Distilleries Company of sri lanka plC annual report 2008/09 nature’s nectar : arrack, the world’s only naturally fermented liquor Contents 2 About Us 4 Story of Arrack 5 Accolades 6 Our Brands 8 Chairman’s Message 12 Board of Directors 16 DCSL Management Team 19 Group Management Team 20 Corporate Governance 23 Board Committee Reports 25 Enterprise Risk Management 27 Financial Highlights 28 Management Discussion and Analysis 32 Annual Report of the Board of Directors Financial Reports 38 Statement of Director’s Responsibility 39 Report of the Auditors 40 Income Statements 41 Balance Sheets 42 Statements of Changes in Equity 43 Cash Flow Statements 44 Accounting Policies 50 Notes to the Financial Statements General Information 81 Statements of Value Added 82 Shareholder Information 84 Value of Real Estate 85 Ten Year Summary 86 Group Directory 88 Glossary 89 Notice of Meeting 90 Attendance Slip 91 Form of Proxy Standing on a glorious past, breathing a vibrant present and pledging a resplendent future The ‘past’ is the favoured territory of a historian. Things past are rarely assumed to be alive, capable of transformation and growth - and yet, who we are and what we have become is linked to what we were. The Distilleries Company of Sri Lanka PLC (DCSL) is a company that can reference a history that is close to a century. What this inscribes on our corporate DNA is experi - ence, maturity, innovation, fortitude and the will to succeed. Our origin can be traced as far back as the year 1923, when the Excise Department of Ceylon which was initially created as the enforcement authority and to distribute and sell liquor products in Sri Lanka, branched out into the distillation and manufacture of liquor products. Later, in 1974 the State Distilleries Corporation was incorporated by statute to take over this venture while the Excise Department was re-introduced to operate as a monitoring authority. We are thus the inheritors of an institution that has the distinction of being the pioneer distillery in the country. We have over the course of close to a century grown to become Sri Lanka’s largest distiller who has consistently received accolades from all quarters for the enduring quality of our products. We are justifiably proud, but one of our distinguishing characteristics is the determined refusal to rest on our laurels. This is why we prefer to think of history as a living thing. In 1989 the State Distilleries Corporation was converted to a limited company, as per the then government’s policy to privatise state-owned enterprises. The majority stake of DCSL was sold to the highest bidder on the Colombo Stock Exchange (CSE) in 1992, the then largest transaction in the history of the CSE. At the time of privatisation, the plant and machinery and the operating systems at DCSL were in a very neglected state and hardly conducive to the smooth running of the enterprise. The current Management has upgraded the plant and machinery to modern intranational standards and introduced new technologies developed by world renowned experts from France. Our people are regularly trained in best International Practices for manufacturing liquor at diverse locations synonymous with the Alcohol Industry such as France, Scotland and Ireland. Large investments have also been made in Research and Development (R&D) and in upgrading our laboratories which has enabled us to scientifically compare the standard of our products with International Brands. Storage facilities and product distribution systems have been upgraded to modern standards. A brand new fleet of vehicles now enables DCSL to deliver its products island wide efficiently and effectively. Our next target is to establish our product range in the international market and our R&D Division is working tirelessly to achieve this aim in the near future. It would be a cliché to say we’ve grown from strength to strength, but that is exactly what DCSL has done. The Company has grown beyond recognition since 1992. It has invested heavily and judiciously in several key sectors of the economy which are far removed from that of distillation, manufacturing and distribution of liquor. We are literally present in all parts of the country, in harmony with the ethos of our people and the firm belief that we must provide our citizens with the means to develop their full potential. As such we can say with all humility that we have gone far beyond leaving the proverbial footprint on the social, economic and commercial landscape of this country; we have a presence - a living, vibrant and enthusiastic presence, that seeks to stretch the horizons of our company and our people ever outward. Our past, our present and our future, therefore, are not only linked, but indelibly stamped with the landmarks that inevitably follow successful enterprises. DCSL has now been recognised as one of Sri Lanka’s blue chip corporate entities, a far cry from what it was in 1992. nature’s nectar : arrack, the world’s only naturally fermented liquor Arrack, the world’s only naturally fermented alcoholic beverage, is not merely a drink for king and commoner, connoisseur and your regular tippler, it is a liquid that contains a history that goes back several millennia and encompasses a long and delicate process from coconut palm to the glass. The journey of a single drop of liquid from the flower of a coconut palm (Cocos Nucifera) , to an ambrosial beverage is a fascinating tale. At dawn, ‘tappers’ from Sri Lanka’s coconut-rich coastline move precariously from tree to tree along connecting ropes to extract the sap of the yet unopened coconut flower. A deft slice with a sharp knife draws the nectar out of the flower. It is collected in a clay pot placed under the flower. A tree on average yields approximately two litres of toddy per day. The liquid ferments quickly into a mildly alcoholic drink locally called ‘raa’ or ‘toddy’. The liquid from thousands of trees are transported in wooden barrels to collection centres, tested for quality, and taken to the distillery and poured into wash backs made of teak or halmilla; all this within 3-4 hours of the sap being drawn from the flower. Then begins the delicate process of distillation. There are essentially two processes of distilling; continuous distillation and the batch process, also called ‘pot distillation’. The distillation process is completed within 24 hours. The raw spirit thus drawn is thereafter mellowed by a process of maturation at the warehouse and flavored with selected herbs. This process can take upto 12 years or more, depending on flavor, texture, alcoholic strength and fragrance requirements. The blending is carried out by master blenders who draw from the know-how passed down from generation to generation in accordance with ancient traditions and modern technologies to craft an entire range of products designed to cater to the palate of connoisseurs. Coconut Arrack is a pure spirit in that it contains not a trace of methanol. Therefore, it is as safe as any comparable international beverage. In fact for those who have grown to swear by it, it has no substitute. We at DCSL, are the inheritors of an institution that has the distinction of being the pioneer distillery in the country. We have, over the course of a century grown to become the largest distiller in Sri Lanka (and perhaps the world over) for distillation of coconut spirits and one which has consistently been recognised for the enduring quality of our products. Distilleries Company of Sri Lanka PLC 4 Annual Report 2008/09 accolades Doing our customers and our country proud - DCSL was named to Forbes Asia’s ‘200 Best Under a Billion’ for the third year in 2008 - DCSL was placed 3rd among the Business Today Top 10 in 2008 - DCSL was ranked 4th among the LMD 50 in 2008 - DCSL was awarded Super Brands status in 2007 Our brands, O ur experience; O ur source of strength Our forte is undoubtedly our stringent focus on quality and this, coupled with the experience gained over almost a century has benefited us in many ways. Added to this, our unerring sense of taste has created a vast and diverse portfolio of top local and international alcoholic beverages; brands of true international repute. We are particularly honoured by the esteem in which our brands are held by the public and the value they place in our brands. Their faith in us has led to our ascension to the status of market leader for Arrack, the most popular of all liquors amongst locals and locally-made Brandies. Local Brands Locally Manufactured Foreign Liquor Distilleries Company of Sri Lanka PLC 6 Annual Report 2008/09 Imported Brands We are the Sole Distributor of the undernoted Brands belonging to Group Pernod Ricard Distilleries Company of Sri Lanka PLC Annual Report 2008/09 7 “When the winds change, we must adjust our sails” Chairman’s message 2008/09 was undoubtedly a turbulent year for the entire review sans SLIC and related investments was Rs. 40.8 Bn corporate world due to the financial meltdown and the which is a growth of 5% over the previous financial year resultant global recession. In contrast to the general despite the adverse macro economic and business consensus at that time, Sri Lanka was not immune to the environment which prevailed during the year. The Group effects of this crisis as evident from the results published profit after tax including the share of profit from SLIC for by most leading corporates in the country. However, your the year was Rs. 3.4 Bn compared to Rs. 4.1 Bn in 2007/08, Company weathered the storm and despite mainly due to the poor performance of the Group’s difficult market conditions recorded steady progress Telecommunications sector even though these results during the year under review.