Group chairman Harry Jayawardena said it subsidiary Lanka Bell is adversely affected by its inability to sell mobile phones although it has the technology to do so.
"The profitability of this sector is declining fast due to intense competition and price-based competition that is not normally seen in an oligopolistic market," he told shareholders in the company's annual report.
Lanka Bell is the second largest fixed line operator with over a million subscribers, the report said.
Jayawardena also said its Sri Lanka Insurance Corporation subsidiary was introducing new services to remain competitive in a market that was becoming increasingly competitive.
"The premium levels of the insurance sector reduced further due to the intense competition among the insurance companies."
Group chief executive Ranil de Silva said Sri Lanka Insurance Corporation was affected by the "ridiculous pricing strategies of some of our competitors, which unfortunately does not augur well for the entire industry."
The acquisition of Sri Lanka Insurance Corporation by the Distilleries group has been challenged in court and judgement is pending.
Jayawardena also warned that illicit liquor was hurting the group's main liquor business and that the company is diversifying to mitigate its impact.
The group's beverage business managed to retain profitability and market share "in spite of the challenges faced by the change in excise regulations allowing retail liquor licences to be sold or leased to third parties," he said.
"Several legal and illegal manufacturers are resorting to leasing liquor licences and selling their goods on which, most often, the tax is unpaid thus depriving the state of large amounts of revenue.
"I sincerely hope the authorities will realise that the decision to allow the lease of retail licences to third parties is not beneficial and reverse this decision before the impact to government coffers becomes much larger."
The report said Distilleries was taking action to cope with these difficulties.
The group has invested 300 million rupees to buy modern distillation equipment from France and a fully automated high speed bottling line from Italy for its distillery.
"We envisage significant savings in energy consumption and labour cost to result from these investments," de Silva said.
The company's auditors KPMG Ford, Rhodes, Thornton & Co has noted that the auditors of the subsidiary Sri Lanka Insurance Corporation have qualified their report in respect of premium received in advance.
The premium received in advance includes premium received in advance amounting to about 1.2 billion rupees, they said.
"The balance includes an amount of 518 million rupees which the management has classified as premium received from customers in general insurance," they quoted the audit report as saying.
We are unable to satisfy ourselves as to the fairness of the said liability of 518 million rupees due to the absence of sufficient audit evidence."
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