Sri Lanka's Tea Smallholder Factories makes loss in June quarter

ECONOMYNEXT – Tea Smallholder Factories, which makes black tea from tea leaves bought from small farmers, slipped into the red in the June 2015 quarter as the prolonged slump in commodity prices took its toll.

The firm made a loss of 326,000 rupees in the June 2015 quarter compared with a profit of 19.4 million a year ago, a stock exchange filing said.

Sales fell 18 percent to 516 million rupees during the quarter, said the firm which is controlled by John Keells Holdings with a 37.62 percent stake and top tea exporter Akbar Brothers with 24.39 percent.

Tea Smallholder Factories’ net profit for the year ended 31 March 2015 had fallen to 36 million rupees from 81 million rupees the year before.

The company has been affected by the slump in tea prices owing to political instability and the crude oil price slump in key markets like Russia and the Middle East.

Tea Smallholder Factories is a so-called bought leaf factory, paying suppliers on a formula based on historical prices as a result of which it make losses when tea prices fall and profits when tea prices rise steadily.

Sri Lankan stocks slip for second day; earnings eyed

Sri Lankan stocks edged down on Tuesday, marking their second straight loss as investors stayed on the sidelines awaiting cues from June-quarter corporate earnings.

The main stock index ended down 0.03 percent, or 2.27 points, at 7,145.59. It closed at its highest since June 1 on Friday as hopes of political stability after the Aug. 17 parliamentary polls lifted sentiment.

Turnover stood at 334.8 million rupees ($2.50 million) on Tuesday, the lowest since July 14 and well below this year's daily average of 1.06 billion rupees.

Foreign investors were net buyers for the first time in five sessions, with a net purchase of 28.3 million rupees. They have sold a net 966.7 million rupees worth of shares so far this year.

"Nothing much is happening as there are no big news to move the market. Many investors are awaiting the earnings," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

Shares in Distilleries Company of Sri Lanka fell 3.39 percent, while Aitken Spence dropped 2.68 percent and the nation's biggest listed lender, Commercial Bank of Ceylon, declined 0.65 percent.

Last Tuesday, Sri Lankan President Maithripala Sirisena criticised a comeback bid by Mahinda Rajapaksa, the rival he beat in elections last January, and his own allies for backing him to become prime minister.

Analysts see Sirisena's statement as a step towards strengthening his grip and one that is likely to help the ruling coalition win. 

($1 = 133.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Revised GDP base to affect Lanka’s growth

Hiran H.Senewiratne (hsenewiratne@gmail.com)

The growth in the Indian economy will help Sri Lanka’s economic growth, Deputy Central Bank Governor Dr. Nandalal Weerasinghe said.

“Sri Lanka has a very high educated population, geographical advantage physical infrastructure, easy to do business, low tax regime and political stability adding further impetus to growth in the Asian region especially in India and China,” Dr. Weerasinghe told at a seminar organized by the Ceylon Chamber of Commerce (CCC) yesterday.

The theme of the seminar was on “Post War and Post Election: Is Sri Lankan Economy Ready to make the much needed break”.

He said in the last couple of years, the Indian economy has shown growth with its current stable political situation and is likely to beat even China in the coming years Dr. Weerasinghe said Sri Lanka has failed to attract large long term foreign direct investments to an expected level despite its advantageous position because it lacks the right technology, lack of transparency and a level playing field.

“If we have good governance, transparency and other incentives many large long term foreign direct investment companies will invest here because Sri Lanka has access to huge markets in India and also prospective FTAs with other countries like China,”he said.

The Deputy Governor said that Sri Lanka has a huge formal and informal SME sector and the government should do every possible assistance to infuse new technology, skilled work force and capacity building in those sectors.

“Sri Lanka may not be able to show a 6.0 percent growth rate under the newly revised method of estimating gross domestic product,”he said.

Sri Lanka has published revised GDP measurements under a 2010 base year, compared to the earlier 2002, which has captured a number of new economic activities which were not counted under the earlier system.

As a result the total output of GDP has been revised up, making the base bigger.

“It will be a challenge to reach 6.0 percent growth this year, with the new base,” Weerasinghe said.

Sri Lanka is forecasting 7.2 percent growth under the old method of estimating GDP. GDP was also lower in 2013 and 2014 under the new system, Weerasinghe said Re-basing the GDP is a technical exercise that was started in 2011 with the advice of the International Monetary Fund and experts. It is a mistake to directly compare the two rates of growth, he said.

He said inflation was expected to be maintained at low rates which will allow historically low interest rates to continue.
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RPCs, government and shareholders

Roshan Rajadurai - Chairman,Planters’Association

With reference to the article by Lalin De Silva titled, ‘Plantation crisis and the role of the RPCs’, which appeared in the Daily News of July 10, the Planters’ Association (PA) of Ceylon wishes to provide an explanation with regard to a number of issues raised in the article.

The article refers to the the “million dollar question on whether Sri Lanka has benefitted from privatization” of plantations, to which the answer should be abundantly clear to any rational individual, particularly looking at the present plight of non-privatized estates.

At the time of privatization in 1992, the Government Treasury had to subsidise the two State Plantation Agencies – Janatha Estate Development Board (JEDB) Sri Lanka State Plantation Corporation (SLSPC) – to the tune of Rs. 5 billion a year.

To put things in perspective, this amounts to more than the entire amount spent by the Sri Lankan government on school text books, school uniforms and its Triposha programme in 2011 (which collectively amounted to Rs. 4.994 billion), according to the 2012 Annual Report of the Ministry of Finance and Planning.

However, considering the ‘present value’ of the Rs. 5 billion subsidy provided to the JEDB and SLSPC then in today’s context, the amount would be substantially larger.

If this in itself does not justify the privatization of estates, the annual losses of the SLSPC and the JEDB at Rs. 1.5 billion per year according to the Piyadigama Report lends further credence. In addition, by 1990s, a Rs. 4 billion debt incurred by the JEDB/SLSPC was converted to equity. However, the final debt of JEDB/SLSPC was Rs. 3.3 billion according to the Plantation Restructuring Unit of the Ministry of Finance (1991).

Since privatization, from 1993 to 2012 alone, the total capital expenditure of the Regional Plantation Companies (RPCs) amounted to Rs. 55.4 billion, dividends paid to Sri Lankan shareholders Rs. 6.8 billion, lease rental paid to the Government Rs. 6.5 billion and Income Tax paid to the State Rs. 1.3 billion. Any intelligent reader can therefore decide whether Sri Lanka has benefitted from the privatization of the estates.

De Silva’s article indicates at the outset that there are many “watchdogs” and “no one should fool around with state property”. The Planters’ Association fully agrees with the sentiment and if that be the case, invites the writer to far more closely observe the performance of the 36 non-privatised estates managed by the state.

The ‘Watchdogs’ should be howling as by 2013 “the capital required to settle the statutory liabilities of EPF/ETF and gratuity of 3 State Plantation Corporations was Rs. 3 billion” according to the Ministry of State Resources and Enterprise Development.

The article claims that “PA served the industry well during the pre-nationalised period prior to 1975”. This is indeed a flawed statement and does grave injustice by ignoring the unmatchable service rendered by the Planters’ Association (PA) post 1975 (in the highly turbulent period in which plantations were nationalized) through the likes of the late Sepala Ilangakoon, under much tougher and challenging conditions than the pre 1975 era.

The article is very reluctant to “compare statistics” and states that “the plantation industry does not have established and accepted standards to interpret” which one would not expect from a ‘veteran Planter’ as RPCs can easily be compared with the non-privatized state plantations which got the benefit of the brightest of government brains, all government and state machinery support, political clout and the dispensation that accompanied it since 1992.

The RPCs’ extent of Tea Hectarage in bearing from 1992 reduced to 82% by 2012 (from 84,778 Ha to 69,747 Ha), workers reduced to 59% (from 327,123 workers to 193,412 workers) but the total made tea production increased 12% (80.2 million kilos in 1990 to 90 million kilos), demonstrating greater efficiency and robust performance on the part of the RPCs.

Meanwhile, the non-privatized JEDB and SLSPC Tea crops declined to 64% in JEDB (3.4 millon kilos to 2.2 million kilos) and to 70% in SLSPC (3 million to 2.1 million) in the same period.

In 2012, RPCs made Rs. 7.20 profit per kilo of made Tea on average while the JEDB made a loss of Rs. 96.92 per kilo, SLSPC Rs. 59.76 per kilo and Elkaduwa Plantations Rs. 126.87 loss per kilo according to the Ministry of Plantation Industries’ Statistical Booklet 2012.

Despite the writer’s assertion to the contrary, these performance indicators would give an idea even to an average layman of the superior performance of the RPCs.

The article has further queried as to why no RPCs have offered to hand back the estates. Decisions of this nature will have to be taken by the shareholders.

There is no statute that 2% should be replanted with vegetatively propagated (VP) Tea each year, as clearly indicated in the PA’s previous response to the writer. The PA would be pleased to have a copy of the Gazette published in the early 1960s referred to by the writer, if he has one.

The ‘Indenture of Lease’ which the RPCs have signed has no condition anywhere regarding replanting. However, since privatization from 1992 to 2012 period alone, the RPCs have replanted 21,237 Ha out of the available 36,347 Ha in VP Tea. This is 58% of the existing VP extent.

It should be noted that many points indicate that a ‘statute’ to replant 2% in VP, referred to by the writer did not exist, since if so how can it be that since the mid 1950s when VP was first introduced, for a period of 32 years (1960 – 1992) only 30% of the JEDB/ SLSPC hectarage was in VP Tea according to the Ministry of Plantations Statistical Book (1991)?.

The article also claims that certain Rupee companies followed this requirement to the letter. However, according to the “Report of the Commission of Inquiry on Agency Houses and Brokering Firms” (1974), the “All Island Rate of Replanting” was 0.53% in 1965, 0.60% in 1966, 0.88% in 1967, 0.88% in 1968, 1.09% in 1969 and 1.05% in 1970.

If as the writer claimed before 1975 no plantations deviated from “the law” then how can it be that only 12.4% of JEDB and 8% of SLSPC fields were in the yield per hectare (YPH) category of 1,600 to 1,799 kilos, 4% of JEDB and 3% of SLSPC estates were in 1,800 to 1,999 kilos YPH category and only 2.5% of JEDB and 2% of SLSPC were in YPH category over 2000 kilos at the time of privatization in 1992? If the facts are so, what justification is there for “someone to check” whether 2% was replanted after privatization in 1992 when the annual rate of replanting by the RPCs within the 20 years has already contributed to 58% of the existing replanted area?

The shareholders of RPCs through their representatives on the Boards are fully aware that according to the Tea Research Institute’s calculations, it would take 25 years to recover the investment of replanting but according to the current rates it will now take 35 years.

The Boards of the RPCs review capital expenditure very rigorously during Board Meetings and intelligent decisions are taken regarding Capital Investments by them.

The article also claims that “smallholders who produce 70% of the crop have managed to survive because they know the value of replanting”. Then with what logic has the government given the smallholders a guaranteed green leaf price of Rs. 80/- per kilo? The Tea smallholders have replanted only 25% of the existing VP hectarage (25,707 Ha out of 104,843 Ha) for the period of 1992 to 2012 while RPCs have replanted 58% of their existing VP during the same period (21,237 Ha out of 36,347 Ha).

Although the author has claimed that only a ‘few’ RPCs have gone in for value addition, over 90% of the RPCs have by now gone into value addition of their primary commodity. The author also claims that he is surprised now to learn that there is no minimum requirement or compulsion to replant tea in ‘Management Contracts’ signed by the RPCs.

In the first instance, there are no ‘Management Contracts’. The RPCs signed only an ‘Indenture of Lease’, a copy of which we will be pleased to provide to the writer. The writer is at liberty to question the Plantation Restructuring Unit about the non-existent ‘Management Contracts’. The state of the losses incurred and the debts incurred by the non-privatized estates as explained earlier in this article clearly suffices to answer the question whether the so called ‘Management Contracts’ looked after the interests of the citizens of Sri Lanka or RPCs when the performance of RPCs and non-privatized estates are compared.

The article claims to have “factually produced causal factors of the weak financial performances of the RPCs” and also claims of giving a “helping hand to wake up and speed up for survival”.

However, unfortunately, since the article is based on incorrect information as clearly indicated above, it does not provide a single practical solution to the plantation industry’s present woes and regrettably it appears to be critical of the RPCs with no valid justification. While the Association welcomes constructive criticism, it urges any commentators to be responsible in their comments and base their conclusions on fact, not on mere idle speculation.
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Lanka IOC starts bunkering from Trincomalee

Lanka IOC has got in to the bunkering operations. This is from its Trincomalee oil terminal. LIOC, has positioned one bunker barge with a capacity for 400mt 380cst fuel oil and 400mt MGO at Trincomalee for delivering marine fuel bunkersto the ships at berth and anchorage.

The move will provide additional bunkering oprtions to the vessels operating in Bay of Bengal, with marine fuels at Trincomalee said to be priced comparative to the prices in Colombo port.

“With more than 30 meter draft available, Trincomalee Canyon provides natural shelter making this port a better place for bunkering at anchorage even during the adverse weather,” an official from the company said.
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Expolanka divests Neptune Papers

Expolanka Holdings as a part of their re structuring activities has fully divested its investment in Neptune Papers Ltd, for a purchase consideration of Rs. 10,639,797 (Ten Million Six Hundred Thirty Nine Thousand Seven Hundred and Ninety Seven) to Aberdeen Holdings. The company entered into a share purchase agreement on July 17 in order to consummate this transation.

A majority shareholder and Director of Aberdeen Holding is also a Director of Expolanka Holdings, Osman Kassim.
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