Record profit posted as liquor giant further diversifies
Distilleries confident of billion rupee post-tax profit in fiscal 2003/2004

Distilleries Company of Sri Lanka Limited (DCSL) has expressed confidence that it would achieve the one-billion rupee post-tax profit benchmark during the current financial year.

The companyís Chairman, Mr. V. P. Vittachi, has expressed confidence on this score in the companyís just published annual report for the year ended March 31, 2003 when the DCSL group posted a record after-tax profit of Rs. 802.8 million, up from Rs. 578.9 million a year earlier.

Vittachi attributed the increased profitability to greater economic activity as a consequence of the relatively peaceful atmosphere during the year.

Noting that the company now has significant interests in several strategic sectors in the economy, he said that since 1992 the company had ventured into plantations, insurance and financial services and fabric processing.

"Our strategic investment in Aitken Spence & Co. Limited has given us a balanced exposure to many other sectors of the economy," he said.

DCSL holds 28.8% of Aitken Spence and earlier this year took control of the Sri Lanka Insurance Corporation Limited (SLICL) through Milford Holdings (Pvt) Limited, a special purpose vehicle formed to make the acquisition.

"The purchase price of 100% shares was a staggering Rs. 6.7 billion making it the largest ever privatization in Sri Lanka. SLICL has the largest asset base in the insurance industry and has over Rs. 27 billion in funds under management," Vittachi noted.

However, the liquor sector remains the groupís largest revenue and profit earner.

"With the volatility of profits in the other sectors, the liquor sector provides the consistency any diversified conglomerate needs to face changing business climates," the chairman explained.

DCSL itself with an annual turnover of Rs. 11 billion and an after-tax profit of Rs. 609 million during the year under review had paid Rs. 9 billion in taxes to the Treasury during the year, up 3% over the previous year. Since 1992, the company had paid over Rs. 78 billion as state taxes and ranks among the 10 top contributors to government revenue.

"In spite of this, imitations and illicit liquors continued to trouble the income and the profits of the company, as well as government revenue," Vittachi said.

The year under review saw the groupís plantation interest hurt by labour unrest, global tea prices and unfavourable weather conditions. At Balangoda Plantations, increased wages had added Rs. 60 million to cost and the company had recorded a loss of Rs. 5.7 million compared to the previous yearís Rs. 23.7 million profit.

Madulsima Plantations too had recorded its first loss since the DCSL group took control, losing Rs. 35.3 million against a profit of Rs. 40.1 million the previous year. The wage increase had added Rs. 122 million to cost and plunged the bottom line into the red.

Vittachi said that the Insurance Corporation acquisition was another step towards reaching DCSLís stated objective of reducing dependence on the core liquor sector as a major contributor to profits.

He also noted that the revival of the Colombo Stock Exchange had helped the DCSL share standing at Rs. 9.25 on the balance sheet date and varying between Rs. 7 and Rs. 10.25 during the year. This one-rupee share had peaked to Rs. 30 after the balance sheet date and has been trading above Rs. 25 in recent weeks.

"It appears that the analysts have finally realized the value of the share and the attractiveness of its earrings multiple in comparison to some other diversified conglomerates in the Colombo Stock Exchange," Vittachi said.

Milford Exports (Ceylon) Limited with 41.5% is the biggest shareholder of DCSL followed by Readywear Industries Limited (14.1%) and Lanka Milk Foods (LMF) (12.65%). Both Milford and LMF are Harry Jayawardene companies. Stassen Exports too has a 0.6% stake.

DCSL owns 43% of Balangoda Plantations and 31% of Madulsima Plantations and is also a major shareholder of the DFCC Bank with 2.85 million shares and the Commercial Bank of Ceylon with 0.9 million shares.

The company had an issued share capital of Rs. 300 million, capital reserves of Rs. 193 million and revenue reserves of Rs. 3.3 billion in its books as at March 31, 2003.

Although the company was in a net debt position due to its investment in SLICL, the directors have recommended the payment of a 45% dividend to shareholders maintaining the previous yearís return of rate.

"The prudent dividend policy of the company has enabled the directors to actively pursue a strategy of diversification and ensuring the wealth of the shareholders would continue to grow irrespective of uncontrollable external factors," Vittachi said.

The directors of the company are: Messrs. V. P. Vittachi (Chairman), D. H. S. Jayawardene (MD), R. K. Obeysekere, C. R. Jansz and A. N. D. Balasuriya.