Sasini blames profit decline on poor rainfall

Kenya: Sasini Limited has warned that its profits could fall significantly this year if the prices of tea at the auction remain depressed.

While the price of coffee has improved over the last six months following poor performance of Brazilian coffee, poor rainfall, a weakening Kenya Shilling and high cost of inputs has negatively impacted the performance of the firm.

Financial results for the six months ended March 31, 2014 indicate that Sasini Group experienced a drastic drop in pre-tax profit from Sh200.5 million in 2013 to 28.5 million this year. The results for the period under review also show that profit arising from operating activities fell to Sh39.7 million from Sh170.5 million for the same period the previous year.

In view of this weak performance, shareholders will not be able to receive any dividends in the first six months because of the need to preserve cash.

The results for the first six months are more than 25 per cent lower than the same period last year.

“Consequently, there is good reason to expect that the result for the full year will also be more than 25 per cent lower than the previous financial year should the prices of tea remain depressed,” said Jim Mcfie, chairman of Sasini Group.

Profit warning

The profit warning is in line with rules of the Nairobi Securities Exchange (NSE) and the Capital Markets Authority.

Sasini is expected to suffer rising costs of power and agricultural inputs, to be driven by a weakening shilling. At the close of 2013 financial year, nearly all agricultural counters at the Nairobi Securities Exchange experienced a drop in earnings.

The list of those who had issued a profit warning included NSE listed agricultural firms such as Williamson Tea, Kapchorua Tea and Limuru Tea.

In order to mitigate negative impact of the Shilling exchange rate and depressed prices at the auction, the tea and coffer producer is planning to implement cost cutting measures across all its businesses.

It also plans to aggressively expand wholesale and retail divisions in the second half of the year.

Tea and coffee prices have been declining in the last few years, hitting a new low and setting off warning bells over the future of the two commodities that are the livelihood of about three million Kenyans.

Experts say the trend is likely to continue if conditions on the international market remain the same.