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« on: March 23, 2010, 04:16:16 AM »

Leaf Level
22 Mar, 2010 12:33:18
Sri Lanka Finlays unit reveals gains from commodities crash

Buying tea for stock during the commodities crash in the last quarter of 2008 helped boost profits at Finlays Colombo group last year, the Sri Lankan company has revealed.

The firm, part of the Swire group of the UK, said its tea packing business made higher profits in the first half of last year after a "bold" decision to accumulate stocks during the market crash.

Tea prices plunged at the Colombo auctions and large stocks remained unsold when the global commodities bubble burst towards the end of 2008.

". . .we had taken the bold decision to purchase tea for stock during October-December 2008 when prices of Ceylon tea unexpectedly dropped to very low levels," the company said in its annual report.

"The wise use of these stocks to drive margins resulted in divisional profits well above budget in the first half of 2009."

Chairman Kumar Jayasuriya said the firm's performance last year was "buffered by the profits earned in the first half of the year, when tea prices were low . . ."

Its tea packing and green tea businesses were able to increase gross margins, benefiting from falling input prices, particularly in the first half of the year.

However, although low tea prices in the first four months of 2008 swelled profits at Finlays Colombo, the trend did not last.

From May 2008 onwards, "tea prices rose to unprecedented levels, putting margins under severe pressure," the company said.

"The second half was tougher with input prices once again reverting to pre-meltdown levels and output prices tending to face resistance to upward adjustment."

However, profits were also boosted by the success Finlays Colombo had in raising retail prices of its packeted tea exports.

"Overall, our strategy of realigning selling prices in line with increasing Colombo auction prices, as well as the controlled release of teas purchased for stock in late 2008, made it possible for the Beverage Packing division to post a profit higher than the previous year."

Source: LankaBusinessOnline http://www.lankabusinessonline.com/fullstory.php?nid=721094239
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