ECONOMYNEXT – Sri Lanka’s legal beer producers will continue claw back market share from illicit hard liqour following a change in taxes, but overall market growth will be subdued in 2018 amid currency depreciation and energy price hikes, the island’s largest brewer has said.
“We are inclined to believe that beer volumes will be subdued during this financial year,” Chief Executive of Lion Brewery (Ceylon) Plc, Suresh Shah told shareholders in the annual report.
“The fuel price adjustment and the currency depreciation will limit purchasing power. If electricity tariffs are also revised this year, there will be further pressure on consumers,” Shah said.
Sri Lanka in May hiked fuel prices, and is expected to follow formula-based pricing, while electricity pricing is also expected to be market based. Market based pricing however, may help keep the currency stable, analysts said.
Shah said a revival in the agricultural sector in the first quarte of 2018 will help the sector but initially spare cash of farmers will go to settle some of their debt during a 24 month drought.
But tourism and export markets were doing well he said. Under a new tax law that came into effect this year, exports will now be taxed at 40 percent instead of 12 percent, he said.
A reduction in beer taxes in 2017, after Finance Minister Mangala Samaraweera reversed a tax, which critics said helped boost quarter bottle arrack sales, however had helped the beer market.
In the year to March 2018, Lion Brewery had posted profits of 1.8 billion rupees, up from a loss of 1.4 billion last year, while sales rose to 30.5 billion rupees from 21.2 billion rupees.
Shah said beer makers are also clawing back market share from illicit liqour. He said a belief held by some that consumers of lillicit liqour would not switch back to beer was not correct.
“Available evidence suggests the contrary; in the five months since the alcohol tax reforms, considerable in-roads have been made against illicit liquor consumption,” he said.
“We estimate that 35 percent of the volume increase in the beer category since November 2017 has come from previous consumers of illicit alcohol.
“ We expect this shift to accelerate when economic conditions and consumer spending power improves in the coming months,” Shah said.
Lion Brewery will mainly focus on cutting debt during the ongoing year, since the local policy environment is too inconsistent he added.
“Indeed, we have been bitten twice before, once in 1998 and the other in 2015 and both times it was just after we had made sizable investments,” he said.
“In addition, we will continue to work on cost reduction initiatives and enhancing efficiencies in the supply chain system,” he said. Lion Brewery has 4.8 billion rupees in long-term borrowings, and 6.9 billion rupees in short-term borrowings. (Colombo/July02/2018)