Watawala Plantations PLC (CSE: WATA) has reported revenue of Rs. 4.5 billion for the nine months ended 31 December 2013 (9MFY14), up 8.8% YoY. Net profit declined to Rs. 311 million for 9MFY14, from Rs. 589 million recorded in 9MFY13.
The overall decline in YoY PAT is mainly attributed to the 20.0% YoY wage hike which came into effect from April 2013, which inflated the cost of production across all crops.
In 3QFY14, Revenue grew by 13.2% over the same quarter last year to Rs. 1.7 billion. PAT declined 24.8% YoY to stand at Rs. 212 million. The strong bottom line contribution in 3QFY14 was very encouraging as 68% of the total profit was generated in the quarter under review.
Segmental review
WATA’s Managing Director Vish Govindasamy said: “Segment performance overall met our expectations, especially in the 3QFY14. Yield improvements in palm oil have been excellent, while the turnaround in the tea segment has been very encouraging. In a challenging year, we continuously keep re-inventing ourselves with productivity improvements.”
The palm oil segment registered a revenue growth of 5.4% YoY to reach Rs. 1.1 billion in 9MFY14 which accounted for 24.8% of the company’s revenue during the period. The revenue growth was mainly driven by an impressive increase in production of crude palm oil (CPO), resulting from the adoption of good agricultural practices over the last few years, in line with the company’s agriculture policy.
CPO production grew 9.5% YoY to 6.52 m kgs for 9MFY14 from 5.96 m kgs recorded in the same period last year. The segment maintained its position as the highest contributor to company profitability, having made a net profit of Rs. 465 million for 9MFY14, compared Rs. 447 million recorded in 9MFY13.
The tea segment, the dominant revenue contributor which accounted for over 65% of the total revenue, increased 6.7% YoY to Rs. 2.9 billion in 9MFY14, on the back of improved tea prices, and increased production volumes in the 3QFY14. Tea NSA (Net Sale Average) for 9MFY14 improved to Rs. 418, compared to Rs. 403 recorded in the corresponding period in the last year. The negative impact due to reduction in production volumes, resulting from the continuous rains which prevailed in the upcountry area during the 1st few months of FY14 was partially offset by the increased volumes experienced in the 3QFY14, on the back of favourable weather conditions.
Tea production was recorded at 7.28 m kg in 9MFY14, which equalled the previous year’s production of 7.30 m kg. As anticipated, at end of 1HFY14, the cumulative net loss of Rs. 233 million recorded for 1HFY14 reduced to Rs. 197 million, as substantial crops were harvested during 3QFY14, while tea prices continued to be buoyant.
Yet another factor that needs due consideration was the 20.0% YoY wage hike effective from April 2013 which resulted in an increase of average production cost by Rs. 41 per kg, and as a result, the total negative impact on cost of sales amounted to Rs. 289 million for the 9MFY14.
The rubber segment which accounted for 2.5% of the total revenue for 9MFY14, experienced a 23.1% YoY drop in revenue to Rs. 111 million, from Rs. 145 million recorded in 9MFY13 due to a decline in production by 15.3% YoY, compared to same period last year. The drop in production was accounted by lower number of tapping days due to bad weather that set in from May 2013 through till September 2013. The net loss for rubber amounted to Rs. 15 million in 9MFY14 versus the Rs. 2 million recorded in the same period last year.
Export segment
The export sector recorded a significant improvement in revenue driven by increased volumes due to several additional export orders received from Tata Global Beverages for their Tetley operation in Australia, Russia, Pakistan, and India. In 9MFY14, export revenue grew 75.5% YoY to Rs. 365 million from Rs. 208 million in 9MFY13.
Outlook
WATA has successfully endured a tough 9MFY14, on the back of wage hikes and tea crop losses, aggravated by extreme rainfall, thanks to its diverse range of agri crops which nulled the risk of a single commodity to the company.
FY14 being a ‘wage year’, the company had a 20.0% YoY increase in its staff related cost, but this was somewhat cushioned by strong tea prices, and a good harvest for our palm oil plantations.
Historically, 4Q is known to be the quality season, and provided there are no extraordinary weather conditions, we believe the company can recuperate most of its lost crop in the next few months up to the year-end FY14, to be at least on par with the volumes witnessed last year.
We are also confident that our palm oil plantations will continue to perform well and deliver expected crop, given the current weather conditions.
A member of the Sunshine Group, Watawala Plantations PLC is a diversified plantation company in Sri Lanka, managed by the Group’s subsidiary, Estate Management Services Ltd., a joint venture with the TATA Global Beverages Ltd. and Pyramid Wilmar Plantations (Part of Wilmar International). The company manages a total land extent of over 12,000 hectares in tea, rubber and palm oil with a workforce of over 12,000 people. The company has the largest palm oil plantation and the largest rubber factory in Sri Lanka to augment the production of more than 10m kgs of Ceylon Tea annually.
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