Elpitiya Plantations Plc Annual Report 2010/11 - Colombo Stock ...

Managing Director’s Review
The financial year ended March 2011 was a remarkable year for
Elpitiya Plantations Plc, (EPP) as the company recorded its
highest profit since the inception of the company. This
achievement brought immense satisfaction to all who have been
associated with EPP particularly since 1997. We owe this
performance to the Chief Executive Officer (CEO) and all the
employees at the head office, the general managers, managers
and assistant managers on the estates, the staff and the workers
for their tireless efforts during the year. The performance would
have been even better had the tea estates contributed more
meaningfully to the profits of the company.
It is unfortunate that the tea industry, the country’s backbone and
the larger component in the company continues to lag behind
and was barely able to make a profit during the year. The high and
medium grown estates in particular were affected by inconsistent
weather and fluctuating tea prices, which contributed to the
negative margins on the estates. This is a serious area of concern
and has been aggravated by the recent wage increase.
Once in two years plantation sector wages are increased in
keeping with the collective agreement and whilst we appreciate
the need for increased wages and benefits to employees, it is
important that the increases are compensated with an increase in
productivity. When this does not happen, the industry gradually
erodes to a position when investors and stakeholders begin to
lose confidence on this industry. Unfortunately this is the current
position of the tea industry, which is clearly seen by the rate of
replanting in all the high and medium grown estates in Sri Lanka.
Unless this situation is corrected no investor will be willing to risk
capital in the cultivation/replanting of tea particularly in the high
and medium grown estates. This will not be in the interest of Sri
Lanka as a premier International Tea Producer.
Elpitiya Plantations Plc. had a rights issue to restructure the
balance sheet and stabilize the company. The rights issue was
fully subscribed and we were able to use the funds for the
intended purpose and eliminate much of the short debts. We
thank the shareholders for their confidence in subscribing to the
rights issue. This resulted in a substantially lower finance cost in
the company. We were also able to restructure some of the debt
and reduce overall finance cost by these efforts.
Our company has been fortunate that timely diversification has
helped to mitigate the vagaries of commodity prices. Rubber,
palm oil and hydropower profits have compensated to the losses
in tea. Rubber had one of its best years in the last two decades
with boom prices. Palm oil continued to show great promise with
price stability and contributed to the bottom line. The hydropower
investment too continues to yield more than adequate dividends.
The future for the plantations is no doubt challenging and does
pose great opportunities. The government has supported
agriculture and shown its commitment in no uncertain terms with
an attractive fertilizer subsidy, which was provided this year.
Economic policies have also been streamlined and the plantations
have great opportunities particularly for diversification provided
the right climate is created for such investments. This is the
challenge to all stakeholders as the company needs to attract
both investors and technology. Our strategy is to develop a
sustainable plantation company and accordingly, energy
conservation, water and soil conservation, soil enhancement and
commercial forestry has received top priority.
Several energy reducing initiatives have been introduced in the
factories such as fuel switching, process improvements and
installing energy efficient trough fans to reduce energy cost and
reduce emissions. Substantial savings have been seen as a result
of a combination of initiatives. Another mini hydro power project
is also expected to be constructed in the following year for which
all the preliminary work has been undertaken.
We are pleased to state that the asset base of the company has
significantly grown since 1997 particularly with the large timber
and forestry reserves in the high and medium grown areas gaining
in value each year. Even the year under review, the company
invested Rs. 242.8 Mn. for capital development. On the
diversification front the joint venture (JV) – Elpiitya Lifestyle
Solutions (Pvt) Ltd. has reduced its losses and created the much
needed turnaround. The branded tea operation – Harrow Ceylon
Choice has still not come upto expectations, although the
distribution network has significantly improved and the brand
value grown. AEN Palm Oil Processing (Pvt) Ltd. continues to fair
remarkably well and produce adequate returns. The company
has in place several committees that work closely with the
Elpitiya Plantations Plc Annual Report 2010/11
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