1. Russia – Netherlands Economic Forum Fifth session – Amsterdam, 18 – 19 November 2007 Brewing industry development and alcohol beverages market regulation prospects Victor Pyatko Vice Chairman of the Union of Russian Brewers

2. Beer Market Volume (MHl) +27% +23% +19% +21% +8% +11% +10% 0% -4% +23% Sources: State Statistics Committee, Breweries sales data, Euromonitor World Beer Markets, 2006 (MHl) During 10 years Russian beer market has grown four times Beer consumption in Russia L/per capita 1991199219931994199519961997199819992000200120022003200420052006 21181716 1519243036434751576067 Today Russian beer market strives for the 3rd position in the world

3. * Interviewees are limited to 16+ age group only Per capita beer consumption 2006 (L) Source: Plato Logic Ltd., Market Intelligence analysis

4. Market consolidation process is coming to a conclusion 20002006Market Shares Source: Breweries data, Business Analytica, Baltika estimation Top 5 Intern. Brewers: 2000 2006 52%84%

5. Food industry as a part of industrial production of the Russian Federation Brewing industry is one of 10 largest industries of the Russian Federation Having 14,4 mln industrial employees on average annual, there are 60 000 people working in brewing industry Related industries employ 600 000 people Total production of the Russian Federation includes ~3% of brewing industry In 2004 total food production included ~30% of brewing industry

6. Source: Euromonitor, Canadean Social environment: alcohol consumption structure has been changing Russia Drinks in Pure Alcohol Equivalent, share of throat Share of Pocket (value, %) Source: Business Analytica (est.)

7. The Union of Russian Brewers was established in 1999 42 brewing companies producing 90% of domestic beer The main task is to provide social, legal and economical environment for brewing industry development Brewing is a socially responsible industry The Code of Honor of Russian Brewers approved in November 2003 is based on the principles of consumer respect and fair competition and complies with requirements of the Russian legislation. 74 brewing companies have already joined the Code (including non-members)

8. Government relations: main achievements No import duties on brewing equipment having no analogues produced in Russia Union initiative has turned into the federal law prohibiting beer sales to minors No trade barriers on Russian beer imported in several CIS countries (e.g. Byelorussia) Rejection of draft laws aiming to cause legal restrictions for beer production and sales But we still have beer excise tax growing faster than spirits’ and lots of legal restrictions for beer advertising

9. In Russia excise on beer has been mounting Excise on spirits (RUR for 1L of spirits 40 abv) Source: Federal Tax Service Excise on beer (RUR for 1L of beer) RUR per 1 L Y-to-y growth, % RUR per 1 L Y-to-y growth, %

10. Tax-and-price index. Beer and vodka in 2006. Today price relation: bottle of vodka / bottle of beer is 1:6. In the USSR the relation was 1:12. Source: AC Nielsen 16,5 RUB/0,5l 97.5 RUB/0,5l USSR 2006 Mid-market cost: 1:121:6

11. Source: Goskomstat Tax rates for excisable goods (RUB) 20002001200220032004200520062007200820092010 Beer (0,5-0,8,6%) 0,911,121,41,551,751,912,072,742,923,09 Vodka (Ethyl alcohol volume ratio > 25%) 8488,298,78114135146159162173,5185196 Beer Vodka

12. Retail sales and public beer consumption restrictions Drinking beer in public places is a subject of public discontent and political speculations Today drinking beer is prohibited: – for minors (under 18) – in all public places – for everybody – in educational, medical, sports institutions and public transport On the 23rd May 2007 the State Duma adopted in 1st reading the amendments which ban drinking beer in public places (except HoReCa) for everybody Due to underdevelopment of on-trade sector in Russia these initiatives may have negative impact on consumption structure

13. Beer advertising restrictions Federal Law “On advertising”, amended in 2004, introduced beer advertising restrictions : – No TV and radio commercials during daytime – No outdoor advertising in sports, cultural and medical institutions and closer than 100 meters thereto Some of the restrictions have no analogues in world practice and are not applied in strong alcohol advertising: – No images of people and animals allowed in all kinds of advertising (including cartoons and computer graphics images)

14. Beer advertising restriction banned sports sponsorship Current restrictions on beer advertising interfere with intents of Russian authorities to host major international sport competitions sponsored by brewing companies: – World football championship (FIFA) – UEFA Champions League – Olympic Games Even under the ban of sports sponsorship Russian brewers continue to support youth and amateur sports as charitable projects

15. Beer sales for minors and drinking prevention campaign Main objective: To prevent sales of beer to minors (under 18 years old) Key element: A special sign created by the Union, warning that beer cannot be sold to minors In 2006-2007 members of the Union distributed over 1 mln stickers with logo nationwide. The sign is also placed in TV and outdoor advertising 18+ campaign is voluntary. The warning sign is not required by the Russian legislation

16. Future actions of the Beer Union 1. Brewing industry has been socially responsible business, thus becoming an integral part of Russian economics development process 2. As a self-regulating industry, it stands for avoiding beer consumption among under-age youngsters 3. Brewing industry shares concern of the government related to alcohol issues, thus seeking for constructive dialogue with the relevant bodies for a better effectiveness of mutual actions.

17. Q & A