A wave of profit warnings issued by listed companies since September 2023 has sparked uncertainty at Uganda Securities Exchange (USE), as the affected companies grapple with the fallout from harsh business and economic conditions.

    Low government spending, household financial distress and struggling enterprises dominated Uganda’s economic landscape last year, a pattern blamed for the depressed financial performance in many companies.

    The number of profit warnings issued by locally listed companies stood at five at the beginning of February, according to latest regulatory filings. The number may seem small, but it remains unprecedented in the USE’s trading history, which dates back to 1998.

    In comparison, the Nairobi Securities Exchange (NSE) registered 12 profit warnings by close of December 2023, amid widespread, tough economic conditions affecting various sectors of the Kenyan economy.



    The latest profit warnings recorded at the USE are attributed to Quality Chemicals Industries Ltd, New Vision Printing and Publishing Company Ltd (NPPCL), NIC Holdings Limited, Umeme Ltd and Uganda Clays Ltd (UCL).

    While Quality Chemicals Industries alerted investors about reduced profits projected for its half-year period that ended September 30, 2023, NPPCL warned investors about a net loss expected in the first half of 2023/24, which ended on December 31, 2023.

    A net loss for full year 2023 is also anticipated by UCL, according to a profit warning issued by the construction materials manufacturer at the beginning of this month.

    NIC Holdings alerted investors about a 25 percent decline in its full year profit for 2023 after certain changes in accounting standards, while Umeme warned investors about a 25 percent drop in profit for the period ending December 2023, in light of a one-off impairment cost incurred on its assets prior to expiry of its electricity distribution contract in March 2025.

    Stronger trading rules introduced by the USE in April 2021 compel listed companies to promptly disclose any material changes in their operations and financial results. This was a departure from previous regulations that appeared vague on certain disclosure requirements and also lacked a fines schedule to punish poor disclosure practices.

    “We have not invested in any of the affected companies. That makes it difficult to assess the impact of tough economic conditions on their financial performance for 2023. The Kenya economy appears miserable and depressed yet you see some banks doing well and others doing badly in the same economic environment,” said Mubbale Kabandamawa Mugalya, investment manager at Sanlam Investments Uganda Ltd.


    Poor business fundamentals

    “Tanzania looks better off than Kenya but the performance of its leading companies is not very remarkable, compared to their peers in the region. I suspect the internal troubles of the affected, listed companies are linked to certain poor business decisions and fierce competition in their respective sectors.”

    Experts blame some of the profit warnings on accounting issues while others are victims of poor business fundamentals. Umeme, for instance, incurred a one-off provision expense for its assets in 2023, in line with its concession agreement that expires next year, but its core business fundamentals that include revenue growth appear fine.

    NIC is a victim of changes in international financial reporting standards that require insurance companies to adjust their reporting practices on revaluation of assets like land and buildings. As a result, insurance companies can no longer take advantage of increases in tenancy rates and real estate property values to inflate their earnings.

    Simon Mwebaze, CEO of UAP-Old Mutual Financial Services Uganda blamed UCL’s position on poor operational planning “that led to a halt in its production activities during the second half of last year.”

    “Trading activity on the USE is likely to go down during the rest of the first quarter of 2024, on account of negative effects of profit warnings on investor sentiments. Nonetheless, potential movements in share prices of affected companies might take longer to materialise because of tight oversight by the USE on stockbrokers’ behaviour,” Mr Mwebaze said.

    Calvin Bateme, an Equity analyst at Crested Capital Ltd, said the latest profit warnings are bad news and could affect the stockmarket negatively this year.

    “We have received about five of them so far, and I hope the banking and telecommunications sectors do not follow suit. Some of the affected companies have cited accounting changes in their financial reporting practices while others have issued consistent profit warnings since lockdowns ended and their behaviour has become suspicious in the market.

    “Their share prices are likely to drop further in light of these developments. The health of some sectors seems fragile these days and this might have affected the financial performance of the affected companies. Household expenditure has been badly hit by harsh economic conditions, and this affects people’s ability to spend on products like insurance policies and construction materials,” he said.



    NATION MEDIA GROUP 626.16+4.03%12/04
    CENTUM INVESTMENT238.76+1.14%12/04
    UMEME 443.00+0.23%12/04
    EAST AFRICAN BREWERIES 3,964.73-3.31%12/04
    BANK OF BARODA (UGANDA) 16.50-2.08%12/04
    NIC HOLDINGS6.00-1.64%12/04
    EQUITY BANK 1,366.44-1.06%12/04
    KENYA AIRWAYS 112.07-0.10%12/04
    BANK OF BARODA (UGANDA) 16.50176,30012/04
    NIC HOLDINGS6.00166,40012/04
    MTN UGANDA170.0011,35012/04
    AIRTEL UGANDA80.0010,00012/04
    UMEME 443.0020012/04

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