LION.N0000 (Lion Brewery Ceylon PLC)

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Cheers !

Thanks Al; yes this is how it should happen.

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Cheers !

Thanks Al, but I don't know what Bala Senas would do.

Kingfisher Beer Europe to distribute 2 Lion Brewery brands


The European arm of United Breweries in September has tied up with Sri Lanka’s Lion Brewery, in which Carlsberg holds a stake, to launch two of its beer brands across Europe.

Kingfisher, bought by Heineken is now carrying out distributing and marketing duties for Lion Lager and Lion Stout in the UK, Ireland, Germany, Switzerland, Sweden, Norway and Denmark. “Kingfisher spotted an opportunity with Lion Brewery for customers interested in ‘discovery beers’,” Sharlene Adams, Lion Brewery Head of Experts and New Product Development told the Business Times.

The unit wants to capitalise on the popularity of Lion, the beer market leader in Sri Lanka, with European tourists returning from the country who have acquired a taste for exotic beers, she said. “Consumers now want premium beer.” She noted that Lion Lager is served at 6,000 premium top end restaurants in the UK. “So far the progress during the past two months has been excellent,” Ms. Adams said noting that Lion Brewery’s export business is its growth engine.

Carlsberg owns a 25 per cent stake in Lion Brewery. Lion has a leading market position in the domestic beer industry. Its market share is supported by its entrenched brand and widespread retail coverage, with access to more than 2,250 outlets around Sri Lanka.

The Sri Lankan government has consistently used excise taxes as a tool to boost revenue to bridge budget deficits; consequently, from October 2015 to November 2016, the industry – especially the beer makers – was taxed from multiple fronts through higher excise duties, introduction of beer can taxes and reinstatement of VAT, dampening the competitiveness of beer, according to a Fitch Ratings report in August.

Backstage - Bottoms up ..... quite literally then

Lion Brewery says cheers to tax cuts


The Lion Brewery (Ceylon) PLC saw its volume bouncing back with better tax policies, after the unfair tax hike it faced four years ago.
The company is just recovering from the 40 per cent volume drop it saw during 2015 onwards when beer excise duties were increased 70 per cent.
In both mild and strong beers, prices were adjusted in November 2017 to reflect the then excise tax structure. However, with the March 2019 budget, prices once again moved upward somewhat as beer taxes were increased by 12.5 per cent.

The conservative and impractical way of approaching taxation for alcohol by the government resulting in price hikes didn’t only harm the company bottom line, but affected consumers at large as they shifted to hard alcohol – both legal and illegal. Lion Brewery CEO, Suresh Shah agrees noting that consumers will seek other avenues when policies on orthodox approaches are imposed on ‘clamping down’ the industry.
In an interview with the Business Times, he noted that there are many other ‘better’ ways to look at regulating alcohol. In a 64,000 km landmass that is Sri Lanka, there are only 28,000 licenced liquor stores.”So on average one liquor store serves 22 km. It’s a given that no one will go 22 km to find alcohol. What eventually happens is that they turn to illicit alcohol,” he noted.

The company’s volumes have been backed by the increase in tourism numbers, apart from the change in taxation. Now Lion Brewery exports two containers a day and has 23 export markets.
Mr. Shah noted that despite the volumes returning, the company’s bottle to can composition won’t change significantly. Nor will they look at immediate expansion.”Depending on the demand we will increase capacity as we go along,” Mr. Shah said explaining that this year will be a year of consolidation for the company.

He also stressed that investment has to be backed by consistent policy. “Policies must create an environment to invest. A company will invest if it gets a return.” He further noted that now investment is not backed by consistent policy which is why there is not much economic growth.
He also said the notion that ‘the government is helping the private sector’ is not true. “It’s actually about assisting the private sector to help the country by creating jobs, new investments, etc.” In this light policy should revolve around ease of doing business for the private sector and reducing their cost of capital -all the while getting them into a positive cycle circle, he added.

He credits the efforts in getting the Singapore Free Trade Agreement (FTA) through. “We are a small economy. There is only so much we can expand. We need to take our businesses overseas. They need to go beyond our shores. So tools like the FTAs to India, China, etc help immensely.”
He further noted that from a 21 million people market to a 1.3 billion people market through the Indian FTA will open unimaginable opportunities. “The Government should re-focus its entire approach to trade. The thinking is good but the implementation is slow. And the liberalisation process is slow mostly owing to politics.”

Mr. Shah highlighted the importance of encouraging firms to export while facilitating the ease of doing business in this country. He also added the public sector needs a wakeup call and must shift its focus from regulating to facilitating. They must appreciate the role played by economic growth in improving the lives of people. He noted that Sri Lanka doesn’t have strong institutions that safeguard and serve people and other institutions at large. Politicians too take advantage of the lack of strong institutions to bully the private sector. He added that the private sector needs to be more united in order to battle these issues.
“We are 22 km away from what will be the world’s second largest economy, we have the busiest sea lane 10 nautical miles from our southern border, we have fertile land and we are a tourism haven. We have so much potential to grow and I hope that potential is realised sooner rather than later.”

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Lion Brewery Sri Lanka rating lifted to ‘AAA(lka)’ by Fitch, despite 22-pct sales hit on Covid-19

ECONOMYNEXT – The local rating of Sri Lanka’s Lion Brewery (Ceylon) Plc, has been lifted to ‘AAA(lka)’ after a downgrade of the sovereign rating to ‘B-‘ from ‘B’ though sales in 2020 would plunge as much as 20 percent on Coronavirus restrictions, Fitch, a rating agency said.

“The revision of Lion’s National Long-Term Rating reflects the re-calibration of the Sri Lankan national scale ratings as well as Fitch’s assessment that Lion will maintain its leverage commensurate with a ‘AAA(lka)’ rating level,” Fitch Ratings said.

Lion’s rating reflects of its leading market position in the domestic beer industry, which is protected by high entry barriers from the regulatory ban on media advertising, its well-established brand and retail coverage.”

Sri Lanka’s sovereign rating was cut to ‘B-‘ from ‘B’ after a rate cuts and liquidity injections in a ‘monetary stimulus’, on top a ‘fiscal stimulus’ of tax cuts, which widened the defifict, de-stabilized the rupee and raising concerns over repaying foreign debt.

Fitch said Coroanvirus controls and social distancing would hit sales. Bars, where people sit in close proximity and talk have been a ‘super spreader’ hotspot in some countries.

“Alcoholic beverage companies such as Lion are exposed to the disruption stemming from social-distancing measures – in effect since March 2020 – to help contain the spread of the virus,” Fitch said.

“We expect Lion’s overall sales volumes to decline by around 22% yoy in FY21 as a result of the movement and socialisation restrictions.

“Aside from a weakening economy and lower domestic consumption, Lion’s mild beer category will also be affected by lower tourist arrivals in 2020 and see a more significant drop in volume compared with the strong variants.

“Fitch expects Lion to see a strong recovery once social distancing measures are eased given the increased socialisation of people.”

Leverage was 1 times reflecting a strong balance sheet, the rating agency said.


KEY RATING DRIVERS:

Lion Brewery (Ceylon) PLC:

Lion Brewery (Ceylon) PLC: The revision of Lion’s National Long-Term Rating reflects the re-calibration of the Sri Lankan national scale ratings as well as Fitch’s assessment that Lion will maintain its leverage commensurate with a ‘AAA(lka)’ rating level.

Lion’s rating reflects of its leading market position in the domestic beer industry, which is protected by high entry barriers from the regulatory ban on media advertising, its well-established brand and retail coverage.

Coronavirus Disruption: Alcoholic beverage companies such as Lion are exposed to the disruption stemming from social-distancing measures – in effect since March 2020 – to help contain the spread of the virus. We expect Lion’s overall sales volumes to decline by around 22% yoy in FY21 as a result of the movement and socialisation restrictions. Aside from a weakening economy and lower domestic consumption, Lion’s mild beer category will also be affected by lower tourist arrivals in 2020 and see a more significant drop in volume compared with the strong variants. Fitch expects Lion to see a strong recovery once socialdistancing measures are eased given the increased socialisation of people.





Strong Financial Risk Profile: Lion’s financial profile is strong with Fitch expecting leverage to remain below 1.0x despite the government’s social-distancing measures.

This is even after assuming, on a conservative basis, that Lion will pay out all of its free cash flow as dividends, while maintaining capex levels of around LKR1.3 billion over the rating horizon of FY20-FY23.

Temporary Weakening in EBITDA Margin: Our rating case assumes a contraction in the EBITDA margin by around 400bp to 29% in FY21 due mainly to lower sales volumes.

Fitch expects Lion to lower its administration and distribution costs, by around 9% in FY21 amid the temporary factory closures and lower sales volumes, thereby helping Lion to contain the margin decline. We expect the EBITDA margin to improve gradually, to 31% in FY22, as sales volumes begin to recover.

Linkages with Parent: Fitch rates Lion on its standalone strength due to its financial independence from its ultimate parent, Carson Cumberbatch PLC, and the presence of an influential minority shareholder – Carlsberg Brewery Malaysia Berhad, which owns 25% of Lion and is in-turn a subsidiary of Carlsberg Brewery A/S (BBB+/Stable).

We therefore assess the linkages between Lion and Carsons as weak, as defined in Fitch’s Parent Subsidiary Rating Linkage Criteria. Lion has a stronger credit profile than Carsons.

The two companies operate as separate entities, with separate funding arrangements and separate liquidity management. There are also no cross-default clauses or cross-guarantees between the debt of the two entities.


Adequate Production Capacity: Lion has sufficient brewing capacity for the next few years, with plant capacity utilisation at 64% in FY19.

Lion expanded its production capacity between FY14-FY16, which drove the high capex of around LKR4 billion a year, or 20% of revenue. We expect capex to moderate to around LKR1.3 billion a year in the next two years.

High Regulatory Risk: Domestic alcoholic-beverage producers face frequent revisions to excise duties, which can cause near- to medium-term operating cash flow volatility. Spirits are taxed 22% higher per proof litre compared with beer, after taxes on beer were increased by 12.5% in March 2019.

The current tax regime is more consistent with the practice that existed between November 2015 and November 2017, when beer was temporarily taxed higher than spirits per proof litre.

Fitch expects the current excise tax regime to prevail over the medium term as it encourages the consumption of drinks with lower alcohol content and has been the norm historically. Fitch believes any further tax increases will be gradual, considering the importance of the industry to government revenue.

Excise duties from alcoholic-beverage makers made up 7% of government tax revenue in 2018.

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Sri Lanka Lion Beer net down 91-pct on Covid-19 lockdown

ECONOMYNEXT – Profits at Sri Lanka’s Lion Beer Plc fell 91 percent from a year earlier to 72.5 million rupees in the June 2020 quarter amid a Coronavirus lockdown and tourism downturn, interim accounts show.

Lion Beer reported earnings of 91 cents per share for the quarter.

Revenues fell 45 percent to 6.4 billion rupees in the June quarter, cost of sales 41 percent to 5.32 billion rupees and gross profit fell 58 percent to 1.1 billion rupees.

The firm reported finance income of 236 million rupees, expenses of 432 million rupees and net finance costs of 195 million rupees, up from 125 million rupees last year.

“The Covid‐19 pandemic & the resultant slowdown in economic activity dominated the 1st quarter of the on‐going financial year,” the firm told shareholders.

“The government to its credit took strong but effective steps to control the spread of a virus that has caused chaos across the world.

“Sri Lanka has emerged relatively unscathed from a health perspective; as per official statistics those infected are remarkably low when compared to most other countries.

“Loss of life has been even lower. The economic fallout though is yet to be fully ascertained. All indications are that the remainder of the financial year will be one full of challenges.”

The firm said it continued to pay salaries during the lockdown which was the reason the cost of sales fell at a slower pace than revenue.

“Whilst the quarter just ended was no doubt the most difficult for the private sector in recent times, the remainder of the year is likely to be challenging as well,” Lion Beer said.

Government has taken many steps to mitigate the risks to the economy. Yet the prospects for growth at the level of the
corporate remains subdued.

“Under these circumstances, management will take a conservative approach in the remainder of the year with
the principle focus being to retain the underlying strength of the company’s balance sheet.”

The firm said it had a strong balance sheet and its credit had been upgrade to AAA (lka) by Fitch Ratings. (Colombo/Aug15/2020)