Eaagads Limited (EGAD.ke) 2019 Annual Report

We have extracted the Chairman’s Statement from the 2019 annual report of Eaagads Limited (EGAD.ke), listed on the Nairobi Securites Exchange: 

Dear Shareholder,

On behalf of the Board of Directors of Eaagads Limited, I am pleased to present to you the Annual Report and Financial Statements of the company, for the year ended 31 March 2019.

OPERATING ENVIRONMENT

The agricultural sector recorded a 6.6 per cent growth in 2019 compared to 1.6 per cent growth in 2018 on account of favourable weather conditions occasioned by long rains. During the year under review, coffee production levels increased from 38.7 thousand tonnes in 2017/2018 to 41.4 thousand tonnes in 2018/ 2019. Coffee production by estates declined by 22.5 per cent from 14.2 thousand tonnes in 2017/2018 to 11.0 thousand tonnes in 2018/2019 due to real estate development in peri-urban areas especially in central region resulting in farmers uprooting of coffee bushes. In contrast, coffee produced by small holder co-operatives improved as a result of new planting and subsidisation of fertiliser prices by the Government. The area under coffee production increased by 900 hectares from 114.7 thousand hectares in 2017/18 to 115.6 thousand hectares in 2018/19 as a result of new coffee seedlings planted by small holder farmers. (Economic Survey 2019, KNBS).

EAAGADS FINANCIAL PERFORMANCE

During the year under review, the company produced 419 tons of coffee compared with 154 tons in 2017. The increase was mainly attributed to favourable weather coupled by good agronomical practices. The company achieved sales of 416 tonnes of coffee compared with 252 tonnes in 2018. The average price realized during the year increased to USD 3.37 per kilogram from USD 3.32 per kilogram last year. The Company achieved a profit before tax of KShs 1.7 million compared to a loss before tax of KShs 51.8 million in the previous financial year, largely due to the year on year increase in coffee revenues by 115 per cent. Revenue was KShs 179.6 million in 2019 compared to 83.7 million in 2018. The cost of production is directly correlated with production levels. Picking and wet processing costs went up by KShs 28 million. Crop commission charges increased by KShs 8.6 million, attributable to a crop sale commission of 2.75% levied, mainly due to timing of crop sales. Farm management fees remained at USD 7.5 per hectare. The company also revalued its freehold land (44 hectares) and this resulted in a revaluation gain of KShs 25.8 million, net of tax. The remaining land, is held on a leasehold basis and measures 341 hectares, is not subjected to a valuation, in compliance with the International Accounting Standards.

MARKETING

Kenya has two coffee harvests in a year. The late crop is harvested between September to December, and the early crop is harvested between March and July. Eaagads coffee is marketed by Coffee Management Services through the license of Oaklands Coffee Marketing Limited. Kenyan coffee is either sold through the auction or through direct sales. Direct sales usually achieve a premium over prices obtained through the auction. During the year, the company achieved sales of 62.4 tonnes of coffee through direct sales, valued at KShs 36.4 million compared to 60 tons in the previous year, valued at KShs 34.8 million in 2018. The auction sales for the year were 353.6 tonnes compared to 192 tons previous year, valued at KShs 143.2 million and KShs 36.4 million, respectively.

CONSUMPTION

Domestic coffee consumption in Kenya has remained relatively low. The low consumption is attributed to the predominant tea drinking culture and non-affordability of coffee due to low purchasing power for the majority of the population. However, in the recent past, the coffee drinking culture has been taking root especially amongst the middle-income groups. Coffee houses are now conveniently located in shopping malls and town centres, further boosting local coffee consumption.

OUTLOOK

The company’s coffee bushes are in good shape under the management of CMS. We have experienced severe drought from January to May 2019 with extreme high temperatures. Coffee is especially sensitive to such high temperatures a factor that contributed to poor flowering of the crop. The initial expectation for 2019 crop was pegged at 350 tons but due to this factor we are expecting a significantly lower harvest. International coffee market prices have reached unprecedented low levels, currently having the New York benchmark market under USD 100 cents per pound, which is the lowest level for more than a decade. The coffee price decreased by more than 19% in the current financial year, from USD 118 cents per pound to USD 95 cents per pound. There can therefore be no certainty as to what prices will look like in the near future. Eaagads coffee continues to attract a premium in the market due to its quality, although it is still impacted by the International coffee prices.

DIVIDEND

The financial performance of the company improved during the current financial year, however the reserves of the company are still not substantial enough to warrant a distribution to shareholders, especially considering the adverse weather conditions experienced in early 2019 and the declining trend in international coffee prices. The board of directors therefore do not recommend payment of a dividend.

SOCIAL RESPONSIBILITY

On the social front, Eaagads has continuously maintained a harmonious relationship with the workers and the union at large making sure that the collective bargaining agreements are honoured and looking at ways to improve the workers welfare. Our social responsibility is not limited to statutory requirements but also extends to other corporate social responsibilities that are in place for the benefit of the workers as well as the neighbouring communities.

APPRECIATION

I would like to express my gratitude to the shareholders as well as my colleagues in the board of Eaagads for their continued support to the company.

Evans Monari
Chairman