BBH Ukraine increases sales 48% yoy, EBITDA slips 12% in 1Q08

Baltic Beverages Holding Ukraine posted 1Q08 IFRS consolidated financials for its companies in Ukraine: Slavutych Brewery (SLAV: BUY) and Lvivska Pyvovarnya. Net revenues totalled USD 64 mln (+48% yoy), EBITDA USD 2 mln (-12% yoy) and net loss USD 8 mln (vs. a net loss of USD 4 in 1Q07). In related news, BBH announced the launch of its own brand of soft drinks, Kvas Taras, production of which will start at the end of May at Slavutych’s Kyiv plant. Olha Pankiv: In our brewery reports, we projected SLAV’s financials on a stand alone basis as opposed to consolidated BBH Ukraine financials. We view SLAV as the main growth contributor to BBH Ukraine and the reported consolidated revenue growth of 48% yoy in 1Q08 suggests that our previous expectation of a 37% sales growth for SLAV in 2008 is overly conservative. At the same time, we do not view BBH’s low profitability in 1Q08 as a worrying sign: profitability is traditionally low for all Ukrainian brewery companies in 1Q08 due to strong seasonality. We view news of the launch of a soft drink brand clearly positive. Soft drink brand development would allow the company to offset the negative effect from potential relocation of Pepsi production to Sandora, the Ukrainian juice-maker acquired by PepsiCo in 2007. Slavutych bottles Pepsi under a licensing agreement with PepsiCo; its current contract with Pepsi expires in 2009 and we expect production relocation to start after that time.