Lankem Development to list subsidiary Agarapatana Plantations

Lankem Development PLC is to list its subsidiary is Agarapatana Plantations Ltd. (APL) via an Initial Public Offering. 

Lankem Developments holds 67% stake in APL or 281.3 million shares worth of which at cost is Rs. 2.1 billion as at 31 March 2022.

It said APL is convening an EGM on 25 January to obtain shareholder approval to list its voting shares by way of an IPO.

The move is subject to approval from the Securities and Exchange Commission and the Colombo Stock Exchange. Agarapatana Plantations Ltd. in FY22 reported a turnover of Rs. 4.4 billion, up by 5% YoY and a profit after tax of Rs. 27.8 million against a net profit of Rs. 189.5 million in the previous year. 

Lankem Developments in its FY22 Annual Report said the financial position of Agarapatana Plantations Ltd. will significantly improve during the year 2022/23 as a result of the profitable performance achieved during the last two years. 

The significant reduction in the working capital deficit by Rs. 578 million during the current year is evident that the company was able to generate profitable cash flows. The fact that the tea industry strongly believes that the current prices will remain firm in the next year too and based on the following action plans appended below, it could be fairly justified that the working capital position will be well improved in the near future.

APL has successfully restructured the BOC loans, by utilising the Escrow Reserve balance of Rs. 67million to settle a term loan of Rs. 47 million and the balance of Rs. 20 million was utilised for working capital purposes. Further, BOC granted a term loan facility of Rs. 75 million for the procurement of plucking machines towards the cost-effective improvements in harvesting.

The management has committed to bring in significant savings in the costs of harvesting by introducing machine plucking, with an increase in the production at a reduced labour cost which accounts for 60% of the COP. In this regard the management has strategised for 30% of the plucking extent to be mechanised within the next two years.

The company has successfully implemented the first phase of the mechanised plucking during the year 2020/21, whereby almost 165 machines were already in operation.

Machine plucking operates by way of two puckers per machine, harvesting at the rate of 35 to 50 kg per pluckier per day, with a norm of 30 to 40 kg and the over kilos are paid at Rs.30, whereas manual plucking average is 16 kg per plucker with a norm of 18 kg and the over kilos are paid at Rs.40. 

The company has lost a fair number of workers due to retirement etc and as such, currently the required plucking rounds cannot be undertaken due to shortage of workers, which will be mitigated by mechanised plucking.

The management’s stringent operational policy on labour management has been successfully implemented and followed by the estate management during the year 2021/22, whereby each estate should maintain the total monthly wage bill to a maximum of 60% of revenue.

The Board of Directors of Lankem Tea & Rubber Plantations Ltd., Managing Agents have decided to extend the moratorium placed on Management Fees for the coming financial year too.

Further during the year 2021/22, the related party debts amounting to Rs. 459 million has been converted to equity to further strengthen the capital structure of the company and shall continue extending similar financial assistance should the need arise.