Unga pays dividend despite profit fall

• Miller said its net profit stood at Sh348 million in the year to June compared to Sh438 million the previous year mainly due to the high cost of grain, and warned margins would continue to be squeezed.
• Unga said margins in the animal nutrition segment had been hit by a volume decline in poultry feeds as farmers withdrew from the market following low demand for meat and eggs.

Flour miller Unga Group Ltd has maintained its dividend payment despite announcing a 32.3 per cent drop in net profit.

The miller said its net profit stood at Sh348 million in the year to June compared to Sh438 million the previous year mainly due to the high cost of grain, and warned margins would continue to be squeezed.

The outlook did not stop Unga from maintaining its dividend at Sh0.75, the third payout in row after its Sh0.50 payment in 2010 saw the firm break a 12 year dividend drought.

This is a boost to investors who have seen their shares at the Nairobi Securities Exchange (NSE) increase 68.3 per cent in the past six months to Sh15.15, outperforming the bourse whose index is up 12.6 per cent over the same period.

The miller said margins in the animal nutrition segment had been hit by a volume decline in poultry feeds as farmers withdrew from the market following low demand for meat and eggs. It warned investors that its margins will continue to come under pressure because of the entry of small millers into the market.

Prices

"Continued product cost inflation is expected due to shortages in the world commodity market and currency risk,” the miller said.

Unga’s sales rose by 21 per cent to Sh15.97 billion for the year to the end of June compared with the previous year, but operating profit fell to Sh523.1 million from Sh643.34 million,, highlighting the impact of rising grain prices on its operations.

Last year, Unga announced a 86.8 per cent jump in net profit, egging analysts to believe that the company has completed its turnaround.

This outlook also prompted Unga Group to end its 12-year management contract with US-based multinational Seaboard Overseas Management Company last year. The consultancy firm gained management control of Unga Group in 2000 after it acquired a 35 per cent interest in Unga Holdings -- the parent company of Unga Group --for $7.5 million (then Sh560 million).

At the time, Unga Group was in losses and the bulk of the cash injection was used to settle a multimillion shilling debt that was eating into its sales. But Seaboard will continue to offer technical support and feed Unga Ltd with raw materials, which earned the US firm Sh2.92 billion in 2011.

Technical support

Under the previous agreement, Seaboard provided Unga with raw materials, technical support and a resident management team from which it earned based on profit but it had to receive a minimum payment of Sh12 million irrespective of the earnings.

In 2010, for instance, it earned a fee of Sh19.2 million.

Nick Hutchinson, the managing director of Unga Group, was hired by Seaboard to help turn around the fortunes of Unga.