Unga top owner earns Sh4.6bn in miller’s supplies

Unga Limited in Eldoret. Unga’s net profit increased 45.9 per cent to Sh508 million. FILE 

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• US-based Seaboard becomes biggest beneficiary from turnaround of firm.
• The miller has disclosed in its annual report that Seaboard earned Sh4.65 billion in the year to June compared to Sh4.2 billion a year earlier and Sh2.9 billion in 2011.
• The Sh4.65 billion that the US firm earned from Unga accounted for 29.6 per cent of the miller’s annual sales of Sh15.7 billion.

A multinational shareholder in Unga Holdings took nearly a third of the miller’s sales after striking a multi-billion shillings raw materials deal.

The miller has disclosed in its annual report that US-based Seaboard Overseas earned Sh4.65 billion in the year to June compared to Sh4.2 billion a year earlier and Sh2.9 billion in 2011.

This has seen Seaboard — 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 — become the biggest beneficiary of the miller’s recovery.

The Sh4.65 billion that the US firm earned from Unga accounted for 29.6 per cent of the miller’s annual sales of Sh15.7 billion.

Unga Group reviewed its 12-year management contract with Seaboard last year that eliminated the payment of a management fee, but analysts and investors reckon that the US firm is reaping more cash from the raw materials deal.

The huge payout to Seaboard comes in a year that saw Unga’s net profit increase 45.9 per cent to Sh508 million, but it maintained dividend payout at Sh0.75 or Sh56.7 million to its 8,094 shareholders.

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, Seaboard Overseas Management Company (SOMC), a subsidiary of the US firm, 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 review of Seaboard’s management contract.

While SOMC dropped the management fee from its present contract, it earned Sh101.3 million in fees in the year to June up from Sh62.2 million last year.

Equipment and spares earned the US firm Sh379.5 million from Sh95.3 million.

The Business Daily failed to get a comment from Unga Group on details of the raw material contract, mainly grains, that earned Seaboard Sh4 billion. “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.

This meant that Seaboard has continued to offer technical support and feed Unga Ltd with raw materials — whose details are not disclosed in the miller’s 2012 annual report.

At the Nairobi Securities Exchange, Unga share price has gained 50.6 per cent over the past year to close trading at Sh17.55 on Wednesday. The counter has attracted little investor interest in recent years.