Unga Group’s full year profit dwindles 88% on back of reduced demand, high production cost

KENYA – Unga Group, a Kenyan-based holding company with investments in flour milling and manufacturing of human nutrition products and animal feeds has reported an 88% reduction in profits for the full year ended June 30, 2020, to Ksh66 million (US$608k) down from Ksh544.8 million (US$5m) reported in a similar period the previous year.

The company attributes its near profit wipe out to reduced consumer demand along with the high cost of inputs mainly of maize and wheat grain purchases.

Revenue however grew by 2% to Ksh18.3 billion (US$168.7m) from the Ksh9 billion (US$82.9m) posted at a similar juncture the previous year.

But volumes declined by four per cent due to low consumer demand and aggressive pricing of finished products by competitors.

The group’s financing costs went up by 22 per cent to Ksh.203 million (US$1.8m) on the back of higher capital expenditure and borrowings for working capital.

Its operating profit fell to Ksh301 million (US$2.7m) from Ksh719 million (US$6.6m) even as taxes set back the company some Ksh50.7 million, a lower figure than the Ksh70.4 million (US$649k) captured in the company’s books at the same period last year.

“The board is cautious about the new financial year. While the volumes may recover somewhat when the economy fully reopens, credit risk is likely to remain high as trade partners recover from lost revenue.”

Unga Group

According to reports by Business Today, the company’s animal nutrition business was affected negatively by low uptake of farm inputs.

“Farmers faced competition from meat, milk, and egg imports from Uganda leading to unfavourable farm produce market prices. This led to shrinking demand for feeds, minerals, and animal health products,” stated Unga.

With the existing challenges, the company’s board says it is undertaking several initiatives to improve its financial performance including retrenching some employees, automation, introduction of new products into the market as well as investment in new business opportunities.

“The board is cautious about the new financial year. While the volumes may recover somewhat when the economy fully reopens, credit risk is likely to remain high as trade partners recover from lost revenue,” the company said in a statement.

The company says it will continue taking a cash preservation stance as it remains pragmatic to a near term recovery.

Taking a closer look of the previous year performance of the Nairobi Stock Exchange listed firm, the company reported a 10.4% decrease in revenue to Ksh17.9 billion (US$172m) for the year ended 30th June 2019.

The firm’s finance costs went up by 83.7% to Ksh166.75 million (US$1.6m) as increased raw material costs was absorbed by the animal nutrition business thus constraining margins while supporting volume.

The profit for the year decreased by 30% to Ksh544.81 million (US$5.2m) mainly attributed to increased competition mostly in the human nutrition business.

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The bakery business recorded a reduction of 16% in revenues attributed to the credit risk challenges in the retail sector.

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