East African Cables Turnover Slumps by 27 Percent

E.A. Cables (NSE: CABL) announced their annual results for the year ended 31^st December 2015 with the following highlights:

The Cable Manufacturer’s Turnover Slumped by 27% to KES 3.72Bn:

• This was attributable to significant interruptions in the production process as they concluded the process flow re-alignment in the refurbished Kitui road plant.
• A Decline in London metal exchange prices by 20% (within the year) also negatively impacted the revenues and the overall margins.

Profitability Margins Ebbed Significantly with Operating Profit Margin at -17.45% (FY15) from 11.32% (FY14):

• Administrative expenses and impairment of receivables plagued the company’s revenues, resulting in a loss before tax of KES 1.09Bn. The company took prudent measures to provision for the impaired receivables, though they indicated that collection efforts are still in place to recover from the debtors.
• The net income margins were similarly trimmed to -19.9% (FY15) from 6.7% (FY14). The loss after tax was KES 741.20Mn translating to a return on assets (ROA) of -8.8% (FY14: 4.3%) and a return on equity (ROE) of -66.7% (FY14: 11.0%).

E.A. Cables cash flow position was notably stronger than the previous year:

• The cash and cash equivalents at the end of the period stood at KES -88.82Mn, against KES -292.83Mn reported in December 2014.  This was impelled by the drop in cash used in investing activities, which overshadowed the reduction in cash generated from operating activities.

Negative Working Capital of KES 210Mn; Current ratio waned to 0.93x from 1.17x spelling a liquidity crisis for the firm:

•  These portrays that the company’s liabilities cannot be covered by its assets; putting the firm in a precarious position. Further on, the company is struggling to fund its daily operations and meet its short-term debt obligations when they fall due.

Bleak Outlook Creates Need for Revenue Diversification and a Possible Capital Injection:

• The company in which Trans-Century Ltd (NSE: TCL) owns 68.38%, is currently facing insolvency after running out of cash to meet its short-term debts. Based on this, the company may have to look for new capital as well as diversify its revenue generating activities, in order to remain afloat.
• A rights issue however doesn’t seem plausible for them, as their top shareholder is still facing similar predicaments and therefore would not have any cash to inject into the company.

Article by Genghis Research.