Flame Tree profit drops on low sales

Consumer goods manufacturer Flame Tree Group reported a 15-percent net profit decline in the year ended last December, weighed down by sluggish sales and rising costs.

The Nairobi Securities Exchange-listed firm’s net earnings stood at Sh33.7 million in the review period compared to Sh39.7 million the year before.

Flame Tree did not declare a dividend, making it the fourth consecutive year that shareholders will not receive a cash payout from the manufacturer and distributor of a wide range of consumer goods including cosmetics and water tanks.

The dividend drought is expected to continue as the company suffers from sluggish sales and rising costs that have more than halved its profit margins.

“Flame Tree Group remains committed to driving returns on investments to shareholders,” the company said in its 2017 annual report.

“However, our company recognises that these are unusual times in which prudence demands that the company continues to plough back [cash flows] into the business in the short to medium term to secure a sustainable future.”

Flame Tree’s sales rose 2.6 percent to Sh2.48 billion in the review period when its production costs rose 6.1 percent to Sh100.5 million.

The company’s performance peaked in 2015 when its revenue stood at Sh2.2 billion, with relatively lower costs at the time helping to boost its net earnings to Sh178.8 million.

The dividend drought and the weaker performance has seen shareholders suffer some of the largest capital losses on the NSE.

Flame Tree listed on the Nairobi bourse on November 6, 2014, at an offer price of Sh8 per share. The stock rallied to close the day at Sh13.85, assigning it a market value of Sh2.2 billion.

The company’s stock has since crashed to trade at Sh2.74, equivalent to a market capitalisation of Sh487.8 million and representing a decline of 78.2 percent from the first day of trading.