Unilever Tea Kenya Ltd, Kakuzi and Rea Vipingo Plantations

Unilever Tea Kenya Ltd
Unilever Tea Kenya Ltd was formally Brooke Bond Kenya Ltd, until 2004. It’s a subsidiary of Unilever,and Anglo-Dutch conglomerate. It’s the largest producer of tea in Kenya. The company has a total land holdings of16,223 acres. It has 20 tea estates, 8 factories (including Mabroukie tea factory in Limuru), and produces 32 million Kgs of tea every year. It’s the largest private sector employer in Kenya, employing about 21,000 workers in the peak seasons. It owns Limuru Tea Company Ltd – it acts as the agent in growing, manufacturing, sales and marketing of Limuru Tea Company Ltd. Unilever Tea Kenya Ltd is involved in tea research, sustainable agriculture, and produces black, green and speciality tea. It has a market in Europe, US, Middle East, Australia, etc. It’s a major foreign exchange earner, netting about kshs5.5 billion.

Financial Performance
As of 21^st February 2007, the company’s shares had an average market value of kshs91, and a dividend yield of 2.22%. The share market value has stagnated between kshs80 – kshs 90 for the last 3 years. Although the introduction of tea plucking machines in the tea industry should reduce overall production costs, thus increasing revenue, Unilever Tea Kenya Ltd is not keen to embrace the new technology (opting to remain labour intensive), and this might make it less competitive in the industry. It therefore seems like the market value of their shares will remain stagnant, or might be headed for a tumble. However, the recent increase in rainfall should result in high tea productivity.

Rivals
Unilever Tea Kenya Ltd is competing against companies such as Finlay’s, another large tea manufacturing company. Unlike Unilever Tea, Finlay’s are more open-minded about the tea plucking machines, which should reduce their production costs.

Unilever Tea relies solely on tea production, unlike other companies like Kakuzi or Sasini, who have diversified their production to other crops. It might be considered a good idea to diversify, as it would appear that the world tea market is saturated – this might have an adverse effect on the company’s future share prices. Having said that, the company recently won a Global Award for fight against AIDs (on 8/2/07), from the Global Business Coalition, plus it’s very friendly with the worker’s trade union (supporting them in their fight against tea plucking machines) – would that have any bearing in their share prices?.

Kakuzi
Kakuzi is involved in tea and horticultural plantations. 61% of its total revenue is from horticultural sales and 32% from tea sales. Kakuzi has 278 hectares of avocados, 850 hectares of pineapples (joint venture with Del Monte Kenya Ltd, running until May 2008)

Financial Performance
The present average market value of Kakuzi shares is kshs 42 (no dividend yield). In the 1^st half of 2006, tea production suffered because of drought, and a strengthening Kenya shilling; tea sales decreased by 16%, but horticultural sales increased by 46%, thus saving the day. The company made losses from high operating and financing cost structure. Future revenue is dependent on the weather and volatility of the Kenya shilling. The recent increase in rainfall should result in high productivity of both tea and horticultural sub-sectors, despite the strong Kenya shilling.

Rivals
Other companies producing tea in large scale e.g. Unilever Tea Kenya Ltd, Sasini, and others producing horticultural produce e.g. Del Monte.

Rea Vipingo Plantations Ltd
Rea Vipingo Plantations Ltd is the largest producer of sisal, domestically and regionally. The company has benefited from increase in sisal fibre price. It sells in bulk market and niche market. However sisal prices are unlikely to increase further, and so increase in future revenue can only be from increase in production.

Financial Performance
The present average market share price is Kshs24.50, and have a dividend yield of 3.27%. Revenue grew by Kshs1.10 billion in 2004/05, despite dry weather and a strengthening Kenya shilling. Operating profit increased by 7.7%, but net profit decreased due to increasing financing costs and a high tax bill. The main challenge of the company is ensuring that there’s enough water supply for the plantations. High rainfall in 2006 should serve to increase productivity – increase in rainfall and stabilization of the dollar will increase output and value of output, and therefore revenue should increase. Prospects of cutting down on plastic bag use would have a positive effect on the revenue of the company.

Rivals
Other companies producing horticultural produce, e.g. Rea Vipingo Plantations and Del Monte Kenya Ltd.