This article first appeared in The Edge Financial Daily on August 17, 2018

KUALA LUMPUR: The exceptional growth in the domestic volume sales of Carlsberg Brewery Malaysia Bhd in the first half ended June 30 may see some disruption in the medium term when the sales and services tax (SST) is re-introduced in September as companies are still unclear of the tax structure.

On the bright side, the brewery expects the third quarter to be robust owing to the three-month June to August zero-rated GST period which boosted sales. In addition, it anticipates its Singapore operations would see improvements on the back of an ongoing internal reorganisation and a future increase in marketing expenditure.

At a second-quarter results briefing yesterday, group managing director Lars Lehmann said Carlsberg is uncertain about the potential impact of SST on consumer spending as it will depend on details of the tax regime.

For instance, it is unclear if the sales tax on beer manufacturers will be levied at 5% or 10%. Also unknown is how the 6% services tax will be applied – whether it will be imposed on a company with an annual turnover of RM3 million (as previously) or of RM1 million.

“There will be an impact. How big that impact will be depends on how the sales tax is applied,” said Lehmann.

“The [previous services tax] threshold for food and beverage outlets are at [annual revenue of] RM3 million … and the [expected] threshold is RM1 million. It all depends on the outcome [of the Aug 28 Parliamentary tabling]. We don’t know where it is going to end up.

“If the sales tax is at 10% with a lower [revenue] threshold [for distributors], there will be some impact,” he said of the “worst case scenario”.

On its Singapore operations, Lehmann said Carlsberg had gained market share in both the beer and cider segment.

“We need to see growth of our premium brands in Singapore. Our portfolio is in place … the performance in Singapore is stabilised, it is mainly the internal operations that we haven’t been able to [improve] on in the past. But we are correcting that.”

He said the year-on-year (y-o-y) strengthening of the ringgit against the Singapore dollar had reduced the island-state’s contribution by more than RM10 million in the first half of financial year 2018 1HFY18. “I am quite confident that we will see growth coming in over the next nine, twelve months or earlier.”

On synchronising Carlsberg’s marketing campaigns and business strategies in Malaysia and Singapore, he said the company has made changes to perform as “one company in two places”, which would increase its operational efficiency.

In Sri Lanka, its associate, Lion Brewery (Celyon) PLC, has registered a profit of RM5.3 million in the second quarter – an indication that it has fully recovered from the 2016 floods, Lehmann said, adding it is expected to chart a similar performance moving forward.

For 1HFY18, Carlsberg Malaysia saw a 13% y-o-y increase in volume sales for the Carlsberg brand, while its premium brands volume grew at an average 19%, led by a 41% growth in the 1664 Blanc wheat beer, followed by Connor’s Stout (29%).

The group is launching a new Somersby cider varient “Elderflower Lime” today as part of its strategy to further grow the market share of its preimum brands.