Monthly Archives: July 2015

Sweet and sour: A chronology of losses

Recently, the government handed a 1 Billion shilling lifeline to Mumias Sugar. The miller is currently deep in the throes of debt, grappling with run down machinery and concerns over what that 1 billion shillings can actually do for the now moribund business, which has crumbled in recent years under allegations of heavy corruption amidst low cane production, cheap imports as well as policy related challenges.

The Presidential team, in what could have been argued was a ‘sugar coated’ trip, headed west with a four-point turn-around strategy.

• Appointment of a management team
• Injection of funds
• Undertaking a rights issue to raise between Sh3 and Sh4 billion
• Rescheduling of debts

Former MD, Evans Kidero who has been allegedlly linked to Mumias’ failures joined Mumias in October 2003 as managing director and left in June 2012.

Let’s look at Mumias Sugar’s financial track record

2004
Highest profit after tax results since inception
11% growth in cane processed
Cane production grew to 264 000 metric tones.

2005
Signed contract with KPLC to supply 2 MW of electricity to the National Grid
Cane Production stood higher at 269,184 metric tones

2006
18% growth in Profit After Tax: KShs 1.53 Billion
Share price on the NSE Ksh 60 on 8th Sep 2006

2007
14% drop profit after tax to 1.3 billion shillings.
Decline attributed to Industrial disputes with cane harvesting and haulage contractors. This year allegations emerged that Mumias Sugar took Sh 2.6 billion from Mumias Outgrowers Company accounts, ( MOCO) and declared it as part of its profits, the sugar firm supposedly siphoned money from the accounts of the farmers’ body to declare artificial profits.

2008
After tax profit stood at 1.2 billion shillings. The drop was blamed on ethnic fighting in the first quarter following a disputed presidential election resulted in the loss of production of some 14,000 tonnes of sugar.

2009
Staggering drop in half year profits 73 %drop in profits after tax to 23 million shillings for its half year. Full year results showed profits after tax dropped 25 per cent Sh1.2 billion. There were some gains though, a power generation project by Mumias Sugar Company paid off through tax credit and pushing its after-tax profit up by 33 per cent from Sh1.2 billion to Sh1.6 billion.

Note: An audit done showed that between 2008 and 2009, for instance, a Sh23 million loss was identified as a result of selected customers maintaining long-standing orders and only using those that benefited them, at the expense of the company, allegations of fictitious transport costs

2010
Net income declined to ksh1.57 billion. Production of ethanol and electricity however buoyed investor confidence. Even with those new gains, Mumias Sugar was found to have lost up to Sh2.08 billion as a result of deliberate abuse of key control measures.

2012
Mumias Sugar has posted a Sh1.67 billion loss for the full year ending June, pulled down by a decline in cane supply and factory inefficiencies. The company blamed an increase in global and regional sugar supply. Cheap sugar imports also served to depress prices

2013
Mumias Sugar posted a Sh2.7 billion loss for the full year ending June, pulled down by a decline in cane supply and factory inefficiencies. Mumias Sugar shoulders Sh10.2 billion debt.
Seven lenders are collectively owed Sh6.5 billion. Suppliers and other creditors are demanding Sh1.5 billion, while the taxman demands Sh2.2 billion.

2014
Posts 1.4 Billion loss after tax
“Mumias presents a very bitter lesson on how unabated mismanagement can destroy shareholder wealth” – Aly Khan satchu

An EACC report on the sugar sector in 2010 postulated that the sub-sector is facing serious challenges of productivity, competition, governance and weakness in the operating legislative framework, challenging the way key decisions are made, by key actors including decisions on sugar importation, privatisation of sugar mills, negotiations on COMESA and other international agreements affecting the sub-sector. Political interference in the appointments of chief executives of mills, Board members, KSB elections and other key auxiliary agencies associated with the sub-sector.
Without a doubt, Mumias sugar and the sector as a whole needs a a clean up, but fears over just who is on the chopping board, how many well connected individuals got their hands in the cookie jar, how deep the rot in the industry goes are just some of the concerns that analysts feel may never be adequately addressed.