JAMES Finlay is looking forward to a bumper year as good rains boost tea output in East Africa and Bangladesh, and world prices stay firm as a result of civil strife in Indonesia.

Executive chairman Richard Muir told the company's annual meeting in Glasgow yesterday: ''Looking forward, we are optimistic about the rest of the year.

''The crop continues to be high in Kenya and Uganda and the weather conditions at the start of the season in Bangladesh have been favourable. The crop in all three countries should be well above last year.''

World tea prices fell back from a high of $2.70 per kilo at the beginning of February, to $1.40 in early April, but have since recovered to $1.60 as a result of market jitters about unrest in Indonesia.

However, they are well ahead of last year's average price of $1.25.

After the meeting, Muir told The Herald that political unrest in Indonesia was largely responsible for the latest recovery in tea prices.

''Indonesia is the third-largest tea-exporting country in the world and although we think the tea estates are operating normally the ports have been quite badly affected, so supplies of tea from Indonesia are likely to be much less secure than normal,'' he explained.

The City welcomed the upbeat trading statement and James Finlay shares, which have doubled in value over the past two years, advanced 2.5p to a record high of 140p.

The company has recovered completely from its disastrous venture into financial services in the late 1980s, and felt confident enough to award its directors their first pay increase in five years. Their fees were raised 16% to #14,500.

But the move was opposed by shareholder Alistair Adamson, of Edinburgh, who said the directors should increase the dividend before starting to line their own pockets.

Adamson pointed out that the 1997 dividend of 4.15p was identical to that of 1993, but he was alone among the more than 40 shareholders present in opposing the increase in directors' fees.

Muir tried to assuage him by saying there were good prospects for raising the dividend further this year.

Finlay was forced to cut the dividend in 1995 as it struggled to sell off its financial subsidiaries and re-focus the company's activities on tea planting and trading.

Last year's increase merely restored the pay-out to its level of five years ago, prompting Adamson's protest at the increase in directors' fees.

Muir said he was still hopeful that this year's tea harvest in Kenya, which produces two-thirds of Finlay's crop, would equal the company's 1996 record of 24,000,000 kilos.

The crop in neighbouring Uganda, where Finlay is rehabilitating tea estates and planting new ones, should meanwhile rise 25% to 7,500,000 kilos, he added.

Profits from Sri Lanka will be enhanced by Finlay's purchase of a majority stake in two plantations for #15.9m. The process of buying control of the Hapugastenne and Udapussellawa estates is a few weeks behind schedule, but is now nearing completion.

The plantations grow 10% of Sri Lanka's tea and ownership of them should increase Finlay's operating profits from the country by about #1.5m, immediately. But Muir anticipates further improvements as the company takes action to improve their poor crop yields.

The Sri Lanka estates produce only 1200 kilos of tea per hectare, whereas the company's Kenyan estates produce 4000, he noted.

Looking ahead, Muir said Finlay was toying with the idea of producing instant green tea and green decaffinated tea to meet the growing demand for health drinks.