Russia: Baltika Breweries in Q1 2007 strengthened leadership on the market

Baltika Breweries has strengthened its leadership position on the market in first quarter of 2007, according to company’s press release, May 10.

BASIC RESULTS OF Q1 2007:

- Total sales volume — 8.7 million hectolitres
- Net sales — 408.6 million EURO
- Gross profit — 198.8 million EURO
- EBITDA — 113.0 million EURO
- EBIT — 82.5 million EURO


RUSSIAN MARKET AND COMPANY’S POSITION

The high financial results performed by the Company in Q1 2007 were made possible first of all due to the effect of scale based on the impressive growth of sales volume and the beer market in the reporting period, the Company’s marketing initiatives and innovations. The successful merger of Baltika, Vena, Pikra and Yarpivo brewing companies also continues to exert its positive influence.

The significant growth of the market in Q1 2007 (+28%) was driven by the continuing growth of beer consumption primarily on less saturated regional markets and by a number of co-current factors such as unseasonably mild weather and the consequences of regulatory measures affecting alcoholic beverages.

In Q1 2007 the Company grew well ahead of the market and strengthened its leadership with a share of 37.5% (+2.6% to the relevant period in last year).

The sales volume of all the Company’s products in Q1 2007 amounted to 8.7mhl with a growth of +41.6% to Q1 2006 and sales of beer grew by +41.6% to 8.6mhl. Thus Baltika Breweries in Q1 2007 strengthened still further its leadership on the market.

COMPANY’S BRANDS DEVELOPMENT

In Q1 2007 Baltika Breweries continued to develop its brand portfolio.

For the Company, 2007 is the year of the Baltika brand. This key brand consolidated its leadership position thanks to the successful launch of the Company’s new marketing strategy based on thorough research of the market conditions and consumer preferences.

Baltika brand sales growth in Russia amounted to +53.8% in Q1 2007 and the brand’s market share rose by 2.1%, reaching 11.3% (according to the Company’s estimates). The brand’s success was driven by the innovations introduced in 2006 and at the start of 2007: the impressive growth was performed by Baltika №3 in 1 litre premium PET, by Baltika Cooler, by Baltika №9 in a 1.5-litre PET and by the restyled Baltika premium line with a new No Label Look label. The key Baltika’s sub-brand — Baltika №3 Classic sales in Russia grew by +40.5%.

#1 brand in the licensed beer segment Tuborg increased in sales by +136.1% in Q1 2007. The brand’s share in the segment (according to the Business Analytica data) amounted to 16.2% in March (+3.6%).

Impressive dynamics was alsoperformed by the Company’s other licensed beer brands: Carlsberg (+81.9%), Foster’s (+80.1%) and Kronenbourg 1664 (+362.6%).

Together with the key Baltika brand, significant sales were supported by the other Company’s brands: premium brand Nevskoye (+40.6%), regional brands Don (+35.7%), Uralsky Master (+84.7%).

In Q1 2007, Baltika Breweries continued to invest in marketing innovations. The novelties of this period included:

the launch of Kronenbourg 1664 in a 0.5-litre aluminium can
Baltika premium sub-brands restyling
bringing to market the new regional sorts Don Zhivoye, Samara Zhivoye, DV Zhivoye.

SALES ABROAD

In Q1 2007 Baltika Breweries continued to successfully develop its export activities. Total Company’s export sales grew by +40.4% to 0.4mlh. Including licensed production in Ukraine, sales abroad grew by +53.3%.

At the beginning of the year, the Company put its products on sale in Switzerland and Mexico. By the end of Q1 2007, Baltika beer delivered for sale to 40 countries around the world.

INVESTMENTS

In Q1 2007, Baltika Breweries continued to invest production capacity extension and to support relative branches of the economy. The overall volume of investments during the period amounted to 67 million EURO.

In Yaroslavl the Company opened a new malt house with a capacity of over 50,000 tonnes per year. Investment in the project came to more than 21 million EURO. The selection of the site for building Baltika Breweries’ malt plant was mainly influenced by the successful implementation of the Company’s agricultural project in the Central Federal District of the Russian Federation. Its goal is to help domestic agriculturalists to grow high quality brewery barley suitable for production of Baltika beer varieties.

There are Baltika-Samara brewery production capacity increase continued and Novosibirsk brewery construction started among the Company’s investment projects in progress.

FINANCIAL RESULTS

The Company’s results for Q1 2007 show a high level of financial performance.

Q1-07 vs Q1-06

- Sales, mhl 8.7 +41.6%

- Revenue, MEUR 408.6 +46.1%

- Gross profit, MEUR 198.8 +45.3%

- Gross margin, % 48.7% -0.3 pts

- EBITDA, MEUR 113.0 +50.7%

- EBITDA margin, 27.7% 0.8 pts

- EBIT, MEUR 82.5 +74.8%

- EBIT margin, 20.2% 3.3 pts

- Net profit, MEUR 57.4 +54.0%

- Net margin, 14.0% 0.7 pts

"The Company’s high financial results and significant market share gain in Q1 were made possible by implementation of the development strategy based on innovations and power brands and by the effective distribution and sales as a result of Baltika merger", Anton Artemiev, President of Baltika Breweries has commented.

About Baltika Breweries:

Ever since 1996 Baltika Breweries has been the leader on the Russian beer market. In 2006 Baltika merged with the companies Vena, Pikra and Yarpivo. Baltika Breweries comprises 10 breweries in 9 regions of Russia and operates wide brand portfolio. The Company employs around 12,000 people.

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