E-Malt.com News article: 3017

Baltic Beverages Holding AB (BBH) announced on July 29, 2004 its first half and second quarter 2004 results (April to June 2004). In first half 2004 BBH registered total volumes of 1723 ML, up 13%: BBH Russia, up 12%; BBH Ukraine, up 21%; BBH Baltics, up 8%; BBH Kazakhstan growing very fast. BBH has posted net sales for H1 2004 up 18% in Euro and up 30% in US Dollars. BBH’s share in Russian market declined 1.4%pts to 32.1%. “Russian market shows higher than expected growth rates throughout first half of 2004.” Meanwhile BBH increased its share in Ukrainian market 2.7%pts up to 23.9%. “In Ukraine BBH volume growth is very strong, aided by the new brewery in Kiev.”

BBH’s sales volumes in Q2 were up 14.4%, and net sales up 22% in Euro and up 29% in USD. Market volumes in Russia have been particularly strong in the first six months of 2004, due to robust consumer demand and high levels of competitor activity particularly in the lower priced PET sector. As a consequence of this activity BBH lost share in Q1. In Q2 the completion of Baltika’s sales and distribution network and a major increase in advertising investment has reversed this trend.

BBH’s gross margins also improved slightly demonstrating continuing strength in market demand and the BBH portfolio. Profits for the first half and Q2 were affected by increased downstream costs in the business, most notably a major increase in spend on advertising - up by EUR 26 million equivalent to 3.4%pts of net sales. This increase in advertising and other downstream investments: new brewery in Kiev and major enhancements in sales and distribution network, will strengthen BBH in second half of 2004 and beyond.

The completion of the Baltika sales and distribution network and increased advertising ensured a stronger performance in Q2 leading to market share gains (+0.4%) against Q1 2004. There was strong share growth from the smaller BBH breweries Vena, Zolotoy Ural and Pikra throughout the period. BBH remains the market leader by good distance.

In Ukraine BBH made strong progress. BBH market share grew to 23.9%, which is 2.7% points higher than in H1 2003. The new brewery BBH opened in Kiev in Q2 has eased capacity constraints and added momentum. New mainstream brand “Arsenal” was launched also with a great success.

In the Baltics high levels of competitor activity in the low value PET sector led to market share loss in the first half: 2.7% points to 41.7%, which still positions BBH as the undisputed market leader. Both Estonian and Lithuanian markets grew rapidly, whereas Latvian market declined after a year of unusual market activity. BBH Baltic volumes remained flat in comparison to H1 2003.

In the newest and fastest growing of BBH markets, Kazakhstan, BBH has established a strong position with a good brand portfolio, wide distribution network and capable management team. In H1 2004 BBH has an official market share of 21%, although with the inclusion of the unofficial Baltika imports BBH share reaches 25%, making it the market leader already only after just over a year of operations.

Achieved average prices in Russia grew by 10% (in local currency) in the first half vs. H103, slightly above food/beverage inflation. This was despite very fast growth in the lower priced PET sector (+5%pts). Rapid growth of higher value premium brands (+4%pts) acted as a counterweight influencing the average prices positively.

BBH’s gross margins for the first half year improved slightly, demonstrating robust demand for BBH’s brands. BBH’s first half 2004 EBITDA margin remained strong at 25.9%, although this was 3.6% points below H1 2003. This was due to a very large increase in marketing spend (+3.4%pts) for the start of the summer season and increased costs of the new sales structures. The EBITA margin was 17.4%, 4.6% points lower than in H1 2003. The good sales and gross margin momentum, and continuing improvements in operational efficiency will together ease margin pressures in the second half. Full year EBITA margin is likely to be better than achieved in H1 2004.

During 2004 the rouble has appreciated by 6% against the US Dollar but depreciated by 3% against the Euro, compared with the average exchange rates for H1 2003.

Christian Ramm-Schmidt, BBH Managing Director commented; ‘BBH’s results show good sales and volume development in the first half of 2004, demonstrating the underlying strengths of our businesses. Profits for the period were affected by increased investments in sales and market activities, which make BBH stronger in a competitive but fast growing market. Despite the reduction in margins seen during the period, BBH continues to lead the market in scale and efficiency, and is determined to build on these strengths.

BBH remains confident in the prospects for its markets and believes that it is well positioned for improved performance in the second half of 2004. Growth in the Russian beer market is expected to be around 8% for the full year, and BBH is confident in re-gaining share.’

Baltic Beverages Holding AB (BBH) is a 50:50 owned joint venture between Carlsberg Breweries A/S and Scottish & Newcastle plc. BBH operates 18 breweries in six countries in Eastern Europe, including Russia where it is the market leader with a 32% market share.


31 July, 2004