TransCentury returns to profit on new debt terms

Investment firm TransCentury has posted Sh297.6 million net profit for the six months ended June 2019, lifted by a Sh1.3 billion gain from debt restructuring.

The profit, from Sh684.8 million loss posted in a similar period last year, was also supported by 11 percent growth in revenue to Sh2.53 billion, driven by enhanced delivery of orders.

TransCentury said that its group wide debt reprofiling helped it book the Sh1.3 billion gain which was recorded as other income. This was about nine times higher than the Sh145 million that was booked as other income in previous period.

An indebted firm books a gain on restructuring of debt in the period of the transfer if the carrying amount of the debt payable is more than the fair value of the assets being transferred.

TransCentury had in July announced that it had restructured Sh1.6 billion debt owed by its subsidiary East African Cables.

EA Cables also jumped back to profit after posting net earnings of Sh634 million in the six months to June, coming despite a 19 percent decline in turnover. TransCentury holds a 68.38 percent stake in the electrical cables manufacturer.

During the period under review, TransCentury spent Sh322 million to service loans, down from Sh444 million spent the previous half year. This 24 percent reduction in finance costs came on the back of the debt restructuring.

The investment firm closed the period in negative working capital, with current liabilities being three times the current assets. This makes it problematic to meet short-term obligations.

Focus now shifts on the second half of the year to see whether it will avoid a full year loss.

“Overall, the main markets we operate in continue to display favourable conditions for our business model and strong growth prospects in line with our expectations,” the firm said.

TransCentury last posted full year profit in 2013. In the last five years, it has been in losses mainly coming from the cash crunch that had made it difficult to deliver on orders.

Private equity firm Kuramo Capital, which acquired a 25 percent stake in TransCentury in 2016 for Sh2 billion as a turnaround investment, is among those counting major paper losses from the company’s past weaker performance.