Baltika outperforms the market

Looks like some of Russia’s windfall profits from increased crude oil prices have ended up in the pockets of ordinary Russians too. During the first half of this year, the beer market grew by an extraordinary 22.7 percent.

Baltika Breweries, Russia’s market leader which forms part of Baltic Beverages Holding and operates 10 breweries plus 4 maltings, reported that the market benefited from unseasonably mild weather, particularly in the first quarter, as well as from the continuing shift towards beer fuelled by rising disposable incomes. The brewer also said that the shift to beer from wine was caused by the supply disruption in wine and spirits. In an effort to force its unruly former republics Moldova and Georgia to toe Russia’s line, Russia has banned the import of wines and spirits from both of these countries.

During the first six months of 2007, Baltika Breweries’ volume growth was ahead of the market at 30.8 percent extending its market leadership to 37.6 percent, an improvement of 1.9 percent compared to the same period last year. This has been achieved through a continued focus on brand development, innovation and the strength of its integrated business model.

The Baltika brand increased its market share to 11.8 percent with a significant contribution coming from Baltika Cooler and Baltika 3 (a lager of 4.8 % ABV). Total licensed brands volume doubled in the period supported by the continued success of Tuborg, it was reported.

Baltic Beverages Holding achieved net sales of EUR 1,317 million (+37.1 percent), an EBITDA of EUR 375 million (+37.5 percent) and an EBIT margin of 22.4 percent, up 1.7 percentage points from the same period last year.

Given the strong performance of the Russian beer market in the first half of the

year, Baltika now expects the market to grow by between 11 percent and 13 percent in 2007.

As if to defy all rumours that Scottish & Newcastle was going to sell its stake in BBH to Carlsberg, Baltika announced at the end of August that it intends to pass a resolution to reduce its issued share capital by buying back and cancelling

shares. Providing the shareholders approve the resolution, the purchase of ordinary and preference shares from shareholders willing to participate will be conducted in accordance with Russian Federation legislation. The Board wishes to buy back up to 9,894,230 ordinary and up to 1,225,114 preference shares. The price of purchase is 1,300 RUR for one ordinary share and 880 RUR for one preference share.

There is nothing unusual about this proposed share buy back programme, expect that Baltika deemed it necessary to stress that the brewer intends to remain a public company. What is this supposed to tell us?