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East African Cables shares tumble as profits drop

CARTOON
By | July 21st 2010

By Morris Aron

Cable maker, East African Cables (EAC) is anticipating a drop in profit in the first half of this year.

The results to be declared soon have seen its share price stumble at the stock market.

The development follows EAC’s decision to issue a profit warning in a local daily, two days ago, in which the firm stated continued volatility in Tanzania’s utility sector would be reflected in the group’s un-audited half-year financial results.

"A decline in profitability has occurred within our subsidiary in Tanzania arising from significant provisioning of bad and doubtful debts and inventory (and) continued volatility in sales in the utility sector," said the cable maker.

"The impact of the above factors, which see the subsidiary report a significant loss, will be reflected in the group’s un-audited results of the first half of this financial year to be released in due course," the firm added in a statement.

Metal prices

EAC recorded a 51 per cent drop in its pre-tax profit for the first quarter to Sh84.6 million in what the firm attributed to negative impact due to high metal prices globally.

Strong demand for metals from China and India, which has picked up since the worst depression in1930, has caused a sharp increase in metal processing since the start of the year leading to high input costs for the cable maker.

The firm, which serves the East African Community — maintained that its local unit is strong and profitable.

However, its Tanzanian unit has experienced low sales to Tanzania’s electricity supplier Tanzania Electric Company (TANESCO) amid a growing inventory of un-paid bills for services rendered.

Analysts say the revelations indicate the firm is not expecting a recovery in the second half of the year despite positive signals from other sectors of the economy.

The development will see EAC post reduced profits for the second year in a row, a departure from the double-digit growth in profits it witnessed in the past.

EAC profits dropped from Sh462 million in 2008 to Sh296 million last year while revenues dropped from Sh3.9 billion to Sh2.8 billion over the same period.

The 2010 scenario is also not good news to its shareholders, whose dividend earning have remained at Sh1 since 2008 as analysts predict even lower investment returns.

The announcement saw East African Cables shares at the Nairobi Stock Exchange drop by over 17 per cent at the opening of the stocks market yesterday after closing at a high price of Sh21.75 on Friday.

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