Catherine Riungu
25 September 2007
Nairobi — Despite an overall improved performance, Kenya's tea industry, the world's largest exporter, is grappling with global overproduction and a strengthening shilling, leading analysts to advise investors to dig in for the long term.
Efforts by tea producing countries to work together to stem overproduction, currently estimated at more than 100 million kilogrammes, have yet to yield results.
In the full-year to December 31, 2006, Limuru Tea recorded a 37 per cent increase in sales to Ksh57 million ($850,750) and 100 per cent increase in dividend per share to Ksh10 (US cents 15), a 250 per cent increase in earnings per share (EPS) to Ksh8.05 (US cents 12) and 21 per cent drop in cash flow.
Although tea production has increased compared to last year, the strong shilling remains a challenge and is likely to erode this year's performance.
Williamson Tea, whose average share price on the Nairobi Stock Exchange is Ksh106 ($1.6), saw its full year to March 31 turnover rise by 22 per cent, profit after tax to Ksh139.6 million ($2.08 million) from a loss of Ksh50 million ($764,300), and earnings per share were up to Ksh15.95 (US cents 24). The proposed dividend of Ksh5 (US cents 8) is pending approval. There has been improved production due to good weather.
Unilever, at an average price of Ksh71 ($1.06), recorded a turnover increase of Ksh2.3 billion ($34.3 million) and a production rise of 70 per cent above drought level in the half-year results in 2007. Staff restructuring costs were a high proportion of the total costs. Trading loss was at Ksh122.7 million ($1.8 million) compared with Ksh148.1 million ($2.2 million) recorded for the same period last year.
Trading at Ksh90.50 ($1.35), Kapchorua Tea's full year turnover rose by 31 per cent and after-tax profit was Ksh18.1 million ($270,150). The directors have proposed a dividend of Ksh5 pending approval.
Kakuzi, which has embarked on product diversification, had its share trading at an average price of Ksh36.50 (US cents 55). Profit before tax increased to Ksh190 million ($2.84 million) in the full year ending December 31, 2006 but no dividend was to be paid.
Last week, Unilever Tea reported a further Ksh65 million ($970,150) loss as about 750 hectares of its tea was hit by hailstorms. The firm said it would take about two months for the affected bushes to recover. The losses came barely a month after it announced a Ksh122 million ($1.82 million) loss in the past six months, a development attributed to the fluctuating shilling.
Also affected by the hailstorms was James Finlay, but its losses were still being assessed as we went to press. The companies will have to temporarily lay off some 10,000 workers for about two months as the crop recovers.
While the Kenyan companies smarted under the losses, Rwanda, a new entrant in the tea sector, announced a 21 per cent rise in production but decreased earnings, which the country's tea board attributed to increased quantities.
Average prices decreased to $1.69 per kg in the first seven months of 2007 compared with $2.04 per kg earned in 2006.
Recently, Kenya's Agriculture Minister Kipruto Kirwa said that Rwanda, initially a market for the country's tea, had become a competitor in the already crowded international market.
Rwanda is currently producing 10.7 million kg, a significant achievement even though it is dwarfed by Kenya's 340 million kg.
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