Melstacorp PLC reported lower profits for the three months ended September 30, 2018 (2Q19), as the group incurred some hefty taxes while the cost surged against the same period, last year. The group’s alcoholic beverage (alcobev) segment’s top line also showed some weakness. 

The diversified conglomerate with the country’s largest spirit maker reported earnings of Rs.1.27 a share or Rs.1.48 billion for the July-September quarter, compared to Rs.1.53 cents a share or Rs.1.79 billion in earnings for the same period, last year. 

The revenues however rose by 37 percent year-on-year (YoY) to Rs.37.1 billion and the revenues net of taxes rose by a stronger 114 percent YoY to Rs.23.1 billion. 

Apart from alcobev, Melstacorp has interest in plantations, telecommunications, insurance, power generation, leisure and logistics.  

The group recently made foray into the healthcare industry and incorporated a holding company, namely Melsta Health Private Limited, to undertake the healthcare sector investments. 

The group in March exited from its financial services activities as it disposed of its non-bank lender. 

In October, this year, Fitch Ratings Lanka affirmed Melstacorp’s rating at ‘AAA’, with a ‘Stable’ outlook, as it successfully concluded its group restructuring exercise, which brought all entities under Melstacorp through a complex share swap, as the management was of the belief that the earlier structure did not represent the diverse interests of the group, which was overshadowed by its alcobev giant, Distilleries Company of Sri Lanka PLC. 

Now Distilleries Company has become a 92 percent subsidiary of Melstacorp, accounting for roughly 71 percent of the group revenues and close to 80 percent of the group’s before interest tax, depreciation, amortization and restructuring cost or EBITDAR, excluding Melstacorp’s insurance subsidiary. 

Meanwhile, the separate accounts filed with the Colombo Stock Exchange for Distilleries Company for the September quarter showed the company has suffered a decline in revenues of 11 percent YoY to Rs.19.9 billion over the same period last year. 

However, the earnings for the period rose by 30.2 percent YoY to Rs.1.2 billion. 

Fitch Ratings in October said they expected the hard liquor volumes to drop following the government’s more favourable taxation policy towards beer makers, effective from November 2017. 

Fitch expects Distilleries Company’s volume to remain flat during the ongoing financial year, given its strong market position and said revenues were expected to grow by low single digits thereafter. 

Distillers Company has a 60 percent share in the Sri Lankan alcobev market, due to its entrenched DCSL brand and access to a country-wide distribution network. 

Meanwhile, Melstacorp saw its distribution and administration costs surging during the quarter under review. Most notable was the administrative costs, which rose to Rs.4.2 billion, from Rs.1.2 billion a year earlier, while the distribution expenses rose by as much as 134 percent YoY to Rs.900 million.

The operating profit rose by 50 percent YoY to Rs.3.2 billion. 

Meanwhile, the share of profits from the group’s associate companies and joint ventures declined sharply, from Rs.722.1 million in the earlier period to just Rs.113.6 million. 

The corporate income tax rose sharply to Rs.1.38 billion, from Rs.789.8 million a year ago. 

The billionaire businessman, Harry Jayawardena-controlled Milford Exports, Lanka Milk Foods and other connected entities have close to 60 percent of Melstacorp.