WPP Scangroup is restructuring its balance sheet in a move it says will protect its ability to pay dividends in the coming years.
The marketing services firm has a made a special proposal to be considered at its upcoming annual general meeting and which will allow it to write off losses in subsidiaries against funds already accumulated in its balance sheet.
The funds, amounting to Sh9.1 billion, are held in the share premium account and represent the value of shares acquired by shareholders above their nominal price.
Share premium cannot be distributed to shareholders and its use is restricted mainly to issuing of bonus shares.
Scangroup plans to transfer some of the share premium to a merger reserve account through which losses in subsidiaries will be absorbed, shielding the income statement from the impact of the anticipated write-offs.
“The benefit of the merger reserve is that it could be used to absorb any impairment in relation to the value of the acquired entities. Any impairment would normally be charged to the company’s profit and loss statement and could result in the elimination of the distributable reserves of the company,” the company said in a statement.
“If the company’s distributable reserves are depleted, this would mean that the company would not be able to pay dividends to the shareholders in the short to medium term.”
Scangroup says it shall be reporting the amount of share premium resolved by the board (if any) to be transferred to the merger reserve which a company is allowed to create after fulfilling certain conditions in the Companies Act, 2015.
The company plans to publish its results for the half year ended June by September 30. The financial statements were due on August 31 but have delayed following the late publishing of the 2020 annual results.
Scangroup reported a net profit of Sh469.2 million in the year ended December 2020, an 8.6 percent rise from Sh431.9 million the year before.
The performance was largely derived from a Sh2.2 billion net gain from the disposal of the subsidiary Kantar Africa.Excluding that transaction, Scangroup would have reported negative earnings as indicated by a Sh1.7 billion loss from continuing operations.The company did not declare a dividend. It had made a record payout of Sh8 per share in the form of a special interim dividend based on the windfall from the Kantar deal.