KENYA – Sugar miller Mumias’ losses increased by nearly two-thirds to Sh2.7 billion in the year ended June 2014, the company announced Thursday. The miller did not declare a dividend.
The performance came as cost of sales rose 17.6 per cent to Sh12.2 billion, surpassing a 9.3 per cent growth in sales to Sh13 billion.
Administrative costs also increased 16.5 per cent to Sh3.2 billion, thinning the company’s margins. CEO Coutts Otolo had announced plans to retrench up to 300 workers.
It is unclear whether the jump in administrative expenses was driven by retrenchment costs.
Mumias blamed the performance on a number of factors including illegal sugar imports that forced down the commodity’s price as well as cane poaching by rivals.
The company said sugar prices dropped from Sh79,246 per tonne to Sh62,432 per tonne in the review period, representing a 21.2 per cent decline.
Its sales of electricity nearly halved to Sh230 million, with the company attributing it to reduced power output and penalties imposed by Kenya Power as per their Power Purchase Agreement (PPA).
Electricity exported to the national grid dropped 21 per cent to 55,935 megawatt hour (MWH), attributed to poor quality of cane.
Mumias said it has opened talks with the power distributor to review their PPA, but did not give details.
“Renegotiation of the PPA is ongoing with the aim of unlocking further opportunities for the cogeneration business,” the firm said in a statement.
The company has an installed power generation capacity of 35 MW, relying on bagasse to produce the electricity for its own consumption and sale to Kenya Power.
Mumias’ revenues from the ethanol business rose nearly four-fold to Sh1 billion as production of the spirit more than tripled to 13.6 million litres.
The miller has responded to the mounting losses with a focus on cost-cutting in the near term, betting on the strategy to ease the pain of shareholders.
Mumias has been beset by reduced sugar production, industrial strikes, and claims of insider fraud that the board says it is moving to address in an effort to protect shareholder wealth.
The firms accused some of its top executives of engaging in illegal sugar importation that cost it over Sh1 billion, with former CEO Peter Kebati being among those fired over the allegations.
“Among the initiatives undertaken by the board are a change in the management of the company, an improved farmer engagement programme that is aimed at securing a sustainable supply of adequate quantities of good quality cane,” reads part of the statement.
This is the second consecutive year that Mumias has not declared a dividend, with the losses also eroding shareholder wealth at the Nairobi bourse where its stock is taking a beating.
The firm’s share price has dropped 46.7 per cent over the past 12 months to trade at Sh2, making it the second worst performing stock ahead of Uchumi that has lost 42 per cent in the same period.
Mumias’ mounting challenges has seen investors exit in droves, depressing the stock.
Billionaire entrepreneur Baloobhai Patel is among those who have sold their Mumias shares, trading 17 million units of the miller’s stock in the past few months.
The company is among several in the local sugar industry that will face stiffer competition from March next year when their protection from cheaper imports from the Common Market for Eastern and Southern Africa ends.