The global economic crisis has posed a serious challenge to the tea industry affecting all major markets with their trading and finance/banking systems under pressure with currency devaluations and restricted trade finance, the chairman of one of the country’s main Regional Plantation Companies (RPC) has said.

"Consequently, the crisis had a major impact on volumes and price levels, at the Colombo Tea Auctions," Mr. N.G. Wickremeratne, Chairman of Talawakelle Tea Plantations, ranked number one on prices for both high and low growns among the RPCs has said in the company’s annual report for the year ended December 31, 2008.

Talawakelle has held the number one price slot among the RPCs for eight years running which Wickremeratne said was "directly attributed to the attention to quality" that the company pays to its manufacturing process.

During the year under review, Talawakelle posted an attributable after-tax profit of Rs.110.6 million, up from Rs.100.9 million the previous year. However, the company had halved its dividend payment to Rs.1.25 per share from the previous year’s Rs.2.50.

Wickremeratne explained that the current credit squeeze imposed by the domestic banking industry has imposed considerable liquidity pressures on RPCs and Talawakelle, in this context, had given very high priority to liquidity management in the company’s overall risk management strategy.

While the company appreciated what Wickremeratne called "the limited intervention" of the Tea Board to stabilize the market at the Colombo tea auctions in the recent past, he expressed concern about the absence of support for working capital funding to sustain operations in the immediate future.

"This is imperative. Large numbers are employed in the industry ad they and their families are dependent on the operational viability of the RPC managed estates," he said.

"In the current global context we would strongly advocate a realistic exchange rate if we are to be competitive. The steep devaluation of national currencies in Russia, Turkey, Iran and Iraq has made our teas expensive."

Wickremeratne also complained about the non-use of cess funds exclusively for the industry, long delays on VAT refunds and compensation for land acquisitions.

Given the upturn in prices at the Colombo Auctions in 2009, he was hopeful that the onset of the quality season and relative short supply of teas in the first quarter of this year would ensure higher prices than in the fourth quarter of 2008."High costs of production and financing continue to impact profitability, so we look to 2009 with guarded optimism," he said.

Wickremeratne said that 2008 was a record year for tea prices, exports and production until prices were pushed down sharply in the fourth quarter of the year as a result of the global crisis. The company’s full year results were supported by a strong performance up to the end of September which mitigated the adverse impact of the final quarter.

Talawakelle has continued its capital expenditure program to develop its agricultural potential, upgrade its factories and improve social and infrastructure facilities with the ADB part funding field and factory development, he said.

They had continued to invest in worker housing, water and sanitation spending Rs.29.4 million on this account during the year with cumulative investment on this score running at Rs.162.8 million.

They had also invested a further Rs.27.4 million in hydro power projects during the year with total investment on this account to date totaling Rs.93.2 million. Two hydro power plants at Somerset and Palmerston estates commissioned during the year boosted power generated in the Talawakelle region to approximately 2 MW.

Hayleys Plantation Services with 74.7% is the major shareholder of Talawakelle followed by Merrill J. Fernando and Sons owning approximately 5%.

The net profit earned during the year was a record for the company whose net assets per share had grown to Rs.47.63 from the previous year’s Rs.45.59.

The company’s share traded at a high of Rs.44 and a low of Rs.12 during the year under review against a trading range of Rs.38 to Rs.16 the previous year.

Talawakelle has a stated capital of Rs.350 million and retained earnings of Rs.719.9 million in its books with non-current interest bearing loans and borrowings running at Rs.412.8 million and current borrowings at Rs.55.2 million.

The directors of the company are: Messrs. N.G. Wickremeratne (Chairman), S.T. Gunatilleke (CEO), Merrill J. Fernando (alternate- Ms. Minette Perera), Malik J. Fernando (alternate – D.C. Fernando), Dr. R.M. Fernando, J.M.S. Brito, M.M.M. de Silva, Dr. U. Liyanage (w.e.f. 23.12.2008), Dr. S.S.S.B.D.G. Jayawardena (w.e.f. 23.12.2008) and L.N. de S. Wijeyeratne (w.e.f. 23.12.2008).