Kelani Valley Plantations posts Rs. 300m pre tax profit

Kelani Valley Plantations PLC and its subsidiaries ended the year at a pre-tax profit of Rs. 300 million notwithstanding a very difficult final quarter which saw the collapse of major financial systems around the world.

Historically, this quarter has always been favourable in terms of both crop and prices and if not for the highly detrimental impact of the global financial collapse on commodity trading, KVPL would have ended 2008 with a far more attractive result, said the chairman, N.G. Wickremaratne in his annual report.

The year under review commenced on a promising note and apart from minor seasonal fluctuations, tea prices maintained healthy levels with prices overall being considerably higher than 2007, till the end of the third quarter.

October saw a complete reversal with sale averages declining to a two-year low and an accumulation of a large proportion of unsold catalogued volumes by end November. This, coupled with a similar downturn in rubber prices severely eroded profit margins and adversely affected Company cash flow.

Rubber production declined slightly compared to 2007 which was one of the better years in recent times. A better performance was denied on account of the unprecedented rainfall in the first half of the year which interrupted harvesting patterns.

Kelani Valley Green Tea recorded a profit of Rs. 5.05 million in 2008. Though the demand for the Green Tea from the Oliphant Factory was strong in the early part of the year, with the economic downturn in consuming markets, sales declined sharply in the last quarter. With the black tea market now slowly emerging from the trough there is some cause for optimism that green tea as well would revive in the not too distant future.

The Kalupahana Power Company recorded a profit of Rs. 4 million for the year. Feasibility of enhancing both power generation and turnover of this project are being evaluated at present.

The contribution from the associate, Mabroc, declined to Rs. 8.7 million from Rs. 211 million in the previous year, their performance having been adversely affected as they were compelled to purchase tea at higher prices on long-term export orders in the wake of a rising tea market during the year.

Their difficulties were further compounded by depressed earnings due to an over valued rupee.

The Nuwara Eliya Instant Tea Factory commenced limited commercial production during the year and the product has been well received by customers. Negotiations are under way with interested parties to secure firm purchase commitments to take up the full output of this facility.

Capital expenditure during the year was substantial, with investment focusing on renewal of the crop asset base, upgrading of plant and machinery, implementation of energy saving measures in the manufacturing process and to enhance the product range and the manufacturing flexibility.