Ads ban on tobacco, liquor hurts DCSL bottomline

Stringent regulatory measures adopted by the government on the public advertisements of tobacco and liquor saw a reduction in volume of liquor sales in Distilleries Corporation of Sri Lanka (DCSL), which saw a dip in its profits for 2006/07.

Stock market analysts said that the revenue of the company taken individually was rather moderate with 23.6 percent. “This was driven by the increase in liquor prices during the year though the volumes in sales witnessed a drop,” S. Umasudhan, Senior Research Analyst S.C. Securities said.

He further said that this volume decrease was mainly due to the ban on the public advertisements of tobacco and liquor.

The fourth quarter of this year reported a reduction in the group’s profits to Rs.614 million compared to Rs.896 million reported a year earlier which saw a dip of 31.5 percent. “The reduction in the profit of the fourth quarter was mainly contributed by the surge of administrative expenses and income tax expenses, which increased by 70 percent and 220 percent respectively,” Umasudhan explained.

The company posted 3,318 million profit for the year ended 31st March 2007 up by nearly 15 percent against the year earlier.
The increased income tax expenses, which rose from Rs.1,044 million to Rs.2,273 million has limited the growth in the company’s bottom line.

Umasudhan noted that during the financial year 2006/07 the group profit (eliminating the company profits) jumped by nearly 40 percent from Rs.1,050 million to Rs.1,530 million.

“This indicates that the entire growth in the profitability of the DCSL group was related mainly to the growth in its subsidiaries such as Sri Lanka Insurance, (owned by DCSL through Milford Holdings) and Lanakabell, which was believed to have recorded a profit of over Rs.1 billion for the year ended March 2007,” he said. He also said that the contribution from the liquor segment of the group (company operations) to the bottom line hardly witnessed any changes. “The profit of the company alone (liquor segment) was Rs.1,812 million for the year ended 2006/07 against Rs.1,807 million reported a year earlier,” he added.