Food processor Unga Group expects high input costs to remain prevalent this year from the drought conditions in Kenya and neighbouring countries, constraining margins.
A rally in the cost of raw materials pulled the Nairobi Securities Exchange-listed firm into a loss in the half-year that ended December despite upward adjustments of prices of its human and animal feed products.
“Poor weather experienced locally and regionally poses a threat to material availability. Barring intervention through fiscal policy, raw material costs are not expected to ease,” the company said in a statement.
The high input costs drove the firm’s half-year returns for six months that ended December to a loss of Sh131.3 million from a profit of Sh8.5 million previously.
The company realised an operating loss of Sh107.5 million despite growing revenues by 36.4 percent to Sh12 billion from Sh8.8 billion previously, implying greater costs in the half-year period.
“Revenue growth of 36 percent over the same period prior year is mainly attributable to increased finished product prices to partially recover raw material price inflation. However, profit before tax was negatively impacted due to increased raw material prices and foreign exchange losses,” Unga added.
“Our trade partners and farmers experienced strained working capital as they worked to recover from lost revenue experienced in the preceding period.”
Unga says it is betting on efforts to manage costs, and support and strengthen relationships with farmers and trade partners to improve its financial outcome.
Last month, Unga’s share price hit a nine-year low Sh21.6 with analysts attributing the hit to uncertainty over the planned duty-free maize imports at a time when a biting drought has cut grain supply resulting in high input prices which have eaten into the margins of millers.
With the company returning a half-year loss on Wednesday, investors in the stock are likely to endure a longer dividend drought with the last shareholder payout coming in 2019 (Sh0.50).
