Lion Brewery delivers strong fourth quarter profits amid adversities 

Lion Brewery (Ceylon) PLC reported some solid top and bottom line performance in the three months to March as the brewer navigated one of the toughest macro-economic conditions identified with escalating costs, foreign exchange shortages and shortages of ships calling at the Colombo port due to the economic meltdown, which precipitated into a full blown political crisis.

 Sri Lanka’s largest brewery with a growing export component reported revenues of Rs.19.0 billion in the three months to March, company’s fiscal fourth quarter compared to Rs.14.77 billion in the same period in 2021, logging a robust 29 percent growth. 

The solid growth in the top line was however undermined to a degree by the escalating costs as a result of the rising raw material prices and freight charges, which were then met with the free float of the rupee, sending prices of all goods and services through the roof.  

Lion Brewery termed the rupee float as, “disorganised” exercise executed after the, “misguided depletion of foreign currency reserves”, which resulted in, “near hyper inflationary conditions”.  

For instance, the company’s cost of sales rose by 31 percent to Rs.15.2 billion over the same period last year while distribution expenses, the largest among the overheads, also surged 35 percent to Rs.1.16 billion in the quarter. 

“These events have led to cost inflation and uncertain demand. Despite price increases, gross margins declined in 4Q as cost increases outpaced price increases. Despite declining gross margins, investments behind capabilities and brands were increased,” it said.

 Sri Lanka’s producer prices rose by record 34.6 percent in the twelve months to March 2022, underscoring the intensity of the price pressures facing the producers.  

Lion Brewery reported Rs.16.10 a share or Rs.1.29 billion for the January - March quarter compared to Rs.6.60 a share or Rs.528.17 million in the corresponding period in 2021. 
Meanwhile, for the year ended March 2022, the company reported earnings of Rs.45.85 a share or Rs.3.67 billion compared to earnings of Rs.30.80 a share or Rs.2.47 in the previous financial year. The revenues for the fiscal year were Rs.58.57 billion, up 17 percent. 

The company was coming off 52 days of continuous sales losses at the beginning of its fiscal year due to virus related lockdown imposed by the authorities starting from May through October 1 last year where liquor sales were clamped down for no justifiable reason.  

The company said despite challenges its growing exports helped to weather the foreign exchange crisis as such incomes rose by a robust 45 percent. 

Lion Brewery paid a total of Rs.46 billion in taxes despite Covid related closures, and its taxes in the March quarter exceeded the prior year period taxes. 

 The company repeated its call for a sensible tax policy which can both crack down on massive taxes lost on illicit liquor and make more taxes from the legal alcoholic beverage industry.   “We have long emphasised the need to address illicit/illegal alcohol to raise tax revenues through common sense regulation,” the company said. 

The company estimates over Rs.75 billion in lost taxes to the government through tax evasion by the illicit liquor industry, which is equivalent to 50 percent of excise taxes collected or 0.5 percent of the Gross Domestic Product. 

“This is very material in the context of the government’s budget deficit,” Lion Brewery said. 

Meanwhile, the company expects a deep recession in Sri Lanka in 2022-23 as the financial conditions tighten due to the rupee float, lingering dollar shortage, monetary and fiscal tightening.

“In terms of the business, volume pressure, cost pressure, VAT and other taxes increase and operational disruptions are likely to feature in 2022/23”, the company said.