Baltika-Baku Warns of Dire Consequences for Industry

Sales of Baltika-Baku in the first half of 2016 decreased by 25% compared to the same period last year, the company said in a report for the current period.

The company believes this was caused by prevailing of a difficult macroeconomic situation in the country and the impact of legal regulation:

"The devaluation of the national currency and the ensuing drop in purchasing power of the population has become a major factor in the fall in sales volumes," the report said.

The company's losses were also caused by the hasty decisions of the government. The report says that the short-term effect of the law prohibiting the sale of excisable goods for cash, which led to the stagnation of the sector, showed the lack of technological preparation of the market and led to a sharp suspend of the sales.

Recall that from January 1, 2016, there was a ban on cash payment in the sale of tobacco and alcohol products. As the market was unprepared for that, the above products disappeared from the shelves of supermarkets and a deficit for tobacco and alcohol products appeared in the country. The ban was lifted after 12 days.

The company believes that the law re-entered into force and banning cash payment for excisable products and requiring mandatory prepayment will create additional obstacles for the industry.

The General Director of Baltika-Baku and the President of Carlsberg Kazakhstan, Viktor Semak, in this regard noted that "according to the results of monitoring conducted to check the preparation for transition of the sales chain to a new cashless payment system and full pre-payment, it was revealed that about 3 / 4 of our distributors and 68% of retail outlets across the country are not ready for the transition to the new business model."

He believes that the introduction of mandatory pre-payment condition is excessive and not only violates the logic of relations between members of the supply chain, but also leads to disastrous consequences for the industry.

The tariff policy of the government also contributed to the company's losses. On the basis of the report, it can be concluded that after the decision of the Tariff Council of 16 May 2016, prices in the beer segment can grow. Otherwise, the company will have to operate at a loss.

The report stated that the abolition of the differentiation of sorts of water into raw and technical and the establishment of the standard price in AZN 8 leads to an increase in the company's production costs by 420 thousand AZN only for 2016.

Earlier, Turan, with reference to the Corporate Relations Manager of LLC Baltika-Baku Nadezhda Ovsyannikova, wrote that by the decision of the Tariff Council of 16 May 2016, the cost of a cubic meter of water for consumers using water as a raw material has been reduced from 12 to 8 manats. But the cost of one cubic meter of process water was increased from 1 to 8 manats. In the production of beer, water is used as not only raw material, but also process water for washing and pasteurization.

According to Ovsyannikova, to produce 1 liter of beer about 4.5-5 liters of service water is used. Therefore, harmonization of tariffs for water will cause increase in production costs.

In turn, JSC Azersu told Turan the lack of differentiation in the water used as raw material and process water. The company confirmed that from 16 May the water tariff for the producers was reduced from AZN 12 to AZN 8 for 1 cubic meter of water. At the same time, from 0.30 manat to 1 manat increased tariff for wastewater.

The company's report states that currently the company's profitability is in jeopardy. In order to de-escalate the current crisis, the company decided to stop the production for two months at the end of the "high season", during which the production and bottling of beer will be stopped and the company's operations will be reduced to the shipment of finished products and the minimum financial and administrative operations to support sales.

During this period, about 80% of the employees will be sent to vacations, for which they will receive 2/3 of the wages with the conservation of the social package.

Products of the brewery Baltika-Baku, which is part of Carlsberg Group, occupied more than 75% of the market in 2015. The Khirdalan brewery has previously been ruled by the French company Castel.

Baku Castel Plant was opened in 2000.

On May 15, 2008 in Baku OJSC Brewing Company Baltika signed a contract with Brasseries Internationales Holding (Eastern) Ltd (BIH Eastern) for the purchase of the brewery Baku Castel.   -----71D