Kelani Valley Plantations reports strong profit growth in 2006

PROFITS: Robust rubber prices have added bounce to the 2006 financial performance of Kelani Valley Plantations Limited (KVPL), the subsidiary of Dipped Products Limited (DPL), enabling the company to post a 92 per cent growth in pre-tax profit and a 68 per cent improvement in its bottom line.

In its annual report now in the hands of shareholders, KVPL has reported that turnover grew 21 per cent to Rs. 2,330 million over the previous year, with increases of 11 per cent from tea and 44 per cent from rubber, despite drops in production in the last two months of the year as a result of trade union actions over wage negotiations.

KVPL’s profit before tax of Rs. 291 million was made possible by an increase in the average prices of rubber at the Colombo auctions in the year under review. Profit attributable to equity holders of the parent company grew 66 per cent to Rs. 256.6 million.

Mabroc Teas, an associate company engaged in marketing of tea, contributed Rs. 18.6 million to KVPL profits in line with its performance of the previous year.

On the basis of these results, the Board of Directors of KVPL has recommended payment of a first and final dividend of 35 per cent, as against 20 per cent paid in 2005.

Reviewing performance in the year, KVPL reported that the estate ‘go-slow’ and strike spanning a 30-day period in support of the wage negotiations seriously affected all Regional Plantation Companies.

Division of opinion between the trade unions with regard to the quantum of wage increase prevented the companies from reaching an early settlement to the dispute, significantly depressing both tea and rubber outputs.

As a result KVPL’s tea production registered a decline of 6 per cent. Had normalcy prevailed during the latter part of the year, production would have exceeded that of the previous year, the company said.

Rubber production however had been on par with that of 2005, notwithstanding the exceptional wet conditions in October and November 2006. KVPL had also increased the quantity of bought latex by 15 per cent.

Referring to the impact of the wage increases which became effective in November 2006, KVPL has disclosed that the company incurred an additional expenditure of Rs. 64 million for the year under review, and that it will impact 2007 earnings by more than Rs. 200 million.

“To afford the wage settlement the Company would need to achieve a significant productivity increase, though agreement was not reached on this matter at the negotiations, along with a concurrent improvement in prices,” the company’s Chairman, N. G. Wickremeratne said.

Commenting on the prospects for the company in the current year, he said: “The work disruption in last quarter is likely to affect both volume and quality in the first quarter of this year.

The paucity of quality Western teas in the first quarter could adversely affect buying patterns in the medium and long term, as buyers may be compelled to look to other producer countries for equivalent products.”

“Rubber prices are expected to remain strong for the first half of the year and likely to stay high on account of continued demand from the large Asian economies.”