Kapchorua Tea (KAPC) Disappoints In 1H16

Kapchorua Tea Company Ltd (KAPC) suffered a setback in its half-year period to September 2016, or 1H16. The tea grower swung to a loss as its bottom line was dragged lower by rising operating costs and weak prices of tea. 

As such, Kapchorua logged a net loss of Ks89.7 million, leading to EPS (earnings per share) loss of Ks11.46. The company posted a profit of Ks100.4 million or EPS profit of Ks25.67 in the comparable period last year. The company slid to a loss of 1H16 despite a 29% uptick in revenue of Ks675.7 million. 

Employee demand for higher pay
If Kapchorua is already battling soaring costs, the near-term future doesn’t look bright either as the company could soon be slapped with a huge bill in the form of backdated higher employee salaries.

Kapchorua Tea and Williamson Tea Kenya (WTK) were dragged to court by their workers demanding higher pay. The workers won a court case that rewarded them a 50% pay increasing, but Kapchorua and Williamson challenged the decision and the matter is now pending before court. 

For the companies, the pending court matter is a source of great uncertainty because they are not sure what to expect. If the appeal is defeated in court, the companies will be subject to higher operating costs, which would further weakening their  earnings given that the mandated pay hike would date back to 2014. But if they win the petition, the victory would provide an opportunity for Kapchorua and Williamson to not only escape certain operating costs, but also shorten the period for a return to profitability.
 

Kapchorua stock action
Kapchorua stock fell 2.44% to Ks80 yesterday. The stock has rallied between a low of Ks71.50 and a high of Ks224 in the last 12 months. With that you can see that at the prevailing price Kapchorua stock trading near the lower end of its 12 month price range.

Kapchorua has a market cap of Ks625.9 million. The company has 7.82 million shares issued.