Sri Lanka’s Tea Smallholder Factories Dec quarter net down 59-pct

COLOMBO (EconomyNext) – December 2014 quarter net profit of Sri Lanka’s Tea Smallholder Factories fell 59 percent to 16 million rupees from a year ago as prices dropped owing to political instability in key markets and wage costs rose.

The firm which produces tea from green leaf bought from small farmers said in a stock exchange filing that sales in the quarter fell nine percent to 586 million rupees. Earnings per share fell to 52 cents from 1.26 rupees.

In the nine months to December 2014, net profit fell 37 percent to 38 million rupees. EPS fell to 1.28 rupees from 2.03 rupees.

Tea Smallholder Factories is controlled by conglomerate John Keells Holdings, which has a 37.62 percent stake, and top tea exporter Akbar Brothers Limited has a 24.39 percent stake.

In the December 2014 quarter the firm reported a sharp fall in sales in the southern Galle and Ratnapura regions, known for cultivation of low grown teas which are much in demand in the Middle East and Russia, the top markets for Ceylon tea.

Both markets were affected by reduced buying power owing to the fall in oil prices and the weakening of the Russian rouble.

Forbes & Walker Tea Brokers has said in the fourth quarter of 2014 key Middle East markets for Ceylon tea faced political unrest and financial instability leading to a drop in prices.

Demand for Orthodox Low Grown varieties and the leafy teas from the High and Medium region continued to meet with less demand and prices declined for most grades during the quarter," it said.

"This could be attributed to the drop in oil prices which impacted most of the premier importing destinations such as Russia, Ukraine and the Middle East."

Tea Small Holder Factories is a so-called bought leaf factory where suppliers are paid on a formula based on historical prices. As a result such firms make losses when tea prices fall and profits when tea prices steadily rise.