More by this Author

Cipla Quality Chemicals Ltd is facing a penalty for failure to issue a profit warning to investors prior to the release of its full-year results at the end of March, which showed a big drop in profits.

The pharmaceutical firm, which makes antiretroviral drugs, anti-malarial and hepatitis medicines, is majority owned by Cipla Ltd of India, with the rest of its shares held by Ugandan directors and retail and institutional investors.

Cipla’s profit after tax fell by 84.8 per cent to Ush6.79 billion ($1.79 million) as at the end of March, according to its first full-year results published last month. The company listed on the Uganda Securities Exchange in September 2018.

Whereas USE listing rules require companies to issue profit warnings in case their earnings are projected to fall by more than 20 per cent over a 12-month period, Cipla failed to provide any guidance to investors.

In contrast, Uganda Clays Ltd and NIC Holdings Ltd issued profit warnings on less than expected earnings that delayed publication of their financial results for the end of December 2018.

Total sales revenues posted by Cipla dropped from Ush227.3 billion ($59.9 million) at the end of March 2018 to Ush195.1 billion ($51.4 million) by end of March 2019, a fall attributed to drastic declines in procurement orders by the Global Fund, the firm’s largest client.

Cipla cited the Global Fund’s policy shift from buying human drugs to funding disease prevention activities as the biggest cause of the diminished procurement volumes, but did not provide a clear forecast on the Fund’s demand patterns.

The company’s total cost of sales dropped from Ush130.9 billion ($34.5 million) at the end of March 2018, to Ush125.5 billion ($33 million) by close of March 2019, while total administration expenses rose from Ush17 billion ($4.48 million) to Ush23.6 billion ($6.2 million) during the same period.

Cipla’s total assets increased from Ush209.2 billion ($55 million) at the end of March 2018 to Ush287.6 billion ($75.8 million) by close of March 2019.

The company declined to issue a dividend for end of March 2019 in light of the poor performance.

Local capital markets regulators are now considering imposing a fine on the firm for failure to provide a profit warning: The value of the penalty could not be confirmed by press time.

The fine is likely to dent the Cipla’s reputation after less than a year of listing at the USE and could scare off potential investors, observers say.


“Cipla should have issued a profit warning as provided for in the listing rules, and we are going to take action on them. We had a discussion with the USE over this issue, and we are willing to give a fair hearing to all parties.

“Nevertheless, the disclosures made by Cipla Quality Chemicals Ltd prior to the listing were clear and revealed concentration risk faced by the company in its client pool. That means failure by one of the top four clients to make procurement orders would affect its sales revenue by more than 25 per cent during the year.

“We also feel future IPOs should be supported by underwriters with enough liquidity to buy all unsold shares and guarantee full subscription of shares offered to the public,” said Keith Kalyegira, chief executive officer of the Uganda’s Capital Markets Authority.

Last week, The EastAfrican sent questions to Cipla’s top management, but did not receive any response.

Besides the looming regulatory fine, a two per cent undersubscription rate by the company’s IPO, low transaction volumes recorded during the first eight months of trading, a 33.7 per cent drop in its share price, and little information available to investors on the firm’s business outlook, have escalated uncertainty among the latter.

“Cipla Quality Chemicals Ltd has been opaque and has not released enough information related to its performance in 2018. I’m still waiting for its annual report before doing further analysis on the company,” said Simon Mwebaze, general manager at UAP-Old Mutual Financial Services Ltd, an asset management firm and stockbroker.

The company share price has held steady at Ush170 ($0.04) since April, down from the IPO price of Ush256.5 ($0.06).

“It is not a temporary storm because the capital markets regulators approved that public offering without understanding the company’s underlying business model. The company failed to issue a profit warning for their full year results for 2018/19 while some directors resigned recently without giving clear reasons.

Some of their financial figures, particularly expenses, seem questionable,” said Andrew Muhimbise, a retail investor.

Cipla signed memoranda of understanding with more than 10 African countries to supply certain drugs, but debt management problems reported in some of those countries became a stumbling block.

Countries with debt servicing backlogs include Kenya, Zambia, Mozambique, Angola and South Sudan.

Uganda, for instance, has budgeted Ush10.6 trillion ($2.79 billion) for debt servicing costs during 2019/2020, a figure higher than the combined allocation of Ush6.7 trillion ($1.77 billion) set aside for the education, healthcare, water and environment sectors, according to latest government data.