Fitch highlights worsening prospects for Sri Lankan tea industry
Fitch Ratings agency expressed worries about weakening credit profiles of Sri Lanka's tea plantations, as depressed prices and high wages impact profitability and future outlook. Fitch expects high levels of combined leverage, calculated as net debt/EBITDA, to continue amongst many Sri Lankan tea plantations due to regular wage increases and low productivity compared with other leading tea exporting countries. Auction prices have suffered recently in Sri Lanka due to lower demand from key customers, including Turkey, Russia and the Middle East. At the same time, labor costs, which represent about 70% of the production costs and are not linked to profitability, have risen sharply in the last few years. This eroded company margins and profitability, with many companies posting an operating loss in the first half of 2015.