MANAGEMENT COMMENTARY
Net revenue and operating profit increased by 8% and 27% respectively compared to prior year. There was a 1% improvement in gross margin attributable to reduced distribution costs. As a result of strengthening of the Kenya Shilling and Uganda Shilling against the US Dollar relative to the same period in the prior year, a marginal foreign exchange translation gain was realised compared to the significant prior period losses.
The introduction of VAT on animal nutrition products resulted in reduced demand as farmers sought alternative sources of feed supply. Since maize meal and wheat flour are now ‘exempt’ from VAT, the company is no longer able to claim back input VAT (they were previously ‘zero rated’) and has been placed under further margin pressure.
A new and more efficient wheat mill was commissioned at the Commercial Street site towards the end of the last calendar year. Several projects are ongoing towards improving animal feed diets to bolster our high quality product offering as well as restructuring of the route to market to bring us closer to our customers and improve consumer relations.
The cost of wheat products in Uganda was relatively higher than Kenya, following the introduction of 10% import duty on imported wheat grain, 18% VAT on finished product and 60% import duty on flour imports from Kenya. Consequently, informal imports from Kenya will pose an increasing challenge to the Ugandan subsidiary.
Following shareholder approval at the November 2013 AGM, the Company is divesting of its shareholding in Bullpak Limited. Meanwhile, the Company is progressing with its plans to invest in the premium end of the bakery product market.
The Directors do not recommend the payment of an interim dividend.
BY ORDER OF THE BOARD
W Jumba
Company Secretary
27 February 2014