E-Malt.com News article: CIS: Efes Breweries International says consolidated sales volume slightly decreased in Q1 2009

Efes Breweries International N.V. (EBI) announced on May, 14 its consolidated unaudited financial results for the three months period ended 31 March 2009 in accordance with IFRS.

In 1Q 2009, EBI’s consolidated sales volume reached 2.5 mln hl, recording a decline of 4.2% over the previous year. On an organic basis*, sales volume declined by 2.8% year‐on‐year. Sales volume decline was due to the continued effect of the economic slowdown in the region combined with the strong base of 1Q 2008, when total and organic sales volume was up by 12.0% and 9.5%, respectively, Efes said.

The downward trend in the Russian beer market continued in the first quarter of 2009 as expected, due to the deteriorating consumer demand as a result of the global financial crisis. In this challenging environment, EBI once again managed to outperform the beer market by realizing 2.0 mln hl sales volume.

The decline in EBI’s sales volume in Russia stood at 5.3% vs. the estimated market decline of 7%. EBI’s market share in Russia was 9.3% in 1Q 2009, slightly over the 9.2% market share it has attained in 1Q 2008. (AC Nielsen).

In Kazakhstan, sales volume grew by 32.3% in 1Q 2009 vs 1Q 2008 and reached 0.3 mln hl. EBI’s volume performance was significantly ahead of the market, as evidenced by its improved organic market share to 29.7% in 1Q 2009 from 26.3% in the same period of 2008. The combined market share post collaboration with Heineken was 32.3% in 1Q 2009 (AC Nielsen).

In other markets, EBI increased its market share in 1Q 2009 over the same period of previous year, although challenges were still apparent in the Moldovan beer market. Georgian beer operations performed in line with the brewer’s business plans and contributed 4.5% to EBI’s consolidated sales volume.

In the first quarter of 2009, EBI’s consolidated net sales revenue was US$149.4 million, indicating a decline of 15.4% year on year. Net sales revenue per hl was down by 11.7% in the period. The decline was fully attributable to the depreciation of local currencies versus EBI’s reporting currency USD.

On an organic basis (by excluding the effect of Georgia and Serbia), EBI’s consolidated net revenue declined by 14.8% in the quarter.

EBI’s sales revenue in Russia grew 7.5% in local currency owing to average price increase of 13.5% over the same period of previous year. The average price increase also includes the brand and packaging mix effect in the period. However due to devaluation of the rouble against USD, which resulted in 29.2% negative fx‐effect, EBI’s net sales revenue in Russia declined by 23.8% in 1Q 2009 over the same period of the previous year.

In Kazakhstan, net sales revenue increased by 31.3% year‐on‐year, on the back of sales volume, positive mix effect and local currency price increases, despite the 13.3% negative fx-effect due devaluation of average Kazakh Tenge in 1Q 2009 over the same period of the previous year.

In Moldova local currency price increases mitigated lower volumes to some extent.

The positive impact of declining commodity prices and devaluation of local currencies, although slightly muted with increase in foreign currency based raw material costs due to devaluation and higher overheads due to lower volumes, has led to a 16.9% decline in EBI’s cost of sales per hl in 1Q 2009 compared to the same period of the previous year. Accordingly gross profit margin improved by 359 basis points to 43.7% in 1Q 2009.

EBI’s consolidated operating expenses as a percentage of net sales revenue decreased by 277 basis points in 1Q 2009 over the same period of previous year. The decline in operating expenses was the result of tighter expense management and exclusion of disposed operations from consolidation. As a result, EBI generated US$4.2 million operating profit in 1Q 2009 vs. US$6.3 million operating loss in the comparable period of the previous year.

EBI’s consolidated EBITDA was US$24.1 million in 1Q 2009, indicating a significant increase of 46.6% over 1Q 2008. As a result, EBITDA margin increased to 16.1% from 9.3% in 1Q 2008. The improvement in EBITDA margin is mainly attributable to higher gross profit margin, lower operating expenses and disposals of certain operations during 2008.

In 1Q 2009, financial expenses increased as a result of non‐cash foreign exchange losses, due to the depreciation of local currencies vs USD in 1Q 2009.

As a result EBI’s consolidated net financial expense increased to US$93.2 million in 1Q 2009. Therefore in 1Q 2009 EBI reported net loss attributable to majority shareholder of US$73 8 million.

Non‐cash foreign exchange loss is mainly attributable USD denominated loans in EBI’s Russian and Kazakhstan subsidiaries’ balance sheets, which are due on or after 2010, the brewer said.

As of 31.03.2009, EBI has a gross financial indebtedness of US$792.0 million down from year end figure of US$817.3 million. Approximately 60% of the gross debt is due within one year.

A significant portion of the short term debt is attributable to the US$300 million syndication loan facility due in September 2009.

On 27th April 2009, EBI announced that it has mandated HSBC plc to arrange a USD 200 million Term Loan Facility with a maturity of 3‐years. The proceeds will provide long‐term refinancing of part of the syndication loan, the brewer said.

Remaining debt position has earliest maturity in 2010 and extends until 2014.

As of 31.03.2009 EBI also has US$232.7 million in cash and cash equivalents.

At this point in time, EBI said it does not have any liquidity concerns and expects no difficulty in refinancing or repaying its short term debt.

In line with EBI’s 2009 business plan, which limits capital expenditures to a minimum level, EBI’s consolidated cap‐ex declined to US$28.3 million in 1Q 2009 vs. US$50.3 million in 1Q 2008.

On the back of tighter working capital management and the lower inventory turnover days, EBI recorded significant decrease in working capital need in 1Q 2009.

As a result EBI generated US$25.7 million Free Cash Flow (FCF) in 1Q 2009.


BRANDS & INNOVATIONS

In Russia, 1Q 2009 was rich of new variety and package launches. A new product in Stary Melnik portfolio, “Stary Melnik Iz bochonka Osoboe”, was launched in March. In addition, “Bavaria 8,6” in 50cl bottle and 50cl can was also introduced into the market in January 2009. “Green Beer” in 1.5 lt PET and 50cl bottle, as well as “Gold Mine” in cans were also introduced into the market in February and March, respectively.

In Kazakhstan, “Sokol” in 50cl bottle was re‐launched in February 2009.

In Moldova, “Chisinau Draft Mild” was launched in March 2009.


2009 OUTLOOK

Efes Breweries International reiterated its commitment to margin development, tighter working capital management, positive free cash flow generation, limiting the effect of devaluations on top line and outperforming the beer markets in all countries of operation.

For the Russian beer market overall, the company expressed certainty there is no base just yet neither for reiterating nor revising its 2009 guidance, as full year guidance expectations was based on a relative recovery in the second half of the year mainly due to low base effect and as Q1 is the smallest year, quarter of the year. “Therefore we believe that the market development in the season would be vital for the full year performance and it will be appropriate to restate market development expectations with 1H results,” Efes said.

The brewer promised to keep its price increases below inflation in 2009, yet deliver local currency net revenue growth. However, on a consolidated basis, consolidated net sales revenue is expected to decrease at a rate of low to mid teens y‐y o‐y due to the impact of weaker local currencies vs. USD, Efes maintains.

The company expects to save back at least half of the gross margin it lost in 2008 and is basing this outlook on lower procurement prices of raw materials.

In 2009, Efes said it will keep capital expenditures to a minimum level of approximately 6% of revenues.


* By excluding i) the sales volume of JSC Lomisi in Georgia, which EBI acquired in February 2008 and started full consolidation starting from March 1st 2008, ii) the sales volume of Efes Serbia, which is excluded from EBI’s financials after the end of 1H2008


15 May, 2009