KVPL posts Rs. 544m pre-tax-profit

2011 has been a good year for Kelani Valley Plantations Ltd. (KVPL) Notwithstanding a sharp decline in the tea market commencing from the end of first quarter, a similar downturn in rubber prices in the latter half of the year, the impact of a wage increase effective from April, the Group posted a pre-tax profit of 544m, its highest since inception.

Political turmoil in the Middle East, North Africa and the Gulf Region, which together account for about 55 percent of annual tea exports from Sri Lanka, the debt crisis in EU and the post-tsunami dislocation in Japan, converged to destabilise Asian commodity markets in the second half of 2011. Prices declined and stayed down precluding what could have been an even better result for the year.

The plantation worker wage increase was negotiated without any disruption to work.

Its impact on KVPL translates to an additional Rs. 340 million annually.

Sri Lankan tea production declined marginally over the record crop of 2010 to end at 328.4 million kg whilst KVPL improved its production over 2010 by 10.1 percent with high-growns contributing 10.9 percent to the increased output.

Consequent to uncertainties in major markets, low-grown tea average declined by Rs. 11.92 per kg as against the previous year. With both high and medium categories diminishing proportionately, the national average dropped by Rs. 10.72 per kg over 2010.

Rubber prices rose steadily in all markets from the last quarter of 2010 up to the third quarter of 2011, with Latex Crepe peaking over $ 6 in June and RSS fetching equal value in February at the Colombo Auctions.

The Asian countries led by China and India accounted for much of the global consumption and the high prices.

However, the slowing down of these giant economies and financial instability in the Eurozone, combined with increased outputs during the year resulted in a sharp price decline in the last quarter of 2011. By end December, Latex Crepe and RSS were both trading at around $ 3 per kg.

The Group's profit before tax includes a contribution of Rs. 37 million from Mabroc Teas, our marketing subsidiary, which has been engaged in the export of value added products and brand promotion overseas for more than two decades.

During the year under review, it revamped its operations by investing in new tea blending, cleaning and packing machinery, automating and streamlining tea bagging operations, installing a new racking system and an office complex to accommodate all its operations under one roof.

The demand for Green Tea which declined sharply in 2009, continued to stagnate at unrewarding levels due to the availability of cheaper products from other origins. Consequently, production in the Company's facilities had to be curtailed.

The Instant Tea Plant at Nuwara Eliya which continues to operate more as a Research and Development Project did well during the year under review.