"Sun Interbrew" in the beer market of Russia and Ukraine
For the third quarter of 2003 "SUN Interbrew" considerably improved indexes and began to gain a decreasing earlier share of the market in Russia. The main executive director of the company Joseph Strella told, how it was possible to achieve such an increase. " It was possible due to four factors. First, last year the company installed six new PET bottling lines, three of which were not originally included in the budget. It allowed to increase sales in a dynamically growing segment of PET-packaging. Secondly, a number of innovations was started. We expanded the number of ours brands, started production of beer "Staropramen", which earlier was produced by our competitor - "SABMiller". Last year innovations provided for about 28 % of sales volume. For the last year the marketing policy of the company has changed. Now we have about 700 dealers - agents, which are directly engaged in sales and promotion of goods. They are a link between the retail sellers and our distribution company. We train them and we approach to them selectively. As the result of their work the owners of small shopping centres receive what is necessary for them. In total it stimulated our business very much. At last, the company could increase manufacturing powers more than 20 million decilitres annually, due to this sales volume in Russia has grown 30% in the third quarter. There were also changes in the frame of the holding. When in October 2002 I returned to the Russian department, I felt that our staff is more than necessary. We have learnt the situation at the plants and in the distribution centres, found out where we have necessary people on the necessary positions. After that some changes at all levels in the company were made, and now I feel that everybody are on their places. In the outcome our staff was reduced more than one thousand people, and the labour productivity increased 31%. Due to the fact that we could join into the team, accepted exact solutions and fulfilled them in the necessary terms, in 2003 "SUN Interbrew" grew approximately five times faster than the market. "SUN Interbrew" carries out consolidation of the assets in Russia. We have breweries and sales centres. Four companies are already joint in the structure of "United breweries" JSC, and the consolidation of the remaining ones is going on. Amalgamation of the distribution centres all over the country is starting now. All will be completed in March, when all these assets enter the structure of one company - "SUN-Interbrew". It will allow to avoid some off-shore holding companies. The head company will remain on the island Jersey. "Interbrew", "SUN" group and indirect shareholders will possess it. Approximately 98 % shares of the new company, which will be organized in Russia, will belong to "SUN Interbrew" Ltd. There will also remain some minor shareholders, which now possess the shares of some reorganized companies. They will have a chance to exchange their shares for the shares of the new company. Their share in "SUN-Interbrew" will make approximately 2%. The scheme is not worked out up to the end. The solution about it will be made in the second quarter at the board of directors. Only the shares of "SUN Interbrew" Ltd. will appear in the open market. And it will be, as before, the foreign stock markets. I do not think, that the trade of the shares of two companies of holding will be useful. All we want to make is to improve the liquidity of "SUN Interbrew" Ltd. shares. It will be made in several ways. First, by means of the new issue of the shares of the "A" class, due to which the means for financing the activity of the company will also be attracted. Those who already have shares will have an opportunity to purchase the additional quantity that subsequently should result in more active trade at the stock exchange. Secondly, our shares have listing at Luxembourg, Frankfurt and Berlin stock exchanges, and we consider the possibility to include them into a system of automatic market quotations SEAQ. Then all shares will bargain in one place and accordingly their revolution will increase. Many investment companies and banks, for example, "United Financial Group", "Deutsche Bank", "Salomon Smith Barney", "Merrill Lynch" consider that this site gives the best fit for tenders with our shares. One day the Ukrainian companies of "SUN Interbrew" would be involved into the process of consolidation, but we do not hurry with it. Last year "SUN Interbrew" bought 41 % of the plant "Yantar" shares from "INVESCO", that increased our share in this company up to almost 98%. That is why there is a possibility for consolidation of the Ukrainian breweries, but it will not happen as fast as in Russia. Creation of unified structure, which will include our three breweries and the distribution company is possible in the future. Probably it would happen within the nearest two years. For the last three years "SUN Interbrew" invested in Russia together with Ukraine 100 million Euro annually. In 2004 of the investment in Russia will exceed 100 million Euro, and in Ukraine it will make approximately 40 million Euro. We go on to look for the plants, which can be purchased in Russia, especially taking into account our rates of growth. In Ukraine it is impossible - the antimonopoly committee will not allow to do that as there share of "SUN Interbrew" in the market already makes 35%. Therefore there is Russia. We also can try to advance to the markets of countries of former USSR. All depends on the attractiveness and price of suspected acquisition. We are interested in Kazakhstan. It seems to be the largest market. Byelorussia still has a potential. This year the company will go on to increase sales volume; the share in the market and the profitability faster than the market grows. I think, that the growth of the market will make about 4 % contrasted to 6 % in 2003. Whether it slows or not depends on two moments. If the inflation is reduced more than 10 % the business again will be a success. It is the firs moment. Secondly, all depends on where people spend their extra money obtained from the decrease of VAT and cancellation of sales tax. If the incomes of the population increase it will spend more and this will urge on the growth.

"Finance", "Russian Brewers Union"

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Under the preliminary totals of 2003 "Baltica" brewing company kept a profitability rate above the average and increased beer sales volume
Under the preliminary data in 2003 "Baltica" managed to complete organizational and legal rearrangement of the company, to do the re-structuring of sales system and thus to avoid the reduction of beer sales volumes usually accompanying such changes in the large companies. Under the totals of the year there is an increase of the volume of sold products from 16,06 million hectolitres in 2002 up to 16,17 million hectolitres in 2003. There is an increase of the production sold in Russia as well as on export. In 2003 these index compounded 15,17 million hectolitres and 1 million hectolitres accordingly. The 2003 was significant for the company with the successful termination of building and start of two new plants - in Samara (January) and Khabarovsk (April). Simultaneously were upgraded the manufacturing powers at the plants in St.-Petersburg, Rostov-on-Don and Tula, that allowed to create a unique balanced system of geographically distributed productions as base for further strengthening of market stands of the company. In the beginning of 2003 the management of the company made a solution to rearrange a distribution system in Russia. Under the plan, this process should be completed in the first half of 2004. In the outcome the production of the company will be maximum represented in the shopping centres. The experience of other companies, both domestic and foreign, which passed this stage, demonstrates that, as a rule, it is accompanied by essential increase of costs and decrease of production volumes and the share in the market. "Baltica" was ready to these consequences and planned to minimize their influence. It is necessary to take into account, that the level of development, which was reached by the company stipulated the necessity of considerable changes, connected not only to structural rearrangement of a sales system, but also with the large and expensive investment projects of organization of the production of raw for brewing branch, financing of ecological measures, creation of own transport park, high social activity. All these problems, the solution for which the company finds now, will rise before the remaining market participants in future. Thus the company prolongs to generate a high positive operational money flow, creating a necessary basement for completion of structural rearrangement and implementation of the new investment plans this year. The return of a considerable part of the debt of the Byelorussian brewery "Krinitsa" was made after the verdict of The International commercial arbitration court and become an additional source of financial resources. In December 2003 the company managed to return more than $ 9 millions. In 2003 the successes of the company were marked at numerous competitions, including VII All-Russia competition "Best Russian company", conducted by the Russian union of the industrialists and businessmen, Chamber of commerce and industry of Russian Federation and Expert institute with the support of the Government of Russian Federation, "Baltica" was awarded a "Leading Company" nomination. The leading stands of the company were also marked in the rating "Largest Companies of Russia, top-200" made by the Publishing House "Komersant".

Press service of "Russian Brewers Union"

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"Advance-guard" does not sell the malthouse
Bank "Avangard" announced about the termination of negotiations about the sale of its business to the strategic investors. Two years ago the bank created the company "Russian malt ", which should construct three malthouses and which was supposed to be offered to the strategic investors such as "Soufflet" or "Cargill". As the president of the bank Kyril Minovalov informed, in the last year autumn the bank decided to develop business independently. As he said, this year more $ 40 millions would be invested in the development of the production of the brewing barley. Three quarters of the finances would be directed for the purchasing of agricultural engineering for barley cultivation. By 2007 the bank plans to lower the cost price of produced malt 100 - 110 Euros per ton. In these conditions, supposes Mr. Minovalov, the bank will be capable to sell malt not only to the Russian brewing companies, but also to sell on export, particularly to China or Latin America.

"The Vedomosti", "Russian Brewers Union"

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The Russian beer is going to be tastier
In 2004 the last year tendency, to dilate premium market and to increase beer advertising expences will proceed. In 2003 St.Petersburg brewing company "Baltica" increased the volume of sold products only 0,7 %, informed the press service of the company. The low results of the Russian brewing branch leader made the analysts to start talking about the beginning of the stagnation in the branch, soon revision of the market and vanishing of the majority of small breweries. But the potential for growth of the branch is hardly used. However not all companies will manage to keep their positions and to increase volumes of production, except those who will be able to explain the customer that their beer is the best. Cheap and not always qualitative beer will concede a place to more expensive and well-advertised sorts. The rumours about soon termination of growth in beer branch began since 2001, when "Baltica" company for the first time became to concede its share of the market to other players. In the opinion of Vasily Utiansky, the chief of the market research and consulting agency "Market" till 2000 the beer market developed rapidly, but since then it is possible to watch a stagnation in the brewing branch. After the totals of 2003 unfavourable for "Baltica" the fears were intensified. "In 2004 the tendency to reduce the rates of branch growth would proceed. The market would grow approximately 4 % for a year, but even this index is under the question", - Mr. Utiansky said. The analyst of "Renaisance the Capital" Natalia Zagvozdina made the same forecast. Besides some analysts started talking about the beginning of the revision of the market connecting that with the lack of free place in it. "Is indicative, that 11 large brewing companies of Russia take almost 75 % of the markets, and the remaining 290 companies take only 25 %", - the chief of the executive secretariat of "Russian Brewers Union" Vyacheslav Mamontov said. If no adequate measures are taken in 2004, the process of outwashing small companies from the branch would proceed. This would cause the growth of social tension in the regions, and the loss of local brewing culture. Meanwhile, under the data of "Russian Brewers Union", last year the growth rate of production remained at the level of 2002 and amounted to 7,78%. For one year 757,6 million decilitres of beer were produced. Grounding on these data, the analysts say that the potential for the beer production growth is not exhausted yet. As the analyst of "Alpha - bank" Alexandr Svinov informed, the growth of beer market in 2004 is expected at the level of 6%. Mr. Mamontov also confirms, that the rates of the branch growth will remain approximately at the level of 2003. Besides the data of statistics testify that the customers start to relay their preference from strong alcoholic drinks to beer and alcoholic cocktails. "Contrary to the excise policy of the government, which for the last 3 years increased the excise for strong alcohol 35 %, and for beer 47 %, the structure of alcohol consumption in Russia varies for the benefit of beer. Since 1999 till 2002 its share increased from 13 % up to 20 %", - informed Mr. Mamontov. Low results of some companies are explained by incorrect marketing policy. In particular, "Baltica" developed the activity in a cheap segment, beginning to produce beer "Zhigulyovskoye". At the same time with the growth of the incomes the customers started to shift the attention from cheap kinds of beer to the premium segment and to licensed beer. So, under the data of the company "Business Analytica - Retail audit", the share of beer brewed under the licence of the foreign companies, in 2003 amounted to 3,5 %, while in 2002 it made only 2%. The general director of the company "Business Analyica - Retail audit" Maria Vanifatova named the leaders of premium segment under the totals of 2003. The first place takes "Baltica", having 18,3 % of all sales of expensive beer. Than follow "Stary melnik" (14,7 %), "Bochkarev" (13,8 %), "Nevskoye" (12,1 %) and "Zolotaya bochka" (8,6 %). The greatest growth during the year was achieved by "Klinskoye" taking 6,7 % of the market. In the segment of licensed beer the first position is taken by: "Holsten" (17,3 %), "Efes" (16,7 %), "Lowenbrau" (12,9 %), "Miller" (10,7 %) and "Tuborg" (9,4 %). Besides in 2003 one more tendency, which will proceed this year, came to light. The companies, which developed the marketing network to the prejudice of the production promotion, started to lose the conquered earlier share of the market. As a result, besides "Baltica", the company "Ochakovo" marked the decrease of growth rates. The producers conducting an aggressive advertising campaign are seizing the market. "The producers invest in promotion of drinks, - Mr. Utiansky said. - In the outcome appears a culture of brand beer consumption. In some cases, certainly, the promotion of beer negatively affects its quality. However the customer is a very good indicator and this tendency will not prevail. The promotion of beer is not limited with advertising: many producers intend to adopt the experience of the company "Tinkoff" creating own network of beer establishments". Those companies, which adequately react to the changing conjuncture, can expect not only the growth of production sales but also the attention of the western investors. "The growth of branch attracts the attention of the western investors and rating agencies, in particular, "Standard and Poor's", - said Mr. Mamontov. - Investment companies recommend investors to invest in Russian brewing industry".

"RBC Daily", "Russian Brewers Union"

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Beer "Kronenbourg" and "Foster's" will be produced in St.-Petersburg
"Scottish and Newcastle" company, which became the co-owner of beer holding "" two years back, is going to produce beer "Kronenbourg" and "Foster"s" in Russia. Production is planned to begin in autumn at the "" plants "Vienna" and "Baltica". The analysts expected this step for a long time, because the segment of licensed beer is the most fast growing in Russia. Since February 2002 the company "Scottish and Newcastle" ("S&N;") possesses 50 % of "Baltic Beverages Holding AB" shares. Other co-owner of "BBH" are Danish "Carlsberg Breweries". BBH possesses 50 % of "Vienna" JSC shares and about 75 % of "Baltica" brewing company shares. Under the data of Integrated Financial Group, the share of "Baltica" in the Russian beer market makes about 21 %, production of "Vienna" takes about 1,8%. Under the data of the company "Business Analyica", in October - November, 2003 the share in the segment of imported bottled beer "Kronenbourg 1664" in Russia amounted to 0,1 %, "Foster" s " - 0,7%. As Jeremy Blood, the corporate connections director of " S&N; ", the company made a decision to begin beer production under the trade marks "Foster "s" at Petersburg plant "Baltica" and "Kronenbourg 1664" at the brewery "Vienna" in September - October, 2004. As Mr. Blood said, the precise date of production start is not determined yet. A detailed plan should be ready by spring. The president of "BBH" Christian Ramm-Shmidt confirmed, that "Kronenbourg" and "Foster" s" made in Russia should appear this year, however, as he said, the precise terms are not known yet. The representatives of "Baltica" and "Vienna" refused to give the commenting. Mr. Blood supposes, that the volumes of production will not be large in the first year, as the companies need time to be convinced in the quality of the product made in Russia. It is a successful moment for "S&N;" to start the brands in Russia, supposes Mr. Blood. "Many international trademarks have already demonstrated, that they can be well sold in Russia ", - he said. Under the data of The United Financial Group in Russia 26 million decilitres of licensed beer is produced annually. It is 3,5 % of all beer market. A sale of licensed beer in Russia in 2003 UFG estimates approximately as $437 millions in retail prices. The growth of this segment amounted to 25 % in 2002 and 75 % - in 2003. Since 2000 "Vienna" produces beer under the trademark "Tuborg" of "Carlsberg Breweries", in 2002 "Baltica" began to bottle "Carlsberg" at the plant in Rostov-on-Don. The concern "Heineken" since last year produces beer with the same name in St. Petersburg. Licensed beer produce also "Efes" (Moscow, marks " Efes Pilsener", Warsteiner "), "SUN Interbrew" ("Stella Artois", Staropramen "), Kaluga plant "SAB Miller" ("Holsten", "Miller", "Velkopopovicky Kozel"), Kaliningrad "PIT" ("Goesser"). According to the analyst of UFG Aleksey Krivoshapko, the outlooks of "Foster" s" and "Kronenbourg" in Russia will be "equivalent to the efforts and costs for their promotion ". The annual investments $ 3 - 5 millions in advertising will allow to sell several thousand decilitres annually, supposes Mr. Krivoshapko. "If the taste will not deteriorate, the notoriety of these marks will become a matter of time, as these brands are rather strong", - the analyst of the investment company "Prospekt " Marat Ibragimov supposes. As Mr. Blood says, the company is not confused with low-level notoriety of "Foster" s" and "Kronenbourg 1664" in Russia. "Besides the premium segment is still growing, and new brands of premium class will become a profitable addition to already existing marks of "Baltica" and "Vienna", - he says. " With the help of these brands "Baltica" and "Vienna" will be consolidated their positions in the segment of licensed beer, which appeared to be the most dynamical in the previous year", - agrees Mr. Ibragimov. "With a deceleration in growth of the beer market in whole, "Baltica" has some marketing errors, that resulted in the stagnation of production, - he said. - the appearance of new premium brand will allow to load the equipment and to improve the financial indexations of the company ".

"The Vedomosti", "Russian Brewers Union"

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" Ivan " will brew "Bavaria"
In summer of this year the group of companies "Ivan Taranov Breweries " ("PIT") will begin license manufacturing of the Dutch beer "Bavaria". The agreement between the companies "Bavaria N.V." and "PIT " will be signed as soon as possible. "Bavaria" is the last beer brand which was actively sold in Russia from the beginning of 90-ies. Its production is not adjusted yet at the local plants. In September - October 2003 the group of the companies "Ivan Taranov Breweries" ("PIT ") controlled about 4 % of the Russian beer market and divided 7-8-th place with "SABMiller". The volume of production of "PIT" last year amounted to 28 million decilitres, turnover was $126 millions. "PIT" has three plants in Kaliningrad, Orenburg and Khabarovsk; produces beer "Three bears", "PIT", "Doctor Diesel", "Red Bull" and "Goesser". In the beginning of the 90-ies "Bavaria" beer alongside with "Holsten", "Tuborg", "Carlsberg", "Bear Beer" and number of other marks was in ten most popular beer brands in Russia. After the cancellation of customs privileges in 1995-1996 it has risen in prise, and its sales were reduced. After the crisis of 1998 the share of import beer fell from 30 % up to several percents, and the large western producers were compelled to move production to Russia. "Carlsberg" is bottled at "Baltica", "Tuborg" at "Vienna", "Bear Beer" at "Amstar", "Holsten" at "SABMiller". "At present bargain was not held yet, but the negotiations are in final stage. We suppose to announce about the bargain maximum in two months", - the member of the directors' council of the company "Bavaria N.V" Hamm van der Wein declared. "Bavaria N.V." refused to inform the parameters of the license agreement. In the company "PIT" the information about the bargain was confirmed, but they also refused to give further commentings. Most likely, production of beer "Bavaria" will be located at Kaliningrad company "Pivovaren", where "Goesser" is being already brewed. For the analysts the solution of "PIT" to produce "Bavaria" is not unexpected. "This license agreement arose for a long time, - the analyst of UFG Alexey Krivoshapko considers, - "Bavaria" is one of the last popular brands which is not brewed in Russia up to the present time". Mr. Krivoshapko considers, that local production will help the trademark to reach 2 million decilitres a year and to enter again ten most popular foreign brands in Russia. Alexey Krivoshapko considers one of the determining conditions the price of 20-25 roubles for a bottle. At the same time analyst of "Renaissance of the Capital" Natalia Zagvozdina considers, that the large costs will be necessary for the active promotion of beer. "The potential of "Bavaria" cannot be compared to such trademarks as "Tuborg" or "Carlsberg", - Madam Zagvozdina says. - This beer will compete, for example, with "Holsten".

"THE KOMMERSANT-DAILY", "Russian Brewers Union"

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In February of the current year "Volga" will start the second line for kegging beer
"Volga" brewing company CSC (Nizhni Novgorod, is a part of Central European Brewing Company (CEBC, Moscow) at the end of February, 2004 plans to start the second line for kegging beer, informed the PR-manager of the company Nina Ilyina. As she said, the volume of the investments in the new production makes more than 25 million roubles. The power of the new line will make 135 kegs per hour that twice exceeds the productivity of the first kegging line (60 kegs), started in 2001. The equipment is purchased from the constant partner of "Volga" - German company "Huppman". It is planned, that the marks "Rusich" and "Okskoye" would be kegged on a new line of 30 and 50 litres. Nina Ilyina marked, that after the start of the new line, "Volga" is going to increase kegged beer production 3 times, because the management of the company considers the dispensing sale of beer in public catering establishments of Nizhniy Novgorod to be a perspective direction.

IA "IF-Region", "Russian Brewers Union"


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