Russian beer market:
According to the company internal data, in 2016 the Russian beer market declined by an estimated 1-2% for the full year and an estimated 4% in Q4.
The market development during the second half of the year was helped by very warm weather in Q3. Although some macro indicators have started to show improvement in 2016, the market remains impacted by the ongoing macroeconomic challenges in the country. Apart from that, regulatory initiatives, such as introduction of EGAIS, had an impact on the situation. The reason for negative market dynamics in Q4 were bad weather conditions and further decline in the consumer real disposable income.
While the beer market was declining, according to the retail audit Nielsen Russia, the non-alcoholic beer segment in 2016 grew by approximately 12%. Baltika Breweries is the segment leader with around 60% of the market share. One of the growth drivers of the non-alcoholic beer category as a whole was advertising of the non-alcoholic brands. Such advertising is accomplished in accordance with the Federal law 38-FZ on advertising, as well as the Code of commercial communications on beer-based non-alcoholic products, developed by the Russian Beer Union in cooperation with the Federal Antimonopoly Service.
In 2016, a new trend started to take shape – modernization of different alcohol categories regulation in accordance with their production and turnover specifics. The differentiated approach to regulation of alcohol industry will contribute to the formation of “smart regulation” bases, including increase in competitiveness and openness of the market, reduction of alcohol misuse.
Baltika’s overall performance:
In 2016, Baltika Breweries volume market share was 34.5% and decreased slightly by 0.3%.
Shipments of the company grew by 1% for the year due to the easy comparables, warm weather in Q3 and market share gains in the second half of the year.
In 2016, Baltika increased volume share in the modern trade channel by 1.6% compared to 2015, whilst market share was down in the declining traditional trade channel.
Baltika contributes a significant portion of tax revenues in the regions in which its headquarters and breweries are present. The company’s total tax contribution amounted to 65.8 bn RUB in 2016, 70.2% of which were excise duties (46.2 bn RUB).
Positive dynamics over 2016 was demonstrated by the brands Carlsberg (+1.8 p.p.* share growth), Zhigulevskoye (+1.3 p.p.* share growth), Seth&Riley’s GARAGE (0.2 p.p.* share growth), as well as Baltika 9, Neon Beer, Baltika 0 and energy drink Flash Up (0.1 p.p.* share growth).
For many years Baltika supports Russian sport development, actively engages with sport fans and promotes responsible drinking culture. In 2016, around 29 000 hockey fans from St Petersburg to Vladivostok saw the legendary KHL trophy owing to Baltika 3 brand. With the support of the official sponsor of UEFA EURO 2016 brand Baltika 7 held a large-scale campaign that opened the Russian fans 7 different sides of the main event of the season. In summer Baltika was a partner of the "House of fans of the Russian Olympic team," in Rio de Janeiro, Baltika 0 activated federal advertising company in support of the Russian team "We can do everything!".
In December on the popular sport website Sports.ru a unique project “Fans’ League” was launched with support of Baltika 3. This is the most up-to-date blog about the country’s hockey life. St Petersburg local brand Nevskoye continued its collaboration with SKA hockey club as an official partner for 2016/17 season.
Also the company hosted music festival Tuborg Green Jam and summer festivals in Russian cities - DAS FEST, DonFest, “DVigay na Prostor”, UralFest, SybirFest.
Baltika’s export continues to demonstrate positive dynamics. In 2016, the company’s commercial export volume sales increased by 12% compared to previous year.
Baltika’s largest export markets – Kyrgyzstan and Uzbekistan – showed positive dynamics owing to targeted non-alcoholic portfolio development, in particular strengthening of the energy drink Flash Up leadership positions. In the USA – one of the key far abroad export markets – sales grew by 27%. This was due to successful launch of the kvas Khlebny Krai and development of the major beer brand Baltika, including launch of multipacks. The increase in sales in Baltic countries amounted to 18% that was helped by the success of retro-platform brands Zhigulevskoye Firmennoye, Barhatnoye Firmennoye.
The export sale growth continues in Poland and New Zealand which is connected with the unique market offer in the format of Baltika 7 and Zatecky Gus in 1 litre cans.
Sales of non-alcoholic brand Baltika 0 developed actively in Middle East countries, ensuring sales increase by 17% in the region.
Baltika maintains presence in more than 75 countries of the world, in 43 of which the company is the unique Russian beer exporter. In 2016, Baltika resumed its shipments to Ivory Coast, Panama and Australia and opened new countries: Burkina Faso, Oman, Argentina and Pakistan. Apart from that, in 2016, Baltika started sales in Duty Free channel – the company’s products appeared in duty free shops in Latvia, Israel, Russian airports and ferries.
Jacek Pastuszka, president of Baltika Breweries LLC, executive vice president Carlsberg Group Eastern Europe Region:
«Over 2016, Baltika has grown its commercial power and prepared its business to new conditions, in which we are to work in 2017 due to legislation changes. This year we will focus on the realization of our tactical plan within Carlsberg Group strategy SAIL’22, where Russia holds a special place.
But as before we believe that the fundamental premise for sustainable development of business and regions where the company operates is open and constructive dialogue with the government, fair and predictable regulation and tax environment».
Carlsberg Group financial results in Eastern Europe region:
Our Eastern European net revenue grew organically by 8%, driven by price/mix of +7% and organic total volume growth of 1%. Reported net revenue declined by 6% due to a significant negative currency impact, as all currencies in the region devalued.
Operating profit grew organically by 12% and the reported operating margin improved by 60bp to 18.0%. The improvement was driven by volume growth, Funding the Journey initiatives, delivering positive price/mix and strict cost control, and was also helped by easy comparables.
Overall, the Eastern European beer markets continue to be negatively impacted by the challenging macro environment, although large parts of the region benefitted from very warm weather at the beginning of H2. Total volumes grew by 1% for the year.
Сcommenting on Carlsberg Group 2016 results, Cees ‘t Hart, Chief Executive Officer at Carlsberg Group, says: «2016 was a good year for the Carlsberg Group. We’re satisfied with our performance and the growth in operating profit, a solid price/mix, strong cash flow and a further reduction in financial leverage.
During the year, we took significant steps to become a more successful company. We launched our new strategy – SAIL’22 – and its priorities are now well integrated in our plans for 2017. In addition, Funding the Journey delivered benefits faster than anticipated for the year.
In 2017, we’re determined to achieve a substantial proportion of the remaining Funding the Journey benefits, allowing us to grow earnings organically and invest in SAIL’22-related activities to support the future growth of the company.»
*Source: Nielsen Retail Audit, Urban & Rural Russia