Earnings Quality among African companies: Recurring restatements are not welcome

Dear Africa interested professionals:

                                                           When I ponder on earnings quality, it goes beyond the financial performance of the companies as provided to us by their directors.  Are the numbers provided to us possess the qualities of transparency, authenticity and longevity?  Are this year's numbers going to be adjusted (restated) next year with the reality of this already known today?  Do restatements suddenly become an annual recurring act for some companies, just the way financial reports are audited annually?

Public companies that continually restate their books, change key figures significantly without any clear, detailed explanation are guilty of poor earnings quality as their audited financials are not as reliable as they should be.  

I have randomly selected visible companies across different industries in Africa and reviewed their two most recent annual reports (covering three fiscal years) for restatements and reasons given where applicable with commentary.  

1). Tanzania: Tanzania Portland Cement - Did NOT restate FY 2016 & 2015 annual reports.  

2). Egypt:  Commercial International Bank - Did NOT restate FY 2017 & 2016 annual reports.  

3). Kenya:  Centum Investment - Did NOT restate FY 2017 & 2016 annual reports.  

4). Kenya:  Equity Bank - Did NOT restate FY 2017 & 2016 annual reports. 

5). Kenya:  Safaricom - Did NOT restate FY 2017 & 2016 annual reports. 

6). Mauritius: Mauritius Commercial Bank - Did NOT restate FY 2017 & 2016 annual reports. 

7). Botswana:  Letshego - Did NOT restate FY 2016 & 2015 annual reports. 

8). Ghana: Ghana Commercial Bank - Did NOT restate FY 2017 & 2016 annual reports.  

9). Uganda: Bank of Baroda - Did NOT restate FY 2017 & 2016 annual reports.

10). Zimbabwe: Delta Corporation - Did NOT restate FY 2017 & 2016 annual reports.

11). Namibia: Bidvest - Did NOT restate FY 2017 & 2016 annual reports.  

12). South Africa: Capitec Bank - Did NOT restate FY 2018; RESTATED FY 2016 in FY 2017 annual report.  FY 2016 was restated because loan origination fees previously included in loan fee income was restated and included in interest income of the income statement.  

Commentary: Across the three years reviewed in two annual reports, this was the only restatement and the explanation was clear.  No problem here. 

13). South Africa: Naspers - Did NOT restate FY 2017 annual report.  RESTATED FY 2015 in the FY 2016 annual report.  The reason was due to a change in the group's presentation currency from Rand to the $US effective fiscal year end March 2016. 
Commentary:  Across the three fiscal years across two annual reports, this was the only restatement and the reason is straightforward.

14). Nigeria: Zenith Bank: Did NOT restate FY 2017 & 2016 annual reports.  

15). Nigeria: Dangote Cement: RESTATED figures in the FY 2017, 2016 & 2015 annual reports covering four fiscal years.  

FY 2016: Restated Finance income, finance costs, pre & post tax profit.  Interest income was overstated and interest expense was understated.  Line items on the balance sheet, cash flow and income statement were restated.  

FY 2015: Restated due to change in how foreign exchange gains and losses were stated. Starting in 2016, net exchange gain/losses was stated as one line item instead of separately

FY 2014: Restated due to an adjustment to the presentation of administrative expenses.  

It is also worrisome how the impact on profit from the changes to FY 2016 in the FY 2017 annual report was made to reflect only under the 'Company' column and had no impact on the Group column which is what is publicly reported to regulators and the media.  The Company is a subset of the Group.  

16). Nigeria: Lafarge Africa: RESTATED figures in the FY 2017 annual report for FY 2016.  The restatement was reflected only in the 'Company' column.   The reason for this restatement according to the board of directors was "Due to the merger of the Company with two subsidiaries and the liquidation of two subsidiaries into the Company during the year, the 2017 Company numbers are those of the  merged and liquidated entities while the 2016 numbers are those of the Company prior to the merger and liquidation."    

In the FY 2016 annual report of Lafarge Africa, FY 2016 operating profit line item (Group) was stated as a loss of N10.98B.  In the FY 2017 annual report, FY 2016 operating profit line item (Group) was stated as a gain of N12.4B.    It is hard to fathom any acceptable explanation for this kind of significant reversal in a major line item on the income statement.  Not surprising, management did not even acknowledge this significant change in figures.  

Poor earnings quality is reflected on multiple occasions for Dangote Cement and Lafarge Africa.  Incorrectly charging interest, continually restating different line items on an annual basis and lack of transparency across performance impacting line items tells a story driven by a desire to misinform rather than inform.  Recurring restatements of financials reflects consistency in an inconsistent way that continues to reflect poorly on the companies in question and their willingness to reveal their true state of affairs in a timely manner.   Restatements should largely be a reaction to an unavoidable situation e.g. Naspers and not an action taken in an avoidable situation e.g Dangote Cement.