‘In palm oil we trust,’ says Watawala Plantations

Thursday, 22 May 2014 00:20 - - {{hitsCtrl.values.hits}}

Ends FY14 with revenue up and lower profit

Watawala Plantations PLC has reported revenue of Rs. 6.2 billion for the year ended 31 March 2014 (FY14), up 14.9% YoY. Net profit declined to Rs. 434 million for FY14, from Rs. 725 million recorded in the previous year. The overall decline in YoY PAT is mainly attributed to the 20.0% YoY wage hike which came into effect from April 2013, which increased the cost of production across all crops. Other income also contracted in FY14 to Rs. 90 million, down 35.7% YoY. 4QFY14 revenue stood at Rs. 1.7 billion, up 35.2% over the same quarter last year. PAT declined 9.3% YoY to stand at Rs. 123 million. The growth in revenue for 4QFY14 came on the back of higher volumes for both palm oil (+7.2% YoY), and tea (+2.3% YoY).

Palm oil segment The Palm Oil segment registered a revenue growth of 5.2% YoY to reach Rs. 1.4 billion in FY14, which accounted for 22.3% of the company’s revenue during the year. The revenue growth was mainly driven by an impressive increase in Fresh Fruit Bunch (FFB) Yield, recorded at 16,833 kg per ha in FY14, from 15,993 kg per ha in the previous year, resulting from the adoption of good agricultural practices over the last few years, in line with the company’s agriculture policy. The Crude Palm Oil (CPO) production grew 9.0% YoY to 8.13m kg for FY14 from 7.46m kg recorded last year, and. The segment maintained its position as the highest contributor to company profitability, having made a net profit of Rs. 633 million for FY14. WATA continues to be the single biggest CPO producer in Sri Lanka.

Tea segment Tea segment, the largest revenue contributor which accounted for over 66.7% of the total revenue, increased 13.9% YoY to Rs. 4.2 billion in FY14, mainly on the back of improved tea prices in FY14. The increased volumes experienced during 2HFY14, on the back of favourable weather conditions, mitigated the crop loss experienced due to heavy rainfall during 1QFY14. Tea production was recorded at 9.93 m kg for FY14, which was slightly above the previous year’s production of 9.89 m kg. The net loss from tea stood at Rs. 277 million in FY14 compared to a profit of Rs. 85 million in the previous year. The loss is mainly attributed to a 20.0% YoY wage hike, effective from April 2013, which resulted in an increase of average production cost by Rs. 38 per kg. As a result, the total negative impact on cost of sales amounted to Rs. 379 million for FY14. Although this was common for all three crops, tea was the worst hit as it requires the most number of associates per hector.

Rubber segment The rubber segment which accounted for 2.7% of the total revenue in FY14, experienced a 8.2% YoY drop in revenue to Rs. 169 million, from Rs. 184 million recorded last year due to a decline in production by 8.3% YoY. The drop in production was accounted by lower number of tapping days due to bad weather that set in from May 2013 through till September 2013. The net loss for rubber amounted to Rs. 28 million in FY14 against a loss of Rs. 2 million recorded last year.

Export segment The export sector recorded a significant improvement in revenue driven by value added teas sold at a higher price, compared to mainly bulk orders in FY13. Volumes were almost flat at 0.36m kg in FY14 compared to 0.39m kg in the previous year. Majority of the exports were to Tata Global Beverages for their Tetley operation in Australia, Russia, Pakistan, and India. In FY14, export revenue grew 91.5% YoY to Rs. 521 million from Rs. 272 million last year. Exports account for 8.3% of total group revenue. Outlook WATA has successfully endured a tough FY14, on the back of wage hike and tea crop losses, thanks to its diverse range of agri crops which nulled the risk of a single commodity to the company. FY14 being a ‘wage year’, the company had a 20.0% YoY increase in its staff related cost, but this was somewhat cushioned by a good harvest for our palm oil plantations, and strong tea prices. With associate wages expected to be fixed during FY15, we expect WATA to record a strong performance for the year ahead. The growth in revenue and profitability is expected to come from the palm oil segment, which has been WATA’s saviour last year. Furthermore, we are hopeful that the tea segment will return to profits during FY15, if the market prices continue to be buoyant. Management fee As per the CSE announcement dated 17 March, 2014, management fee paid to its parent, Estate Management Services Ltd. (EMSPL) will be suspended for the next five years. During FY14 management fee was calculated on the basis of 10.0% of EBITDA and amounted to Rs. 92 million (Rs. 138 million in FY13).

Dividend The Board of Directors have approved a dividend of Rs. 0.50 per share for FY14. This represents a pay-out ratio of 27.2%, and a dividend yield of 5.1% based on year end share price. A member of the Sunshine Group, Watawala Plantations PLC is a diversified plantation company in Sri Lanka, managed by the Group’s subsidiary, Estate Management Services Ltd., a joint venture with the TATA Global Beverages and Pyramid Wilmar Plantations (subsidiary of Wilmar International). The company manages a total land extent of over 12,000 ha in Tea, Rubber and Palm Oil with a workforce of over 12,000 people. The company has the largest palm oil plantation and the largest rubber factory in Sri Lanka to augment the production of almost 10 m kg of Ceylon tea annually.