Tea Smallholder Factories 3Q in red despite industry performing well

Tea Smallholder Factories PLC, a subsidiary of John Keells Group, fell into red in the three months to December 2021 (3Q22), recording the second quarter of consecutive losses, as the company continued to lose revenues from the beginning of the current financial year although the industry fared well during 2021.

The company, which engages in the business of purchasing green tea leaves from smallholders and leaf collectors to manufacture black tea, reported revenues of Rs.433.5 million in the October-December period, recording a decline of 16 percent over the same period in 2020. 

December marked the third consecutive quarter in which the company’s sales were on a decline , a trend which was set forth at the beginning of the current fiscal year. 

The company’s top line performance contrasts with the industry, which generated US$ 1,320 million in exports earnings and 300 million kilograms of production in 2021, which were higher than the US$ 1,213 million and 279 million kilograms of production recorded in 2020. 

The company operates seven factories in the low grown region of Sri Lanka, located in Galle, Ratnapura and Ginigathhena. 

The company reported negative earnings of 58 cents a share or loss of Rs.17.5 million for its fiscal third quarter, compared to earnings of 17 cents a share or profit of Rs.5.14 million in the corresponding period in 2020. 
In the nine months to December 2021, the company reported negative earnings of Rs.1.48 a share or Rs.44.5 million loss on sales of Rs.1.46 billion, down 187 percent and 15 percent respectively from the similar period in 2020. 

In the nine months, the company’s factories in Galle and Ratnapura recorded losses while the ones in Nuwara Eliya saw their gross profits falling sharply. 

The sales were down in all three geographical operations, but it wasn’t immediately clear what caused the performance of the company to diverge from the industry performance.

The company appointed R.H. Walpola as the new Chief Executive Officer effective from January 1, 2022. 
Despite the slight increase in the production in the last calendar year, the industry grapples with a serious productivity issue and therefore aims at the ‘Ceylon Tea Global Campaign’ to pitch Ceylon Tea as premium tea with less chemical residues. 

As at December 31, 2021, John Keells Holdings PLC held 37.62 percent of Team Smallholder Factories PLC while Akbar Brothers Limited and Central Finance Company PLC held 24.39 percent and 22.85 percent each in the company.