East African Cables issues profit warning to shareholders

NAIROBI: East African Cables has issued a profit warning for the full year after posting a Sh97 million loss for the six months to June.

Disruptions in its manufacturing processes following a plant upgrade in Nairobi has been compounded by foreign exchange losses, the firm said in a regulatory filing made to Nairobi Securities Exchange (NSE) on Tuesday.

“The reason for reduced earnings has been due to significant interruptions in our production output at our Kitui Road factory,” read in part the company’s filing to NSE. Listed companies are required under the Capital Markets guidelines to warn their shareholders of a projected decline in profitability that would be more than a quarter, in the view of the management. Failure to issue a profit warning would attract penalties.

The firm’s earnings have been on a steady decline since reporting a net profit of Sh522 million in 2012. Subsequent years’ earnings have been worse, recording a Sh398 million and Sh341 million in 2013 and 2014 respectively.

A first-half loss now means that 2015 could be its worst year, with its difficulties amplified by the firm’s struggling Tanzanian subsidiary. Its business is heavily exposed to international prices for copper, used by the firm in the manufacture of conductors.  The business is also affected by any movements in the foreign currencies since it’s heavily depended on dollars to purchases raw materials.

Virginia Ndunge, the Company Secretary, wrote that the drop in revenues were inevitable as there was need to remove old machines and install new equipment at its Nairobi plant to improve capacity and boost efficiency.

“The refurbishment is expected to be fully completed in September 2015 and thereafter the capacity of the factory would significantly increased,” explained Ms Ndunge in the filings.

In the six months to June, the company’s revenue slumped by 22 per cent, which the firm attributed to reduced output as the plant upgrade was underway. Products manufactured by East African Cables include low voltage Copper electrical cables for domestic and industrial use, Aluminium conductors and cables for power transmission and distribution.