Mumias reports Sh4.6bn after-tax loss as sales halve

Corporate News

A tractor offloads sugarcane at Mumias Sugar factory in Kakamega County after the firm re-opened earlier in the year under new management. PHOTO | ISAAC WALE 

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

In Summary

• The NSE-listed sugar company has been in financial difficulty due to mismanagement, shortage of sugarcane and cash flow constraints.
• Analysts say that even if Mumias gets its act right it is still financially susceptible to imported sugar, which is cheaper.

Mumias Sugar Company nearly doubled its loss to Sh4.6 billion in the financial year ended June 2015, while its sales more than halved in the same period.

The listed sugar miller on Tuesday reported a 70 per cent increase in its after-tax loss compared to the Sh2.6 billion posted in the corresponding period a year earlier.

Turnover reduced to Sh5.5 billion, less than half the Sh13 billion that was generated by the troubled miller in the period to June 2014.

The NSE-listed sugar company has been in financial difficulty due to mismanagement, shortage of sugarcane and cash flow constraints.

A forensic audit that was carried out by financial consultancy KPMG earlier in the year found that there was massive misuse of funds, pilferage and tender manipulation that cost the miller Sh1.1 billion in illegal sugar imports.

The company’s board subsequently sacked chief executive Peter Kebati and also suspended four top managers in April from its marketing department for diverting ethanol meant for export into the local market, causing tax revenue losses worth millions of shillings.

The miller got a reprieve with the advance of a Sh1 billion loan from the Treasury in June. The Treasury has a 20 per cent stake in the company.
The funds were to go towards clearing farmer debts and fixing its machinery.

The board also hired Eroll Johnston as the new chief executive. Mr Johnson was the chief executive of the firm between 1988 and 2001.

READ: Mumias goes for its former CEO to drive turnaround

Analysts however say that even if Mumias gets its act right it is still financially susceptible to imported sugar, which is cheaper.

“Though the miller is intending to restructure operations, enhance factory efficiency and streamline its marketing strategy, Mumias Sugar’s inability to compete on price as well as mobilise adequate raw material due to competition remain as key concerns for the company,” said analysts at Standard Investment Bank.

Mumias resumed milling in late August after shutting down for maintenance for a two-month period.

The loss could mean that the company’s shareholders will have to go for another year without receiving a dividend payment.

Besides the illegal sugar imports that forced down the commodity’s price, Mumias is also facing a raw material supply problem due to cane poaching by rivals.

In February it suspended 52 employees in connection with the loss of an estimated Sh400 million following termination of cane supply contracts with farmers.