh1.1 billion.

The big profit drop came as a shock to investors. KenGen said the profit decline was brought by circumstances out of its control but the regulator has not made exceptions in the directives.

CMA said it will punish the power producer for the breach.

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