Listed manufacturer Flame Tree Group Holdings doubled its bank loans to Sh817.7 million in the year ended December 2022 to deal with skyrocketing costs of raw materials.
This is an increase from Sh382.5 million in the year before.
The maker of beauty products, including creams, nail polish, lotions and moisturisers said in the latest annual report that net borrowing rose from Sh873.3 million in 2021 to Sh1.3 billion in 2022 on the back of increased bank loans to help run the business.
The manufacturer did not disclose in the latest annual report the lenders or the loans but it highlighted that SBM is one of the firm’s principal bankers and financiers who stepped in to purchase raw materials amid a tough operating environment last year.
“The sharp increase of raw materials costs caused the company to lose over 9.6pp of gross margin, which virtually wiped out plus Sh386 million of gross profits and also forced the company to increase LC and working capital lines exclusively to fund the purchase of raw materials,” the company’s 2022 annual report read in part.
“This has translated to exceptionally high levels of short-term debt and finance costs (Sh172.7 million interest).”
The firm said some of the headwinds it faced during the year that eroded the company’s profit, included high prices of coal, diesel and gas.
The company added that as a manufacturing firm, it struggled with high operating costs driven by the haulage and freight costs on the back of the global supply chain disruptions from the war in Ukraine, and foreign exchange fluctuations amid a weakening shilling, among others.
Flame Tree’s direct cost of producing goods to be sold rose from Sh2.23 billion in 2021 to Sh3.05 billion in the following year.
“FTG Holdings Ltd works with different banks, SBM being the main banking partner. The cost of capital with SBM is the base lending rate plus 3.1 per cent for Kenya Shillings loans plus 1.3 per cent for USD loans,” the company’s 2022 annual report read in part.
“That has translated to yearly interests of 13 percent for loans in Kenya Shillings and 7.5 per cent for loans in USD. The debt is secured by a charge on all the assets of the Group, a general debenture on assets and a personal guarantee from the main shareholder.”
