Annual Report 2009/2010 - Colombo Stock Exchange

OPERATIONS REVIEW
The stronger balance sheet & the improved operating
results provided the Company the opportunity to
negotiate further with its banking partners & hereto
there was success in the form of very competitive
interest rates.
As a result of both the Rights & lower interest rates,
borrowing costs have come down significantly by Rs
151.23 million during the year.
The emphasis of HR during the year under review lay
with building a strong second tier management & restructuring
remuneration to reflect a greater component
of variable pay. Both initiatives have proved successful
and augur well for the future of the Company.
Exports
Since world trade was yet to recover from the global
financial crisis at the start of the financial year under
review, the Company anticipated a significant
slowdown in export volumes. However, this was not
the case; volumes grew by 26 % and by the end of
the financial year, the Company averaged 17
containers a month to overseas markets.
The two focus markets of Maldives & the US performed
well during the year. In the Maldives, the Company
consolidated its position of leadership. The Maldivian
resort sector bounced back with good occupancies
during the latter part of the year and beer volumes,
including Lion & Carlsberg from your Company, grew as
a result. The business in the Maldives is a logistical
nightmare – moving beer in returnable kegs between
Male, the capital & Biyagama & then between Male &
each resort – requires an enabling infrastructure &
operational skills of a high magnitude. Further, each
resort has multiple draught beer supply points & these
need regular servicing which is the responsibility of the
Company. Some resorts require SKU's other than
draught beer & hence, bottles & cans are also supplied
in the Maldives.
Your Company's leadership position in the Maldives is
confirmation that it has mastered the supply chain & thus
has built a competitive advantage that will be difficult to
encroach on.
Volumes grew well in the US as well notwithstanding
the remnants of the financial crisis that still continues to
dampen the operating environment there. The process
of expanding distribution to new states continues as
does the process of consolidation in exiting territories.
As at the end of the financial year, the Company's
brands were available in 23 states of the US. During
the ensuing year the Company hopes to give special
attention to building a strong & sustainable business in
the US.
Similarly, the Company will focus on consolidating it
UK operations into a strong & sustainable business.
The first step in this process is the appointment of a
new distributor who has greater reach across the UK
& a portfolio of products which compliment the
Company's brands.
The Company also exports to a number of other
markets including France, Japan, Canada & the
Seychelles. These are not classified as focus markets &
the investments in them remain small.
On a revenue of Rs 157.34 million, the Company
earned a profit of Rs 15.59 million from its export
business during the year under review.
Indian Operations
The Indian beer industry expanded by an estimated
10% during 2009 bringing the market size to 13
million hectoliters. Although almost 26 times the size
of the Sri Lankan industry, in per capita terms, beer
consumption in India is minute in comparison to first
world norms. Even by Asian standards, beer
consumption in India is extremely small. The alcohol
policy framework in India although complex – a result
of it being a state subject thus lacking in uniformity
across the country – is fundamentally more liberal
than in Sri Lanka. Policy makers are more tolerant
towards consumption of soft alcohols & politically
expedient rules & regulations are rare if any. Thus the
Indian beer market holds promise of a significant
upside to the patient investor.
During 2009, the Company's Indian JV changed its
name to Carlsberg India (Pvt) Ltd (CIPL) thus
communicating its global heritage. Much progress was
made during the year; the brewery in Kolkata was
commissioned adding to the existing brewing footprint
of Himachal Pradesh, Rajasthan & Maharashtra.
Construction of a fifth brewery commenced in Andhra
Pradesh, the largest beer consuming state in India. This
plant is expected to come on stream during the latter half
of 2010. In the meanwhile, the plants in Rajasthan &
Maharashtra are being expanded to meet the ever
increasing demand for this company's brands.
CIPL's brands are now available in most states of India
with few exceptions. Tamil Nadu is one such exception
since it permits only those beers brewed there to be sold
within the state. Volumes at CIPL grew by 192% during
2009, easily out pacing the market and all its principal
competitors including the top two companies, United
Breweries, owner of the Kingfisher brand & South
African Breweries, owner of the Haywards brand.
During the year, CIPL launched Tuborg, a 5% abv beer
which has been extremely well accepted by the young
urban Indian consumer.
R e v i e w o f O p e r a t i o n s
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