Melstacorp PLC’s Board has resolved to reduce the company’s stated capital by Rs. 19.1 billion to Rs. 70 billion in a bid to ensure a consistent dividend payout.
As a recently restructured entity, Melstacorp said it had a very low level of reserves compared to its stated capital.
“As most of the company’s investment holdings are of listed entities, significant downward variations in the Colombo Stock Exchange (CSE) require adjustments to the financial statements. This sometimes prevents the company from maintaining its dividend payout,” Mesltacorp said in a filing to the CSE. It said as the long-term holdings of the company as of 31 December 2020 stood only at Rs. 67 billion, the Board is of the view that the stated capital of the company should be reduced to Rs. 70 billion from Rs. 89.1 billion.
The amount transferred to capital reserves will only act as a buffer for solvency calculations and hence will not be used for any distribution. Going forward, the total of both the stated capital and the capital reserves will not be less than Rs. 89.1 billion. The dividend payout at Melstacorp has been somewhat erratic in the recent past. In FY20, it was 45.8% against zero FY19. In FY18, it was 101.67% and 40% in FY17. In FY16, it was zero whilst in FY15 and FY14 it was 55% and 91% respectively.
Business leader Harry Jayawardena-controlled Milford Exports (Ceylon) Ltd., holds a 43% stake whilst related party Lanka Milk Foods (CWE) Ltd., holds a 13% stake. M.A. Yaseen controls a stake of over 22.5%. The public float of the company is 42.77%, held by 12,800 shareholders.
Melestacorp has investment interests in beverages, plantations, telecommunications, financial services, and diversified sectors. The company›s share price has gained by Rs. 1.70 or 3.3% to Rs. 52.70.
Melstacorp Board also resolved to acquire 1,000 non-voting unlisted shares of the company held by Distilleries Company of Sri Lanka PLC (DCSL) at a consideration per share that is equivalent to the fair value determined by the auditors – i.e., Rs. 82.50.
It said the purpose of the repurchase of 1,000 non-voting shares is to complete the last step of the recent restructure of the company. The shares held in the company by DCSL were consolidated to 1,000 shares and the said shares were converted to non-voting shares prior to the issue of shares in the company to the former shareholders of DCSL.
As there is no purpose of the company continuing to have 1,000 non-voting shares that are owned by a subsidiary, the Board of Directors has decided to repurchase and cancel the same, Mesltacorp said in its filing.
It said the number of ordinary voting shares of the company will not change as a result of the reduction of stated capital. However, the Board has approved, subject to the necessary approvals, the repurchase of 1,000 non-voting unlisted shares from Distilleries Company of Sri Lanka PLC, being the entirety of the non-voting shares issued by the company. The reduction of the stated capital is subject to shareholder approval at the general meeting by way of a special resolution.
In FY21, the company›s gross revenue amounted to Rs. 143.8 billion, down from Rs. 154.4 billion in the previous year. Net revenue declined to Rs. 77.65 billion from Rs. 97.8 billion. Pre-tax profit was Rs. 9.3 billion, down from Rs. 11.3 billion and after-tax profit declined to Rs. 2.4 billion from Rs. 4.4 billion.