Mumias Sugar (MSC) Dominance, can it last?

A new product from MSC.

After Mumias Sugar Co. closed its factory for maintenance last month the sugar industry experienced one of the worst market instability in kenyas history.1kgs of sugar was retailing at ksh 450/= in most parts of the country, having risen in a span of one month from ksh 90/=.

Few weeks after the resumption of operation the company has tried to calm the market by enhancing its distribution network and service its starved market,cane shortage has, however, reduced its  production capacity.The prices have dropped slightly.Tthe company has warned retailers not to sell its sugar above ksh 120/=, but that directive has not yet been adhered to.

Recent development in the sugar industry has shown MSC's dominance in the Kenyan market,  actually the company  controls more than 60% of the market.Another interesting thing, it's the only Miller in the country that co-generate power and sells the excess to Kenya Power company, the other millers utilize all their co-generation power.

Year	Sugar Processed (tonnes)	Sugar Produced (tonnes)
2010	2,318,080	235,792
2009	2,161,031	231,014
2008	2,408,141	265,263
2007	2,118,563	217,200
2006	2,450,548	265,819

The demand for sugar has been rising  world wide in the last couple of months, and although leading producers might increase their production in the near future to meet the demand, sugar will still be a profitable commodity.

Locally the company will be forced to protect its turf after the privatization of several government owned millers, which is currently on going , not forgetting increased competition from existing  private millers and new private millers who are setting up shop.Come 2012 the company will also face stiff competition from other COMESA member states after the expiry of the safeguards.Ethiopia has also indicated that it will be constructing several sugar plants that will make it one of the biggest producers of sugar in the world.

The Kenya Sugar Board in 2008 contended  that for the industry to remain competitive after the expiry of the COMESA safeguards the sugar prices would need to reduce by 39% so as to be in line with the competition.The only millers in Kenya that can comfortably compete in a free market  today include :- 

• Mumias sugar company
• West Kenya
• Kibos & Allied Industries 

The three companies produce sugar at costs similar to other COMESA countries.

These factories are equipped with modern facilities that can process sugarcane efficiently.The table below show the production cost of COMESA and selected EAC member countries

Country	Cost USD/Tonne
Kenya	410-500
Sudan	250-340
Egypt	250-300
Malawi	200-230
Uganda	140-180
Tanzania	180-190

MSC has continually diversified its product portfolio to cushion itself from competition.Currently apart from co-generation income the company will start producing Ethanol and bottled water in a few months time.By diversifying, the company will be able to have several revenue streams that will supplement lost income from increased competition.

	June 2011	June 2010	June 2009	June 2008	June 2007
ANNUAL INCOME SUMMARY
Sales	15,795,300	15,617,738	11,738,221	11,953,961	10,317.70
Gross Profit	5,446,730	4,884,538	3,310,968	4,265,524	3,587,948
Pretax Income	2,646,575	2,179,874	1,193,161	1,589,204	1,909,894
Net Income	1,933,225	1,572,383	1,609,972	1,213,837	1,393,611
Average shares	1,530,000	1,530,000	1,530,000	1,530,000	510,000
EPS	1.26	1.03	1.05	0.79	2.73
DPS	0.50	0.40	0.40	0.40	1.50
ANNUAL BALANCE SHEET SUMMARY
Cash & cash equivalent
Total current assets	6,511,659	6,495,834	5,099,837	4,574,100	3,676,096
Long term debt	2,395,834	2,192,476	2,382,814
Total liabilities	8,700,509	7,334,258	7,436,246	5,111,079	3,579,209
Shareholders Equity	14,476,007	10,999,852	10,039,469	9,041,497	8,337,660
ANNUAL CASH FLOW SUMMARY
Net cash from operations	2,300,183	3,004,318	1,563,224	1,455,193	875,719
Net cash from investing	(2,612,279)	(322,689)	(3,173,147)	(1,974,346)	(1,343,431)
Net cash from financing	(377,495)	(938,195)	1,019,508	86,157	(804,976)
Net Increase/decrease in cash	(689,692)	1,743,43	(590,415)	(432,996)	(1,272,688)

The share has been performing poorly since the government offloaded part of its shareholding in a secondary offer in 2006 and a bonus issue in 2007, before the two events the share was retailing at high of Ksh. 63/= now its hovering around ksh 6.20/= to ksh 6.30 range.