Russia is one of the top exporters in the world for oil, natural gas and some precious metals and the Russian economy is highly dependent on commodity prices. As a result, the Russian economy was severely hit by the decline in oil prices starting in late 2008. The improvement in purchasing power in the country over the last decade halted and the sharp devaluation of the Ruble hurt the Russian economy further. In 2009, the GDP is estimated to have declined by 7.9% in Russia, while the unemployment rate increased significantly and real wages started to decline for the first time since the 1998 crisis, which in turn, negatively impacted private consumption.

These adverse economic conditions, combined with poor weather conditions, especially in the peak season, negatively affected the brewing sector in the last two years, leading to a 1% drop in 2008 and 8% decline in 2009.

Despite the declining trend in the last two years, Russia is still the third largest beer market in the world with a total estimated annual consumption of 111.6 mhl in 2009, while most of the market is shared among the top international brewers.

Russia is the largest and most important market in EBI’s operating geography, accounting for 78% of the consolidated sales volumes as of 2009. Although the downward trend in the Russian beer market in the first half of 2009 decelerated in the second half of the year, pressures on consumer demand continued to affect beer sales negatively in 2009 in general. However, EBI has once again outperformed the market and accordingly, EBI’s market share increased to 10% in 2009 compared to 9% in 2008 (AC Nielsen). This was achieved through focused, innovative and memorable, but cost effective, marketing activities. Increased penetration was one of the major sources of performance in 2009. In Russia, FY2009 sales volume was 10.7 mhl, indicating a decline of 3.6% over the previous year in a market that is estimated to have declined by 8% year-on-year..

EBI plans to reinforce its presence and profitability in Russia in the future by focusing more on innovations and by increasing its penetration, which will be the key drivers for growth.

EBI’s malt production capacity of 139,000 tons per annum increased to 152,000 tons in 2009 and is expected to reach 175,000 tons by the end of 2010, leading to further control of the cost base of this major raw material for beer production.

As part of EBI’s strategy to capitalize on the synergies associated with being available in developing beer market segments, EBI established itself as a strong player in all segments of the Russian beer market with a diverse product portfolio including licensed brands in the premium and super premium segments.

The “Stary Melnik” brand, launched in 1999, is today one of the most dynamic brands in the Russian beer market and is ranked 4th among the top best selling upper mainstream brands (AC Nielsen, December 2009). The “Stary Melnik” brand was selected EFFIE Brand of the Year in addition to being awarded medals in the Monde Selection Contest and it received other prestigious awards for its quality. The “Stary Melnik” brand is exported to more than 15 countries.

Another important brand, “Beliy Medved,” was included in Efes Russia’s portfolio in 2003 when EBI acquired the Amstar Brewery in the Ural region. A regional brand with limited sales volume at the time of the acquisition, “Beliy Medved” was relaunched on a national scale in 2003 and since then has become an important volume driver for our Russian operations.

Today “Beliy Medved” is the 5th highest selling brand by volume in Russia (AC Nielsen, December 2009). “Beliy Medved” was awarded the Grand Gold medal in the Monde Selection Contest in 2006-2008 and won the International High Quality Trophy in 2008.

In the December 2009 Russian edition of Forbes magazine, the Stary Melnik and Beliy Medved brands were ranked #15 and #33 among the Top 50 best selling Russian brands based on July 2008- June 2009 sales value.

The leader of EBI sales in Russia is the lower mainstream segment brand “Gold Mine Beer”. The brand was included in Efes Russia’s portfolio in 2006 with the acquisition of the KV Group. Since being relaunched with the experience and excellence of the Efes Group, “Gold Mine Beer” has recorded significant market share gains and today is the 6th highest selling brand by volume in Russia (AC Nielsen, December 2009).

In the January 2009 Russian edition of Forbes magazine, “Gold Mine Beer” was ranked #2 among the top 10 most dynamic Russian brands. In the beer category, “Gold Mine Beer” was ranked the #1 brand in terms of growth in 2008. In addition, “Gold Mine Beer” was declared the “Product of the Year” as the fastest growing brand in the Russian beer market.

Another successful relaunch in the Russian market was the “Green Beer” brand which was included in Efes Russia’s portfolio in 2006 with the acquisition of the KV Group. Currently, the “Green Beer” portfolio includes 3 SKUs (0.5 lt bottle, 1.5 lt and 2.5 lt PET) and is ranked among the 15 best selling lower mainstream segment brands (AC Nielsen, December 2009). In addition to our international “Efes” brand, Mexican “SOL,” German “Warsteiner” and Dutch “Bavaria Premium” are positioned in the super premium and premium segments and Czech “Zlatopramen” is positioned in the upper mainstream segment.

Innovation continues to be one of the primary drivers behind volume growth in Russia. Accordingly, EBI successfully launched brand extensions and introduced new packages to the market in 2009 which positively contributed to its outperformance of the beer market during the year. The most significant contribution was delivered by the 2.5 lt PET packages of the lower mainstream segment brands “Gold Mine Beer” and “Beliy Medved” which were introduced in 2008 and “Green Beer” which was introduced in August 2009.

The new flavored beers, “Sokol Mohito” and “Gold Mine Beer Fresh Lemon” (in 0.5 lt bottle), were launched in July and August 2009, respectively. During the year, three new products in three segments were introduced to the market: premium segment “Bavaria 8.6” (in 0.5 lt bottle and can) in January; upper mainstream segment “Stary Melnik Iz Bochonka Osoboe” (in 0.5 lt bottle) in March and lower mainstream “Beliy Medved v Rozliv” (in 1.5 lt PET) in July.