Baltika Breweries improved financial performance and increased contribution to society

february 7, 2018

InfoAccording to 2017 year results Baltika Breweries, part of the Carlsberg Group,  is leading on the falling Russian beer market having left competitors far behind. The company delivered solid organic operating profit growth and a significant margin uplift. At the same time, while contributing to the society, Baltika Breweries actively invests in sustainable development program implementation and develops social programs.

Russian beer market

According to Baltika Breweries internal data, the Russian beer market declined by an estimated up to 5% for the year, impacted by the downsizing of PET bottles and tough comparables in Q3 due to the very warm weather in Q3 2016.

While the beer market was declining, volume sales of non-alcoholic beer continued to show the stable growth: +9,4%* for the 2017. Non-alcoholic beer segment occupied 1,4%* of the whole beer market and showed positive dynamics compared with 2016. Main non-alcoholic beer sales growth drivers are brewers serious investments in high-tech equipment, brand marketing and trade marketing. The development of non-alcoholic beer brands is in line with the government targets to decrease harmful use of alcohol within the general trend supporting healthy and active lifestyle.

In addition, takeaway draft beer segment (DIOT), which amounted to 10.5%* of the whole beer market in 2017, showed 2 p.p.* increase compared to the last year.

Market segments and channels leader

Baltika Breweries delivered solid organic operating profit growth and a significant margin uplift driven by a strong price/mix of 7% and tight cost control.

In 2017 Baltika Breweries sales volume declined compared to 2016 and equaled a market share of  31,9%*.  Company’s sales volumes were impacted by PET packaging volume limitation. To adopt to the market changes Baltika Breweries has implemented value-based approach and adjusted pricing policy. Some competitors have chosen volume-based approach. Consequently, Baltika’s products in the PET segment were priced at a premium vis-à-vis the average price points in the market. However, our value approach was a key driver behind our strong profit improvement.

At the same time, company is the undisputed leader in key volume-generating sales channels. Regarding the results of 2017, Baltika Breweries is №1 in the growing modern trade channel with 31.2%* share. The company is also leading in traditional trade channel with 31.1%* share.

Baltika Breweries retains its position of the unconditional leader of non-alcоholic beer segment with the share of more than 50%*. Baltika’s non-alcoholic brands have broad distribution - the company's products are represented in large trade networks, as well as in traditional trade channels throughout the Russia. Baltika 0, for example, has the maximum distribution among all non-alcoholic brands in the country.

Baltika is №1 in the take away draft beer segment with a market share of 20.4%*. In 2017 Baltika Breweries increased its volume share in the segment by 5.3 p.p.* compared to the last year.

Brands results

Some of Baltika Breweries key brands within premium and mainstream segments showed good progress gaining market share – Carlsberg (+0,8 p.p.*), Zatecky Gus (+0,6 p.p.*), Baltika 3 (+0,3 p.p.*), Seth&Riley’s GARAGE (+0,2 p.p.*) и Tuborg (+0,1 p.p.*). Baltika 0 and Baltika 9 brands retain confidently their market positions.

Company’s brand portfolio has expanded with new non-alcoholic beer variety Baltika 0 Unfiltered Wheat and hard ginger drink Seth&Riley’s GARAGE Hard Ginger.

Taх revenues and investments

Baltika Breweries contributes a significant portion of tax revenues in the regions in which its headquarters and breweries are present. Over 2017 Baltika’s total tax contribution amounted to almost 62,5 bn RUR, aproximately 66% of which are excise duties (41,3 bn RUR).

The company's total business development investment amounted to 3.5 bln rubles in 2017. In response to take away draft beer segment growth Baltika Breweries has installed PET-keg packaging lines on its breweries in Rostov-on-Don and Novosibirsk and invested of about 417 million rubles in the projects. PET kegs are a modern safe type of packaging that is widely used all over the world including Europe.

Baltika Breweries invests to the sustainable development program implementation. 19 million rubles were invested to the of a separate waste collection project Benefit your city development:  sorting waste line acquisition and containers for separate waste collection.

Baltika Breweries also invests to the social programs development. Together with Nashe Buduschcee fund the company launched a large-scale program Act without limits to support disabled people.

Jacek Pastuszka, president of Baltika Breweries LLC, executive vice president Carlsberg Group Eastern Europe Region:  «We achieved good financial results in 2017. Baltika Breweries is a confident leader of the Russian beer market and profitable company with a significant economic and social input in the regions of its presence and we intend to continue development in this direction. Our results, as well as dynamics of the entire Russian beer market were seriously impacted by the ban on PET packaging more than 1.5 liters in volume. However, I would like to note that at the end of the year the Government made up to date decision that would help to develop non-energy exports - allowed PET volume of more than 1.5 liters production for export. This confirmed the significant dialogue improvement with the Government of the Russian Federation. Another example of positive dynamics is excise rates fixing until 2019 in the Tax Code.  Such regulatory decisions stabilize the situation on the beer market and increase the competitiveness of legally produced alcohol. We are also counting on a constructive discussion of all further regulatory changes with the industry, because update of the legislation to the new realities and characteristics of production, trade, storage of various alcoholic beverages categories is a necessity for changing the trend of the Russian beer market decline».

Carlsberg Group Eastern Europe region results:

Net revenue in Eastern Europe was down organically by 1% as a result of an 8% volume decline, partly offset by a strong 8% price/mix. Reported net revenue grew by 7%, supported by a positive currency impact driven by the Russian rouble.

The strong price/mix was a consequence of price increases and the introduction of smaller pack sizes in Russia following the PET restrictions as of 1 January 2017. Price/mix was less pronounced in H2, as part of the positive impact from the PET downsizing was already seen in Q4 2016.

Organic operating profit grew by 12.2%, driven by the positive price/mix and strong execution of Funding the Journey. As a result of a positive currency impact, reported operating profit grew by 21.2%. Operating margin strengthened significantly, improving by 240bp to 20.4%.

Impacted by the less strong price/mix in H2 and the tough weather comparables in Q3, operating profit increased organically by 9.2%.

* Source:  Nielsen Retail Audit, Urban & Rural Russia

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