The Hindu Business Line : UB reports higher Q3 net, income on volume growth

RIDING on the back of a huge growth in volumes, especially in the strong beer category, United Breweries has posted a 550 per cent increase in net profit to Rs 9.24 crore for the third quarter of 2005-06 while its total income grew 22 per cent to Rs 122.71 crore for the same period.

A press statement from UB said volumes grew 21 per cent in the quarter and 22 per cent year to date compared with an industry average of 13.8 per cent year to date. UB's growth in the mild segment was 12.53 per cent year to date (YTD) while the industry grew at 9.7 per cent. Kingfisher strong grew 35.9 per cent (YTD), other UBL strong beer brands grew at 60.3 per cent compared with the industry which grew at 16 per cent.

The statement said UBL's market share has increased to 40 per cent and in combination with MABL, its total business share was nearly 50 per cent at the end of the third quarter. In 2004, for the same period, its share was 37.6 per cent.

Operating margins rose to 17 per cent in the quarter versus 9 per cent last year, and to 21 per cent in the nine months compared with 10 per cent last year. Margins in the third quarter are historically lower because of lower volumes, than other quarters. In the nine months under review (April-December), net sales realisations (after marketing investment) continue to show growth accounting for around 8 per cent of margin improvement.

Further margin improvements continue to be realised from lower packaging costs, primarily glass. During the quarter the business has taken advantage of further synergy benefits arising from the integration of operations between the MABL and UBL breweries, which have resulted in raw material savings. Margins have, however, been impacted by an increase in contract brewing costs relative to last year, driven entirely by volume. Further, in order to manage such continuing strong volume growth finished inventory stocks have increased to balance demand against overall manufacturing capacity, and an anticipated uplift in volumes in the fourth quarter.

The statement said interest costs continue to reduce resulting from prudent cash management and refinancing of the company's working capital facilities during the quarter. Overall net profit for the nine months was Rs 27.14 crore, an increase of Rs 22.12 crore over 2004-05, resulting in a net margin of 7 per cent and an EPS of Rs 12.10.

The board has agreed to waive the year to date interest due from United Breweries Holding Ltd (UBHL), as the board is currently considering a scheme proposed by UBHL to discharge the debt in full prior to the year end.