Lion Brewery (Ceylon) PLC Annual Report 2011 - Carson and ...

Chief Executive’s Review
6
Lion Brewery (Ceylon) PLC
Annual Report 2011
On the back of strong economic growth & in keeping with the trends of most business sectors across
the country, your Company posted impressive results during the year under review. In the face of the
most stringent regulatory environment – where pricing, distribution & promotion are all beyond its
control – management moved aggressively to take advantage of the unfolding economic conditions whilst
maintaining strict control over costs. As a result, on revenues of Rs 11.25 billion, the Company earned a
post-tax profit of Rs 1.01 billion, up from Rs 7.92 billion & Rs 640.50 million respectively in the previous
year whilst earnings per share rose to Rs 12.12 from Rs 8.69. The Company’s balance sheet remained
strong & at the year end its gearing stood at a healthy 25%.
During the year, Your Company’s share price moved from Rs 86.50 to Rs 200/-, an increase of 131%
thereby significantly outperforming both the All Share Index (94%) & the Milanka Index (61%). The
Company’s market capitalization as at 31st March 2011 stood at Rs 16 billion up from Rs 6.9 billion at the
start of the year.
Operating Environment
Sri Lanka’s economy grew strongly during the year under review with GDP growth reaching a remarkable
8%. It was a stunning response by a nation just emerging from a devastating, 30 year, internal conflict.
Without doubt it is a response that demonstrates the resolve of the Sri Lankan nation & the confidence its
people have in the country’s future. The remarkable performance of the Colombo bourse since the end of
the conflict is a real demonstration of this confidence.
The Government moved quickly to build up the necessary infrastructure; roads, ports & airports are being
built, capacity has been added to the national grid, the reconstruction in the North & East continues and
the spread of ICT has increased. In the meanwhile, programs such as “Gama Neguma” are attempting
to uplift the living standards in the many villages spread across the country. The Government clearly
demonstrated its intentions of consolidating these economic gains by presenting a strong, private sector
friendly, development oriented budget in November 2010. Some “nuisance” taxes were removed, corporate
& individual income taxes were substantially reduced – with the exception of the alcohol industry whose
income taxes were increased – and the system of VAT simplified. All these factors provided a strong
platform for growth and most businesses in Sri Lanka took advantage of the positive trends. However,
it was the “feel good” factor in an environment sans conflict that contributed the most to the upward
momentum in the economy. This was most evident in the tourism sector; with the danger of war a thing of
the past, arrivals jumped by 46% during 2010 & hotel occupancies reached 70%.
These factors helped your Company increase its revenue to Rs 11.25 billion during the year under review.
Commodity prices the world over started to move upwards during the year, a result of an imbalance
between demand & supply. The demand for food worldwide – particularly in Asia – picked up whilst adverse
weather led to lower yields. A combination of factors also resulted in a gradual increase in the price of oil.
Due to these factors the County felt inflationary pressures although it was curtailed to the mid single digits
during the year.
Notwithstanding the heavy pressure on costs, management succeeded in minimizing its impact using a
combination of techniques that included amongst others, a careful monitoring of the markets, timing of
negotiations & simplification of operating processes.