Financial Times

Malwatte Valley hints at big dividend
Malwatte Valley Plantations is hoping to declare an "attractive" dividend to shareholders, its first in three years, given higher tea prices even before the onset of the Uva quality season in July and a forecast operating profit of around Rs.100 million for the year in the booming rubber sector.

Malwatte managing director Willem L. Bogtstra said the firm plans to tie up with Japanese buyers to market its teas under a brand name identifying estate marks in a project that will be funded with the help of a loan from the Asian Development Bank amounting to around a million dollars.

The company has turned around after a loss-making year following a management change after Bogtstra and members of the Dutch Gerlach family bought out the S.A. Silva family. Bogtstra declined to say how much the buy-out cost.

Malwatte Valley made a profit of Rs.16.8 million in the year ended March 31, 2004 compared with a loss of Rs.96.7 million for the same period last year. The company said it expects that if the results for this year are as predicted it would be able to declare an attractive dividend to its shareholders.

"We had two bad years," Bogtstra said. "Last year was pretty bad. Prices fell. Also the Uva quality season failed. Nearly all plantations companies lost money in 2003." However, Malwatte Valley teas are receiving "unprecedented" prices even before the onset of the Uva flavour season this year, Bogtstra said.

Malwatte Valley usually earns about 35 percent of its revenue during the "flavour season" in the months of July, August and September, when record prices are received for these teas. Innovations and changes in manufacture helped Malwatte achieve higher prices and improve profit margins.

"We've gone in for very fine plucking at the expense of crop. Our costs are up because the crop is down but our selling average is so much higher. We're going for quality. We went for volumes before.

"We changed manufacture to doing big leaf type teas, instead of conventional small leaf. There's more demand for these teas in the Middle East. The market is better than for small leaf conventional orthodox teas. We can do both now." The company forecasts an "extremely favourable trading position" in the tea sector if Malwatte flavour prices remain high.

Malwatte Valley also produces about two million kilos of rubber, both crepe and centrifuged latex. Rubber prices have "shot up like hell" and the sector was "looking rosy," Bogtstra said, adding that he hopes these prices even at present levels will result in an operating profit of around Rs.100 million for the year.

The company has been restructured because the branch office network "did not work like in the olden days," Bogtstra said. "We closed down our Badulla regional offices as we felt we can have better control from Colombo, we've brought in new planters."

Malwatte Valley has also started a hybrid flower project on one its estates in Bandarawela for export to specialized franchised flower importers in Japan whose normal source of supply was disrupted by political changes in Zimbabwe. Dutch firms operating there were forced to leave.

The climate in Bandarawela is very similar to that in Zimbabwe. Dutch flower breeders have given the company patent rights for the growth and sale of flowers to Japan. Bogtstra said the flower project was going to be "quite big" with flowers being grown on 30 hectares and exported to Japan for use in bouquets.

The company has also imported a portable sawmill to convert its logging operations into lumber in order to make better use of its "vast reserves" of timber. The company's balance sheet has been strengthened by Rs.347 million being the value of the timber reserves which have been capitalized.

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