May 08, 2011 (LBO) - Palm oil prices are likely to remain firm owing to growing demand from emerging markets like India and China, shareholders of Shalimar (Malay), a subsidiary of the Carson Cumbebatch group, have been told.
Shalimar's net profit for the financial year ending March 31, 2011 shot up 218 percent to 153 million rupees from the yea before with sales more than doubling to 260 million rupees.
Annual earnings per share were 22.05 rupees against 6.94 rupees the previous year as the firm benefitted from higher sales owing to increased production and prices while costs were kept under control.
Shalimar (Malay) chairman Hari Selvanathan attributed the increased profit to "higher revenues stemming from higher average prices, increasing crop volumes and high dividend income."
The company’s crop production benefited from increasing yields due to progressive maturity of the plantations, he told shareholders in the company's annual report.
"Vegetable oils are expected to trade at a reasonably comfortable price range over the short to medium term supported by strong demand fundamentals," Selvanathan said.
The group decided to restructure its palm oil units and mop up stakes of minority shareholders in exchange for shares in the parent firm because of the benefits of economies of scale the move would yield.
"The growth of the industry over the last few years has resulted in consolidation amongst larger industry players," Selvanathan said.
"It has become imperative that a smaller company is inter linked to a larger company with presence across the value chain in order to maintain its bargaining power and the resultant long term sustenance.
"Companies can no longer operate confined to their segment of the industry value chain. A small player in the upstream segment like your company, will be vulnerable to prices, given the commodity nature of its output," he told shareholders.
"This was the same rationale that prompted the creation of Goodhope Asia Holdings (GHL), the holding entity of Carsons’ group plantation sector.
"GHL will hence systematically extend its operations across the value chain through presence in midstream and downstream processing and value adding activities.
The consolidation of plantation sector assets under one entity would provide the "impetus" to enhance volumes and effectively integrate and generate long term shareholder value creation, Selvanathan said.
However, he also said this would need "continuous re-investment of internally generated funds and new sources of debt and equity to support expansion plans."
Considering the cyclical nature of the industry, a "long term risk appetite" is required from investors with the ability to weather impacts of any cyclical trends in prices, he said.
"In addition to re-investments of the internally generated funds, a constant stream of long term funding is also required from equity holders."
GHL would now be able to pursue its expansion and integration plan by leveraging on the combined asset value and providing such assets as necessary securities for financing.
"The shareholders of Shalimar (Malay) who have accepted the offer will hence have access to over 80,000 hectares of plantations which are spread over different geographical locations as a result of this voluntary offer, as opposed to benefiting from 304.5 hectares coming under Shalimar (Malay)," Selvanathan said.
Four Carsons group Malaysian oil palm units, Shalimar (Malay), Good Hope, Selinsing and Indo-Malay are being brought under Goodhope Asia Holdings, the Singapore-based holding company set up to own and manage the group's south east Asian oil palm investments.
Carsons group has been mopping up minority stakes in its Malaysian oil palm units as part of a revamp to prepare for bigger investments and expansion outside the region.
In return, shareholders of the oil palm firms have been offered shares in Carson Cumberbatch and Bukit Darah.
PT Agro Indomas, the Indonesian plantation project made a profit after tax of 46.23 millon US dollars on a revenue of 120.30 million dollars during the year under review.
"The plantation operations in Indonesia are faced with managing social and community related issues in carrying out land development in remote locations," Selvanathan said.
In addition there are increasingly greater regulatory requirements to be met before the commencement of new projects.
source - www.lbo.lk
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