High operational costs pull Sasini into net loss of Sh562m

Sasini had earlier issued a profit warning for the earnings period, saying it faced higher than expected cost of production for all its crops.

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Listed agriculture firm Sasini swung to a loss of Sh562.9 million in the year to September 2024, from a profit of Sh542.6 million a year earlier, citing inflated production and finance costs that cut its margins despite reporting higher revenue.

Sasini had earlier issued a profit warning for the earnings period, saying it faced higher than expected cost of production for all its crops, depressed commodity prices especially in the tea business and the disruptions in its logistics, following the closure of the Suez Canal which affected fruit shipments to Europe.

Despite the market access and pricing problems, the company’s top line revenue grew by 20.5 percent to Sh6.89 billion.

The cost of sales however went up by a wider rate of 45 percent to Sh6.3 billion, cutting the company’s gross profit from Sh1.37 billion to Sh588.9 million.

At the same time, Sasini saw its net finance costs go up from Sh55.7 billion to Sh255.6 million last year, reflecting the higher interest rates in the economy.

The company’s cash flow statement also shows that it received borrowings of Sh1.67 billion in the year while repaying debt worth Sh1.69 billion, indicating potential refinancing of an existing facility using new debt, at a higher rate, hence the rise in finance costs.

“The strengthening of the local currency (shilling) against the major currencies in the second quarter, also affected the business environment. Due to the tea glut in the auction, we were unable to get our major private buyers to execute long term contracts as prices stayed well below cost of production,” said Sasini in its financial report.

“The high cost of production driven by escalated input costs of fertiliser and increased cost of power, lower than expected production volumes, made the issues worse.”

Sasini’s financial performance reflected the general decline in profits among listed agriculture companies in a difficult year, that saw Sasini and Kakuzi issue profit warnings in August and November, with Limuru Tea following suit on Monday.

Williamson Tea and Kapchorua Tea also made a subdued earnings outlook for the year after reporting lower half year profits.

The two tea firms., alongside Sasini, blamed excess tea production and the resulting global price drop for their weaker sales projection.

Those exporting fruits –Sasini and Kakuzi— said they have been hit by geopolitical tensions that have made it costlier and harder to supply their markets in Europe.

Logistics firm Maersk said the Middle East conflict that disrupted shipping routes through the Red Sea remains a challenge for shipping lines and their clients, adding that the longer alternative route through the Cape of Good Hope in South Africa will need to remain in place in 2025.

In its financial report, Sasini said that the longer route to the market has particularly affected the avocado crop, which is facing major quality deterioration upon arrival in the market due to the doubling of shipping time.

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