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Topic: Understated Profits - jtheuri  [416 views | 8 replies]
Thursday, February 28, 2008 11:23
I am not good at accounting but some things about the just released Kenya-re results lead me to believe the company has understated their profits. get pdf from nse

 - The balance sheet shows a one billion increase in financial assets (not property or government securities) from 1.3 billion to 2.4 billion,but this is not in the P&L account.

- The after tax profit reported in the news was 644 million (3% increase),whereas the statement shows a profit of 682 million (9.5 % increase).

- Their prospectus showed they have  EABL shares worth about 1.2 billion on 31st dec 2006. These were worth over 1.6 million on 31st dec 2007.  Bonus(2m extra shares) + price rise (to 160) + dividends(shs 5).  They made over 400 million tax free from eabl only (insurance companies dont pay withholding tax)

-Their results for 2006 were affected by claims from tsunami victims so they were depressed. Their 2007 results wont even be affected by the post election violence.

- The results were released to the public before NSE went through them. The counter fell as expected on thursday but at about 12 noon someone bought all offered shares from kshs 14.70 to shs 15.35 at a go,a chunk of over 200,000 shares.

Watch out for exit of retailers/speculators as big buyers mop up their shares at throwaway prices
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Understated Profits [jtheuri]
Friday, February 29, 2008 09:58

Business daily seems to hint that there's better results coming but its vague

"Newly listed reinsurance company Kenya Re has surpassed its full year profitability projections for the financial year ended December 2007,but is likely to fall short of key performance targets as promised to investors in its initial public offering prospectus published in July last year."

what are these
'profitability projections'  targets it has surpassed and by how much? Is this 'surpassing' based on the 3rd quarter results which were not as good as last years,or is it based on estimated full year earnings which might be double last years?

" Managing director Eunice Mbogo however remains confident of Kenya Re’s prospects,saying that the company could still hit its business growth projections once crucial information is factored in the final full year audited statements. "

Is the "'crucial information' capital gains from their investments,eg the 400Million from their EABL shares,and if so why isn't the information 'factored in' the released results

Anyone want to guess the %age increase in their full year earnings?
financial reporting(kenya re) [corrector]
Thursday, February 28, 2008 17:24


The effect of the bonus is an increase in fair value of the asset held for sale.
  this might explain the increase from Kshs2,282,734,513 to 2,471,023,810 you should  take into account any offset that might have been made..
     But if there is an increase in fairvalue,it should be offset by an equity account. For a financial asset to affect the P&L it should be held at fair value through the p&l.

Have you looked at Cash and Bank balances .

     30th Sep 2006......102,104,291   b/f

      30th sep 2007......102,104,291   c/f

 Some thing is up people
Understated Profits [jtheuri]
Thursday, February 28, 2008 15:31


I think i understand about re-evaluation but what about bonus shares - kenya-re got 2 million bonus EABL shares which are worth 300 million

Dividends were 5.50 shillings which is income worth 66 million  shillings.

Shouldn't this considerable 'free' income of over 350m be in the P&L without needing revaluation of assets?
Understated Profits [Georgesörös]
Thursday, February 28, 2008 13:20

I've been following this stock since morning on . According to the data here,there are on asks (people who want to sell) on the prompt board but there are 112,900 bids on the same board. I find this quite 'peculiar'
Proper accounting [corrector]
Thursday, February 28, 2008 13:04

International Accounting Standard N.o 39(financial instrument presentation and      disclosure requirement) states that an increase in financial asset due to fair value changes should be passed to a revaluation account,and when it matures the revaluation surplus should be credited to the p&l..

    In Kenya re's case the increase in financial asset available for sale must have been caused by new investment,,which wont affect the p&l.

    In my view the accounting treatment was in compliance to International financial reporting frameworks(IFRS),but we should wait for the notes accompanying the financial statements to get a more clear view on the firms accounting frameworks.
Understated Profits [Seles83]
Thursday, February 28, 2008 12:21


Failure inspires are made not born
@ seles83 [Magda]
Thursday, February 28, 2008 12:10

what other counters are the foreign investors going for

PENTAGON - supremely and idiotically naive
Understated Profits [Seles83]
Thursday, February 28, 2008 11:37

Thats true Foreign investors have been seriously buy this stock,personally i buy what the big boys buy and sell when they sell

Failure inspires are made not born
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