Ceylon Brewery PLC (CB), controlling shareholder of Lion Brewery PLC, despite an encouraging performance in the year ended March 31, 2008, when operating profits more than doubled has expressed concern of cost escalation which the company’s Chairman, Mr. Cubby Wijetunge, called "a worrying factor for the group."

The year saw a turnover of Rs.5.2 billion, up from the previous year’s Rs.4.4 billion, and an operating profit of Rs.416.2 million, up from Rs.201.6 million a year earlier. The profit after-tax attributable to equity holders of the group was Rs.131.6 million, almost double the previous year’s Rs.69.9 million.

The Ceylon Brewery which is now a holding company for Lion Brewery (Ceylon) PLC with a controlling shareholding of 50.4% of Lion’s ordinary shares and 100% of its preference shares, no longer manufactures beer in Sri Lanka, an activity it carried on for nearly 100 years.

Lion, a BOI approved company, manufactures both Lion and Carlsberg range of beers for the group.

Wijetunge said that although group performance was encouraging compared to the previous year, "it still falls short of potential."

The company paid Rs.3.2 billion to the government as taxes during the year, up by Rs.533.9 million from what was paid the previous year.

Wijetunge said that increasing prices of raw materials and fuel had driven up production and distribution cost bringing gross margins under pressure and compelling a price revision on all brands effective last March.

"Notwithstanding these cost escalations the group was able to record a decline in general overheads through effective cost control measures adopted," he said.

The year had seen interest cost increasing sharply as a result of the hike in interest rates as well as borrowings the group had made to fund an investment in India.

This investment had been made by Lion in a Singapore incorporated company, South Asian Breweries (Pte) Limited, which in turn owns South Asia Breweries (Pte) Limited, India.

Lion has taken 22.5% of the equity of this company floated to invest in breweries across the various states of India. Two breweries, one in Himachal Pradesh and the other in Rajasthan, are already in operation while two more in Maharashtra and Kolkatta are under construction and will come into commercial production shortly.

"These breweries provide an excellent footprint to the North, East and West of India," the company’s annual report said.

The Indiana business in which Carlsberg, already a local partner of Lion, is also a member of the owning consortium, had launched two brands in the Indian market, Okocim Palone, a beer with a high alcohol content, as well as the Carlsberg brand.

"Both brands have performed well since their launch and are well positioned to take advantage of the very significant growth opportunities on offer in a dynamic and investor oriented Indian economy," the report said.

"Unlike in Sri Lanka, India is increasingly liberalizing both in outlook and in the beer category. Many states have eased restrictions on beer distribution. Those that have not as yet are expected to follow suit sooner rather than later."

CBL made the point that India has realized the importance of soft alcohol in the fight against illicit alcohol and excessive drinking and the reform process that has begun across many states reflected this.

"Not surprisingly the growing beer market in India has attracted the top global brewers. Budweiser, SAB Miller & Heineken have all invested in India and will provide ample competition to your group’s joint venture," the report said.

"And this is no bad thing since the higher level of activity generated as a result of this competition will lead to a larger market and hence larger cash flows and profits to those who succeed."

CBL has a stated capital of Rs.533.4 million, capital reserves of Rs.8.9 million and revenue reserves of Rs.485.9 million.

Net assets per share were up to Rs.67.76 from Rs.64.49 the previous year while the share traded at a high of Rs.90 and a low of Rs.60 during the year under review. This compared with a trading range of Rs.100 to Rs.72 the previous year.

Carson Cumberbatch with 66.63% is the major shareholder of CBL followed by Carlsberg (7.99%) and Gilpin Fund (6.34%). Two Carson companies, Ceylon Guardian Investment Trust and Ceylon Investments together own over 8% of CBL.

The directors of the company are: Messrs. Cubby Wijetunge (Chairman), Hari Selvanathan (Deputy Chairman), Mano Selvanathan, Suresh K. Shah (CEO), D.C.R. Gunawardena, P.C.P. Tissera and J.B. Madsen.