Stock Watch: Mumias Sugar Company Ltd
Mumias Sugar Company Ltd (NSE: MSC), released their annual report for the period ended 30th June 2015, with the following highlights:
Mumias Sugar Company Limited registered a 72% increase in losses for the year, to KES. 4.6Bn, elucidating the accumulated concerns faced by a former regional leader. The further deterioration in performance could be initially attributed to a drop in revenue, with a 58% decline to KES. 5Bn being the result of competitiveness, corporate governance and strategic decisions.
Mumias is plagued with inconsistent output, due to equipment maintenance, and is also facing pressure from illegal imports, from more efficient countries; thus resulting in a willing buyer willing seller strategy to determine prices. With gross profit at KES. 1.7Bn, a 23% decline in administrative expenses did little to offset the overbearing trend; further dampened by a 536% and 107% increase- to KES. 1.2Bn and KES.870Mn- in impairment of assets and finance costs (respectively).
Cash flow constraints only exacerbated Mumias woes, as interest and financial charges soared 52% to KES. 922Mn and as net cash generated from operations folded by 183% to KES. -662Mn. Inevitably, the listed sugar millers current ratio halved to 0.19, mainly attributable to increased trade and other payables that jumped 55% to KES. 7.57Bn; Mumias was offered KES. 1Bn bailout to repay suppliers. A significant portion of liabilities remains in borrowings, however the 6% increase in FY15 was minimal- as lenders shied away from Mumias.
A negative earnings per share, down 1.36% to KES. 3.04, coupled with a depreciation of both gross profit- and LBT margin illustrates the company cannot perform its main function; create profits.
Outlook
It is evident that the fundamentals only represent the listed sugar milling company under sceptical bias, thus any uptake by investors could be considered speculative. The reformed Customs Union agreement between Uganda and Kenya, portends advantages for sugar imports, however Mumias has good reason to garner positive sentiment from investors.
The most recent, is a pledge by parliament to extend a further KES. 5Bn bailout by November/December, which would have been infeasible through the initial means of a rights issue. Prior to this investors were of the opinion that political and regional disagreements would prolong the sugar miller’s turnaround, however the reappointment of Errol Johnston outweighed this.
