The Capital Markets Authority (CMA) says it will punish power producer KenGen for failing to issue a profit warning despite a significant decline in its earnings.
A listed company generally issues a profit warning prior to the public announcement of its official financial results.
The power generator released its results for the year ended June, showing that its net profit declined 93.5 per cent to Sh1.1 billion from Sh18.3 billion a year earlier.
It did not, however, warn the investing public in advance that its net income would drop by at least 25 per cent as required by law. KenGen had told 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.
The regulator has rejected the company’s excuse and says appropriate action will be taken against the Nairobi Securities Exchange-listed firm.
“The Capital Markets Authority confirms that KenGen did not make a public announcement of a profit warning as required. The Capital Markets Authority is considering the appropriate enforcement action to take in this matter,” the regulator said in a statement.
Listed firms that fail to issue profit warnings typically pay fines set at the discretion of the regulator. Centum Investment Company Plc was fined Sh50,000 for not publishing a profit warning ahead of results for the year ended March 2012 when its net income fell 48.1 per cent to Sh1.1 billion.
The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations 2002 requires a listed firm to issue a profit warning within 24 hours when it becomes aware that the earnings for its upcoming financial year will be at least 25 per cent lower than those in the previous financial year.
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 said it is aware of the requirement to issue an earnings alert but added that it should be exempted from doing so.
“However, in our case a cautionary notice was not necessary since profit before tax grew by seven per cent 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.
KenGen blamed its profit drop on higher taxation. It incurred an income tax expense of Sh13.5 billion in the period, having booked an income tax credit of Sh4.5 billion the previous year.
KenGen has proposed a dividend of Sh0.3 per share or a total of Sh1.9 billion, same as previous.