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OUROUR BOUNCEBOUNCE BACKBACK Talawakelle Tea Estates PLC Annual Report 2010 CLEAREDCLEARED PREVIOUSPREVIOUS HEIGHTSHEIGHTS Annual Report 2010 The key challenge that Talawakelle Tea Estates PLC faced during the year under review was to return the Company to profitability… to bounce back from a period of adversity. How well we coped with this challenge and how ‘high we were able to bounce our business’ back to well being is what you’ll read about in the ensuing pages of this Report. 2010 was a landmark year in which we achieved many ‘firsts’ and ‘best ever’ results… all of which bear witness to the fact that our ‘bounce back’ indeed ‘cleared previous heights’ of achievement. 2010 > Annual Report 04 08 Chairman’s Management Discussion & Analysis Statement Global tea trade increased; prices continued to be profitable; prices at Colombo Auction reached all time high of Rs. 370.61 per kg; Company Resilience, consistency and achieved production of 6.8 million kg; estate profitability increased; cost unwavering focus on strategy of production declined; Rs. 42 million expended on factory development. yields a year of record achievement. Group NPAT highest CIS 35.0% UAE 7.5% on record; Turnover exceeds Iran 21.9% Rs. 3 billion; quality of teas/prices Syria 3.2% commanded premium prices at Turkey 8.6% Jordan 8.0% Colombo Tea Auctions; Focus Iraq 18.1% remains on producing excellent Japan 23.4% Kuwait 17.0% teas at competitive prices. Libya 7.6% Aligning with Global Sustainability 25 49 Management Systems Financial Review 52 Company Policies on Human Resource, 36 Health and Safety, Environment and Quality and Food Safety Sustainability Report With a view to enhancing 54 60 transparency and public confidence Talawakelle Tea Risk Management Corporate Estates PLC analyses the impact that our activities have had on Comprehensive Risk Management Governance the economy, the environment regime in place. Best practice Corporate and the community. Governance regime in place. 72 75 Board of Directors Remuneration Committee Report 76 84 Annual Report of the Board of Directors Our Estates on the affairs of the Company and Factories 85 Statement of Directors’ Responsibilities Chilaw Kegalle Kandy Colombo Gampaha Nanu Oya 90 91 Talawakelle Income Balance Sheets Deniyaya/Urubokka Ambalanthota Galle Matara Statements Total Assets Profit/(loss) before tax Rs. 3.5 billion Rs. 169.2 million Profit/(loss) for the year 93 123 Rs. 164.5 million Cash Flow Ten Year Summary Statements Net cash from operations Cross Rs. 400 million mark Audit Committee Report 88 124 Independent Auditors’ Report 89 Investor Statements of Changes in Equity 92 Information Notes to the Financial Statements 95 Market Value The market value Subsidiaries 126 of Talawakelle Tea Estates PLC ordinary shares was Glossary 127 Highest 55.00 (17.09.2010) Notice of Meeting 128 Lowest 24.75 (07.01.2010) Form of Proxy Enclosed Year end 46.40 Chairman’s Statement The year under review saw the Group registering NPAT of Rs. 164.5 million, the highest on record and turnover crossing the Rs. 3.0 billion mark Dear Shareholder, Corporate Results The year 2010 was the first full year of peace The Company’s turnover for the year under review in our country distinguished by high economic increased by Rs. 191.1 million over the previous growth, lower interest rates and a rebound year to Rs. 2.87 billion and recorded a net profit in global tea trade. On this positive note, I after tax of Rs. 135.19 million, as against a net take pleasure firstly in welcoming you to the loss after tax of Rs. 13.8 million in 2009. Nineteenth Annual General Meeting of Talawakelle Tea Estates PLC and also in presenting the Annual The consolidated turnover of the Group was Report and Audited Financial Statements of the Rs. 3.0 billion, an increase of 8.3% over the Company for the year ended 31st December 2010. previous year. The Group’s net profit after tax amounted to Rs. 164.5 million, a remarkable turn Directorate around from a net loss after tax of Rs. 30.4 million Dr. R M Fernando and Mr. J M S Brito resigned last year. from the Board with effect from 7th April 2010 consequent to the purchase of the shares owned Resilience, consistency and unwavering focus by Aitken Spence PLC in Hayleys Plantation on strategy enabled the Company to face Services (Pvt) Limited by Dipped Products PLC. the challenge of returning to profitability. A confluence of factors, such as our persistent We take this opportunity to thank them for their emphasis on quality that entailed remunerative valuable contributions and guidance during their prices at the Colombo Tea Auctions and the tenure on the Board. relatively favourable weather for tea crop, contributed to the turn around during the year. During the year, Mr. J A G Anandarajah, Managing The increase in tea production to Rs. 6.8 million kg Director of Dipped Products PLC and Director of from Rs. 6.3 million kg and a significant reduction Hayleys PLC and Mr. G K Seneviratne, Director in borrowings and finance cost also had a positive of Dipped Products PLC and Managing Director impact on the year’s results. of Kelani Valley Plantations PLC were appointed to the Board with effect from 29th April 2010. They bring with them proven experience in management of plantation businesses. Talawakelle Tea Estates PLC 04 Annual Report 2010 Chairman’s Statement Estate performance improved well-above the Continuous upgrading of our factories to meet levels of last year recording an overall operational International Quality Certification Standards and profitability of Rs. 172.8 million. The high grown adoption of good agricultural and manufacturing estates made a significant contribution to this practices have been the key components of our end. An excellent performance in the first quarter, quest for quality. with a record crop in January, and a strong market made it possible to record the highest profit for Development and Investments the year. The second and third quarter earnings Investment to enhance long-term earnings potential were low with the fourth quarter posting a strong continued to receive priority with the Company performance on the back of improved crops and undertaking its capital development programme tea prices. to increase land, factory and human capital productivity. Investments were made in replanting of The hydro power sector also performed well during low yielding tea fields, improving factory throughput the year with a profit before tax of Rs. 31.3 million and in social and welfare infrastructure. contributing to the Group’s profit before tax of Rs. 169.2 million. The total capital expenditure incurred during the year on field and non-field activities was Quality Rs. 198.4 million. The cumulative investment The Company was ranked No. 1 at the Colombo since privatisation now stands at Rs. 3,031.5 Tea Auctions for prices amongst the Regional million. Expenditure on improving housing, Plantation Companies in the high and low grown water, sanitation and related social welfare elevations during the year. The average tea price activities amounted to Rs. 39.9 million in 2010. registered by the Company improved over the The cumulative cash outlay to date in this sphere previous year and was well-above the national of activity amounts to Rs. 245.1 million. In this averages. connection, we wish to place on record our appreciation of the assistance received from the Mattakelle Estate was ranked No. 1 amongst all Plantation Housing Development Trust and the estates in the Western high grown region and four Japan Bank for International Corporation. of our high grown marks were among the top ten rankings in the Western high grown catalogue. During the year under review, the three Hydro Ten out of our eleven high grown estate marks Power Plants located at Radella, Somerset and one out of four low grown estate marks and Palmerston were fully operational. These recorded prices above the national elevation investments in renewable energy will in future averages during the year. years benefit the Company as their combined capacity makes our properties in the Talawakelle region almost self-sufficient in their electrical energy requirements. 05 Talawakelle Tea Estates PLC Annual Report 2010 Chairman’s Statement Dividends initiative that will give much needed impetus to The Board proposes the payment of a final dividend our teas in the international consumer markets. of Rs. 2.50 per share. Sustainability to ensure medium to long-term Awards viability is a key area of our focus. Replanting of The Company’s Annual Report for 2009 received our poor yielding teas and adopting sustainable a Bronze Award from the League of American agricultural practices will always receive priority in Communication Professionals at the 2009 Vision our agenda. Awards Annual Report Competition. We were also recognised as the Best Performing (highest GSA) With economic returns on replanting being low Regional Plantation Company for 2009 in high and long term, we welcome the decision to set up and low grown categories at the Annual Awards an investment fund as proposed in the budget. In Night organised by Forbes and Walker Tea Brokers this context, we request the authorities to utilise (Pvt) Limited. the funds now lying to the credit of the Plantation Trust Fund as seed capital to offer concessionary Strategy and Prospects financing for the industry. Our endeavour is to produce excellent teas that delight our customers while remaining cost Continuing to be an environmentally conscious competitive. Quality, productivity, sustainable producer is another key sustainability initiative that agriculture and teamwork will continue to be is receiving our attention. We have undertaken the cornerstones of this venture. We see the a programme to certify all our estates under the impact of climate change - its erratic cycles and Rainforest Alliance.

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