Harry Jayawardena

Business tycoon Harry Jayawardena has made reference to the two fundamental rights applications filed in the Supreme Court challenging the sale of Sri Lanka Insurance Corporation Limited (SLIC) in the just released annual report of the Distilleries Company of Sri Lanka PLC (DCSL).

Noting that judgment in this case is pending, Jayawardena said: "Your company has defended these allegations vigorously through an eminent team of legal luminaries."

Discussing legal risks, the DCSL directors said that they "believed in obtaining the services of the most reputed legal luminaries in Sri Lanka to defend any litigation brought against the group." They also drew shareholders’ attention to the pending judgment ``as discussed in the chairman’s message.’’

Jayawardena said that the company’s written submissions can be viewed on the company’s website www.dcslgroup.com. However, nothing was available on the website which was described as ``under construction’’ when this reporter logged in on Wednesday.

DCSL is a major shareholder of SLIC owning 85.10% of that company indirectly through Milford Holdings (Pvt) Limited.

In the year ended March 31, 2008, DCSL posted gross group revenue of Rs.56.4 billion, up from Rs.46.8 billion a year earlier and a net profit of nearly Rs.4.2 billion, up from the previous year’s Rs.3.7 billion.

At company level, gross turnover was up to Rs.26.1 billion from Rs.23.7 billion while the profit of nearly Rs.2 billion, up from the previous year’s Rs.1.9 billion, was an all-time record.

Jayawardena in his Chairman’s message in the report made a strong case for developing the skills of Lankan workers going abroad for employment saying that the country was still dependent "on export of low-skilled labour with average earnings of between USD 6,000 to 12,000 per annum."

He made the point that India and other countries are successfully tapping the high-skilled labour demand in the world with earnings per worker of over USD 40,000 per annum.

``I urge the government and policy-making authorities to make focused efforts to upgrade the skills of the youth of the country and make Sri Lanka an exporter of highly-skilled talent rather than continuing to rely on low-skilled labour," he said.

"Policy changes and incentives to the private sector to set up technology oriented universities and technical colleges to train and award degrees in IT, software development, telecommunications, engineering and nursing fields that have a large demand in foreign labour markets, would no doubt save billions of rupees which are now remitted to foreign universities.’’

Jayawardena made the point that such an initiative would make affordable training available to a larger number of people who can afford foreign education.

Pointing out that exporting high skilled talent would increase foreign remittances exponentially, he also stressed the need for a strong monitoring body to ensure the quality of training and the skilled levels of the students qualifying from such institutions.

"This was a must to ensure that the degrees awarded by Sri Lankan institutions maintain the levels recognized in the world arena," he said.

"Foreign remittances from tourism and related areas of investment infrastructure will no doubt result in employment creation and increased foreign exchange earnings which will significantly enhance the living conditions of all our people."

He also said that the DCSL directors have embarked on a strategy of diversification to mitigate the negative impact of illegal and illicit liquor production of which they had very little control and to which the company is highly exposed.

This strategy has resulted in the group diversifying into plantations, financial services, telecommunications and healthcare, and through its associate companies, into logistics, infrastructure and leisure.

Their two companies in the beverage sector had managed to retain profitability and market share despite the challenges faced by the change in excise regulations allowing retail liquor licenses to be sold or leased to third parties.

"Several legal and illegal manufacturers are resorting to leasing liquor licenses and selling their goods on which, most often, the tax is unpaid thus depriving the state of large amounts of revenue," he said.

"I sincerely hope the authorities will realize that the decision to allow the lease of retail licenses to third parties is not beneficial and reverse the decision before the impact to government coffers becomes much larger."

Jayawardena also reported that the profitability in the telecommunication sector (Distilleries own 99.6% of Lanka Bell through Milford Holdings) was declining fast due to both intense competition and price based competition not normally seen in an oligopolistic market.

"Your company, Lanka Bell Limited, is adversely affected due to the inability to sell mobile telephones although the company has pioneered the successful implementation of CDMA technology," he noted.

He also reported that Lanka Hospitals Corporation PLC, in which Distilleries has a 63% stake, was now achieving higher occupancy levels with finance cost too down subsequent to debt retirement following a rights issue. DCSL group CEO Ranil de Silva expected that this company will turnaround in the coming year.

DCSL, despite being one of the county’s biggest and most profitable conglomerates, has a stated capital of just Rs.300 million, a capital reserve of nearly Rs.2 billion and revenue reserves of nearly Rs.16.3 billion.

The directors have recommended a dividend of Rs.1.75 per one-rupee share, up from Rs.1.55 per share the previous year and will seek shareholder approval for its payment at the forthcoming AGM.

Net assets per share (group) had grown to Rs.61.77 from Rs.48.74 the previous year while the share traded at a high of Rs.130.25 and a low of Rs.80 against a trading range of Rs.130.25 to Rs.41.25 the previous year.

Milford Exports with 41.49% followed by Lanka Milk Foods (CWE) (12.65%), Mrs. L.E.M. Yaseen (10.89%), Mr. M.A. Yaseen (6.64%), SLIC – Life Fund (3.81%), Pershing LLC S/A Auerbach Grauson & Co. (1.75%) and Mrs. S.M. Chrysostom (1.22%) are the top shareholders.

The directors of the company are: Messrs. D.H.S. Jayawardena (Chairman/MD), R.K. Obeyesekere, C.R. Jansz, N. de S. Deva Aditya, L.U.D. Fernando, Capt. (Rtd) K.J. Kahanda and Ms. V.J. Senaratne (Alternate to N. de S. Deva Aditya).