E-Malt.com News article: Russia : Russians help BBH to steppe up beer sales in Q2 and H1 2005

Baltic Beverages Holding AB (BBH) announced on August 3 its first half and second quarter 2005 results (April to June 2005).

· Total volume growth of 14% to 1973 ML
· Russian market share of 36.3%
· Net sales up 18.6% in EUR, up 24.0% in USD
· EBIT up 32.6% in EUR, up 38.6% in USD
· Strong cash flow performance

The results for the first half show a continuation of the strong growth in both volumes and net sales shown in the second half of 2004, following the management initiatives within sales and marketing.

The momentum shown in the second half of 2004 has continued into 2005 with BBH gaining share in all segments of the Russian market and achieving local price increases in line with Food and Beverage inflation. The sales growth in the second half of the year will be less pronounced as the performance in the second half of 2004 was boosted by the sales and marketing initiatives developed in 1H04. The previous guidance of broadly flat EBIT margins for the full year is maintained.

· BBH total beer volumes of 1894ML, up 14%:
BBH Russia, up 17%
BBH Ukraine, down 1%
BBH Baltics, up 6%
BBH Kazakhstan, up 61%

· Russian market share 36.3%, up 4.1%pts; comparable to the last two quarters of 2004

The Russian market grew at 3.7% for the half with BBH the main driver of the growth. Volumes in the second quarter grew faster than the first, with June being the best month in the period with growth of 6%. Our forecast for full year 2005 volume growth is maintained at mid single digits. BBH significantly outperformed the Russian market in the first six months of 2005, growing at an impressive 17%. BBH has now achieved a weighted average market share of 36.2% over the last four quarters.

In Ukraine, BBH moved pricing ahead strongly and undertook a number of structural changes in the first half leading to volume and market share loss (-5%pts). Importantly however, there was an increase in profits for the period.

The under-performance against the market will be addressed. With the combination of the continuing re-organisation of the sales and distribution system and a fully operational new brewery, the business will improve going forward. Ukraine is a very vibrant market which is now larger than many Western European markets and growing strongly from a comparatively low per capita consumption level.

All three Baltic State markets showed positive development in H1 2005: the Estonian market grew by 13%, Lithuanian by 7% and Latvian by 1%. In total, Baltic markets grew by 7% compared to H1 2004. BBH Baltic volume increase was slightly below the market, which resulted in a modest share loss of 0.3%. Profits were up in all three markets. BBH remains the undisputed leader in the Baltics with a total market share of 42%.

In the newest and fastest growing of BBH markets, Kazakhstan, BBH has maintained its leadership with a good brand portfolio, wide distribution network and capable management team. In H1 2005 BBH showed an impressive growth in beer volumes (+61% compared to 1H 2004) and reached a market share of 28%. Plans are now in place to double capacity in 2006.

Achieved average prices in Russia grew by 8% (in local currency) in the first half vs. H104, in line with Food and Beverage inflation. The fast growth in the lower priced PET sector (+3.8%pts share of volume to 49%) was partially offset by growth of higher value premium and licensed brands (premium market share +4.5%pts to 37.9%).The net result was a negative mix effect of 2%pts on net sales growth.

Gross margins for the first half of the year improved, demonstrating strong cost control within procurement and production and robust demand for BBH’s brands.
Operating margins in H105 have benefited from a slightly lower expenditure on marketing: however, for the full year a broadly equal level to that investment in 2004 as a percentage of net sales is still expected. Planned sales and distribution investments continue to negatively effect margins as BBH continues to invest in this very important area. Savings in noncustomer facing activities more than offset this increased investment in the period. EBIT margin for the full year is still expected to be in line with 2004 as operational gearing, good cost control within support operations and premium brand growth is off-set by increased investment in sales and distribution and negative mix from PET gaining share within the portfolio.

BBH is continuing to make progress in sharing best practice and bringing its Russian operations closer together. Steps towards legal integration have begun and, inspite of initial set-backs, BBH is confident that the strength of the business case will deliver a positive outcome. The integration plans for the BBH businesses in Russia will deliver clear benefits to all shareholders.

During H105 the rouble has appreciated by 3% against the US Dollar but depreciated by 2% against the Euro, compared with the average exchange rates for H1 2004.

Christian Ramm-Schmidt, BBH Managing Director commented;
‘BBH’s results show good sales, volume and profit development in the first half of 2005, demonstrating the underlying strengths of our businesses. BBH is now in a very strong position to drive increased value for all shareholders by working more closely together across the group. BBH Russia must continue to evolve to lead the market in scale and efficiency. There is now an excellent opportunity to create a business with an unrivalled position in terms of sales coverage and brand portfolio and a world class production and distribution network. BBH remains confident in the prospects for its markets and believes that it is well positioned for the second half of 2005.’

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 36% market share.


05 August, 2005