A multinational shareholder in Unga Holdings has increased its earnings from a multi-billion- shilling raw material deal with the miller by 40 per cent in a year the firm reported a drop in profits.
The miller has disclosed in its annual report that US-based multinational Seaboard Overseas Management Company (SOMC) earned Sh4.1 billion in the year to June compared to Sh2.9 billion a year earlier.
This has seen SOMC — which acquired a 35 per cent interest in Unga Holdings, the parent company of Unga Group, for $7.5 million (then Sh560 million) in 2000 — making it the biggest beneficiary of the miller’s recovery.
At Sh4.1 billion, the US firm’s earnings from Unga accounted for 28 per cent of the miller’s annual cost and nearly Sh20 million it earned yearly for managing the company.
Unga Group ended its 12-year management contract with Seaboard last year, but analysts and investors reckon that the US firm is reaping more cash from the raw materials deal.
“They are in there for the supply contract rather than for dividends or the management contract,” said an analyst at Kestrel Capital.
The huge payout to Seaboard comes in a year that saw Unga’s net profit drop 21 per cent to Sh348 million, but it maintained its dividend payout at Sh0.75.
It is also not clear how the US firm earns dividend since it owns 35 per cent of Unga Holdings and not the listed Unga Group, where it does not appear among the top 10 shareholders.
In 2000, Unga Group was in losses and the bulk of the cash Seaboard paid for the 35 per cent stake was used to settle a multi-million- shilling debt that was eating into its sales.
As part of the turnaround strategy SOMC, a subsidiary of Seaboard Corporation, was given the task of returning the miller to profitability after posting losses for six years.
This saw the firm break a 12- year dividend drought in 2010 as it offered to pay shareholders Sh0.20 per share, a signal that it had completed its turnaround, which prompted the termination of Seaboard’s management contract.
The Business Daily failed to get a comment from Unga Group on details of the raw material contract since Mr Nick Hutchinson’s mobile phone went unanswered.
Mr Hutchinson, the managing director of the miller, was tapped by Seaboard to help turn around the fortunes of the firm.
“This agreement has expired and was replaced by a new one… and contains no provision for a management fee payable to Seaboard Overseas Management Company,’’ said Unga Group in a notice to shareholders in its 2011 annual report on its new contract with the US multinational following the termination of the management contact.
This means that Seaboard will continue to offer technical support and feed Unga Ltd with raw materials — whose details are not disclosed in the miller’ 2012 annual report.
At the NSE, Unga share price has gained 25.3 per cent over the past year to close trading at Sh13.65 on Thursday on increased investor interest amid low supply of shares at the Nairobi bourse. The counter has attracted little investor interest in recent years.