Distilleries Company of Sri Lanka (DCSL) Chairman/MD Harry Jayawardena has stressed that the Supreme Court "did not find any wrongdoing on the part of the company" in the Insurance Corporation privatization case.

"Although the Supreme Court directed to revert SLIC to the Secretary to the Treasury, the order stipulated that the purchase consideration should be returned to DCSL subsidiary, Milford Holdings (Pvt) Limited, along with profits earned during the period (SLIC was) managed by the company," he stressed.

Noting that the refund consideration is to be paid by way of five-year Treasury Bonds at the interest rates which prevailed at the time the order was made, Jayawardena said that DCSL was at present "vigorously following up with the Secretary to the Treasury" to obtain the bonds as directed by the court.

Saying that "when the winds change, we must adjust our sails," he reported that even without SLIC and related investments, DCSL turnover was up 5% over the previous year to Rs.40.4 billion.

But the group profit after-tax for the year ended March 31, 29 including the share of profit from SLIC, were down to Rs.3.4 billion from the previous year’s Rs.4.1 billion

This was mainly due to the poor performance of the group’s telecommunication segment (Lanka Bell) even though the results were in line with that of the telecom sector as a whole, Jayawardena explained.

With the war over, the economy looking up with inflation down to a single digit and IMF support for rebuilding the country’s external reserve, Jayawardena said that the group’s businesses, with a strong resource base, were particularly well placed to take advantage of unfolding opportunities Returning to a theme DCSL had stressed over the years, he estimated that the government was deprived of revenue of about Rs.5 billion per year in taxes and excise duties as a result of illegal and illicit liquor trade prevalent in the country.

"The legal alcohol market share continues to erode year-on-year depriving the government of much needed revenue........ We estimate that the illegal and counterfeit alcohol market is at least twice the legal market and is growing unabated and unregulated,"Jayawardena said.

Illegal alcohol had been manufactured by ``certain unscrupulous licensees" with spirits imported to make eau-de-cologne, he charged.

"It is well known that such manufacturers are acquiring retail licenses in contravention of the Excise Ordinance and monopolizing the trade in certain areas such as the North and East," Jayawardena said.

"Despite numerous representations made by the legal alcohol industry, the law enforcing authorities continue to turn a Nelsonian eye on these activities."

Discussing the plantation segment of the DCSL portfolio, Jayawardena said while it did well in the first three quarters of the year, it was hard hit by a sharp drop in tea and rubber prices in the last quarter of 2008. This together with unfavourable weather and labour problems as well as ever increasing cost of organic fertilizer further compounded the burden on the plantation sector.

In telecommunications, the entry of a fifth operator had made the market highly competitive and exposed to changes in price-related customer behaviour.

"The entire industry has reacted to the price war and suffered the consequences as evident from the results published by several leading companies in the industry," Jayawardena said

"Unless, the Telecommunication Regulatory Authority implements the CPP (Calling Party Pays) regime which will require the networks to pay for calls that are terminated to other networks, the future profitability and availability of funds for further technological advancement would be significantly affected."

During the year Lanka Bell had surpassed one million subscribers, a landmark achievement with its investment in the FLAG (Fiber Optic Link Around the Globe) submarine cable network opening market opportunities for businesses here. The benefits of this investment included reduced rates on overseas calls for the whole nation.

DCSL’s future strategies include expanding distributor networks in the new markets in the North and East and steps have been taken in this regard already.

The directors have proposed a first and final dividend of Rs.2.25 per one-rupee share, up 28% from last year, reflecting what Jayawardena called the group’s strong performance and his board’s continued confidence in the future of the business.

"The group is strongly committed to enhancing shareholder value and we believe that this has been possible due to our consistently strong cash flows, robust balance sheet and recurring revenue streams which provide a basis for a progressive dividend policy," Jayawardena concluded.

Two new non-executive directors, Mr. C.F. Fernando, a previous Managing Director/CEO of DCSL, and Dr. Naomal Balasuriya have joined the board. Fernando is a Chartered Accountant while Balasuriya is a medical doctor turned entrepreneur. Having served as a doctor in the SLAF he currently owns his own business.

DCSL has a stated capital of Rs.300 million, capital reserves of Rs.2.5 billion and revenue reserves of Rs.19.6 billion in its books with equity attributable to shareholders standing at Rs.22.4 billion against total assets of Rs.37.6 billion.

Milford Exports with 41.49%, Lanka Milk Foods (12.65%), Mrs. L.E.M. Yaseen (10.37%), M.A. Yaseen (8.19%), SLIC – Life Fund (7.41%) and SLIC – General Fund (2.42%) are the major shareholders.