Unga Group Plc has issued a profit warning for the year ending June 2022, following a dip in revenues for the first six months ended December 31, 2021.
In a statement on Friday, the company attributed the dip in profits to an increase in the cost of raw materials attributable to global shortages, an upsurge of freight costs and a weakened Kenya shilling that have caused an escalation of the price of finished goods.
“Based on the Company’s unaudited financial results for the first six months ended 31 December 2021 and the Company’s second-half forecast, profit for the full year is likely to be at least 25% lower than prior year,” said the Group.
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“The demand and purchasing power decline have led to reduced volumes in our human and animal nutrition segments. The raw material situation is expected to remain a challenge in the second half of the year ending 30 June 2022. The Board and management are working on strategies to counter the existing challenges to deliver improved performance for the Company.”
Unga Group recorded a revenue decline of 9 percent over the same period prior year due to reduced sales volumes in both human and animal nutrition segments.
The company recorded a profit before tax of Ksh8.4 million as compared to Ksh83 million recorded in a similar period in 2020.
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Wheat grain price increase and shortage were because of adverse weather, pandemic related interruptions and increased global demand. Maize supply and prices were stable in the first quarter. However, a poorer than expected harvest in the second quarter created shortages and an increase in prices.
A global shortage of soya beans pushed prices to unprecedented levels. The reduction in local demand for flour has meant that by-products used in animal feeding have been in relatively short supply.
“We turned to imports from the region to bridge this gap. Though the government has allowed duty-free importation of non-GMO raw materials, high global prices have not made importation a viable option yet,” said Unga Group.
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Raw material prices are expected to remain high for the rest of the financial year. This may worsen the already soaring human food and animal feeds price situation.
The company also blames delayed VAT refunds for strained cash flows, made worse by an increase in working capital requirement to cover higher material prices.
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“We continue to lobby for sustainable raw material solutions through policy changes such as approval of GMO raw materials, especially for animal feeds. The Board and management are working on strategies to counter the existing challenges,” added the board.
The Directors did not recommend payment of an interim dividend.
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