Wachira Kang'aru

31 August 2010

Nairobi — East African Cables has announced a Sh57 million after tax loss for the first six months of 2010 as the impact of its loss-making Tanzania subsidiary on its profitability became clear.

In July, the Nairobi Stock Exchange listed electricity cables and conductors manufactures and distributors had, in keeping with the continuous listing obligations, issued a profit warning for the financial year ending December 2010 due to poor performance of the subsidiary.

The after tax loss represents a 123 per cent drop in profitability.

The Capital Markets Authority rules require listed companies to issue a profit warning whenever their projected earnings for the current financial year are expected to fall by or more than 25 per cent of the level of earnings recorded in the previous financial year.

"The significant decline in earnings for the group is attributable to poor results recorded by our Tanzania subsidiary," the company's directors say in the management notes contained in a statement sent to the NSE.

The subsidiary contributed to Sh193 million loss due to what the management termed as significant provisioning of bad and doubtful debts and inventory and continued volatility in sales in the Tanzanian utility sector.

The Kenya outlet reported 11 per cent increase in after tax profit to Sh188 million against Sh169 million recorded over a similar period in 2009.

The Tanzania subsidiary was bought in 2005 through a 51 per cent acquisition of Tanzania Daesung Cable Ltd priced at Sh160 million.

"The subsidiary has been restructured and is now operating profitably," the management notes further read.

Overall the group recorded a 5.9 per cent growth in turnover from Sh1.7 billion to Sh1.8 billion over the period under review while the operating profit recorded a 44 per cent drop from Sh423 million to Sh238 million over the same period.

Going to the future, the board says it is confident that the business will continue to be vibrant and profitable.