Azerbaijan: Baltika-Baku reports 25% decline in H1 beer output

Baltika-Baku, which dominates on the beer market of Azerbaijan with a 75% share, reduced its production by 25% yoy in the 1st half of 2016, abc.az reported on August 19.

The company, part of Carlsberg Group, estimates that the beer market fell as a whole by 30% yoy because of the difficult macroeconomic situation and the impact of legislative regulations, which undoubtedly affected the profitability of the company.

"The manat devaluation (by about 90% against 2015) and the subsequent falling purchasing power of the population have become the main factors of declined sales. On the other hand, short-term effect of the law banning sale of excisable goods for cash, which led to stagnation of the entire sector during the first days of January 2016, has showed the technological unpreparedness of the market and caused an abrupt suspension of sales, after which the supply chain was restored only at the end of February," the company emphasized.

Baltika-Baku, however, notes that despite the steps being taken to promote business and the industry in general, the law banning cash payments for excisable products and introducing mandatory prepayment will create additional obstacles for the industry.

"We back government’s steps to ensure transparency of trade turnover. However, the technical unpreparedness of the supply chain for transition to a new business model and required advance payment will complicate their realization in small and medium-sized business, create a very difficult situation for the beer industry, lead to even more decline in sales and, accordingly, to the profitability of the enterprise," Baltika-Baku said.

The company points out that on the other hand, higher production costs in connection with the new system of water pricing on the basis of Tariff Council’s decision from 16 May 2016 was a new blow to the business. Thus, the abolition of differentiation of types of water into primary and technical and the established standard price of 8 manat leads to an increase in the company’s production costs by AZN 420,000 for 2016 alone.

"Currently our profitability is under threat," the company said.

In order to de-escalate the current crisis situation, Baltika-Baku made the decision on forced two-month shutdown at the end of "high season", during which the production and bottling of beer will be stopped and activities will be limited to shipments of finished products and minimal financial and administrative operations for the support of sales.

Viktor Semak, Baltika-Baku’s CEO and president of Carlsberg Kazakhstan, said: "Despite the fact that the company is on the border of profitability, we exert every effort not take critical measures on the mass staff reduction and to return profitability to our business. However, it becomes difficult to put this into reality, given the situation in which our business is. I think the only way for both our company and the entire beer industry is government’s support in the review of legislative regulation.”

18 August, 2016