Russia: Baltika Breweries H1 2006 sales increased 4% year-on-year

Baltica Breweries reported August 10 its main financial results for H1 2006. The company mentioned the leadership on the market and the improvement of volume dynamics in second quarter of 2006.

Baltika Breweries continues to be the leader on the market with a market share of 23.6% and has increased its share relative to the first quarter of the current year by 0.6 percentage points. The Baltika sales volume in H1'06 amounted to 11.2 million hectoliters, a growth of + 4.0% compared to the same period last year.

The restructuring of the distribution system - the unification of distribution systems of the companies, changes to the system of sales, the transition to unified price models, and the rotation of trade personnel - all of which exercised a restraining influence on sales during Q1 2006, have already begun to produce the first positive results, which influenced on the Q2 2006 results, when the Company showed beer volume growth in Russia by 8.5%, while the market grew by 8.7%.

During H1 2006, the Company managed the portfolio of brands of all 4 companies in the Group. The unified portfolio of brands permitted the Company to be the leader in all price segments of the market for the first time.

Baltika and Arsenalnoye remain as before the most popular brands in Russia.
For the second year running, Tuborg retains its stable leadership in the licensed beer segment, growing by 102.2% over the course of the first-half of 2006. During H1 the Company's other licensed brands also showed excellent growth: Carlsberg (+22.4%), Foster's (+116.9%) and Kronenbourg 1664 (+61.8%).

Compared to the same period in 2005, the company saw high growth in the Nevskoye brand (+35.6%), as well as in the regional brands Don (+24.9%) and Leningradskoye (+47.7%).

During the first half-year, the Company made a whole range of innovations:

1. In the licensed segment - the launch of Foster's in 0.5 liter bottles with pull-ring cap; release of Kronenbourg 1664 in 0.46 liter bottles and the shift to twist-off cap; launch of Carlsberg in a new format bottle with a bottom opener; launch of the new brand Tuborg Twist in a transparent bottle with NLL label and pull-ring cap;

2. In the mainstream segment - the launch of a new brand - Cooler - in the Baltika portfolio, packaged in a transparent bottle with NLL label and pull-ring cap. Cooler is expected to be one of the locomotive brands. Launch of the Russia's most popular brand, Baltika N3, in one-liter PET packaging and of the Yarpivo brand in 1.5 liter PET bottles;

3. Launch of 2.5 liter PET packaging for a group of brands in various segments - Arsenalnoye, Kupecheskoye, DV, Uralsky Master and new mid-cone packaging for the brands Baltika N3, Baltika N7 and Tuborg.

Average growth in RUR prices of the Company's production during the first half of 2006 compared to the same period of last year amounted to 6.6%. There was a change in the structure of sales by form of packaging: the share of PET increased (from 45.3% in H1 2005 to 46.9 % in H1 2006) as did the share of kegs (from 3.7% to 4.6% respectively).

In 2006 the Company has continued to successfully develop export of its products. During H1 2006, the Company's export sales grew by 17.5% compared to the same period last year. “Baltika”'s share exceeds 70% of total Russian beer exports.

The Company's final results for H1 2006 demonstrate high financial performance: Gross profit - €286.9 million (+24.4%), Gross margin - 54.0 % (+2.7 p.p.), EBITDA margin - 30.6 % (+0.9 p.p.), EBIT, €124.8 million (+23.8%), EBIT margin - 23.5 % (+1.1 p.p.), Net profit €94.7 million (+16.3%).

In July the exchange of shares in the companies “Pikra”, “Vena” and “Yarpivo” for shares in the new united company Baltika was completed. As a result of this transaction and of the deals involving exchange of shares by other shareholders of “Pikra”, “Vena” and “Yarpivo”, Baltika became the new majority shareholder in the given companies, owning 92.0% of “Pikra” shares, 97.5% of “Vena” shares and 91.4% of “Yarpivo” shares.

Ever since 1996 Baltika Breweries has been the leader on the Russian beer market. The Company owns Russia's two leading brands, Baltika and Arsenalnoye. The Company comprises 5 breweries: in St. Petersburg, Rostov-on-Don, Tula, Samara and Khabarovsk. It has a malt plant in Tula and 32 sales subdivisions. The Company's products are exported to 38 countries both close to Russia's borders and around the world.

Baltika Breweries is presently merging with the companies “Vena”, “Pikra” and “Yarpivo.” It is expected that the merger process will be completed by the end of 2006. As a result of the merger, Baltika will have 10 breweries and 4 malt enterprises in 9 regions of Russia, the most powerful portfolio of brands and more than 11,000 employees.

Since 1993 the largest shareholder of Baltika Breweries has been Вaltic Beverages Holding AB (ВВH). BBH is a company that is 50-50 owned by Carlsberg A/S and Scottish & Newcastle plc.

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