Europe delivered another excellent result with total lager volume growth of 9% (organic 8%) within which premium volumes grew 11%. Volumes were particularly strong in Poland, Romania and Russia and were assisted by warm weather in the earlier months, but cycled an exceptionally mild winter in the second half of the prior year. Brewing raw material and packaging costs increased significantly. However, the pricing environment has shown some signs of improvement and with positive brand mix has resulted in constant currency revenue per hectolitre growing by 4%. This, together with productivity improvements, has more than offset higher input costs and EBITA margin was up 10 basis points. Marketing expenditure has increased but has benefited from scale economies. Reported EBITA growth of 30% was impacted by currency translation gains and also included Royal Grolsch from mid February 2008. On an organic constant currency basis, EBITA growth was 15%.
In Poland, strong economic fundamentals underpinned growth of all alcoholic beverages. Our organic domestic lager volumes increased 11% (with inorganic growth of 12%) against industry growth of 7% and market share for the year was up 220 basis points to 40.8%. Tyskie and Zubr, Poland’s two leading beer brands, grew volumes by 9% and 17% respectively, assisted by national consumer promotions, leveraging sponsorships and increasing on-premise distribution. Lech grew 12% supported by strong trade activation, utilising music and leisure associations. Premium brand Redd’s, with its three flavour variants, grew 21% including sales of a new sleek can. We increased prices by an average of 3% across the portfolio, with a similar increase in constant currency revenue per hectolitre being achieved, continuing the trend started in the previous year. Trade marketing support was enhanced by new automated data interchange with our main distributors and the placement of additional coolers in the trade. Further capacity expansion brought total capacity to over 17 million hl, while current year sales volume was 14.4 million hl. In January 2008, we completed the acquisition of Browar Belgia.
In Czech, our strategy is to pursue value rather than volume in this mature market. Beer industry volumes were up less than 1% and within this our domestic volumes were marginally ahead. Focused channel segmentation, expansion in on-premise, increased pricing and premiumisation led to an increase in constant currency revenue per hectolitre of 5% and an EBITA increase despite significantly higher commodity prices. In the premium segment our national flagship brand Pilsner Urquell grew 3%, supported by exclusively branded on-premise outlets and Beer Theatre concepts in the modern off-premise channel. In the specialty segment, we introduced the Master brand with super-premium pricing, and the Frisco brand continued to grow, by 23%. In mainstream, Kozel’s 19% domestic volume growth offset Gambrinus’s 5% decline as our average 6% price increase prompted some switching. Kozel continued developing as a successful regional brand with annual volumes of 2.8 million hl, up 12% regionally. Significant cost productivity has been achieved in marketing and distribution by leveraging scale and rationalising media activities.
In Russia, beer industry volumes grew 10% and share of the total alcohol market increased 3% to 32%. Rapid growth in real incomes is driving share gains for the premium beer segment and our volumes were up 14% as we increased market share. We expanded national retail coverage with an increase of 300 staff in the sales force, and installed over 75,000 coolers. We achieved average price increases of 11% across our portfolio over the year. Our biggest brand Zolotaya Bochka grew 16% with strong marketing support. Miller Genuine Draft was up 9%, to almost 1 million hl, driven by expanding distribution of the new half litre bottle, and Kozel grew 13%. Redd’s has new primary and secondary packaging, including a new can, and grew by 22%. The second production site at Ulyanovsk is on track for commissioning in May 2009 and its initial capacity has been increased to 4 million hl. Until then, with existing operations at full capacity, contract brewing arrangements have been put in place over the summer period.
EBITA growth on an organic constant currency basis
In Italy, Birra Peroni was the fastest growing brewer in 2007 with a share gain of 100 basis points in a flat domestic market. Our branded volumes grew 5% with Peroni and Nastro Azzurro up 7% and 8% respectively. This growth has come from success in the on-premise channel in the North particularly with Peroni draught and the 330ml Nastro Azzurro bottle. Both brands have leveraged national sponsorships in sport, music and film festivals, while premiumisation has been supported by international design events. Growth was achieved in all channels, assisted by our own distribution, and two price increases were successfully implemented, the latest being 8% in January 2008. The Rome and Bari breweries are both being expanded to satisfy ongoing export demand and total capacity in Italy will be 6.3 million hl.
In Romania, industry volumes grew 9% supported by increased real wages and disposable income, and our new mainstream PET offerings. Our volumes were up 28% following capacity increases, and our share grew by 3.5% to 25.4%. Average price increases of 5% were achieved and all brands enjoyed significant growth. Timisoreana grew 43%, extending its reach in the off-premise channel with our new PET packaging, and secured its number one position in the market with an estimated 14% share. The Ursus Premium brand maintained its leadership in the premium segment, with 8% growth, and has increased penetration in upscale on-premise outlets. All brands benefited from better point of sale execution and a new distributor incentive scheme, with intensive display and tailored service packages in all channels. Current capacity expansions will bring overall capacity to 6.8 million hl.
In Hungary, consumers have been hit hard by the fiscal austerity measures. The beer market grew during the early summer months with the introduction of PET offerings, but volumes were lower in the fourth quarter. In these conditions, our volumes were level and our share was up 140 basis points. Our focus has been on productivity and efficiencies which have improved profitability.
In the United Kingdom, Miller Brands’ volumes grew 36% in a declining market, driven by innovative marketing and increased distribution, with Peroni Nastro Azzurro up 39%. Performance was also supported by double digit volume growth for both our Polish brands, Lech and Tyskie.
In the Netherlands, our integration activities for our recent acquisition, Royal Grolsch, have commenced.
|Group revenue1 (US$m)||5,248||4,078||29|
|EBITA margin (%)||18.1||18.0|
|Sales volumes (hl 000):|
|– Lager organic||43,401||40,113||8|
|– Other beverages||57||27||111|
1 Including share of associates, US$6 million (2007: nil).
2 In 2007 before net exceptional costs of US$24 million being profit on disposal of land in Italy of US$14 million less restructuring costs of US$7 million primarily in Slovakia and an adjustment to goodwill on acquisition of US$31 million for Birra Peroni.
Key focus areas
- Build value-enhancing, full brand portfolios in growth segments
- Further develop growing positions in high value export markets
- Innovate in product, pack and dispense systems
- Improve our in-store marketing
- Leverage our scale