A significantly higher tea crop and strong rubber prices have combined to enable Kelani Valley Plantations PLC (KVPL) and the Dipped Products (DPL) plantation subsidiary, to end 2010 with a positive performance from a loss of Rs. 28 million in 2009.
In figures released to the Colombo Stock Exchange, KVPL has reported that turnover grew 35.6% to Rs 3.8 billion, largely as a result of these factors. The company achieved a 23% improvement in its tea output, which generated revenue of Rs 2.5 billion.
Adverse weather resulted in the company’s rubber output declining nearly 10%, but higher international prices helped generate turnover of Rs. 1.3 billion from the commodity, an improvement of 72%.
Consequently, KVPL converted a loss after tax of Rs. 40.6 million in 2009 to a net profit of Rs. 326 million, of which Rs 320.7 million is attributable to equity holders of the company. Earnings per share for the year reviewed amounted to Rs. 9.43 from a loss per share of Rs. 1.25 in 2009.
On the basis of this performance, the Board of Directors of KVPL has proposed a first and final dividend of Rs. 4 per share, payable on 11 April 2011.
Commenting on the company’s results, KVPL and Hayleys Group Chairman Mohan Pandithage said a substantial proportion of performance is attributable to the rubber sector, rather than tea.
“With the tea price improvement being only moderate, this highly labour and material intensive operation continues to be hampered by cost escalations in all inputs, whilst the strengthening of the rupee against the dollar diminished earnings in rupee terms,” he said, pointing out that unlike in previous years, the impact of wage and other cost increases have not been concomitantly cushioned by rupee depreciation in the year under review.
Pandithage also cautioned that the rubber boom may not be sustained over a long period of time. “The rubber market has been pushed to its present levels by production shortfalls in major producer countries, increased demand driven largely by the automobile industry – particularly in India and China – and the near total depletion of all major stockpiles,” he explained.
“This is a rare and unprecedented convergence of unlikely circumstances and any expectation of this position being sustained at these levels, for any length of time, would be unduly optimistic.”
“Historically, with time, all commodity markets adjust to supply, demand and pricing dynamics,” Pandithage noted.
“In this context, locally, it is important to consider the likely impact of the impending worker wage increase on future production expenses, whilst the recently imposed enhancement in the energy tariff adds a further burden to an industry already weighed down by rising input costs. The combined impact of these factors is likely to erode, to a large extent, the benefits that may be derived from improved commodity prices,” he said.
Pandithage also disclosed that the group ‘s acquisition of a majority interest in Hayleys Plantation Services (Pvt) Ltd., which owns Talawakelle Tea Estates PLC (TTEL), had confirmed the Group’s commitment to a sustained involvement in the plantation sector.
“In furtherance of this policy, KVPL, with its acquisition of the balance 60% of its former associate Mabroc Teas (Pvt) Ltd., during the year under review, augmented its marketing strength,” he said.
Kelani Valley Plantations manages 27 estates, over 13,000 hectares in extent, divided almost equally in to tea and rubber. All of the company’s black tea producing factories have been certified as HACCP and ISO 22000-2005 compliant with regard to product and quality standards, ensuring that the product meets the highest international food safety parameters.
The Board of Directors of Kelani Valley Plantations PLC comprises A.M. Pandithage (Chairman), J.A.G. Anandarajah, G.K. Seneviratne (Managing Director), R. Seevaratnam, F. Mohideen, N. Y. Fernando, S. Siriwardena, S. C. Ganegoda, L. T. Samarawickrama and S.T. Gunatilleke.