Capital Markets
Plantation firms eye richer picking on weaker shilling
Friday August 11 2023
A tea plantation in Tigoni, Limuru. FILE PHOTO | NMG
Listed plantation firms are eyeing a boost in earnings this year on exchange gains on hard currency payments they receive from overseas buyers of their produce.
The Nairobi Securities Exchange’s (NSE) agriculture segment has six listed firms, which produce tea, coffee, and fruits, mainly for the export market.
Aside from higher volumes of produce this year due to improved rains, the weaker shilling versus the dollar, euro and British pound has improved the revenue they are getting from sales.
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When the local unit weakens against the dollar and other hard currencies, exporters make a gain when they convert their external earnings into shillings, which is the opposite of the pain felt by importers who are forced to fork out more shillings when buying dollars locally to pay for overseas purchases.
So far this year, the shilling has weakened by 14 percent against the US dollar, 18.7 percent against the pound and by 16.7 percent against the euro.
In their books, the agriculture firms normally set out scenarios of the impact on profit of either an appreciation or depreciation of the shilling by up to five percent, presuming other variables remain constant.
For its year ending December 2022, Kakuzi had done a sensitivity analysis, which indicated that if the shilling gained or depreciated by five percent versus the US dollar in the period, it would have seen a respective gain or decline in net profit of Sh22.3 million.
The same parameters were applied to the euro, the pound, South African rand and the Australian dollar, with varying projected impacts on the bottom line.
“At December 31, 2022, if the shilling was weaker/stronger by five percent (2021: five percent) against the US dollar with all other variables held constant, the group and company post tax profit would have been Sh22.27 million (2021: Sh30.67 million) higher/lower mainly as a result of US dollar deposits and trade receivables,” Kakuzi said in its annual report for the year.
Williamson Tea and Kapchorua Tea, which both use a sensitivity rate of one percent, said in their annual reports for the year ended March 2023 that a dollar movement either way by this rate would see their net earnings rise or fall by Sh8.3 million and Sh1.9 million respectively.
Should the agriculture firms apply the same sensitivity rates on their earnings for the current period, they are likely to see their net earnings come in at a much higher level than would otherwise be projected in a flat exchange rate environment.
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The listed agriculture firms are yet to release their respective half-year financial reports, which will indicate the latest impact of the weaker shilling on their revenue.
