Profits have been boosted by a foreign exchange gain of Rs.544.6 million, up from a loss of Rs.210.1 million on this account the previous year, accounts published in the company’s just released annual report reveals.
Dilmah founder Merrill J. Fernando, who says that he owes his success to the quality of Ceylon tea, has focused in his Chairman’s Review to tea prices going through the roof during the year under review.
He said that while prices remained volatile in the first half, they stabilized later to provide a more favourable environment after two very difficult years.
"It is quite remarkable that tea prices reached highest ever levels, disregarding the fact that Middle Eastern markets, captive to Ceylon tea for generations, are deserting Ceylon tea for aggressively promoted and marketed international brand names which use cheaper tea of a style of manufacture culturally alien to Arab palates," Fernando said in his review.
"Pitiful marketing inactivity on the part of our traders and the Sri Lanka Tea Board left the opportunity open for this effective intrusion into exclusive Ceylon tea markets."
He reported that exports to Saudi Arabia, a prolific consumer of Ceylon tea previously, have slumped to 4.7 million kilos in 2009 from 11.4 million kilos in 2000.
Fernando, always an advocate of "Pure Ceylon Tea," said that the answer to Sri Lanka tea losing its preferred position in Middle Eastern markets is not to follow market leaders with branded tea and CTC manufactured tea but to re-launch traditional grades of pure Ceylon tea and market them strongly.
"There was a very popular pure Ceylon tea, packed and shipped from Sri Lanka under an importer owned brand name, which dominated the Saudi Arabian market for several generations. Sadly for Sri Lanka, that brand name too is now blended with other origin teas and packed in Saudi Arabia," he said.
"The Sri Lanka Tea Board invested several million dollars in advertising and promoting that foreign brand while being made aware that it will, sooner or later, become our biggest competitor in that country."
Fernando estimated that foreign exchange earnings from tea today would have comfortably topped USD 3 billion per year by now if more tea exporters made proper use of government incentives offered in the early 1980s to encourage exporters to move away from bulk tea exports to value added packaged tea under exporter-owned brand names.
He attributes the success of his Dilmah brand to having made optimal use of the incentives offered including bank interest subsidies, grants for tea bagging machines and tax holidays.
"In fact, these incentives helped to establish in our country a unique infrastructure for brand building and manufacture of value added tea – an industry feared by big overseas corporations and much envied by other tea producing nations," he said.
Fernando said that government may not have realized that by providing these incentives without any guidelines and clear directives how they should be used could make them counter productive. Instead of developing Sri Lanka brand names, the incentives were exploited by foreign traders to build their own brand names without their investing in plant and machinery.
"In this process, all the benefits of incentives accrued to foreign companies aided by local exporters. The resulting cost to the tea industry and to the country has been enormous, apart from the immeasurable long term loss created by these very same brand names which are our biggest competitors today," Fernando said.
He said demands that are currently being presented to government by exporters, largely on behalf of these foreign brand owners, are extremely harmful to the image and future of Ceylon tea.
"Many tea exporters are reliant on private label business (and) therefore they are subject to pressures which endanger the future of Ceylon tea," he said.
Ceylon Tea Services applied the incentives granted by the government strictly to benefit our tea industry and our country. The Dilmah brand was a beneficiary of government incentives and had in turn rewarded the industry by advertising and promoting Ceylon tea.
Dilmah helped to create a positive impression of Sri Lanka over the past 22 years by investing USD 8 to 12 million a year specially during the past 12 years, Fernando said.
"If 10 other brand names were developed taking advantage of incentives, Ceylon tea would have again become a powerful force," he said.
The directors of the company were rewarding the shareholders with the highest ever dividend paid by CTS – Rs.30 per share, up from Rs.25 per share the previous year.
Fernando expected the current year to provide greater opportunities to CTS according to present indications. He anticipated higher revenue and said that new activities and new innovations will keep Dilmah ahead of the competition.
Fernando concluded his review with a tribute to the late, Mr. Desmond Fernando, PC, who had been associated with CTS from its inception. He was a pillar of strength to the company and made a valuable contribution to it during his long association with CTS. He was also a close friend.
CTS has a stated capital of Rs.200 million, reserves of Rs.1.9 billion and retained earnings of Rs.3.25 billion in its books with total assets running at over Rs.5.9 billion and liabilities Rs.597.3 million.
M.J.F. Teas (Pvt) Ltd with 65.38% and M.J.F. Exports (Pvt) Ltd with 21.28% are the company’s biggest shareholders.
The CTS share traded at a high of Rs.550 and a low of Rs.300 during the year under review against a trading range of Rs.350 to Rs.255 the previous year.
The directors of the company are: Messrs. Merrill J. Fernando (Chairman), Himendra S. Ranaweera (Deputy Chairman/CEO), Malik J. Fernando, Dilhan C. Fernando, Minette Perera, Roshan Tissaaratchy, Rajan Asirwatham and Gritakumar E. Chitty.
source - www.island.lk
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