Market News

High labour costs push tea firms into profit warnings

tea farms

A worker at a tea estate in Nandi Hills. FILE PHOTO | NMG

Plantation firms Kapchorua Tea and Williamson Tea have joined a growing number of firms issuing profit warnings this year, citing high labour costs amid lower tea earnings.

Troubled Pan-African housing financier Shelter Afrique has also issued a profit alert, indicating that its earnings will be hit by provisioning for bad debts.

The latest round of profit warnings brings to 14 the number of firms that have issued profit warnings in relation to the 2016 financial year, 12 of them being listed firms at the NSE.

Williamson Tea reported a net profit of Sh738 million and Kapchorua Sh234 million for the year ending March 2016, both of which will now decline by at least a quarter for the year ending March 2017.

“The anticipated decline in full year’s profit is attributed in part to uneven and unpredictable weather patterns, but more so the primary cause is an inability to control aggressive and rising labour costs,” said Williamson and Kapchorua chairman Ezekiel Wanjama in a statement issued jointly by the two firms, which share directors.

“With high employee numbers, our anticipated wage and other benefits increases dating back to 2014 require huge financial provisions which if repeated would be unsustainable.”

He added that there is uncertainty in the future wage bill because of on-going court cases touching on union and collective bargaining issues.

Shelter Afrique on its part had posted a net profit of $3.1 million (Sh320 million) in 2015, but since then has come under the spotlight after its former head of finance Godfrey Waweru blew the whistle on alleged book-cooking.

“The main reason for the lower earnings in the restated 2015 results and 2016 is a sharp increase in the level of impairment charges to provide for expected losses from the portfolio.

"The company has identified the loans and has taken measures to manage the recovery of the debts,” said shelter Afrique chairman Jean Paul-Missi.

Other firms that issued profit warnings in relation to 2016 earnings include insurers Liberty Holdings and CIC Insurance, agriculture firms Sasini and Limuru Tea, Family Bank, Mumias Sugar, Atlas Industries, Sameer Africa, the NSE, Deacons and RealPeople.