Estonia: Highly successful year for Saku Õlletehase with 18% up in beer sales and 52% up on net profit

According to the Estonian Breweries Association, the Estonian beer market grew by 3% in 2006, amounting to 130 million litres, accordin to company’s news room, February 20. The growth in the beer market has slowed down considerably from 2005, when the market grew by 14%. The main reason for the slowdown was the decreased sales to tourists.

In a year, Saku Õlletehase AS increased its share in the Estonian beer market from 44.6% to 46.5%, selling the total of over 60 million litres of beer in Estonia. In strengthening its leading position in the beer market, Saku Õlletehase AS concentrated mainly on developing the market share in the profitable premium and mainstream beer segments in 2006.

In the most profitable segment, the premium segment, Saku Õlletehase AS increased its market share from 57% to 67%. The main growth drivers were the successful sales of Saku Kuld, Saku On Ice and Carlsberg. The high-season growth was also facilitated by the premium class lemon flavoured beer drink DLight launched at the beginning of summer.

In the highly competitive mainstream segment, which is dominated by local quality beer brands with the largest marketing support in Estonia (Saku Originaal, Rock and A. Le Coq Premium), Saku Õlletehase AS maintained its unquestionable leader position in 2006, holding a market share of 57%. The main success driver in the mainstream segment was the renewal of the label design of beverages under the Saku umbrella brand at the beginning of 2006. The sales success was also facilitated by the extremely positively received consumer campaigns, both for Rock and Saku Originaal. The Saku Originaal campaign “Two Audis at once!” held in the summer gathered 1.2 million participation code messages, establishing an all-time record among Estonian consumer campaigns.

Saku Õlletehase AS’ market share in the economy beers segment amounted to 25% in 2006, compared to 28% in 2005. The market share declined mainly due to the introduction and activation of the cheap brands of retail chains.

In the strong beers segment, Saku Õlletehase AS held a market share of 42%, compared to 45% in 2005. The decline here is also mainly due to retail chains introducing their own brands. The proportion of strong beers in the overall market has decreased – while in 2005 it amounted to 35% of the entire beer market, then in 2006 it made up only 32%.

In the non-alcoholic beers segment, Saku Õlletehase AS increased its market share to 44% in 2006, compared to 33% in 2005. The brewery altered the label design of the non-alcoholic Saku Originaal in the second half of 2006, thus making the non-alcoholic beer even more distinctive among other beers. Compared to other European countries, the proportion of the non-alcoholic beers segment still remains small, forming 1% of the entire beer market, which implies a great growth potential in this segment in Estonia.

The launch of Saku Õlletehase AS’ new premium class products (Saku Kuld, the beer drink Saku DLight) and successful consumer campaigns for the existing quality brands (Saku Originaal, Rock) contributed to an increase in the proportion of glass bottles in the Estonian beer market for the first time in several years. According to a retail survey by research company ACNielsen, the glass packaging segment formed 40% of the entire market in 2006, compared to 38% in 2005.

This change had the greatest effect on products in plastic packaging, the proportion or which decreased for the first time in several years, to 34% from 39% in 2005. The market share of the high-quality AM packaging grew from 9% to 11% in a year. The proportion of canned beer in the Estonian beer market remained at a stable 14%, with local consumption of canned beer increasing and the sales aimed at tourists somewhat decreasing.

In a year, Saku Õlletehase AS succeeded in increasing its market share in the glass segment, which is the most rapidly growing and the most profitable packaging segment, from 42% to 46%, thus becoming the leader in the segment. The main driver of the increase was the successful launch of new products (Saku Kuld and Saku DLight), which in turn was supported by the continued popularity of Saku On Ice, Rock and Saku Originaal among the consumers.

“For Saku Õlletehase AS, the year 2006 was highly successful and eventful. We are still a firm leader of the Estonian beer market - at the end of the financial year our market share by value was over 50%. Saku Õlletehase AS is a modern, successful and result-orientated beverage producer. Our strategy is to hold our position as the value leader of the beer market, and to increase profitability while aggressively increasing our market share in the cider, long drink water and functional beverage categories, as well as the related profitability. Our corporate strategy has fully justified itself, as can be seen from the record-breaking results of Saku Õlletehase AS for 2006,” commented CEO of Saku Õlletehase AS Ireneusz Piotr Smaga.

“The sudden increase in revenue was conditioned by the right changes in the product assortment of the brewery. We redirected our focus to premium-class products, while decreasing or suspending production and sales of less profitable beverages. Excellent sales results also had to do with the exceptionally warm summer of 2006,” added Smaga.

Revenue generated by beer sales increased 18% to EEK 603 million (€39 million) and accounted for 78% of total sales revenue.

Domestic sales accounted for 88% or EEK 676 million (€43 million) of total sales, 17% up on a year ago. The share of exports was 12% or EEK 94 million (€6 million), a 34% improvement on 2005. The period’s main export markets were Latvia, Lithuania, Finland, Sweden, Denmark, Iceland, Canada and the USA. The bulk of exports was made up of canned beverages manufactured for the Latvian and Lithuanian entities of the BBH Group, and beer drink DLight and alcohol cocktail SIN which are manufactured in Saku for all the three Baltic markets.

Expenses totalled EEK 632 million (€40 million), EEK 79 million (€5 million) or 14% growth on 2005. The increase was triggered by an abrupt 20% upswing in labour costs and a continuing rise in fuel and electricity expenses. Marketing expenses climbed slightly. On the other hand, the changes implemented in our logistics structure before the beginning of the high season helped reduce operating expenses considerably.

Profit before tax amounted to EEK 142 million (€9 million), a solid EEK 49 million (€3 million) or 52% improvement on 2005.

Dividends distributed to shareholders in 2006 gave rise to income tax expense of EEK 23.8 million (€1.5 million). Net profit for the period was EEK 118 million (€8 million), a substantial EEK 43 million (€3 million) or 57% increase on 2005.

The period’s earnings per share were EEK 14.79 (€0.95), a fair EEK 5.43 (€0.35) or 58% upswing on 2005.

At the year-end, the equity of Saku Õlletehase AS stood at EEK 433 million (€28 million).

Investments

Capital expenditures of the period totalled EEK 52 million (€3.3 million), 27% up on the EEK 41 million (€2.6 million) spent in 2005.

The largest investment of EEK 25 million (€1.6 million) was made in new packaging: EEK 22 million (€1.4 million) of this was spent on new bottles. Investments in production facilities and laboratories totalled EEK 11.7 million (€0.7 million), including an investment in the enhancement of a new filling line for 0.33-litre glass bottles. Sales and logistics related investments amounted to EEK 11 million (€0.7 million) and EEK 5.6 million (€0.4 million) respectively and investments in computer hardware and software totalled EEK 0.7 million (€46,000).

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