Several listed companies on the Nairobi Securities Exchange, NSE, have issued warnings to investors, shareholders and the public for various reasons. For some, it’s about looming acquisitions that could affect trading on NSE but for many, they are simply in the red.
For firms that issued profit warning, they cited the current turbulent economic times, stemming from the economic disruptions of the 2020 pandemic.
At the same time, they cited the depreciating shilling, and the rising inflation rates in the country.
According to the Kenya Bureau of Statistics (KNBS), Kenya recorded a 6.9 per cent inflation rate in October as compared to 6.8 per cent registered in September.
Profit warnings
Nation Media Group issued a cautionary statement to investors and other interested parties, warning of a profit decline of at least 25 per cent.
The media house attributed the decline to a challenging business environment occasioned by drastic rise in fuel prices, depreciation of the Kenya Shilling, rising interest rates and higher taxes.
“The Board of Directors, having reviewed the Company’s performance forecast for the current trading period, has determined that the earnings for the financial year ending 31 December 2023 will be lower than the earnings for the previous year by at least twenty five percent,” NMG stated.
Additionally, on October 30, automotive and equipment supplier, Car and General, issued a profit warning to its shareholders.
“The Board of Directors (the “Board”) of Car & General (Kenya) plc (the “Group” or the “Company”) 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-month period ending 31st December 2023 of the Group are expected to decrease by more than 25 percent in comparison to the prior year,” the profit warning read, in part.
In this case, shareholders in the company expect to receive lower dividends (earnings from shares owned) by the end of the year.
Also Read: Nation Media Group Warns Investors and Shareholders
However, Car and General and the Nation Media Group warnings are not an isolated case.
Other companies that warned investors
On October 18, the WPP Scangroup advised its shareholders and investors to exercise caution when dealing in the shares of the listed company since it was going into an asset transfer agreement with Skot Public Relations Limited (Skot PR).
Consequently, investors were warned that the share prices might dip or rise in extreme proportions. Therefore, shareholders are advised to be careful when transacting with the WPP Scangroup.
Similarly, Kenya Power and Lighting Company (KPLC) issued a profit warning in June 2023. On this, they warned interested parties that their profits would be 25 percent lower than the 2022 numbers.
Further, Kenyan based holding company, Unga Group issued a profit warning for the year ending in June 2023.
According to the Central Bank of Kenya (CBK), a holding company is a company that controls one or more companies.
Infact, Unga Group stated that it anticipated to suffer a full year loss in comparison to the Ksh311 million profit reported in 2022.
“Scarcity of locally sourced raw materials led to increased importation at higher global prices. This led to increased production costs which could not be fully passed to the consumers,” the company stated.
Why Companies issue Warnings
The Capital Markets Authority (CMA) require companies in Kenya to inform shareholders, investors, and other interested parties on the state of their financial situation, especially if it directly affects the shareholders and investors.
“Any material information, such as significant changes to articles of association, profit warnings, material discrepancies in financial statements and appointment of a receiver, should be disclosed within 24 hours of the event,” the regulations and practice in Kenya by the CMA.
Profit warnings can have serious implications for investors and shareholders.
This is because it warns of a drop in the share price of the affected company.
Also Read: WPP Scangroup Warns Shareholders and Investors
Additionally, if the company is a dividend payer, the inevitable payout expected will be lower.
A profit warning also signals to potential lenders or partners that the company may not be able to fulfill their obligations in the current period.
This affects the company’s prospects of obtaining future finance.
