DBG strengthens Baltic position

Related tags Latvia

The Danish Brewery Group, Denmark's second largest beer maker, has
strengthened its position in the Baltic markets through the
acquisition of a controlling stake in Lacplesa Alus, Latvia's
number three brewer.

DBG will pay €3.7 million for an 83.5 per cent stake in the Latvian firm, including the assumption of more than €2 million of debt, and will gain around 11 per cent of the 1.5 million hectolitre Latvian beer market as a result.

Lacplesa's sales this year are expected to be around €6 million, mostly from its premium brand Lacplesis, which has a large following in the horeca (hotel, restaurant, catering) sector.

The takeover of Lacplesa will consolidate DBG's position as the second-largest beer maker in the Baltic States after Baltic Beverages Holding, the joint venture between Scottish & Newcastle and Carlsberg which owns four beer makers in the three Baltic countries.

The move into the Baltic region is part of DBG's restructuring plan, called V8, which has also seen the closure of a number of breweries in more mature markets in western Europe.

Although DBG has been active in the Baltic countries since 1999, when it acquired Lithuanian beer maker Vilniaus Taurus, its development there has been relatively slow. The company's Lithuanian market position was strengthened by the 2001 takeover of Kalnapilis (bought from BBH), while earlier this year the group took its first steps into the Latvian market with the purchase of soft drinks maker Cido Partikas.

DBG said that Lacplesa had lost market share in recent years because of a lack of investment, but the merging of some operations with those of Cido Partikas will help cut costs at the premium beer maker. The soft drinks group also has a strong position in the horeca channel, allowing the two businesses to share transportation and marketing cost, and sales forces.

Purchasing and production costs at the Latvian brewer are also expected to come down as it collaborates with the Kalnapilio-Tauro group (as the two Lithuanian breweries are now called).

DBG is also present in Poland, where it produces its Faxe brand at a brewery in Poznan. Sales from the Baltic and Polish businesses reached 322,000 hl in the first half of 2004, up 2.3 per cent on the previous year, although value sales were 7.3 per cent lower at DK109 million as a result of currency fluctuations.

Kalnapilis in particular has proven to be a major driver of growth for DBG, with the company's sales in Lithuania up 4 per cent in the first half, well ahead of the market as a whole, as a result of a revamp of the Kalnapilis brand. Kalnapilio-Tauro now has a market share of around 27 per cent.

In Poland, however, revenues and volumes both declined (36 per cent and 24 per cent respectively) in the first half, mainly as a result of increased competition from major players such as Heineken and SABMiller and the poor state of the Polish economy.

Cost-cutting measures have been implemented by a new management team there, and expanding distribution of the Faxe brand (including a new agreement with a major Polish retail chain) is underway in an effort to shore up the flagging business there.

Total sales at the Baltic businesses (three breweries and the soft drinks producer) are expected to reach DK500 million this year.

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