Lion, Three Coins cheer Rs. 5.15 b deal

The Rs. 5.15 billion acquisition of Cargills Ceylon’s Millers Brewery Ltd. by Carson Cumberbatch Group concluded last week giving the latter further dominance.
Carson said it has concluded the acquisition of the trade marks and the entirety of shareholding of Millers Brewery Ltd., (MBL) through its subsidiary companies Lion Brewery Plc and the latter’s subsidiary Pearl Springs Ltd., at a purchase consideration of Rs. 5.15 billion.
All liabilities of MBL were fully settled by the previous management prior to the completion of the acquisition. The deal was first announced in June 2014.
Carson said with the acquisition of the trade marks, Lion Brewery has now consolidated the MBL portfolio of brands into Lion’s portfolio and will soon commence the brewing of Sando Power, Irish Dark, Sando Stout, Three Coins Lager and Grande Blonde at its production facility in Biyagama. Pending a detailed evaluation, operations at the MBL brewery in Meegoda will cease temporarily.
“The acquisition of MBL affords Lion Brewery the opportunity of taking advantage of supply chain synergies whilst ensuring that loyal consumers of the MBL portfolio continues to have access to their brands of choice,” Carson said.
As per industry sources, even prior to the acquisition, Lion commanded over 90% market share whilst post acquisition it will also return to the shelves of Cargill’s supermarket which has licence to sell soft liquor.
Cargills entered the soft alcohol industry in 2011 with the acquisition of the renowned McCallum Brewery Ltd. through fully-owned subsidiary MBL.
Analysts also said Lion was keen to acquire MBL even at a premium so as to safeguard its dominance. Previously there were speculations that Distilleries Company was vying entry into the soft liquor market via MBL.
Lion’s acquisition of MBL comes after the Carson Group increased brewing capacity in FY14. It commissioned a brand new brew house at its plant which will operate alongside its old brew house which is still in excellent working condition. Lion Brewery successfully concluded most of the proposed expansion in the beer processing section.
The installation of the new state-of-the-art packaging lines for both bottling and canning were commissioned. “With these additions Lion Brewery will not be hindered by capacity constraints in producing Sri Lanka’s best-loved beers,” Carson Chairman Tilak de Zoysa said in the company’s 2013/14 Annual Report.
Carson’s Beverage segment recorded a consolidated turnover of Rs. 25.84 billion for the financial year 2014, up by 12.4% over FY13 and contributing to a gross margin of 23.2%, which is a 0.8% increment when compared to the previous period.
The positive movement in Gross Margin was due to the stoppage of relatively expensive imported canned beer to supplement capacity constraints, in October 2013. The imported canned beer, although brought down at higher prices, was sold at existing market prices which was below cost.
On the other hand, the segment encountered factors such as increased input costs and excise duty increments which challenged the sustainability of margins.
Given the price sensitive nature of this industry, the full increase in product costs was not passed to consumers, thereby absorbing a considerable portion of the total cost increase affecting the bottom line.
The sector reported a consolidated profit after tax of Rs. 1.17 billion as compared to Rs. 1.02 billion achieved during the previous year.
Cargills in its 2012/13 FY Annual Report said the brewery, which commenced operation with 50,000 hl per annum, had reached 300,000 hl and would continue its phased expansion drive in the medium term.
However the brewery business has seen a back-to-back erosion of margins with excise duties being increased twice during the period in April and October 2012.
The sector has responded with selective price increases while retaining a price advantage for MBL products within the high-alcohol segment in view of this being the growth category. Market estimates show that MBL has now grown to be the second largest player despite the highly regularised and prohibitive trading environment,” the Cargills FY13 Annual Report added.
Making soft liquor more expensive, the Government last month hiked excise duties on soft liquor by Rs. 10 to Rs. 20 per bottle. This was prior to the presentation of the 2015 Budget on 24 October.

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