MADULSIMA PLANTATIONS PLC Financial Summary and Investment Analysis

Executive Overview

MADULSIMA PLANTATIONS PLC operates plantation estates primarily across the Uva High, Uva Medium and Western High grown regions, producing tea alongside timber and other biological assets. Melstacorp PLC is the parent company and managing agent.

The company moved from severe losses in CY2023 to strong profitability in CY2024, but profitability weakened sharply in CY2025 as lower tea prices, a 35% plantation wage increase, higher input costs and adverse weather compressed margins. This pressure continued into H1 2026: revenue increased slightly YoY, but gross profit fell 70% and the company returned to a net loss.

The balance sheet is stronger in accounting terms following a major 2025 asset revaluation, but liquidity and leverage remain substantial concerns. The company remains dependent on financial support from Melstacorp PLC, and its net assets remain below half of stated capital.

Periods covered: Q4 2023 to Q2 2026, CY2023-CY2025, with latest market data through 2026-08-14.

Financial Performance

Revenue and Profitability Trends

*Quarterly figures below are standalone interim-quarter figures; Q3 2025 incorporates the subsequent errata correction. Rs. million.*

Q2 2026 revenue recovered 23.6% QoQ, but remained 5.1% below Q2 2025. Gross margin improved from virtually zero in Q1 2026 to 3.7%, but remained far below Q2 2025's 11.7%.

For H1 2026, revenue was LKR 2,278.9 million, +1.8% YoY, while gross profit collapsed 70.5% to LKR 47.4 million. Operating profit fell 17.2% to LKR 269.7 million, while finance costs increased. H1 therefore moved from a LKR 60.2 million profit in 2025 to a LKR 19.1 million loss in 2026.

Audited Annual Performance

CY2025 revenue declined 6.5%, gross profit 60.5%, operating profit 33.2%, PBT 61.3% and net profit 78.6%. Revenue nevertheless recorded approximately 4.1% CAGR from CY2023-CY2025, while earnings were highly volatile.

Audited CY2025 figures differ from the earlier unaudited year-end interim figures because of year-end adjustments; audited results should therefore be treated as definitive.

Balance Sheet Analysis

Equity returned positive in 2025 largely because of a LKR 1,049.5 million PPE revaluation gain, LKR 734.6 million after tax, rather than strong retained earnings. Accumulated losses remained extremely large at LKR 8,228.8 million at 2025-12-31.

At 2026-06-30, interest-bearing borrowings plus overdraft were approximately LKR 5.81 billion, equivalent to roughly 51% of assets and 9.2x equity. The company also explicitly states that non-current loans from Melstacorp exceed 10% of equity.

Cash Flow Analysis

CY2025 operating cash generation deteriorated dramatically despite reported profitability. H1 2026 worsened further, primarily because inventories absorbed LKR 527.6 million of cash. Bank overdraft consequently increased from LKR 22.2 million at 2025-12-31 to LKR 257.4 million at 2026-06-30.

No dividend was recommended for CY2025, with management prioritising investment and operational requirements. Negative free cash flow supports this conservative decision.

Key Financial Ratios and Growth Indicators

• CY2025 gross margin: 6%, down from 15%.
• Operating margin: 15%, down from 21%.
• Net profit margin: approximately 1.2%, versus 5.2%.
• Reported return on total assets: 6%, versus 11%.
• Debt/total assets: 0.51x at 2025-12-31.
• EPS: LKR 0.31, versus LKR 1.44.
• NAV/share: LKR 3.84, recovering from negative LKR 0.78.
• CY2025 capital expenditure: LKR 311 million, +86%.
• Made-tea production: 3.943 million kg, down only 0.8%.
• Overall cost of production: LKR 1,048/kg, +7.7%.
• Net sales average: LKR 1,053/kg, down 2.2%.
• Plantation profit/kg consequently collapsed from LKR 104 to LKR 5.

Western High operations were the strongest H1 2026 segment, generating LKR 61.9 million gross profit, while Uva Medium generated a LKR 45.3 million gross loss.

Economic and Market Context

Sri Lankan tea production increased modestly to approximately 264 million kg in 2025, but the national average tea price declined from LKR 1,225.17/kg to LKR 1,167.72/kg.

Management identified persistent labour migration, with the plantation workforce declining approximately 10%-15% annually. A 35% wage increase introduced from September 2024 added approximately LKR 345 million to 2025 labour costs.

Geopolitical tensions involving the Middle East and Russia increased fertilizer, chemical and fuel costs. Cyclone Ditwah materially affected the Badulla region, damaging infrastructure, disrupting workers and agriculture and increasing longer-term soil erosion and landslide risks.

Future Potential and Outlook

Management's principal strategic initiatives are:

• Expansion of regenerative agriculture and climate-resilient farming.
• Carbon-credit commercialization, potentially creating a recurring new revenue stream.
• Greater mechanization and factory/process efficiency.
• Crop diversification.
• Higher-quality/value-added tea and development of additional markets.
• Renewable-energy expansion through biomass and potential Uva-region solar generation.
• Accelerated timber harvesting subject to approvals.

Quality remains an asset: estates recorded 152 top prices across 11 tea grades during 2025.

Risks and Challenges

The most significant financial risk is going concern dependence on the parent company. At 2025-12-31, current liabilities exceeded current assets by LKR 187 million, accumulated losses stood at LKR 8.23 billion and net assets were below half of stated capital, constituting a serious loss-of-capital situation under the Companies Act.

The accounts remain prepared on a going-concern basis because Melstacorp PLC provided a minimum 12-month support undertaking covering financial assistance and confirming no intention to demand payments in a manner that jeopardises liquidity or to liquidate the company.

Other major risks are high leverage, weak operating cash flow, labour shortages/wage inflation, volatile tea prices, climate exposure, political/regulatory intervention and substantial reliance on fair-value biological assets.

KPMG issued an unmodified audit opinion, but going concern, the LKR 5.795 billion consumable biological-asset valuation, retirement obligations and PPE revaluation were key audit matters.

A 2025-11-18 errata also corrected Q3 2025 PBT from LKR 4.832 million to LKR 125.486 million and net result from a LKR 25.698 million loss to a LKR 94.956 million profit after finance cost had inadvertently been deducted twice. Nine-month results were unaffected.

Shareholder and Corporate Information

At 2026-06-30:

• Melstacorp PLC: 55.17%
• Stassen Exports (Pvt) Limited: 34.27%
• Secretary to the Treasury: 2.24%
• Public holding: 10.57%, up from 9.6% at 2025-12-31.
• Directors/CEO holdings: Nil.
• The company remained non-compliant with the applicable CSE minimum public-holding requirement.

The latest available close was LKR 10.10 on 2026-08-14, versus LKR 11.10 at the beginning of the latest 90-session window, a -9.01% return. Median daily turnover was only LKR 72.3 thousand, indicating limited trading liquidity. Foreign ownership remained negligible at approximately 0.03%.

Investment Decision Indicators

Strengths

• Large plantation and biological asset base.
• Strong recovery from CY2023 losses demonstrated earnings potential.
• Parent-company financial backing.
• Quality leadership and premium-price achievements.
• Mechanization, diversification, timber and carbon-credit initiatives offer additional income opportunities.

Weaknesses

• Severe 2025 margin compression continuing into H1 2026.
• High leverage and very large accumulated losses.
• Negative H1 2026 operating and free cash flow.
• Equity improvement depends heavily on asset revaluation.
• Persistent liquidity deficit and parent-company dependence.

Opportunities and Threats

The principal upside would come from recovering tea prices, stronger yields, reduced production costs, successful mechanization, timber monetization, carbon credits and diversification. The main threats are wage inflation, labour scarcity, adverse climate events, commodity-price weakness, financing costs and further deterioration in cash generation.

Overall assessment: The reports show a business whose operational recovery peaked in CY2024 and weakened materially through CY2025-H1 2026. The asset base and parent support provide important financial backing, but the key indicators to monitor are gross margin recovery, operating cash flow, inventory normalization, finance costs, debt reduction and whether profitability becomes sufficient without reliance on biological-asset fair-value gains or revaluations.