Friday, March 25, 2011

Ari-Harry toast Pelwatte deal

Highly Sri Lanka-passionate and self-made entrepreneurs Harry Jayawardena and Ariyaseela Wickramanayake yesterday struck what is billed as a ‘win-win’ deal to drive new growth in the foods business via Pelwatte Sugar Industries Plc (SUGA).

In a deal worth Rs. 880 million Harry’s cash-cow Distilleries’ subsidiary Melstacorp Ltd, yesterday bought 47% stake amounting to 32 million shares at Rs. 27.50  each in SUGA from its majority shareholder Wickramanayake. The latter was holding around 86% stake and is likely to continue to hold a minority stake.

Under the deal Distilleries will secure a minimum control of 51% via the mandatory offer to be made shortly. The number of issued shares in SUGA is 67.97 million. Net asset per share as at 31 December, 2010 was Rs. 16.37 at Company level and Rs. 25.18 at Group level.

Via SUGA, Distilleries is expected to enjoy better sourcing of ethanol which is used to produce alcohol. Owing to its core product of sugar-cane cultivation SUGA produces the by-product molasses which is used to make molasses.

SUGA supplies 70% of the alcohol industry’s ethanol requirement whilst catering to 10 to 20% of the country’s sugar consumption. It is also engaged in dairy and animal feed business.Both Ari and Harry are no strangers but have a working understanding as the former is a co-shareholder in Aitken Spence Plantation Management along with Spence and MJF group.

Ari who has been a longstanding campaigner for self sufficiency in food including milk as well as a port for Hambantota long before, told the Daily FT that partnership forged with Harry Jayawardena was the best boost for Pelwatte Sugar.

“Entry of Jayawardena, whom I would describe as the strongest entrepreneur in Sri Lanka, will be a great strength for Pelwatte and the food industry in Sri Lanka,” Ari added.

He said that by better harnessing the synergies between the two partners and post-war optimism, rapid growth in food production can be achieved. He envisages sugar and dairy business will be expanded considerably under the new tie up.

Given his acumen in turning around entities, the entry of Harry is also expected to reinvigorate Pelwatte, which has been performing below its full potential.

In the first nine months of 2010/11 financial year, Group turnover at Pelwatte was Rs. 2.3 billion, marginally up from Rs. 2.0 billion a year earlier. Operating profit was Rs. 133.9 million, up from Rs. 43 million in the first nine months of 2009/10 financial year. However huge debt servicing (short term loans were Rs. 1.3 billion and long-term loans were Rs. 450 million with Bank of Ceylon as the major lender) continues to eat into Pelwatte. Finance cost remained more or less the same at over Rs. 160 million forcing the Group to suffer a pre-tax loss of Rs. 27.6 million in 2010/11 end third quarter though lower in comparison to Rs. 126 million loss a year earlier. Thanks to minority interests, Pelwatte’s bottom line turned positive with a net profit attributable to equity holders of Rs. 47.6 million at end of third quarter as against a Rs. 115 million loss a year earlier. However in the third quarter it was net loss of Rs. 168 million, down from Rs. 573 million in last year’s third quarter.

Pelwatte is saddled with Rs. 1.2 billion retained loss at Group level as at 31 December, 2010 whilst capital and reserves were Rs. 1.7 billion, down from Rs. 2.2 billion a year earlier. Total Group assets were worth Rs. 5. 1 billion whilst at Company level they were Rs. 3.4 billion

source - www.ft.lk

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