Poor show by Tea Smallholder Factories in 1Q despite higher tea prices

The modest tea sector performance of late appears to have failed to translate into better tea smallholder performance as Tea Smallholder Factories PLC (TSF) generated weaker financial performance for the quarter ended in June 30, 2018 (1Q19). 

TSF, of which John Keells Holdings PLC is the single largest shareholder, reported lower revenues of Rs.570.1 million for the April-June period, down from Rs.610.8 million reported for the same period, last year. 

The operating profits fell sharply by 92 percent to Rs.3.5 million from Rs.46.5 million a year ago. The company procures green leaf from tea small holders in Galle, Matara, Rathnapura and Nuwaraeliya and process them in seven factories operated in low grown regions in Galle, Rathnapura and Ginigathhena and sells processed black teas in the Colombo Tea Auction. 

TSF employs a workforce of over five hundred and caters to a green leaf supplier base of over 17,600, which is approximately 5.8 percent of the total tea smallholders registered in the low grown region of Sri Lanka. 

In September, last year, the company’s tea fetched its highest ever tea auction price of Rs.677.63 per kilogram. Sri Lanka’s tea earnings increased since last year particularly due to higher prices fetched at auctions. 

During the first three months revenues from the Galle region—the company’s largest tea small holder area by the geographical segment – fell to Rs.290.1 million from Rs.313.1 million in the corresponding three months of the previous year.

Matara brought in zero revenues and revenues from Nuwara Eliya dropped to Rs.107.1 million from Rs.110.1 million a year ago. 

The only region that recorded increased revenues from tea processing was Rathnapura, which generated Rs.184.4 million against Rs.160.2 million recorded for the same period, last year. 

This weighed heavily on the company’s bottom line as the 1Q19 earnings dipped to 10 cents a share or Rs.2.9 million from Rs.1.15 a share or Rs.34.4 million a year ago. 

The company has assets of Rs.1.6 billion and net assets of Rs.1.2 billion with a per share value of Rs.40.74. 

For the year ended March 31, 2018 TSF reported revenues of Rs.2.7 billion and a net profit of Rs.244.1 million with an earnings per share of Rs.8.14. 
This was generated from Rs.4.3 million kilograms of tea fetching a net sales average price of Rs.639.15 a kilo at the auctions, up from Rs.529.17 in 2016/17 and Rs.412.41 in 2015/16. 

During 2017/18 the company took several measures and invested on assisting tea small growers in improving productivity, replanting and adopting good manufacturing practices to increase the yields. 

Last week the government through an extraordinary gazette lifted the three-year ban on glyphosate, a weediside. The ban is said to have hit the tea plantation sector severely. 

As of June 30, 2018, John Keells Holdings PLC held 37.62 percent stake in TSF while Akbar Brothers Limited and Central Finance Company PLC held 24.39 percent and 22.85 percent stakes in the company respectively being the top three shareholders. 

June tea output down 15%

(Colombo) REUTERS: Sri Lanka’s tea output fell 15 percent in June from a year earlier, the state-run Tea Board said on Friday. 

Analysts attribute the fall to heavy rains and poor fertiliser application. However, production in the first half of the year has risen 1.3 percent from the same period last year. 

“There was too much of rain. Also the fertiliser application has declined in the month,” Anil Cook of brokers Forbes & Walker said. 

Tea is Sri Lanka’s top agricultural export and one of the main foreign currency earners for the US$ 87 billion economy. 

Earnings from tea export for the first four months totalled US$ 478 million, up from US$ 458.2 million last year. 

Sri Lanka’s tea output rose 5 percent to 307.1 million kg last year, recovering from a seven-year low of 292.6 million kg hit in 2016. 

Industry officials expect production to reach 320 million kg this year if the weather holds, but a ban on cost-effective weed killers, disruption to regular agricultural practices and the high cost of fertilisers could affect the outlook for production.

Tea production in 2017 was affected by severe drought followed by flooding and poor application of fertilisers while a government ban on pesticides and restricted labour.