Williamson Tea Kenya Burns Its Fingers In 1H16

Williamson Tea Kenya (WTK) faced a difficult business environment in the six months to September 2016, which is its 1H16. 

Sliding tea prices took a serious hit on the company’s bottom-line, leading to a huge loss compared to profit for the same period last year. Williamson posted a net loss of Ks263 million or EPS (earnings per share) loss of Ks13.21 for the six months, marking a steep reversal from a net profit of Ks380 million or EPS profit of Ks41.66 for the same period a year earlier.  The tea grower logged a loss in the latest period despite a 13% increase in revenue to Ks1.7 billion. 

Although bounty harvest should be celebrated, Williamson said increased supply of tea on the market destroyed prices. But the improvement in sales despite weak tea prices seems to suggest strong volume sales in the latest period. However, Williamson still faced soaring operating costs for the half-year period, contributing to the downbeat earnings.
 

Demand for higher staff pay
Williamson and Kapchorua Tea Company Ltd (KAPC) could face a further squeeze on their bottom lines as they face demand for higher staff salaries. 

The tea companies were dragged to court by their employees demanding better pay. A court granted the workers their wish for a 50% pay hike, but Williamson and Kapchorua appealed the ruling and the matter is pending before court. 

For the companies, the pending court matter is a source of great uncertainty because they are not sure whether they will succeed in overturning the earlier court ruling that compelled them to boost employee pay by as much as 50%. 

If the appeal suffers in court, the companies will be subject to higher operating costs, which would further weakening their  bottom lines given that the mandated pay hike dates back to 2014. But a court victory would provide an opportunity for Williamson and Kapchorua to escape certain operating costs, which could potentially speed up their return to profitability.
 

Williamson stock price movement
Williamson stock pulled back 1.10% to Ks180 yesterday. Over the last 12 months, the stock has rallied between a low of Ks162 and a high of Ks353. Looking at the prevailing stock price you can see that Williamson stock is trading near the lower end of its 12-month price range. 

Williamson has a market cap of Ks3.15 billion. The company has 17.51 million shares outstanding.