The successful merger of Baltika, Vena, Yarpivo and Pikra companies made it possible to achieve high financial results in 2006

march 15, 2007
Basic results of 2006 in figures:  
  • Sales volume of all production - 37.2 million hectolitres  
  • Net sales - 1,739.5 million EURO  
  • Gross profit - 931.8 million EURO  
  • EBITDA - 555.9 million EURO  
  • EBIT - 427.1 million EURO  
 
COMPLETION OF THE MERGER  
The achievement of high financial results became possible due to the successfully implemented process of merging the Russian breweries Baltika, Vena, Yarpivo and Pikra. This was a unique project for Russia from the standpoint of its specifics, complexity and deadlines, which characterised by a transparent information policy and was executed in the best traditions of international corporate law - in strict conformity with Russian legislation and with full respect for the interests of shareholders in all four companies.  
 
Thanks to a competent and precise implementation of the merger process, total synergy benefit of 2006 results amounted around 80 MUSD, of which 20 MUSD was reached already in 2005. An effective system of cross-brewing was created at the 10 breweries of consolidated Baltika, with a combined capacity of 40 million hectoliters per year, located in all regions of Russia.  
In December 2006 the decision was taken to build a new brewery of the Company in Novosibirsk with production capacity of 2 million hectolitres.  
 
During 2006 new significant investments were made in the development of production facilities of the four companies and in cost-cutting. A unique system of logistics was designed which will make it possible to achieve the highest level of distribution among all Russian FMCG companies 98%. A powerful team of top managers was created.  
 
The merger confirmed the position of Baltika as Russia's largest FMCG company and one of the biggest brewery companies in the world.  
 
THE RUSSIAN MARKET AND THE POSITIONS OF THE MERGED COMPANY  
 
Within the context of an ongoing merger, the Company was able to avoid losing market share and maintained its unconditional leadership on the Russian market, with a share of 36.4% in 2006.  
Sales volume of all products sold by the consolidated Company in 2006 amounted to 37.2 million hectolitres, a growth of +10.3% compared to 2005. Sales of beer amounted to 36.6 million hectolitres, a growth of +10.6%.  
 
During 2006 the Russian beer market grew by 10%. The market showed especially high results (+14%) during Q3 thanks to a number of factors, including the overall situation which occurred in the market for alcoholic beverages and also favourable weather conditions.  
 
The Company's results in Q4 made a substantial contribution to the high annual performance of 2006: the volume of sales of all products amounted to 8.6 million hectolitres (a growth of +16.8% compared to the same period of the previous year), while the volume of beer sales came to 8.4 million hectolitres (growth of +17.2%). The market share of the consolidated Company amounted to 36.9% in Q4 2006.  
 
BRAND BUILDING IN THE CONSOLIDATED COMPANY  
 
In 2006 a balanced portfolio of brands was created, allowing the consolidated Company to occupy leading positions in all price segments of the beer market.  
 
Baltika and Arsenalnoye once again confirmed their leadership positions. The growth in sales of the Baltika brand in Russia amounted to +10.0% during 2006 and the brand's share of the market in 2006 was 10.9%.  
In the licensed segment Tuborg maintained its leadership. In 2006 the brand grew by +127.9%. The brand's share in its segment during 2006 (according to data from the Business Analytica agency) amounted to 13.7%, while in Q4 2006 this indicator reached 15.1%.  
Other licensed brands of the consolidated Company also produced excellent growth - Carlsberg (+50.3%), Foster's (+117.4%), Kronenbourg 1664 (+131.7%).  
The market share of consolidated Baltika in the licensed segment came to 22.5% in 2006.  
 
Significant development in 2006 was marked for the premium brand Nevskoye (+32.1%). The Company's market share in the premium segment reached 43.6% in 2006.  
 
Many regional brands of the Company Don (+19.2%), Leningradskoye (+36.3%), Chelyabinskoye (+18.8%), Uralsky Master (+20.0%) were successful in 2006 as well.  
 
During 2006 the consolidated Company introduced a whole range of innovations:  
  • A new brand in the Baltika product line-up - Baltika Cooler in a transparent bottle with NLL label and ring-pull cap  
  • Baltika N3 Classic in 1 litre PET packaging  
  • The new licensed brand Tuborg Twist in a transparent bottle with NLL label and ring-pull cap  
  • Carlsberg in a new bottle with opener in the bottom  
  • Foster's in a 0.5 litre bottle with ring-pull cap  
  • Kronenbourg 1664 in a 0.46 litre bottle; move of the brand over to packaging with twist-off cap  
  • New mid-cone packaging for cans of the brands Baltika N3 Classic, Baltika N7 Export and Tuborg  
  • The new brand Bolshaya Kruzhka  
  • Yarpivo in 1.5 litre PET packaging  
  • 2.5 litre PET packaging for a group of brands including- Arsenalnoye, Kupecheskoye, DV and Uralsky Master etc.  
The new brands which the consolidated Company brought to market in 2006 grew very successfully. In less than a year distribution was built and good market shares were won. By the end of 2006, Baltika Cooler reached a 5.2% market share in its segment, Bolshaya Kruzhka achieved 4.8% in its segment and Tuborg Twist held a 3.4% share of its segment.  
 
sales abroad  
During 2006 the consolidated Company continued to successfully develop the export area of its activity. The total volume of sales of consolidated Baltika abroad during 2006, taking into account the license production, amounted to 1.8 million hectolitres, a growth of + 27% compared to 2005.  
 
Export sales increased by 11% and amounted to 1.6 million hectolitres.  
 
In 2006 the launch of licensed production of Baltika beer in Ukraine was started. The brand's sales in Ukraine increased by 37%. Balika brand's sales abroad as a whole grew by 26%.  
 
In 2006 the Ministry of Economic Development of Russian Federation awarded the Company the title of "Best Russian Exporter" for the fifth time.  
 
FINANCIAL RESULTS IN A TABLE:  
 
Gross Profit, MEUR  
931.8  
+29.0%  
Gross Margin  
53.6%  
+3.4pts  
EBITDA Margin  
32.0%  
+3.9pts  
EBIT, MEUR  
427.1  
+40.8%  
EBIT Margin  
24.6%  
+3.5pts  
Net Profit, MEUR  
330.9  
+42.4%  
Net Profit Margin  
19.0%  
+2.9pts  
 
 
Anton Artemiev, President of Baltika Breweries had the following comments: "Thanks to the intense and coordinated work of all employees of the companies Baltika, VENA, Pikra and Yarpivo during 2006, we succeeded in completing the process of merger. We achieved the goals we set for ourselves at the start of this way and justified the shareholders' expectations. We not only maintained our position on the market, but also reached high financial results and achieved significant synergy in 2006."  
 
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Ever since 1996, Baltika Breweries has been the leader on the Russian beer market. In 2006 Baltika merged with the companies Vena, Pikra and Yarpivo. Baltika Breweries now owns 10 breweries in 9 regions around Russia It has the strongest portfolio of brands and its employees number around 12,000.  
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