Unga Group (Kenya) FY2021 profit surges 343% on reduced margins

Unga Group Limited (UNGA.ke) 2021 Abridged Report

COMMENTARY

The Group’s revenue and profit for the year from continuing operations increased 1% and 343% respectively. Overall operating profit was impacted by reduced margins, re-organisation and finance costs. Compared to prior year, interest expense reduced because of re-structuring of banking facilities. International wheat prices increased by at least 30% during the year due to poor harvest and adverse fiscal measures imposed by some of the leading exporting economies. Other basic raw material prices were relatively high in the period; however, with the onset of the local maize harvest, maize prices remained stable from the second quarter to the end of the financial year.

Depreciation of the Kenya Shilling against the US Dollar impacted importation costs and led to substantial forex losses.

Credit risk remained high, but the Group made every effort to accommodate its customers to ensure product availability.The Company received payment for grain supplied in support of the government-led maize subsidy program in 2017. The interest element of the debt remains outstanding. The long outstanding tax refunds were also received during the year ending a protracted litigation process. Both receipts improved profit for the year. The animal nutrition business broadened its portfolio further with the introduction of K9® Dog Food. Opportunities in new product lines continued to be explored; necessary investments are being made to bring these on-going initiatives to fruition.

Subsequent to the end of the financial year, the Company entered agreements with Nutreco BV to form two joint ventures; one to expand aquafeed production and marketing capability in the region, the other to manufacture animal feed and expand the sale of feed premixes in Uganda. Agreement was also reached with Big Cold Kenya Limited to buy its bakery business and assets. Both transactions are expected to be closed in the first half the year 2021-22. The financial statements have presented the results of the discontinuing operations with respect to the bakery and the aquafeed businesses separately as results of discontinuing operations. The assets and liabilities associated with the Nutreco and BigCold transactions are reported separately as held for sale.

Outlook

Short-term performance is expected to remain subdued because of the prevailing high raw material prices, particularly for wheat and soybean. The Company will continue to lobby the authorities to allow for importation of alternative and lower cost raw materials. This will ease pressure on prices and therefore improve affordability.

The zero-rating of flour effective from 1st July is a welcome move to cushion consumers against price inflation. Animal feeds however remain VAT exempt, and this negatively affects prices of farm inputs. The new joint ventures and continued operational re-organization will set the company in a growth trajectory. More value-add partnership opportunities will be pursued while advancing automation opportunities in the base business.

The ongoing initiatives will require substantial cash investments. There is therefore a need to ensure that the existing businesses maintain healthy liquidity levels in the current tough economic conditions.

The Directors do not recommend the payment of a dividend.

By order of the Board

W Jumba
Company Secretary
28 September 2021

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