Unga Group issues profit warning

A customer picks packets of unga at the Hub Mall in Karen, Nairobi. [Edward Kiplimo, Standard].

Unga Group expects its earnings to fall by more than 25 per cent on the tight competition.

The decline in profitability is attributed to low consumer demand with reduced volumes in the animal nutrition segment.

In the year ended June 30, 2019, Unga Group recorded a profit of Sh544.81 million.

This was a 30 per cent decrease from the previous year's profit, indicating the possibility of a continuing decline in the firm's performance. “Additionally, there have been increased cost of maize and wheat grains due to unfavourable local weather conditions,” the firm said yesterday.

However, the country experienced more rains last year that saw major dams overflow.

International factors such as rallying world wheat prices were also given as reasons for the decline in profits.

Competition has also been cited as a concern as “local farmers faced increased competition from imports of farm produce from the region - specifically in the dairy and poultry sectors”.

The company’s finance costs increased due to “capital expenditure and working capital related borrowing”.

In July of 2018, there was a proposed takeover of Unga Group by the US-based Seaboard Corporation. Seaboard proposed to buy three-quarters of minority shareholders amounting to roughly 46.15 per cent of Unga’s shares.

The takeover bid would have resulted in the de-listing of Unga Group from the Nairobi Securities Exchange. However, the failed buyout bid saw Seaboard hold 35 per cent stake, up from two per cent.

A majority of the shares are held by an investor vehicle Victus Ltd. Unga Group said new challenges will include low consumer demand, excess production capacity and restricted maize grain supply.