Baltika Breweries: the Q1 results impacted by law amendments that came into effect

may 4, 2017

Russian beer market:

According to Baltika’s internal data, in Q1 2017 beer market decline continued and amounted to 4%. Negative market dynamics was due to continuous decrease in real disposable income and PET restrictions on production and selling (except for sales in retail) that came into effect January 1st 2017.

Baltika Breweries results:

In Q1 2017, the company’s volume share was 32.7%* and decreased by 0.5% compared to Q4 2016.

At the same time non-alcoholic beer segment continued to grow while the beer market was declining. According to the retail audit Nielsen Russia, in Q1 2017 the segment increased by 2%* compared to the same period 2016. Baltika Breweries is the segment leader with around 60%* of the market share.

The development of non-alcoholic beers brands is in line with the government targets to decrease harmful use of alcohol within the general trend supporting healthy and active lifestyle.

Considering the trends, at the beginning of 2017 Baltika Breweries increased number of sites with innovative equipment for non-alcoholic beer production. The fourth  brewery to join the list was Baltika-Samara where in March the production line was launched and the first batch of Baltika 0 released. The company’s investment in the project amounted to 57 mln RUB.

The beginning of the year is the time for signing agreements with agricultural organizations within the company’s agroproject. This year 89 partners from central Russia and Siberia joined in. The development of own agroproject ensures for the company steady shipment of the required volume of high quality raw materials to our breweries and also supports domestic agricultural producers.

The agroptoject allows the company’s specialists to monitor grain quality at all stages from building of seed stocks to transportation to malt houses and breweries, which guarantees high quality of the Baltika’s beers.

Brand's results:

Positive dynamics in Q1 2017 was demonstrated by brands Carlsberg (+1.8 p.p.* share growth), Seth&Riley’s GARAGE (+0.2 p.p.*share growth), Zatecky Gus and Baltika 3 (+0,1 p.p.* share growth).

In February, with support of the brands Tuborg and Seth&Riley's GARAGE more than 500 visitors attended Baltika’s breweries and took part in the quest  the MythBusters. During the event the participants got familiar with the brewing process, discovered beer sommelier secrets and tried themselves in this role. They also busted beer myths and stereotypes in exciting Beer-quiz.

In March, Russia joined the new international marketing campaign of the Danish brand Tuborg which invited representatives of new generation around the world to ‘give pulse to the moment’ by creating moments of cultural discovery and exploration. In 2017, in Russia music festivals close to young people will be supported starting from small concerts in popular club spaces to festivals.

Export

Baltika Breweries export continues to demonstrate positive dynamics. In Q1 2017, the company’s commercial export volume sales increased by 5% compared to previous year despite the ruble strengthening.

There is a double-digit growth in the company's sales in Central Asia: volumes increased by 11% compared to Q1 2016.  The countries of Transcaucasia Georgia, in particular, as well as the Middle East region, demonstrate positive dynamics due to the stable development of the non-alcoholic portfolio. Flash Up energy drink and Khlebny Krai kvass strengthening position caused the two times sales volumes growth in Georgia.

In the Middle East, growth is partly connected to the successful expansion of the Baltika 0 line of non-alcoholic malt beverages as a result of participation in the Gulfood 2017 international food and beverage exhibition in Dubai, United Arab Emirates. Sibirsky Bochonok and Arsenalnoye brands appeared on the Chinese market in Q1 2017.

Baltika Breweries maintains presence in more than 75 countries of the world, in 43 of which the company is the unique Russian beer exporter.

Jacek Pastuszka, president of Baltika Breweries LLC, executive vice president Carlsberg Group Eastern Europe Region:
«In January law amendments, adapted last year, came into effect and they had an impact on our Q1 results. Macroeconomic factors also spread influence.  At the same time, we see non-alcoholic beer segment growth, strengthening of the positions of our beer brands. We will further focus on implementation of the SAIL’22 strategy.»

Carlsberg Group Eastern Europe region results

Net revenue in Eastern Europe grew organically by 10%, driven by a strong 13% price/mix that more than offset the organic total volume decline of 2%. Reported net revenue grew by 37%, supported by a significantly positive currency impact.

Our volumes grew in Ukraine, Kazakhstan and Belarus.

The strong price/mix was the result of last year’s price increases and the effect of the introduction of smaller pack sizes in Russia following the PET restrictions.

Commenting on the results, Cees ’t Hart, Chief Executive Officer at Carlsberg Group, says: «We delivered a solid start to 2017, in the seasonally small first quarter. The execution of Funding the Journey is progressing well and we’re on track to deliver on our 2017 commitments.»

* Source:  Nielsen Retail Audit, Urban & Rural Russia

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