Friday, November 29, 2013

Unga 2013 AGM

The 2013 annual general meeting (AGM) of Unga Group took place at KICC, Nairobi on November 28.

Finance and Shareholders Q& A 

Milling & Distribution Issues: While wheat is now being milled at 100%, it tends to fluctuate in other months as they compete with other buyers for grain especially during the festive season. Maize mis being milled at 60-65% of capacity as more and more, maize is moving to the informal sector, and small Chinese mills.

When asked about product shortages of Exe flour for mandazi and chapati, the MD said when there are shortages of product, they may decided to mill general purpose wheat flour which is 90% of their brand sales. He added that shortages at Uchumi may have been due to that company being outside their credit terms which are enforced strictly  

Tax Status: What is the effect of the tax reclassification of the company’s products from exempt to zero status? Unga products are now exempt (no longer zero-rated) which means they can no longer reclaim the tax back from the government - so they have to pass it on to consumers (higher prices)

Uganda: The company bought the 40% balance of the business in Uganda they did not own, as the minority shareholders was not willing to put in anymore money while the business was struggling.  Since takeover, they've been trying to  add value to products, but this is more difficult since July 1  when the Uganda government imposed a 10% duty on wheat imports (all wheat is imported), also have also imposed 18% VAT. The results is that wheat flour is informally imported to Uganda, and big millers are downsizing staff and cutting back on grain procurement. 

Breakdown of Other Income: Other operating income was Kshs 281 million, of which 189M was revaluation of pension assets (thanks to a good the stock market. Directors saidsale of gunny bugs (collected over time) accounted for most of the balance, they will provide a detailed breakdown from next year.

Finance Costs: Why increased borrowings and why the low returns on investments? A new wheat mill was commission on November 2 and is producing quality wheat meaning fewer stock outs. Also the fixed deposits which were earning 6% in 2012, are now getting 12% this year.  

Volatility: Can the company benefit from Price volatility? There are recoveries sometimes on unrealized forex losses, but  since publication of the report, the shilling has strengthened, nullifying that, until recently.

Swag: As usual, shareholders asked about increase of dividends, but also for the company to give bales of flour as a Christmas gift to shareholder. The chairlady said that this had been done in past years when the company did not have ample cash for dividends, and the board’s current preference was to work to increase the cash dividend paid out. 

Customer engagement: Some shareholders lamented the company's low marketing and absence on the web  with no information available for investors. The MD lamented that several counties were charging national brands for painting on walls and vehicles in the counties, and that many companies are now white-washing their vehicles of any logos. he also said their website is at andadvanced stage. A previous one was ready, but scuttled by management almost at the last minute. They also have a call centre at Kencall from July 1 that death with customer questions and also coordinated their orders and distribution. 

Hot Button Issue: Shareholders were concerned that the minority shareholders are being driven out by NSE buyouts at other companies (e.g.Access Kenya, Vipingo, CMC) and wanted the main shareholder (Victus with 51%) to assure other shareholder that there were no plans to buy out minority shareholders at Unga. The chairlady said there’s no evidence from the share register, that the main shareholder is buying shares, but this did not seem to offer absolute comfort as questioner noted that takeover notices appear out of the blue in the newspapers, without any prior notice.

Extras Business:  The proposal to shareholders for the company to purchase Ennsvalley Bakery had been deferred a few days before. The chairlady said that an opportunity to acquire an established bakery had come up, and that in view of limited investment cash available, and the high cost of borrowing, a share swap was proposed - however not approvals had been received in time of the complex transaction. She said it would be discussed at an EGM to be called in the near future, but before next year's AGM.

The other extra business item - the sale of the company's stake in Bullpak Ltd (a company that provides high quality packaging material) was approved - with the board intention to redeploy the cash in the company's core businesses of food and animal feed.

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