Nov. 7 (Bloomberg) -- Carlsberg A/S's OAO Baltika Breweries, the largest Russian beer company, said nine-month profit rose 7.7 percent as consumers bought pricier brands.

Net income climbed to 360.7 million euros ($460.1 million) from 334.8 million euros a year earlier, the St. Petersburg- based brewer said today in an e-mailed statement. Revenue increased 13 percent to 1.99 billion euros.

Profitability increased in the second and third quarters under a strategy to raise sales of more expensive brands such as Carlsberg's Tuborg and Asahi Breweries Ltd.'s Asahi Super Dry, as well as projects to improve distribution and marketing, Baltika said. Sales of Tuborg, the best-selling licensed brand, gained 24 percent, while sales of its own brand rose 17 percent.

``A higher share of premium brands in total sales helped to offset rising costs of production,'' said Sabina Muhamedzhanova, an analyst at Bank of Moscow, who has a ``buy'' recommendation on the stock. ``They are very careful about operational costs, and their distribution expenses fell, helped by the opening of a brewery in Novosibirsk'' this year, she added.

Economic expansion in Russia, the world's largest energy exporter, is fueling incomes and enabling more people to afford higher priced brews. A 0.5-liter bottle of Tuborg costs 34 to 35 rubles ($1.30), according to Baltika's press service, while the same size bottle of local brand Arsenalnoye sells for 18 rubles.

Earnings before interest, taxes, depreciation and amortization rose 12 percent to 607.3 million euros.

Excise Tax

Sales growth in the nine months was helped by an increase in excise tax and the ruble's 5 percent depreciation against the euro, according to Elena Mills and Vitaly Kupeev, analysts at Alfa Bank in Moscow who don't have recommendation on the stock.

A 32 percent increase in excise tax prompted Baltika to raise prices on average by 16 percent in the first nine months, President Anton Artemiev told reporters on a conference call today. The company will aim to keep price increases ``within inflation'' in the next years, he said.

Baltika was little changed at 400 rubles on the Micex Stock Exchange in Moscow. The shares have slid 67 percent this year, more than the benchmark Micex Index's 62 percent retreat.

Profit growth slowed from a 32 percent jump in the first nine months of 2007, when Russian beer sales surged, helped by the warmest winter in a century. Growth also slowed as the country's beer market approached ``saturation,'' Andrey Verholancev, an analyst at Antanta Capital in Moscow, said before the results.

Market Share

Russia's beer consumption is ``getting close to western European standards,'' Carlsberg Chief Executive Officer Joergen Buhl Rasmussen said this week.

Carlsberg took full control of Baltika this year as a result of the $19 billion takeover of Britain's Scottish & Newcastle Plc to capitalize on rising beer sales in Russia as markets stagnate or shrink in western Europe.

Russian beer sales growth may slow to between 1 percent and 2 percent this year, hurt by ``very bad weather'' and higher prices driven by raw materials costs, Carlsberg said Nov. 5. The country's beer market may climb between 3 percent and 5 percent in the ``medium term,'' according to Carlsberg forecasts.

Baltika said the market grew 1 percent in the first nine months, while its sales volumes rose 2.5 percent to 35.3 million hectoliters (29.6 million barrels). The brewer's market share climbed by 0.3 percentage point to 38 percent. Exports rose 19 percent to 1.9 million hectoliters, or 5.4 percent of sales.

Baltika's investment in 2009 will be ``significantly'' lower than this year after the completion of projects to expand production capacity, President Artemiev said on the call. The company invested 253 million euros in the nine months on projects including a 134 million-euro brewery in Novosibirsk, Baltika's 11th factory, which opened in May.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net.

Last Updated: November 7, 2008 10:53 EST