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| Friday, 24 October 2003 |
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Finlays to improve shareholder returns on plantations James Finlay and Co. (Colombo) Limited (JFC) said yesterday that its wholly owned subsidiary James Finlay Plantation Holdings Limited (JFPHL) has sold its majority shareholdings of 56.8% and 57.7% respectively in Udapussellawa Plantations Limited (UPL) and Hapugastenne Plantations Limited (HPL) to James Finlay Plantation Holdings (Lanka) Limited (JF Lanka), a wholly owned subsidiary of James Finlay Limited (JFL), Glasgow which is also the majority shareholder of JFC. The sale was concluded for a total net consideration of Rs. 501 million. The transaction prices were independently verified by the Board of Directors. The Company's acquisition of the plantations was made at a time when tea prices had peaked and plantation companies were reporting unprecedented levels of profit. However, immediately after the company acquired the plantations, the Russian Rouble crisis resulted in tea prices falling drastically. Notwithstanding this setback, the plantation companies of the Group continued to invest in fields and factories in order to increase production and yields and to improve the quality of the tea manufactured. Whereas, these investments would normally have been funded through cash generated from operations, in view of the fall in tea prices and the adverse cash flow the companies had no alternative but to seek long term borrowings and absorb large finance costs. The position further deteriorated with successive wage increases which had no relationship with productivity and the financial capability of the businesses. Other input costs such as fuel, electricity and transport also increased drastically, resulting in further pressure on profitability and cash flow. Although, during the period 1998-2003, the plantation companies made some significant strides in improving productivity and quality, the level of borrowings has reached a point where the debt servicing costs have completely eroded the operating margins. It is against this backdrop that the Directors considered it prudent to de-link the plantation businesses from the rest of the Group. JFL has rich experience in plantation activity for many years in Kenya, Sri Lanka, Bangladesh and Uganda and is ideally suited to take over the ownership and management of the two Sri Lankan companies. The Plantation companies will require significant amount of investment, which JFC, cannot, at this point in time afford. On the other hand, the non-plantation businesses of JFC have performed well and earnings and cash generation have been increasing steadily. As such, the continuing businesses of the Group have a strong foundation for future growth. After exiting from the plantations, JFC's activities will comprise Tea Exports, Warehousing and Green Tea, as well as its current Non Tea related activities. In Tea Exports, the Company has a wide customer base to which it markets value added consumer packs of its own brands, as well as customer brands. The Company's Tea Blending and Packing facility in Welisara is one of the most sophisticated of its kind in operation in Sri Lanka and the Company continues to attract new and discerning customers, who require the highest standards of product quality and hygiene in the processing of their orders. |
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