Ceylon Tea Brokers improves performance, Chairman shares key insights

Ceylon Tea Brokers Plc in the financial year ended on 31 March 2012 posted an income of Rs. 185.69 million, up from Rs. 157.5 million in FY11 whilst pre-tax profit improved to Rs. 63.3 million from Rs. 56.7 million. Total assets as at 31 March 2012 amounted to Rs. 933 million as against Rs. 788.7 million a year earlier. Shareholders’ funds grew from Rs. 178 million to Rs. 212.6 million. Ceylon Tea Brokers Plc Chairman Chrisantha Perera’s review in the company’s 2011/12 annual report provides some useful insights to the country’s tea industry and its performance last year. Here are some excerpts.

I am pleased to report that we have been successful in our objective not only with a better financial performance but more importantly by the greater degree of professionalism we have been able to achieve in the management of the company.

The Sri Lankan economy is reported to have grown by 8.2% in the calendar year 2011 although the agricultural sector recorded a more moderate growth of under1.5% due to adverse weather conditions. Consequently, tea production declined marginally compared to 2010. It is however noteworthy to highlight the importance of the tea industry which generates around 65% of the export revenue from agriculture with approximately two million people or 10% of the country’s population directly or indirectly employed and/or dependant on the Industry.

Tea Industry

2011 was a difficult year for the industry. Following the sharp increase in wages granted to the plantation workers with effect from April 2011, which unfortunately is still not linked to productivity, coupled with the decline in production due to adverse weather conditions together with lower auction prices compared with the previous year, resulted in most producers having negative margins. This was more so in the case of regional plantation companies which generally have a large resident labour force where the impact of the wage increase had the greatest negative effect.

Demand at the auctions was also adversely influenced due to the uncertainties in the Middle East which is one of the strongholds for Ceylon Tea as well as the financial/economic problems globally in general and Europe in particular. A factor that did not help rupee prices was the comparatively strong parity rate for the Sri Lanka Rupee vis-a-vis the major currencies, especially the US Dollar, which is the main trading currency for Tea. There was a gradual weakening of the Sri Lanka Rupee from November 2011 onwards and at the time of writing, the SLR has devalued by around 20% against the US$ compared with the corresponding period last year, which has had a beneficial impact on rupee prices. The corresponding US$ equivalents however, compared with a year ago, have still not been reached. With global crop recording a sharp decline during the first half of 2012 as against the same period last year, it is hoped that Colombo auction prices should start moving up to reflect rupee prices in keeping with or even surpass the US$ equivalent realised in 2011.

Optimistically, we hope we could exceed even the record prices of 2010 during the second half of 2012. The negatives continue to be the uncertainty in the Middle East, which is a key region for Ceylon Tea and the adverse economic climate confronting Europe in particular.

The significant feature that emerges from the above details is that notwithstanding a drop in production and lower auction averages, export earnings inclusive of ‘Imported Tea Re Exported’ reached a new high in Rupee terms.

The US$ equivalent based on the weighted average value for one US$ amounts to US$1.49 billion in 2011 compared with US$1.44 billion in 2010. It is hoped that export earnings for tea will cross the milestone of generating over US$ 1.5 billion in 2012 notwithstanding the falling value of the Rupee against the US$ during the current year.

According to the details available to us, the quantity of imported tea in 2011 amounted to 11.4 million kilos as against a slightly higher figure of 12.2 million kilos in 2010. On the other hand, re exports with imported tea in 2011 is recorded at 19.4 million kilos compared with 18.6 million kilos in 2010.

An important aspect that emerges from these export earnings is that although Sri Lanka is now the third in the league of tea exporting countries in volume terms, marginally behind China and substantially below Kenya, compared with the number one position occupied some time ago, this great Industry of our country remains the highest export earner in value terms globally which reaffirms that we as a country adds more value at the point of export compared with other tea exporting countries. This is something all stakeholders associated with the Industry needs to consolidate and further develop in the years ahead together with the State, who should provide the correct policy guidelines and where necessary the appropriate incentives.

Company performance

The improved performance of the company during the financial year under review compared with the corresponding period the previous year is indeed encouraging given that the country produced less tea, which sold at lower auction prices, which has a direct correlation to the earnings of a tea broking company. This endorses that the corporate objective I referred to at the beginning of this report of ‘Consolidation through Professionalism’ has achieved the desired results. Our management team at all levels must be given credit for this achievement and we look forward with cautious optimism to further growth in the years ahead.

We intend moving forward with the momentum we have achieved over a comparatively short period. Continued success however can only be realised through professionalism with a high sense of commitment to the four important criteria that comprise our core values, which I would like to reaffirm hereunder: Ability Credibility Integrity Team Work. This will be our corporate credo as we move forward to generate greater value to all our stakeholders.

Board of Directors of Ceylon Tea Brokers Plc comprises of Chrisantha Perera (Chairman), Ajith Fernando

(Managing Director), Suranga Perera (Executive Director/Chief Operating Officer), Waruna De Silva (Executive Director), Rukman Abeywardena, Shiromal Cooray, Sharmali Perera, B.R.L. Fernando and  Ranil Pathirana.