More than 10 firms listed on the Nairobi Securities Exchange, including Kakuzi Plc, Sanlam, Express Kenya, Kenya Power, Unga Plc, Sameer Africa, Crown Paints, WPP Scangroup, Longhorn Publishers, Sasini, Car & General, Nation Media Group, and Centum Investment Company, have issued profit warnings this year.
This action aligns with the Capital Markets Authority (CMA) guidelines, mandating listed firms to provide advance profit warnings should they anticipate a minimum 25 percent decline in their annual net income.
Most of the notices, which could have an impact on dividends, are attributed to a tough operating environment, including higher costs of doing business, largely due to the declining shilling value and escalating inflation rates within the nation.
“The reason for the lower expected earnings in 2023 is due to many reasons including the continued subdued economic environments in our markets of operations that have led to cautious spending by our clients on advertising, marketing and communications,” read the warning from WPP Scangroup.
WPP Scangroup disclosed that its restructuring efforts, which included laying off some employees, resulted in severance costs amounting to Ksh178 million ($1.16 million) in operating and administrative expenses for the company.
Crown Paints Kenya issued a warning anticipating a profit decline of at least 25 percent in the current financial year ending December 2023.
“The drop in the group’s performance is mainly attributed to the increased cost of raw materials, increase in transport costs, (and) volatility in foreign exchange rates and the slowdown in economic activities during the year,” said Crown Paints in the notice.
Trading conglomerate Car & General (C&G) provided a profit caution in early November alerting investors to anticipate a minimum 25 percent reduction in earnings. The company attributed this downturn to several factors, including foreign exchange losses from dollar positions, declining economics of motorcycles affecting sales in Kenya, and demurrage expenses in Tanzania.
“The board of directors … wishes to inform the shareholders of the company, potential investors, and the general public that based on the assessment of the unaudited consolidated accounts for the period to 30th September 2023, the earnings for the fifteen months ending 31st December 2023 of the group are expected to decrease by more than 25 percent in comparison to the prior year,” C&G said in a notice.
The Nation Media Group (NMG) also announced that it is expecting a more than 25 percent decline in full-year profits for the year ending December 2023 due to a tough business environment.
On Wednesday, 25 October 2023, NMG informed its shareholders, investors, and the public of anticipated reduced earnings, marking the company’s second warning of this nature within a decade. The media entity linked the diminished earnings to the weakening of the Kenyan shilling against the dollar, escalating interest rates, and increasing inflation rates.
“Like most sectors of the economy, media business, particularly in Kenya, has been adversely impacted by headwinds mainly attributable to the relentless increases in prices of basic commodities, a drastic rise in fuel prices, runaway depreciation of the Kenya Shilling, rising interest rates and higher taxes,” read the statement.
“In addition, the increase in global prices of newsprint coupled with a weakened Kenya Shilling against the US Dollar and higher distribution costs arising from fuel prices have resulted in significant incremental direct costs compared to the previous year.” It added.
Express Kenya Limited issued a profit warning for the year ending December 2023 on slowed economic activities in the country which it says have significantly reduced demand for warehousing operations.
“The warehousing operations of the company are still significantly low due to the decrease in demand and low economic activities leading to reduced income, further resulting to a negative impact on the business performance,” read the notice.
“Based on a review of the company’s financial performance, the board of directors has determined that the earnings for the financial year ending December 31, 2023, are projected to be lower than the earnings for the previous year by at least 25 percent.” It added.
Kakuzi, on the other hand, projected a decline of at least 25 percent in net earnings from the Sh845.8 million profit posted last year, meaning the figure for this year will not exceed Sh634.4 million.
The agricultural firm attributed the forecast to expected losses arising from a significant decline in demand and price of macadamia on the global markets of China, Japan, and the US.
“The anticipated drop in full year net earnings is mainly as a result of our macadamia business which is expected to post a loss due to a significant decline in demand and price in the global markets. However, our other crops are performing as per expectations with a strong performance expected from avocado,” said Kakuzi.
Another listed companies that had earlier cautioned about their earnings include agricultural firm Sasini.
“Based on our un-audited end-year financial results and taking into consideration the information currently at the Board’s disposal, we anticipate that our projected net earnings for the year to 30th September 2023 will be 25 per cent lower than the reported earnings for the year ended 30th September 2022,” Sasini Board chairman James Boyd McFie said in a public notice to shareholders.
The company said it had encountered a difficult business environment, saying the major challenges during the year were occasioned by the “very high cost of production due to unplanned escalation of input costs, (and) the severe drought witnessed in the first six months of the financial year which affected production volumes negatively.”
A majority of listed companies, which have announced profit warnings have seen their share prices fall by a deeper margin compared to peers in their respective market segments, reflecting deepening appreciation for company fundamentals among local investors.
Many investors and analysts use profit data as a crucial factor in deciding whether to buy, retain, or sell shares of a specific company.
A profit warning provides insights into a firm’s performance in the current year relative to the previous year. Additionally, it offers guidance on anticipated investor returns and provides a snapshot of the overall financial health of the company in question.
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