Annual Report 2014/15 | ReportAnnual 2014/15 Lion Brewery (Ceylon) PLC Lion Brewery Annual ReportAnnual 2014/15 END OF THE BEGINNING Lion Brewery (Ceylon) PLC Read the Lion Brewery (Ceylon) PLC Annual Report 2014/15 online 1 Annual Report 2014/15 END OF THE BEGINNING Lion Brewery was incorporated in 1996 as a joint venture between Ceylon Brewery (now known as Ceylon Beverage Holdings PLC) and the global brewing giant Carlsberg. Today its portfolio includes a trio of Lion brands, widely acclaimed as Sri Lanka’s finest beers and Carlsberg & Carlsberg Special Brew, which are brewed and marketed under license. Both the Lion and Carlsberg claim to heritage of over a century in brewing excellence and market leadership. Recently Lion Brewery acquired the Three Coins and Sando portfolio and with it a range of brands that have served Sri Lankan consumers for well over 5 decades. In its formative years, Lion has built a strong foundation to grasp the opportunities that lie ahead. It has remained true to its rich heritage of brewing excellence but has nevertheless modernised to remain relevant to the 21st century. Lion has an aggressive and creative corporate culture that is driven by consumer needs and supported by a truly state of the art manufacturing facility and supply chain excellence. It may operate in the most regulated industry in the Country, but this is a challenge its talented team thrives on as they strive to exceed stakeholder expectations. At Lion the journey is never ending. Perfection is said to be unattainable but it doesn’t stop us from seeking it. Along the way, there are waypoints at which we will stop, take stock, re-strategise, energize and prepare for the opportunities that lie ahead. We have reached the first of the waypoints. It is the end of the beginning... 2 Lion Brewery (Ceylon) PLC CONTENTS Financial Highlights | 4 Chairman’s Message | 8 - 11 Chief Executive’s Review | 12 - 25 Profiles of Directors | 28 - 31 Senior Management Team | 32 - 33 Annual Report of the Board of Directors on the Affairs of the Company | 36 - 47 Audit Committee Report | 48 - 49 Financial Calendar | 50 Independent Auditors’ Report | 51 Statement of Financial Position | 52 -53 Statement of Profit or Loss and Other Comprehensive Income | 54 Statement of Changes In Equity | 55 - 56 Statement of Cash Flow | 57 - 58 Notes to the Financial Statements | 59 - 114 Value Added Statement | 115 Five Year Summary | 116 - 117 US$ Financials | 118 - 121 US$ Five Year Summary | 122 -123 Information to Shareholders & Investors | 124 - 125 Glossary of Financial Terms | 126 Notice of Meeting | 127 Notes | 128 - 130 Form of Proxy | 131 - 132 Corporate Information | IBC 4 Lion Brewery (Ceylon) PLC FINANCIAL HIGHLIGHTS 2015 2014 % Change Rs.’000 Rs.’000 Revenue 32,350,375 25,804,319 25.37 Profit before finance cost 2,984,420 2,352,997 26.83 Profit before taxation 2,386,367 2,200,794 8.43 Profit after taxation 1,330,320 1,343,254 (0.96) Dividends per share (Rs.) 4.00 4.00 - Shareholders’ funds 7,926,582 6,932,366 14.34 Total assets 26,521,313 24,064,784 10.20 Earnings per ordinary share (Rs.) 16.63 16.79 (0.95) Net assets per ordinary share (Rs.) 99.08 86.65 14.34 Market capitalisation 48,000,000 31,280,000 53.45 Rs. 2,386Mn Rs. 48,000Mn Profit Before Tax Market Capitalisation (2014-Rs. 2,201Mn) (2014-Rs. 31,280Mn) 5 Annual Report 2014/15 8 Lion Brewery (Ceylon) PLC CHAIRMAN’S MESSAGE “The entire process Dear Shareholder, On behalf of the Board of Directors and myself, I am delighted to welcome from brewing to the shareholders to the 19th Annual General Meeting of the Company and to packaging has now present to you the Annual Report for the year ended 31st March 2015, which you would have now reviewed. As the Chief Executive Officers review covers been upgraded the performance of the Company in detail, I will restrict my comments to some which means that salient issues. the Company is now On the economic front the GDP grew by 7.4%, driven mainly by the industry sector. Whilst the services sector has contributed marginally above last year, capable of supplying agriculture has recorded a sharp decline. On the back drop of this economic performance, the turnover of the Company grew to Rs.32.3 billion from last the entire country’s beer year’s Rs.25.8 billion. The improvement in turnover however was largely a result requirement from its of price increases necessitated by two Excise Duty revisions and adjustments state-of the-art facility in made to the taxation structure applicable to Your Company. Biyagama.” In October, the Excise Duty on beer was revised on two separate instances, the first being the customary annual upward revision ahead of the budget whilst the second, which was a sharp increase, was meant to offset VAT which was made exempt as from that date. Whilst the second increase was intentioned to recoup the lost revenue to Government it however resulted in an additional cost of approximately Rs.600 million per annum to the Company, as it meant that we are no longer able to recover VAT incurred on our inputs. Thus, as a result of this, during the latter 5 months of the year expenditure rose sharply affecting Company profitability. It also resulted in a rise in our capital expenditure, as input VAT on these too could not be recovered. This was of significant importance as we were making the final payments on our expansion. 9 Annual Report 2014/15 During the year we completed the acquisition of the During the year the Company completed its expansion of trademarks & brands and the shareholding in its entirety of the production facility. The entire process from brewing Millers Brewery Limited. Some key brands in their portfolio to packaging has now been upgraded which means that are Sando Power, Irish Dark, Sando Stout, Three Coins Lager the Company is now capable of supplying the entire & Grand Blonde. Whilst on the whole, the transaction was country’s beer requirement from its state-of the-art facility carried out as planned, the cost of the investment increased in Biyagama. Indeed, we can now boast of possessing a from the originally envisaged value, due to the inability to world-class facility, probably the best in this part of the world. recover input VAT owing to its exemption which was enforced The support processes in purchasing, transport, finance, IT at the time the final payment was made. This caused an & HR too have been re-vamped to suit the potential volume additional charge of Rs.340 mn into the income statements. of transactions whilst some work remains in the area of warehousing, which is being addressed. 10 Lion Brewery (Ceylon) PLC CHAIRMAN’S MESSAGE 11 Annual Report 2014/15 Despite the many challenges faced, the Company returned a profit before tax of Rs. 2.3 billion compared to last years Rs.2.2 billion. The profit after tax however Rs. 2.3Bn was Rs.1.2 billion, a marginal decline vis-à-vis last year’s Rs.1.3 billion primarily due to the substantial deffered tax adjustments necessitated due to the high Profit Before Tax capital expenditure. If not for the untiring skill and efforts of the entire staff of Despite the many challenges faced, the brewery and the commitment of the management team, these results may the Company returned a profit before not have been possible. I therefore take this opportunity to thank every employee tax of Rs. 2.3 billion compared to last and the management team for their commitment & contribution towards these years Rs.2.2 billion. results. On the backdrop of these results, I am pleased to propose a first & final dividend of Rs.4/- per share to be paid consequent to obtaining the necessary approvals at this Annual General Meeting. Mr. Prasanna Amarasinghe who functioned as the Marketing Director since the inception of the Company retired on the 31st of March 2015. The work he has done on the brands, to build them to their current potential and the excellent distribution processes he has introduced, has to be recognized. Although retired, he will continue to work closely with the Company on areas of his expertise. On behalf of the Company and myself, I wish him well. Appreciation and gratitude is due to our valued consumers, customers, suppliers & bankers whose support is absolutely necessary for Your Company. Our grateful thanks is also due to you - our loyal shareholders - and business partners including our Agents, Carlsberg, Corona, Diageo and Moet Hennessy for their continued confidence in the Company. Last but not least, I wish to extend my appreciation and gratitude to the members of the Audit Committee, Remuneration & Nomination Committees and to my colleagues on the Board for their valuable support and advise. With best wishes, (Sgd.) L C R De C Wijetunge Chairman “I take this opportunity to thank every employee and the management team for their commitment & contribution towards Colombo these results.” 21st May 2015 12 Lion Brewery (Ceylon) PLC CHIEF EXECUTIVE’S REVIEW “Lion was ranked Executive Summary We have concluded a successful and satisfying year under what can only be amongst the 10 most described as challenging circumstances. During the year under review, we valuable brands in commenced using our new state of the art bottling and canning lines and completed the acquisition of Millers Brewery. Lion was ranked amongst the Sri Lanka. Lion Stout 10 most valuable brands in Sri Lanka.