Financial Times

Manufacturing costs at the Dipped Products Group (DPL) were affected by the sharp rise of rubber and oil prices spurred by relentless demand especially from China, the company said last week.

Reporting good growth but a drop in profits at the end of the March 2006 year, DPL said rubber prices in the local market rose from Rs. 125 to Rs. 190 - a hike of 50 per cent. Cost escalations were also sustained in fuel cost, chemical inputs and packagig materials.

Wage increases needed to adjust incomes for inflation were compounded by additional increases mandated by Government in December 2005 effective from July 2005. DPL and its subsidiaries comprising world class hand protection manufacturing companies and plantations reported a turnover of Rs 7,109 million, up 16 per cent over 2004-05 with revenues from the Hand Protection sector growing 18 per cent and 10 per cent in the Plantation sector.

The company’s hand protection business in particular weathered a 10-year high in rubber prices which resulted in inflated production costs. All sectors of the business were affected by higher energy costs, wage increases and margin erosion due to an unrealistic exchange rate. The plantations were adversely impacted by sluggish tea prices and higher taxation.

Additionally, start-up losses at DPL's maiden venture in Thailand for the manufacture of medical gloves affected the Group's bottomline.

Profit before tax fell to Rs 415 million, a decrease of 33 per cent over the previous year's Rs 621 million, after discounting the extraordinary profits earned in that year from the sale of shares. Profit attributable to the company declined 41 per cent to Rs 286 million.

Nearly half the decline in profits is attributed to the loss of Rs 103 million incurred by Dipped Products Thailand Limited (DPTL) in its first year of manufacture of medical gloves. These losses were on account of unexpected commissioning problems of ancillary equipment, interruptions to power supply and unprecedented floods in Southern Thailand in November and December. These issues have now been resolved, the company said. In contrast, DPL's non-medical rubber glove manufacturing operations in Sri Lanka and its marketing subsidiary in Italy turned in a strong performance to post revenue of Rs 5,497 million, underscoring the capability of the Group to deliver robust growth even against a tide of adverse factors.