E-Malt.com News article: 1131

Russia: SUN Interbrew reports 1Q03 US GAAP financials on Friday 23 May, followed by Baltika next Monday. The results are likely to show diverging top-line trends. Baltika volumes continued to fall in 1Q03 on the back of distribution changes and an organic decline in core brands, while SUN Interbrew delivered positive volume growth and market share gains on the back of a successful PET launch in Russia. Baltika’s net sales are expected to be 20% lower, with a substantially worse EBITDA margin. SUN sales are expected to be 19% higher and we anticipate some margin improvement, albeit not substantial due to less profitable PET sales.

The Russian beer market declined by 3.7% in volumes in 1Q03, compared with 2.9% growth in 4Q02, although growth returned in April. Consumption was flat in 1Q03 according to Business Analytica’s retail audit The market is slowing and 2003 growth is seen at 7.8% against 10.7% in 2002. Baltika"s volumes were down by 11.4% in the quarter, whereas SUN Interbrew volumes were up 6.3%. The share of PET continued to grow, increasing by 3% to 34% in March. Average retail prices for mid-market brands were flat in 4Q02-1Q03, while PET prices declined by 3- 8% according to the retail audit.

SIL’s net sales are forecast to be up 18.6%, driven by volume growth and price increases – which could nevertheless turn out to be lower than we expected, as seen in the retail audit data for PET. We expect flat rouble prices in Russia in 1Q03. Further, we see SIL’s gross margin compressing from 49% in 4Q02 to 45% in 1Q03 due to the higher share of less profitable PET, as well as higher excise. EBITDA is forecast at $12 mn and we anticipate a net loss of $5 mn. Baltika’s net sales are forecast at 20% down and the gross margin is seen at 43.4%, down from 45.2% in 4Q02. We expect Baltika to post $24.4 mn in EBITDA and $5.3 mn in net profit in 1Q03. The euro appreciation against the dollar should negatively affect the profitability of both companies due to their euro-denominated malt contracts. Seasonality in brewing is very strong and we expect both SIL and Baltika to make 70% of their EBITDA in 2Q and 3Q.

Source: Press Service of Russian Brewery Union


27 May, 2003