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Sri Lanka Equity Forum » Stock Market & Forum Help » Stock Market News » Beer booms despite price stick compelling imports

Beer booms despite price stick compelling imports

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Global Moderator
Lion using 2009 rights issue cash to fund expansion

Despite the price stick that has made beer more expensive, Lion Brewery (Ceylon) PLC has grown profit after-tax 51.7% to Rs.1.26 billion in the year ended March 31, 2012 with local manufacturing capacity unable to meet demand.

The company had been compelled to supplement its own production by importing the shortfall from Carlsberg facilities in India and Vietnam shaving margins as imports are more expensive than locally produced beers, Lion Chairman Cubby Wijetunge said in the company’s recently released annual report.

Increased tourist arrivals too are part of the growth in demand story. Lion commands a strong export market in the Maldives, particularly, and adding new destinations to its export portfolio.

Lion has embarked on an extensive expansion program at its Biyagama brewery with enhanced capacity due to come on stream during the current financial year, he said.

With shareholder approval obtained at a recent EGM, the company is investing the Rs.1.2 billion raised through a 2009 rights issue to part-fund the capacity expansion.

The rights issue was floated to fund Lion’s investment in India’s beer sector. But this investment was sold during the year under review to the Carlsberg group which is Lion’s second biggest shreholder.

Wijetunge reported that the results during the year under review had been hit by the sharp devaluation of the rupee between November 2011 and March 2012 with impact of the depreciation costing the company Rs.207 million on its dollar borrowings alone.

"The weaker currency and higher energy and fuel cost also contributed to lower margins since mid February 2012 although the full impact from these will be felt only during the on-going financial year," he said.

"Similarly, the impact on the Ra.5 per litre excise duty increase announced with effect from March 30, 2012 will be felt in the ensuing financial year.’’

Lion is now the third largest contributor to government revenue having paid Rs.11 billion during the year as taxes to the government, up 48% from the previous year. Every working day, the company pays Rs.45 million tax to the government, the chairman revealed.

Revenue during the year under review was up 56.88% to Rs.17.65 billion and the profit from operations up 62.87% to Rs.2.53 billion. Profit for the year translated to an earnings per share of Rs.15.23, up from Rs.9.86 the previous year.

Net assets per ordinary share were up 19.14% to Rs.65.12 and the company had a market capitalization of nearly Rs.16 billion.

Wijetunge warned that growth is expected to slow this year due to a number of factors but the economy will remain robust with a projected growth rate of close to 7%. Nevertheless, businesses will have a difficult period adjusted to a weaker currency, high interest rates and energy prices and restricted credit all of which were aimed at controlling deteriorating a balance of payment position.

"Increasing prices and tighter cash flows may dampen consumer sentiment and reduce discretionary consumption pressure on your company’s stock line," Wijetunge told shareholders.

"In the meanwhile margins too will come under pressure as a result of rising cost on account of the weaker currency and higher fuel and energy prices."

Although the year ahead will pose new challenges to Lion, he had confidence in the strong foundation of the company which owns excellent brands, has a strong equity base, high productivity and a state-of-the-art production facility.

The company had efficient and integrated supply chain from sourcing of inputs to distribution of finished products and a talented and energized workforce.

"Lion is an end-to-end business system where the focus is on maximizing opportunities notwithstanding with the challenges that the company may be faced with from time to time," the chairman said.

Lion has a stated capital of Rs.2.54 billion, capital reserves of Rs.721.2 million and retained earnings of nearly 2 billion in its books. Total assets ran at Rs.10.13 billion and total liabilities at Rs.4.92 billion.

Ceylon Beverages PLC (previously Ceylon Brewery), a Carsons Cumberbatch company with 52.25% of Lion is the controlling shareholder followed by Carlsberg Brewery Malaysia Berhad with 24.60% and Carsons with 5.13%. LOLC holds 3.08%, Bukit Darah (a Carsons company) 1.63% and Carsons through a second account 1.23%. The ETF is also in the top 20 shareholder list with 0.91%.

The directors of the company are: Messrs. Cubby Wijetunge (Chairman), Hari Selvanathan, Suresh Shah (CEO) Roy Enzo Bagattini, Ranil Goonetilleke, Chandraratne Liyanage, Chandima Gunawardena, Prasanna Amarasinghe, Krishna Selvanathan, Susan Evans and Soren Ravn.

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