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Tuesday January 31st, 2023

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.”

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Sri Lanka shares down for 2nd day as tax hike, delay in Chinese debt assurance weigh

ECONOMYNEXT – Sri Lanka’s shares edged down on Tuesday as worries over delay in financial assurances from China which is mandatory for a $2.9 billion dollar IMF loan and rise in protests against tax hike kept investors in check, analysts said.

The main All Share Price Index (ASPI) edged down by 0.28 percent or 24.62 points to 8,865.05. It fell for the second session after hitting more than three-month high.

“The market is looking for more macro cues because of faster Chinese debt assurance was expected. The market is also hit by fall in corporate earnings due to high taxes,” an analyst said.

China has given an initial response on debt re-structuring to Sri Lanka though analysts familiar with the process say it is not a ‘hard assurance’ sufficient for the IMF program to go through.

The International Monetary Fund is working with China on extending maturities of Chinese loans to defaulted countries like Sri Lanka, as there is resistance to hair-cuts, Managing Director Kristalina Georgieva told reporters on January 14.
The earnings for first quarter are expected to be negative for many corporates with higher taxes and rising costs. However, investors had not expected earnings to be low in the December quarter because of year end pick ups on heavy counters, the analyst said.
Earnings in the second quarter of 2023 are expected to be more positive with the anticipation of IMF loan and possible reduction in the market interest rates as the tax revenue has started to generate funds.

However, the central bank said the IMF deal is likely in the first quarter or in the first month of the second quarter.

The most liquid index S&P SL20 dropped by 0.64 percent or 17.74 points to 2,764.51 points.

The central bank has said it could cut interest rates in future when the country sees fall in inflation, which has already started decelerating.

The market saw a turnover of 1.7 billion rupees, slightly lower than the month’s daily average of 1.8 billion rupees and while being significantly lower than 2022’s daily average turnover of 2.9 billion rupees.

The bourse saw a net foreign inflow (NFI) of 93 million rupees extending the net offshore buying to 413 million rupees so far this year.

Top losers were LOLC, Royal Ceramics Limited and Hayleys. (Colombo/Jan31/2023)

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Sri Lanka exports fall in December as global recession weighs

ECONOMYNEXT – Sri Lanka’s merchandise exports earnings fell 9.7 percent in December year-on-year as the island nation saw a drop in buying from its key export destinations which are facing a looming recession after the Russia-Ukraine war.

The earnings from the merchandise exports recorded $1.04 billion  in December 2022 compared to the same month in the previous year as per the data released by the Sri Lanka Customs.

“This was mainly due to the decrease in export earnings from Apparel & Textiles, Tea, Rubber based Products, and Coconut based Products, Food & Beverages, Spices & Essential Oils and Fisheries products,” the Export Development Board (EDB) said in a statement.

“The reason for this decline was due to the ongoing recession in major markets due to rising cost of production, energy etc. Imports declined sharply due to inflation and demand for goods and services are reduced.”

However, Sri Lanka saw a record export earning of $13.1 billion in 2022 due to increased demand in the key exports throughout the year

Earnings from all major product sectors except Electrical & Electronic components as well as Diamonds, Gems & Jewellery fell in December.

Exports of Apparel & Textiles decreased by 9.6 percent to $480.3 million in December 2022.  Export earnings from Tea fell by 3 percent to $107.3 million, Rubber and Rubber Finished products dropped 20.3 percent to $74.5 million,

However, export earnings from the Electrical & Electronics Components increased by 16.18 percent to $42.9 million in December 2022, while Diamond, Gems & Jewelry jumped 35.7 percent to $30.8 million. (Colombo/Jan31/2023)

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Sri Lanka records over 6,000 dengue cases in first three weeks of January

ECONOMYNEXT – Sri Lanka recorded over than 6,000 dengue cases in the first three weeks of January 2023 after a spell of heavy monsoon rain though a drop in cases is likely from February, officials said.

Health officials identified 6,204 dengue patients by January 22, up from 5,793 recorded in the corresponding period last year.

“A rise in cases can be observed in the November-January period with the heavy rain due to the northeast monsoon,” an official from the National Dengue Control Unit told EconomyNext.

Of all reported cases, 46.3 percent were from the Western Province, official reports showed.

Akuressa, Batticaloa, Eravur, Trincomalee, Madampe, Badulla, Eheliyagoda, Kegalle, Kalmunai North and Alayadivembu MOH areas were identified as high-risk areas for dengue during the third week of January by the health officials.

“We are expecting a decline in dengue cases soon. The Western province is always in the top position with the highest number of dengue cases. Apart from that, we are seeing a higher number of cases during this period in areas like Puttalam, Jaffna districts. A certain number of cases have also been recorded in the Kandy district,” the official said.

“Usually the cases peak in December, but they decline by February. This year, too, we are facing this scenario. There is an increase of dengue during the months of November, December and January”.

Due to the economic situation in the country, the Public Health Inspectors (PHIs) in an earlier report said, diesel and pesticides are not being provided by the ministry.

However, rejecting the allegation, the official from the NDCU said the government has provided enough funds for get the necessary pesticides but it is being used according to a scientific method to avoid building a resistance in the dengue mosquito.

“The recommendation is to do the fogging if there is a dengue outbreak or if there are few patients reported from the same locality.

“If you use this pesticide haphazardly, the mosquitos will develop resistance against it,” the official said, adding that there are adequate stocks of the chemical available. (Colombo/ Jan 31/2023)

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