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MUMBAI, March 25

TATAS' £271-million acquisition of the Tetley Group Ltd, UK, has started paying off with the involved special purpose vehicle (SPV), Tata Tea (GB) Ltd, announcing a maiden interim dividend of more than 40 per cent of Tata Tea Ltd's (TTL) 2001-02 profit after tax.

The board of Tata Tea GB, the 100 per cent owner of Tetley, has approved an interim dividend of £4 million (about Rs 30 crore) for 2002-03, of which Rs 25.35 crore will go to TTL, Rs 4.20 crore to Tata Tea Inc and Rs 45 lakh to Tata Sons Ltd. The dividend will be received and accounted for by all three companies within March.

In 2001-02, TTL had profit after tax of Rs 71.96 crore on total income of Rs 814.59 crore.

Its net profit slipped to Rs 67.1 crore (Rs 88.29 crore) for the first nine months of 2002-03.

At a press briefing here, Mr Anil Goel, Vice-President (Finance), TTL, ascribed the interim dividend to Tetley's strong performance. "Returns to TTL in terms of actual cash flow has begun happening earlier than expected," he said.

In January, TTL's statement on its nine month-performance for 2002-03, had noted on its 98.59 per cent subsidiary, "Tetley registered a sales value growth of four per cent and a growth in earnings before interest and tax of 11 per cent over the corresponding period of preceding year".

Mr Goel made it clear that the dividend was after taking into account Tetley's debt repayment schedule and funds for investing in its business. By way of priority, lenders continue to enjoy the first call on its cash flows, followed by the management's strategic vision. Shareholders' requirements come after that.

However, in the specific case of Tetley's acquisition, there was the need to show TTL's small investors " what was there in it for them". Hence, the dividend pay-out, though it is "the last of the wants".

Tetley's market share in key markets rose post-acquisition, in the UK to 26 per cent (21 per cent), for black tea in Canada to 40 per cent (34 per cent) and in Australia, to being its fastest growing tea brand. "You can't grow market share if you are not putting money behind the brand," he said, adding that Tetley needs no fresh debt to grow, there being adequate cash generation.

At the time of Tetley's acquisition in February 2000, the debt equity ratio of Tata Tea GB was 3:1. On March 7, 2003, TTL had informed that the SPV's entire outstanding debt was being refinanced cutting the weighted average cost of debt from 10.22 per cent to 6.70 per cent and debt equity ratio to 1.7:1. Alongside, Tetley was forecast to save £6 million in interest cost effective 2003-04.

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