Malaysia: Carlsberg Brewery Malaysia warns of consequences of sales and service tax implementation

Carlsberg Brewery Malaysia Bhd is expecting the implementation of the sales and service tax (SST) on Sept 1 to impact consumer spending on beer negatively, The Star Online reported on August 17.

Speaking after the group’s results briefing for the first half of financial year 2018 (1H18) on August 16, Carlsberg Malaysia managing director Lars Lehmann said the group was urging the Royal Malaysian Customs to further intensify its efforts to fight contraband beer, following the abolition of the goods and services tax and the reintroduction of the SST.

“Contraband beer consumption still makes up 22% to 25% of the market, with the bulk of it occurring in Sabah and Sarawak and impacting government tax revenue. “There will be an impact from the implementation of the SST, although the size of the impact would depend on how the sales tax is applied,” he said.

Lehmann explained that the previous services tax threshold for food and beverage outlets was at an annual revenue of RM3mil and the expected threshold is RM1mil.

“If the sales tax is at 10% with a lower revenue threshold for distributors, there will be some impact to consumer spending,” he said.Carlsberg Malaysia is hopeful that the government will not impose any further increases in the excise duties in the upcoming federal budget announcement on Nov 2, as any increase will lead to more influx of contraband beers and losses to government tax revenue.

Apart from that, Carlsberg Malaysia intends to improve its efficiencies for its Singapore operations, which saw a 38.4% drop in net profit in 1H18 to RM40.4mil as compared to the same period last year.

“Our Malaysian and Singaporean operations were run more independently before this.

“Going forward, we intend to work on our strategies to the fullest. There will be more joint marketing activities and we look to see more growth in premium brands in Singapore, in line with Malaysia’s growth in premium brands,” said Lehmann.

Carlsberg Malaysia is also launching the new Somersby cider variant “Elderflower Lime” today as part of its strategy to further grow the market share of its premium brands.

Carlsberg Malaysia posted a 12.8% increase in net profit to RM144.7mil on the back of a solid revenue growth of 7.5% to RM963.9mil for 1H18 ended June 30 as compared to the same period last year.

For the second quarter, the group’s net profit was up 4.9% to RM63.9mil, while revenue grew 2.3% to RM415.5mil.

The growth in both top-line and bottom-line was contributed by better results in the local domestic market and boosted by a share of profits of RM110mil from its associate company, Lion Brewery (Ceylon) Plc, in Sri Lanka.

The better results were partly offset by a lower performance in the Singapore operations, which saw lower sales, unfavourable foreign-exchange movements and positive one-off trade discounts adjustment in the corresponding quarter last year.

In line with Carlsberg’s dividend policy announced in February 2018, the group has proposed a second single-tier interim dividend of 15.7 sen per share.

Together with the first interim dividend declared in respect of the first quarter of 20 sen per share, the total interim dividends stand at 35.7 sen per share, representing a payout ratio of 75.4% of net profit for 1H18.

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