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| Sunday, 13 April 2003 |
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| News Business Features Editorial
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Rubber prices expected to be buoyant this year Kelani Valley Plantations Ltd recorded a pre-tax profit of Rs 67 million due to better contributions from rubber on the back of higher prices. The turnover improved by eight per cent to Rs 1,395 million due to both tea and rubber recording increases of six and 15 per cent respectively. However, the profitability of both sectors was affected by the wage settlement during the year, Chairman Kelani Valley Plantations Sunil Mendis said in the company's Annual Report 2002. Tea production grew by five per cent. The estate crop rose by six per cent while bought leaf remained unchanged during the year. The Hatton Dickoya region, which produces nearly half the output of the estates, recorded the highest crop in recent years due to favourable weather and the consistent application of improved agricultural practices. The stronger demand for tea from CIS countries and the Middle East increased the prices of low growns by six per cent while the surplus global production in the previous year caused the prices of high growns to decline marginally. The average price at the Colombo Tea Auction increased slightly during the year while the operating profit of tea was 14 per cent below the preceding year. Rubber production fell by 10 per cent due to wet weather while the rubber market made a significant recovery in the second half of the year, ending a five-year price depression. Sole crepe, the most value added product, remained stagnant in volume and price. Latex crepe prices peaked during the latter part of the year. The greater portion of the rubber production was sold to Dipped Products Ltd as latex. The increased prices enabled this sector to provide a substantial contribution to profits, reversing the losses incurred in the previous year. The wage increases negotiated under the collective agreement, which came into effect last July, had a Rs 40 million impact on profits. A sum of Rs 114 million was expended as capital expenditure for the year, increasing the cumulative expenditure since privatisation to Rs 1,166 million. Replanting of tea and rubber comprised two thirds of the expenditure. Energy saving equipment was installed at the larger factories to save increasing energy costs. Improvements to worker welfare were effected at a cost of Rs 15 million during the year, bringing the total to Rs 125 million since privatisation. There is a reported contraction in the global supply of tea in the first quarter of the year due to extreme weather conditions in the major tea producing countries, especially Kenya, India and Sri Lanka. Prices are expected to be strong in the first quarter of this year. Dry weather conditions too will increase tea prices particularly those from the Western hill countries. This is expected to continue to the second quarter. Instability in the Middle East could however seriously affect sales to the region and disrupt shipments to other markets through the Suez Canal. The three main rubber producing countries - Malaysia, Thailand and Indonesia - have formed a consortium to manage the supply of rubber to the global market. The consortium decided to curtail production by four per cent and exports by 10 per cent from the latter part of last year, to stabilise prices. Analysts predict rubber prices to stay buoyant during this year. Recovery in the Asian economy and an improvement in the presently sluggish Western economies are bound to underpin positive sentiments for rubber. Despite poor previous returns from rubber, the company has not compromised on either investments or practices in this sector which will now stand in good stead. A provision of Rs 10 million was made as deferred tax, increasing the total to Rs 52 million. The Board has recommended a first and final dividend of 10 per cent as opposed to the 7.5 per cent dividend last year. |
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