28/01/2012 (Lanka Business Online) - Sri Lanka's Watawala Plantations said December 2011 quarter net profit fell 39 percent to 158 million rupees from a year ago, with a profit expected in the last quarter as well after losses earlier in the year.

The company said that strong palm oil prices had helped cushion a fall in tea and rubber prices.

Sales of the firm fell six percent to 1.6 billion rupees in the quarter from the previous year, a stock exchange filing said.

Net profit for the nine months to December 2011 was down 65 percent to 145 million rupees while earnings per share fell to 61 cents from 1.77 rupees from a year ago.

According to a segmental analysis of the results, net profit from plantations in the nine-month period plunged to 29 million rupees from 333 million rupees the year before.

Net profit from the group's marketing business was 166 million rupees compared with 158 million rupees the previous year.

"The group continued to improve its performance over the nine months where it recorded a profit of 145 million rupees after tax," Vish Govindasamy, managing director of Watawala Plantations, said in a note accompanying the accounts.

"This showed a third quarter profit of 158 million rupees which enabled the group to wipe off the loss of 13 million rupees which was reported at the end of the second quarter."

Govindasamy said the net sale average of tea did not improve during the period "with some very good teas being sold at relatively low prices at the Colombo auctions."

The firm's average cost of production increased by 34.22 rupees a kilo owing to high wage costs and the enhanced gratuity provision following a wage hike wrested by labour unions last year.

"The company has now implemented several methods of improving productivity which has in effect reduced the cost of production," Govindasamy said.

"Rubber prices appeared to be settling down with the net sale average being recorded at around 350 rupees soon after the end of the third quarter," Govindasamy said.

"Profit on rubber improved marginally to 49.1 million rupees. The rubber prices are expected to remain steady in the ensuing quarter as well."

Watawala Plantations' palm oil estates continued to be the highest profit earner for the company contributing a profit of 280 million rupees during the nine months to December 31, 2011.

"With the palm oil production improving by 28 percent during the nine months and the net sale average showing a marginal increase, this product improved its profitability during the nine months," Govindasamy said.

The company has now added the machinery needed to value add crude palm oil by refining it to give an edible product to the market, he said.

"This has enabled the company to report an enhanced profit under the palm oil category."

The group's Watawala Marketing subsidiary, which is to be sold, made a profit of 165 million rupees for the nine months.

"Overall, the company has recorded a profit for the nine months and has come out of the loss making situation having reported losses in the last six months," Govindasamy said."This trend is expected to continue in the final quarter."