Beer makers reaping rewards of hot summer

Poland's leading breweries expect growth in beer production to improve this year follo-wing exceptional summer sales, pulling financials firmly into the black after widespread losses in 2001. Analysts expect a return to slower growth next year, while Carlsberg Okocim and Żywiec, which forecast profits this year, remain unsatisfied with their performance given the market's potential. Breweries found themselves in the doldrums last year when growth plunged from 7% in 2000 to 0.2% in 2001, after an extended bull market beginning in 1994 that saw growth peak at 12.6%. Following optimistic announcements from Carlsberg Okocim, the Żywiec Group last week announced it would post a profit this year, forecasting a spike in industry growth in 2002. But the company is far from satisfied and blames high beer taxes for quashing demand, said Nico Nusmeier, the company's president. "We believe that in 2002 the beer industry will record a 5% growth in sales, which isn't a good result when compared to growth in past years and the potential of the market," Nusmeier said. "The absence of a clear policy on adapting an excise tax to European Union (EU) levels could lead to a radical decline in the competitiveness of Polish breweries after EU entry and major losses in budget revenue." Żywiec Group, Poland's largest beer group, which produces the EB, Warka, Leżajsk and Żywiec brands, turned around its zł. 49 million ($11.9 million) first-half losses in 2001 and posted a profit of zł. 81 million ($19.75 million), a spike of 265% year-on-year. The results follow an increase in first-half sales to 4.08 million hectoliters in 2002 from 3.65 million hectoliters last year.

According to Nusmeier, the results stem from the group's restructuring in the past four years, including last year's closure of two of the group's eight breweries, a reduction in marke-ting expenditure on the group's declining EB brand and the integration of its sales and distribution networks. "I am 100% certain that we will end the year with a profit," Nusmeier said. Next year, the group plans to invest zł. 340 million ($83 million) to bolster its Warka brewery, which saw a 40% increase in sales in the first half of 2002, as well as the Leżajsk and Żywiec breweries. Despite a weak investment climate, Żywiec will be able to finance its spending after a share issue last year injected zł. 650 million ($158 million) into the group, analysts said. "Żywiec should have no problems in obtaining finance for further restructuring," Bogna Sikorska, an analyst at CDM Pekao said. "Its bond and share issues have put its debt situation back on track." Carlsberg Okocim increased its beer sales by 191% to 484 million hectoliters in 2002 from 252.4 million hectoliters in the first half of 2001, and reduced its production costs to zł. 268 per hectoliter from zł. 300 a hectoliter. Following the closure of two breweries and investment in boosting productivity, the company turned losses of zł. 3.9 million ($951,219) in the first half of 2001 to profits of zł. 9.2 million ($2.2 million) in the same period of 2002. The brewing group wants to close 2002 with a profit of zł. 12 million ($2.92 million), compared to losses of zł. 26.4 million ($6.3 million) in 2001. "Our forecasts are optimistic primarily because the synergies resulting from our merger are beginning to work," said Melania Stohnij, the spokeswoman for Carlsberg Okocim. "Additionally, beer is a highly seasonal product, and this year we had an exceptional season." Although the ongoing restructuring of breweries and the absence of beer tax increases will help sales in 2003, analysts see little chance of a repeat of this year's growth performance next year without another hot, thirsty summer. "We won't match this year's growth in 2003, but even if the weather isn't as good, I think we will still see sales grow by 2-3%," Sikorska said. "There is still potential for higher growth since Poland's average beer consumption is still behind its neighbors and Western Europe."