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SUN Interbrew

May 23, 2003

Results for the first quarter 2003

MOSCOW, May 23, 2003 - SUN Interbrew Limited (Lux: SUNB5-LX), a leading brewer in Russia and Ukraine, wishes to announce its financial results for the first quarter ended 31st March 2003.

 

 

Results

 

Operational Highlights

 

The momentum achieved in the second half of 2002 has continued into 2003 and the following achievements have been made:

 

·         Volume growth in Russia of 8% versus a market decline of 5%. The market share improved from 11.8% in the first quarter 2002 to 13.2% in the first quarter 2003.

·        Market leadership in Ukraine improved with volume growth of 18% and a market share increase from 31.1% to 34.9%.

·         Organic EBITDA result, excluding embedded foreign exchange movements, increased to ?16.1m from ?8.0m.

·        Successful launch of new PET variants (Tolstiak® 1L PET +Regional Brands).

·        Launch of PIVOPACK® nationally in Russia brings substantial quality improvement to the PET segment enabling the segment to be expanded to the core and local premium segments.

·        Significant cost reductions across the business.


Financial Highlights

 

 

Q1 2002

Q1 2003

Change

Embedded Forex

Organic Result
Pre-currency

Organic Change
Pre-currency

Volume, m hl, beer only

2.4

2.6

+11.2%

 

 

 

Gross Margin, %

41.3%

34.8%

-6.5%

 

40.7%

-0.5%

Operating Income/(Loss), ?m

(1.7)

(2.5)

(0.8)

(9.1)

6.6

+8.3

EBITDA, ?m

8.0

7.0

 (1.0)

(9.1)

16.1

+8.1

EBITDA Margin, %

9.5%

8.4%

-1.1%

 

15.4%

+5.9%

Net Income/(Loss), ?m

(7.8)

(8.8)

(1.0)

 

 

 

 


FINANCIAL PERFORMANCE IN THE FIRST QUARTER

 

The headline results for the first quarter of 2003 were adversely affected by foreign currency impact from the depreciation of local currencies versus the Euro.

Net sales per hl decreased due to currency impact.

Gross margins decreased due to the changed sales mix, in particular the strong growth of the lower margin PET segment and value brands.

 

Reduction in Cost Base

Substantial fixed cost reductions were achieved again during the quarter versus the same quarter last year.

Selling, marketing and distribution costs in the first quarter were ?25.5m versus ?27.5m in the same quarter last year. Marketing costs were lower than last year due to phasing differences, but commercial costs have grown particularly in Ukraine as distribution growth continues in that market.

The average distribution cost per hl was almost ?1 per hl lower in the quarter compared to the first quarter of 2002.

Total sales and marketing costs for the quarter represents 17% of Net Turnover, but this will reduce as we move into the summer season.

General and administration costs for the 1st quarter were ?3m lower than for the same quarter in 2002. It should be noted that the first quarter 2002 contained some one time reorganization costs but there is still a substantial cost reduction in the ongoing cost base. Costs in Ukraine are increasing in line with the growth of the business there.

 

RUSSIA

 

Total volumes of beer sold in Russia in the first quarter were 1.77m hl versus 1.64m hl in the first quarter of 2002, an increase of 8% in a market which declined by 5%.

Tolstiak®sales volumes grew by 46% over the same quarter last year as a result of the brand relaunch, new 1 litre PET variant and improved advertising focusing on improving the quality image perception.

Klinskoye®and Sibirskaya Korona® sales volumes were weaker but with the launch of PIVOPACK® and the new custom bottle, recent sales volumes have been very encouraging. In addition both core brands have benefited from new liquid varieties such as Redkoye and Krepkoye launched this year.

Stella Artois®sales volumes continue to grow every quarter.

Staropramen®has been launched and has been well received with positive feedback from the trade and consumer.

Sales volumes, m Hl

 

2003

Q1

2002

Q1

% change

03 vs. 02

Beer

1.77

1.64

8.1%

 

 

Market Share Growth – 2002 plus First Quarter 2003 (Average for the period)

 

 


UKRAINE

 

Sales volumes of beer in Ukraine increased from 0.71m hl in the first quarter of 2002 to 0.84m hl in the first quarter of 2003, an increase of 18.4%, well ahead of the market growth in the quarter of 5.4%.

Sales volumes, m Hl

 

2003

Q1

2002

Q1

% change

03 vs. 02

Beer

0.84

0.71

18.4%

Soft drinks

0.29

0.25

14.3%

Total

1.13

0.96

17.3%

 

Market Share Growth – 2002 plus First Quarter 2003 (Average for the period)

 

 

The growth achieved is due to continued success in the following brands:

–        The growth of the Chernigivske® brand by 51%

–        Excellent growth of Stella Artois® at 116%

 

 

 

SUMMARY AND OUTLOOK

 

We have made an encouraging start to the year with strong performances in both Russia and Ukraine.  Underlying this performance is a much improved marketing and commercial performance supported by a faster route to market by the operations and marketing teams.

 

Whilst the strength of the Euro is likely to continue to affect our headline results, the underlying performance will continue to improve as we build volume back into our business and we also introduce higher margin products into our portfolio. The focus on cost reduction will continue in order to support our margin development.

 

 

ENDS

 


For further information Contact:

 

SUN Interbrew Limited

Joseph W.Strella, Chief Executive Officer

Alan Hibbert, Chief Financial Officer                  +7 (501) 960-2360

 

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 Months Ended March 31, 2003 and 2002
(Euros in thousands, except per share amounts)

(Unaudited)

 

                                               

 

 

Three months ended March 31,

 

 

2003

 

2002

 

 

 

 

 

Net Sales

?

82 901

?

84 061

 

 

 

 

 

Cost of goods sold

 

(54 080)

 

(49 360)

 

 

 

 

 

Gross Margin

 

28 821

 

34 701

 

 

 

 

 

Selling and distribution expenses

 

(25 525)

 

(27 510)

General and administrative expenses

 

(5 843)

 

(8 860)

 

 

 

 

 

Operating Loss

 

(2 547)

 

(1 669)

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

Interest income

 

14

 

31

Interest expense

 

(2 585)

 

(2 319)

Foreign exchange loss

 

(1 377)

 

(1 254)

Other – net

 

(289)

 

(784)

 

 

 

 

 

Net other expense

 

(4 237)

 

(4 326)

 

 

 

 

 

Loss before income taxes and minority interest

 

(6 784)

 

(5 995)

 

 

 

 

 

Income taxes

 

(2 300)

 

(748)

 

 

 

 

 

Loss before minority interest

 

(9 084)

 

(6 743)

 

 

 

 

 

Minority interest

 

318

 

(1 028)

 

 

 

 

 

Net Loss

?

(8 766)

?

(7 771)

 

 

 

 

 

Basic loss per share

?

(0.08)

?

(0.07)

 

 

 

 

 

Diluted loss per share

?

(0.08)

?

(0.07)

 

 

See Notes to Condensed Consolidated Financial Statements.

 


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

 

 

 

 

 

March 31,

2003

 

December 31, 2002

 

 

(Unaudited)

 

 

Assets

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

?

4 635

?

7 828

Accounts receivable, net

 

23 154

 

20 162

Inventories

 

70 546

 

66 707

Taxes receivable

 

30 569

 

25 800

Deferred tax assets

 

5 763

 

6 585

Other current assets

 

18 038

 

14 271

 

 

 

 

 

         Total current assets

 

152 705

 

141 353

 

 

 

 

 

Plant and equipment, net

 

410 989

 

401 217

Intangible assets, net

 

3 238

 

3 578

Goodwill

 

26 334

 

26 334

Long-term deferred tax assets

 

7 347

 

9 316

Other long-term assets, net

 

6 135

 

5 945

 

 

 

 

 

         Total assets

?

606 748

?

587 743

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

Accounts payable

?

40 305

?

35 688

Taxes payable

 

7 078

 

6 313

Deferred tax liabilities

 

2 519

 

2 329

Accrued expenses

 

4 227

 

3 772

Short-term obligations, related parties

 

140 585

 

113 648

Short-term debt

 

-

 

40 641

 

 

 

 

 

         Total current liabilities

 

194 714

 

202 391

 

 

 

 

 

Long-term deferred tax liabilities

 

8 067

 

8 086

Other long-term liabilities

 

465

 

466

 

 

 

 

 

         Total liabilities

 

203 246

 

210 943

 

 

 

 

 

Minority interests in equity of subsidiaries

 

32 971

 

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

 

28 553

 

37 319

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive loss

 

(17 509)

 

(14 808)

 

 

 

 

 

         Total shareholders’ equity

 

370 531

 

343 511

 

 

 

 

 

                Total liabilities and shareholders’ equity

?

606 748

?

587 743

 

 

See Notes to Condensed Consolidated Financial Statements.

 


SUN Interbrew Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
(Euros in thousands)

(Unaudited)

 

 

 

 

Three months ended March 31,

 

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

Net loss

?

(8 766)

?

(7 771)

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by operations:

 

 

 

 

 

 

 

 

 

Depreciation

 

9 606

 

10 465

Other non-cash items

 

2 095

 

797

 

 

 

 

 

Changes in working capital:

 

 

 

 

Accounts receivable

 

(3 064)

 

1 185

Inventories

 

(4 206)

 

2 441

Other current assets

 

(3 609)

 

(14 318)

Taxes payable

 

(4 005)

 

8 880

Accounts payable

 

7 143

 

5 707

Accrued expenses

 

458

 

1 562

Net cash (used in) provided by operating activities

 

(4 348)

 

8 948

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

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

 

(25 272)

 

(29 386)

Acquisitions of consolidated subsidiaries (net of cash acquired)

 

(421)

 

-

Net cash used in investing activities

 

(25 693)

 

(29 386)

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

Net proceeds from issuance of shares

 

888

 

-

Payments of loans payable – related parties

 

(3 041)

 

-

Proceeds of loans

 

29 000

 

21 524

Net cash provided by financing activities

 

26 847

 

21 524

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(3 193)

 

1 086

 

 

 

 

 

Cash and cash equivalents, beginning of year

 

7 828

 

9 477

 

 

 

 

 

Cash and cash equivalents, end of period

?

4 635

?

10 563

 

                                                                                                                                                               

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

Interest

 

2 050

 

1 519

Income taxes

 

884

 

3 769

 

 

 

 

 

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 Months Ended March 31, 2003 and 2002

 

The accompanying unaudited, condensed, consolidated financial statements of SUN Interbrew Limited and Subsidiaries (the “Company”) contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s consolidated financial position as of March 31, 2003, and the consolidated results of operations and cash flows for the three months ended March 31, 2003 and 2002.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles that are generally accepted in the United States (“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 months ended March 31, 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

In January 2003, the Company announced the offering of 7.674.466 Class A Shares on a pro rata basis to the holders of Sun Interbrew Class A Shares. Majority of the shares were acquired by Interbrew. Proceeds from share offering were used for repayment of the Interbrew loan initially issued to cover part of Rogan Brewery acquisition cost.

In January 2003, an amendment to the income tax legislation in Ukraine has been enacted according to which the income tax rate in Ukraine will be reduced from 30% to 25% effective from January 1, 2004. The Company started to calculate deferred tax on temporary differences related to long-term assets and liabilities using the new tax rate.

 

 

 

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