Financial Times

Watawala Plantations went through a good 2005-06 year but has warned that the withdrawal of fertilizer subsidies among other issues could hurt profits from the tea sector in the current year.

The company, a top player in Sri Lanka in branded retail tea in value and volume terms but having rubber plantations which saw record prices last year, said post-tax profits rose by 26.3 percent to Rs 204.4 million also due to a good performance in tea and an impressive showing in the relatively new palm oil sector

Watawala, makers of 'Zesta', said turnover grew by five per cent to Rs 2,855 million and pre-tax profit was up 31.2 per cent at Rs 218.9 million.

“Tea continued to be the main contributor to the company's revenue, accounting for nearly 63 per cent of total revenue. Despite a marginal drop in production volumes, a strong focus on quality improvements and marketing has been cited as the key factors in the success of this segment.

The company's Retail Marketing Division, responsible for the marketing of its flagship brands 'Zesta' and 'Watawala Kahata' achieved a 23 per cent increase in revenue in the year under review,” the statement said.

Record rubber prices and a noteworthy 14 per cent increase in Watawala's rubber crop despite bad weather conditions in the rubber growing regions contributed to a 29 per cent increase in revenue from the rubber sector.

“An impressive performance from the relatively newer and smaller Palm oil sector provided the icing on the cake for the company, with production reaching a record 7.3 million kg., an increase of 17 per cent over 2004-05. Watawala Plantations is the only company operating a palm oil processing facility in Sri Lanka,” it said.

Watawala Plantations Chairman G. Sathasivam, in a statement in the report, paid tribute to the company's partnership with Tata Tea and the Tetley Group, the second largest global tea marketer. "The very strong supply chain that has been established by this arrangement enabled our products and services to reach Tetley customers throughout the world, while continuing to serve as the local exporting and packaging arm of the Tetley Group," he said.

He said the company's commitment to drive quality enhancement initiatives through the adoption of ISO, HACCP, 5S and Tea Association of Sri Lanka (TASL) certifications at estate and factory level had also paid dividends, with estates such as Vellaioya, Abbotsleigh and Kenilworth achieving all-time national record prices for selected grades on tea in the year under review.

In the rubber sector, Mr. Sathasivam reported that skilful utilisation of agricultural and processing technologies, the sustained rise in domestic and global market prices and the ISO 9001 certification of the company's Nakiadeniya Rubber Factory had contributed to consistently higher premiums. The company had also been able to minimise the vulnerability of rubber production to changing weather patterns with the aid of rain protection devices, thereby enhancing harvesting productivity.

Prices for Watawala Rubber reached a record Rs 205 per kg during the year.

New brands and product lines developed by the company have also shown good growth potential and represent significant value addition. Noteworthy among these are Watawala Pure Coconut Oil and Zest mineral water, which are expected to contribute to the company's top line in the future.

Watawala Plantations CEO Vish Govindasamy cautioned that the tea sector will face serious challenges due to ever increasing input costs and global oversupply. The recent removal of the fertiliser subsidy, the escalating world fuel prices and pending wage revisions later this year, will adversely affect costs of production, he pointed out.

"Our performance in 2005-06 was possible due to the fact that we have three crops, powerful brands, and a strong focus on marketing," Mr. Govindasamy said.