Madulsima Plantations PLC has told shareholders that the decision of the company to value its timber resources "has disclosed hitherto hidden assets of mammoth proportions," the company’s Chairman/MD, Mr. D.H.S. Jayawardena has told shareholders in the company’s annual report.
The gain in the change in fair value of biological assets of the company for 2011 of Rs.424.6 million has been credited to the income statement of the company, up from Rs.199 million the previous year, containing its loss for the year to Rs.23.4 million against a loss of Rs.42 million the previous year.
Jayawardena has told shareholders he very much regrets that the directors are not recommending a dividend for the year ended December 31, 2011 for the tenth consecutive year.
He said that although valuation of other biological assets are pending with the adoption of international financial reporting standards, the decision of the company to change its accounting policy recognizing timber plantations in the financial statements "should hearten stakeholders" despite the policy and environmental issues needing resolution with government authorities to convert such assets to cash over the medium and long-term.
Timber trees of the company have been valued by Mr. K.T.D. Tissera, Independent Chartered Valuer, on January 1, 2010, December 31, 2010 and December 31, 2011 at over Rs.1.9 billion, nearly Rs.2.2 billion and nearly Rs.2.4 billion respectively at a discount rate of 12%.
However the directors have used a discount rate of 14.3% to determine fair values of Rs.1.55 billion and Rs.1.75 billion.
Jayawardena has said that the company had lost Rs.23.2 million in the year under review against losses of Rs.41.9 million and Rs.175.6 million in the two previous years.
The social unrest that spread across the Middle East and North Africa had affected key consumer markets driving prices below economic levels.
"Despite evidence of growth in production, it was apparent the current model was becoming unsustainable," Jayawardena said.
"Among other factors influencing the negative tea market was the depressed state of the European economy with its debt crisis with currency fluctuations between euro and the dollar which was impacting negatively on the Russian economy as well. The vagaries of weather often moving towards extremes and mostly remaining inconsistent affected the quality seasons of Uva and Western regions limiting the seasonal teas on offer."
The wage increase had cost the company an additional Rs.135.5 million on account of daily paid employees which had been increased 14.5% over the preceding year.
However, there had been a significant decline in fertilizer cost mainly due to economic application of fertilizer during the year in view of financial constraints.
Madulsima has diversified into fruit plantation and has small extents of avocado and citrus plus slightly over 56 ha of rubber on its plantations in the Madulsima and Bagawantalawa regions, the report reveals.
Looking at prospects for this year, Jayawardena said that the tea industry is in crisis with high costs and falling commodity prices which calls for a more supportive role from the state and the stakeholders. The long-term development of the tea industry with short and long term funding would be a prerequisite to implement accelerated development programs.
"The industry needs to improve land and labour productivity. Land use diversification into areas such as forestry cultivation where tea cannot be cultivated needs to be encouraged with approved forestry management plans and rights to harvest in accordance with an approved plan,’’ Jayawardena said.
"The current crisis is partly caused by the inordinate wage hikes without being linked to productivity which is amongst the lowest in the global scenario. Work norms are crucial for sustainability and provide a key interdependent relationship for progress."
Madulsima has a stated capital of Rs.290 million, a general reserve of Rs.45 million, a revaluation reserve of Rs.335.1 million and accumulated profits of Rs.1.06 billion in its books.
Total assets ran at Rs.3.69 billion, non-current liabilities at Rs.847.4 million and current liabilities at Rs.1.1 billion.
Stassen Exports with 35.17% of the company, Distilleries (31.03%) and the Secretary to the Treasury with 13.1% are the major shareholders of Madulsima Plantations.
Net assets per share were down to Rs.59.56 during the year from Rs.60.36 the previous year. The company’s share traded at a high of Rs.37 and a low of Rs.14.80 during 2011 against a trading range of Rs.21.50 to Rs.13.50 the previous year.
The directors of the company are: Messrs. D.H.S. Jayawardena (Chairman/MD), R.K. Obeyesekere, Zaki Alif, Dr. N.M. Abdul Gaffar, S.K.L. Obeyesekere (Director/CEO), Dr. A. Shakthevale and D.S.K. Amarasekera.