ST. PETERSBURG, March 25, 2005 - The main results of the Company in 2004 overall and the fourth quarter of 2004 (according to GAAP accounting standards) are as follows:

 

The analysis of Company results in 2004 demonstrates stable growth of sales from quarter to quarter. Compared with the same periods of the Y-2003, the trend looks as follows:  

• 1-Q of 2004 + 23.2%  

• 2-Q of 2004 + 24.2%  

• 3-Q of 2004 + 33.3%  

• 4-Q of 2004 + 39.1%  

 

Increase of sales in 2004 to $994.0 mln was caused by volume growth by 23.2%, increase in the average rouble price of Company's products by 6.9%, shift in the sales mix followed by decrease of average prices by 3.9%, and the strengthening of the domestic currency against reporting currency by 6.5%.  

 

Market observations show that in 2004 the licensed beer brands and discount brands were developing most dynamically on the Russian beer market. Sales of licensed beer brands on the market grew by 60%, and the share of the segment amounted to 6.0%. Sales of discounted brands grew by almost a quarter, and its share grew to 21%. The segment of the Russian premium beer had also overheaded the market and its share exceeded 18% of the whole market.  

 

Company growth in 2004 was 23% and more than by two times exceeded the growth of the entire Russian market. Over the last two years Baltika Brewery grew almost one and half times as much as the Russian market in 2003-2004. Over 2004, almost 40% of the market growth had to do with increase of Baltika sales. The Company strengthened its leadership position in key segments of the market. By the end of the year the Company's share in the main stream segment amounted to 29%, and in the premium segment - over 22%. The licensed beer price segment grew up to 7% and the discount price segment - up to 5%.  

 

Overall, while the company started 2004 with the market share of 20% in January, by December the company's share of the market increased to over 26%. Therefore, in 2004 the market share of the company amounted to 25%.  

 

Implementation of the new marketing strategy began in the spring of 2004 and had a considerable influence on the company growth in the second half of the year. All Baltika brands were consecutively restyled. A new design and packaging were introduced for other company brands, and new sorts of beer were launched.  

 

At present the company owns two leading Russian brands: Baltika and Arsenalnoe. Baltika umbrella brand includes key brands - Baltika 3 Classic and Baltika 7 Export, which are the leaders of the main stream and premium segments respectively. These brands grew by 21% over the year. Both brands received powerful marketing support over the year. Baltika 3 Classic debuted in cans, and Baltika 7 Export first appeared in a glass bottle.  

 

New brands of the Company, DV and Samara showed considerable growth with 214% and 158% of growth respectively. Carlsberg licensed beer sales also grew rapidly (129%). In October 2004 the Company also introduced Fosters, a new licensed brand and it helped us enhance further its position on the fastest growing segment of the market.  

 

The fact that the Company continued to grow despite limitations imposed on advertisements by the state testifies to the strong and stable position of Company brands.  

 

The company's export volumes amounted 1.1 mln hectoliters. Hence the share of export sales in total company's sales achieved 6%. As compared to year 2003 export net sales increased by 32%. Around of 80% of all Russian beer abroad was Company ones.  

 

Restyling of the Company's products, design and packaging innovation caused the 14.7% per 1 hectoliter growth of raw materials expenditures in cost structure in 2004.  

 

At the same time, as the result of operation perfection program the Company managed to substantially decrease production and administration expenses per 1 hectoliter as compared to year 2003.  

 

Additional marketing efforts of the company, related to new brand development strategies, requiring large scale advertisement events and large-scale promotional events, have led to increased advertisement spending, which doubled since 2003. The marketing and advertising expenses in 2004 did not, however, exceed the average figures for the industry.  

 

The well-organized system of distribution and a balanced pricing policy allowed to maintain high interest of all distribution channels in promotion of Company products. Baltika beer is sold in 97% of retail outlets of the country, which further supports its image as the “people's beer of Russia.” This explains the relative growth of logistical and promotional expenses year on year. By the fourth quarter of 2004 additional growth of sales allowed to lower the proportion of commercial and administration expenses in the total figure of expenditures.  

 

The Company's Key Financial Results for the Year 2004