Page 110 - RUSRptSept18

China has become the largest market for brewing and beverages Danish major Carlsberg, overtaking its previous number one, Russia, the president of the company Cees 't Hart said, Vedomosti daily reported on August 19. But while China was the top market in terms of total sales, Russia was still the most operationally profitable market for Carlsberg in 2017, he added, without disclosing absolute numbers. Brewing company Baltika is part of Carlsberg group and is the leader of the Russian beer market with 31.4% share. Revenues in China are growing on the back of international brands such as Tuborg, Carlsberg and Kronenbourg 1664 Blanc, with sales up by 15%. Beer was one of the first highly successful foreign investments into Russia in the 1990s, but the business has slowed in recent years as the beverages market has become more sophisticated. Analysts surveyed by Vedomosti b elieve that the beer market in Russia peaked due to the decline of key demographic for light alcoholic beverages. Regulatory pressure in Russia on alcohol producers has also made Russia one of the toughest in the world, according to industry players. As part of an unsung public health drive Russia has vigorously clamped down on alcohol sales and hiked taxes. Beer, for example, used to be classed as a soft drink and was only reclassified as an alcoholic drink (and so put off limits to children). Beer sales in Russia are estimated to have declined by over a third in ten years to 748.2mn dekalitres (dal) in 2017, according to Rosstat. The market share of transnational companies has fallen from 90% to 70%, according to Vedomosti, thus losing about 40-45% sales in Russia.
O’Key has released unimpressive the first half of 2018 IFRS results.
Revenues declined 8.5% y/y, primarily reflecting the sale of the supermarket business (down 1.4% y/y on a pro forma basis). The gross margin improvement was offset by the expansion in SG&A costs and the EBITDA margin remained broadly flat y/y at 4.4%. The company recorded a net loss of RUB 541mn vs. the loss of RUB 1.5bn a year ago. The proceeds from the sale of the supermarket business (RUB 7bn) supported the RUB 2.6bn y/y decline in net debt to RUB 32bn and net debt / LTM EBITDA of 3.5x. The new guidance calls for a low single-digit decline in hypermarket sales and up to 50% y/y growth in discounters in 2018. The conference call is scheduled for 17:00 Moscow time. Our 12-month Target Price of $2.15 implies a 14% ETR: Hold reiterated. Unimpressive the first half of 2018 financials. Revenues declined 8.5% y/y in the first half of 2018 to RUB 78bn, mostly due to the sale of the supermarket business (9% of total revenues in 2017). On a pro forma basis, revenues declined 1.4% y/y. For 2018, the guidance for the hypermarket business has been revised downward and now assumes a low-single digit decline in sales vs. similar growth anticipated before. The gross margin improvement of 60bp y/y to 23.3% was mostly offset by the expansion in SG&A costs (up 20bp y/y) and lease (10bp y/y). As a result, the EBITDA margin remained broadly flat y/y at 4.4%. The company reported a net loss of RUB 541mn vs. the loss of RUB 1.5bn a year ago, supported by the gain on the sale of supermarkets. Cash flow management. In the first half of 2018, the company employed RUB 5.3bn in net operating activities, highlighting a comparable y/y performance and the seasonally slow nature of cash generation in the hypermarket business. Capex was RUB 1.6bn, and was generally split evenly between hypermarkets and discounters. The disposal of supermarkets brought RUB 7bn and provided a certain deleveraging. Net debt went down RUB 2.6bn y/y to RUB 32bn, while net debt / LTM EBITDA remained flat at 3.5x.
9.2.6 Agriculture corporate news
The owners of Russian meat and agriculture major Cherkizovo have taken full control of the company, moving the Cyprus-registered assets from offshores to Russia , Vedomosti d aily said on July 31 citing the reports of the Federal Antimonopoly Service (FAS). The move is
110 RUSSIA Country Report September 2018 www.intellinews.com