Weak shilling lifts tea companies’ half-year earnings

Workers plucking Tea. The sector's earning have been lifted by weak shilling.

Kenya’s tea companies have doubled their profits over the first-half of the current financial year buoyed by weak shilling against the US dollar.

According to financial results released yesterday by tea companies, Williamson and Kapchorua, the country’s tea industry has been one of the biggest beneficiaries of a 13 per cent depreciation of the shilling against the greenback this year.

Williamson Tea posted a Sh543.8 million in profit before tax, up from Sh240.4 million reported in a similar period last year. Profit from the company’s operations grew by 93 per cent, up from Sh107 million recorded last year to Sh207 million posted this year.

The firm also made gains from a doubling of its biological assets, which were revalued to Sh159 million up from Sh72 million estimate made last year.

“Crop levels were slow to come back after a very dry start of the year, but profit and turnover went up due to higher sales volumes, improved net realisations that were boosted by a weakening shilling against trading currencies and implementation of rigorous cost control measures,” indicated a statement issued by the company.

Kapchorua Tea, a sister company of Williamson, also reported strong earnings for the six-months ending September 30, 2015. The company saw pre-tax earnings jump by 110 per cent to settle at Sh143.4 million, up from 68.2 million recorded last year.

The company’s finance income also grew by more than 500 per cent, from Sh9 million reported over the first half of the previous year to Sh48 million reported in the first-half of this year.

The two companies, however, issued mixed future earnings projection even in the face of anticipated El Nino rains in some of the tea growing areas of the country.

“The arrival of the short rains will result in favourable crop production over the coming months, but there is bound to be a decline in current price levels which could negatively impact the second-half of the financial period,” a statement  issued by Williamson read in part.

UNDER PRESSURE

The Kenya shilling has been under pressure for the better part of this year owing to strengthening of the US dollar and partly because of a wider budget deficit that saw the Government turn to the domestic market for credit.

The Kenyan currency has since gained some ground over the US dollar in the last six days trading at Sh102.15 to the dollar as at end of trading yesterday.

According to Equity Bank CEO James Mwangi, the high interest regime which emerged as a result of the currency shocks is levelling off and players in the financial sector are looking to improved fortunes in the short to medium term.

“We had earlier thought that the market correction from the exchange rate shocks would take longer than three months but it is taking shorter,” explained Mwangi.

“Our exports are increasing because the current exchange rate is beneficial to our tea and coffee buyers and also for tourism so we are seeing a positive outlook going forward.”