ECONOMYNEXT – Profits at Sri Lanka’s Watawala Plantation Plc grew 67 percent to 275 million rupees in the June 2019 quarter from a year earlier, helped by palm oil profits, while operating losses at its diary unit reduced, interim accounts show.
The group reported earnings of 1.29 rupees per share for the quarter. The stock closed at 23 rupees, up 90 cents.
Revenues grew 31 percent to 879 million rupees in the June 2019 quarter, and cost of sales fell 14 percent to 494 million rupees, boosting gross profits 62 percent to 385 million rupees.
"The palm oil sector revenue increase stems from the shifts in the yield curve and improvements made to the fertilizer regime," Managing Director Vish Govindasamy told shareholders.
"The volatility in the global oil palm market will remain and the excess supply of coconut oil into the domestic market will have some bearing on the demand for the palm oil in the remaining period of the year."
Global palm oil prices have fallen, along with coconut oil, but in Sri Lanka prices are kept artificially with import duties, giving higher than normal profits.
Sri Lanka’s politicians started taxing imported vegetable oils due to pressure from politically powerful coconut growers. But as large farms moved into palm oil, they have lost part of the edible oil market, in classic unintended consequence of state intervention, economic analysts say.
In another unintended consequence, the import protection has incentivized farms to replace rubber, a competitive export product, with protected palm oil.
Now controls of are being placed to stop the expansion of palm oil with the spreading of an idea that palm oil trees suck out water or cause other environmental impacts.
Globally however there is pressure on palm oil because in Indonesia and Malaysia, tropical forests are cut down for palm oil, some of which is used for bio-diesel.
At Watawala palm oil brought revenues of 743 million rupees in the quarter, up from 509 million rupees and after tax profits of 309 million rupees.
Revenues from diary grew to 136 million rupees, up from 94.2 million rupees while gross profits grew to 163 million rupees from 140 million rupees.
The gross loss fell to 27 million rupees from 45 million rupees a year earlier.
The segment was charged financial costs of 50 million rupees, up from 11.4 million a year earlier generating net loss of 68 million rupees, up from 44.9 million rupees.
"The increased milk production was driven by majority of the herd moving into the second lactation cycle, while the stringent cost optimization measurers resulted in improved performance during the quarter," Govindasamy said.
"The dairy segment will further consolidate its operations with more focus on rationalizing feed costs with increasing the milk yields."