AFTER KIDERO LEAVES MUMIAS. MUMIAS INA MASHIDA TUPU

Mumias Sugar grapples with financial woes

 

Mumias Sugar Company is facing one of its toughest financial moments since its inception four decades ago.

A myriad of issues have conspired to push the company’s cash position into the red. From sugar cane poaching, where the company is said to have lost over Sh7 billion over the past two years, smuggling in of cheaper sugar from neighbouring countries, to management issues, the sugar miller is literally fighting for its survival.

“We expect pressure to build on the industry given the expiration of the Comesa importation safeguards expected in March 2014,” an equity analysis by Sterling Capital indicates.

Lauded by the industry regulator, the Kenya Sugar Board, as the best miller to have embraced diversification after investing in a water bottling plant, power co-generation, and an ethanol distillery, it is now emerging that this ambitious expansion could be coming back to haunt the company.

Mumias Sugar is the country’s leading sugar producer and the only listed company among the 11 millers, of which five are privately owned.

In February this year, the company issued a profit warning after making a Sh1.5 billion half-year net loss, which was attributed to sugar cane poaching and high operational costs.

Its financial report showed that net revenue had fallen to Sh5.4 billion compared to the previous year’s Sh6.9 billion, representing a 22 per cent slump.

The revelation by the Kenya Sugar Board last week that 20,000 tonnes of sugar stock piles are lying in the stores of nine local millers, among them Mumias, due to an upsurge in duty-free sugar imports from Uganda and Tanzania, makes matters even worse for the firm. Industry analysts project that this will cut Mumias Sugar’s market share from 39 per cent to 35 per cent.

The chairman of the Kenya Sugar Millers Association, Mr Peter Kebati, who is also the managing director of Mumias Sugar, admitted in an earlier interview that the imports were stifling operations at the firm.

Two weeks ago, the chairman of the parliamentary agriculture committee, Mr Ayub Savula, led MPs from western Kenya in urging President Uhuru Kenyatta to summon the board of Mumias Sugar over poor performance.

“Our understanding is that Mumias borrowed a lot to invest in projects that are not yielding as anticipated amid a tough operating environment,” said Mr Savula.

He said the industry leader had displayed depressed cash flow, which the current management seemed unable to resolve.

The MPs held that the firm’s underwhelming show was a threat to hundreds of livelihoods that depend on it.

Barely a week after the meeting, the company announced the resignation of its chief finance officer, Mr Chris Chepkoit, less than a year since his appointment to the position.

Although the firm said the CFO left voluntarily, becoming the third senior official to exit in under three months in similar circumstances, this points to a management issue at the miller’s.

The director of factory operations, Mr Jonah Omuyoma, and that of agriculture, Mr Moses Nyongesa, also resigned in June after a 30- and 18-year stint respectively at Mumias.

“There are serious and deep-rooted issues of conflict of interest among top officials within that company which I foresee ruining it,” one of the officials who quit told Smart Company.