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Bad Economy: 12 Kenyan Companies Issue Profit Warning For 2017

Britam Holdings has become the twelfth Nairobi Securities Exchange-listed company to issue a profit warning.

Profit warning is a statement issued by a company advising the stock market that profits will be lower than expected.

The insurance company said on Friday that it expects a profit decline of 25 percent in the current financial year compared to the earnings reported same period last in 2016.

The expected decline in earnings is mainly due to a change, in 2016, of the valuation method of the long term liabilities to Gross Premium Valuation methodology from the previously applied net premium valuation in compliance with requirements of the Insurance Act as amended by the Finance Act 2015.

“This one-off change positively impacted the earnings in 2016 by Sh5.2billion. Without the impact, the company’s performance has improved in 2017,” said Nancy Kiruki, Company secretary.

Britam has just followed into the footsteps of Mortgage lender, Housing Finance which on Thursday projected that its net earnings for the year ended December 31, 2017 will be potentially 25 per cent lower than those reported in a similar period last year.

It attributed the depressed situation to the effects of the interest rate cap law and a tough operating environment after a major economic slowdown during the election period.

Two weeks ago, clothes retailer Deacons also announced a similar warning, attributing the drop in profits to declining traffic to its outlets owing to closure of Nakumatt Supermarket branches in some of the shopping malls where it operates.

Listed banks Standard Chartered and Family were the casualties in the banking sector, both blaming the rate capping law for their suppressed earnings. Bamburi Cement, Mumias Sugar, BOC Group, Nairobi Business Ventures, Unga Group, and Flame Tree Group Holdings are other listed companies that have stumbled into 2018 having announced profit warnings. While most of these companies blame their subdued fortunes to a long and protracted electioneering period in 2017, which brought a major slowdown in economic activity in the country, their employees face job loss as the firms seek ways to rejuvenate their balance sheets.

Mid-tier lender Family Bank has closely followed its profit warning announcement with a sharp cut in staff costs, sending home 150 employees.

Cost-Cutting Measures

“We continue with cost-cutting measures and in that respect, we have undertaken a restructuring programme to resize the support functions at the head office to achieve meaningful and sustainable revenue growth. Branch operations will not be affected by this exercise,” Family Bank MD David Thuku said while announcing the laying off.

The profit warnings come when the country is experiencing notable slow economic growth. Kenya’s economy expanded by 4.4 per cent in the third quarter of 2017, its slowest in five years, according to data from the Kenya National Bureau of Statistics.

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