Working capital: tea small holders turn to brokers, not banks

Ceylon Tea Brokers PLC profits up 48%, revenue up 28%

Tea small holders who account for around 70 percent of the country’s production finding it hard to access bank credit to finance working capital requirements are increasingly turning to tea brokers for credit, and banks are more willing to deal with brokering houses.

Finance is one critical area that a tea broking company must increasingly get involved with. This has become even more important with the development of individual proprietary factory owners who may not always find it convenient or possible to obtain their working capital requirements and on occasions even the medium term funding needed for development of their factories," Chrisantha Perera, Chairman, Ceylon Tea Brokers PLC, told shareholders in the company’s annual report for 2010/11.

"The brokers’ role has provided an important line of support to bridge this gap, and the banks themselves at times find it more stable to deal with the broking company, who are all corporate entities regulated under the licensing of Tea Brokers Act of the Sri Lanka Tea Board. It is therefore necessary that all concerned appreciate the importance of this service and ensure that the procedures adopted in the marketing of teas and settlement of sale proceeds permit the Broker to provide this funding in a suitable manner safeguarding the interest of all the parties involved," he said.

Ceylon Tea Brokers PLC results…

The company posted an after-tax profit of Rs. 34.57 million for the 2010/11 financial year, up 47.92 percent from the previous year boosted by a 28.53 percent increase in revenue to Rs. 275.76 million from a year earlier.

Distribution expenses increased 112.24 percent to Rs. 45.23 million and administration expenses grew 11.40 percent to Rs. 93.27 million while finance costs grew 13.68 percent to Rs. 80.57 million.

"Sri Lanka’s tea production in 2010 amounted to 331.4 million Kilos surpassing the previous best of 318.6 million Kilos in 2008. It is heartening to record that although Sri Lanka is not the largest global exporter in terms of quantity, we are by far the highest in respect of export revenue earnings," Perera said.

Managing Director W. A. T. Fernando said the company would continue to improve its profitability by consolidating expenses.

"The growth in our profit has been good and we hope to keep up the momentum by further cost consolidation. Essentially the infrastructure and capacity of the Company at present can easily handle a higher volume of tea and considering that the bulk of the cost are fixed, an increase in volume would have a direct impact on the bottom line of the company," he said.

Tea being a traditional industry, it was slow to change, but Fernando said steps have been taken to enhance the company’s performance.

"During the year our market share based on the volume of tea sold has gone up from 6.60 percent to 8.77 percent However, we are even more pleased that in terms of the value of tea sold, our market share is at 8.91 percent. This is significant because it indicates a high quality catalogue, which has been our goal from the inception.

"In order to achieve this we took several steps including increasing our staff strength so that each factory received undivided attention and very close monitoring at all times. We found that this focus helped all our clients to not only increase the quality of tea produced, but the resultant increase in the prices obtained at the auction, also helped to increase the quantity produced and their productivity, thereby improving their bottom line as well," Fernando said.

The company’s exposure to tea small holders is considerable and it plans to tap into the supply-base of regional plantation companies.

"Looking at our market share we note that we have a 12.50 percent share in the low grown category which has more representation by private tea factories. Therefore going forward we intend to try to have a better representation of marks from regional plantation companies as well. At the same time we will try to strengthen our high and medium and ex-estate catalogues as well, so that we will be able to offer the buyers a complete range of high quality Pure Ceylon Tea," Fernando said.

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