ECONOMYNEXT - Sri Lanka's Hatton Plantations closed 80 cents higher at 8.60 rupees on its debut on the Colombo Stock Exchange Friday, up 10.26 percent from its opening price.
Over 236.6 million ordinary voting shares were listed on the Colombo Stock Exchange, by way of an introduction at 7.80 rupees per share.
Hatton Plantations was incorporated in September 2017 and is the segregated upcountry tea businesses of listed Watawala Plantations (down 10 cents to 28.50 rupees).
"We segregated the up country tea business so we could focus and formulate better strategies for tea plantations. It will result in better results, notwithstanding external variables," said Sunil Wijesinhe, Chairman at Hatton Plantations.
"The legal, technical and accounting aspects of the segregation were quite a journey and it's going to be rewarding," Wijesinhe said
The upcountry tea business accounted for 59% percent of Watawala Plantation's total revenue of 6.4 billion rupees in 2016/17, but accounted for less than 20 percent to its 1.7 billion gross profits with palm oil contributing 76 percent. Watawala has interests in dairy farming and exports as well.
Restated financial statements for Hatton Plantations show an after tax earnings of 28.4 million rupees in 2016/17, compared to a loss of 300.2 million a year earlier. The upcountry tea business has been losing money since reporting a 92 million rupee profit for the 2012/13 financial year.
Improving agricultural practices and improving labour productivity is critical, something the company has been improving over the years.
The upcountry tea business revenue has fallen 18 percent in the two years to end March 2017, but costs have declined 26%. Operating losses which peaked at 285.5 million rupees in 2014.15, turned into a 168 million rupee profit during this period.
"This strategy has resulted in attractive prices at the Colombo Tea Auction," he said.
Over 70 percent of cost of production is wages, a withdrawal of a fertilizer subsidy and increased labour costs due to manual weeding due to a glyphosate weedicide ban, also hurt profitability in recent years.
Hatton Plantations consists of 17 estates with a combined area of 4,465ha located over 4,800 feet above sea level in the central hills of Sri Lanka.
The company also owns 11 tea processing factories with a combined green leaf capacity of 232,300kg. Ninety percent is auctioned at the Colombo Tea Auction and the balance sold directly to buyers.
Ceylon Teas commands some of the highest prices in the world. The average price at the Colombo Tea Auction was 4.04 US dollars per kilo during the first quarter of 2017, leading Mombasa (2.82 US dollars per kilo) and Cochin and Kolkata (1.92 US dollars per kilo).
The company purchases green leaf from third party suppliers, apart from its own crop to manufacture tea.
In 2014, it accounted for nearly 40 percent of total crop, but the companies focus on quality has seen the share fall to 33% during the first four months of the 2017/18 financial year, according to NDB Investment Bank, Financial Advisors and Joint Managers to the introduction.
Estate Management Services controlling a 75.65 percent stake in Watawala Plantations incorporated Hatton Plantations in September 2017 issuing shares mirroring the shareholding of Watawala Plantations.
Estate Management Services is a subsidiary of Sunshine Holdings PLC, a 19.2 billion revenue group of companies with interests in pharmaceuticals, consumer goods and energy.
Sunshine Holdings closed 40 cents higher at 59.60 rupees.
