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. Last Updated: 07/27/2016

Sun Interbrew's Production Rises, But Earnings Fall

Leading Russian brewery Sun Interbrew made more beer but earned less for it in the first half of 1999 compared with the same period last year, according to company figures released Tuesday.

Output rose 13 percent over the first half of 1999, but net sales dropped 52 percent to $43.46 million, the company said.

The brewery's gross margin also jumped in the second quarter to 41 percent from 28 percent in the first quarter, an increase Belgium-based Sun Interbrew credited to more efficient production and the successful implementation of cost-cutting strategies.

"Sun Interbrew's use of Russian raw materials and focus on production efficiencies, as well as high capacity utilization, resulted in a significant increase in gross margin percentages," Sun Interbrew chief executive Michel Naquet-Radiguet said in a statement.

The brewery's policy of using Russian raw products, which was implemented before the August 1998 crisis, has been a big boost to the company's profitability since it helps keep prices in line with consumer spending power, which decreased after the ruble started devaluing, the company's vice president of finance, G. Mitchell Krasny, said.

Due to a poor Russian barley harvest, Sun Interbrew plans to import grain later this year, Krasny said.

In the first half of 1999, Sun Interbrew produced 230 million liters of beer, up 30 million liters from last year.

The increase, however, falls short of the overall market growth of 25 percent to 33 percent, a sign that the company's market share is eroding, analysts said.

The brewery's market share has shrunk to about 11 percent from 12 percent at the beginning of the year, said Maria Tarulina, a retail analyst at Troika Dialog.

Strong regional producers and fierce competition from rivals such as South African Breweries, Efes and the Bravo group are eating into Sun's sales, analysts said.

"In terms of volume, they have not been growing as fast as some of their competitors as a whole," said Margot Jacobs, an analyst at United Financial Group who tracks the retail sector.

"That is not bad news for the company," she said. "The greatest growth has occurred in Moscow and St. Petersburg, but they are not in those markets."

Sun Interbrew's results are well in line with their own targets, she added.

Krasny said his company had operated its six breweries in Russia at full capacity over the summer months, so it did not have the opportunity to increase market share.

"Although market share is very important, we want to make sure we have a big enough margin. We need a balance between profitability and market share."

The brewery increased prices on beer by about 22 percent over the first six months of this year, bringing them in line with inflation.

The No. 1 Russian brewery, Baltika, reported earlier this month that output jumped 18.6 percent for the first half of 1999 and it hopes sales will be up 30 percent by year's end. Its market share, though, has shrunk from 22.8 percent in January to 18 percent this summer, research company Business Analytica said.

Sun Interbrew, which sells brands including Viking, Premier and Tolstyak, plans to produce 750 million liters in 2000, a boost that would require an increase in capacity of 33 percent to 37 percent. Additional share issues are planned to finance the expansion.