Lion Brewery says cheers in 3Q with tax cut

• Sees strong top line and bottom line growth

The tax cut on beer brought in last November has assisted Sri Lanka’s largest brewer, Lion Brewery (Ceylon) PLC (LION), to record strong top line and bottom line gains in the December quarter (3Q18), the interim financial accounts released to the Colombo bourse showed.

LION recorded earnings of Rs.5.16 per share or Rs.412.5 million for the quarter under review compared to earnings of Rs.4.0 per share or Rs.320.1 million recorded for the corresponding quarter of the previous year.

The top line rose 50 percent year-on-year (YoY) to Rs.8 billion while the gross profit surged 121 percent YoY to Rs.1.92 billion despite cost of sales growing 36 percent YoY to Rs.6.06 billion.    

The Budget 2018 presented in November 2017 proposed to reduce excise duties on beer by 33 percent and raised the duty on hard liquor by 2 percent, while also introducing a Nation Building Tax of 2 percent on all alcohol products with immediate effect.

Following this move, Fitch Ratings said tax cut will allow beer to regain its lost market for hard liquor.

“With the latest tax revisions and barring further changes, we expect beer’s market share of total reported alcohol consumption in Sri Lanka, as calculated by Fitch, to increase to around 24-25 percent in the medium term, posting an average volume growth of 22 percent over 2017-2019,” the rating agency said.

Meanwhile, for the nine months ended December 31, 2017, LION reported earnings of Rs.10.24 per share or Rs.819.2 million against a loss of Rs.7.93 a share or Rs.634.1 million in the same period, last year.

The revenue during the period grew 30 percent YoY to Rs.20.6 billion while the gross profit rose 60 percent YoY to Rs.4.2 billion.

LION said during the period ended 31, December 2017, the company received a further Rs.712.6 million from insurers on business interruption.
LION suffered extensive damages to its manufacturing facility from the floods that ravaged various parts of the country, including the capital Colombo in May, 2016.

As a result, the company had to halt operations and was compelled to import beer for a brief period for the local market through a tax concession granted by the government at the same rate slapped on the locally manufactured beer.

However, a Buddhist priest and six others have gone to the courts against this tax relief provided the by the government to LION, citing the Finance Ministry, LION and several others as respondents. The case is pending in the Appeals court.

The Carson Cumberbatch group owns little over 60 percent of shares in LION both directly and through subsidiaries. Carlsberg Brewery Malaysia Berhad owns 25 percent of shares of the company as the second biggest shareholder.