The Mumias Sugar Company has issued a profit warning even as it sank deeper in the red after reporting a half year net loss of Sh2.92 billion in the period to December 2016 compared to Sh1.56 billion the previous year.
The NSE-listed miller says it foresees its earnings will drop by more than 25 per cent for the year ending June 2017.
“Mumias Sugar Company Limited hereby announces that the projected loss for the year ending June 30, 2017 will be more than 25 per cent compared to the loss reported in the same period last year,” the firm’s chairman Kennedy Mulwa said in a regulatory filing Tuesday.
The troubled firm attributes the losses to an acute shortage of raw materials that led to factory underutilisation, resulting in high unit cost of production.
The company projects an unpromising future as it expects the current cane shortage to run through the second half of the year.
The volume of sugarcane crushed dropped by 45 per cent from 581,541 tonnes the previous year to 319,746 tonnes in the period under review.
Consequently, the quantity of sugar manufactured dropped by 67 per cent in the year ending December to 12,197 tonnes from 36,510 in the previous year.
The firm was also unable to sell electricity to Kenya Power under the power purchase agreement that it has with the utility, further denting the miller’s earnings.
“Due to low production and capacity utilisation, exports to the grid were not undertaken during the period, hence no power export revenue was earned,” says Mumias in a statement.
Under the power purchasing agreement, Mumias was supposed to supply 25 per cent of electricity to Kenya Power under its co-generation project.
However, the miller has defaulted several times due to numerous stoppages and lack of bagasse – a raw material used in generating power.
As a result, the firm has been slapped with penalties for interrupted supplies and breaching the terms of contract.
According to Mumias, ethanol is the only product that registered a growth in revenue, rising by four per cent to Sh453 million compared with Sh435 million generated last year.
Losses nearly doubled
At Sh2.9 billion, the company’s losses have nearly doubled, deepening by 49 per cent compared to the same period in 2016 where the miller incurred a net loss of Sh1.5 billion.
The firm had a tough year in operations which saw some of its revenue streams, a water plant, discontinued with the company saying that the project was no longer viable.
The NSE-listed sugar company has undergone financial difficulty owing to mismanagement, shortage of sugarcane and cash flow constraints.
A forensic audit carried out by financial consultancy KPMG earlier 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 top managers for diverting ethanol meant for export to the local market that resulted in tax losses worth millions of shillings as part of the condition for a government bailout.
The miller has so far received close to Sh3 billion from the government for a turnaround plan to profitability.