KenGen #ticker:KEGN failed to warn investors that its net income will drop by at least 25 percent in the year ended June, marking another breach of compliance requirements among Nairobi Securities Exchange-listed firms.
The power producer published its results for the period on Sunday, showing that its net profit declined 93.5 percent to Sh1.1 billion from Sh18.3 billion.
The big profit drop came as a shock to investors, with the company’s share price declining 2.5 percent in yesterday’s trading to Sh4.57 as the market reacted to the news.
The Capital Markets Authority (CMA) requires listed firms 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.
KenGen did not issue a profit warning prior to publication of its results. The company told the Business Daily that the profit drop was brought by circumstances out of its control, hence it did not see the need to publish an earnings alert.
“However, in our case a cautionary notice was not necessary since profit before tax grew by seven percent and the drop in profit after tax was not brought by weak business fundamentals but rather government policies that were temporarily in place to cushion corporations against the disruptions of Covid-19 pandemic,” the firm said.
CMA had not responded to our questions by the time of going to press. The regulator has previously fined companies as little as Sh50,000 for failing to issue profit warnings.
“Good corporate governance practices dictate that companies prepare prudent periodic management accounts and projections and a company’s management and board ought to be aware of the declining level of profits well before commencement of the external audit,” CMA said in a previous circular to NSE firms.
KenGen blamed its profit drop on higher taxation. It incurred an income tax expense of Sh13.5 billion, having booked an income tax credit of Sh4.5 billion the previous year.