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SUN Interbrew

November 19, 2003

Results for the third quarter 2003

MOSCOW, November 19, 2003 - SUN Interbrew Limited (Lux: SUNB5-LX), a leading brewer in Russia and Ukraine, wishes to announce its financial results for the third quarter ended 30 September 2003.

 

Results

 

Operational Highlights

 

The initiatives undertaken by the company in 2003 have so far contributed to the excellent performance in the third quarter . Key achievements include:

 

·         In Russia SUN Interbrew posted 30% volume growth in the third quarter, with the overall market growing by just under 7%. This led to a market share increase from 12.5% in the third quarter of 2002 to 14.9 % in the third quarter of 2003.

·        In Ukraine, SUN Interbrew further strengthened its leading position with volume growth of 10% (versus 4% market growth) and a market share increase from 31.7% in the third quarter of2002 to 33.5 % in the third quarter of2003.

·         On Group level, EBITDA for the quarter increased by 31.7%, versus the third quarterof 2002, to ?41.8m. After stripping out the negative currency impact, EBITDA was ?48.9m, or 54% higher than in the third quarter of 2002.

·        Net Income in the third quarter was ?19.1m, 71.1% higher than in the same period lastyear, representing the highest result in SUN Interbrew history.

·        The Company continued its strategy of introducing new higher margin products, improving the sales mix.

·        Strong brand performance: Klinskoye® and Sibirskaya Korona® grew further in the Core and Local Premium segments, primarily due to continuous brand and packaging innovations. The performance of Tolstiak® and regional brands in the lower price segments was also encouraging.

o       Significant growth of Stella Artois® and Staropramen® supported the company’s effort to occupy a solid position in the Super Premium segment of the market.

o       Chernigivske®’s strong performance in Ukraine was also a remarkable achievement in the third quarter.

 

Financial Highlights

 

Q3 2003

Q3 2002

Change

Change, %

Volume, m hl, beer only

4.9

4.0

+0.9m

+22.8%

Gross Margin, %

45.7%

45.2%

 

+0.5%

Operating Income, ?m

28.4

20.0

+8.3m

+41.7%

EBITDA, ?m

41.8

31.7

 +10.1m

+31.7%

EBITDA Margin, %

25.8%

23.4%

 

+2.3%

Net Income, ?m

19.1

11.1

+7.9m

+71.0%

 


 

FINANCIAL PERFORMANCE IN THE THIRD QUARTER

Sales, marketing and distribution costs for the third quarter were ?39.3m versus ?34.2m in the same quarter last year (15 % increase), with volumes up 20.2%.

The average distribution cost per hl in the quarter was ?4.0, ?0.3 higher than in the same period last year.

Marketing costs were almost ?1m higher compared with the same quarter last year.

Total sales and marketing costs for the quarter represent 11.3% of Net Turnover, compared to 13.4% in the third quarter of 2002.

General and administration costs for the quarter were ?0.6m lower than in the same quarter last year, mainly driven by payroll and consultancy savings.

 

 

RUSSIA

 

In total the volume of SUN Interbrew beer sold in Russia in the third quarter was 3.3m hl versus 2.5m hl in the same period last year, representing an increase of 30%. At the same time the total market volume in Russia increased by just under 7%. This growth was driven by the right distribution strategy with a full portfolio of brands and packaging.

Stella Artois®was further expanded nationally and grew 119 % versus the third quarter of 2002.

Sales volumes for Staropramen® grew 43% versus the second quarter of 2003 when it was successfully launched.

SibirskayaKorona® exceeded last year’s sales by 70%, driven by a new proprietary glass bottle and the successful launch of the new variety, Beloye.

Klinskoye®sales recovered further with volume growing by 18% versus the third quarter of 2002. This growth was driven by the success of PIVOPACK® and the launch of its new variety Samurai.

Tolstiak®sales volumes grew by 19% versus the same period last year.

 

Sales volumes, m Hl

 

2003

Q3

2002

Q3

% change

‘03 vs ‘02

Beer

3.3

2.5

+30%

 

Market Share Growth

12.5%

14.9%

3Q 2002

3Q 2003

 


 


UKRAINE

The volume of beer sales for SUN Interbrew in Ukraine grew by 10.3% to 1.6m hl in the reported quarter, well ahead of the total market growth of 4% for the quarter.

Sales volumes, m Hl

 

2003

Q3

2002

Q3

% change

‘03 vs ‘02

Beer

1.6

1.5

+10.3%

Soft drinks

0.3

0.3

-10.5%

Total

1.9

1.8

+6.3%

 

Market Share Growth

 

31.7%

33.5%

3Q 2002

3Q 2003

 

 

 


This growth in market share and total volumes was achieved by the timely expansion of production capacities in our three Ukrainian breweries as well as a number of sales, marketing and packaging initiatives on the Ukrainian and international brands.

 

Chernigivske®grew 40% in volume in the quarter versus the third quarter of 2002, based on the success of Chernigivske® Bile. Stella Artois® continued to grow strongly at 37% in the reported quarter versus the same period last year.

 

SIL Ukraine introduced Stella Artois®, Taller® Ice, Chernigivske® Premium, Chernigivske® Bile in 0.5 L cans, plus a 1L PET bottle for Rogan® Svitle.

 

 

 

SUMMARY AND OUTLOOK

 

The strong performances in both Russia and Ukraine in the first half of this year were exceeded in the third quarter, leading to record, quarterly bottom line results for the Company. SUN Interbrew continued its strategy of expanding its diversified portfolio of brands and packaging, enabling it to take up strong positions in each segment of the market. This was complemented by thoughtful and sizeable investments in marketing and commercial activities along with the right distribution structure, resulting in the continued growth of market share in Russia and in Ukraine.

 

Based on our achievements in innovation and a more complete brand portfolio, along with our route to market we are well positioned to finish the year with growth far exceeding the market. Whilst a further strengthening of the Euro is expected to affect the headline results, we expect this strong performance to enhance our bottom line results.

 

 


ENDS

 

 

For further information please contact:   

 

SUN Interbrew Limited

Joseph W.Strella, Chief Executive Officer                        +7 (501) 960-2360

Luc Vanheel, Chief Financial Officer

 

Financial Dynamics

Ben Foster                                                                       +44 (20) 7269 7247

Caroline Ledosquet                                                           +44 (20) 7269 7233

 

 

 

Notes to Editors:

 

SUN Interbrew Limited is the second largest brewer in Russia and the largest brewer in Ukraine. The company is a strategic partnership between Interbrew, one of the largest brewers in the world, and the SUN Group, operating in the region since 1958, and in the beer sector of Russia and CIS since the beginning of 1990s.

 

The company’s main brands are Stella Artois®, Staropramen®, Klinskoye®, Sibirskaya Korona®, and Tolstiak® in Russia, and Stella Artois®, Chernigivske®, Rogan®, Taller® and Yantar® in Ukraine.

 

SUN Interbrew is a public company registered in Jersey, whose shares are listed and traded on the Luxembourg, Frankfurt and Berlin exchanges.

 

 


SUN Interbrew Limited and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2003 and 2002
(Euros in thousands, except per share amounts)

(Unaudited)

 

                                               

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

Net Sales

?

162 243

?

135 466

?

390 592

?

347 627

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

(88 138)

 

(74 238)

 

(223 672)

 

(192 824)

 

 

 

 

 

 

 

 

 

Gross Margin

 

74 105

 

61 228

 

166 920

 

154 803

 

 

 

 

 

 

 

 

 

Selling, marketing and distribution expenses

 

(39 315)

 

(34 156)

 

(101 785)

 

(96 998)

General and administrative expenses

 

(6 426)

 

(7 054)

 

(18 595)

 

(24 963)

 

 

 

 

 

 

 

 

 

Operating Income

 

28 364

 

20 018

 

46 540

 

32 842

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

(83)

 

14

 

54

 

88

Interest expense

 

(2 624)

 

(2 482)

 

(7 123)

 

(7 186)

Foreign exchange loss

 

1 065

 

(687)

 

(3 534)

 

(7 497)

Other – net

 

(2 740)

 

(1 032)

 

(3 960)

 

(2 081)

 

 

 

 

 

 

 

 

 

Net other expense

 

(4 382)

 

(4 187)

 

(14 563)

 

(16 676)

 

 

 

 

 

 

 

 

 

Income before income taxes and minority interest

 

23 982

 

15 831

 

31 977

 

16 166

 

 

 

 

 

 

 

 

 

Income taxes

 

(4 522)

 

(4 014)

 

(11 821)

 

(7 102)

 

 

 

 

 

 

 

 

 

Income (Loss) before minority interest

 

19 460

 

11 817

 

20 156

 

9 064

 

 

 

 

 

 

 

 

 

Minority interest

 

(392)

 

(669)

 

(895)

 

(2 150)

 

 

 

 

 

 

 

 

 

Net Income (Loss)

?

19 068

?

11 148

?

19 261

?

6 914

 

 

 

 

 

 

 

 

 

Basic gain (loss) per share

?

0.16

?

0.10

?

0.17

?

0.06

 

 

 

 

 

 

 

 

 

Diluted gain (loss) per share

?

0.16

?

0.10

?

0.17

?

0.06

 

 

See Notes to Condensed Consolidated Financial Statements.


 

SUN Interbrew Limited and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 2003 and December 31, 2002
(Euros in thousands)

 

 

 

 

September 30,

2003

 

December 31, 2002

 

 

(Unaudited)

 

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

?

6 191

?

7 828

Accounts receivable, net

 

23 253

 

20 162

Inventories

 

64 416

 

66 707

Taxes receivable

 

21 825

 

25 800

Deferred tax assets

 

5 030

 

6 585

Other current assets

 

19 318

 

14 271

 

 

 

 

 

         Total current assets

 

140 033

 

141 353

 

 

 

 

 

Plant and equipment, net

 

461 469

 

401 217

Intangible assets, net

 

3 166

 

3 578

Goodwill

 

59 046

 

26 334

Long-term deferred tax assets

 

7 642

 

9 316

Other long-term assets, net

 

7 808

 

5 945

 

 

 

 

 

         Total assets

?

679 164

?

587 743

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

Accounts payable

?

43 984

?

35 688

Taxes payable

 

11 763

 

6 313

Deferred tax liabilities

 

680

 

2 329

Accrued expenses

 

8 393

 

3 772

Short-term debt

 

101 866

 

113 648

Short-term debt, related parties

 

17 000

 

40 641

 

 

 

 

 

         Total current liabilities

 

183 686

 

202 391

 

 

 

 

 

Long-term deferred tax liabilities

 

9 900

 

8 086

Other long-term liabilities

 

70 451

 

467

 

 

 

 

 

         Total liabilities

 

264 037

 

210 944

 

 

 

 

 

Minority interests in equity of subsidiaries

 

17 833

 

33 289

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Class A Shares, one pence par; authorized 125,278,614 shares; issued 88,777,585 shares

 


1 421

 


1 304

 

 

 

 

 

Class B Shares, one pence par; authorized 30,000,000 shares; issued 27,796,220 shares

 


387

 


387

 

 

 

 

 

Additional paid-in capital

 

357 679

 

319 308

Retained earnings

 

56 580

 

37 319

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

(18 773)

 

(14 808)

 

 

 

 

 

         Total shareholders’ equity

 

397 294

 

343 510

 

 

 

 

 

                Total liabilities and shareholders’ equity

?

679 164

?

587 743

 

 

 

See Notes to Condensed Consolidated Financial Statements.


 

 

SUN Interbrew Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three and Nine Months Ended September 30, 2003 and 2002
(Euros in thousands)

(Unaudited)

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit/(loss)

?

19 068

?

11 148

?

19 261

?

6 914

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net profit (loss) to net cash provided by operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

14 739

 

12 470

 

40 428

 

35 006

 

Other non-cash items

 

652

 

967

 

2 432

 

1 639

 

 

 

 

 

 

 

 

 

 

 

Changes in current assets and current liabilities net of effect from acquisitions:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

18 453

 

6 842

 

1 295

 

4 493

 

Inventories

 

6 101

 

6 085

 

2 372

 

6 444

 

Other current assets

 

(153)

 

1 663

 

(4 791)

 

(10 338)

 

Taxes payable

 

(8 905)

 

(261)

 

9 409

 

7 356

 

Accounts payable

 

(4 695)

 

(5 456)

 

6 422

 

11 803

 

Accrued expenses

 

3 284

 

(1 084)

 

4 341

 

(2 793)

 

Net cash provided by operating activities

 

48 544

 

    32 374

 

81 169

 

60 524

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of intangible assets, plant and equipment (net of proceeds from disposal)

 

(28 933)

 

(21 785)

 

(89 354)

 

(84 392)

 

Acquisitions of consolidated subsidiaries (net of cash acquired)

 

(61 710)

 

(2 584)

 

(62 686)

 

(4 538)

 

Net cash used in investing activities

 

(90 643)

 

(24 369)

 

(152 040)

 

(88 930)

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from issuance of shares

 

-

 

-

 

888

 

-

 

Payments of loans payable – related parties

 

17 000

 

-

 

13 959

 

-

 

(Payments) proceeds of loans

 

25 784

 

(9 822)

 

54 387

 

24 839

 

Net cash (used in) provided by financing activities

 

42 784

 

(9 822)

 

69 234

 

24 839

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

685

 

(1 817)

 

(1 637)

 

(3 567)

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

5 506

 

7 727

 

7 828

 

9 477

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

?

6 191

 

5 910

?

6 191

?

5 910

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

1 929

 

1 317

 

7 086

 

4 851

Income taxes

 

3 466

 

6 181

 

5 944

 

13 452

 

 

 

 

 

 

 

 

 

Schedule of non-cash financing activities

 

 

 

 

 

 

 

 

 

Proceeds from shares issue offset with loan

 

 

-

 

 

-

 

 

37 600

 

 

-

 

 

 

 

 

 

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.


 

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2003 and 2002

 

The accompanying consolidated financial statements of SUN Interbrew Limited and Subsidiaries (the “Company”) have been prepared in conformity with the accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2002 audited financial statements. The results of operations for the three and nine months ended September 30, 2003 and 2002 are not necessarily indicative of the operating results to be expected for the full year.

The majority-owned subsidiaries incorporated under the laws of the Russian Federation and Ukraine (the “Russian subsidiaries” and “Ukrainian subsidiaries”) maintain accounting records and prepare their financial statements in Russian rubles and Ukrainian Hryvnas in accordance with the requirements of Russian and Ukrainian accounting and tax legislation. The accompanying financial statements differ from the financial statements prepared for statutory purposes in Russia and Ukraine in that they reflect certain adjustments, not recorded in the accounting books of the Russian or Ukrainian subsidiaries, which are appropriate to present the financial position, results of operations and cash flows in accordance with US GAAP.

Significant Transactions

During the period ending September 30, 2003, the Company entered into the following significant transactions:

 

In August 2003, the Company signed an agreement on acquisition of the 100% share of OOO «Kombinat Napitkov» - a company owning brewing production capacities in Novocheboksarsk, Republic of Chuvashia. The leading equipment installed at the acquired brewery allows annual production of up to 1 million hl of beer of the highest quality. The acquisition provides some of the necessary additional capacity for future growth requirements. The Company is planning to use the newly acquired capacities to produce premium brands.

 

In July 2003, the Company acquired the 41% share of the Yantar Brewery in Nikolaev, Ukraine, from INVESCO Asset Management, one of the world's largest investment management funds. Thus, the Company now owns 97.5% shares of the brewery. The increase of the Company's stake in the brewery evidences that the company's management believes in Ukraine's further stable economic development and evaluates positively prospects for the beer market growth.

 

In September 2003, the Company issued its first Russian Ruble bonds in an amount of 2.5 billion rubles with the three-year maturityand 11 month Put Option. Interest will be paid in semi-annual coupons. The first two coupon rates are equal and fixed at the level of 13.75%. Proceeds from the ruble bond will be used to refinance existing short-term debt in order to further strengthen the group’s balance sheet.

 

In October 2003, the Company announced the beginning of construction works of a new malt-house in Saransk, the Republic of Mordovia. The production capacity of the malt-house will be approximately 85 thousand tons of malt per year. Simultaneously with the construction of a new malt-house, modernization and capacity increase of the existing malt-house will take place at Saransk affiliate, JSC “United Breweries”.

 

 

 

 

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