Lion Brewery (Ceylon) PLC., which last year acquired Millers Brewery is now capable of supplying the entire country’s beer requirement from its state of the art facility in Biyagama, Mr. Cubby Wijetunge, Chairman of Lion has said in the company’s just released annual report.
Lion CEO Suresh Shah has said in the report that their board has decided to dispose of the brewing plant and machinery as well as packaging equipment available at the Millers Brewery in Meegoda. These assets are now classified as ‘held for sale’ in Lion’s books. As of now, the board has decided to retain the 23 –acre land and buildings at Meegoda.
The acquisition has cost more than anticipated as Lion had expected to claim input VAT on the purchase price of the Millers brands but changes in fiscal policy has resulted in this not being possible and Rs. 340 mn. on this account had been written off during the year ended March 31, 2015.
The year under review had seen Lion boost revenue 25.37% to Rs. 32.35 bn. largely on account of price increases necessitated by two excise duty revisions and adjustments made to the taxation structure applicable to the company.
The pre-tax profit before finance costs was up 26.8% to Rs. 2.98 bn. and the profit before taxation up 8.3% to Rs. 2.38 bn. However, the after tax profit was marginally down 0.96% to Rs. 1.33 bn. enabling the declaration of a dividend of Rs. 4 per share, the same as the previous year.
Wijetunge said the acquisition of the Millers brewery was carried out as planned although the cost of investment was above what was originally envisaged, due to the inability to recover input VAT on the deal.
Lion has during the year completed the expansion of its production facility with the entire process from brewing to packaging now upgraded. This means they are now capable of supplying the entire country’s beer requirement from their state of the art facility at Biyagama.
"Indeed, we can now boast of possessing a world class facility, probably the best in this part of the world," he said.
Wijetunge explained that the marginal drop in after tax profit was due to a substantial deferred tax adjustment necessitated due to high capital expenditure.
Shah made the point that increased tourist arrivals contributed significantly to the sale of their brands although the volumes in the hotel channels did not reflect the growth in arrivals indicating that tourists are continuing to experiment with many types of accommodation now available across the island.
"Thus, in tourist areas we see a growth in volumes in traditional retail stores during ‘season’ times. We believe this trend will continue into the foreseeable future," he said.
Shah made the point that primary legislation regulating Sri Lanka’s alcohol industry dates back to 1913. It is the most tightly regulated industry in the country. From a global perspective, few countries regulate their alcohol industry as much as Sri Lanka does.
Annual tax increases have sent legal alcohol beyond the reach of average consumers. While the regulations are well intended as they seek to curb the consumption of alcohol whilst increasing revenue to the state, the mountain of evidence available suggests that this is not happening.
"The very tough regulations that straitjacket the legal alcohol industry have left gaping holes for unethical operators to exploit. Such operators come in two forms. The first produce illicit alcohol, commonly called ‘moonshine’. These are underground businesses that operate without the required manufacturing licenses," Shah said.
They produce beverages of questionable quality using a variety of unconventional raw materials and many are the instances where they have caused much harm to consumers including loss of life.
He made the point that since illicit liquor manufacturers pay no taxes of any sort, their products are very affordable and volumes very high – probably much higher than that of the legal industry. However, he agreed that better enforcement in the last few year had meant that supplies have declined somewhat.
Shah argued that the way forward would be a more liberal but pragmatic policy towards alcohol, particularly for those with low alcohol content such as beer and wine. So far the focus has been to prevent alcohol consumption but there is sufficient evidence to confirm that this is in the realm of the impossible in free and democratic societies.
"The more pragmatic – and hence more successful – approach has been to prevent harm that arises from alcohol consumption," he said. "Greater availability at more affordable pricing will shift consumption from illicit and illegal to legal. Taxation based on alcohol content will make lower alcohol beverages more affordable and shift consumption from hard to soft liquor."
He argued ‘prevent harm policy’ will shift alcohol consumption from illicit and illegal to legal and from hard to soft benefiting consumer health and tax revenue.
"Continuing the present ‘prevent consumption’ policy will retain the current market structure; illicit and illegal will thrive, hard alcohol will remain the preferred beverage, consumer health will be compromised and tax revenues will remain well below potential."
Ceylon Beverage Holdings (previously Ceylon Brewery) is the controlling shareholder of Lion with 52.25% of the company followed by Carlsberg Brewery Malaysia (24.97%) and Carson Cumberbatch (5.13%). Ceylon Beverage Holdings is a Carson’s subsidiary and the Carson’s group control Lion.
The Lion share traded during the year under review at a high Rs. 740 and a low of Rs. 370 against a trading range of Rs. 444 to Rs. 330 a year earlier.
The directors of the Company are L C R de C Wijetunge (Chairman), H Selvanathan (Deputy Chairman), S K Shah (CEO), D C R Gunawardena, C T Liyanage, D R P Goonetilleke, K Selvanathan , Mrs S J F Evans, H J Andersen, D A Cabraal, Y F Lew.
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