Russia: Baltika brewery posted its 1st quarter 2005 results in accordance with to IFRS
Russia's top beer maker, Baltika brewery, announced a 87.9 % rise in first quarter net profit which analysts said was due to good cost controls and changes in distribution and sales policy. Financial result of Baltika for Q1 2005 was published on May 26 according to IFRS (International Financial Reporting Standards).
Baltika posted a net profit of EUR 23.3 million compared with EUR 12.4 million in the first quarter of 2004. Net sales rose to EUR 165.4 million from EUR 135.9 million (+21.7%). Earnings before interest, taxation, depreciation and amortization (EBITDA) increased to EUR 44.9 million from EUR 30.8 million (+45.7%). EBITDA margin rose to 27.2 % from 22.7 %.
The President of the Company Anton Artemiev commented on the first quarter results: “Baltika has achieved splendid results, and I believe that our sales and brand promotion policies, as well as the forthcoming consolidation of the operations of Russian companies within BBH will be major factors of successful development also in the future.”
Baltika’s sales volumes increased to 4.17 million hectolitres from 3.384 million hectolitres in the same period in 2004. This represents an increase by 23.2 % while the total market growth in Russia was 2-3% according to Baltika’s estimates. As a result, the Company's overall market share reached 24.1% during the first quarter of 2005.
The Company's sales in monetary terms grew by 21.7% during the first quarter of 2005 compared to the first quarter of 2004 and was 165 million Euros. The major factors in this revenue growth were an increase in the physical volume of goods sold (+23.2%) and higher prices for the product mix in ruble terms (+6.3%). Changes in the structure of sales affected the average price of goods sold (-5.6%) and the weakening of the ruble in relation with the Euro (-2.2%) depressed the sales figures.
Over the course of the entire quarter, the Company demonstrated sales growth in all price segments, which contributed to a strengthening in the market position of the Company's brands.
Growth of main brands of the Company in Q1 (in comparison with Q1 200):
Brand Growth %
Arsenalnoe 3,9%
Baltika 18,0%
Baltika No3 Classic 44.0%
Baltika No7 Export 12.5%
DV 138,7%
Leningradskoye 83,4%
Samara 23,4%
The Company also strengthened its position in the licensed beer segment thanks to the growth of Carlsberg by 24.2 % and the launch of Foster's at the end of the year. Foster's has been actively winning over its own consumers.
The growth of the brands has been accompanied by active advertising support, marketing programs at points of sale and promotional campaigns. During the first quarter of 2005, the restyling of all the Baltika beer varieties which began last year was completed. Now the entire Baltika product range is available in a unified style packaging, while Baltika No7 and Baltika No0 are also sold in a new format 0.33 liter bottle with a twist-off cap.
The systematic program of optimizing production and administrative expenses in the first quarter of 2005, as well as the implementation of a program for restructuring the Company, have given positive results and led to reduction in production expenses of by 0.86 euro and in administrative expenses by 0.42 euro per hectoliter compared with the first quarter last year.
The overall results for the first quarter of 2005 point out an objective increase in cost of sales. The main reason for the Company's high financial performance during the accounting period was an efficient system of sales which was put in place through the end of the second quarter of 2004. As a result the expenses relating to the functioning of this system were not yet fully reflected in the first quarter 2004 reporting. This led to the observed increase in sales expenses during the first quarter this year as against the corresponding quarter in 2004.
The second factor of the increase in sales expenses during the first quarter of 2005 compared to the same period in 2004 was the increase in logistics expenses which were caused by considerable growth of transportation rates and certain limitations introduced unilaterally by Russian Railways and the determined rise in prices of its services.
The strong dynamics of the financial results for the reporting period in comparison with the analogical period last year is partly caused by the undemanding results in Q1 2004.
Baltika Breweries has been the leader of the Russian brewing industry since 1996. At present the company holds the two leading Russian brands: Baltika and Arsenalnoe. The company consists of 5 factories (St. Petersburg, Rostov-on-Don, Tula, Samara and Khabarovsk), a malt-producing factory in Tula, and 32 sales enterprises. The Company's products are exported to 37 countries both within and outside the CIS. Since the year 1993 Baltic Beverages Holding AB (BBH) has been the largest shareholder of Baltika. BBH is a company owned in equal shares by Carlsberg A/S and Scottish & Newcastle plc.
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