Profit warnings by firms cast a shadow on the Nairobi bourse

Central Bank of Kenya Governor Kamau Thugge. [Elvis Ogina, Standard]

Recent profit warnings from bellwether companies may indicate further challenges for corporate Kenya.

The trend could heighten caution among investors as the stock market continues to decline, according to analysts. 

Additionally, analysts have noted that investors are increasingly factoring in a potential economic downturn in Kenya next year. 

The Central Bank of Kenya (CBK) has responded to inflation concerns by implementing a significant increase in interest rates, a move that the National Treasury has acknowledged could potentially push the economy into a recession.  

Consequently, concerns regarding earnings have been mounting as companies grapple with rising inflation and the possibility of weakening demand.

Car and General, a listed automotive dealer, recently joined the ranks of companies that have revised their annual profit forecasts downward. 

“The board of directors of Car & General (Kenya) plc wishes to inform the shareholders of the company, potential investors and the general public that based on the assessment of the unaudited consolidated accounts for the period to September 30, 2023, the earnings for the 15 months ending December 31, 2023, of the Group are expected to decrease by more than 25 per cent in comparison to the prior year,” said the firm in a public notice. 

The Group's performance decline was attributed to a combination of factors.

They include foreign exchange losses due to the significant strengthening of the US dollar, resulting in negative impacts on US dollar exposures, a deterioration in the unit economics of motorcycles, leading to a decline in motorcycle sales in Kenya, and an increase in finance costs and demurrage costs in Tanzania.  

This warning is similar to warnings issued by other listed firms.  

Nation Media Group (NMG) has also issued a profit warning, noting that the media business, particularly in Kenya, has been adversely impacted by headwinds mainly attributable to the relentless increases in prices of basic commodities, a drastic rise in fuel prices, runaway depreciation of the Kenya shilling, rising interest rates and higher taxes. 

“Combined, these factors have led to depressed consumer spending and increased cost of doing business,” said NMG.  

Earlier in the year, Centum Investments, Kenya Power, and Unga Group issued profit warnings, and subsequently, their earnings aligned with the guidance.  

Centum later disclosed significant losses for the financial year ending on March 31 due to the continued underperformance of its portfolio investments and its subsidiary, Two Rivers Development Ltd. 

Kenya Power, the State-owned electricity distributor, recently reported a net loss of Sh3.19 billion for the year ending June 2023.

This marked a significant decline from the previous year when the company recorded a net profit of Sh3.2 billion.  

The poor performance was attributed to high finance costs resulting from fluctuations in the exchange rate between the dollar and the shilling.