The Lion Brewery Ceylon Ltd., the Ceylon Brewery subsidiary which is now operational, is producing what the company's chairman, Mr. Tilak de Zoysa called "beer of very good quality.''

Reporting to shareholders in the company's second annual report, de Zoysa described the year ended March 31, 1998, as a "notable year of success'' with the plant commissioned although a behind schedule and with cost overruns. Brewing had commenced on March 30 and bottling soon thereafter. Stocks were released to the market on June 1.

"The new brewery will add 30 million litres per annum to the beer market, thus helping to overcome the imbalance between supply and demand. With a relatively trouble free transition to production, the initial output of the new brewery indicates excellent raw material utilisation and beer of very good quality,'' the chairman said.

"If the need arises, the company can expand its capacity at very short notice as most infrastructure facilities necessary such as buildings and related civil works are already in place.''

The chairman said that the company came into being as a direct result the alcohol policy reforms of government in November 1995 when the excise duty on beer was reduced by 70%.

"If these reforms were an incentive, the proposed legislation relating to legal alcohol announced recently will have a reverse effect on the soft liquor industry. Continuity of government policy is an essential pre-requisite to establish and enhance investor confidence. Any changes that effect investor confidence must be viewed with caution,'' de Zoysa said.

He urged that what the country needed was practical policy addressing the issues of illicit liquor amounting to 64% of the market and alcohol abuse. "A policy that merely seeks to reduce the responsible consumption of alcohol neither addresses the real issues nor provides the necessary solutions. Indeed, a policy such as the one proposed, will merely help further entrench illicit liquor in the country,'' he said.

Lion had a pre-operational expenditure of Rs. 2.8 billion during the year under review. Rs. 10 billion pre-operational income has been brought forward leaving a Rs. 7.1 billion carry forward pre-operational income.

The total capital expenditure on acquisition and construction of property, plant and equipment during the year was Rs. 453 million of which Rs. 86 million comprised capitalisation of borrowing costs. All pre-operational expenses incurred during the project stage have been capitalised.

The company has an issued capital of Rs. 487.8 million.. The Ceylon Brewery holds 50.4% of Lion's equity while Carlsberg Malaysia owns 24.6%. The company has issued 35 million 15% redeemable preference shares converting loans made by the DFCC and NDB. Dividends on these shares are payable with effect from June 1998 while the redemption has to be made annually over five years commencing July 1, 1999.

The directors of the company are Tilak de Zoysa (chairman), H. Selvanathan (deputy chairman), M. Selvanathan, S.K. Shah, D.C.R. Guanwardena, W. Unamboowe, Dato Jorgen Bernhoft, Chin Voon Loong and Steven Mark Enderby.