25/10/2011 (Lanka Business Online) - Sri Lanka's Watawala Plantations returned to profit in the September 2011 quarter, containing first half losses at 13 million rupees, as increased palm oil crops and prices helped offset losses from tea.

Group sales in the six months to September 2011 sales rose eight percent to almost three billion rupees from a year ago. The group had made a net profit of 157 million rupees in the first half of last year.

Watawala Plantations made a loss per share of six cents in the six months to September 2011 against a profit of 66 cents the year before as a recent wage hike eroded earnings, a stock exchange filing said.

The company turned a profit of 28 million rupees in the September 2011 quarter compared with a loss of 41 million rupees in the June 2011 quarter.

According to a segmental review of company performance, the group's plantations business made a loss of 37 million rupees in the six months to September 2011 compared with a profit of 154 million rupees the year before.

Profits from the group's marketing business were stagnant at 74 million rupees.

At company level, losses in the tea business of Watawala Plantations rose to 406 million rupees in the first half from 140 million rupees the year before.

However, rubber profits rose to 47 million rupees from 39 million rupees and palm oil profits rose to 213 million rupees from 136 million rupees during the period.

"The company showed an improved performance compared to the first quarter where the group's loss of 41 million rupees in the first quarter was reduced to 13 million rupees in the second," Watawala Plantations managing director Vish Govindasamy said.

"However, the company's loss at the end of the second quarter stood at 37 million rupees inspite of the entire plantation industry being adversely affected by a 27 percent wage increase which came into effect on April 1, 2011."

Although tea reported a loss for the quarter as prices fell, rubber, palm oil and retail marketing improved their performances when compared with the same quarter the previous year, Govindasamy said.

The average cost of production of tea increased by 41 rupees a kilo owing to higher wage costs and gratuity provisions.

"The company has now planned out several methods of improving productivity which would reduce the cost of production," Govindasamy said.

"The rubber prices remained high throughout the quarter which resulted in a better profitability. Profit on rubber was an improved 46.6 million rupees and the prices are expected to remain high in the ensuing quarter as well. These profits would continue provided the weather keeps fine in the Udugama area.

"Palm oil once again was the main contributor towards the company’s profits," Govindasamy said.

"The quarterly profit stood at 213 million rupees even after taking the increased wage. The production showed an 18 percent growth as several new fields came in to harvesting in the current period."

The turnover of palm oil increased by 42 percent which was also owing to a higher net sale average (NSA) in the period, Govindasamy said.

"Overall, though the company has recorded a loss in the current period, it has shown a better performance than expected.

"Every effort is being made by the management to recoup the past losses in the next two quarters where the NSA of tea is expected to improve," Govindasamy said.