Russia had one of its coldest summers for decades – hitting business across the beer industry, while Western Europe enjoyed record temperatures. British-based brewing group Scottish and Newcastle Plc, which owns Russian market leader Baltic Beverages Holdings (BBH) jointly with Danish giant Carlsberg, scaled back expectations for the country as a whole. S&N now believes Russian beer market volumes will grow by around 5% this year rather than in “high single digits” as it earlier thought. "We now anticipate the Russian beer market to grow at five percent in 2003 and BBH Russian volumes to grow at around eight percent," an S&N spokesman said after the group issued a third-quarter trading update on BBH, which accounts for nearly 30 percent of S&N's annual earnings.
Russia is the world's fifth-biggest beer market after China, the United States, Germany and Brazil, and one of the quickest to expand with annual growth of nearly 20 % over the last five years -- and many western-based brewers keen to invest.

BBH, which brews one of Europe's top beers Baltika and gets 80 % of its profits from Russia, said its Russian beer volumes rose 12 % in the third quarter and outpaced the overall Russian beer market rise of six percent, pushing BBH's Russian market share to 33.1 %.

In the first nine months of 2003, BBH's Russian beer volumes rose 7 % in an overall beer market up 4%. "BBH remains confident in the growth prospects for its markets, and anticipates continued profitable volume growth in the fourth quarter," S&N said in a statement.

The Russian beer market had a poor start to the year with volumes slipping 5% in the first quarter due to the coldest winter in Russia for 40 years, while BBH also suffered from changes to Baltika's distribution network.

BBH, which is registered in Sweden, a 50-50 venture between S&N and Carlsberg, has a share of around a third of the Russian market and also operates in Estonia, Latvia, Lithuania, Ukraine and Kazakhstan.

Although Edinburgh-based S&N believes BBH will outpace the rest of the market with growth of around 8%, shares in the company slipped 2.25p to 362p – making it one of only a handful of FTSE 100 stocks losing ground today.

BBH’s operating profits were up 19% at 126 million US dollars (£75.6 million) in the third quarter boosted by a slight rise in the value of the the Russian rouble against the US currency. But when expressed in euros, against which the rouble has fallen sharply, the rise was a much more modest 3%.

In a statement accompanying its own third quarter results today, Carlsberg said that BBH’s prices had not increased in line with inflation. The lower profits contribution from BBH prompted Carlsberg to scale back its own expectations for the full year. Carlsberg itself reported an 11% fall in operating profits for the first three quarters to 2.92 billion Danish Krone (£269 million) – again largely a result of currency movements. The company said that its main Carlsberg brand had made strong progress in the UK while Tetley’s maintained its share of the shrinking ale market.

Scottish and Newcastle, the number one brewer in the mature beer markets of Britain and France with brands such as Foster's and Kronenbourg, bought Finland's Hartwall in 2002 with its 50 percent BBH stake to give it access to the fast-growing markets in eastern Europe and Russia.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .