1 / 18

Information to Baltika Shareholders in relation to the EGSM of July 7th 2005

Information to Baltika Shareholders in relation to the EGSM of July 7th 2005. Baltika Board of Directors. Contents of this presentation. Summary of proposals for the 7.7.2005 EGSM The Russian beer market, Baltika’s challenges and potential solutions The Pikra transaction reviewed

svea
Download Presentation

Information to Baltika Shareholders in relation to the EGSM of July 7th 2005

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Information to Baltika Shareholders in relation to the EGSM of July 7th 2005 Baltika Board of Directors

  2. Contents of this presentation • Summary of proposals for the 7.7.2005 EGSM • The Russian beer market, Baltika’s challenges and potential solutions • The Pikra transaction reviewed • Conclusions and final remarks

  3. Proposals to Shareholders from Baltika Board of Directors for July 7, 2005 EGSM • To approve of the acquisition by Baltika of a majority shareholding in Pikra • To approve of the plan to integrate operations of Baltika and Pikra

  4. Contents of this presentation • Summary of proposals for the 7.7.2005 EGSM • The Russian beer market, Baltika’s challenges and potential solutions • The Pikra transaction reviewed • Conclusions and final remarks

  5. The Russian beer market • Market growth continues in Q1 2005 • The Russian beer market has been offering investors very attractive growth levels for many years, and is expected to continue to do so • However, business environment changes fast and competition is increasing: • Entry of big international players • Industry consolidation • Legislative restrictions • Trade power increases • Cost base growing • External changes in business environment force Baltika to focus on internal efficiency and available growth opportunities • This will allow Baltika to continue to be the most attractive supplier to both trade customers and consumers

  6. Evolution of Baltika 1990 - 2005 1990 1993 1997 1999 2002 2003 2005 BBH buys majority in Baltika BBH buysTula Brewery & sells it to Baltika BBH buysmajority of Pikra Brewery Don and TulaBreweries merged into Baltika Baltika opens new breweries in Samara and in Khabarovsk Baltika founded Baltika acquires 16% in Pikra • Baltika was founded in 1990. Since 1993, BBH has been the majority shareholder • From a tiny start in 1990, Baltika has grown to become the largest player in the Russian beer market • This impressive journey has involved both strong organic growth, investment in new breweries and acquisition of attractive breweries • Today, the Baltika brand is the biggest in the market • The brand’s market share is only 10,5% (’04), compared with its biggest competitor Klinskoye (5% ’04) • With increased competition in mind, Baltika will need to grow further to sustain market leadership Proposal: Baltika buys majority in Pikra from BBH Baltika buys DonBrewery

  7. Further growth is the only alternative for Baltika • Baltika has a long history for creating substantially above average returns to all shareholders • Continued improvement in shareholder value can only be achieved through further growth in market share • Therefore, Baltika’s vision for the future is to strenghten its position as the Champion of the beer industry in Russia • This can be achieved partially through organic growth • But as history shows, relevant acquisition opportunities should also be exploited

  8. The Acquisition part of Baltika’s future growth story should start with Pikra • BBH has already announced an ambition to integrate its Russian brewing assets • This will require a number of separate steps • The new structure should be centered on Baltika, clearly the biggest company • The Baltika Board of Directors will consider each step as it would be proposed on a case by case basis, and bring them forward to the Baltika shareholders • Possible future steps would include operational mergers with Vena and possibly Yarpivo • Such steps will create additional substantial synergies • However, a logical first move would be to join forces with Pikra, a cooperation which offers attractive opportunities

  9. Long history -130 years - of brewing Established, strong brands (Kupecheckoye, Legenda, Dobryi Drug) Market leader in region with 38% Modern western equipment Glass, Can, PET, Keg lines Investments total 58 MUSD in the reconstruction of the brewery in years 2000-2004 Production capacity 180 ML beer 50 ML soft-drinks 2004 net sales were 54 MUSD, EBITDA 13 MUSD and EBIT 7 MUSD Hard Cost-synergies will amount to > 4 MUSD annually, from which Baltika shareholders will obviously benefit Good, capable management With its exellent quality standards, Pikra is ready to brew and distribute Baltika brands Pikra has a proud history in the Russian beer industry

  10. Baltika and Pikra in Russia ST PETERSBURG TULA SAMARA ROSTOV-NA-DONU PIKRA - KRASNOYARSK KHABAROVSK Acquisition of Pikra will give Baltika direct access to Siberian consumers and strengthen Baltika network. That brings along considerable savings in e.g. transportation costs.

  11. Contents of this presentation • Summary of proposals for the 7.7.2005 EGSM • The Russian beer market, Baltika’s challenges and potential solutions • The Pikra transaction reviewed • Conclusions and final remarks

  12. The proposed transactions • Baltika will purchase 243.555 shares (70,3%) in OJSC Pikra from BBH, for 67.505.000 USD • Baltika already owns 16,4% of Pikra • In addition, 4 different contracts between Baltika and Pikra will give effect to the operational integration • These contracts will represent the legal foundation for the future operational cooperation • The contracts will allow the parties to reduce costs in such areas as procurement, transportation, and other parts of operations

  13. Price and valuation • According to regulatory principles, a valuation for Pikra has been made by the independent valuer UFG • United Financial Group is a large, international company doing valuations in Russia • Licensed by the Russian government to do valuations in Russia • The resulting valuation has been approved by the full Board of Directors in Baltika, including the 2 independent Directors • The Transaction Price is • In the lower quartile of the valuation range offered by UFG • Well in line with similar deals within the industry • as outlined in detail in the valuation report made available to all shareholders at the Baltika offices

  14. Several reasons for why the Board of Directors recommends the Pikra transaction • Baltika needs to continue to grow - particularly the Baltika brand • Baltika will become the majority shareholder of Pikra, which can offer brewing and bottling capacity in an attractive market region: the Eastern Siberia, where Baltika needs to build its presence • The transaction will be a logical step towards fullfilling Baltika’s ambition to become the Champion of the Russian beer industry • The terms offered are fair and attractive, as seen by independent parties

  15. Important issues to consider in relation to the proposed Pikra transactions • Baltika does not have a better investment alternative in Pikra’s market region • A greenfield project would become more expensive, and certainly involve considerable delay • Substantial synergies will emerge • > 4 MUSD in hard synergies (annual cost reductions) identified • The purchase of the Pikra shares will be funded by means of cash already available to Baltika • No additional external loans or capital increases will be needed • The dividend policy of Baltika will not be changed

  16. Contents of this presentation • Summary of proposals for the 7.7.2005 EGSM • The Russian beer market, Baltika’s challenges and potential solutions • The Pikra transaction reviewed • Conclusions and final remarks

  17. Conclusions and final remarks The full Board of Directors of Baltika recommends that the Baltika EGSM on July 7th 2005 approves of the proposed Pikra transactions, because • The transactions will create value for all shareholders • The operational effects of the transactions will be in line with Baltika’s strategy to sustain its position as the Champion of the Russian beer industry

  18. This presentation and other useful information for investors can be found on the Baltika website under the section “For investors and shareholders” at http://invest.baltika.ru/en/

More Related