Ceylon Brewery PLC, a major player in Sri Lanka’s beer industry, and its subsidiary, Lion Brewery (Ceylon) PLC, have made pointed reference to India’s approach towards soft alcohol which is opposite what prevails in Sri Lanka.

"Whilst the policy environment and market conditions remain unfavourable to soft alcohol in Sri Lanka, the opposite is true in India; the beer industry is savouring significant growth and is attracting large investments from brewing giants from across the world," Carsons Management Services (Pvt) Limited, managers for both companies said in a review of operations for the half year ended September 30, 2007.

They reported "a significant improvement in operating profit before finance changes as a result of focused cost rationalization" at Lion which is the manufacturing unit of the Carsons beer segment.

"However, rising finance charges have eroded much of the gains at operating level."

The managers explained that the increased finance cost relates to the group’s investment in India, "a market that is delivering double digit growth unlike in Sri Lanka."

They said that here inflationary pressures were dominating the operating environment and it was not surprising that consumers seek cheaper alternatives.

"Since soft alcohol is more expensive than hard alcohols due to prevailing policies, inflationary pressures have increasingly driven consumers into cheap spirits as an affordable alternative to the more expensive beer," they said.

"The least privileged in the meanwhile have resorted to the cheapest and most affordable alternative, illicit alcohol, thus expanding that industry even further."

Carsons Management Services noted that in 2004 WHO had estimated the annual illicit consumption in Sri Lanka to be approximately 627 million litres – 92% of total alcohol consumption in the country adding that they expect this figure to have grown significantly since then.

In the half year under review Lion saw revenue up 4% to Rs.2.3 billion while the profit after-tax increased substantially to Rs.59.2 million from Rs.0.9 million a year earlier.

This translated to an earning per share of 75 cents against a loss of 49 cents per share a year earlier.

Ceylon Brewery which is the holding company of Lion saw revenue down 57% to Rs.56.5 million and the profit after-tax down 66% to Rs.39.7 million.

The managers said that in the second half of the current financial year they will focus on rationalizing their cost base further. Additionally, they would seek avenues by which to grow volumes and revenues.

"As we have seen in the past, much depends on the operating environment and we will continue with our efforts to persuade the authorities to implement a more pragmatic alcohol policy in tune with both the modern world and the best interests of the local consumer," the managers said.

Lion has a stated capital of Rs.1.3 billion, capital reserves of Rs.232.3 million and retained profits of Rs.468.7 million in its books

Ceylon Brewery has a stated capital of Rs.533.4 million, capital reserves of Rs.8.9 million and revenue reserves of Rs.459.9 million.

Lion, whose net assets per ordinary share grew to Rs.33.77 from Rs.23.77 saw its share traded at a high of Rs.70 and a low of Rs.44 during the half year under review. This compared with a trading range of Rs.85 to Rs.55 a year earlier.

At Ceylon Brewery, net assets per share were up to Rs.47.75 from Rs.46.88 and the share traded during the period under review at a high of Rs.82 and a low of Rs.60. This compare with a trading range of Rs.130 to Rs.72 in the first half of the previous financial year.