Kakuzi issues profit warning as falling tea prices hit agricultural firms

Farm workers pluck tea. Kakuzi Limited has issued a profit warning, informing investors that its net income for the full year ending December could fall by
at least 25 per cent. Photo/FILE  NATION MEDIA GROUP

By David Mugwe

In Summary

• Kakuzi Limited has issued a profit warning, informing investors that its net income for the full year ending December could fall by at least 25 per cent
• Other NSE listed agricultural firms such as Williamson Tea and Kapchorua Tea have already indicated that the sharp drop in tea prices could hit their profits for the full year
• Kakuzi’s shares closed at Sh90 on Tuesday, a 25 per cent increase from Sh72, which is the opening price at the beginning of this year.
• Williamson Tea had gained 13 per cent to Sh226 from Sh200 at the start of this year while Kapchorua Tea had gained by 5.93 per cent to Sh125 from Sh118 at the start of 2013
• Limuru Tea closed at Sh500 on Tuesday, having gained 16.28 per cent from an opening price of Sh430 at the beginning of this year.

Kakuzi Limited has issued a profit warning, informing investors that its net income for the full year ending December could fall by at least 25 per cent.

The Nairobi Securities Exchange (NSE) listed grower of tea and other agricultural produce on Wednesday cautioned that its profit after tax is expected to drop due to the sharp decline of international tea prices.

Other NSE listed agricultural firms such as Williamson Tea, Kapchorua Tea and Limuru Tea have already indicated that the sharp drop in tea prices could hit their profits for the full year.

READ: Coffee, tea farmers hit by fall in prices to seven-year low

“The group currently forecasts that earnings for financial year 2013 could be at least 25 per cent lower than those of financial year 2012,” said K W Tarplee, chairman, Kakuzi Limited in a statement.

Kakuzi posted a 25.36 per cent drop in profit after tax to Sh77.17 over the six month period ended June 2013 from Sh103.39 million posted over a similar period in 2012 but this was because of the effect of the disposal of its 50.5 per cent stake in Siret Tea Company Limited.

This sale had earned agricultural company an additional Sh32.14 million over the first six months of 2012 and without the effect of the sale of Siret Tea, Kakuzi posted a marginal 8.32 per cent increase in profit after tax to Sh77.17 in the first half of this year compared to Sh71.24 million posted over the first six months of last year.

“This anticipated drop in full year earnings is, in part, as a result of downward pricing pressure for our green leaf in the Tea operation, mainly as a result of the decrease in the Kenyan Black Tea prices this year, and our Avocado crop volumes being significantly lower than the previous year,” said Mr Tarplee.

READ: Kakuzi profit hit by sale of tea estate

Williamson Tea, which posted a 32.17 per cent increase in net income for the six month period ended September and Kapchorua Tea which posted a 27.49 per cent decline over the same time period said the very weak market is likely to negatively impact profits for the full year.

Limuru Tea, whose profit after tax jumped by almost 25 times to Sh13.17 million in the six month period ended June this year from Sh541,000 in the six month period ended June 2012 said that tea prices have been dropping steadily and if this persists profits in the second half could be lower and adversely impact profitability.

Kakuzi’s shares closed at Sh90 on Tuesday, a 25 per cent increase from Sh72, which is the opening price at the beginning of this year.

Williamson Tea had gained 13 per cent to Sh226 from Sh200 at the start of this year while Kapchorua Tea had gained by 5.93 per cent to Sh125 from Sh118 at the start of 2013.

Limuru Tea closed at Sh500 on Tuesday, having gained 16.28 per cent from an opening price of Sh430 at the beginning of this year.