BBH profits hit by competitive Russian market

The company, which is jointly-owned by the UK-based Scottish and Newcastle Group and the Denmark's Carlsberg Group, reported that sales in the second quarter were up 14.4 per cent, and net sales up 22 per cent in euro to €410 million. This meant that net sales for the first half grew 18 per cent to €652 million, leading to a profit of €113 million EBITA, down 7 per cent on the same period last year.

Market volumes in Russia were reported to be particularly strong in the first six months of 2004, due to robust consumer demand and high levels of competitor activity particularly in the lower priced PET sector. As a consequence of this activity BBH lost market share in the first quarter.

In the second quarter the completion of Baltika's sales and distribution network and a major increase in advertising investment has reversed this trend, but the implementation also increased costs, which in turn affected the bottom line. Expenditure on advertising during the quarter increased by €26 million, while a new brewery in Kiev also pushed up costs.

Beer volumes were reported to be up for every part of the business, although the Ukraine market showed the biggest leaps. Beer volumes were up 13 per cent in the first half of the year, with Russia accounting for 8 per cent growth and Ukraine accounting for 21 per cent. When compared to the overall beer market volumes in both Ukraine and Russia, these figures make interesting comparisons. With overall beer market sales growth approaching 13 per cent in the first half in the Russian market, BBH's Russian division appeared to have underperformed. On the other hand BBH faired comparatively well in Ukraine where its performance by far outstripped overall beer volume growth of 7 per cent.

The company said that in Russia the second quarter had meant a 0.4 per cent gain in sales against the first quarter. In Ukraine, on the other hand, it grew market share to 23.9 per cent, 2.7 per cent higher than in the first half for 2003.

In the Baltics high levels of competitor activity in the low value PET sector led to market share loss in the first half, down 2.7 per cent to 41.7 per cent, although this still positions BBH as the market leader. The company reported that both the Estonian and Lithuanian markets grew rapidly, whereas the Latvian market declined after a year of unusual market activity. Overall BBH's Baltic volumes remained flat in comparison to the first half of 2003.

Christian Ramm-Schmidt, BBH Managing Director commented: "BBH's results show good sales and volume development in the first half of 2004, demonstrating the underlying strengths of our businesses. Profits for the period were affected by increased investments in sales and market activities, which make BBH stronger in a competitive but fast growing market. "​