Regional flour maker Unga Group Holdings Ltd has branded its bakery business “unsustainable” and declared a staff redundancy plan. This is after its revenues were hit hard by a difficult operating environment occasioned by the Covid-19 pandemic, cheaper local brands, imported grain from Uganda and delayed payments from the Kenyan government.
The company, which is listed on the Nairobi Securities Exchange (NSE) revealed through its integrated report for 2020 that the staff layoffs will help breathe new life into its operations as the 113-year-old milling giant teeters on the brink of falling in the red.
According to the report, an undisclosed number of employees, largely those in permanent employment, will be affected by the layoffs expected to be completed by June 30.
Unga attributes its weakening financial position to restructuring costs, reduced demand for its products, increased cost of raw materials, and delayed payments from Kenya for grain supplied in support of the government-led maize subsidy programme more than three years ago.
Others include depreciation of the Kenya shilling against the dollar, which has subsequently impacted importation costs and led to substantial forex losses and the stiff competition from cheaper brands resulting in the company posting reduced margins.
“The management has spent a significant amount of time planning for our ‘new normal’. The further adoption of both plant and office automation is a high priority and will receive funding over the short to medium term,” said Isabella Ochola-Wilson, Unga Group chairperson.
“Unfortunately, layoffs will be necessary but since a significant proportion of our production-related labour force is outsourced, we will be able to make headcount adjustments quickly. We expect to declare some redundancies among our permanent staff early in the new (2020/2021) financial year,” she added.
Last year the company, which has operations in Kenya, Uganda and Tanzania, let go of 122 workers, mostly in production (72) and sales and distribution (50), pushing up the service gratuity kitty by Ksh15 million ($140,186.91) and “other” staff costs by Ksh51 million ($476,635.51), according to the Group’s 2020 annual report.
Unga Group is seeking to cut costs, improve operational efficiency and prevent further financial bleeding after its net earnings for the 12 months to June 30, 2020 dropped by 88 percent to Ksh66.1 million ($617,757) from Ksh544.81 million ($5.09 million), followed by a further slide in half-year earnings by 45 percent.
This was attributed to a depressed economy and unrelenting competitive pressure that was further aggravated by the Covid-19 pandemic, with consumer purchasing power declining across the globe due to the loss of livelihoods.
Unga Group also started its 2020/2021 financial year on a sour note with net profit for the six months to December 2020 falling by 45 percent to Ksh83.47 million ($780,093.45) from Ksh151.32 million ($1.41 million) in the same period of the previous year (2019).
According to the Group’s managing director Nicholas Hutchinson, staff rationalisation remains a key focus area to ensure the company’s turnaround. “There is deliberate action to scale down major capital expenditure as well as large maintenance projects. Furthermore, capacity utilisation and staff rationalisation remains a key focus area to ensure that productivity remains optimal,” said Hutchinson.
The company said its bakery business has performed below expectation with low volumes in its in-house retail baked goods and by the significant reduction in sales to the hospitality and airline sectors because of the pandemic.
“Whilst our Unga brand strength continues to hold us in good stead, this is no longer enough to protect our share of the market. Ongoing efforts to further improve production efficiencies will be energised in order to reduce costs while also introducing new products,” said Ms Ochola-Wilson.
“Meanwhile, the bakery business in its current form has proven to be unsustainable and efforts to identify suitable partnerships that will facilitate its growth and expansion into new markets are already underway,” she said.
The human and animal nutrition grain business accounts for 49 percent and 51 percent of the Group’s revenues respectively. However the human nutrition business faced relentless competitive pressure throughout the year impacting volumes and margins while animal nutrition business delivered volumes in a market where demand was significantly muted by high feed prices due to high cost of raw materials.
According to the report, Unga Group faced low farm produce prices for its animal nutrition business due to reduced consumer demand and the impact of imports from Uganda. As result the company is exploring opportunities in new product lines to remain afloat.
Unga Group Ltd is a Kenyan-based Holding Company that has a majority shareholding in companies involved with the manufacture and marketing of a broad range of human and animal nutrition and animal health products.
The Group entered into a strategic investment partnership with US-based Seaboard Corporation in 2000 to form Unga Holdings Ltd in which Unga Group owns 65 percent and Seaboard Corporation owns 35 percent.
Its subsidiaries include Unga Ltd, Unga Farm Care (EA) Ltd and Unga Millers (U) Ltd. However, over 90 percent of the company’s revenue is derived from Kenyan operations with the remainder attributed to sales in Uganda, Tanzania and Rwanda.
Unga Holdings Ltd is headquartered in Nairobi.