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| Sunday, 18 May 2003 |
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| News Business Features Editorial
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Year of ups and downs for Watawala Plantations Watawala Plantations the manufacturer and marketer of 'Zesta', one of the top value-added tea brands in the country, has reported a record turnover of nearly two billion rupees for the year ended March 31, 2003, but incurred a net loss of Rs. 25.9 million due to a combination of factors that affected the plantation economy in the year under review. The company's annual report showed revenue growth of 20.5 per cent to Rs. 1999.337 million, boosted by increased production of tea, improved rubber prices in the last quarter of the year, higher contributions from crude palm oil and kernel oil, and substantial contributions from the company's branded teas 'Zesta' and 'Kahata.'Additionally revenue growth more than doubled from exports of tea under a tripartite contractual arrangement involving the Tetley Group of the UK, Tata India and Watawala, from Rs. 134.2 million in 2001-02 to Rs. 292.6 million in 2002-03. These gains, however, have been offset by lower than anticipated tea prices, and increased costs of production due to an upward revision of worker wages which cost the company an additional Rs. 90 million over a nine-month period, increased fuel and power costs, a hike in fertiliser prices and other inflationary pressures.Highlighting the problem, the notes to the financial statements revealed that although revenue from tea was up 6.8 per cent to Rs. 1.371 billion in the year under review, gross profits from the tea segment fell by nearly Rs. 86 million or 52.3 per cent resulting in an operating loss of Rs. 1546 million. In contrast, the rubber segment performed better, converting a loss of Rs. 20 million in 2001/02 to a gross profit of Rs. 7.47 million. Significantly the company restructured the basis for computation of management fees, from being turnover-linked to profit (earnings before tax, interest, depreciation and amortisation)-based. As a result, management fees were reduced by 27.7 per cent over the previous year.Commenting on the results, Watawala Plantations Chairman G. Sathasivam has cautioned that the financial impact of the collective wage agreement that came into effect from July 2002 is quite extensive. "Together with the upward revision in gratuity provision, the financial impact was Rs. 90 million," he said, pointing out that "While management in the industry is sensitive and sympathetic to the cause of employee welfare, it is also concerned that regular increases in wages that are not geared to gains in productivity, will lead to a steady decline in profitability and thus strike at the very root of the viability of the industry." "It has become abundantly clear," he added, "that the plantation industry cannot sustain further wage and wage-related cost increases unless the wage packages are linked to enhanced productivity." Describing the year under review as one of many ups and downs in a background of rapidly changing national economic strategies and policies, Sathasivam noted however that Watawala Plantations has shown commendable resilience in its business activities which augurs well for the future of the company. |
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