E-Malt.com News article: Russia: Baltic Beverages Holding (BBH) 3rd quarter profits surged 10.5 % on higher sales

Scottish & Newcastle announces results for the nine months to September 2007 from its 50% owned joint venture Baltic Beverages Holding AB (BBH), in a press release, November 7.

Highlights

* Beer volume growth of 24.5%
* Net sales (EUR) up 33.4%
* EBIT up 33.2%
* Share gains for Baltika in Russian market up 17.3%
* Strong performance in Ukraine
* Rising input costs

Summary of financial performance

BBH enjoyed another set of outstanding results for 9M07, with net sales growth of 33% to €2,195M and operating profit growth of 33% to €526M. EBIT margin for 9M07 was flat, the positive impact of operational leverage benefit/mix being offset by rising input costs and country mix as growth accelerates in BBH markets outside of Russia, where margins are currently lower.

Russia

The Russian beer market continues to perform strongly with growth of 17.3% for 9M 2007. The market benefited from the unseasonably mild weather in the earlier part of the year, as well as the continued positive shift towards beer particularly in the regional markets.

Baltika Breweries extended its market leadership to 37.7%, double that of its nearest competitor. The Baltika brand increased its market share to 12.7% (up 1.9%pts), with volume growth of 37.5% driven by innovation and brand extension. Strong performance in the licensed segment combined with high volume growth of Russian brands helped deliver Baltika Breweries’ positive market share trend.

The Baltika share buyback announced in August was approved at the Extraordinary General Shareholders Meeting on 15th October. BBH, as Baltika’s majority shareholder, plans to participate in the buyback so that its percentage ownership will not increase as a result.

Other markets

In the Baltics, BBH volume growth increased by 9% with strong momentum in non-beer. Beer market share for 9M07 was 44.8% up 0.3%pts. Value share continues to increase ahead of volume share.

In Ukraine, our turnaround plan is showing clear signs of success, and market share has increased by 2.2pts to 20.2%. This was fuelled by the exceptional performance of the Slavutich brand in the mainstream following its re-launch in May and the outperformance of our licensed brands.

BBH in Kazakhstan has increased its market share by 5.2%pts to 43.6%. In a beer market up 17%, BBH continues to outperform with volume growth of 50%.

The brewery in Tashkent, Uzbekistan is now fully operational and early signs are promising.

Our joint venture with the Olivaria Brewery in Belarus is benefiting from BBH involvement and we are encouraged by our progress to date.

Outlook

Following the continued momentum in Russia, we are raising our full year guidance for volume growth of the Russian beer market to 13-15%. Despite rising input costs and relatively higher growth from the less established and lower margin markets, the EBIT margin for 2007 is expected to be broadly in line with FY 2006 at c.22.5%

Going forward we believe there is still ample scope for volume uplift in the Russian market, as well as strong growth potential through mix and pricing improvement, and continued share gains. In addition, other BBH markets such as Ukraine and Kazakhstan will become more important growth drivers as these countries develop further.

In terms of EBIT margin, the combination of positive pricing, operating leverage and the benefits of a fully integrated business in Russia should mitigate the near term impact of rising input costs and relatively stronger sales growth in less established markets.

Capital expenditure for 2007 will be in the region of €550M.

Baltic Beverages Holding AB (BBH) is a 50:50 owned joint venture between Scottish & Newcastle plc and Carlsberg A/S. BBH operates 20 breweries in eight countries in Eastern Europe, including Russia where it is the market leader with a 37.7% market share.


07 November, 2007