Denmark & UK: Baltic Beverages Holding AB (BBH) 1H 2006 net sales increased 17.7%
Baltic Beverages Holding AB (BBH) announced August 02 its half year and second quarter 2006 results. BBH has demonstrated very good progress in the first half of 2006 with net sales and operating profit growth of 18% to €961M and 31% to €199M respectively. Operating margin increased 210bp to 20.7%. The underlying margin improvement has been driven by strong top line performance and the brewery is continuing to benefit from the legal integration in Russia. BBH will continue to invest in front-end business drivers including marketing, sales and distribution, which will reinforce its position for future growth.
Pricing & Margin Growth
Pricing has improved across all markets. Price per litre has grown by 7.2% in local currency driven by a volume shift into premium and licensed brands. Package mix is now having much less of an impact on net sales as we see a 0.3%pts reduction across the period. Reported margin has been strong at 20.7% (210bp growth). The improvement has been driven by mix, synergies, and administration and production efficiencies as we benefit from operational leverage.
Russia
The beer market in Russia grew by 6.1% in the first half of the year, within which BBH volumes grew by 4.2%. The second quarter saw a much stronger performance than Q1, more in line with the market, as the temporary disruption from the ongoing integration of its sales and distribution arrangements eased.
BBH has seen market share improvement in each of the last four months. This has resulted in a market share of 35.6% compared with 36.3% for the same period last year. Initial estimates indicate that it had gained share in premium and licensed segments and conceded share in discount and lower mainstream. This is in line with its strategy of balancing value and volume.
The share losses have been driven primarily by the introduction of large pack PET volume by the competition. Local pricing on beer was up +6.4%, slightly below Russian food and beverage inflation.
The legal merger of BBH’s four Russian businesses is on schedule for completion by the end of 2006. In accordance with previously stated intentions, in July, BBH has exchanged its holdings in Pikra, Vena and Yarpivo for newly issued shares in Baltika. This transaction, together with exchange of remaining minorities, makes Baltika the new majority shareholder in these companies with 92.0% of the shares in Pikra, 97.5% in Vena and 91.4% in Yarpivo.
Ukraine
In Ukraine BBK now has a new management team in place with the priority of finalising a turnaround and step-up plan to improve the performance of the business. For the half year, BBH Ukraine sales volumes grew by 12.4% against market growth of 15.5%, resulting in market share of 17.7%. Although 1.4%pts below the previous year, this represents an improvement on the recent trend as it has taken steps to enhance distribution arrangements for its brands.
In March, BBH Ukraine began to brew Baltika beer which will strengthen the brand’s position as the undisputed leader of the licensed segment in the Ukrainian market.
The Baltics
All three markets in the Baltics showed continued growth in the first half of 2006 resulting in a combined market share gain of 1.0%pt to 43.8%. Volume growth driven by strong performance in the premium segment is delivering on its strategy of developing a strong brand portfolio for margin growth.
Kazakhstan
BBH continue to see outstanding growth in the Kazakhstan beer market which has grown by 22.4% compared to the same period last year. With volume growth of 39.5%, BBH has extended its leadership in the market taking its share to 29.6%, an improvement of 1.8% pts. It is doubling capacity in Kazakhstan in order to meet the demands of a growing market.
BBH enters Uzbekistan
In May 2006, BBH announced plans to invest in a new brewery in Tashkent, Uzbekistan which will be operational in 2007 with a capacity of one million hectolitres. This is consistent with BBH’s strategy of entering into emerging markets. BBH will team up with a local partner in Uzbekistan, Sarbast Plus and will hold a 75% share in the business.
Outlook
BBH believes the Russian beer market will grow by around 5% in 2006. As the brewer said, it expects to gain share whilst achieving price increases just below the level of local food and beverage price inflation.
The legal integration of its Russian businesses continues on track to be completed by the end of 2006. For the full year BBH expect margins to move towards 21%. Whilst it has continued to increase its investment in sales and marketing, BBH expects this to accelerate in the second half of the year. In addition, the brewer plans to increase capital expenditure to between €250M and €280M for the full year to meet both capacity constraints and further volume growth.
Christian Ramm-Schmidt retires
Christian Ramm-Schmidt will be retiring in September after nine years as President of BBH. John Nicolson, Chairman, said: "Christian has been instrumental in the development of the BBH Group, starting from practically nothing to what it is today. On behalf of S&N and Carlsberg, I would like to thank Christian for the immense contribution he has made to the business and wish him all the very best for the future.” BBH is currently implementing a revised management structure which will strengthen links with the joint owners and improve operational management control at country level.
Baltic Beverages Holding AB (BBH) is a 50:50 owned joint venture between Carlsberg 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.
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