Unga Group Plc reports 160% net profit loss amid rising input costs and currency volatility

KENYA – The Kenyan-listed food processing firm, Unga Group Plc, reported a net loss of KES 341.6 million (US2.27M) for the half-year that ended December 31, 2023, compared to a net loss of KES 131.3 million (US$872,500) for a similar period in 2022, a 160% decline.

According to the Group, profitability for this period was negatively affected by high input costs due to a local supply deficit, resulting in increased importation and higher raw material and shipping expenses.

The miller’s finance costs also increased 283% to KES 492.9 million (US$2.86M) in the first six months of 2023 from KES 112.3 million (US$746,000) in H1 2022. Additionally, the Group’s balance sheet size shrunk by 15% to KES 10.9 billion (US$72.5M) in H1 2023 from KES 12.8 billion (US$85M) in H1 2022.

However, the giant miller saw its revenue rise marginally from KES 12 billion (US$80M) to KES 12.4 billion (US$82.4M) a 3% increase, while its operating profit decreased to KES 32.2 million (US$214,000) from KES 105.5 million (US$701,000).

According to Unga Group’s Board of Directors, the 3% increase in revenue was attributed to higher volumes, coupled with price adjustments aimed at partially offsetting the rise in raw material costs.

In December 2023, the group warned that the weakening shilling was hurting its business and it was considering contract manufacturing as a strategic shift.

The sharp depreciation of the Kenyan Shilling caused major foreign currency exchange losses, putting further pressure on working capital. Margins remained strained while borrowing costs remained elevated as interest rates increased.

The Group and its subsidiaries had taken loans, priced on the CBR plus a margin of three to 3.1 percent, amounting to KES 1.1 billion (US$6.8M) as of June 2023, according to its 2023 annual report.

Looking ahead, the miller said the US dollar exchange rate and liquidity have shown improvement. However, should foreign currency exchange risk persist, the Group warned, it will potentially influence the costs of the firm’s imported raw materials and thus impact the overall cost of Unga products.

This might exacerbate the situation given that demand for finished products remains subdued as affordability by consumers continues to be affected by macro and microeconomic factors.

Unga Group said it continues to work on cost management and efficiency initiatives.

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