World: Scottish & Newcastle announces BBHs results for Q1, 2007
Scottish & Newcastle announces first quarter results from its 50% owned joint venture Baltic Beverages Holding AB (BBH), in its press release from May 9.
Exceptional growth in Russia drives outstanding results
- Beer volume growth of 38%
- Net sales (EUR) up 44%
- Operational leverage and further integration benefit drive margin
- Share gains in all markets
- Market growth in Russia fuelled by favourable weather
- First full year post integration in Russia
- Q1 2007 MEUR MUSD
- Net Sales 492 +43.8% 645 +56.9%
- EBITDA 127 +66.1% 167 +81.2%
- EBITDA Margin 25.9% +3.5%pts 25.9% +3.5%pts
- EBIT 88 +117.5% 116 +137.5%
- EBIT Margin 18.0% +6.1%pts 18.0% +6.1%pts
Performance in the first quarter of 2007 has been exceptional with net sales growth of 43.8% to 492m and operating profit growth of 117.5% to 88M. The improvement in operating margin to 18.0% is the combined impact of BBH outperforming in a strong Russian market giving rise to operational leverage benefit and further incremental benefit from legal integration offset by the impact of rising input costs.
RUSSIA
The Russian beer market has experienced outstanding growth of 28% in what is the smallest quarter of the year. As well as strong underlying growth there is a dual weather impact the first quarter has been unseasonably mild against the relevant period last year which was one of the coldest winters on record in Russia. Innovation and brand development have driven Baltika Breweries' volumes well ahead of the market at 42%, resulting in significant share gain against last year, a period during which the company experienced temporary volume disruption as distribution arrangements were rationalised.
Baltika Breweries' market share in Russia is now at 37.5%, consolidating the share gain trend from the last quarter of 2006. The Baltika brand increased its market share to 11.3% with a significant impact from Baltika Cooler, the premium innovation launched last year, and Baltika-3 which is growing strongly. Development of the company's brands in the licensed segment is driving premium share growth.
In April, Baltika Breweries announced it will double, to 4.5 million hectolitres, the initially planned capacity of its new brewery in Novosibirsk, Western Siberia in order to meet demand in a growing market.
OTHER MARKETS
BBH continues to improve share in each of the markets in the Baltics which together are up 0.9%pt to 44.2%. Innovation is driving premium beer growth and non beer growth accelerates.
In, BBH Ukraine we continue with our plans to improve the performance of the business. Market share of 17.5% is in line with the share position at the end of last year in a market up 21%. BBH Ukraine is performing strongly in the licensed segment.
The beer market in Kazakhstan still continues to enjoy high double digit growth, up 20%. BBH has extended its leadership in the market with 42% share, an improvement of 10.4% pts compared to the same period last year and significantly ahead of the last quarter of 2006.
OUTLOOK
We believe the Russian beer market will grow by 5%-8% this year moving towards our previous guidance of 3%-5% in the medium term. Whilst performance in the first quarter has been exceptional, challenges remain for the rest of the year. Balancing volume and value, we expect to continue to gain share whilst achieving price increases just below the level of local food and beverage inflation. We expect EBIT margin to be broadly in line with last year's reported margin of 22.6%. This is despite a one off benefit last year of around 80bps following supply disruption in wine and spirits and estimated input price increases of around 60m.
We plan to increase capital expenditure to between 400M-500M for the full year which includes the increased investment in the new brewery planned for Novosibirsk , Western Siberia.
Baltic Beverages Holding AB (BBH) is a 50:50 owned joint venture between Scottish & Newcastle plc and Carlsberg A/S. BBH operates 19 breweries in seven countries in Eastern Europe, including Russia where it is the market leader with a 37.5% market share.
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