ECONOMYNEXT – Profits at Sri Lanka’s Watawala Plantations fell 58 percent from a year ago to 202.1 million rupees in the December 2017 quarter on sliding oil palm revenues, losses from a dairy start-up, and after its upcountry tea business was segregated into a separate company.
The company reported earnings of 85 cents per share in the quarter. In the nine months to end December, earnings amounted to four rupees per share on total profits of 945.5 million rupees, down seven percent from a year earlier.
Revenue fell 57 percent in the quarter to 615.9 million rupees and cost of sales increased 56 percent to 378.3 million rupees, resulting in gross profits shrinking 58% to 237.6 million rupees.
Had the upcountry tea business remained in the books the picture would be a slight improvement.
The segregated business, Hatton Plantations, made a net profit of 94 million rupees in the December 2017 quarter on revenues of 985 million rupees.Had this been included in Watawala Plantations,net profit for the quarter would have been 294 million rupees, down 36.5 percent from a year ago.
In September 2017, Watawala Plantations’ upcountry tea business was segregated into a new company, Hatton Plantations which was listed on the stock exchange in February 2018.
Watawala Plantations’ revenue from oil palm was 462.8 million rupees, down nine percent from a year ago. Oil palm accounted for 75 percent of total revenue in the quarter.
"The fluctuations in the import duty component in the sale price and the volatile Malaysian palm oil prices resulted in the lower net sale average for the period," the company told shareholders.
Watawala Plantations dairy business consists of 1,000 cows, half of them milking cows.
"The number of milking cows will increase when the rest of the herd start calving resulting in higher yields," the company said.
"Yields will also be greater when the second lactation cycle of the first herd of 400 cows begins in the ensuing months," it said.
The dairy farm is 11.5 million US dollar joint venture with Singapore-based fund manager Duxton Asset Management.
The company expects a return on investment of about 17 percent producing 30,000 litres of milk.
The farm is located on an estate land in Ginigathhena where tea cultivation is no longer profitable.
Watawala Plantations shares closed 70 cents lower on Wednesday at 28 rupees. (COLOMBO, February 07, 2018)
(Clarification: story updated to reflect impact on profits of seperation of tea business)