Investor jitters over delay of audited reports for NSE-listed public firms

Monday January 27 2020

Shareholders of state companies will have to wait longer for end-year results, which will affect dividend payments.

A Nairobi bourse employee. Shareholders of state companies will have to wait longer for end-year results, which will affect dividend payments. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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The lack of an auditor-general in Kenya has meant that shareholders of listed state companies will have to wait longer for audited financial results as the vacancy means there is no one to sign off the financial statements as required by law.

The Capital Markets Authority (CMA) has been holding numerous meetings with the Kenya National Audit Office (Kenao) in a bid to save the credibility of the country’s disclosure regulations for listed companies and maintain investor confidence.

The CMA has also asked the public firms to go ahead and submit the unaudited financial results.

Three state companies — Kenya Power, Kenya Electricity Generating Company (KenGen) and the East Africa Portland Cement Company (EAPCC) — are yet to publish their results for the financial year ending June 30, 2019, which is the time-frame stipulated by law.

Kenya Reinsurance Corporation (Kenya Re), which closed its books in December 30, 2019, could face the same fate if the auditor-general is not in office by March.

In the meetings with Kenao, the CMA has been trying to identify a loophole that can be exploited to allow the companies to publish their results. The authority has been hoping to find a provision in the law that would allow the results to be signed off without the signature of the auditor-general.

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“The meetings did not bear fruit because the law does not allow anyone other than the auditor-general to sign off the results,” said a source who requested anonymity for lack of authority to speak on the matter.

A lengthy process in appointing an auditor-general has been compounded by lack of suitable candidates and court cases.

The prolonged delay in publishing the results has sparked doubts over the credibility of disclosure regulations. This is because those with shares in these public companies are in the dark over their annual performance.

For shareholders of KenGen, the delay will mean the firm can’t pay dividends.

Kenya Power, on its part, had issued a profit warning in September announcing that profits for the year ended June 30 would be down by more than 25 per cent, ultimately preparing shareholders for another profit dip.

The lack of an auditor-general has also affected non-listed state companies, which often publish their financial results or are obligated to submit audited books of accounts to parliament including the Central Bank of Kenya, National Social Security Fund and Kenya Pipeline Company.

The country has been without an auditor-general since Edward Ouko exited the office following the expiry of his eight-year term in August.

In November, the Public Service Commission (PSC) was forced to re-advertise the position even after 17 candidates were shortlisted and the top three nominees presented to President Uhuru Kenyatta for appointment.

The process was recently thrown off track after the Employment Court issued orders barring the selection panel from shortlisting candidates afresh pending a determination of a case challenging the re-advertisement of the position filed by activist Okiya Omtatah.

This means the recruitment process will go beyond March, a period in which listed public companies are obligated to publish their half-year results for the period ending December 31st, 2019.

According to analysts, although the delayed financial results have not had much of an impact on trading of the counters, a lengthier delay will eventually have a negative impact on the stocks’ trading performance.

“Investors work with projections. I expect that they are holding and trading against their previous positions as they await the numbers,” said Lisa Kimathi, a research analyst at Standard Investment Bank.

At the Nairobi Securities Exchange, KenGen’s average daily volumes have been largely the same while Kenya Power has recorded slightly lower average daily volumes.

On Wednesday, 750,400 stocks of KenGen were traded at Ksh5.60 ($0.056) a share while Kenya Power moved 204,100 shares at a price of KSh2.90 ($0.029). EAPCC, which is technically dead, moved only 100 shares at a price of Ksh13.20 ($0.129) a share.

In the year ending June 2018, KenGen recorded $76.4 million in profit after tax while Kenya Power posted $18.8 million. EAPCC made a pre-tax loss of $27.4 million.

According to the Capital Markets (Public Offers) (Listing & Disclosures) Regulation 2002, listed firms are obligated to prepare an annual report containing audited financial statements within four months after close of the financial year.

The firm are supposed to notify CMA, NSE and the media following approval by directors for submission of reports to shareholders.

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DELAYED APPOINTMENT

Kenya has been without an auditor-general since Edward Ouko exited the office following the expiry of his eight-year term in August.

The lack of an auditor-general has also affected non-listed state companies, which often publish their financial results or are obligated to submit audited books of accounts to Parliament including the Central Bank of Kenya, National Social Security Fund and Kenya Pipeline Company.

In November 2019, the Public Service Commission was forced to re-advertise the position even after 17 candidates were shortlisted and the top three nominees presented to President Uhuru Kenyatta for appointment.

The process was recently thrown off track after the Employment Court issued orders barring the selection panel from shortlisting candidates afresh pending a determination of a case challenging the re-advertisement of the position.

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