Kapchorua Tea will not be sipping comfortably after its latest financial results release.
The tea firm posted a year on year earnings plunge to close the review period ending March 31 at Ksh125.6 million in the red.
In the previous review period, the company had recorded a profit of Ksh166.4 million.
The company also does not foresee a bright year ahead. “The overall prospects for the year remain gloomy,” the firm said in a note attached to its financial results.
Kapchorua, which had anticipated the decline by filing a profit warning earlier in the year, attributed the slide to extreme high and low amounts of crop yields in different periods over the past year.
“The very large crops experienced to the end of 2018 repeatedly pushed the price of tea down as too much supply overtook demand with average prices falling by 25%,” the firm said.
Kapchorua then went on to say, “Extreme dry weather at the beginning of 2019 produced low crops, pushing up our fixed cost of production.”
The company projects that tea prices will remain weak and often below the cost of production.
In issuing its profit warning to investors, the tea firm had stated an inability to control the aggressive and rising labour costs as the reason why financial performance would not match the previous year.
“With high employee numbers, our anticipated wage and other benefits increases dating back to 2016 require huge financial provisions which if repeated will be unsustainable,” Kapchorua board chair Ezekiel Wanjama had said.
The Ksh125.6 million decline is comprised of losses in operating costs as well as changes in the value of the assets.
Tea assets, measured as changes in fair value of biological assets, contributed most to the tea firm’s losses, registering Ksh87.5 million. Last year, this value had stood at a profit of Ksh33.6 million.
Losses arising from operating costs amounted to Ksh38 million, having posted a profit of Ksh132.7 million last year.
Despite the losses, the Kapchorua Tea board has recommended a final dividend of KSh10 per share to be paid out of the retained earnings.