Sasini Seeks $1.4m to Boost Investment in Coffee Sector

Kenyan agrobusiness company, Sasini Tea & Coffee's plans to raise $1.4 million from its shareholders this week following the payment of an interim dividend of 20 per cent last Friday.

Analysts believe that the bulk of the new funds will be pumped into the firm's coffee operations, which are to be expanded by the opening of a new mill in central Kenya in early November.

"All indications are that the company is currently trying to re-position itself in the coffee business as part of its strategy of moving from its traditional role of farmer/producer to value added processing in order to improve profitability," observed the Kenyan online stockmarket watch, Stock Detective, last week. "The decision to bet big on coffee is apparently spurred by the rising international prices for agricultural commodities."

Analysts also believe that the decision by Sasini to invest more in the coffee arm of its operations was informed by the Kenyan government's decision to open up a "second window" for the marketing of the produce to complement the central auction, which players in the industry have often criticised as being inefficient and bureaucratic.

With the window, growers like Sasini can now enter into the direct sales market, relieving pressure on the central auction. Inefficiencies at the latter have stifled the industry to the extent that some players such as Kakuzi plantations were forced to downgrade or quit their investments in the coffee sector.

"The government's failure to open a second coffee marketing window cost Sasini an opportunity to earn about Ksh400 million ($5.6 million) in the past two years alone," notes the Stock Detective (www.stock-detective.co.ke). "With the opening of the 'second window', the company may now be able to fully realise the value of its heavy capital investment in coffee."

Sasini's drive to maximise its earnings from coffee and tea was recently underlined by its acquisition of Aristocrats Coffee and Tea, a local firm specialising in the blending of tea and coffee for the international markets.

This strategy, analysts say, means that the firm intends to ride the crest of rising global coffee prices, which saw average earnings rise from Ksh106 ($1.5) per kilogramme in 2003 to Ksh140 ($2) in 2004. Last year, a coffee certification programme championing responsible and environmentally friendly cultivation of the crop also awarded Sasini certification for its eight coffee estates, paving the way for the company to brand its coffee as being ethically produced.

Early this month, Sasini announced its return to profitability after several years of reporting losses, with a profit-before-tax of Ksh73 million ($1 million) in the nine months to June 30, 2006.

In the corresponding period a year earlier, the company had reported a loss of Ksh55 million ($764,000).

Apart from tea and coffee, the company has interests in dairy and horticultural farming. It is part of the Sameer Group, which is controlled by business magnate Naushad Merali.