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Total lager beer volumes rose 9% (5% on an organic basis), adversely influenced in the first half by much poorer summer weather than in the previous year.


Financial summary 2005
Turnover 2,909 2,420 20
EBITA* 483 383 26
EBITA margin (%)* 16.6 15.8  
Sales volume (hls 000s)      
– Lager 33,669 30,925 9
– Lager organic 32,420 30,925 5
– Other beverages 97
* Before exceptional items of US$51 million being Naples brewery closure costs of US$35 million and restructuring costs in the Canary Islands of US$16 million (2004: water plant closure costs in the Canary Islands of US$6 million).

Strong volume growth in Poland, Russia and Romania more than offset declines elsewhere. Supporting this good growth was increased marketing investment, up 9% in real terms over the prior year, and expansion of focused on-premise merchandising. The business again produced excellent profit growth, with EBITA up 26% (15% in organic constant currency terms). EBITA margin growth of 80 basis points was derived from improved sales mix, as worthmore segment volumes rose 11% organically, and increased productivity.

The Polish beer market grew by some 2%, led by growth in the lower mainstream segment. Kompania Piwowarska’s organic volume growth of 12%, driven by increased on-trade investment and key account channel focus (including enhanced cold display), secured market leadership, with share at 37%. Tyskie remains Poland’s leading beer brand, and Zubr is now the second largest brand following its re-launch in July 2003, with market share of 8% at the end of the year. Re-launched premium brand Lech, complemented by Redds, improved mix in the fourth quarter, halting the negative mix trend witnessed for much of the year. New product innovation has been particularly successful in Poland, and products launched since 2000 now contribute over 30% of total revenue. Real pricing declines continued for the industry, but our manufacturing and distribution productivity yielded cost savings, and sales per employee reached 4,000 hectolitres.

In the Czech Republic, domestic industry volumes declined by 2.5% for the year, with the first half’s 5% decline reflecting 22% fewer summer sunshine hours compared to the prior year. Plzenv sky´ Prazdroj’s volumes were down 2.1% for the year, resulting in a small market share gain as our on-premise investment and key account management initiatives continued to succeed in the market. Pilsner Urquell volumes rose slightly both domestically and globally, driving positive sales mix benefits. Pricing grew ahead of inflation, whilst package and channel mix were stable. These factors, together with cost savings from centralised regional procurement, helped our Czech operations to once again deliver improved earnings.

In Russia, Transmark’s volume increase for the year outpaced both overall single-digit industry growth and also premium segment growth, although our rate of growth slowed in the second half as we cycled high prior year comparables. Our successful focus on building complementary Russian and international brand equities within a leading premium portfolio has been amplified by strong merchandising execution by our specialist distributors and retailers. Miller Genuine Draft (MGD) volumes grew by 43%, generating positive brand mix benefits. Our distributors’ network now covers most major Russian cities, with particular strength in the Moscow region where we have a revenue share of approximately 15%. Pricing growth continued in line with food and beverage inflation. Whilst marketing expenditure rose significantly, substantial cost benefits have been obtained through local malt and bottle procurement. Recently restrictions have been imposed on media use by brewers and on beer consumption, although it is too early to quantify what impact these may have on the industry.

In Romania, our organic volume growth of 18% (industry up 6%) and our acquisition of SC Aurora SA in June 2004 has increased our market share to 22%. Ursus, the country’s leading brand franchise, has been repositioned, attracting more consumers to Ursus Premium (from Ursus Pils), a local premium beer with equity rivalling the international brands in the country. Ursus franchise volumes grew by 35% and generated positive mix impact, whilst Timisoreana Lux grew 82% in the mainstream segment with rapidly growing geographic distribution. At year end, we launched two new brands: Peroni Nastro Azzurro in the international premium segment and Ciucas, a lower-mainstream PET brand designed to complement our existing portfolio, leveraging our strong distribution network in this market segment. Profitability has increased significantly, and our production capacity is being expanded to accommodate our continuing growth.

In Italy, the domestic beer market declined by an estimated 6% in a weak consumer environment and following the prior year’s exceptionally good summer. Birra Peroni’s organic volumes declined 8%, reflecting an unchanged organic share performance and the termination of a licensed international brand. The Peroni brand retained its market leading share of 12% and Nastro Azzurro held its 4% share. A comprehensive turnaround programme is now underway, encompassing stronger brand marketing, development of an effective sales function and direct point of sale merchandising control, restructuring of distribution arrangements, aggressive cost containment and deliberate performance management. Facilities restructuring programmes are on track following the closure of the Naples plant, whilst manufacturing upgrades are ongoing at other facilities, including those enabling production of MGD for the pan- European market at the Padua brewery. Margins have reduced mainly as a result of negative sales mix associated with consumption shifts towards the off-premise channel and towards lower-priced market segments. The closure of the Naples plant and associated restructuring initiatives led to an exceptional charge of US$35 million during the year. In February, we increased our shareholding in Birra Peroni to 99.8% at a cost of US$205 million. In March, beer excise was increased by 24%, the impact of which will be felt by the industry in the forthcoming year.

The Peroni Nastro Azzurro brand was recently re-launched in the UK, with a brand marketing budget of £5 million. Initial consumer reception is encouraging and the new brand has achieved high early awareness among target consumers.

The Hungarian domestic industry declined some 10% following the ongoing importation of cheap German cans. Dreher’s volume declined in line with this, and profits have decreased as a consequence.

The Slovakian industry continued to decline, but at the reduced rate of 7% and our volumes contracted by 3%. In the Canaries, our volumes were level, in line with the industry. Significant restructuring has been announced in the Canaries, including a 20% workforce reduction, which will generate significant cost savings from 2007. An exceptional charge of US$16 million has been taken.

Country Czech Republic
Beer type Lager
Alcohol content by volume 4.1% ABV
Gambrinus is Plzeňský Prazdroj’s core brand, accounting for one in four beers sold in the Czech Republic. The brand appeals most to consumers of legal drinking age up to the age of 30.

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Europe Review of Operations