OREANDA-NEWS. September 1, 2010. The Russian beer market demonstrated 9% decline in H1 2010, mostly driven by the tripling of the excise duty on beer starting on 1 January 2010 and the subsequent significant price increases. In Q2, the decline of the beer market slowed down compared to Q1, and amounted to -7%. Good weather has been one of the factors stimulating the improvement in the market.

Baltika’s in-market sales in Russia in H1 declined by 11%, while shipments declined by around 17%. Baltika’s market share grew from 39.1% in Q1 up to 40.1% in Q2 (data from Business Analytica). New product launches and innovations contributed to the market share increase: in Q2 Baltika launched three new beer sorts — Baltika Draft, Nevskoe Imperial, Zatecky Gus Cerny; and also released Baltika Cooler in a new premium 1.5-litre package.

Given the present tightening regulatory conditions for the brewing industry, the company is searching out new avenues for growth.

Baltika took several months to introduce a range of new products. This included entering the drinking water market with the launch of Life Spring; the soft drink market, introducing three flavours to the Crazy range — cola, orange, and lemon; and launching the new Granary Land 7 Grains kvass. Production of the Carlsberg Group’s international brand Somersby, a natural apple cider, began in June. Having a range of products in different categories in its portfolio makes Baltika less dependent on the situation in the beer market. Moreover, in developing the non-alcoholic beverage category, Baltika widens its potential target audience and obtains additional opportunities for growth.

Baltika continues to develop its activities abroad — both with export sales, and cooperation with companies of the Carlsberg Group in Eastern Europe. In particular, licensed production of Baltika № 7 Export has begun at the Slavutich brewery in Ukraine; of Baltika and Nevskoe at the Derbes brewery in Kazakhstan; and of Baltika № 7 Export at the Carlsberg Uzbekistan brewery. Baltika has begun exporting Asahi Super Dry, a Japanese beer produced under license, to Estonia, Lithuania, Latvia, and France, and has also expanded the export area of its flagship brand Baltika and Granary Land kvass.

In H1 2010 the company’s operating profit declined by 21.3% and amounted to 11.1 bln* roubles. Consequently, owing to work undertaken on optimizing expenses and on projects aimed at reducing losses and improving operational processes, Baltika was able to partially compensate for the effect of the excise tax increase on its performance. As a result, operational and logistics expenses were reduced, which led to a reduction in the cost price. A favourable conjuncture on the raw materials and materials markets also helped to reduce expenses.

Baltika results for H1 2010 (IFRS) have been included into the reports of the Carlsberg Group for Eastern Europe (available on www.carlsberggroup.com).

Anton Artemiev, President of Baltika Breweries: "Beer remains the key direction in Baltika’s operations; nonetheless, under conditions where regulation of the beer industry is being strengthened, Baltika is seeking out new ways for developing its business. We are optimizing our brand portfolio and developing non-beer categories of beverages. 2010 is a challenging year for brewers in Russia. Nevertheless, Baltika, as market leader, can doubtless count on further strengthening of its position."

* Data of Russian finance reporting for H1 2010