Financial Times

Malwatte Valley earnings to improve with end of management deal
Malwatte Valley Plantations, known for its distinct Uva quality teas that fetch record prices during the season, has cancelled its costly management agreement with Wayamba Plantations in a restructuring exercise that is expected to result in an improved bottom line and higher dividends.
“Malwatte Valley is now free of the management fee, one of three regional plantations companies to be so,” a company official said.

Wayamba Plantations, as managing agent of Malwatte Valley, had been entitled to a management fee from the latter under the agreement which was valid till 2023. Company officials said the fees were very high and affected the firm’s bottom line even when it had a good year, sometimes depriving other shareholders of a dividend.

Malwatte Valley paid a management fee of Rs 22 million in the quarter ended June 30, 2005 on a gross profit of Rs 65 million. In the 2004 financial year, Malwatte Valley’s management fee, including VAT, amounted to Rs 63.8 million on a gross profit of Rs 228 million.

“The management fee was extremely high,” the official said. “So even if Malwatte has a good year, when you deduct the management fee, the bottom line drops. Then there’s no dividend for other stake holders – the managing agent takes everything.”

Other shareholders of Malwatte had been complaining of the high management fees charged by Wayamba. The two firms reached a deal this month with the help of a team of consultants and commercial banks to prematurely end the management agreement by paying compensation.

The funds required for the payment of compensation, which was not disclosed, was raised by Malwatte Valley through a long term loan from a consortium of banks – HNB, DFCC Bank and NDB.

“We reached an agreement with Wayamba to pay compensation up front and cancel the management agreement,” the Malwatte Valley official said. “So Malwatte is free of the management fee. That adds on to the bottom line which means better dividends.” Malwatte Valley remains the majority owner of Wayamba Plantations.

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