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Eveready breaches profit warning rules

Eveready shareholders
Eveready shareholders during its 2018 Annual General Meeting in Nakuru. PHOTO | AYUB MUIYURO 

Loss-making battery distributor Eveready East Africa #ticker:EVRD failed to warn investors that its net earnings for the year ended September would fall by at least 25 percent.

Nairobi Securities Exchange-listed firms are required to issue such a profit alert at least 24 hours before publishing their full year results.

Eveready on Friday published its results for the review period, announcing that its net loss had widened to Sh303.5 million from Sh116.3 million the year before.

The company published the profit warning on the same day, but dated the notice the previous day (January 30, 2020) in an attempt at technical compliance.

Eveready explained that its loss grew larger because of the write-off of a tax asset, adding that this accounting decision was made close to the release of the results.

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“The first draft of the accounts bearing the changes was received from the external auditor on January 21, 2020 and a final draft thereof with further adjusted numbers submitted for the board’s approval on January 29, 2020.”

Capital Markets Authority acting CEO Wyckliffe Shamiah said the regulator will investigate the incident. The penalties will depend on the weight of the offence, he said.

“In this particular case maybe it will be required that we look at that issue and understand why a profit warning was being issued on the last day maybe as they released the results,” he said.

“Where we feel there was oversight the law is very clear of course there are penalties depending on the weight.”

Mr Shamiah said delays are often caused by disagreements between auditors and management despite the assumption that management was aware of what would cause a sharp drop in profits and hence warn investors on time.

Companies have typically received a slap on the wrist for failure to publish profit warnings within the set deadline, with fines of as low as Sh50,000.

CMA can impose fines as high as Sh10 million. In 2018, East African Portland Cement was fined Sh50,000 for failure to issue a profit warning while Centum Investments was fined a similar amount for the same offence in 2012.

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