E-Malt.com News article: Russia: Baltika posts results for H1 of 2005, according to International Financial Reporting Standards

Russia’s Baltika Breweries announced its results for the first half of 2005. The results are according to International Financial Reporting Standards

• Sales volume in 1H2005 - 10.81 million hectoliters, + 22.1%
• Net sales in 1H 2005 - 449.6 MEUR, +23.6%
• Gross profit in 1H2005 - 230.6 MEUR, + 39.3%
• EBITDA in 1H2005 -133.7 MEUR, +38.1%
• EBIT in 1H2005 -100.8 MEUR, +48.4%
• Net profit in 1H2005 - 81,4 MEUR, +46.1%

The results for the first half of 2005 show that the Company continues to demonstrate success and feels confident in the marketplace.

The Company's results for the first half of 2005 demonstrate high financial and operational performance. Sales grew by 22.1% compared to the first half of 2004. The Company's growth continues to run ahead of the growth of the Russian beer market as a whole (3.7%).

The Company's sales grew by 23.6% and amounted to MEUR 449.6. The growth in revenue was due, on the one hand, to growth in volume (+22.1%) and, on the other hand, to an increase in the average price (+1.5%).

The growth in sales was facilitated by the carefully planned brands marketing support and by a comprehensive distribution system, which is one of the best among Russian companies.

The Company increased its share in all segments of the Russian market. Prices have risen in line with Food & Beverages inflation. The EBIT forecast for 2005 remains positive. The Company maintains its course of operational collaboration with other companies of the group.

Significant growth in beer volume
• Total volume - 10.81 million hectoliters, growth of 22.1%
• 24.1% share of the Russian market, growth of 3.6 percentage points in comparison with the same period of 2004.

Russia: a significant growth in market share
Baltika was the main driver of the Russian beer market growth. The market as a whole grew by 3.7% in the first half of 2005. Growth in the second quarter accelerated compared to the first quarter with June being the best month of the period with growth of 6%. Nonetheless, the Company's forecast for the full year volume growth remains unchanged: 3-5%.

Export
During the first six months, the Company actively and successfully developed export sales. The volume of exported beer amounted to more than 71.5 million liters, which is 24% more than in the same period last year. The geographic spread of shipments abroad widened. Baltika is now sold in Norway and Ireland and direct shipments have begun to Holland and France. The overall number of foreign countries served via export sales has reached 38.

The greatest growth of export sales has occurred in the CIS countries - Kazakhstan and Belarus. According to data from ACNielsen, in the first half of 2005 Baltika beer accounted for more than 17 % of the beer market in Kazakhstan.

Brands
During the first half of 2005 the Company has dramatically increased its market share in the mainstream, premium and discount segments of the market and has also successfully promoted regional brands.

Baltika Breweries owns the two most successful Russian beer brands - Baltika and Arsenalnoye. The Baltika brand has long occupied the leading place in the Russian market, while Arsenalnoye has steadily strengthened its position as Russian Brand No2 in 2005. This has been facilitated by the deployment of effective marketing communications and restyling of the brand, which is the leader in the economy segment (lower mainstream) of the market with a 20% share.

In 2005 the Company released new creative marketing communications which have strengthened the positions of all its main brands. One of the successful examples which one can name was “Time to take cans,” a promotional campaign that was unique for the Russian market. The prize money was to be found right in the aluminum cans of Baltika. For this purpose special “cash-cans” with plastic capsules inside were developed. Baltika brand sales over the first half of the year grew by 20% and 51 million dl of this beer brand was sold.

One of the most successful sub-brands of the Baltika brand, Baltika No7 Export beer, became for the first time the undisputed leader of the premium segment of the Russian beer market. For the year 2005 Baltika No7 completely changed its look. It is now sold in aluminum cans and in premium glass bottles, including 0.33 liter bottles with twist-off caps. The growth in sales of the brand during the first half of the year amounted to 29.3% (14.9 million dl sold). The premium brand Baltika No5 Golden also had good results: it recorded a growth of 26.7%.

The Company's market share in the premium segment reached, on the whole, 28%.

The Company also continued to increase its share in another promising segment of the market - beer produced under license. Compared with the first half of 2004 the Company's share grew by nearly 2% and amounted to 7.4%. This was accompanied by the successful launch of the Australian brand Foster's with an original creative support.

The brands DV and Samara continue to demonstrate impressive results. Brand DV leads the market in the Eastern region of Russia, with a growth of 113% in the first half year. Samara continues to grow its market share in the Volga region: it grew by 28% in the first six months of 2005.

These results provide evidence for the accumulated strength of the Company's brands and the effectiveness of both the restyling that has been carried out and of the new marketing communications.

Prices/Packaging
The average growth of prices for the Company's products in the first half year was in line with food & beverages inflation. The reasons for such an increase were inflation during the period and high investments to improve the look of products, including packaging.

The Company significantly increased its market share in all packaging segments, including the most profitable ones - cans and bottles. Following the PET market development, the Company increased sales volumes in this rapidly growing segment, which led to changes in the sales mix towards an increased share of PET packaging. At the same time the sales of the most expensive premium and licensed brands rose in the Company's portfolio.

Financial Results
In the first half of 2005, the Company's financial results reached undoubted successes. The basic reasons for the growth in the Company's effectiveness were growth in sales and efficient management of expenses.

Gross margin 51.3 % +5.8 %pts
EBITDA margin 29.7 % +3.1 %pts
EBIT margin 22.4 % +3.7 %pts
Net margin 18.1 % +2.8 %pts

The reduction in unit production and raw material costs positively influenced the Company's overall results. Thus, in the first half of 2005 production and raw material costs per hectoliter declined by 9.5% compared with the first half of 2004. Also during the first half of 2005 administration expenses per unit were reduced significantly.

At the same time Company's sales and distribution costs per hectoliter of product sold rose. The main cause was growth in the transportation expenses due to the geographical expansion and a sharp increase in rates for transportation services.

Also the results of company's activity in the first half of 2005 show the increase in the marketing expenses caused by the active marketing support of the brands and deployment of effective marketing communications.

The Company forecasts strong financial results for full year 2005 to maintain, though the effect of increased sales and distribution expenses and the significant level of the results in the second half of 2004 will influence on its relative dynamic.

Integration Project
Baltika Breweries continues to ensure that BBH's breweries share best practice and cooperate more closely with one another for the sake of maximum benefits of scale across the entire territory of Russia. The key areas in this process are: procurement, production, distribution, sales and the portfolio of brands. Alongside the operational program, steps have been taken in the direction of integrating legal entities. Despite complications which have arisen, Baltika is confident of success. The plans for integrating the BBH Group companies in Russia will deliver clear benefits to all shareholders.

Outlook
Anton Artemiev, Baltika Breweries President, comments:

«Baltika Breweries remains the leader on the Russian market and is doing everything to ensure that Russians can always get the highest quality beer. Distribution levels have reached their maximum- 97%. This means that in every store in every part of the country when a consumer goes shopping he or she can always find familiar and favorite beer.

Thanks to the support of our consumers, Baltika Breweries now occupies a very strong position which allows us to grow profit in the interests of all shareholders and to strengthen the collaboration within the group which is important in order to maintain success in the ever more competitive and demanding conditions of the marketplace. We now have a splendid opportunity to create a unified business which has unrivalled portfolio of brands and geographic reach, as well as world class production and distribution.

Baltika Breweries remains confident in the future and intends to maintain its strong position in the second half of 2005».

Baltika Breweries is the leader on the Russian beer market since 1996. The Company owns Russia's two leading brands - Baltika and Arsenalnoye.
The company has 5 breweries: in St Petersburg, Rostov-on-Don, Tula, Samara and Khabarovsk. It has a malt house in Tula and 31 distribition centres. Baltika exports beers to 38 countries of the world. Since 1993, Baltika's largest shareholder is Âaltic Beverages Holding AB (ÂÂH). BBH, in turn, is owned jointly by Carlsberg A/S and Scottish & Newcastle plc, who have equal shareholdings.


26 August, 2005