Animal and human food processor Unga Group widened its net loss 2.6 times to Sh341.5 million in the half year ended December 2023 as its margins deteriorated further despite higher sales.
The company had posted a net loss of Sh131.3 million a year earlier.
Unga attributed the larger loss to higher costs partly driven by the impact of the weakening shilling on imported materials.
Rising interest rates on borrowings also contributed to the expansion of the loss.
“Profitability for this period has been negatively affected by the high costs of inputs. There has been a local supply deficit resulting in increased importation at increased raw material and shipping expenses,” Unga said in a statement.
“The continued 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 shilling depreciated 10.24 percent in the review period, inflating costs for importers of finished and intermediate goods.
Unga also borrowed hundreds of millions of shillings at an interest rate referencing the Central Bank Rate (CBR) plus margins of three to 3.1 percent.
The CBR has risen from 10.5 percent in June last year to the current 13 percent, significantly raising the cost of borrowing on loans priced off the Central Bank of Kenya’s benchmark rate.
Unga’s finance costs, for instance, more than quadrupled to Sh492.9 million in the half year period under review from Sh112.3 million a year earlier.
The company’s revenues grew 3.4 percent to Sh12.4 billion on increased volumes and price increments in response to the jump in raw material costs.
The price increase, however, risks hurting demand as consumers become price sensitive in light of a general rise in the cost of living.
“Demand for finished products remained subdued as affordability by consumers continued to be affected by macro and microeconomic factors,” Unga said.
“The company continues to work on cost management and efficiency initiatives. In line with our sustainability strategy, installation of solar is nearing completion, with three out of five sites now completed and commissioned.”
The company added that the US dollar exchange rate has shown improvement but noted that the cost of imported raw materials could remain high should the exchange rate risk persist.
The shilling lost 21.19 percent against the US dollar in the 12 months to December 2023 to close at 156.6 units to the greenback but recently staged a dramatic recovery that has seen it settle at 146 units against the dollar currently.
Unga is among the manufacturers beset by high borrowing and operating costs. The company, which has gone for years without paying dividends, saw its share price fall to a 52-week low of Sh13.5 on October 25, 2023.
