MARKET DEVELOPMENT
Watawala Plantations Net Profit Declines To Rs. 434 M
Watawala Plantations Net Profit Declines To Rs. 434 M
26/05/2014 (Sunday Leader) - Watawala Plantations PLC (CSE: WATA) reported revenue of LKR6.2bn for the year ended 31 March 2014 (FY14), up 14.9% YoY. Net profit declined to LKR434m for FY14, from LKR725m recorded in the previous year.
The overall decline in YoY PAT is mainly attributed to the 20.0% YoY wage hike which came into effect from April 2013, which increased the cost of production across all crops. Other income also contracted in FY14 to LKR90m, down 35.7% YoY.
4QFY14 revenue stood at LKR1.7bn, up 35.2% over the same quarter last year. PAT declined 9.3% YoY to stand at LKR123m. The growth in
revenue for 4QFY14 came on the back of higher volumes for both palm oil (+7.2% YoY), and tea (+2.3% YoY).
Palm oil segment
Palm Oil segment registered a revenue growth of 5.2% YoY to reach LKR1.4bn in FY14,whichaccounted for 22.3% of the company’s revenue during the year. The revenue growth was mainly driven by an impressive increase in Fresh Fruit Bunch (FFB) Yield, recorded at 16,833 kg per ha in FY14, from 15,993 kg per ha in the previous year, resulting from the adoption of good agricultural practices over the last few years, in line with the company’s agriculture policy.
The Crude Palm Oil (CPO) production grew 9.0% YoY to 8.13m kg for FY14 from 7.46m kg recorded last year, and. The segment maintained its position as the highest contributor to company profitability, having made a net profit of LKR633m for FY14. WATA continues to be the single biggest CPO producer in Sri Lanka.
Tea segment
Tea segment, the largest revenue contributor which accounted for over 66.7% of the total revenue, increased 13.9% YoY to LKR4.2bn in FY14, mainly on the back of improved tea prices in FY14. The increased volumes experienced during 2HFY14, on the back of favorable weather conditions, mitigated the crop loss experienced due to heavy rainfall during 1QFY14. Tea production was recorded at 9.93m kg for FY14, which was slightly above the previous year’s production of 9.89m kg. The net loss from Tea stood at LKR277m in FY14 compared to a profit of LKR85m previous year.
The loss is mainly attributed to a 20.0%YoY wage hike, effective from April 2013, which resulted in an increase of average production cost by LKR38 per kg.As a result, the total negative impact on cost of sales amounted to LKR379m for FY14. Although this was common for all three crops, Tea was the worst hit as it requires the most number of associates per hector.
Rubber segment
The rubber segment which accounted for 2.7% of the total revenue in FY14, experienced a8.2% YoY drop in revenue to LKR169m, from LKR184m recorded last year due to a decline in production by 8.3% YoY.
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 LKR28m in FY14 against a loss of LKR2m recorded last year.
Export segment
Export sector recorded a significant improvement in revenue driven by value added teas sold at a higher price, compared to mainly bulk orders in FY13. Volumes were almost flat at 0.36m kg in FY14 compared to 0.39m kg in the previous year. Majority of the exports were to Tata Global Beverages for their Tetley operation in Australia, Russia, Pakistan, and India. In FY14, export revenue grew 91.5% YoY to LKR521m from LKR272m last year. Exports account for 8.3% of total group revenue.
Outlook
WATA has successfully endured a tough FY14, on the back of wage hike and tea crop losses, 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 bya good harvest for our palm oil plantations, and strong tea prices.
With associate wages expected to be fixed during FY15, we expect WATA to record a strong performance for the year ahead. The growth in revenue and profitability is expected to come from our Palm oil segment, which has been WATA’s savior last year. Furthermore, we are hopeful that the tea segment will return to profits during FY15, if the market prices continues to be buoyant.
Management fee
As per the CSE announcement dated March 17, 2014, management fee paid to its parent, Estate Management Services Private Ltd (EMSPL) will be suspended for the next 5 years. During FY14 management fee was calculated on the basis of 10.0% of EBITDA and amounted to LKR92m (LKR138m in FY13).
Dividend
The Board of Directors have approved a dividend of LKR0.50 per share for FY14. This represents a pay-out ratio of 27.2%, and a dividend yield of 5.1% based on year end share price. 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 Pvt. Ltd., a joint venture with the TATA Global Beverages and Pyramid Wilmar Plantations (subsidiary of Wilmar International). The company manages a total land extent of over 12,000 Ha 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 almost 10m kgs of Ceylon tea annually.
The overall decline in YoY PAT is mainly attributed to the 20.0% YoY wage hike which came into effect from April 2013, which increased the cost of production across all crops. Other income also contracted in FY14 to LKR90m, down 35.7% YoY.
4QFY14 revenue stood at LKR1.7bn, up 35.2% over the same quarter last year. PAT declined 9.3% YoY to stand at LKR123m. The growth in
revenue for 4QFY14 came on the back of higher volumes for both palm oil (+7.2% YoY), and tea (+2.3% YoY).
Palm oil segment
Palm Oil segment registered a revenue growth of 5.2% YoY to reach LKR1.4bn in FY14,whichaccounted for 22.3% of the company’s revenue during the year. The revenue growth was mainly driven by an impressive increase in Fresh Fruit Bunch (FFB) Yield, recorded at 16,833 kg per ha in FY14, from 15,993 kg per ha in the previous year, resulting from the adoption of good agricultural practices over the last few years, in line with the company’s agriculture policy.
The Crude Palm Oil (CPO) production grew 9.0% YoY to 8.13m kg for FY14 from 7.46m kg recorded last year, and. The segment maintained its position as the highest contributor to company profitability, having made a net profit of LKR633m for FY14. WATA continues to be the single biggest CPO producer in Sri Lanka.
Tea segment
Tea segment, the largest revenue contributor which accounted for over 66.7% of the total revenue, increased 13.9% YoY to LKR4.2bn in FY14, mainly on the back of improved tea prices in FY14. The increased volumes experienced during 2HFY14, on the back of favorable weather conditions, mitigated the crop loss experienced due to heavy rainfall during 1QFY14. Tea production was recorded at 9.93m kg for FY14, which was slightly above the previous year’s production of 9.89m kg. The net loss from Tea stood at LKR277m in FY14 compared to a profit of LKR85m previous year.
The loss is mainly attributed to a 20.0%YoY wage hike, effective from April 2013, which resulted in an increase of average production cost by LKR38 per kg.As a result, the total negative impact on cost of sales amounted to LKR379m for FY14. Although this was common for all three crops, Tea was the worst hit as it requires the most number of associates per hector.
Rubber segment
The rubber segment which accounted for 2.7% of the total revenue in FY14, experienced a8.2% YoY drop in revenue to LKR169m, from LKR184m recorded last year due to a decline in production by 8.3% YoY.
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 LKR28m in FY14 against a loss of LKR2m recorded last year.
Export segment
Export sector recorded a significant improvement in revenue driven by value added teas sold at a higher price, compared to mainly bulk orders in FY13. Volumes were almost flat at 0.36m kg in FY14 compared to 0.39m kg in the previous year. Majority of the exports were to Tata Global Beverages for their Tetley operation in Australia, Russia, Pakistan, and India. In FY14, export revenue grew 91.5% YoY to LKR521m from LKR272m last year. Exports account for 8.3% of total group revenue.
Outlook
WATA has successfully endured a tough FY14, on the back of wage hike and tea crop losses, 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 bya good harvest for our palm oil plantations, and strong tea prices.
With associate wages expected to be fixed during FY15, we expect WATA to record a strong performance for the year ahead. The growth in revenue and profitability is expected to come from our Palm oil segment, which has been WATA’s savior last year. Furthermore, we are hopeful that the tea segment will return to profits during FY15, if the market prices continues to be buoyant.
Management fee
As per the CSE announcement dated March 17, 2014, management fee paid to its parent, Estate Management Services Private Ltd (EMSPL) will be suspended for the next 5 years. During FY14 management fee was calculated on the basis of 10.0% of EBITDA and amounted to LKR92m (LKR138m in FY13).
Dividend
The Board of Directors have approved a dividend of LKR0.50 per share for FY14. This represents a pay-out ratio of 27.2%, and a dividend yield of 5.1% based on year end share price. 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 Pvt. Ltd., a joint venture with the TATA Global Beverages and Pyramid Wilmar Plantations (subsidiary of Wilmar International). The company manages a total land extent of over 12,000 Ha 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 almost 10m kgs of Ceylon tea annually.