Golden harvest for IPO investors with Rs. 10,000 growing to a million
Dilmah owners flies high though profit drops to 5-year low

Ceylon Tea Services Limited (CTS), owners of the well known Dilmah brand, had seen a 5.4% dip in turnover to Rs. 1.8 billion and a 17.6% decline in the post tax profit to Rs. 185.7 million in the year ended March 31, 2003, according to the company’s just released annual report.

However, the company’s Chairman, Mr. Merrill J. Fernando has said that the outlook for the company remains good and he hoped to report better results for the current year subject to any unforeseen circumstances although "the outlook for tea in general appears bleak."

Fernando has pointed out that CTS shareholders have had significant returns, "perhaps a record for a small company engaged exclusively in tea." A Rs. 10,000 investment in 1,000 shares at the company’s IPO 20 years ago had delivered Rs. 248,250 in dividends to date with the shares worth over Rs. 1 million at current market values.

This he said "presents an unusually comforting picture for shareholders, and clear evidence that our vision and mission for the company’s flagship Dilmah are correctly focused."

Fernando made the point that it was significant that while the national average tea export price for last year was Rs. 216.80 per kilo FOB and the average export price of the top ten exporters was Rs. 206.70, CTS has achieved an average export price of Rs. 588.17 delivering "a very potent message to the tea industry and to the government."

"Several other exporters are quite capable of marketing their own brands, bringing very considerable returns to themselves and to the tea industry in general, provided consumer expectation of quality is met and their pricing reflects that quality image,"Fernando said.

"Resulting activity would create greater competition at the tea auctions towards enhancing prices for the benefit of producers."

He urged that price should never become the only criterion or selling tool.

"That sends the wrong message to consumers, creating doubt in their minds about the quality image of Ceylon tea and does in fact do grave injustice to our tea.

The consumer expects to pay a realistic price for good quality Ceylon tea," he said.

He explained that multinationals generally sell ordinary tea at high prices generating handsome profits and considerable funds for advertising and promotion. Local exporters sell good tea at low prices denying themselves reasonable profits and promotion and advertising funds to sustain sales.

Pointing out that out that innovation is an important component in marketing Ceylon tea, he said that their Dilmah brand from its very inception remained a significant innovator in tea enhancing the quality image and the uniqueness of Ceylon tea.

"Your company currently spends in excess of Rs. 500 million annually on brand support/promotions. We are beginning to realize that every step of the way now demands investment on advertising and promotion," Fernando said.

But their resources are far too stretched to commit further sums for this purpose and it was necessary government institutions too step in to support unique projects of this nature because of their enormous potential to draw upscale consumers, he urged.

Although CTS with an issued capital of Rs. 100 million had earned a tidy after-tax profit, earnings during the year under review was a 5-year low according to the figures published in the annual report. However, the company’s net assets had grown to Rs. 1.68 billion from Rs. 1.49 billion a year earlier and it has maintained the previous year’s 35% dividend to shareholders.

CTS has also continued its policy of substantial transfers to its general reserve with Rs. 250 million transferred. boosting it to Rs. 750 million and is carrying forward Rs. 790 million retained profits in its books.

The directors of the company are: Messrs. Merrill J. Fernando (Chairman), H. S. Ranaweera (CEO), Desmond Fernando, Malik J. Fernando, Dilhan C. Fernando and Minette Perera.