Lion Brewery (Ceylon) PLC is looking at growing market opportunities in the Indian Sub-Continent following its investment in a joint venture in India now operating four breweries in Maharashtra, Rajasthan, Himachal Pradesh and Kolkata.
Lion’s Chairman, Cubby Wijetunge, said in the company’s just released annual report that these investments in India are now fully operational "and are poised to take advantage of the growing market of opportunities in the Sub-Continent."
"Whilst in the short-term this investment has put significant pressure on the company, it derives strength from the potential posed with the promise of significant gains given the strong market fundamentals in India," he said
According to an operations review that is part of the annual report, the distribution reach of the four breweries has expanded to cover 23 of India’s 35 States and Union Territories.
In the first four months of this year, sales volume by the joint venture in India has reached what was achieved during the whole of 2008, the review said.
"These are all remarkable achievements in an extremely complex and competitive market," it noted.
"Whilst the Indian beer industry has seen sustained growth in the preceding years, it’s per capita consumption remains one of the lowest in the world at just above one litre per annum. Herein lies India’s potential in terms of brewers, especially since that country’s population exceeds 1 billion."
The review further said that all indications are that policy makers in India are de-regulating the beer industry seeing, unlike in Sri Lanka, the benefit of soft alcohols against spirits.
"However, extracting the earnings and cash flows of that potential will not be a short term exercise. It will require further investments and considerable holding power. Yet those who dare to do so will reap rich rewards in the longer term," the review said.
It explained that since the Indian investment will necessarily be for a long gestation period, Lion will have to fund its investment component in a suitable manner.
This was being currently worked on in order to ensure that the company’s Sri Lankan operations are not hampered.
Lion closed the year under review with an operating profit of Rs.473.2 million on a turnover of Rs.6.1 billion against the previous year’s operating profit of Rs.383.9 million on a turnover of Rs.5.2 billon.
But the company’s profit after-tax for the year under review had dipped sharply to Rs.88.8 million from the previous year’s Rs.178.4 million with finance expenses swallowing the greater part of the operational profit.
However, burgeoning interest cost that had grown to Rs.391.3 million from the previous year’s Rs.229.9 million posed a serious concern, the chairman said.
"In addition our cost of sales rose sharply to Rs.4.1 billion over Rs.3.5 billion in 2009, significantly impacting our profits," Wijetunge said.
He explained that cost escalations were the result of the prevailing macro conditions with raw material and fuel prices hitting record levels and rising energy cost and a depreciating currency posing serious challenges to production and distribution cost.
Lion had invested in a beverage canning facility during the year under review. Wijetunge said that the can was identified as necessary to serve both local and export markets, given the diverse lifestyle needs of consumers.
Canned beer had performed well during the year and they were confident of significant growth on this category in the current financial year.
Ceylon Brewery PLC, a Carsons group company, holding a 50.41% of Lion as its controlling shareholder, followed by Carlsberg Brewery Malaysia Berhad with 24.60%. Carsons itself and its investment companies are also among the top 20 shareholders.
Lion has a stated capital of Rs.1.34 billion, capital reserves of Rs.232.5 million and retained earnings of Rs.611.1 million in its books.
Non-current liabilities payable after one year were running at Rs.626.8 million while there were also long-term loans of Rs.37.4 million payable within one year, short-term loan of Rs.400 million and unsecured bank overdrafts of Rs.1.3 billion in the company’s books.
The public held 20.48% of Lion with the Carsons group owning 54.89%.
The Lion’s share traded at a high of Rs.61 and a low of Rs.41 during the year under review against a trading range of Rs.70 to Rs.40 the previous year.
The directors of the company are: Messrs. Cubby Wijetunge (Chairman), Hari Selvanathan (Deputy Chairman), Mano Selvanathan, Suresh K. Shah (CEO), D.C.R. Gunawardena, Dato’ Voon Loong Chin, Mark Lightbown (Resigned 16.06.2008), C.P. Amerasinghe, C.T. Liyanage, D.R.P. Goonetilleke and J.B. Madsen (Resigned 01.03.2009).