Unga Group is opting to use contract manufacturers to shore up its declining revenues battered by cutthroat competition in the flour milling sector, scarcity and high cost of raw materials and the depreciation of the local currency against the US dollar.
The Nairobi Securities Exchange-listed miller is also transitioning into a “general” food company in a new eight-year (2023-2030) turnaround plan.
Unga disclosed, through its latest integrated report (2023), that under the new plan, the firm would explore contract manufacturing opportunities to boost capacity utilisation across the human food and animal feed business segments.
“Under the new strategic plan, Unga has set a target of increasing capacity utilisation, with contract manufacturing being one of the efforts that are already in the works,” says the firm.
“As an example, we currently process wheat and porridge flour for various customers, including the World Food Programme. We will continue to explore similar contract possibilities to boost capacity utilisation across both the human food and animal feed business segments.”
The miller is seeking to re-invent itself by reinforcing its existing operations, deepening its market presence, exploring new business opportunities by venturing into new products and emerging markets and fostering a high-performance work culture.
It posted a net loss of Sh959.38 million in the financial year ended June from a net profit of Sh311.36 million a year earlier largely due to the high cost of raw materials as scarcity of locally sourced raw materials led to increased importation at a time when global prices were at an all-time high.
The situation was compounded by the sharp depreciation of Kenya's shilling against key currencies, which lost ground by over 15 percent against the US dollar and the sterling pound.
“At the same time, dollar supply constraints within the market led to margin erosion, high forex losses and increased interest expenses,” said the firm.
According to the report, the transition of the group’s human nutrition business into a general food company is gathering steam with the launch of a range of new products such as Pendo® wheat flour and the relaunch of the Amana® range of products.
“Holistically, Human nutrition is undergoing a strategic transformation into a fully-fledged food business engaged in every step from manufacturing and processing to trading within the food products sector,” the firm says.
“As we transition into a general food company, we are utilizing digital technology to better capture data and information about our consumers and we are witnessing advantages in winning over the youthful demographic through our marketing efforts.”
Unga Group is a Kenyan-based Holding Company that has a majority shareholding in companies involved in the manufacture and marketing of a broad range of human nutrition, animal nutrition and animal health products.
The group entered into a strategic investment partnership with US-based Seaboard Corporation in 2000 to form Unga Holdings Ltd in which Unga Group owns 65 percent and Seaboard Corporation (35 percent)
In 2021 the group entered into an agreement to sell its bread-making business to a logistics firm BigCold Kenya after branding the bakery business ‘unsustainable’.
During the 2022/2023 financial year, the group’s capital investment was mainly towards sustaining operations and business recovery, servicing debt, investing in the growth of brands, and strengthening its strategic partnerships.
However, the business environment over the past few years has been particularly challenging for businesses due to a combination of factors, including the post-covid-19 aftershocks, global political instability, and prolonged drought, which led to a biting shortage of raw materials for the firm
“During the year under review, we operated in a volatile environment, implying that we did not perform as anticipated,” the firm says
“We continue to ask our shareholders to be patient with us as we work our way out of the difficult period we have been through, with expectations that the new Strategic Plan will return the company to profitability.”
The Human nutrition business remains highly competitive, with shifts in the flour-milling sector continuing to impact the firm’s Human nutrition sales volumes
In the financial year ended June 30, the group’s human nutrition business grew by 16 percent, while the animal health business posted a four percent decline.
“The first is to reposition our company for growth. Under this pillar, the human nutrition business is responding to changes in customer purchasing habits by repositioning itself as a holistic food company, as we adjust to how the market is developing by increasing the range and variety of products,” the firm says.
