Macro-Economic Analysis

This macroeconomic review has been prepared considering the financial details of Ceylon Beverage
Holdings PLC. First we consider the annual report prepared for 2009-2010 period. The report states that the
company returned to a reasonable level of profitability after a less than satisfactory performance in previous
years. But since the ethnic war which plagued Sri Lanka for more than 30 years ended in 2009, the company
had a great deal of opportunities to improve their financial strength. Declining interest rates, low inflation and
the stable currency throughout the year were some of the factors that the company turned into their advantage.
The report states that the Brand portfolio, world class distribution & manufacturing systems, efficient logistics
operations & aggressive management made it possible for them to cope with the drastic changes happening in
the business environment.
Based on the performance of year 2009, the board recommended a first and final dividend of Rs.3 per
share. And 69% of this dividend was free of tax in the hands of the shareholders. In this financial report the
company expects to have a continuous growth of beer industry in India too. In this period they were still
working on establishing an appropriate distribution and manufacturing footprint because of the vast
geographical area of India.

Moving on to the financial review of 2010-2011 period, the financial review states that the growth of
GDP by 8% during this year was helpful to the growth of this industry. This year the first and final dividend of
Rs.4 per share which accounts for 46% of the companys post-tax profits, were recommended for the
shareholders. The dividends were declared out of the tax free profits from the subsidiary Lion Brewery
(Ceylon) PLC (LION), shareholders had the opportunity to receive this distribution free of withholding tax.
The report has raised concern about the increase of corporate tax applicable to alcobev industry (this
affected their subsidiary LION) by 15% while the standard rate of corporate tax was reduced by 20%. This
made a gap of approximately 45% between the standard corporate tax rates and that applicable to the alcobev
industry. Since the industry was already suffering from high taxes, this additional burden was considered unfair.
To maintain the dominance in the market the brewing and packaging capacity was planned to be moved
ahead of the demand and it required a substantial investment to be made. Meanwhile the business in India also
showed the necessity of a substantial investment. Since the resources was not enough to invest in both countries
the Indian Joint Venture was abandoned giving the priority to the business in Sri Lanka. The stakes of LION in
the joint venture was to be purchased by Carlsberg South Asia Pte Ltd, a subsidiary of the Carlsberg Group. The
transaction was planned to be concluded at LIONs book value as at 31st March 2011 once the necessary
regulatory approvals were received. The company ensured that the changes in India will not affect their
relationship with Carlsberg.
Most importantly it should be noted that the company ceased to exist as an operating entity and became
a holding company. Therefore the board recommended to change the companys name to Ceylon Beverage
Holdings PLC.

Next we consider the financial report for the period 2011-2012. During this year Sri Lanka had a GDP
growth of 8.3%. Therefore the company could increase their turnover from Rs.11.6 billion to Rs.18.1 billion.
And the companys net profit after tax increased from Rs.0.8 billion to Rs.1.3 billion during this period.

Due to the lack of production capacity the company had to import the shortfall from Carlsberg facilities
in India and Vietnam. But as the cost of imported beer was higher the cost of products and profit margins were

affected. In order to avoid this from happening again, an expansion project was started in this period. As
approved by shareholders of the subsidiary LION, the proceeds from the Rights Issue made in 2009 of Rs.1.2
billion was used to partly fund this expansion. The Rights Issue was made to fund the Groups investment in
India which was sold to the Carlsberg group during the year.
The depreciation of currency had affected the company during this period. The loss due to dollar
borrowings alone has cost the company Rs.207 million. The report has stated that the effect of weaker currency
and high fuel prices would have had their impact throughout year 2012. And also it states that the Rs.5 per liter
excise duty increase announced with effect from 30th March 2012 would also impact on 2012 margins. In 2011
the company has contributed to the government by Rs.11.1 billion of taxes, which is a 48% improvement
compared to previous year. In 2012 the company became the 3rd largest contributor to the government revenues
with its taxes pre working day amounted to Rs.45 million.
Based on the performance of 2012 a first and final dividend of Rs.6 per share was proposed by the
board. The entire dividend was tax free in the hands of the shareholder.

In 2012-2013 period the country sustained a GDP growth of 6.4%. Inflation was 7.6% and the interest
fluctuation was around 14% and 16% during the year. There were two excise duty increases during this time
span. As a result of the excise duty increase and growth in volume, turnover was Rs.23.0 billion, which was
27% more than that of the previous year. Profit after tax was Rs.1.0 billion and that was 19% below that of
previous year. Importing beer had to be carried out during this year too. This was a cost which contributed
significantly reduce the profitability along with other cost increases in both manufacturing inputs and
overheads. And also the duty in imported beer was increased by 100%.
Upgrading the brewing facilities was done during 2012. But the canning and bottling facilities were still
to be upgraded. After the upgrades the company was expected to supply demand in full via local production.
Two major projects were conducted considering the upgrading of brewing facilities. The secondary distribution
system was revamped & appropriately resourced and the ERP system that was in operation since 1999 was
replaced with a solution that is integrated end to end giving the users timely & quality information while
enabling efficient operations.
This year also the company remained the third largest tax payer in the country. During 2012-2013 period
the company contributed taxes amounted to Rs.14.8 billion to the government. This was an increase of 33%
compared to that of previous year.
Based on this years performance the first and final dividend of Rs.7 per share was proposed by the
board. In 2012 an increase in electricity rates was announced which might impact the performance of year
2013. The focus was given to upgrading facilities during year 2012. Therefore an increase in costs was
expected.

Now we consider the financial review of 2013-2014 period. The report states that GDP increase by 7.3%
in 2013. But due to lack of positive consumer sentiment the beer industry had a marginal volume growth.
However the net revenue of the company increased by 12% to Rs.25.8 billion. The excise duty on the mild
category was increased from Rs.100 to Rs.110 per liter. On stronger beers it was raised from Rs.116 to Rs.130
per liter.
The taxes paid to the government amounted to Rs.16.19 billion, up from Rs.14.78 billion last year. The
increase of excise duty caused an increase in cost of sales. Since importing beer was stopped from the middle of
2013, full impact of this cost increase was avoided. Apart from upgrading the facilities, some cost restructuring
efforts were carried out during the year which eventually helped to reduce the cost.
The net profit of the company before tax was Rs.2.06 billion up from Rs.1.59 billion previous year,
which is an increase of 30%. The net profit had risen from Rs.1.17 billion to Rs.1.02 billion which is an

improvement of 15%. Based on these results the shareholders were given a first and final dividend of Rs.7 per
share.
Lion Brewery and its wholly owned subsidiary Pearl Springs (Private) Limited, entered in to a Sale and
Purchase Agreement with Cargills (Ceylon) PLC and its subsidiary Millers Brewery Limited to purchase the
shareholding including trademarks of Millers Brewery Limited for Rs.5.15 billion subject to the completion of
the necessary due diligence studies in 2014. This was supposed to increase the volume and profitability of the
company

Finally we consider the financial report of 2014-2015 period. The GDP growth was at 7.4%. The
turnover of the company was Rs.32.4 billion up from Rs.25.8 billion previous year. But this was due to a price
increase forced by two excise duty revisions and adjustments made to the taxation structure.
During the year the company completed the acquisition of the trademarks & brands and the
shareholding in its entirety of Millers Brewery Limited. Some key brands in their portfolio are Sando Power,
Irish Dark, Sando Stout, Three Coins Lager and Grand Blonde. The cost of the investment increased from the
originally calculated value, due to the inability to recover input VAT owing to its exemption which was
enforced at the time the final payment was made. This caused an additional charge of Rs.340 m into the income
statements. During this year the upgrading process of the facilities were completed. Therefore the entire
countries beer demand is now supplied by local production.
The profit before tax amounted to Rs.2.4 billion up from Rs.2.1 billion previous year. Profit after tax
was Rs.1.3 billion which was a slight increase from previous years Rs.1.2 billion. This was mainly due to high
capital expenditure and tax adjustments. And based on the performance the board had proposed a first and final
dividend of Rs.8 per share to be paid to the shareholders.