Watawala Plantations 1H profits dip, turnover up

By Dinali Goonewardene

Watawala Plantations’ group revenue increased 8% in the six months to September 2011 to Rs. 2.99 billion as the company posted a loss of Rs. 15.3 million, a 108% drop from a profit of Rs. 156.9 million in the same period last year.

The Net Sale Average (NSA) of tea showed an overall drop and the company’s NSA dropped by 4.7%. The average cost of production showed an increase of Rs. 41 per kg due to the high wage cost and the enhanced gratuity provision, the company said in a statement. The company has now planned out several methods of improving productivity which would reduce the cost of production.

Rubber prices remained high throughout the quarter, which resulted in better profitability. Profit on rubber was an improved Rs. 46.6 million and prices are expected to remain high in the ensuing quarter as well. These profits would continue provided the weather keeps fine in the Udugama area, the statement noted.

Palm oil once again was the main contributor towards the company’s profits, with quarterly profits standing at Rs. 213 million even after taking into account the increased wage.

Production showed 18% growth as several new fields came into harvesting in the current period; palm oil turnover increased by 42%, which was also due to a higher NSA showed in the current period.

The company’s cost of sales increased 17% to Rs. 2.7 billion in the two quarters while gross profit declined 37% to Rs.266 million.

“The company showed an improved performance compared to the first quarter where the Group’s loss of Rs. 41 million in the first quarter was reduced to Rs. 13 million in the second. However, the company’s loss at the end of the second quarter stood at Rs. 37 million,” Watawala Plantations Managing Director Vish Govindasamy said in the company’s earnings release.

“The entire plantation industry is being adversely affected by the 27% wage increase which came to effect on 1 April 2011,” Govindasamy said. Although tea reported a loss for the quarter, rubber, palm oil and retail marketing improved on performance when compared with the same quarter the previous year.

Administration expenses rose 19% to Rs. 185 million, while distribution expenses increased 23% to Rs. 107 million. Retail marketing continued to improve with the company’s premium brands Zesta and Watawala Kahata continuing to improve performance, he added.

 “The third brand of Tea, ‘Ran The,’ also showed a steady growth showing a lot of promise for the future. Oliate Vegetable Oil, a product from our own fields grew by a fair proportion though we have not yet commenced any advertising or promotion,” he said.

The company’s management fee declined 55% to Rs. 14.9 million contributing to an 83% decline in operating profits to Rs. 37 million. Finance expenses declined 23% to Rs. 41 million. Overall, though the company has recorded a loss in the current period, it has shown a more improved performance than expected, Govindasamy said.

He added that every effort was being made by the management to recoup the past losses in the next two quarters, with the NSA of tea expected to improve.

Earnings per share in the two quarters were Rs. 0.06. The company’s net asset value per share was Rs. 10.17. Its shares closed at Rs. 14.80 on Friday.