Sri Lanka’s Watawala Plantations profits down in Dec on flat revenue

ECONOMYNEXT– Watawala Plantations Plc, Sri Lanka’s largest palm oil producer, said the firm’s net profits fell 17 percent to 174 million rupees in the December 2019 quarter from a year earlier on flat revenue.

The group reported earnings of 86 cents per share for the quarter in its interim financial report.

For the nine months ending December, Watawala earned 3.82 rupees a share on profits of 776.6 million rupees, up 15 percent. The stock closed Friday at 25.40 rupees.

Revenues fell 1 percent to 775 million rupees in the December 2019 quarter on miscellaneous businesses, and cost of sales grew 2 percent to 493 million rupees, dragging down the gross profits 5 percent to 282 million rupees.

Finance costs grew 19 percent to 39.4 million rupees.

Watawala reduced its long-term borrowings to 649.1 million rupees at end-December from 1.1 billion rupees at the start of the financial year nine months earlier, while short-term borrowings grew to 181.1 million rupees from 144.5 million rupees.

Revenue for the quarter had fallen on the ‘other’ miscellaneous segment, which fell to zero from 13.3 million rupees a year earlier. Watawala has some residual tea businesses, as well as spice and timber operations.

The group spun off its main tea business into Hatton Plantations Plc, which was sold of to Singapore-based G&G group in 2019.

The main palm oil segment profits grew to 628.2 million rupees in December from 622.5 million rupees a year earlier, while net profits fell to 202.9 million rupees from 249.2 million rupees on higher cost of sales and finance expenses.

Watawala Plantations Managing Director Vish Govindasamy in an earnings release said the palm oil industry will face trouble in the future, as new tree planting has been restricted.

“Company has been challenged by the regulations imposed on palm oil and there by unable to continue the planting program,” he said.

“The industry had requested at least planting of the seedling materials laying at the nursery. The industry is engaging with the ministry authorities to get a clear future direction on the regulation relating to the industry.”

Sri Lanka has had oil palm for 51 years with no problems, but false accusations against the crop started only five years ago, the Planter’s Association representing regional plantations companies said in an earlier report.

The accusations include that oil palm depletes groundwater and causes droughts, as well as claims that they cause mange in dogs and pushing up the population of serpents.

The global opposition to palm oil came from Malaysia’s practices involving cutting down tropical rainforests to plant oil palm.

However, in Sri Lanka only unproductive rubber estates are re-planted with palm oil.

The government gives incentives to palm oil in the form of import duties on vegetable and coconut oil. High import duties make oil palm more profitable than rubber or any other crop by keeping domestic prices higher than world prices.

Sri Lanka also had high export taxes (cess) on raw rubber, which also reduces income from the crop to below the global price discouraging the
cultivation of any other crop.

Oil palm is also less labor intensive.

Meanwhile, the group’s dairy farm reported 147.2 million rupees in revenue, up 1 percent from 145.8 million rupees a year earlier, while the loss after tax improved to 42.1 million rupees form 47.2 million rupees a year earlier.

This is despite Govindasamy saying that milk yields and prices have both grown ‘significantly’.

“The revenue showed a continuous improvement during the period, as the milk volumes and prices have increased significantly,” he said.

“The improved milk yield 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 period.”

He said the dairy segment will perform better in the quarters ahead.

“The dairy segment will further consolidate its operations with better prices, due to the increase in demand for fresh milk in Sri Lanka,” Govindasamy said.

“Furthermore, the segment will focus on rationalizing feed costs, and increasing the milk yields.”