Melstacorp 3Q flat amid pressure on alcobev segment

Profits at Melstacorp PLC remained flat during the quarter ended December 31, 2018 (3Q19) compared to the same period a year ago, as the diversified conglomerate which houses the country’s largest spirits maker is facing prolonged challenges in maintaining the top line. 

Melstacorp reported earnings of Rs.1.25 a share or Rs.1.46 billion for the October – December period, barely changed from the earnings in the same period last year. The group which makes spirits under its 93 percent owned subsidiary, Distilleries Company of Sri Lanka PLC, made a top line growth of 45.3 percent year-on-year (YoY) to Rs.39.4 billion.

However, the net revenue – revenue after excise duties and other sales taxes – were Rs.24.8 billion, up 123.1 percent YoY.

The profit of operations was Rs.4.16 billion, up 89.4 percent YoY as the administration costs, which surged by over 230 percent YoY to Rs.5.0 billion, weighed on. Melstacorp share ended 50 cents or 1.09 percent higher at Rs.46.50 yesterday.  

Apart from spirits, which accounts for roughly 70 percent of the group revenue, Melstacorp has interests in plantations, telecommunication, power generation and leisure.

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

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

All these business verticals were held under the Distilleries Company  until the end of 2016.  

In October last year, Fitch Ratings Lanka affirmed Meltacorp’s ‘AAA’ rating with a Stable Outlook, following the successful completion of the group restructuring exercise which brought all entities under Melstacorp through a complex share swap, as the management was of the belief that the previous group structure did not represent the group’s diverse interests.

However, the Distilleries Company is facing certain headwinds from the new tax policy favouring the beer makers and the weak disposable incomes as the company’s sales have been under pressure for several quarters. 

Separate accounts filed by Distilleries Company showed its revenues during the December quarter coming down by 6.8 percent YoY to Rs. 20.9 billion.
The company however saw its bottom line growing by 19.2 percent YoY to Rs.1.29 billion. 

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, for the nine months ended December 31, 2018, Melstacorp group reported earnings of Rs.3.30 a share or Rs.3.84 billion compared to Rs.3.77 a share or Rs.4.39 billion in total earnings reported for the corresponding period of the previous year.

This registered a YoY decline of 12.4 percent in the bottom line. 

The gross revenue for the period reached Rs.111.1 billion, up 38.2 percent YoY, while the net revenue rose by 113.4 percent YoY to Rs.68.76 billion. 
The beverage sector revenue declined to Rs.64.3 billion from Rs.71.2 billion although the operating profit rose to Rs.6.5 billion from Rs.4.9 billion a year ago. The plantation business suffered an operating loss of Rs.292.9 million from a profit of Rs.355.9 million a year ago. The telecommunication segment represented by the wireless operator Lanka Bell saw its losses widening to Rs.1.29 billion from Rs.1.25 billion. 

Meanwhile the group’s diversified segment which captures other businesses reported an operating profit of Rs. 4.2 billion, substantially higher from the Rs.983.8 million a year ago. 

Business tycoon Harry Jayawardena-controlled Milford Exports, Lanka Milk Foods and other connected entities hold close to 60 percent stake in Melstacorp.