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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Wage increase and adverse weather plunges Hapugastenne into the red

Wage increase and adverse weather plunges Hapugastenne into the red

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CSE.SAS

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Rubber cushions worse result

Hapugastenne Plantations PLC, a James Finlay Company with estates located in the Rakwana, Passara and Hali Ela areas, has been unable to cope with a substantial increase in plantation worker wages granted last year and adverse weather conditions and has posted a loss of Rs.222.8 million in the year ended December 31, 2011 against a net profit of Rs.286.8 million the previous year.

The year had seen the tea segment losing Rs.297.4 million against a profit of Rs.292 million the previous year while rubber earned Rs.215.5 million, up from Rs.179.7 million the previous year and other crops contributed Rs.79.6 million, up from Rs.60 million the previous year.

The company’s Chairman, Mr. N.K.H. Ratwatte, has told shareholders in the annual report that the tea industry is currently going through one of its most difficult periods with prices under pressure and escalating cost of production.

During the year under review, the average sales price for tea was insufficient to meet the rising cost of production affected by erratic weather conditions and "the unprecedented increase in the daily wage of employees."

The wage increase had cost the company Rs.373 million during the year, he noted.

A silver lining of strengthening rubber prices had helped partially mitigate losses incurred by the company on tea during the year under review, Ratwatte said noting that rubber, timber and other crops had contributed Rs.295 million to Hapugastenne’s bottom line.

Dhayan Madawala, the company’s CEO, said that tea production was down 10% to 8 million kg. during the year as a result of erratic and adverse weather with unprecedented rainfall in January and February, which was four times the usual precipitation, and thereafter dry weather for long periods.

Tea price during the year was down by Rs.20 per kg. from the previous year and conditions compelled curtailing replanting during the year with the focus mainly on maintenance of existing new planting undertaken.

Though rubber prices had increased sharply, production was marginally down due to inclement weather with the crop down 7% when compared to 2010. But prices had been exceptionally good with sales average of Rs.452 per kg, up Rs.105 from the previous year.

"As a result, our rubber sector made a significant profit and the revenue generated helped mitigate the loss on tea to a great extent," he said.

Cost of production of estate crop had hit a dizzy Rs.415.10 which was somewhat reduced to Rs.375.56 thanks to outgrower leaf. Electricity cost was up 4% and the high cost of several input material contributed to the cost escalation.

The company continued its mechanization program with shear harvesting and 35% of the croppers were now on shears. This had gained popularity on the younger generation and augured well for the future.

During the year under review 85 ha of fuel wood, mainly of Euycalyptus and Mangium varieties, had been planted and the program for self sufficiency for firewood will continue. They have also embarked in planting minor crops - cinnamon, pepper and cocoa - to have a wider mix of crops and sustain their business going forward.

"The unproductive land on our estates is being planted with these crops whereby we will fortify our strengths to the maximum," he said.

The year had seen the disposal of matured timber trees generating Rs.34 million during the year.

Most of their factories, if not all, have been modernized and a low grown factory had been successfully converted to CTC. They have continued reducing energy consumption and succeeded in keeping cost to a minimum.

Hapugastenne had a stated capital of Rs.550 million, revaluation reserve of Rs.325.3 million, a general reserve of Rs.138.6 million and accumulated profits of Rs.154.7 million in its books as at December 31, 2011.

Total assets ran at Rs.3.3 billion, non-current liabilities at Rs.1.53 billion and current liabilities at Rs.573.4 million.

James Finlay Plantation Holdings with 58.87% and James Finlay with 21.06% were the major shareholders of Hapugastenne.

The directors of the company are: Messrs. N.K.H. Ratwatte, C.K. Jayasuriya, E.R. Croos Moraes, R.J. Mathison, P.R. Henson, J. Molligoda, J.M. Swaminathan, M. Vamadevan, D.H. Madawala and R.A.D.R. Ramanayake.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=53427

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