Financial Times

Agalawatte Plantations starts harvesting oil palm crop
Agalawatte Plantations Ltd. (APL) has completed its programme of planting 1,000 hectares with oil palm and has begun harvesting the crop with a palm oil mill expected to be commissioned later this year.

The company's chairperson N.S.O. Nonis has told shareholders that rubber and tea prices are expected to remain strong owing to improved and steady demand.

Agalawatte Plantations went in for a three crop plantation with oil palm being an alternative crop to reduce its reliance on tea and rubber whose fortunes have fluctuated over the years. The company recorded a profit before tax of Rs. 50 million for the year 2004 compared to Rs. 52 million the year before.

While rubber was once again the main contributor to the bottom line, the tea sector contribution showed a significant improvement. "This result is creditable when considering the nearly Rs. 50 million additional cost impact due to the wage increase granted in July 2004," Nonis said in her annual report for 2004.

Sharp price increases in key inputs such as fertilizer and power and the Economic Service Charge that became payable during the year, also had a negative impact on profits.

The cumulative adverse impact of these on the cost of production completely offset the gains achieved through increased tea production, higher prices and improved quality and productivity and strict financial discipline.

"The company reached a landmark in turnover in 2004, crossing the Rs. 1 billion mark for the first time in its history: the turnover of Rs.1.09 billion being 18 percent above 2003," Nonis said.

The firm spent Rs 57 million on oil palm cultivation during the year. "The harvesting of oil palm commenced in 2004 and the crop is supplied to the Nakiadeniya Mill in Galle for manufacture."

The palm oil mill which is presently under construction by the joint venture company, AEN Palm Oil Processing (Pvt) Ltd at the Mohamedi Estate in the Kalutara district is expected to be commissioned in the latter part of 2005.

Agalawatte, managed by Mackwoods Plantations Ltd., has a joint venture with Elpitiya Plantations and Namunukula Plantations. "As regards the strategic direction, we remain committed to transforming APL from a primary producer to an agribusiness entity with a diversified revenue and profit base while always being mindful of our responsibilities to stake holders, society at large, and to the environment," Nonis said.

She quoted industry analysts as saying that rubber prices are expected to remain high in view of there being no major changes forecast for 2005 in the global supply and demand trends. Locally, the cess of Rs. 4 per kg imposed in October did not have a serious negative impact on the firm given the strong market.

The reintroduction of the rubber replanting subsidy for the plantation companies, utilizing cess funds, should have a positive effect on rubber replanting, Nonis said.

In tea, the market is projected to remain strong driven by improved demand. "In this context, the cost of production becomes the key to profitability, and the wage increase granted in July 2004, the sharp increases in input costs, and the cost impact of no longer being able to claim input credits, due to tea being exempted from VAT, will have a major impact on the 2005 results," Nonis said.

"Nevertheless, given normal weather patterns and industrial peace, the company can expect 2005 to be another profitable year."

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