B a Ltik a Br E W E R Ie S Ann U a L R E Por T

Baltika Breweries Annual Report CONTENTS 2 LETTER FROM THE PRESIDENT

4 ABOUT THE COMPANY

5 COMPANY'S PHILOSOPHY

6 MAIN EVENTS OF 2009

8 BRAND PORTFOLIO

14 BEER MARKET. THE COMPANY’S POSITION

20 FINANCIAL POSITION

24 KEY PROJECTS

30 CORPORATE SOCIAL RESPONSIBILITY

38 CORPORATE GOVERNANCE

46 RISK MANAGEMENT

48 SECURITIES

52 CONSOLIDATED FINANCIAL STATEMENTS

82 INTERESTED PARTY TRANSACTIONS

89 INFORMATION FOR SHAREHOLDERS AND INVESTORS

90 CONTACT INFORMATION LETTER FROM THE PRESIDENT

2 Annual Report 2009 Baltika has continued to expand into foreign markets: licensed Baltika beer production has started up in Australia, shipments began to Le- banon, Vietnam, Chile and Guinea and Baltika № 7 beer is now sold in Great Britain and Norway. Baltika continues to be Russia’s leading beer exporter: the Company’s products can now be found in more than sixty countries. During the past year, Baltika has maintained its market leading position as Europe’s largest selling brand (in terms of volume) and also has become Russia’s highest selling consumer brand.

In 2009, the integration of Baltika into the Carlsberg Group continued. Baltika and Derbes Brewery began the merger of their operations in marketing, distribution and sales. Production of Baltika brands was also launched in Kazakhstan.

I am sure that in the future the market will stabilize and restart its growth. This will depend on both general economic factors, and also on legislative regulation of the industry.

We looked on 2009 as a ‘year of opportunities’ – believing that unfavorable external factors would give us the impetus to search for new growth opportunities: we were not mistaken. Thanks to the general situation on Dear Shareholders, the beer market, we focused on implementing excellence programs aimed at improving the effectiveness of operational processes. Together 2009 was a challenging year for the with contingency measures and the efforts of all Company employees Company and for the brewing indus- Baltika achieved strong performance. try as a whole. Despite the crisis and 2010 also promises to be a challenge, primarily due to a tripling of the negative legislative tendencies, we beer excise and a number of legislative initiatives to limit beer sales managed to complete another suc- and advertising. However, we would point out that Baltika, as a mar- cessful year. Notwithstanding a dif- ket leader, is fit to face any challenge. Baltika has balanced production ficult economic situation, lower sales capacities, a strong distribution system, a powerful professional team volumes, increased competitor activity and experience in beer production and promotion, as well as significant and a drop in consumers’ purchasing potential to develop related beverage categories. power, Baltika was able to increase its market share and improve its financial We are prepared for variety of development scenarios and we are con- results due to a balanced brand port- vinced that due to our flexible strategy and strong management team, folio, innovations and the continued we will be able to successfully overcome any difficulties – as we have development of sales and distribu- done throughout our 20-year history. tion channels. At the same time, we strengthened our leadership across all I would like to express my sincerest gratitude to the Company’s employ- price segments, maintaining high qual- ees for their hard work and diligence, for their readiness to act quickly, ity production and consumer loyalty. proactively and boldly, and for their contribution to Baltika results.

During the past year, we finished implementing large-scale investment projects, including increasing the capacity of the Yaroslavl malting house, and completing modernization of the Baltika-Baku Brewery. These investments will help the Company to decrease its exposure to fluctuations in malt prices and to continue to develop its sales abroad.

Anton Artemiev President, Baltika Breweries Senior Vice President Eastern Europe, Carlsberg Breweries A/S

Baltika Breweries 3 ABOUT THE COMPANY

BALTIKA BREWERIES Currently, Baltika is the largest consumer goods Baltika Breweries was founded in St. Peters- production company in Russia and Eastern burg in 1990. Modern equipment and the use of Europe. The Company has breweries in 10 Rus- advanced technologies allowed for the highest sian cities: St. Petersburg, Yaroslavl, Tula, Voro- quality production, which made Baltika the leader nezh, Rostov-on-Don, Samara, Chelyabinsk, in the Russian beer market in 1996. The Company Novosibirsk, Krasnoyarsk and Khabarovsk. In retains its market-leading status today. 2008, the Company acquired a brewery in Azerba- During its almost 20 year history, Baltika has ijan. The total production capacity of its brewer- demonstrated dynamic development – acquir- ies is 52 million decaliters of beer per month. To ing plants, introducing new production capacities meet its own malt needs, the Company has built and actively broadening its distribution network two malt-houses in Tula and Yaroslavl and is also both domestically and internationally. At the end developing agricultural projects in eight Russian of 2006, Baltika merged with three other Russian regions. brewing companies – Vena, Pikra and Yarpivo. A diverse portfolio of brands allows the Company In April 2008, Baltika joined the international to meet the most exacting consumers’ tastes. In Carlsberg Group, which now holds 88.86% of the addition to the key Baltika brand, the Company Company’s charter capital. portfolio also includes around 40 beer, low-alcoholic and non-alcoholic brands on the national and regional levels, including: Arsenalnoye, Nevskoye, Yarpivo, Tuborg, Carlsberg, Kronenbourg 1664, and Asahi. The Baltika brand stands in first place in terms of European sales (according to data from Canadean and Euromonitor agencies) and is also one of the three most expensive Russian brands. Different sorts of Baltika brand beer are produced under license in Australia, Great Britain, Uzbekistan and Ukraine.

Baltika has a broad distribution network. The Company’s products can be purchased in 98% of Russia’s points of sale. 2010 marks Baltika’s 20th anniversary.

BALTIKA IN 2009

Russian beer market leader, with a market share of more than 40%; Sales volume – 42.7 million hectoliters; Revenue – RUB 93,648.7 million; Operating profit – RUB 29,617.5 million; Operating margin – 31.6%; Over 11,000 employees.

4 Annual Report 2009 COMPANY’S PHILOSOPHY

MISSION OBJECTIVES We create high quality products and develop a To help the Baltika brand achieve a leading position globally. culture of beer consumption to bring people joy and pleasure while socializing. To increase Baltika’s share of the Russian beer market, while maintaining high profitability and high quality products.

VISION What will contribute to achieving these objectives: We want to become a benchmark in the brewing A focus on creating powerful brands, premiumisation and innovation. industry – a model company that sets standards Leadership in all market segments, regions and sales channels. for breweries worldwide. For us, being a model company means being a Maintaining high quality products and a high level of service. leader. Constant development of our employees’ competencies and profes- sionalism. Increasing business processes efficiency, along with operational PRINCIPLES UNDER WHICH excellence. WE OPERATE Our customers and consumers are at the heart Searching for additional sources of profit growth via: of every decision we make. — Widening sales geography; Together we are stronger. — Developing related directions. We are each empowered to make a difference. We want to win. We are engaged with society.

Baltika Breweries 5 MAIN EVENTS OF 2009

FEBRUARY

13 The Company launched production of Tuborg Lemon and Tuborg Black. This is the first double launch in Baltika’s history and it is a non-standard marketing solution that allowed the Company to create a unique joint promotion strategy for the two different sorts. 19 The Company announced financial results for FY 2008. 24 The first import brand – Corona Extra – appeared in the Company’s portfolio. Due to the agreement with Grupo Modelo (Mexico), Baltika became the exclusive distributor of Corona Extra beer on the territory of Russia, Belarus, Kyrgyzstan, Turkmenistan, Tadzhikistan, and Uzbekistan.

MARCH

12 Baltika began supplying Baltika № 7 Export and Baltika № 9 Extra to Lebanon. Baltika is the only Russian beer available in this country’s market. 17 Baltika sent its first shipment of Baltika № 7 Export to Vietnam. 25 Baltika’s Vice President, HR & Corporate Affairs, Daniil Briman, was appointed Chairman of the Council of the Union of Russian Brewers.

APRIL

02 The Company’s Annual General Shareholders Meeting was held. 08 At the Monde Selection-2009 international contest four Baltika varieties received awards. 21 Baltika started production of Khlebny Kray kvass – a product in the ‘Refreshment drinks’ category wich is a new direction for the Company. Kvass became the first non-alcoholic drink in Baltika’s portfolio to be sold throughout Russia. 23 At the international contest, the iTQi Superior Taste Award, Baltika’s products received 5 awards.

MAY

20 Following modernization, a grand reopening was held at the Baltika-Baku brewery in Azerbaijan. 29 During Brandbuilding 2009, an annual event, results of the ‘Absolute brand’ contest were announced. Baltika received a prestigious professional award for its success and skills in the development and promotion of the Baltika brand.

JUNE

12 The Company began licensed production of the Baltika № 3 Classic in Australia. This is the only Russian beer that is produced under license in Australia.

18 In Yaroslavl, a ceremony was held to mark the opening of the second expansion of the malt-house – with a capacity of 105,000 tons of malt per annum.

JULY

03 Baltika started the producing its new federal brand Zatecky Gus (Zatecky Goose). This beer is brewed using an original recipe with the use of the famous Czech Saaz hop. 20 Baltika began exporting beer from the Company’s first foreign production site – Baltika-Baku brewery. 30 At the international World Beer Awards contest Baltika № 6 Porter received the title ‘World’s Best Stout/Porter.’

6 Annual Report 2009 AUGUST

10 Baltika began exporting Baltika № 7 Export to Norway. 27 Baltika № 7 Export beer was recognized as the best European lager at the BrewNZ Beer Awards international contest.

SEPTEMBER

09 At the International Beer Challenge contest, four Baltika products received awards: Baltika № 4 Original received a golden award; Baltika № 7 Export was given a silver award and Baltika № 6 Porter and Baltika № 8 Wheat received bronze awards.

OCTOBER

02 Baltika’s achievements in the area of personnel training and development were recognized with two awards – in St. Petersburg, Baltika’s project ‘The school of internal coaches’ was recognized as the ‘Best HR project,’ in Moscow it received a professional award in corporate training field at Trainings INDEX’09. 23 Ekaterina Azimina, Baltika’s Vice President, Finance and Economics, was named the winner of the national award ‘Financial director-2009’ in the category ‘Best financial management for a large business.’ 27 Baltika began supplying Chile with beer.

NOVEMBER

11 At the Russian awards ceremony, ‘Consumer good of the year,’ for the eleventh consecutive year, Baltika № 3 Classic was recognized as the ‘Best national brand’ in the ‘Beer’ category. In the ‘Licensed beer’ category, the Tuborg brand was named the winner. 18 At the international European Beer Star Awards contest, two products from the ‘Baltika Select’ series – Baltika № 4 Original and Baltika № 6 Porter – received awards. 23 Baltika began deliveries of beer to Malaysia. 26 The Company sent its first shipment of Baltika № 9 Extra and Baltika № 7 Export to Guinea.

DECEMBER

02 At an Extraordinary Shareholders Meeting, shareholders voted to carry out licensed production of Baltika brands at Derbes Brewery Ltd facilities (Kazakhstan). 02 The first shipment of Baltika beer, made up of six brands, was sent to Panama. 21 According to an expert evaluation performed by Forbes magazine, Baltika was recognized as 2009’s top- selling brand, among all Russian consumer goods brands created in Russia or specifically for the domestic market. 25 Baltika began producing the new brand Eve, which is focused on women audience. 28 A decision was adopted to reorganize Baltika-Almaty LLC – resulting in its joining Derbes Brewery Ltd. 31 A 20-year license agreement for production of Baltika’s brands in Kazakstan was signed with Derbes Brewery Ltd.

Baltika Breweries 7 BRAND PORTFOLIO

8 Annual Report 2009 During 2009, the Company continued to actively develop its brand portfolio, which was supplemented by a broad range of novelties. This allowed Baltika to not only maintain and strengthen its leadership across all price segments, but also to occupy new market niches.

At the start of the reported period, the first imported brand entered the Baltika portfolio: the famous Mexican beer Corona Extra, which is one of the five most sold brands worldwide. In February, the Company carried out the unique double launch of Tuborg Lemon and Tuborg Black, which strengthened the premium image of the Tuborg brand. Successful brand development of Kronenbourg 1664 was promoted by two exclusive art series ‘Spirit of Paris on Kronenbourg 1664 cans.’

In a rating of Russian FMCG goods pro- At the end of December, the Company’s assortment was supplemented duced in Russia or specially for the Rus- by the introduction of Eve, a new super-premium brand, focused exclu- sian market, Forbes magazine named sively on a female target audience. It is an all natural refreshment drink Baltika the most popular brand. Arsenal- with a light sparkling taste and low alcohol content. Two Eve flavours – noye, Nevskoye, Yarpivo and Bolshaya featuring grapefruit and passion fruit juice – are produced under a Kruzhka were included in the Top-50 license from the Carlsberg Group. trademarks. In the premium segment, the main novelty of the year was Baltika Cooler Lime beer, which reflects trends in the global market. This beer represents a combination of light refreshing beer and tropical lime tastes. This is not the only change in the Baltika brand line-up: in the spring, Baltika № 4 Original joined the elite ‘Baltika Select’ series.

Baltika Breweries 9 BRAND PORTFOLIO

Baltika Breweries has a unique brand portfolio that is the strongest on the Russian beer market and includes around 40 beer, low alcohol and non-alcoholic brands on both the national and regional level, which satisfies varied consumer demand.

Baltika beer brand portfolio by price segments

10 Annual Report 2009 At the end of June, the Nevskoye brand line-up was supplemented by a new beer Nevskoye Zhivoye, brewed specially for St. Petersburg residents. This beer is not pasteurized and non- filtered.

The mainstream portfolio was broadened by the A key 2009 project was the launch of the first federal introduction of the new Zatecky Gus brand. This non-alcoholic product in the Company’s portfolio – the beer is brewed using an original recipe with fla- Khlebny Kray (Granary Land) kvass. With enormous vored Czech Saaz type hop. brewing experience and expertise, Baltika was able to offer its consumers an absolutely natural kvass, brewed directly from malt using a traditional technology. Khlebny Kray has a rich flavor and the classic refreshing taste of a true Russian kvass*.

*Kvass is a traditional Russian non-alcoholic drink, very popular among Russians.

Significant attention was also devoted to developing regional lower mainstream brands. During the reported period, brands such as Uralskiy Master Zhivoye, Samara Svetloe and the refreshing DV Ledyanoye, Sibirskiy Bochonok Moroznoye and Don Ledyanoe, prepared based on low-temperature filtration technology, were added to the portfolio.

Baltika Breweries 11 BRAND PORTFOLIO

AWARDS

Throughout 2009, the Company actively participated in regional, all-Russian and international contests. Both amateurs and professionals evaluated the quality of the Company’s products: during the year, the Company’s beer and non- alcoholic brands received more than 50 awards of various caliber.

In April, at the international Monde Selection (Belgium) contest, medals were awarded to four brands of beer: gold awards were received by Don Classic, Baltika Nine and Nevskoye Classic, silver award – by Uralskiy Master Classic. This year, for the first time, the Company nominated for an international contest the regional brands Don and Uralskiy Master. Recognition at Monde Selection confirmed the Company’s full compliance with international brewing standards.

A month later, the jury at another renowned Euro- pean contest, the iTQi Superior Taste Award (Belgium), awarded the Company’s products five awards in different categories: Baltika № 7 Export, Uralskiy Master Classic, Baltika Nine and Nevskoye Classic received silver medals and Bal- tika № 0 Non-alcoholic was awarded a bronze medal.

In July, at the XI Moscow International Festival of Beer, the first ‘gold’ was awarded to a novelty – the Khlebny Kray kvass. During the ‘People’s Degustation,’ guests rated it as the festival’s ‘Best debut.’ As a result of voting by festival guests, for the ninth consecutive time, Baltika № 3 Classic was awarded the ‘Best People’s Beer’ and Bal- tika № 0 Non-alcoholic was recognized as the ‘Best non-alcoholic beer.’ Tuborg Green was recognized as the ‘Best license beer.’

12 Annual Report 2009 At the end of July, according to results from the In the fall of 2009, results from one of the most prestigious contests in the worldwide degustation contest World Beer Awards brewing industry, the International Beer Challenge (Great Britain), were (Great Britain), Baltika № 6 Porter received the announced. For the first time in the history of this contest, top awards honorary title ‘World’s best Stout/Porter.’ At the were won by Russian brands: Baltika № 4 Original received a gold medal World Beer Awards, beers are evaluated on and Baltika № 7 Export was awarded a silver medal, while Baltika № 6 parameters such as: flavor, taste and aftertaste Porter and Baltika № 8 Wheat received bronze medals. completeness and complexity, balance and char- acter availability. At the ceremony for Russia’s largest consumer good award ‘Consumer good of the year,’ Baltika № 3 Classic was named ‘Best national brand’ During the summer, the Company was the only in the ‘Beer’ category for the 11th consecutive year. In addition, Tuborg Russian brewing industry representative at the received a well-deserved first place in the category ‘Licensed beer.’ BrewNZ Beer Awards (New Zealand) contest. Baltika № 7 Export was recognized as the best Numerous awards recognize the great quality and superb taste of Baltika ‘European lager.’ products, as well as the utmost mastery of the Company’s employees.

In November, for the second consecutive time, Baltika № 4 Original was awarded best ‘Red and amber beer’ at the European Beer Star Awards (Germany), and Baltika № 6 Porter won the ‘Porter’ category. This year competition was particularly fierce: ‘Baltika Select’ brands competed against 836 other beers from 35 different countries.

Baltika Breweries 13 BEER MARKET. THE COMPANY’S POSITION

14 Annual Report 2009 THE RUSSIAN BEER MARKET

According to the Company’s internal estimates, in 2009, the Russian beer market totaled 98 million hectoliters. Domestic beer consumption dropped compared with 2008 and stood at 69 liters per person.

Russian beer market development dynamics (w/o cocktails)

Year 2005 2006 2007 2008 2009

Beer market (million hectoliters) 86.3 94.9 109.7 109.3 98.0 Beer market growth (%) 6.0 10.0 15.7 -0.4 -10.3

Source: Company estimates

Russian beer consumption dynamics per person, liters 90 During the last 10 years, the Russian 80 beer market has demonstrated sta- 70 77 77 69 ble development dynamics. Its annual 60 67 growth rates have exceeded those in 60 50 more developed European markets. 40 However, due to the effect of the global crisis, the Russian beer market in 30 2009 experienced a 10.3% drop com- 20 pared with 2008. This was a result of 10 the fact that the world economic crisis 0 2005 2006 2007 2008 2009 had a much more negative impact on Eastern Europe and Russia than it did Source: Company estimates on other regions. The crisis resulted in lower income for the population and a For large market players, a challenging situation tests a compa- drop in purchasing power, particularly ny’s strengths, but on the other hand, it also offers an opportunity to during the second half of 2009 against strengthen existing market positions. the background of consumers’ savings In the Russian beer market all major international brewers are presented. growth. This led to lower demand for The members of international groups: Baltika, SUN InBev, Heineken, nearly all categories of food products Efes and SABMiller – hold over 80% share of the market. and beverages – and beer was not an exception. Another specific factor which negatively affected the beer market was negative weather condi- Leading producers share of the Russian beer market tions during summer and the fourth 2008 2009 quarter of 2009. 38.8% 40.6% 13.1% 13.6% 6.5% 6.2% 8.8% 9.5%

Baltika SUN InBev Heineken Efes 13.8% 13.2% SABMiller 19.0% 16.9% Others

Source: Business Analytica

Baltika Breweries 15 BEER MARKET. THE COMPANY’S POSITION

The general fall off in purchasing capacity and lower personal dispos- and packages and the trend for consumers to able income influenced the overall structure of consumption. Consumer switch from making purchases at low-size selling cost-saving primarily resulted in less frequent and lower volume pur- points to buying through cheaper sales channels chases, and to some degree, a switch toward more economic brands (large discounters and supermarkets).

The structure of the beer market and Baltika’s beer portfolio based on price segments, in natural terms

% Beer market Baltika 100 11% 10% 10% 9% 90

80 23% 23% 26% 25% 70

60 18% 18% 26% 50 25%

30 Super-premium 48% 49% Premium 20 39% 40% Mainstream 10 Lower mainstream and Discount

0 2008 2009 2008 2009 Source: Business Analytica

THE COMPANY’S POSITION IN RUSSIA

In unstable economic conditions and a declining market, the Company volume, in natural terms, was 42.7 million hectolit- strengthened its positions: Baltika’s market share increased 1.8%, from ers, including 41.7 million hectoliters of beer. 38.8% in 2008 to 40.6% in 2009. The Company’s total sales dropped 5.7%, whereas Russian beer sales fell 6.4%. The Company’s 2009 sales

Dynamics of the Company’s market share in Russia

40 40.6% 38.3% 38.8% 35 36.1% Baltika’s share of the 30 Russian market increased 1.8%

20 2006 2007 2008 2009

Source: Business Analytica

16 Annual Report 2009 During the reporting year, the Company strength- Regional brands demonstrated strong dynamics: despite the overall ened its absolute leadership across all price seg- market decline, sales of the brands DV (+23%), Don (+13%) and Samara ments of the market. These results were achieved (+10%), supported by innovations (the so called ‘live’ and ‘ice’ types of by demonstrating flexibility and successfully im- beer), showed double digit growth. Baltika № 3 Classic – the leader of plementing the Company’s development strategy, the mainstream segment – again displayed its strength and potential, in crisis conditions, via brand portfolio innova- demonstrating higher sales against an overall backdrop of lower con- tion and maintaining consumer loyalty for Baltika sumption. The new sort in the Baltika brand’s line-up Cooler Lime also brands (despite an overall consumption decline). positively affected brand development. In the end of the year Baltika, The Company’s well-deserved reputation as a re- developing a new prospective segment of drinks oriented at female liable and stable partner allows Baltika to keep at- audience, launched a brand Eve. As part of its strategy of developing tractiveness to clients and distributors. non-beer products, during the past year, Baltika entered the kvass category with the Khlebny Kray brand and by the end of 2009, the Company already held third place in the kvass market.

Beer market growth dynamics and the Company’s beer sales in Russia

% 19% 20 16% 15 12% 11% 10% 10 6% 5 1% 0 0% -5

-6% The Company’s beer -10 sales dynamics -10% -15 Beer market dynamics 20052006 2007 2008 2009

Sources: Rosstat and Company estimates

Baltika Breweries 17 BEER MARKET. THE COMPANY’S POSITION

THE WORLD BEER MARKET

In 2009, growth rates for the global beer market slowed down, which national research company), in 2009, world beer was largely due to the ongoing economic crisis, which influenced con- sales increased 1.1% and reached 184 billion lit- sumer activity dynamics. However, according to Euromonitor (an inter- ers of volume.

Dynamics of the global beer market, billion liters

200 180 182 184 178 160 169 159 140 120 100 In 2009, growth 80 rates on the global beer 60 market slowed 40 down. 20 0 2005 2006 2007 2008 2009F

Source: Euromonitor

Russia remains one of the world’s largest beer markets based on consumption volumes. According to estimates by the international research company Canadean, Russia is the fourth largest beer market in the world, after China, the United States and Brazil.

2009 leading countries based on beer market volume (forecast), million hectoliters

450 409 400

350

300 Russia is the 250 241 world’s fourth largest beer 200 consuming 150 country, 108 98 100 90 based on beer 65 62 consumption 52 37 36 50 volume. 0

USA Brazil China Russia Mexico Japan Spain Poland Germany Great Britain

Sources: Canadean and Baltika

18 Annual Report 2009 Leading international beer market players

Anheuser-Busch InBev NV 20% Four companies SABMiller Plc 10% account for more than 40% Heineken NV 7% of the world beer market. Carlsberg Group 6%

Others 58%

Source: Euromonitor

BALTIKA IN THE WORLD

The slowing down of global beer market growth In 2009, Baltika successfully implemented a number of key projects on impacted Baltika’s plans for sales abroad. As a the international market: in May, following large-scale modernization, the result of this, in 2009, the volume of the Com- Company started up the Baltika-Baku Brewery in Azerbaijan; in June, pany’s export sales totaled 1.8 million hectolit- production of Baltika № 3 Classic, under a licensing agreement, was ers; and taking into account licensed production launched in Melbourne, Australia; in December 2009, Company share- abroad, the total volume of the Company’s sales holders agreed to a licensing agreement to produce various Baltika and abroad exceeded 2.7 million hectoliters. Thus, Nevskoye brands at the Derbes Brewery facilities in the Republic of Baltika brands’ sales abroad (including Baltika- Kazakhstan. More detailed information on these events can be found in Baku) in 2009 decreased 5% compared with the ‘Key projects’ section of the annual report. 2008. The Baltika brand was responsible for more than 65% of the 2009 total sales volume abroad. In 2009 Baltika continued its sales expansion and entered the new markets of: Norway, Lebanon, Guinea, Guinea-Bissau, Uganda, Chile, Pan- ama, Vietnam and Malaysia. Today, Baltika products are sold in more than 60 countries; and Baltika exports account for 70% of all exported Russian beer.

Baltika Breweries 19 FINANCIAL POSITION

20 Annual Report 2009 FINANCIAL POSITION

Indicators 2009 2008 Change 2009/2008

Sales, million hectoliters 42.7 45.3 -5.7%

Including sales in Russia, million hectoliters 39.6 42.3 -6.4%

Revenue, million RUB 93,648.7 92,482.3 +1.3%

Cost of sales, million RUB -42,394.9 -47,599.5 -10.9%

Gross profit, million RUB 51,253.8 44,882.8 +14.2%

Distribution expenses, million RUB -19,150.1 -20,132.5 -4.9%

Administrative expenses, million RUB -2,528.7 -2,602.2 -2.8%

Other income/ expenses, million RUB 42.5 125.9 -66.2%

Operating profit, million RUB 29,617.5 22,273.9 +31.0%

Profit for the year, million RUB 23,372.3 15,508.2 +50.7%

Operating margin, % 31.6 24.1 +7.5p.p.

Gross margin, % 54.7 48.5 +6.2p.p.

Return on assets (ROA), % 37.2 29.7 +7.5p.p.

Return on equity (ROE), % 46.5 41.0 +5.5p.p.

Return on capital employed (ROCE), % 50.8 38.1 +12.7p.p.

Earnings per share, RUB 147.14 97.99 +50.2%

The Company’s 2009 sales volume dropped 5.7%. However, year-on- year, revenue from sales increased 1.3% from 2008 and totaled 93,648.7 million rubles. Under conditions of decreased con- In 2009, the Company’s operating profit substantially increased (+31%) sumer demand and a significant compared to 2008 and reached 29,617.5 million rubles. decline in the beer market, Baltika’s business was relatively resistant to These significant results were achieved due to brand portfolio optimiza- unfavorable external environmental tion work and effective investment in the development of sales channels conditions. The Company managed to and key regions. contain the drop in sales volume and demonstrated good financial results In 2009, the Company maintained the net average price increase (6.8%) in 2009, due to active brand portfolio on beer in line with the inflation rate in this category. Due to a three-fold optimization work, sales and distribu- increase in the excise tax on beer effective as of January 2010, there tion development and proactive cost may be multi-directional dynamics affecting gross and net prices for cutting measures. various brewers. However, as in previous years, Baltika plans to use a weighted approach to pricing.

Baltika Breweries 21 FINANCIAL POSITION

A key factor contributing to increased profitability was the anticipatory cost reduction in operating costs.

In addition to favorable circumstances in the raw materials market and lower purchase prices, caused by economic conditions, the Company implemented various projects to upgrade operational effectiveness. Among the most important cost-cutting projects were the Company’s agricultural project to grow malting barley and projects to up-grade its own malting houses, which would dilute the Company’s dependence on suppliers. Concluding long-term agreements with suppliers, decreasing purchase volumes (the prices of which are tied to foreign currency) and outsourcing a number of functions had a significant positive impact on cutting expenses.

As a result, 2009 expenses on producing goods decreased 5.5% per unit year-on-year. Produc- tion costs declined 10.9% compared with 2008. Net operating margin increased 7.5p.p. compared with the previous year and reached 31.6%.

The Company’s logistics have had an additional positive effect on corporate cost reduction. Per liter costs for warehousing and product transportation were 10% lower in 2009 than in 2008. These results can be attributed to the Company’s efforts to build the most effective supply chain in the industry. Factors which explained lower logistics costs include: delivery route optimization, the usage of own transport; decreased average delivery distance as a result of cross-production and supply chain optimization; warehouse capacity optimization and controlling services providers’ prices.

22 Annual Report 2009 In 2009, the Company invested significant During 2009, the return on assets (ROA) increased and reached 37.2%. resources in promoting its products. Compared This increase was primarily due to upgraded efficiency and a decrease with 2008, promotional expenses decreased to in overall investment volume. The return on equity (ROE) ratio increased a lesser extent compared to other expenses. A 5.5p.p. and totaled 46.5%. Profit per share increased 50.2% and totaled significant restructuring of commercial expenses 147.14 rubles per share for 2009. occurred during the reporting year, which allowed for the best investment to be achieved. In 2009, the Company carried out an extensive work to upgrade the effectiveness of managing working capital. Due to the successful reali- In 2009, administrative expenses decreased zation of numerous projects, without impact on the efficiency of the sup- 2.8%. As with other directions, this improvement ply chain, inventory levels dropped and the turnover period for accounts was achieved through increased effectiveness, payable increased. Inventory optimization was conducted for all catego- scale and the wider use of external service pro- ries of items – finished goods, raw materials and unfinished goods. The viders. Company actively uses factoring schemes for interactions with materials suppliers, gradually increases the quality of demand planning and develops inventory management across the entire distribution chain. Investment Changes in the structure of current assets are also linked with the tem- In 2009, the Company finalized two large porary increase in accounts receivable, as a result of the accumulation investment projects which had begun in 2008: of product inventory in the place of sales to the final consumer, on the increasing malt-house capacity in Yaroslavl eve of the New Year holidays. It is also worth noting the positive trend in (2009 investment reached 609 million rubles) the average turnover level of these assets during the reporting period. and modernizing the Baltika-Baku brewery Year-on-year, Baltika increases the effectiveness of its asset usage, (2009 investment reached USD 13.6 million). which leads to greater profitability and earnings per share, which results Other investment projects included: realizing in higher paid-out dividends. marketing innovations and developing sales and management systems. Overall investment totaled 3.7 billion rubles.

Liquidity and effectiveness During 2009, due to higher net revenues, significantly lower operating costs and optimized working capital, the Company accumulated a significant net cash flow – 30.4 billion rubles – which was primarily spent on repaying loans and credits and paying out dividends. In 2009, the Company directed more than 7.5 billion rubles to repay earlier received loans and credits, as well as paying out dividends in the amount of 14 billion rubles. Free cash flow was used to make short-term investments on the money market.

In 2009, the Company was able to maintain and increase its rate of return on capital employed (ROCE). As of the end of 2009, this indicator stood at 50.8%.

Baltika Breweries 23 KEY PROJECTS

24 Annual Report 2009 Completing modernization of the Baltika-Baku brewery By 2009, the Company had carried out large-scale reconstruction of the Baltika-Baku – a brewery, which has a 40 year history. A high tech PET line was installed at the brewery, in addition, the filling line for glass bottle, the cooking order and the fermentation and filtration rooms were mod- ernized. A ceremonial opening of the brewery was held May 20th, 2009.

All equipment installed at the Baltika-Baku brewery was manufactured by leading producers and conforms to international standards and Bal- tika’s requirements regarding beer production. Post-modernization, the brewery’s production capacity reached 1 million decaliters per month. New equipment, coupled with the introduction of advanced brewing technologies, allowed for higher quality local brands Xirdalan, Afsana, Bizim and 33 Export to be produced, as well as the production launch of Baltika and Arsenalnoye brands.

Baltika-Baku’s upgraded production capacity allows not only for the sat- isfaction of increasing internal demand for high quality beer, but also for production export to neighboring regions.

Brewery modernization was one of the largest investment projects in the food sector in the Republic of Azerbaijan in recent years. Doubling malt-house capacity in Yaroslavl Baltika № 3 production in Australia th On June 18 , 2009, in Yaroslavl, the In June 2009, licensed production of Baltika № 3 Classic beer (in 0.33 Company held a ceremonial opening liter bottles) started at the Independent Distillers Company in Mel- of stage two of the malting plant – with bourne, Australia. The beer has been positioned in Australia’s growing a capacity of 105,000 tons of malt per international premium beer segment and is sold in all Australian large annum. Doubling capacity of the Yaro- retail chains. slavl malt-house is an important stage of Baltika’s investment policy, aimed Baltika beer has been present in the Australian market since 2004 and at decreasing production costs while it is the only Russian beer in Australia. Among different types of Baltika maintaining high quality production. The products, the most popular one – both among the Russian population decision to double malt-house capacity and with local Australians – is Baltika № 3 Classic. This was the reason in Yaroslavl was made largely due to the why the Company adopted a decision to produce this type of beer under Company’s successful launch of its own license in Australia, which significantly cut logistics costs and satisfied agricultural project in Russia’s Central higher demand for Baltika № 3 Classic beer in Australia. Federal Region. Licensed production in Kazakhstan On December 2nd, 2009, Baltika Breweries’ shareholders voted to con- clude an agreement on the licensed production of Company brands at Derbes Brewery LLC capacities in Kazakhstan.

Derbes Brewery is part of the Carlsberg Group and is one of the leaders in the Kazakhstan beer market. The Brewery’s production capacity is approximately 2.2 million hectoliters per annum. Derbes utilizes modern high tech production methods that correspond to international standards. The product range includes brands such as: Derbes, Irbis, Alma- Ata and Tuborg.

Baltika Breweries 25 KEY PROJECTS

According to the license agreement signed December 31st, 2009, Baltika granted the exclusive right for the usage of trademarks, as well as the know-how for the production, sales and distribution of licensed products, for the Baltika and Nevskoye brands on the territory of the Republic of Kazakhstan. The agreement is valid until the end of 2029.

In 2009, preparations were started for licensed production. These included: integrating Baltika’s and Derbes’ operating processes in the field of marketing, distribution and sales, conducting an audit of the Company’s production capacities, test brewing beer and evaluating the quality of produced beer through consumers taste- testing.

Agricultural project development Baltika continues to develop its own agricultural project to grow brewing barley. This project allows the Company to restrain price growth for produced goods and decrease dependence on market malt prices. In 2009, the average expenses for barley grown within the project decreased 23% compared with 2008.

Baltika’s partners in its agricultural project are agro-industrial businesses, which have a solid production base, modern equipment, grain- dry- ing capabilities and necessary storage conditions. The Company has strict requirements toward the barley it is supplied. Baltika specialists control barley production technology across all stages, which ensure the Company receives the highest quality ingredients. Within this agricultural project, Baltika offers its partner businesses elite- type grains as trade credit.

26 Annual Report 2009 According to data from the Institute of General Excellence programs Genetics named after N. I. Vavilov of the Russian The Company implements programs aimed at upgrading operational Academy of Science, barley’s average cleanli- effectiveness and maintaining high business profitability. Excellence pro- ness (eliteness and the quality of types) in Russia grams have been introduced in areas, including: sales, logistics, pro- is 75%; only Baltika has the ability to reach 98% duction and purchasing. In addition to this, the Company has continued cleanliness within the framework of its agricul- to actively work on the ‘Lean Production’ project. tural project. The Company actively cooperates with agricultural producers in Tula, Voronezh, ‘Lean Production’ involves the systematic usage of principles, methods Lipetsk, Kursk, Penza, Ryazan, Tambov, Chelay- and instruments to increase effectiveness, based on a voluntary sus- binsk, Orel and other Russian regions. In 2009, tainable enhancement culture. Its primary goal is to minimize all types the Company signed 65 agreements to purchase of losses. In 2009, the Company continued to introduce ‘Lean Produc- grain from agricultural companies in the Russian tion’ at all corporate production sites. Last year, large-scale personnel Central and Privolzhye Federal Regions. Utilized training was conducted in the Company’s branches. The Company cultivation area increased 52% compared with continued to work on other projects: ‘Streamlining,’ ‘Visualization,’ ‘Fast the previous year. realignment,’ ‘Protection from unintentional errors’ and ‘Training leaders,’ among others.

The Company developed the special programs ‘Ideas (Projects)’ and ‘Got an IDEA!’ which are directed at soliciting top-notch suggestions from employees on how to optimize production activity. The best employee suggestions are rewarded.

Baltika Breweries 27 KEY PROJECTS

Sales development In 2009, due to a general fall-off in the Russian beer market, the Com- bled compared with 2008 and represented nearly pany was able to significantly increase the economic efficiency of its one half of all sales in this channel. This strength- Russian trade operations and achieved strong distribution indicators, as ened the Company’s share in the given market well as good results for presence in points of sale. segment and resulted in growth of profitability. The Commercial Excellence (or ComEx) project started by the Company In the area of on-trade beer sales, the Company is focused on improving commercial activity. In its pilot stage, project increased sales activities of PET-packaged beer was implemented in the North-West and Moscow-Center Regions in tra- in specialized beer shops and kiosks. These ditional retail channel. stores and kiosks have recently demonstrated fast growth. In these segments, almost all key Bal- Active work was carried out in many directions – including improving tika brands are represented. As a result, across interactions with distributors and forming a correct product mix based Russia, 2009 draft beer sales increased 6%, and on a point of sale’s specific characteristics. Particular attention was coupled with tared production, there was a 10% paid to trainings for trade representatives that instilled an individualized increase in on-trade compared with 2008. approach to clients and to effectively developing territories. Investment in points of sale was also optimized. In 2009, an important strategic step for the Company’s sales department was to change its In the territories in which the project was launched, the number of vis- approach towards trade marketing functions in its per point of sale for each trade representative increased 5% com- Russia. Its transformation into marketing through pared with 2008. The number of active clients that regularly purchased trade channels, the basis of which is studying con- the Company’s products increased 20%. The quantity of daily orders sumers’ behavior at points of sale, will help apply increased and the share of shelf space went up, as did the average precise solutions in promoting brands through quantity of represented assortment positions. various sales channels. It will also help strengthen Furthermore, in 2009, the Company continued to develop its Retail Key the Company’s success in the market. Account channel (in the format of modern hyper-, super- and mini- mar- kets). The share of Baltika’s own distribution in this channel nearly dou-

28 Annual Report 2009 ‘Reverse Bottle’ project

One of the Company’s priorities is to actively work with returnable bottles. Over the last several years, Baltika branches have implemented a large-scale ‘Reverse Bottle’ project, aimed at increasing the level of returned glassware in production. As a result of this project, during the reporting period, the number of glass bottle buy-back centers which work with Baltika bottles significantly increased.

The use of recycled glass bottles is favorable from both an ecological standpoint and from a business point of view: it cuts production costs and also decreases environmental impact.

‘Master of Planning’ The cross-functional ‘Master of Planning’ system was launched at Baltika in January 2009. This is an automated system to distribute volumes by the Company’s branches based on demand forecast and other factors, including: supply, production, logistics and sales. The system’s primary goal is to optimize company costs, including those connected with raw material purchases, production and finished product transportation along the supply chain. This system allows for high precision operational planning at all of Baltika’s Russian breweries – based on both decade and annual sales forecasts. The Company’s principal expectations related to the launch of the ‘Master of Planning’ project were proven to be correct. All main goals were achieved, including: improving and increasing planning accuracy and economizing along the entire supply chain, taking into account factors such as: production costs, final product delivery costs, limits on warehouse and transport load, inventory volumes, the repetition factor of production batches, product distribution volumes across branches and the definition of optimal delivery routes.

Baltika Breweries 29 CORPORATE SOCIAL RESPONSIBILITY

30 Annual Report 2009 Labor relations

The Company’s market leading position provides it with significant competitive advantages, which help it attract and retain the best specialists. The Company aims to create working conditions that allow its employees to fully realize their potential in an effective manner.

Social partnership The labor relations in the Company are built in accordance with the principles of social partnership.

Since 2007, Baltika has had a Labor Collective Council, which is an organ that represents the interests of all Company employees and provides them with the opportunity to participate in managing social policy. In July 2008, at the Council’s initiative and with the participation of principal labor union organizations, a collective agreement was signed, which recorded social guarantees and privileges, additional to the labor legislation.

The 2nd General Conference of Company employees, which took place in November 2009, summarized the Labor Collective Council’s results over a two-year period and declared its activities satisfactory.

Compensation and benefits system Baltika’s remuneration level is among the highest in the industry. Despite the economic crisis and negative trends in the brewing industry, in 2009 the Company maintained a social package for its employees, as well as increased employee remuneration 10% on the average.

The corporate social package includes a broad list of various benefits and compensation including: Voluntary medical insurance. Life insurance and insurance against accidents. Free meals in the Company’s canteens or compensation for meals when an employee is travelling on business. Welfare assistance in cases of weddings, childbirth, anniversaries and retirement. Additional payments for sick leave, travel expenses, etc.

On its premises, the Company has eight sports and recreation complexes that have modern fitness centers, saunas and pools. In 2009, The Principle ‘We are engaged with the Company opened new sports and recreation complexes at its society’ forms the groundwork of the Khabarovsk, Krasnoyarsk, Voronezh, Chelyabinsk and Novosibirsk Company’s philosophy. Baltika makes branches. its contributions to social develop- The Company regularly conducts sports competitions for its employees. ment and environmental protection by In 2009, at all corporate branches, Baltika held sports days; corporate developing and introducing business teams also participated in football, mini-football, volley, basketball and practices based on observing corpo- ski tournaments. rate social responsibility principles.

Baltika Breweries 31 CORPORATE SOCIAL RESPONSIBILITY

Training & Development Environmental management Baltika focuses significant attention on developing its employees. This Company’s ecological measures have multiple is underscored by the type of programs that the Company’s HR Depart- components – water protection projects, waste ment creates, the activities of the corporate training center and the pref- management and air protection measures, as erences given to internal candidates when vacancies arise. well as measures connected with rationally using To maintain its personnel development and training system, in 2009, resources. the Company developed the ‘Internal coaches school’ project, which is The Company does not limit its investment to aimed at creating additional development opportunities for employees large-scale ecological programs, such as clean- within the Company and on conducting regular training programs by ing facility construction, or alternative energy attracting and training experts from the Baltika team. Currently, the Com- source usage projects. Baltika conducts events pany has 10 internal programs and more than 50 of its own coaches. for residents of various cities, which allow eve- The ‘Internal coaches school’ has already received two awards: the ryone to contribute to improving environmental Trainings INDEX’09 professional award in the corporate training field in conditions and to making their lives more com- the category ‘An effective solution in the field of training and develop- fortable. For example, during an event in Novosi- ment for business support’ and recognition in the ‘Best HR project’ con- birsk, were liquidated spontaneous damps in the test in the ‘Best anti-crisis project’ category. city parks, in Chelyabinsk, residents cleaned the embankment and a portion of the Miass River, Personnel Performance Appraisal in Krasnoyarsk, a boulevard of 60 elm trees was Baltika has instituted an Annual Performance Appraisal that allows the planted, in Rostov, a litter pick up was held on the Company to develop employees and to improve their personal skills. banks of the Kuban River and in Samara, the Ale- This system allows to design a complex training and development plan kseevskiye Lakes were cleaned. for each employee, prioritizing the business point-of-view, as well as building a correct system of ‘manager-employee’ interaction based on principles of trust and partnership.

32 Annual Report 2009 The ‘Reverse Bottle’ project In 2009, Baltika reused 682 million glass bottles in its production. Multiple usage of recyclable packaging decreases the negative environmental impact of glass production. From year to year, the Company works to increase the number of bottles returned to its breweries.

‘Earth Day’ On March 28, 2009, Baltika employees from St. Petersburg to Khabarovsk supported the ‘Earth Day’ initiative. The aim of this World Wild- life Fund (WWF) project is to draw attention to the global warming and climate change chal- lenges. For this event, for one hour, people from all around the world stop using electricity to decrease atmospheric greenhouse gas emis- sions.

Helio-system in Khabarovsk In February 2009, a sports and recreation complex with a sauna, pool and relaxation zone was opened at the Company’s Khabarovsk branch. In September, the Company finished installing a solar battery system at the site, which optimizes energy consumption. Now, thanks to the imple- mentation of this unique ecological project, the complex can be heated via renewable energy. Using solar energy helps cut energy consumption and also decreases environmental impact.

Baltika Breweries 33 CORPORATE SOCIAL RESPONSIBILITY

Labor protection and industrial safety Consumer relations

Baltika undertakes special measures to control and pre- Production quality is Baltika’s number one prior- vent potential threats to the safety of the Company’s ity. The Company bears responsibility towards employees and the employees of contractor organiza- its consumers and society to ensure quality pro- tions. Workplace safety depends not only on the techni- duction, as well as to observe its safety. The cal level of the breweries, but also on personnel training Company must also ensure that its products are and the observance of safety rules (an area to which the consumed in a responsible manner. Company pays special attention). During the 1990s, Baltika was one of the first Rus- Workplace evaluation sian companies to obtain the international quality In 2009, to fulfill terms of its collective agreement, the certificate ISO 9001. Since that time, the Compa- Company carried out large-scale workplace evalua- ny’s quality management system has been main- tions, which focused on checking that labor conditions tained and regularly upgraded. conformed to established standards. Fourteen param- In 2009, it was confirmed that the Baltika- eters were measured, including: noise, vibration, micro- St. Petersburg Brewery conforms to international climate, light, labor heaviness and intensity. Workplace food safety management standards. The site appraisals will allow the Company to carry out organi- received a certificate of conformity for its brew- zational, technical and health improvement measures, ing production processes for its Hazard Analysis as well as to provide employees with reasonable com- and Critical Control Points management system. pensation and other benefits for working in harmful labor During the certification process, both internal and conditions. external audits were conducted, which checked that product quality and business processes conformed to international requirements. HACCP concept is based on seven basic principles that focus on quality production and consumer health. These principles call for the regular evaluation and management of factors that affect the food safety of production. Currently the development and introduction of this system is ongoing at the Company’s branches.

Participation in social affairs Social and economic partnership: Agricultural project The brewing industry’s contribution to the Rus- sian economy is not limited solely to breweries, but also includes the development of related sec- tors of the economy, such as: agriculture, tare and packaging industry, transportation, retail and public catering enterprises. Over 600,000 Rus- sian jobs exist at companies that are partners of the brewing industry.

34 Annual Report 2009 Baltika contributes to the development of the Within the framework of beer and kvass festivals, exhibits were held that agricultural sector in Russia’s regions. In 2005, displayed beer posters from the Carlsberg Breweries A/S collection. The the Company began to implement its own brew- exhibition included posters from Scandinavian painters from the late XIX ing beer barley project. The principal aim of this to the early XX centuries, demonstrating various styles and directions, project was to cut the cost of malt – one of the which had long crossed advertising boundaries and formed part of the primary ingredients in beer production – without foundation for historical and cultural development. Items in the collection compromising quality. To achieve this result, a illustrated to exhibition attendees the history of the brewing industry and decision was adopted to help Russian agricul- the creation of a beer drinking culture, as well as the development of the tural producers grow high class beer barley, poster as an art form. and thus, to replace imported ingredients with domestic ones. In 2009, the Company participated in beer and kvass festivals in 10 Russian cities: St. Petersburg, Moscow, Yaroslavl, Tula, Sochi, Rostov- Responsible drinking on-Don, Samara, Novosibirsk, Krasnoyarsk and Khabarovsk. The Days of Khabarovsk, Krasnoyarsk, Novosibirsk, Tula and Rostov-on-Don In 2009, the Company participated in more than received corporate support, as did the ‘Anniversary of the Leningrad 60 holiday events across Russia and in a number Region’ in Vyborg. Popular Company brands sponsored large music of cases, was the initiator of these events. Dur- concerts. ing the year, more than 1.5 million people visited these events – which allowed the public to evalu- ate a wide selection of the Company’s beer and non-alcoholic products, listen to a wide variety of music and compete in various contests, as well as to participate in events aimed at developing a responsible beer consumption culture.

Baltika Breweries 35 CORPORATE SOCIAL RESPONSIBILITY

Charity The Company continued to implement the ‘Beer patrol’ social project. For many years, Baltika has been engaged in The aim of this project is to draw public attention to the illegal sale of charitable activities that provide assistance to the beer to minors. Whereas in 2008, public control over conformity with regions in which it is present. In total, during the beer sales regulations, with the participation of Baltika, was organized reporting year, the Company contributed around at festive events – beer festivals and Days of the City, in 2009, checks RUB 126 million to charitable projects and other were also carried out at retail outlets to diminish the number of sales- socially important measures. people violating the law. Overall, 42 raids were carried out in 24 Rus- sian cities, as well as in one foreign city – Alma-Aty, Kazakhstan. ‘Patrol’ In 2009, Baltika continued to finance capital repairs participants visited 890 retail points and uncovered approximately 200 to the regional children’s clinical hospital in Yaro- breaches. slavl; this project is scheduled to be completed by the City’s 1,000th anniversary in 2010. The Com- In addition, during the reporting year, Baltika again participated in the pany also allocated funds to capital repair of the Union of Russian Brewers ‘You are 18? Prove it!’ program, which includes Kinelskaya Central District Hospital in the Samara distributing special informational sticker and informing trade personnel Region. Within the framework of a long-term and buyers of the need to prohibit beer sales to minors. cooperation and partnership project with the Sci- entific Research Institute of Pediatric Orthopedics (named after G. I. Turner) in St. Petersburg, Bal- tika provided financing to create an All-Russian Educational Medical Diagnostic Center on the basis of the institute to assist children affected by locomotor diseases. The Company continued to

36 Annual Report 2009 Substantial funds were directed at restoration and reconstruction work on the Svyato-Troitskiy Izmaylovskiy Cathedral, which is a well-known St. Petersburg architectural monument.

For several years, Baltika has participated in the ‘Duty’ social program – under the patronage of St. Petersburg’s Governor. The Program is aimed at helping veterans of the World War II and survivors of the Lenin- grad Blockade.

The Company continued to provide assistance to sports organizations – the ‘Dinamo’ volleyball club in Khabarovsk, the handball club ‘Rostov-on- Don’ in Rostov-on-Don, the ‘Yenissey’ field hockey club in Krasnoyarsk, the St. Petersburg Ski Racing Federation, the Novosibirsk State Social Fund for Olympic gymnastics, among others.

In 2009, the Company sponsored the premiere staging of the St. Peters- burg Russian Non-repertory Theater (named after A. Mironov) and also provided financial assistance to conduct capital repairs on the ‘Kukly’ Theater for physically challenged children in St. Petersburg. Baltika also provided regular support to the Krasnoyarsk Drama Theater (named after A. S. Pushkin) and the charitable fund named after V. P. Astafiev.

Baltika received an honorary award, the ‘Golden Pelican,’ in the category ‘For the revival of arts patronage traditions.’

Taxes Baltika is one of the largest taxpayers in the cities where its headquarters and branches are located. The timely and full payment of taxes to the budgets of all levels of government is standard practice for a provide support to Children’s Home № 8 and the socially responsible company, which is guided by the principle of strictly Children’s Hospice in St. Petersburg. Baltika also adhering to Russian legislation. acquired and installed a children’s playground for Correctional School № 6 in St. Petersburg’s In 2009, Baltika’s total tax payments to the Russian federal budget Vyborg District. totaled RUB 10.5 billion and taxes paid to regional budgets stood at RUB 17.6 billion. Baltika also provided support to the following medical institutions: the rehabilitation center For many years, Baltika has been one of the largest corporate taxpayers ‘House of Hope on the Mountain’ in the Leningrad to the St. Petersburg budget. Region, a recreational home for children and a trauma department at the Emergency State Hos- pital in Rostov-on-Don, as well as a children’s car- diac sanatorium in Tula and a clinical hospital in Voronezh.

In April 2009, the charitable program to install playgrounds at Tshinval’s kindergartens (which was launched in 2008) was concluded. Eduard Kokoyty, President of the Republic of South Osse- tia, personally thanked Baltika for support.

Baltika Breweries 37 CORPORATE GOVERNANCE

38 Annual Report 2009 Corporate Governance Code observances The Company observes the following provisions of the Corporate Gov- ernance Code concerning:

Holding the General Shareholders Meeting:

Shareholders have the right to introduce items for the General Meet- ing’s agenda, as well as the right to request convening a General Shareholders Meeting without the provision of an extract from the shareholder register; The Company informs shareholders about convening the General Shareholders Meeting not less than 30 days before the date of the Meeting, regardless of agenda items, if the legislation does not fore- see a longer term; The Company’s President, members of the Board of Directors, members of the Internal Audit Committee and the Auditor, as well as candidates for the indicated management and control bodies, are obliged to attend the General Shareholders Meeting; The Provision on the Company’s management and control bodies stipulates the availability of a registration procedure for participants at the General Shareholders Meeting. Baltika adheres to best practice corporate governance standards in full Activities of the Board of Directors, as well as requirements for its accordance with the Corporate Gov- members: ernance Code approved by Russian The Board of Directors is elected through cumulative voting; securities authorities: Members of the Board have the right to receive information about the All shareholders have the oppor- Company that is needed to fulfill their functions. The order for con- tunity to receive effective protec- ducting Board meetings is stipulated in the Provision on management tion in case their rights have been and control bodies; infringed on; The approval of the Company’s annual budget (for current economic Shareholders receive reliable and activities), as well as the investment budget, fall under the compe- effective settlement methods for tency of the Board of Directors in accordance with the charter; their share ownership rights; Conditions of the President’s labor agreement are approved by the Shareholders are able to participate Company’s Board of Directors; in the Company’s management by adopting decisions on the most The Company’s Provision on management and control bodies stipu- important aspects of the Company’s lates that Board members must act in the interests of the Company activity at the General Shareholders (this prevents conflicts of interest); Meeting; Members of the Board of Directors are required to inform the Com- The shareholders have the right pany of any transactions involving Company securities; to receive regular, complete and The Board of Directors does not include individuals who have been accurate information about the found guilty of crimes in the sphere of economic activity or crimes Company; against governmental authorities or the interests of state services and Shareholders do not abuse their municipal services, nor does it include individuals who have been rights; subject to administrative penalties for legislative breaches in the areas of entrepreneurial activity and finance, taxation or the stock market; The Company exercises control over the use of confidential and pro- The Board of Directors does not include persons, who are par- prietary information. ticipants, the CEO (Director), members of a management body or employees of a competing legal entity.

Baltika Breweries 39 CORPORATE GOVERNANCE

Requirements on the control bodies for the Company’s financial and Information disclosure requirements: economic activity: A Provision on information policy was adopted to A document was adopted that defines the Company’s internal control define rules and approaches for information dis- procedures – the Provision on internal control and the audit of financial closure. On the Company’s corporate web site and economic activity; (www.corporate.baltika.ru), official information A special division exists in the Company that observes internal control about the Company’s activity is published; other procedures: the internal audit and control department; information is also regularly disclosed on the site. In addition to this, information that requires com- Internal control bodies do not include individuals who have been found pulsory disclosure on the stock market is pub- guilty of crimes in the sphere of economic activity or crimes against gov- lished on Interfax newswire. Izvestia newspaper ernmental authorities or the interests of state services and municipal is the official print media that the Company uses services, nor does it include individuals who have been subject to admin- to inform shareholders about convening general istrative penalties for legislative breaches in the areas of entrepreneurial meetings. The Company’s Board of Directors activity and finance, taxation or the stock market; approved the Provision on insider information, for Internal control bodies do not include persons, who are executives, par- information that is not publicly available and the ticipants, CEOs (Directors), members of a management body or employ- disclosure of which may substantially affect the ees of a competing legal entity; market price for the Company’s securities. The internal audit department informs the Board of Directors’ Audit Com- mittee on any detected infringements; The Audit Committee evaluates the auditor’s conclusions before submit- ting it to shareholders at the General Meeting.

Governance structure

General Shareholders Meeting

Board of Directors

President

Vice President Vice President Vice President Vice President Vice President Finance HR & Corporate Marketing Supply Chain Sales in Russia and Economics Affairs

40 Annual Report 2009 The General Shareholders Meeting

The General Shareholders Meeting is the Com- profit distributed as dividends as a result of first quarter, six months, pany’s highest management body. In full accord- nine month or financial year) and Company losses as a result of the ance with the law and the Company’s charter, the financial year; following issues fall under the competency of the Defining the order of the General Meeting conduction; General Meeting: Splitting and consolidating shares; The introduction of amendments and altera- tions to the charter or the adoption of a new Adoption of resolutions on approving transactions in cases defined edition of the charter (except for cases indi- by Article 83 of the law “On Joint Stock Companies;” cated in the Federal Russian law “On Joint The adoption of resolutions on major transactions in cases defined by Stock Companies”); Article 79 of the law “On Joint Stock Companies;” Corporate re-organization; The Company’s purchase of placed shares in cases determined by Liquidation of the Company, the appointment the law “On Joint Stock Companies;” of a liquidation commission and approval of The adoption of decisions for participating in financial and production intermediate and final liquidation balances; groups, associations and other commercial organization unions; Defining the quantitative composition of the The adoption of internal documents regulating the activity of the Com- Company’s Board of Directors, the election of pany’s bodies; its members and the earlier cessation of their The resolution of other issues, as foreseen by the Law “On Joint Stock powers; Companies.” Defining the number, nominal value and category (type) of authorized shares and rights In 2009, the Company held two General Shareholders Meetings: one granted by these shares; annual and one extraordinary. Charter capital increases through a higher On April 2nd, 2009 the Company held its Annual General Shareholders nominal share value. Increased charter capi- Meeting, which approved the annual report, the profit and loss state- tal through the placement of additional shares ment based on results from the financial year and the 2008 profit distri- only in those cases, when in full accordance bution and dividend payments. with legislation, such resolutions can only be adopted by the General Meeting; The General Meeting elected the Board of Directors and the Company’s Internal Audit Committee, as well as approved the Company’s auditors: Lower charter capital as a result of decreased A&P Audit and KPMG. In addition, a new addition of the Company’s nominal share value, due to the Company charter was adopted and interested party transactions with Russian Rail- acquiring part of its shares to decrease their ways OJSC and its affiliated parties were approved. total number, as well as through the cancella- nd tion of purchased or bought back by the Com- On December 2 , 2009 an Extraordinary General Shareholders Meeting pany shares; (EGSM) of shareholders was held by absentee vote. During this Meeting, the shareholders approved the conclusion of an agreement on produc- The election of members of the Company’s ing licensed Baltika brands at Derbes Brewery Ltd (Kazakhstan). Only Internal Audit Committee, as well as the earlier minority shareholders, who were not interested parties in this transaction, cessation of their powers; were allowed to participate in voting. In addition, the Meeting adopted The approval of the Company’s auditors; amendments to the corporate charter relating to the Company’s usage of the trade name held by it. The payment (announcement) of dividends based on first quarter, first six months and nine month financial year results; The approval of annual reports, annual financial reports, including the Company’s profit and loss statements (income statements), as well as profit distribution (including the payment (announcement) of dividends, excluding

Baltika Breweries 41 CORPORATE GOVERNANCE

The Board of Directors

The Board of Directors’ activity is focused on the Company’s strategic management, including adopting effective managerial decisions that are aligned with corporate governance best practice, as well as controlling the sole executive body’s activity. Principal tasks of the Board of Directors are: Forming an effective management system for the Company; Ensuring the Company’s stable financial position; Defining prospective and priority directions for the Company’s activities; Developing and realizing strategic aims, which the Company is facing.

The Company’s Board of Directors has seven members, including two independent directors. During the reporting period, the following changes in the composition of the Board occurred: As of April 2nd, 2009, Ulrik Andersen replaced Ale- ksander Ikonnikov as a Board member. During 2009, 19 meetings of the Company’s Board of Directors were conducted – both in person and in the form of absentee voting.

42 Annual Report 2009 The Board of Directors Chairman of the Board

Jorgen Buhl Rasmussen

Born 1955, higher education Member of the Board since 2006 Holds positions in the following organizations:

Carlsberg Breweries A/S, President Baltic Beverages Holding AB, Chairman of the Board of Directors

Members of the Company’s Board of Directors

Anton Artemiev Bjorn Sondenskov Hans Kasper Madsen

Born 1960, higher education Born 1962, higher education Born 1961, higher education Member of the Board since 2001 Member of the Board since 2006 Member of the Board since 2008 Holds positions in the following organizations: Holds positions in the following organizations: Holds positions in the following organizations: • Baltika Breweries, President • Carlsberg Breweries A/S, Vice President, Business Development • Carlsberg Breweries A/S, Senior Vice President, • Carlsberg Breweries A/S, Senior Vice President, Eastern Europe Eastern Europe Corporate Supply Chain • Derbes Brewery Ltd, Chairman of the Supervisory Board • Baltic Beverages Holding AB, member of the Board of Directors • Danish Malting Group A/S, member of the Board of Directors • UZCARLSBERG LLC, Chairman of the Supervisory Board • Derbes Brewery Ltd , member of the Supervisory Board • Slavutich OJSC, Chairman of the Supervisory Board • Lvovska Pivovarnya OJSC, Chairman of the Supervisory Board • Baku-Pivo OJSC, Chairman of the Supervisory Board • Baltika-Baku LLC, Chairman of the Board of Directors • Malt Plant Soufflet St. Petersburg CJSC, member of the Board of Directors • Khlebny Dom OJSC, member of the Board of Directors • Member of Russian Union of Industrialists and Enterpreuners (RUIE)’ Management Board

Ulrik Andersen Aleksander Izosimov Aleksander Shokhin

Independent Director Independent Director Born 1965, higher education Born 1964, higher education Born 1951, higher education Member of the Board since 2009 Member of the Board since 2005 Member of the Board since 2008 Holds a position in the following organization: Holds positions in the following organizations: Holds positions in the following organizations: • Carlsberg Breweries A/S, General Counsel & Vice President • Vimpelcom JSC, President • RUIE, President Legal Counselling and Risk Management • GSM Association, Chairman of the Board of Directors • The State University – Higher School of Economics, President • MTG AB, member of the Board of Directors • Lukoil OJSC, member of the Board of Directors • Dynasty Foundation for Non-commercial Programs, • Fortum OJSC, member of the Board of Directors member of the Board of Directors • Russian Railways OJSC, member of the Board of Directors • TMK OJSC, member of the Board of Directors • TNK-BP Management OJSC, member of the Board of Directors

Baltika Breweries 43 CORPORATE GOVERNANCE

Committees of the Board of Directors Audit Committee The Appointments and Remuneration Committee The aim of creating the Committee is to upgrade The principal goal of creating and the primary the effectiveness and quality of work of the Board activities of the Appointments and Remuneration of Directors in the area of fostering and ensuring Committee are to contribute to attracting qualified open communication with the auditors, the Inter- corporate management specialists and to create nal Auditing Committee and the structural divi- incentives to stimulate successful work. sions of the internal audit, financial accounting The Provisions on committees, adopted by the and finance and economic blocks of the Com- Company’s Board of Directors, are principal doc- pany through the preliminary consideration and uments that regulate the activity of committees preparation of recommendations on the follow- and define issues of their competence, as well ing issues that fall under the competence of the as how their membership is formed and how they Committee: function. Risks connected with the Company’s operations; Management accounting; The sole executive body Financial accounting; The sole executive body of the Company is the President, who is responsible for managing the External independent audit and internal audit; Company’s current activities. Since 2005, Anton Internal control procedures. Artemiev has been President of the Company.

Remuneration for members of the managerial organs In accordance with Item 2 of Article 64 of the law “On Joint Stock Companies,” on April 2nd, 2009, the Company’s Board of Directors set the maximum remuneration for Independent Directors on the Board of Directors at 130,000 USD (in ruble equivalent). The Board also set the maximum amount for expense compensation (incurred while carrying out their functions as Board members) at 15,000 USD (in ruble equivalent) – leaving this amount at the same level as in the previous year. During 2009, Independent Directors on the Board received remuneration in the amount of RUB 3,278,194. In accordance with Item 3 of Article 69 of the law “On Joint Stock Companies,” the rights and obligations of the Company’s President are regulated by the indicated law and the Company’s charter, as well as the agreement concluded between the President and the Company. Remuneration for fulfilling the function of the sole executive organ, as well as other work conditions, is regulated by the labor agreement signed by the President and the Company.

44 Annual Report 2009 The Internal Auditing Committee The Internal Auditing Committee (a permanent The fullness and correctness that the Company’s administrative doc- elected organ), in accordance with current legisla- uments reflect the Company’s economic and financial operations; tion and the Company’s charter executes periodic The legitimacy, economic feasibility and effectiveness (expediency) of control over the Company’s financial and eco- actions taken by the Company’s administration executives and struc- nomic activities, as well as the actions of its mana- tural division heads to ensure compliance with legislation, the charter, gerial organs and executives (including separate adopted plans, programs and other internal corporate documents. divisions, services, branches and representative offices), through checkups: The three-person Internal Auditing Committee is elected at the Annual Gen- eral Meeting. Members of the Internal Auditing Committee are not allowed The legitimacy, economic feasibility and effec- to be members of the Board of Directors or hold any other Company man- tiveness (expediency) of financial and eco- agement positions while they are Auditing Committee members. nomic operations carried out by the Company during the examined period; The Annual General Shareholders Meeting (AGSM) held April 2nd, 2009, elected the following individuals to serve on the Internal Auditing Com- mittee:

Name / year of birth / education Position(s) held

Vibeke Aggerholm Vice President for Internal Audit at Carlsberg Breweries A/S, Born 1964 member of the Institute of Internal Auditors’ (IIA) Board of Directors higher education

Charles Ericsson Born 1948 Consultant for Baltic Beverages Holding АВ higher education

Nadezhda Bazilevich Born 1975 Financial manager for Baltika Breweries higher education

Interested party and major transactions During 2009, Baltika Breweries concluded 90 interested party transactions. No transactions that would have been recognized as major transactions – either by applicable Russian legislation or the Company’s charter – were completed during the reporting year. A complete list of interested party transactions is provided in the appropriate section of this Report.

Baltika Breweries 45 CORPORATE GOVERNANCE President Daniil Briman Anton Artemiev Ekaterina Azimina Denis Sherstennikov Vice President, Marketing Vice President, HR & Corporate Affairs Vice President, Finance and Economics

BALTIKA MANAGEMENT

Risk management

The Company’s activity is subject to various business risks. As a result of Financial risks this, Baltika developed a specialized risk management system that aims Baltika’s principal financial risks include: credit to prevent, identify, analyze, control, monitor and minimize risks. The risk risk, liquidity risk, currency and inflation risks. To management system is regularly reviewed by the Company’s manage- manage financial risks, the Company regularly ment based on changes in market conditions, as well as changes in the carries out short- and long-term forecasting, Company’s activities. develops a budgeting and forecasting system The Company’s Board of Directors is responsible for the risk manage- and improves the principles of turnover capital ment system and supervises it to ensure its effectiveness. The Board management. of Directors’ Audit Committee controls the observance of corporate Credit risk policy in risk management and analyzes the risk management system to determine its factual adequacy for risks. The Audit Committee carries Baltika is a company that has a short operating out its supervisory functions in conjunction with the Company’s internal cycle, which means the quick turnover of financial audit service. means. As a result, the Company carries a mini- mal credit load and is subject to a lower degree In the case of one or more of the below-mentioned risks arising, the of credit risk. Corporate credit risk arises prima- Company is ready to undertake all necessary measures to minimize rily due to contractual obligation non-fulfillment by negative consequences. the Company’s customers or counteragents and it is principally connected with accounts receivable. The Company has implemented a credit policy that defines interactions with customers. The Company conducts credit evaluations of new suppliers and clients and requests collateral guarantees for accounts payable.

46 Annual Report 2009 The Company is subject to a greater degree of currency risks, because on the one side, the bulk of the Company’s sales are ruble-denominated, whereas on the other side, the price of some components and raw mate- Denis Lysak rials were priced in a foreign currency. The Company focuses all of its efforts on minimizing currency risks, including working to decrease for- Alexander Dedegkaev Alexander eign currency-denominated liabilities and gradually increasing the share of Russian suppliers for ingredients, raw materials, capital assets and Vice President, Supply Chain

Vice President, Sales in Russia components. The Company also sees constantly increasing its export volume as an important task, which will in turn lead to increased foreign currency revenues. In 2009, to minimize currency risks, the Company used various instruments, including: maintaining dual currency liabilities in accordance with the Russian Central Bank’s dual currency basket, a decrease in foreign currency liabilities and the use of indirect currency risk hedging instruments.

Industry- and country- specific risks Key risk factors, which may negatively impact development of the brewing industry, include: An increase in excise duty; A strengthening of governmental policy towards limiting the advertising, consumption and sales of beer; A shift in the structure of consumption; Beer market approaching its saturation level; Greater competitive struggles within the market; Higher prices for the main ingredients, as a result of general world trends; The actions of natural monopolies in the tariff regulation sphere and Liquidity risk limited access to their capacities (for example, heat and electricity Liquidity risk may arise due to the Company fail- and railway transport); ing to fulfill its obligations in a timely manner. The Unfavorable weather conditions; Company strives to maintain liquidity at an appropriate level. Economic decline.

Currency risks To strengthen its position in the sector and to minimize the potential Currency risks are due to changes in exchange impact of sector-specific risks, the Company has implemented a series rates for foreign currency and affect the Com- of measures, which includes: ensuring profitability and managing pro- pany’s purchases of raw materials and services duction costs, implementing the Company’s market strategy which that are used for corporate activities and that are focuses on building strong brands, premiumisation and innovation, the denominated in a foreign currency. development and production of new types of goods, the development of a distribution system and promotion channels, the subsequent devel- Such risks include: opment of sales geography and adjacent directions, the optimization of Unfavorable currency exchange dynamics; investment activity, the complex evaluation of suppliers’ financial conditions, including a preliminary one, and their support if necessary, the The negative influence of the financial crisis continuation of the production process and geographical diversification on suppliers, which may result in decreased of risks and increased business process effectiveness and operational liquidity or bankruptcy, narrow the market for excellence. goods and services and also may result in market redistribution and the appearance of large monopolies, influencing the formation of pricing policy.

Baltika Breweries 47 SECURITIES

CHARTER CAPITAL

The Company’s charter capital totaled RUB 164,041,164 as of December 31st, 2009. Issued and authorized shares

Share type Number of shares Nominal value per share, RUB

1. Issued shares

Registered ordinary shares 151,714,594 1

Preference shares, type ‘A’ registered shares 12,326,570 1

2. Authorized shares

Registered ordinary shares 3,808,291 1

Preference shares, type ‘A’ registered shares 440,450 1

Share issues Shares from the following issues are now being traded:

Registration Share type Number of shares Nominal value of the Nominal value number in the issue share issue, RUB per share, RUB

Registered ordinary 1-04-00265-А shares 151,714,594 151,714,594 1

Preference, type ‘A’ 2-04-00265-А registered shares 12,326,570 12,326,570 1

Distribution of charter capital Baltika Breweries’ largest shareholder is a subsidiary of Carlsberg Breweries A/S – Baltic Beverages Holding AB, which holds 88.86% of all shares. During the reporting year, there were no significant changes in the charter capital structure.

The Company’s charter capital structure, as of December 31st, 2009

Baltic Beverages Holding AB 88.86%

Physical persons 8.08%

Nominal holders 2.78% Legal entities 0.28%

48 Annual Report 2009 Share circulation Baltika Breweries shares are traded on two of Starting in February 2009, both ruble and dollar indices for the Russian Russia’s trading platforms – the MICEX Stock stock exchanges began to grow. By the end of 2009, the MICEX index Exchange (since 2003) and RTS (since 2001). At had increased 121% and RTS was up 129% compared with figures as of present, the Company’s shares that are traded on the end of 2008. stock exchanges are included on the List: ‘Securi- During spring 2009, as a result of higher oil prices and the strengthening ties approved for trading, but not listed.’ The Com- of the ruble relative to the dollar-euro basket, there was a general uptick pany’s ticker symbol for ordinary shares is: PKBA, in the stock market, which contributed to the growth of share prices for and preference shares trade under the ticker consumer sector companies. PKBAP. The Company’s shares are included in the calculation of the MICEX consumer goods During the reporting year, the Company’s market capitalization increased sector index (MICEX CGS). 2.2 times and by the end of 2009 reached RUB 139.8 bln according to data from MICEX (and USD 4.4 bln, according to RTS figures). In Russia, Due to a number of Russian government stimu- the Company is the largest production company in the FMCG sector. lus programs and higher commodity prices, in the second half of 2009, an inflow of direct and portfolio investment re-started, which helped rein- vigorate the Russian economy and increased interest in the shares of Russian companies.

Baltika capitalization dynamics relative to the MICEX index %

140 MICEX index +121% Company capitalization +125% 120

100

-20 December January February March April May June July August September October November December 2008 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009

Company capitalization (According to MICEX SE) MICEX index

Baltika Breweries 49 SECURITIES

Statistics from trading of the Company’s shares

Minimum share price* Maximum share price* Last transaction price*, during the year, RUB during the year, RUB RUB

2008 2009 2008 2009 2008 2009

Ordinary shares 300 349 1 209 850 385 850

Preference shares 277 305 815 880 308 880

*closing price indicated

Trading statistics are given based on MICEX SE data, since most trans- Trade volume remained at approximately the actions with the Company’s shares were carried out on this exchange. 2008 level, whereas the number of transactions in the Company’s shares increased significantly As a result of the rebound in the Russian economy in 2009 and strong in 2009: a 52% increase for ordinary shares and financial and economic indicators for the Company, Baltika’s share price 28% higher for preference shares, which indi- increased by 121% for ordinary shares and 186% for preference ones cates greater share liquidity. during the reporting year.

Trading volumes, RUB mln 500

400 387 376

300

200 185 147 Ordinary shares 100 Preference shares

0 2008 2009

Number of transactions

20,000

15,000 14,727

10,000 9,695

Ordinary shares 5,000 6,164 4,831 Preference shares

0 2008 2009

50 Annual Report 2009 Dividend policy Baltika’s dividend policy is based on the principle Dividends for preference shares cannot be lower than the level indicated of fairly distributing profits among all shareholders by the Company’s charter. in direct proportion to the number of shares in a 2008 dividends were significantly higher – 1.6 times – compared with the particular category, taking into account a rational previous year. correlation between total dividends and available means to implement the Company’s strategic development plans.

Dividend payment indicators for the Company’s shares during the last 5 years

Period, for which the Dividend paid per Dividend paid per Dividend dynamics Dividend dynamics dividends were paid ordinary share, preference share, for ordinary shares, for preference shares, RUB RUB % to 2004 % to 2004

2005 24.33 24.33 175 134

2006 39.50 39.50 283 218

2007 52.00 52.00 373 287

2008 85.10 85.10 610 470

2009* 128.00 128.00 918 706

*A recommendation from the Board of Directors

Information on the pay-out of declared (allocated) dividends

2009 accrued dividends totaled: For ordinary shares – RUB 12,910,911,949 and 40 kopecks; For preference shares, type ‘A’ – RUB 1,048,991,107.

As of December 31st, 2009, shareholders were paid more than 99.7% of accrued dividends. The reason for the failure to fulfill all obligations in full is due to shareholders failing to provide all data needed for payment.

Baltika Breweries 51 OAO Baltika Breweries and subsidiaries CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2009

52 CONTENTS

Independent Auditors’ Report 54

Consolidated Statement of Financial Position 55

Consolidated Statement of Comprehensive Income 56

Consolidated Statement of Changes in Equity 57

Consolidated Statement of Cash Flows 58

Notes to the Consolidated Financial Statements 60

Baltika Breweries 53 ZAO KPMG Telephone +7 (812) 313 7300 69-71 A Marata st Fax +7 (812) 313 7301 Business centre «Renaissance Plaza» Internet www.kpmg.ru St. Petersburg 191119, Russia

Independent Auditors’ Report

To Management OAO Baltika Breweries

We have audited the accompanying consolidated fi nancial statements of OAO Baltika Breweries (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of fi nancial position as at 31 December 2009, and the consolidated statements of comprehensive income, changes in equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated ﬁ nancial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated ﬁ nancial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated fi nancial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion.

Opinion In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the consolidated fi nancial position of the Group as at 31 December 2009, and its consolidated fi nancial performance and its consolidated cash fl ows for the year then ended in accordance with International Financial Reporting Standards.

ZAO KPMG 19 February 2010

ZAO KPMG, a company incorporated under the Laws of the Russian Federation and a member fi rm of the KPMG network of independent member fi rms affi li- ated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

54 Annual Report 2009 OAO Baltika Breweries and subsidiaries Consolidated Statement of Financial Position as at 31 December 2009

2008 2007 000’ RUR Note 2009 (restated) (restated) ASSETS Non-current assets Property, plant and equipment 12 42,177,090 43,356,748 39,366,381 Intangible assets 13 14,001,800 13,791,191 11,736,964 Investments in equity accounted investees 14 293,183 340,038 267,990 Other investments 15 9,781 9,796 9,796 Total non-current assets 56,481,854 57,497,773 51,381,131 Current assets Inventories 17 4,296,053 7,350,814 7,451,192 Other investments 15 9,051,299 - 2,335,890 Income tax receivable 6,566 583,952 7,131 Trade and other receivables 18 8,062,093 7,511,041 5,015,410 Cash and cash equivalents 19 1,740,702 1,691,594 2,708,501 Total current assets 23,156,713 17,137,401 17,518,124 Total assets 79,638,567 74,635,174 68,899,255

EQUITY AND LIABILITIES Equity 20 Preference shares 84,978 84,978 85,442 Ordinary shares 736,129 736,129 736,164 Share capital 821,107 821,107 821,606 Additional paid-in capital 4,171,716 4,171,716 4,239,807 Foreign currency translation reserve 691,405 433,587 18,234 Retained earnings 57,997,085 48,584,719 41,606,610 Total equity 63,681,313 54,011,129 46,686,257 Non-current liabilities Loans and borrowings 22 - 176,304 580,051 Deferred tax liabilities 16 1,631,672 1,387,124 1,431,460 Total non-current liabilities 1,631,672 1,563,428 2,011,511 Current liabilities Loans and borrowings 22 181,572 7,562,837 11,171,172 Trade and other payables 23 13,398,581 11,006,602 8,832,197 Deferred income 129,057 94,670 135,760 Income tax payable 616,372 396,508 62,358 Total current liabilities 14,325,582 19,060,617 20,201,487 Total liabilities 15,957,254 20,624,045 22,212,998 Total equity and liabilities 79,638,567 74,635,174 68,899,255

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 60 to 81.

Baltika Breweries 55 OAO Baltika Breweries and subsidiaries Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

’000 RUR Note 2009 2008 (restated) Revenue 93,648,747 92,482,283 Cost of sales (42,394,920) (47,599,507) Gross profit 51,253,827 44,882,776 Other income 772,21778,487 Distribution expenses (19,150,073) (20,132,532) Administrative expenses 8 (2,528,721) (2,602,153) Finance income 10 1,834,591 1,619,812 Finance costs 10 (2,349,918) (3,678,392) Share of (loss) / profit of equity accounted investee (net of income tax) (29,734) 47,370 Profit before income tax 29,102,189 20,215,368 Income tax expense 11 (5,729,920) (4,707,119) Profit for the year 23,372,269 15,508,249

Other comprehensive income Foreign currency translation differences for foreign operations 257,818 415,353 Total comprehensive income for the year 23,630,087 15,923,602

Earnings per share Basic and diluted earnings per share 21 147.14 RUR 97.99 RUR

These consolidated financial statements were approved by management on 19 February 2010 and were signed on its behalf by:

Anton Artemiev Ekaterina Azimina President Vice-President of finance and economy

The consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 60 to 81.

56 Annual Report 2009 OAO Baltika Breweries and subsidiaries Consolidated Statement of Changes in Equity for the year ended 31 December 2009

Foreign Additional currency Preference Ordinary paid-in translation Retained 000’ RUR shares shares capital reserve earnings Total Balance at 1 January 2008, as previously 85,442 736,164 4,239,807 18,234 41,869,720 46,949,367 reported Impact of change in accounting policy - - - - (263,110) (263,110) Balance at 1 January 2008 (restated) 85,442 736,164 4,239,807 18,234 41,606,610 46,686,257 Total comprehensive income for the year Profit for the year (restated) - - - - 15,508,249 15,508,249 Other comprehensive income Foreign currency translation differences - - - 415,353 - 415,353 Total other comprehensive income - - - 415,353 - 415,353 Total comprehensive income for the year - - - 415,353 15,508,249 15,923,602 Transactions with owners, recorded directly in equity Dividends to equity holders - - - - (8,530,140) (8,530,140) Redemption of shares (464) (35) (68,091) - - (68,590) Total transactions with owners (464) (35) (68,091) - (8,530,140) (8,598,730) Balance at 31 December 2008 (restated) 84,978 736,129 4,171,716 433,587 48,584,719 54,011,129 Balance at 1 January 2009 (restated) 84,978 736,129 4,171,716 433,587 48,584,719 54,011,129 Total comprehensive income for the year Profit for the year - - - - 23,372,269 23,372,269 Other comprehensive income Foreign currency translation differences - - - 257,818 - 257,818 Total other comprehensive income - - - 257,818 - 257,818 Total comprehensive income for the year - - - 257,818 23,372,269 23,630,087 Transactions with owners, recorded directly in equity Dividends to equity holders - - - - (13,959,903) (13,959,903) Total transactions with owners - - - - (13,959,903) (13,959,903) Balance at 31 December 2009 84,978 736,129 4,171,716 691,405 57,997,085 63,681,313

The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 60 to 81.

Baltika Breweries 57 OAO Baltika Breweries and subsidiaries Consolidated Statement of Cash Flows for the year ended 31 December 2009

’000 RUR Note 2009 2008 (restated) OPERATING ACTIVITIES Profit for the year 23,372,269 15,508,249 Adjustments for: Depreciation 12 4,447,579 4,615,461 Amortisation 13 196,730 180,436 Gain on disposal of property, plant and equipment and intangible assets 7 (72,217) (82,546) Share of loss/(profit) of equity accounted investees 14 29,734 (47,370) Interest expense 10 190,319 573,336 Interest income 10 (466,342) (253,209) Income tax expense 11 5,729,920 4,707,119 Operating profit before changes in working capital and provisions 33,427,992 25,201,476 Decrease in inventories 3,221,273 202,700 Increase in trade and other receivables (551,052) (2,321,940) Increase in trade and other payables 2,621,163 3,720,693 Cash flows from operations before income taxes and interest paid 38,719,376 26,802,929 Income taxes paid (4,688,122) (4,978,598) Interest paid (261,011) (528,448) Cash flows from operating activities 33,770,243 21,295,883

INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment and intangible 95,898 193,363 assets Interest received 386,600 279,006 Dividends received 27,300 18,564 Acquisition of property, plant and equipment and intangible assets (3,792,763) (8,744,468) Acquisition of subsidiary, net of cash acquired - (2,182,556) Sales of investment securities 15 - Loans to related parties (2,189,360) - Acquisition of bank promissory notes (6,782,197) (3,232,271) Proceeds from sale of bank promissory notes -5,542,365 Cash flows utilised by investing activities (12,254,507) (8,125,997)

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 60 to 81.

58 Annual Report 2009 OAO Baltika Breweries and subsidiaries Consolidated Statement of Cash Flows for the year ended 31 December 2009

’000 RUR Note 2009 2008 (restated) FINANCING ACTIVITIES Proceeds from borrowings 52,172 29,798,605 Repayment of borrowings (7,539,049) (33,855,575) Dividends paid (13,979,751) (8,609,718) Redemption of shares -(1,520,105) Cash flows utilised by financing activities (21,466,628) (14,186,793) Net increase/(decrease) in cash and cash equivalents 49,108 (1,016,907) Cash and cash equivalents at beginning of year 1,691,594 2,708,501 Cash and cash equivalents at end of the year 19 1,740,702 1,691,594

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 60 to 81.

Baltika Breweries 59 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

1. BACKGROUND

(a) Russian business environment The remainder of the ordinary and preference shares are widely held. The Russian Federation has been experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this As at 31 December 2009 the Group consisted of twelve environment. Consequently, operations in the Russian Federation involve risks that typ- production plants: Baltika-Saint-Petersburg, Baltika-Tula, ically do not exist in other markets. In addition, the recent contraction in the capital and Baltika-Rostov, Baltika-Samara, Baltika-Khabarovsk, credit markets and its impact on the Russian economy have further increased the level Baltika-Vena, Baltika-Chelyabinsk, Baltika-Pikra, Baltika- of economic uncertainty in the environment. These consolidated financial statements Yaroslavl, Baltika-Voronezh, Baltika-Novosibirsk and Balti- reflect management’s assessment of the impact of the Russian business environment ka-Baku and ten subsidiaries: OOO Universalopttorg, OOO on the operations and the financial position of the Group. The future business environ- Terminal Podolsk, OOO Baltika-Ukraine, OOO Baltika, Bal- ment may differ from management’s assessment. tika S.R.L., Baltika-Almaty LLP, OOO Baltika-Bel, Baltika Deutschland GmbH, LLC Baltika-Baku and OJSC Baku- (b) Organisation and operations Pivo. The Group’s subsidiary, OOO Baltika-Moscow, was OAO Baltika Breweries (the “Company”) is an open joint stock company as defined liquidated in December 2008. by the Civil Code of the Russian Federation and was registered on 21 July 1992, and, through a controlling interest in ten companies and ten branches (together referred to Most of the Group's customers are located in Russia. The as the “Group”), produces and distributes beer, soft drinks and mineral water. Group's raw materials are readily available and the Group is not dependent on a single supplier or only a few suppliers. The Company’s registered office is situated at 6 Verkhny pereulok, 3, St. Petersburg, 194292, Russia. Related party transactions are detailed in note 28. As at 31 December 2009 Baltic Beverages Holding AB owned and controlled 93.5% of the Company’s ordinary shares and 31.9% of the Company’s preference shares.

2. BASIS OF PREPARATION

(a) Statement of compliance (e) Changes in accounting policies and These consolidated financial statements have been prepared in accordance with Inter- presentation national Financial Reporting Standard (“IFRSs”). With effect from 1 January 2009 the Group changed its accounting policies in the following areas: (b) Basis of measurement accounting for borrowing costs; The consolidated financial statements are prepared on the historical cost basis except determination and presentation of operating segments; that property, plant and equipment was revalued to determine deemed cost as part of the adoption of IFRSs; and the carrying amounts of assets, liabilities and equity items accounting for advertising materials; and in existence at 31 December 2002 include adjustments for the effects of hyperinflation, presentation of financial statements. which were calculated using conversion factors derived from the Russian Federation Consumer Price Index published by the Russian Statistics Agency, GosKomStat. Russia (i) Accounting for borrowing costs ceased to be hyperinflationary for IFRS purposes as at 1 January 2003. In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on (c) Functional and presentation currency or after 1 January 2009, the Group capitalises borrowing The national currency of the Russian Federation is the Russian Rouble (“RUR”), which costs directly attributable to the acquisition, construction is the Company’s functional currency, the functional currency of the majority of the or production of a qualifying asset as part of the cost of Company’s subsidiaries and the currency in which these consolidated financial state- that asset. Previously the Group immediately recognised all ments are presented. borrowing costs as an expense. This change in accounting policy was due to the adoption of IAS 23 Borrowing Costs (d) Use of judgements, estimates and assumptions (2007) in accordance with the transitional provisions of such The preparation of consolidated financial statements in conformity with IFRSs requires standard; comparative figures have not been restated. The management to make judgments, estimates and assumptions that affect the applica- change in accounting policy had no material impact on tion of accounting policies and the reported amounts of assets, liabilities, income and earnings per share. expenses. Actual results may differ from those estimates. The Group has capitalised borrowing costs with respect Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to to property, plant and equipment under construction (see accounting estimates are recognised in the period in which the estimates are revised note 3(e)(i)). and in any future periods affected. (ii) Determination and presentation of operating Information about critical judgments in applying accounting policies that have the most segments significant effect on the amounts recognised in the consolidated financial statements is As at 1 January 2009 the Group determines and presents included in the following notes: operating segments based on the information that internally is Note 13 – Intangible assets; and provided to the Management Board, which is the Group’s chief Note 17 – Inventories. operating decision maker. This change in accounting policy is due to the adoption of International Financial Reporting Stand- ard 8 Operating Segments. The Group has early-adopted the amendment to IFRS 8 introduced by Improvements to IFRS

60 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

April 2009. The new accounting policy in respect of operating expenses when it has a right to access those materials. Previously advertising materials segments disclosures is presented as follows. were recorded as inventory until given away to customers. This change in accounting policy was due to the adoption of revised IAS 38 Intangible Assets (2008). Comparative segment information has been re-presented in conformity with the transitional requirements of such stand- Comparative information has been re-presented so that it also is in conformity with the ard. Since the change in accounting policy only impacts revised accounting policy: advertising materials in the amount of RUR 346,198 thou- presentation and disclosure aspects, there is no impact on sand were written off and deferred income tax in the amount of RUR 83,088 thousand earnings per share. was recognised as an adjustment to retained earnings as at 1 January 2008. The effect on the consolidated statement of financial position as at 31 December 2008 was a An operating segment is a component of the Group that decrease in inventory of RUR 332,652 thousand, a decrease in deferred tax liabilities of engages in business activities from which it may earn RUR 66,530 thousand and a decrease in the retained earnings of RUR 266,122 thou- revenues and incur expenses, including revenues and sand. The effect on comprehensive income was to reduce profit for the year by RUR expenses that relate to transactions with any of the Group’s 3,012 thousand for the year ended 31 December 2008. other components. An operating segment’s operating results are reviewed regularly by the Management Board to Earnings per share has been restated for the year ended 31 December 2008 accordingly. make decisions about resources to be allocated to the segment and assess its performance, and for which discrete (iv) Presentation of financial statements financial information is available. The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as at 1 January 2009. The revised standard requires a presentation Segment results that are reported to the Management of all owner changes in equity to be presented in the statement of changes in equity, Board include items directly attributable to a segment as whereas all non-owner changes in equity are presented in the consolidated statement of well as those that can be allocated on a reasonable basis. comprehensive income. (iii) Accounting for advertising materials Comparative information has been re-presented so that it also is in conformity with the Since 1 January 2009 the Group has recognised expendi- revised standard. Since the change in accounting policy only impacts presentation ture in respect of advertising materials as distribution aspects, there is no impact on earnings per share.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been consist- of losses exceeds its interest in an equity accounted investee, the carrying amount of ently applied to all periods presented in these consolidated that interest (including any long-term investments) is reduced to nil and the recognition financial statements, and have been applied consistently of further losses is discontinued, except to the extent that the Group has an obligation by Group entities, except as explained in note 2(e), which or has made payments on behalf of the investee. addresses changes in accounting policies. (iii) Transactions eliminated on consolidation Certain comparative amounts have been reclassified to Intra-group balances and transactions, and any unrealised income and expenses aris- conform with the current year’s presentation of which the ing from intra-group transactions, are eliminated in preparing the consolidated financial significant one relates to the reclassification of administra- statements. Unrealised gains arising from transactions with equity accounted investees tive expenses in the amount of RUR 311,199 thousand and are eliminated against the investment to the extent of the Group’s interest in the inves- distribution expenses in the amount of RUR 619,803 thou- tee. Unrealised losses are eliminated in the same way as unrealised gains, but only to sand to cost of sales. the extent that there is no evidence of impairment. Management believes that such presentation is more (b) Foreign currencies appropriate. (i) Foreign currency transactions (a) Basis of consolidation Transactions in foreign currencies are translated to the respective functional curren- (i) Subsidiaries cies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are Subsidiaries are entities controlled by the Group. The finan- retranslated to the functional currency at the exchange rate at that date. The foreign cial statements of subsidiaries are included in the con- currency gain or loss on monetary items is the difference between amortised cost in solidated financial statements from the date that control the functional currency at the beginning of the period, adjusted for effective interest commences until the date that control ceases. The account- and payments during the period, and the amortised cost in foreign currency trans- ing policies of subsidiaries have been changed when neces- lated at the exchange rate at the end of the reporting period. Non-monetary assets sary to align them with the policies adopted by the Group. and liabilities denominated in foreign currencies that are measured at fair value are (ii) Associates (equity accounted investees) retranslated to the functional currency at the exchange rate at the date that the fair Associates are those entities in which the Group has signifi- value was determined. Foreign currency differences arising in retranslation are rec- cant influence, but not control, over the financial and operat- ognised in profit or loss, except for differences arising on the retranslation of availa- ing policies. Significant influence is presumed to exist when ble-for-sale equity instruments which are recognised in other comprehensive income. the Group holds between 20% and 50% of the voting power Non-monetary items that are measured in terms of historical cost in a foreign currency of another entity. Investments in associates are accounted are translated using the exchange rate at the date of the transaction. for using the equity method and are recognised initially at (ii) Foreign operations cost. The Group’s investment includes goodwill identified The assets and liabilities of foreign operations, including goodwill and fair value adjust- on acquisition, net of any accumulated impairment losses. ments arising on acquisition, are translated to RUR at the exchange rate at the report- The consolidated financial statements include the Group’s ing date. The income and expenses of foreign operations are translated to RUR at share of the income and expenses and equity movements exchange rates at the dates of the transactions. of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the Foreign currency differences are recognised directly in other comprehensive income. date that significant influence commences until the date Since 1 January 2004, the Group’s date of transition to IFRSs, such differences have that significant influence ceases. When the Group’s share been recognised in the foreign currency translation reserve. When a foreign operation

Baltika Breweries 61 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

is disposed of, in part or in full, the relevant amount in the foreign currency translation (ii) Non-derivative financial liabilities reserve is transferred to profit or loss as part of the profit or loss on disposal. The Group initially recognises debt securities issued and Foreign exchange gains and losses arising from a monetary item received from or pay- subordinated liabilities on the date that they are originated. able to a foreign operation, the settlement of which is neither planned nor likely in the All other financial liabilities are recognised initially on the foreseeable future, are considered to form part of a net investment in a foreign opera- trade date at which the Group becomes a party to the con- tion and are recognised in other comprehensive income, and are presented within tractual provisions of the instrument. equity in the foreign currency translation reserve. The Group derecognises a financial liability when its con- (c) Financial instruments tractual obligations are discharged or cancelled or expire. (i) Non-derivative financial instruments Financial assets and liabilities are offset and the net amount Non-derivative financial instruments comprise investments in equity and debt securities, presented in the statement of financial position when, and trade and other receivables, cash and cash equivalents, loans and borrowings, and trade only when, the Group has a legal right to offset the amounts and other payables. and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which The Group has the following non-derivative financial liabili- the Group becomes a party to the contractual provisions of the instrument. ties: loans and borrowings and trade and other payables. The Group derecognises a financial asset when the contractual rights to the cash flows Such financial liabilities are recognised initially at fair value from the asset expire, or it transfers the rights to receive the contractual cash flows on plus any directly attributable transaction costs. Subsequent the financial asset in a transaction in which substantially all the risks and rewards of own- to initial recognition these financial liabilities are measured ership of the financial asset are transferred. Any interest in transferred financial assets at amortised cost using the effective interest method. that is created or retained by the Group is recognised as a separate asset or liability. (d) Share capital Financial assets and liabilities are offset and the net amount presented in the state- Ordinary shares ment of financial position when, and only when, the Group has a legal right to offset the Ordinary shares are classified as equity. Incremental costs amounts and intends either to settle on a net basis or to realise the asset and settle the directly attributable to the issue of ordinary shares and liability simultaneously. share options are recognised as a deduction from equity, The Group has the following non-derivative financial assets: held-to-maturity financial net of any tax effects. assets, loans and receivables and available-for-sale financial assets. Preference share capital Held-to-maturity financial assets Preference share capital is classified as equity if it is non- If the Group has the positive intent and ability to hold to maturity debt securities that are redeemable, or redeemable only at the Company’s option, quoted in an active market, then such financial assets are classified as held-to-maturity. and any dividends are discretionary. Dividends thereon are Held-to-maturity financial assets are recognised initially at fair value plus any directly attrib- recognised as distributions within equity upon approval by utable transaction costs. Subsequent to initial recognition held-to-maturity financial assets the Company’s shareholders. are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity Repurchase of share capital investments not close to their maturity would result in the reclassification of all held-to-ma- When share capital recognised as equity is repurchased, turity investments as available-for-sale, and prevent the Group from classifying investment the amount of the consideration paid, which includes securities as held-to-maturity for the current and the following two financial years. directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. Repurchased Loans and receivables shares are classified as treasury shares and are presented Loans and receivables are financial assets with fixed or determinable payments that are as a deduction from total equity. When treasury shares are not quoted in an active market. Such assets are recognised initially at fair value plus any sold or reissued subsequently, the amount received is rec- directly attributable transaction costs. Subsequent to initial recognition loans and receiva- ognized as an increase in equity, and the resulting surplus bles are measured at amortised cost using the effective interest method, less any impair- or deficit on the transaction is transferred from/to additional ment losses. Loans and receivables comprise trade and other receivables. paid-in capital. Cash and cash equivalents comprise cash balances and call deposits with original maturi- (e) Property, plant and equipment ties of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and (i) Recognition and measurement cash equivalents for the purpose of the statement of cash flows. Items of property, plant and equipment are measured at cost less impairment losses and, except for land, accumu- Available-for-sale financial assets lated depreciation. The cost of property, plant and equip- Available-for-sale financial assets are non-derivative financial assets that are desig- ment at 1 January 2004, the date of transition to IFRSs, was nated as available-for-sale and that are not classified in any of the previous categories. determined by reference to its fair value at that date. The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Such assets are recognised initially at fair value Cost includes expenditures that are directly attributable to plus any directly attributable transaction costs. Subsequent to initial recognition, they the acquisition of the asset. The cost of self-constructed are measured at fair value and changes therein, other than impairment losses (see assets includes the cost of materials and direct labour, note 3(i)(i)) and foreign currency differences on available-for-sale equity instruments any other costs directly attributable to bringing the asset to (see note 3(b)(i)), are recognised in other comprehensive income and presented within a working condition for its intended use, and the costs of equity in the fair value reserve. When an investment is derecognised or impaired, the dismantling and removing the items and restoring the site cumulative gain or loss in other comprehensive income is transferred to profit or loss. on which they are located, and capitalised borrowing costs (see note 2(e)(i)). Purchased software that is integral to the Other functionality of the related equipment is capitalised as part Other non-derivative financial instruments are measured at amortised cost using the of that equipment. effective interest method, less any impairment losses. Investments in equity securities When parts of an item of property, plant and equipment have that are not quoted on a stock exchange are principally valued using valuation tech- different useful lives, they are accounted for as separate niques such as discounted cash flow analysis, option pricing models and comparisons to items (major components) of property, plant and equipment. other transactions and instruments that are substantially the same. Where fair value cannot be reliably measured, investments are stated at cost less impairment losses. Gains and losses on disposal of an item of property, plant

62 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

and equipment are determined by comparing the pro- (iii) Subsequent expenditure ceeds from disposal with the carrying amount of property, Subsequent expenditure is capitalised only when it increases the future economic ben- plant and equipment, and are recognised net within “other efits embodied in the specific asset to which it relates. All other expenditure, including income” in profit or loss. expenditure on internally generated goodwill and brands is recognised in profit or loss (ii) Subsequent costs as incurred. The cost of replacing part of an item of property, plant and (iv) Amortisation equipment is recognised in the carrying amount of the item Amortisation is calculated over the cost of the asset, or other amount substituted for if it is probable that the future economic benefits embod- cost, less its residual value. ied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced Amortisation is recognised in profit or loss on a straight-line basis over the estimated part is derecognized. The costs of the day-to-day servicing useful lives of intangible assets, other than goodwill, from the date that they are avail- of property, plant and equipment are recognised in profit or able for use since this most closely reflects the expected pattern of consumption of loss as incurred. future economic benefits embodied in the asset. The estimated useful lives of other intangible assets, which comprise trademarks, software and licences, for the current (iii) Depreciation and comparative period vary between 1 to 10 years. Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for (g) Leased assets cost, less its residual value. Leases in terms of which the Group assumes substantially all the risks and rewards of Depreciation is recognised in profit or loss and allocated to ownership are classified as finance leases. Upon initial recognition the leased asset is cost of converting materials to finished goods on a straight- measured at an amount equal to the lower of its fair value and the present value of the line basis over the estimated useful lives of each part of minimum lease payments. Subsequent to initial recognition, the asset is accounted for an item of property, plant and equipment, since this most in accordance with the accounting policy applicable to that asset. closely reflects the expected pattern of consumption of the Other leases are operating leases and the leased assets are not recognised on the future economic benefits embodied in the asset. Leased Group’s statement of financial position. assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the (h) Inventories Group will obtain ownership by the end of the lease term. Inventories are measured at the lower of cost and net realisable value. The cost of Land is not depreciated. inventories is based on the weighted average principle and includes expenditure The estimated useful lives for the current and comparative incurred in acquiring the inventories, production or conversion costs and other costs periods are as follows: incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of over- Buildings 20–40 years heads based on normal operating capacity. Machinery and equipment 3–20 years Kegs 10 years Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Depreciation methods, useful lives and residual values are reviewed at each reporting date. (i) Impairment (i) Financial assets (f) Intangible assets A financial asset is assessed at each reporting date to determine whether there is any (i) Goodwill objective evidence that it is impaired. A financial asset is impaired if objective evidence Goodwill (negative goodwill) that arises on the acquisition of indicates that a loss event has occurred after the initial recognition of the asset, and subsidiaries is included in intangible assets. that the loss event had a negative effect on the estimated future cash flows of that Acquisitions of subsidiaries on or after asset that can be estimated reliably. 1 January 2004 Objective evidence that financial assets (including equity securities) are impaired For acquisitions on or after 1 January 2004, goodwill rep- can include default or delinquency by a debtor, restructuring of an amount due to the resents the excess of the cost of the acquisition over the Group on terms that the Group would not consider otherwise, indications that a debtor Group’s interest in the net fair value of identifiable assets, or issuer will enter bankruptcy, the disappearance of an active market for a security. In liabilities and contingent liabilities of the acquiree. When addition, for an investment in an equity security, a significant or prolonged decline in its the excess is negative (negative goodwill), it is recognised fair value below its cost is objective evidence of impairment. immediately in profit or loss. The Group considers evidence of impairment for receivables and held-to-maturity Acquisitions of minority interests investment securities at both a specific asset and collective level. All individually significant receivables and held-to-maturity investment securities are assessed for spe- Goodwill arising on the acquisition of a minority interest in cific impairment. All individually significant receivables and held-to-maturity investment a subsidiary represents the excess of the cost of the addi- securities found not to be specifically impaired are then collectively assessed for any tional investment over the carrying amount of the net assets impairment that has been incurred but not yet identified. Receivables and held-to-ma- acquired at the date of exchange. turity investment securities that are not individually significant are collectively assessed Subsequent measurement for impairment by grouping together receivables and held-to-maturity investment securities with similar risk characteristics. Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying In assessing collective impairment the Group uses historical trends of the probability amount of goodwill is included in the carrying amount of the of default, timing of recoveries and the amount of loss incurred, adjusted for manage- investment, and an impairment loss on such an investment is ment’s judgement as to whether current economic and credit conditions are such that not allocated to any asset, including goodwill, that forms part the actual losses are likely to be greater or less than suggested by historical trends. of the carrying amount of the equity accounted investee. An impairment loss in respect of a financial asset measured at amortised cost is cal- (ii) Other intangible assets culated as the difference between its carrying amount, and the present value of the Intangible assets that are acquired by the Group, which estimated future cash flows discounted at the asset’s original effective interest rate. have finite useful lives, are measured at cost less accumu- Losses are recognised in profit or loss and reflected in an allowance account against lated amortisation and accumulated impairment losses. receivables. Interest on the impaired asset continues to be recognised through the

Baltika Breweries 63 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

unwinding of the discount. When a subsequent event causes the amount of impairment Short-term employee benefit obligations are measured on loss to decrease, the decrease in impairment loss is reversed through profit or loss. an undiscounted basis and are expensed as the related service is provided. Impairment losses on available-for-sale investment securities are recognised by trans- ferring the cumulative loss that has been recognised in other comprehensive income, A liability is recognised for the amount expected to be paid and presented in the fair value reserve in equity, to profit or loss. The cumulative loss under short-term cash bonus or profit-sharing plans if the that is removed from other comprehensive income and recognised in profit or loss is Group has a present legal or constructive obligation to the difference between the acquisition cost, net of any principal repayment and amor- pay this amount as a result of past service provided by the tisation, and the current fair value, less any impairment loss previously recognised in employee, and the obligation can be estimated reliably. profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. (k) Provisions A provision is recognised if, as a result of a past event, If, in a subsequent period, the fair value of an impaired available-for-sale debt security the Group has a present legal or constructive obligation increases and the increase can be related objectively to an event occurring after the that can be estimated reliably, and it is probable that an impairment loss was recognised in profit or loss, then the impairment loss is reversed, outflow of economic benefits will be required to settle the with the amount of the reversal recognised in profit or loss. However, any subsequent obligation. Provisions are determined by discounting the recovery in the fair value of an impaired available-for-sale equity security is recognised expected future cash flows at a pre-tax rate that reflects in other comprehensive income. current market assessments of the time value of money and (ii) Non-financial assets the risks specific to the liability. The unwinding of the discount is recognised as finance cost. The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any (l) Revenue indication of impairment. If any such indication exists, then the asset’s recoverable amount Revenue from the sale of goods in the course of ordinary is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet activities is measured at the fair value of the consideration available for use, recoverable amount is estimated each year at the same time. received or receivable, net of returns, excise taxes, trade The recoverable amount of an asset or cash-generating unit is the greater of its value discounts and volume rebates. Revenue is recognised when in use and its fair value less costs to sell. In assessing value in use, the estimated persuasive evidence exists, usually in the form of an exe- future cash flows are discounted to their present value using a pre-tax discount rate cuted sales agreement, that the significant risks and rewards that reflects current market assessments of the time value of money and the risks spe- of ownership have been transferred to the buyer, recovery cific to the asset. For the purpose of impairment testing, assets that cannot be tested of the consideration is probable, the associated costs and individually are grouped together into the smallest group of assets that generates cash possible return of goods can be estimated reliably, and there inflows from continuing use that are largely independent of the cash inflows of other is no continuing management involvement with the goods, assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a and the amount of revenue can be measured reliably. If it is business acquisition, for the purpose of impairment testing, is allocated to cash-gener- probable that discounts will be granted and the amount can ating units that are expected to benefit from the synergies of the combination. be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is The timing of the transfers of risks and rewards varies depend- determined for the cash generating unit to which the corporate asset belongs. ing on the individual terms of the contract of sale. For certain sales, transfer usually occurs when the goods are received An impairment loss is recognised if the carrying amount of an asset or its cash-generat- at the customer’s warehouse; for other sales, transfer occurs ing unit exceeds its recoverable amount. Impairment losses are recognised in profit or when the goods are dispatched from the Group’s premises. loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce (m) Other expenses the carrying amount of the other assets in the unit (group of units) on a pro rata basis. (i) Lease payments An impairment loss in respect of goodwill is not reversed. In respect of other assets, Payments made under operating leases are recognised in impairment losses recognised in prior periods are assessed at each reporting date for profit or loss on a straight-line basis over the term of the lease. any indications that the loss has decreased or no longer exists. An impairment loss is Lease incentives received are recognised as an integral part reversed if there has been a change in the estimates used to determine the recover- of the total lease expense, over the term of the lease. able amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of (ii) Social expenditure depreciation or amortisation, if no impairment loss had been recognised. To the extent that the Group’s contributions to social programs benefit the community at large and are not restricted Goodwill that forms part of the carrying amount of an investment in an equity accounted to the Group’s employees, they are recognised in profit or investee is not recognised separately, and therefore is not tested for impairment sepa- loss as incurred. rately. Instead, the entire amount of the investment in an equity accounted investee is tested for impairment as a single asset when there is objective evidence that the (n) Finance income and finance costs investment in an equity accounted investee may be impaired. Finance income comprises interest income on funds (j) Employee benefits invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale (i) Defined contribution plans financial assets and foreign currency gains. Interest income A defined contribution plan is a post-employment benefit plan under which an entity is recognised as it accrues in profit or loss, using the effec- pays fixed contributions into a separate entity and will have no legal or constructive tive interest method. Dividend income is recognised in obligation to pay further amounts. Obligations for contributions to defined contribution profit or loss on the date that the Group’s right to receive pension plans, including Russia’s State pension fund, are recognised as an employee payment is established, which in the case of quoted securi- benefit expense in profit or loss in the periods during which services are rendered by ties is the ex-dividend date. employees. Prepaid contributions are recognised as an asset to the extent that a cash Finance costs comprise interest expense on borrowings, refund or a reduction in future payments is available. Contributions to a defined contri- unwinding of the discount on provisions, losses on the dis- bution plan that are due more than 12 months after the end of the period in which the posal of available-for-sale financial assets, foreign currency employees render the service are discounted to their present value. losses and impairment losses recognized on financial assets. (ii) Short-term benefits Borrowing costs that are not directly attributable to the acqui-

64 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

sition, construction or production of a qualifying asset are rec- and have not been applied in preparing these consolidated financial statements. Of these ognised in profit or loss using the effective interest method. pronouncements, potentially the following will have an impact on the Group’s operations. The Group plans to adopt these pronouncements when they become effective. Foreign currency gains and losses are reported on a gross basis. Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basic disclosure requirements in relation to related party disclosures and outstand- (o) Income tax ing balances, including commitments, for government-related entities. Additionally, Income tax expense comprises current and deferred tax. Cur- the standard has been revised to simplify some of the presentation guidance that rent tax and deferred tax are recognised in profit or loss except was previously non-reciprocal. The revised standard is to be applied retrospec- to the extent that it relates to a business combination, or items tively for annual periods beginning on or after 1 January 2011. The Group has not recognised directly in equity or in other comprehensive income. yet determined the potential effect of the amendment. Current tax is the expected tax payable or receivable on the Amendment to IFRS 2 Share-based Payment – Group Cash-settled Share-based taxable income or loss for the year, using tax rates enacted Payment Transactions which clarifies that the entity receiving goods or services in a or substantively enacted at the reporting date, and any share-based payment transaction that is settled by any other entity in the group or adjustment to tax payable in respect of previous years. any shareholder of such an entity in cash or other assets is required to recognise the goods or services received in its consolidated financial statements. Amend- Deferred tax is recognised in respect of temporary differ- ment will come into effect on 1 January 2010. The Group has not yet determined ences between the carrying amounts of assets and liabilities the potential effect of the amendment. for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the fol- Revised IFRS 3 Business Combinations (2008) and amended IAS 27 (2008) Con- lowing temporary differences: the initial recognition of assets solidated and Separate Financial Statements came into effect on 1 July 2009 or liabilities in a transaction that is not a business combina- (i.e. they become mandatory for the Group’s 2010 consolidated financial state- tion and that affects neither accounting nor taxable profit or ments). The revisions address, among other things, accounting for step acquisi- loss, and differences relating to investments in subsidiaries tions, require acquisition-related costs to be recognised as expenses and remove and jointly controlled entities to the extent that it is prob- the exception for changes in contingent consideration to be accounted by adjust- able that they will not reverse in the foreseeable future. In ing goodwill. The revisions also address how non-controlling interests in subsidiar- addition, deferred tax is not recognised for taxable tempo- ies should be measured upon acquisition and require the effects of transactions rary differences arising on the initial recognition of goodwill. with non-controlling interests to be recognised directly in equity. The Group has not Deferred tax is measured at the tax rates that are expected yet determined the potential effect of the revised standard. to be applied to the temporary differences when they reverse, based on the laws that have been enacted or sub- IFRS 9 Financial Instruments will be effective for annual periods beginning on or stantively enacted by the reporting date. Deferred tax assets after 1 January 2013. The new standard is to be issued in several phases and is and liabilities are offset if there is a legally enforceable right intended to replace International Financial Reporting Standard IAS 39 Financial to offset current tax assets and liabilities, and they relate to Instruments: Recognition and Measurement once the project is completed by the income taxes levied by the same tax authority on the same end of 2010. The first phase of IFRS 9 was issued in November 2009 and relates taxable entity, or on different tax entities, but they intend to to the recognition and measurement of financial assets. The Group recognises that settle current tax liabilities and assets on a net basis or their the new standard introduces many changes to the accounting for financial instru- tax assets and liabilities will be realised simultaneously. ments and is likely to have a significant impact on Group’s consolidated financial statements. The impact of these changes will be analysed during the course of the A deferred tax asset is recognised for unused tax losses, tax project as further phases of the standard are issued. credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against IFRIC 17 Distributions of Non-cash Assets to Owners addresses the accounting for non- which they can be utilised. Deferred tax assets are reviewed at cash dividend distributions to owners. The interpretation clarifies when and how a non- each reporting date and are reduced to the extent that it is no cash dividend should be recognised and how the difference between the dividend paid longer probable that the related tax benefit will be realised. and the carrying amount of the net assets distributed should be recognised. IFRIC 17 became effective for annual periods beginning on or after 1 July 2009. The Group has (p) Earnings per share not yet determined the potential effect of the interpretation. The Group presents basic and diluted earnings per share IFRIC 18 Transfers of Assets from Customers applies to accounting for transfers of (“EPS”) data for its ordinary shares. Basic EPS is calculated by items of property, plant and equipment by entities that receive such transfers from dividing the profit or loss attributable to ordinary shareholders their customers. The interpretation clarifies the recognition and measurement of items of the Company by the weighted average number of ordinary received, how the resulting credit, as well as the transfer of cash from customers shares outstanding during the period, adjusted for own shares should be accounted for. IFRIC 18 applies prospectively to transfers of assets from held. Diluted EPS is determined by adjusting the profit or loss customers received on or after 1 July 2009. The Group has not yet determined the attributable to ordinary shareholders and the weighted average potential effect of the interpretation. number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments provides guidance on accounting for debt for equity swaps by the debtor. The interpretation clarifies that (q) Segment reporting an entity’s equity instruments qualify as “consideration paid” in accordance with para- An operating segment is a component of the Group that graph 41 of International Financial Reporting Standards IAS 39 Financial Instruments: engages in business activities from which it may earn reve- Recognition and Measurement. Additionally, the interpretation clarifies how to account nues and incur expenses, including revenues and expenses for the initial measurement of own equity instruments issued to extinguish a financial lia- that relate to transactions with any of the Group’s other bility and how to account for the difference between the carrying amount of the finan- components. All operating segments’ operating results are cial liability extinguished and the initial measurement amount of the equity instruments reviewed regularly by the Group’s Management Board to issued. IFRIC 19 is applicable for annual periods beginning on or after 1 July 2010. The make decisions about resources to be allocated to the seg- Group has not yet determined the potential effect of the interpretation. ment and assess its performance, and for which discrete Various Improvements to IFRSs have been dealt with on a standard-by-standard financial information is available (see note 2(e)(ii)). basis. All amendments, which result in accounting changes for presentation, rec- (r) New Standards and Interpretations not yet ognition or measurement purposes, will come into effect not earlier than 1 January adopted 2010. The Group has not yet analysed the likely impact of the improvements on its financial position or performance. A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2009,

Baltika Breweries 65 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

4. DETERMINATION OF FAIR VALUES

A number of the Group’s accounting policies and disclosures require the determination (c) Inventories of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following The fair value of inventories acquired in a business combi- methods. When applicable, further information about the assumptions made in deter- nation is determined based on its estimated selling price in mining fair values is disclosed in the notes specific to that asset or liability. the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based (a) Property, plant and equipment on the effort required to complete and sell the inventories. The fair value of property, plant and equipment recognised as a result of a business (d) Investments in equity and debt securities combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between The fair value of held-to-maturity investments and availa- a willing buyer and a willing seller in an arm’s length transaction after proper market- ble-for-sale financial assets is determined by reference to ing wherein the parties had each acted knowledgeably and willingly. The fair value of their quoted bid price at the reporting date. The fair value items of plant, equipment, fixtures and fittings is based on market approach and cost of held-to-maturity investments is determined for disclosure approaches using quoted market prices for similar items when available. purposes only. When no quoted market prices are available, the fair value of property, plant and equip- (e) Trade and other receivables ment is primarily determined using depreciated replacement cost. This method consid- The fair value of trade and other receivables is estimated ers the cost to reproduce or replace the property, plant and equipment, adjusted for as the present value of future cash flows, discounted at the physical, functional or economical depreciation, and obsolescence. market rate of interest at the reporting date. This fair value is determined for disclosure purposes. (b) Intangible assets The fair value of patents and trademarks acquired in a business combination is based (f) Non-derivative financial liabilities on the discounted estimated royalty payments that have been avoided as a result of Fair value, which is determined for disclosure purposes, is the patent or trademark being owned. calculated based on the present value of future principal and interest cash flows, discounted at the market rate of The fair value of other intangible assets is based on the discounted cash flows expected interest at the reporting date. to be derived from the use and eventual sale of the assets.

5. SEGMENT REPORTING

The Group is engaged in the production and distribution of beer, soft drinks and min- Within the segment all business components demonstrate eral water and has identified these operations as a single reportable segment. similar economic characteristics: the products and customers; The Group identified the segment in accordance with the criteria set in IFRS 8 Operat- ing Segments and based on the way the operations of the Group are regularly reviewed the business processes are integrated and uniform: the by the chief operating decision maker to analyze performance and allocate resources Group manages its operations centrally. Purchasing, within the Group. logistics, finance, HR and IT functions are centralized; the Group’s activities are mainly limited to Russia which The Group’s chief operating decision maker has been determined as the Management has a uniform regulatory environment. Board. The Management Board assesses the performance of the The segment represents the Group’s business of production and distribution of beer, operating segment based on adjusted earnings before soft drinks and mineral water in Russia, Azerbaijan and other countries. Currently the interest, tax, depreciation and amortization (EBITDA); meas- Group’s operations in Azerbaijan and other countries make an insignificant contribution ures for sales and other information are consistent with that to the financial results of the Group. in the consolidated financial statements. The accounting policies used for the segment are the same as accounting policies applied for the consolidated financial statements as described in note 3.

The segment information for the year ended 31 December 2009 is as follows:

’000 RUR 2009 2008 Revenue 93,648,747 92,482,283 EBITDA (including share of (loss) / profit of equity accounted investee (net of income tax) RUR (29,374) thousand (2008: RUR 47,370 thousand )) 34,261,825 27,069,845

66 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

A reconciliation of EBITDA to profit for the year is as follows:

’000 RUR 2009 2008 EBITDA (including share of (loss) / profit of equity accounted investee (net of income tax)) 34,261,825 27,069,845 Depreciation and amortisation (4,644,309) (4,795,897) Finance income 1,834,591 1,619,812 Finance costs (2,349,918) (3,678,392) Profit before income tax 29,102,189 20,215,368 Income tax (5,729,920) (4,707,119) Profit for the year 23,372,269 15,508,249

6. FINANCIAL RISK MANAGEMENT

(a) Overview industry in which customers operate, as these factors may have an influence on credit risk, particularly in the currently deteriorating economic circumstances. Substantially all of The Group has exposures to the following risks from the Group’s customers are located in the Russian Federation. Approximately 14.9% (2008: use of financial instruments: 14.5%) of the Group’s revenue is attributable to sales transactions with a single customer. Credit risk Management has established a credit policy under which each new customer is ana- Liquidity risk lysed individually for creditworthiness before the Group’s standard payment and deliv- Market risk ery terms and conditions are offered. The Group’s review includes background checks on new customers. Purchase limits are established for each customer, and represent This note presents information about Group’s exposure to the maximum open amount without requiring approval from the Credit Committee; each of the above risks, the Group’s objectives, policies and these limits are reviewed monthly. Customers that fail to meet the Group’s benchmark processes for measuring and managing risk and the Group’s creditworthiness may transact with the Group only on a prepayment basis. management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. About 69% of the Group’s customers have been transacting with the Group for more than 2 years, and losses have occurred infrequently. In monitoring customer credit risk, Risk management framework customers are grouped according to their credit characteristics, including whether The Board of Directors has overall responsibility for the they are an individual or legal entity, whether they are a wholesale or retail customers, establishment and oversight of the Group’s risk manage- geographic location, maturity, and existence of any previous financial difficulties. Trade ment framework. The Board has established an Audit Com- receivables relate mainly to the Group’s wholesale customers. The Group requires col- mittee which is responsible for developing and monitoring lateral in respect of trade receivables. Credit evaluations are performed on all custom- the Group’s risk management policies. The Audit Committee ers, other than related parties, requiring credit over a certain amount. reports regularly to the Board of Directors on its activities. The Group establishes an allowance for impairment that represents its estimate of The Group’s risk management systems are established to incurred losses in respect of trade and other receivables and investments. The main identify and analyse the risks faced by the Group, to set components of this allowance are a specific loss component that relates to individu- appropriate risk limits and controls, and to monitor risks and ally significant exposures, and a collective loss component established for groups of adherence to limits. Risk management systems are reviewed similar assets in respect of losses that have been incurred but not yet identified. The regularly to reflect changes in market conditions and the collective loss allowance is determined based on historical data of payment statistics Group’s activities. The Group, through its training and man- for similar financial assets. agement standards and procedures, aims to develop a dis- ciplined and constructive control environment in which all (ii) Investments employees understand their roles and obligations. The Group limits its exposure to credit risk by only investing in liquid securities in accordance with Group’s deposit policy and only with counterparties that are in the top 50 rated The Group’s Audit Committee oversees how management banks of Russian Federation according to the size of total assets. In order to determine the monitors compliance with the Group’s risk management sys- amounts to be deposited with each bank the Group studies the financial statements of the tem and procedures and reviews the adequacy of the risk bank and bank credit ratings. The status of the banks is reconsidered every 6 months. management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role (c) Liquidity risk by Internal Audit. Internal Audit undertakes both regular and Liquidity risk is the risk that the Group will encounter difficulty in meeting the obliga- ad hoc reviews of risk management controls and procedures, tions associated with its financial liabilities that are settled by delivering cash or another the results of which are reported to the Audit Committee. financial asset. The Group’s approach to managing liquidity is to ensure, as far as pos- (b) Credit risk sible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking Credit risk is the risk of financial loss to the Group if a cus- damage to the Group’s reputation. tomer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s Typically, the Group ensures that it has sufficient cash on demand to meet expected oper- receivables from customers and investment securities. ational expenses for a period of 35 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably pre- (i) Trade and other receivables dicted, such as instability of financial system and the impact of monopolists and changes The Group’s exposure to credit risk is influenced mainly by in statutory regulations. In addition the Group maintains the following lines of credit: the individual characteristics of each customer. However, the USD 176,425 thousand multicurrency unsecured credit facility. Interest would be management of the Group also considers the demographics payable for EURO/USD/RUR at the rate of LIBOR/EURIBOR/Cost of funds for the of the Group’s customer base, including the default risk of the lender+0.75%;

Baltika Breweries 67 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

USD 143,460 thousand multicurrency unsecured credit facility. Interest would be rowings management uses its judgment to decide whether it payable for EURO/USD/RUR at the rate of LIBOR/EURIBOR/Mosprime+0.375%; believes that a fixed or variable rate would be more favorable to the Group over the expected period until maturity. USD 81,915 thousand multicurrency unsecured credit/overdraft facility. Interest would be determined as each tranche is drawn down. (iii) Other market risk Material investments are managed on an individual basis (d) Market risk and are approved by the Board of Directors. Market risk is the risk that changes in market prices, such as foreign exchange rates The primary goal of the Group’s investment strategy is to and interest rates will affect the Group’s income or the value of its holdings of financial maximise investment returns. instruments. The objective of market risk management is to manage and control mar- The Group does not enter into commodity contracts other ket risk exposures within acceptable parameters, while optimizing the return. than to meet the Group’s expected usage and sale require- (i) Currency risk ments; such contracts are not settled net. The Group is exposed to currency risk on purchases and borrowings that are denomi- (e) Capital management nated in a currency other than the respective functional currencies of the Group enti- The Group’s policy is to maintain a strong capital base so as to ties, primarily the Russian Rouble (RUR). The currencies in which these transactions maintain investor, creditor and market confidence and to sus- are primarily denominated are USD and EURO. tain future development of the business. The Board of Direc- (ii) Interest rate risk tors monitors the level of dividends to ordinary shareholders. Changes in interest rates impact primarily loans and borrowings by changing either their The Board of Directors seeks to maintain a balance between fair value (fixed rate debt) or their future cash flows (variable rate debt). Management the higher returns that might be possible with higher levels does not have a formal policy of determining how much of the Group’s exposure should of borrowings and the advantages and security afforded by be subject to fixed or variable rates. However, at the time of raising new loans or bor- a sound capital position.

The Group’s debt to capital ratio at the end of the year was as follows:

’000 RUR 2009 2008 Total liabilities 15,957,254 20,624,045 Less: cash and cash equivalents 1,740,702 1,691,594 Net debt 14,216,552 18,932,451 Total equity 63,681,313 54,011,129 Debt to capital ratio at 31 December 0.22 0.35

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

7. OTHER INCOME

2009 2008 ’000 RUR ’000 RUR Gain on disposal of property, plant and equipment and intangible assets 72,217 82,546 Other expenses -(4,059) 72,217 78,487

8. ADMINISTRATIVE EXPENSES

2009 2008 (restated) ’000 RUR ’000 RUR Wages and salaries 825,486 722,636 Depreciation and amortisation 484,592 455,320 Information technology and communications 170,580 188,031 Payroll taxes 105,673 105,965 Other payroll expenses 105,064 171,521 Facilities 94,432 201,554 Charity 35,244 50,547 Other administrative expenses 707,650 706,579 2,528,721 2,602,153

68 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

9. PERSONNEL COSTS

2009 2008 ’000 RUR ’000 RUR Wages and salaries 5,976,138 5,956,992 Contributions to state pension fund 760,122 803,800 Other payroll taxes 268,957 288,156 Other payroll expenses 575,089 504,836 7,580,30 6 7,553,784

10. FINANCE INCOME AND FINANCE COSTS

2009 2008 ’000 RUR ’000 RUR Recognised in profit or loss Interest income on unimpaired held-to-maturity investments 93,068 137,798 Interest income on loans and receivables 1,188 - Interest income on bank deposits 372,086 115,411 Foreign exchange gain 1,368,249 1,366,603 Finance income 1,834,591 1,619,812 Interest expense on financial liabilities measured at amortised cost 190,319 573,336 Foreign exchange loss 2,159,599 3,105,056 Finance costs recognised in profit or loss 2,349,918 3,678,392 The above financial income and costs include the following in respect of assets/(liabilities) not at fair value through profit and loss: Total interest income on financial assets 466,342 253,209 Total interest expense on financial liabilities 190,319 573,336

Recognised in other comprehensive income Foreign currency translation differences for foreign operations 257,818 415,353 Finance income recognised in other comprehensive income, net of tax 257,818 415,353

11. INCOME TAX EXPENSE

2009 2008 ’000 RUR ’000 RUR Current tax expense Current year 5,498,430 4,734,655 Deferred tax expense Origination and reversal of temporary differences 231,490 (27,536) Total income tax expense 5,729,920 4,707,119

The Group’s applicable tax rate is the corporate income tax rate of 20% for Russian companies (2008: 24%). With effect from 1 January 2009, the income tax rate for Russian companies was reduced to 20%. 2009 2008 ’000 RUR % ’000 RUR % Profit before income tax 29,102,189 100 20,215,368 100 Income tax at applicable tax rate 5,820,438 20.0 4,851,688 24.0 Non-deductible expenses 353,281 1.2 557,832 2.8 Reduction in tax rate - - (277,425) (1.4) Effects of tax concessions (496,860) (1.7) (340,979) (1.7) Other 53,061 0.2 (83,997) (0.4) 5,729,920 19.7 4,707,119 23.3

Baltika Breweries 69 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

12. PROPERTY, PLANT AND EQUIPMENT

Land and Machinery and Construction ’000 RUR buildings equipment Kegs in progress Total Cost/Deemed cost At 1 January 2008 9,961,904 36,231,977 1,567,399 6,544,660 54,305,940 Additions 811,428 5,029,809 416,877 1,993,180 8,251,294 Acquisitions through business combinations 109,263 297,886 670 3,101 410,920 Disposals (7,974) (308,753) (7,416) - (324,143) Transfers 862,959 2,462,801 302,561 (3,646,021) (17,700) Effect of movements in exchange rates 18,494 56,324 113 1,108 76,039 At 31 December 2008 11,756,074 43,770,044 2,280,204 4,896,028 62,702,350 Additions 391,620 2,609,742 - 420,069 3,421,431 Disposals (11,796) (199,545) (19,524) (1,358) (232,223) Transfers 2,654,700 441,446 (10,258) (3,088,393) (2,505) Effect of movements in exchange rates 34,468 (19,323) (493) 11,430 26,082 At 31 December 2009 14,825,066 46,602,364 2,249,929 2,237,776 65,915,135

Depreciation and impairment losses At 1 January 2008 (1,001,969) (13,327,579) (610,011) - (14,939,559) Depreciation for the year (322,457) (4,101,108) (191,896) - (4,615,461) Disposals 1,977 204,789 6,560 - 213,326 Transfers (8,347) 8,347 - - - Effect of movements in exchange rates - (3,908) - - (3,908) At 31 December 2008 (1,330,796) (17,219,459) (795,347) - (19,345,602) Depreciation for the year (449,605) (3,965,845) (198,641) - (4,614,091) Disposals 2,887 187,045 18,610 - 208,542 Transfers (334,275) 351,138 (16,863) - - Effect of movements in exchange rates (78) 13,161 23 - 13,106 At 31 December 2009 (2,111,867) (20,633,960) (992,218) - (23,738,045)

Carrying amounts At 1 January 2008 8,959,935 22,904,398 957,388 6,544,660 39,366,381 At 31 December 2008 10,425,278 26,550,585 1,484,857 4,896,028 43,356,748 At 31 December 2009 12,713,199 25,968,404 1,257,711 2,237,776 42,177,090

Depreciation expense of RUR 2,526,958 thousand has been included in cost of goods sold (2008: RUR 2,655,720 thousand), RUR 1,600,430 thousand in distribution expenses (2008: RUR 1,660,394 thousand), RUR 320,191 thousand in administrative expense (2008: RUR 299,347 thousand) and RUR 166,512 thousand in cost of inventories as at 31 December 2009 (2008: Nil). As a result of the change in accounting policy with respect to the treatment of borrowing costs, at 31 December 2009 capitalised borrowing costs related to the construction of buildings amounted to RUR 3,318 thousand (2008: Nil).

70 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

13. INTANGIBLE ASSETS

Software and ’000 RUR Goodwill Trademarks licences Total Cost At 1 January 2008 11,598,819 - 400,087 11,998,906 Additions - - 248,487 248,487 Acquisitions through business combinations 1,638,615 45,004 56 1,683,675 Transfers - - 17,700 17,700 Effect of movements in exchange rates 277,246 7,608 13 284,867 At 31 December 2008 13,514,680 52,612 666,343 14,233,635 Additions --253,141253,141 Transfers --2,5052,505 Effect of movements in exchange rates 145,976 5,167 350 151,493 At 31 December 2009 13,660,656 57,779 922,339 14,640,774

Amortisation At 1 January 2008 - - (261,942) (261,942) Amortisation for the year - (1,252) (179,184) (180,436) Effect of movements in exchange rates - (63) (3) (66) At 31 December 2008 - (1,315) (441,129) (442,444) Amortisation for the year - (6,054) (190,676) (196,730) Effect of movements in exchange rates - 139 61 200 At 31 December 2009 - (7,230) (631,744) (638,974)

Carrying amounts At 1 January 2008 11,598,819 - 138,145 11,736,964 At 31 December 2008 13,514,680 51,297 225,214 13,791,191 At 31 December 2009 13,660,656 50,549 290,595 14,001,800

Amortisation expense of RUR 12,589 thousand has been included in cost of goods sold (2008: RUR 7,246 thousand), RUR 19,740 thousand in distribution expenses (2008: RUR 17,217 thousand) and RUR 164,401 thousand in administrative expense (2008: RUR 155,973 thousand).

(a) Impairment testing of goodwill For the purposes of impairment testing, goodwill is con- An after-tax discount rate of 14.5% was applied in determining the recoverable sidered at the Group level and has not been allocated to amount of the plants. The discount rate was estimated based on an industry aver- individual plants. This represents the lowest level within the age weighted average cost of capital, which was based on an average industry Group at which the goodwill is monitored for internal man- debt to total capital ratio of 16.55% at a market interest rate of 6.89%. agement purposes. The values assigned to the key assumptions represent management’s assessment of The recoverable amount of the Group’s plants was based future trends in the beer production industry and are based on both external sources on their value in use and was determined by discounting and internal sources. the future cash flows generated from their continuing use. The calculation of the value in use was based on the follow- Although no impairment loss was recognised in respect of goodwill the determination ing key assumptions: of recoverable amount is sensitive to the rate at which the Group achieves its planned growth in production. Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a In determining a value in use of RUR 180,090,000 thousand (compared to a carry- further 5-year period were extrapolated using a declining amount of RUR 56,178,890 thousand) management has assumed that production ing growth rate of 5% – nil. volume will reach 36,384 thousand hectolitres in the first year of the business plan and 52,700 thousand hectolitres by the tenth year. In the first year of business plan revenue was projected using declining rate of growth, that reflect current dif- If actual production were to be below estimated production by 44% in 2010 and sub- ficult business conditions. The anticipated annual pro- sequent years, the value in use would approximate the carrying amounts of the plants duction growth included in the cash flow projections and goodwill. was between 5% and 11% for the years 2011 to 2014 and reflects an expectation of a recovery in the economy at the end of 2010.

Baltika Breweries 71 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

14. EQUITY ACCOUNTED INVESTEES

The Group has the following investment in an equity accounted investee: Country Ownership/Voting Malterie Soufflet Saint Petersburg (“Soufflet”) Russia 30%

This company produces malt. The Group’s share of losses in its equity accounted investee for the year ended 31 December 2009 was RUR 29,734 thousand (2008: profit RUR 47,370 thousand). The Group’s share of post-acquisition total recognised gains and losses in associates as at 31 December 2009 was RUR 232,255 thousand (31 December 2008: RUR 279,108 thousand).

15. OTHER INVESTMENTS

2009 2008 ’000 RUR ’000 RUR Non-current Available-for-sale investments: Measured at cost 9,781 9,796

Current Investments held-to-maturity: Promissory notes and bank deposits 6,860,751 - Loans to related parties 2,190,548 - 9,051,299

Available-for-sale investments stated at cost comprise unquoted equity securities in the The Group’s exposure to credit, currency and interest rate brewery and banking industries. There is no market for these investments and there have risks related to other investments are disclosed in note 24. not been any recent transactions that provide evidence of fair value. However, management believes it unlikely that the fair value at the end of the reporting period would differ significantly from their carrying amount.

16. DEFERRED TAX ASSETS AND LIABILITIES

Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net 2008 2007 2008 2007 2008 2007 ’000 RUR 2009 (restated) (restated) 2009 (restated) (restated) 2009 (restated) (restated) Property, plant and equipment - - - (2,557,771) (2,074,779) (1,989,837) (2,557,771) (2,074,779) (1,989,837) Intangible assets 15,281 10,789 7,890 (10,102) (11,285) - 5,179 (496) 7,890 Investments - - - (17,459) (21,676) (15,192) (17,459) (21,676) (15,192) Inventories 33,157 124,131 68,329 (15,246) - - 17,911 124,131 68,329 Trade and other receivables186,752262,324294,852---186,752262,324294,852 Trade and other payables 733,716 323,372 202,498 - - - 733,716 323,372 202,498 Net tax assets/ (liabilities) 968,906 720,616 573,569 (2,600,578) (2,107,740) (2,005,029) (1,631,672) (1,387,124) (1,431,460)

During the year ended 31 December 2009 RUR 231,490 thousand (2008: RUR 27,536 the year ended 31 December 2008 RUR 15,970 thousand of thousand) of the movement in the net deferred tax liability was recognized in the income the movement in the net deferred tax liability was acquired statement and RUR 13,058 thousand (2008: RUR 830 thousand), relating to foreign through business combination. exchange differences, was recognized directly in other comprehensive income. During

72 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

17. INVENTORIES

2009 2008 (restated) 2007 (restated) ’000 RUR ’000 RUR ’000 RUR Raw materials and consumables 3,328,168 5,784,681 5,621,525 Work in progress 288,884 553,718 560,136 Finished goods and goods for resale 679,001 1,012,415 1,269,531 4,296,053 7,350,814 7,451,192 Write-down of inventories in the current year 178,636 253,860 147,335

In 2009 raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales amounted to RUR 30,616,587 thousand (2008: RUR 37,569,015 thousand).

18. TRADE AND OTHER RECEIVABLES

2009 2008 ’000 RUR ’000 RUR Trade receivables 6,872,638 4,409,860 VAT receivable 165,512 321,637 Advances to suppliers 720,358 2,074,737 Other receivables 384,979 816,705 8,143,487 7,622,939 Accumulated impairment losses on receivables (81,394) (111,898) 8,062,093 7,511,041

The Group’s exposure to credit risk and currency risk related to trade and other receivables is disclosed in note 24.

19. CASH AND CASH EQUIVALENTS

2009 2008 ’000 RUR ’000 RUR Bank balances 288,368 1,553,939 Bank deposits and bank promissory notes 1,452,334 137,655 Cash and cash equivalents in the statement of financial position and in the statement of cash flows 1,740,702 1,691,594

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 24.

20. EQUITY

(a) Share capital and additional paid-in capital

Number of shares unless otherwise stated Ordinary shares Ordinary shares Preference shares Preference shares 2009 2008 2009 2008 Authorised shares Par value RUR 1 RUR 1 RUR 1 RUR 1

On issue at beginning of the year 151,714,594 151,721,708 12,326,570 12,394,003 Redemption -(7,114)-(67,433) On issue at end of the year, fully paid 151,714,594 151,714,594 12,326,570 12,326,570

Baltika Breweries 73 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

The holders of ordinary shares are entitled to receive dividends as declared from time ter all shareholders, ordinary and preference, participate to time and are entitled to one vote per share at meetings of the Company. equally in the distribution of the remaining assets. Preference shares have no right of conversion or redemption, but are entitled to an (b) Dividends annual dividend equal to the nominal value of the shares multiplied by the interest rate In accordance with Russian legislation, distributable of the Savings Bank of the Russian Federation, plus 10%. If the dividend is not paid, reserves are limited to the balance of accumulated retained preference shares carry the right to vote until the following Annual Shareholders’ Meet- earnings as recorded in the Company’s statutory financial ing. However, the dividend is not cumulative. The preference shares also carry the statements, prepared in accordance with Russian Account- right to vote in respect of issues that influence the interests of preference shareholders, ing Principles. As at 31 December 2009 the Company including reorganisation and liquidation of the Company. had retained earnings, including profit for the current year In the event of liquidation, preference shareholders first receive any declared unpaid of RUR 34,906,210 thousand (31 December 2008: RUR dividends and the par value of the preference shares (“liquidation value”). Thereaf- 25,321,399 thousand).

The following table details the dividends declared by the Company for the years ended 31 December 2009 and 31 December 2008:

RUR per share ’000 RUR Year ended 31 December 2008 Preference shares Dividends for 2007 52 640,981 Ordinary shares Dividends for 2007 52 7,889,159

Year ended 31 December 2009 Preference shares Dividends for 2008 85.1 1,048,991 Ordinary shares Dividends for 2008 85.1 12,910,912

The shareholders’ meeting held on 2 April 2009 approved dividends amounting to RUR 13,959,903 thousand.

21. EARNINGS PER SHARE

The calculation of earnings per share is based upon the profit for the year attributable to ordinary shares and the weighted average number of ordinary shares outstanding during the year, calculated as shown below. The Company has no dilutive potential ordinary shares. Weighted average number of ordinary shares

Number of shares unless otherwise stated 2009 2008 Issued shares at 1 January 151,714,594 151,721,708 Effect of redemption of shares -(6,939) Weighted average number of shares for the for the year ended 31 December 151,714,594 151,714,769

Profit attributable to ordinary shareholders 2009 2008 (restated) ’000 RUR ’000 RUR Profit for the year attributable to shareholders of the Company 23,372,269 15,508,249 Preference dividends recognised during the year (1,048,991) (640,981) Profit attributable to ordinary shares 22,323,278 14,867,268

74 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

22. LOANS AND BORROWINGS

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risks, see note 24. 2009 2008 ’000 RUR ’000 RUR Non-current liabilities Secured bank loans -176,304 -176,304 Current liabilities Unsecured bank loans -4,116,537 Unsecured loan from Carlsberg Breweries A/S -1,097,628 Unsecured loans from other companies -1,852,639 Current portion of secured bank loans 181,572 496,033 181,572 7,562,837

(a) Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows:

31 December 2009 31 December 2008 Nominal Year of Face Carrying Carrying ’000 RUR Currency interest rate maturity value amount Face value amount LIBOR Secured bank loan USD +0.75% 2009-2010 181,572 181,572 672,337 672,337 LIBOR Unsecured bank loan USD +0.65% 2009 - - 22,714 22,714 LIBOR Unsecured bank loan USD +0.375% 2009 - - 1,777,439 1,777,439 EURIBOR Unsecured bank loan EURO +0.375% 2009 - - 2,316,384 2,316,384 Unsecured loan from Carlsberg Breweries A/S RUR 11.33% 2009 - - 1,097,628 1,097,628 Unsecured loans from other EURIBOR companies EURO +0.75% 2009 - - 1,852,639 1,852,639 181,572 181,572 7,739,141 7,739,141

The bank loan is fully secured by the guarantee of the Company’s parent company, Baltic Beverages Holding AB.

23. TRADE AND OTHER PAYABLES

2009 2008 ’000 RUR ’000 RUR Trade payables 5,214,709 5,645,034 Taxes payable 4,214,958 3,326,583 Accrued salaries, wages and benefits 1,276,828 1,359,334 Dividends payable 114,655 134,503 Payables to equity accounted investee 42,902 106,718 Other payables and provisions 2,534,529 434,430 13,398,581 11,006,602

There are actual and potential claims to the Group from it can be expected to prejudice seriously the position of the Group in actual and poten- its suppliers that allege the Group has not fulfilled con- tial disputes. tract terms. The information usually required by IAS 37 Provisions, Contingent Liabilities and Contingent Assets in The Group’s exposure to currency and liquidity risk related to trade and other payables respect of these claims is not disclosed on the grounds that is disclosed in note 24.

Baltika Breweries 75 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

24. FINANCIAL INSTRUMENTS

(a) Credit risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount 2009 2008 ’000 RUR ’000 RUR Trade and other receivables 7,341,735 5,436,304 Available-for-sale financial assets 9,781 9,796 Held-to-maturity investments 9,051,299 - Cash and cash equivalents 1,740,702 1,691,594 18,143,517 7,137,694

The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was: Carrying amount 2009 2008 ’000 RUR ’000 RUR Wholesale customers 5,752,447 3,669,764 Retail customers 1,120,191 740,096 6,872,638 4,409,860 Accumulated impairment losses on receivables (81,394) (111,898) 6,791,244 4,297,962

The Group’s most significant customer, a domestic wholesaler, accounts for RUR 998,900 thousand of the trade receivables carrying amount as at 31 December 2009 (2008: RUR 858,434 thousand). Substantially all the Group’s receivables relate to sales to customers in Russia.

Impairment losses The ageing of trade receivables at the reporting date was: Gross Impairment Gross Impairment 2009 2009 2008 2008 ’000 RUR ’000 RUR ’000 RUR ’000 RUR Current 6,680,914 - 4,203,372 - Past due 0 – 90 days 110,330 - 78,501 - Past due more than 90 days 81,394 81,394 127,987 111,898 6,872,638 81,394 4,409,860 111,898

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2009 2008 ’000 RUR ’000 RUR Balance at beginning of the year 111,898 106,128 Impairment loss (reversed)/recognised (8,501) 49,453 Amounts written off against trade receivables (22,003) (43,683) Balance at end of the year 81,394 111,898

Based on historic default rates the Group believes that no general impairment allow- The allowance account in respect of trade receivables is ance is necessary in respect of trade receivables not past due and past due by up to used to record impairment losses unless the Group is satis- 90 days. 94% of the balance, which includes the amount owed by the Group’s most fied that no recovery of the amount owing is possible; at significant customer (see above), relates to customers that have a good track record that point the amount is considered irrecoverable and writ- with the Group. The total impairment loss 31 December 2009 of RUR 81,394 thousand ten off against the financial asset directly. relates to collective loss established for overdue receivables. Of the total impairment loss as at 31 December 2008 of RUR 111,898 thousand, RUR 73,269 thousand relates to claims from the Group’s most significant customer.

76 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

(b) Liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

31 December 2009 Carrying Contractual More than 5 ’000 RUR amount cash flows 0-6 months 6-12 months 1-2 years 2-5 years years Non-derivative financial liabilities Secured bank loans 181,572182,674182,674---- Trade and other payables 13,398,58113,398,58113,398,581---- 13,580,15313,581,25513,581,255----

31 December 2008 Carrying Contractual More than 5 ’000 RUR amount cash flows 0-6 months 6-12 months 1-2 years 2-5 years years Non-derivative financial liabilities Secured bank loans 672,337 690,334 257,541 253,889 178,904 - - Unsecured bank loans 4,116,5374,174,3884,174,388---- Unsecured loan from Carlsberg Breweries A/S 1,097,628 1,194,029 61,683 1,132,346 - - - Unsecured loans from other companies1,852,6391,857,3701,857,370---- Trade and other payables 11,006,60211,006,60211,006,602---- 18,745,743 18,922,723 17,357,584 1,386,235 178,904 - -

(c) Currency risk Exposure to currency risk The Group’s exposure to foreign currency risk was as follows based on notional amounts: Euro- USD- Euro- USD- denominated denominated denominated denominated 2009 2009 2008 2008 Current assets Cash and cash equivalents 11,428 29,234 267,362 429,560 Held-to-maturity investments 738,816 2,797,109 Trade receivables 15,789 - 6,696 2,705 Current liabilities Secured bank loans -(181,572)-(496,033) Unsecured bank loans - - (2,316,384) (1,800,153) Unsecured loans from other companies - - (1,852,639) - Trade payables (576,325) (109,563) (676,238) (93,556) Non-current liabilities Secured bank loans ---(176,304) Gross balance sheet exposure 189,708 2,535,208 (4,571,203) (2,133,781) Net Group exposure from commitments and anticipated transactions (75,139) - (248,355) (2,262) Net exposure 114,569 2,535,208 (4,819,558) (2,136,043)

The following exchange rates applied during the year and as at the end of the year:

Average rate Reporting date spot rate RUR 1 equals 2009 2008 2009 2008 USD 0.0315 0.0402 0.0331 0.0340 EURO 0.0227 0.0275 0.0230 0.0241

Sensitivity analysis A 20% strengthening of the RUR, as indicated below, currency exchange rate variances that the Group considered to be reasonably pos- against the following currencies at 31 December would sible at the end of the reporting period. The analysis assumes that all other variables, in have increased (decreased) equity and profit or loss by the particular interest rates, remain constant. The analysis is performed on the same basis amounts shown below. This analysis is based on foreign for 2008.

Baltika Breweries 77 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

’000 RUR Equity Profit or loss 2009 USD (20% strengthening) (507,042) (507,042) EUR (20% strengthening) (22,914) (22,914) 2008 USD (20% strengthening) 427,209 427,209 EUR (20% strengthening) 963,911 963,911

A weakening of the RUR against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

(d) Interest rate risk Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

’000 RUR Carrying amount Fixed rate instruments 2009 2008 Financial assets 10,503,633 137,655 Financial liabilities -(7,044,090) 10,503,633 (6,906,435) Variable rate instruments Financial liabilities (181,572) (695,051) Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit and loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2008. Profit or loss and equity 2009 100 bp 100 bp ’000 RUR increase decrease Variable rate instruments (1,816) (1,816) Cash flow sensitivity (1,816) (1,816)

2008 ’000 RUR Variable rate instruments (6,951) (6,951) Cash flow sensitivity (6,951) (6,951)

(e) Fair values The basis for determining fair value is disclosed in note 4. The fair value of unquoted equity instruments is discussed in note 15. In other cases management believes that the fair value of the Group’s financial assets and liabilities approximates their carrying amounts.

25. OPERATING LEASES

Non-cancellable operating lease rentals are payable as follows:

’000 RUR 2009 2008 Less than one year 222,589 264,539 Between one and five years 59,137 95,814 More than five years 239,070 249,362 520,796 609,715

The Group leases a number of land plots and buildings under operating leases. Les- During the year ended 31 December 2009 an amount of sors for these leases are state authorities and third parties. The leases of land plots are RUR 287,110 thousand was recognised as an expense typically run for 25-49 years. Leases of buildings are typically run for 11 months with an in profit or loss in respect of operating leases (2008: RUR option to renew the lease after that date. The Group has no contingent rent arrange- 315,972 thousand). ments or subleases.

78 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

26. CAPITAL COMMITMENTS

As at 31 December 2009 the Group had the following commitments relating to property, plant and equipment (31 December 2008: RUR 879,574 thousand):

2009 Project ’000 RUR Baltika-St. Petersburg plant 129,569 Baltika-Rostov plant 47,971 Baltika-Baku plant 41,226 Baltika-Novosibirsk plant 22,835 Baltika-Samara plant 21,060 Baltika-Yaroslavl plant 16,072 Baltika-Tula plant 10,746 Baltika-Khabarovsk plant 2,798 Baltika-Voronezh plant 2,391 Baltika-Chelyabinsk plant 1,857 Baltika-Pikra plant 1,548 Total 298,073

27. CONTINGENCIES

Taxation contingencies in the Russian Federation The taxation system in the Russian Federation is relatively may remain open longer. Recent events within the Russian Federation suggest that the new and is characterised by frequent changes in legisla- tax authorities are taking a more assertive position in their interpretation and enforce- tion, official pronouncements and court decisions, which ment of tax legislation. are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are sub- These circumstances may create tax risks in the Russian Federation that are substan- ject to review and investigation by a number of authorities, tially more significant than in other countries. Management believes that it has provided which have the authority to impose severe fines, penalties adequately for all tax liabilities based on its interpretations of applicable Russian tax leg- and interest charges. A tax period remains open for review islation, official pronouncements and court decisions. However, the interpretations of the by the tax authorities during the three subsequent calendar relevant authorities could differ and the effect on these consolidated financial statements, years; however, under certain circumstances a tax period if the authorities were successful in enforcing their interpretations, could be significant.

28. RELATED PARTY TRANSACTIONS

(a) Control relationships The Company’s parent company is Baltic Beverages Hold- Carlsberg Breweries A/S. The ultimate parent company of Oy Hartwall AB was Scottish ing AB (refer note 1(b)). The Company’s ultimate parent & Newcastle Plc. company is Carlsberg A/S and the Company’s ultimate controlling party is Carlsberg Foundation. Carlsberg A/S On 25 January 2008 the Boards of Sunrise Acquisitions Limited (a company jointly produces consolidated financial statements that are avail- owned by Carlsberg Breweries A/S and Heineken N.V.), and Scottish & Newcastle Plc able for public use. announced that they had reached agreement on the terms of a recommended acquisition of Scottish & Newcastle Plc. On 28 April 2008 the transaction became effective. As at 31 December 2007 Baltic Beverages Holding AB According to the terms of the acquisition Scottish & Newcastle Plc’s share of Baltic was owned by Pripps Ringnes AB (50%) and Oy Hartwall Beverages Holding AB, as well as the French, Greek, Chinese and Vietnamese opera- AB (50%). The parent company of Pripps Ringnes AB was tions, were transferred to Carlsberg Breweries A/S, which is a subsidiary of Carlsberg A/S, the Company’s ultimate parent Company.

Baltika Breweries 79 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

(b) Management remuneration Key management received the following remuneration during the year, which is included in personnel costs (see note 8):

’000 RUR 2009 2008 Salaries and bonuses 427,026 329,634 Contributions to State pension fund 12,719 10,253 Contributions to defined contribution plan 9,989 7,360 Termination benefits -4,151 449,734 351,398

(c) Transactions with other related parties The Group’s other related party transactions are disclosed below. Transactions with Scottish & Newcastle Plc and its operations which were transferred to Heineken N.V. as a result of acquisition of Scottish & Newcastle Plc by Sunrise Acquisitions Limited are disclosed for the period 1 January 2008 to the date of acquisition.

(i) Revenue Transaction value Transaction value Outstanding balance Outstanding balance ’000 RUR 2009 2008 2009 2008 Sale of goods: Fellow subsidiaries 49,912 23,074 21,813 26,955 Scottish & Newcastle Plc - 2,531 - - Royalties received Fellow subsidiaries 62,767 68,017 - - Scottish & Newcastle Plc - 177 - - Interest received: Carlsberg Breweries A/S 591 - 591 - Parent company 597 - 597 - Services provided: Equity accounted investee 24,361 78,372 9,214 27,195 Other income Parent company 79,237 - - - 217,465 172,171 32,215 54,150

(ii) Expenses Transaction value Transaction value Outstanding balance Outstanding balance ’000 RUR 2009 2008 2009 2008 Purchase of goods: Equity accounted investee 571,736 962,130 42,902 106,718 Carlsberg Breweries A/S 13,971 2,245 33,062 (25,660) Fellow subsidiaries 18,380 17,058 7,012 1,908 Scottish & Newcastle Plc - 288 - - Services received: Carlsberg Breweries A/S 39,430 26,045 - - Fellow subsidiaries 178 276 - - Scottish & Newcastle Plc - 840 - - Royalties paid: Carlsberg Breweries A/S 630,571 610,331 291,756 252,061 Fellow subsidiaries 18,803 18,285 3,626 1,525 Scottish & Newcastle Plc - 26,212 - - Finance costs: Carlsberg Breweries A/S 101,556 29,931 - 26,628 Fellow subsidiaries -8,510-8,510 Other expenses: Carlsberg Breweries A/S 150,766 20,681 162,688 20,681 Parent company - 74,905 - 73,472 1,545,391 1,797,737 541,046 465,843

80 Annual Report 2009 OAO Baltika Breweries and subsidiaries Notes to the Consolidated Financial Statements for the year ended 31 December 2009

During the year ended 31 December 2009 the Group’s from Soufflet amounted to RUR 962,130 thousand (excluding VAT) or 14.7% of the purchases of malt from Soufflet, an associate of the Group, total value of malt purchases and own production and 58,266 tons or 14% of the total amounted to RUR 571,736 thousand (excluding VAT) or volume of malt purchases and own production. 17.1% of the total value of malt purchases and own production and 41,926 tons or 12.6% of the total volume of All outstanding balances with related parties are to be settled in cash within two months malt purchases and own production. During the year of the reporting date. None of the balances are secured. ended 31 December 2008 the Group’s purchases of malt

(iii) Loans

Amount loaned Amount loaned Outstanding balance Outstanding balance ’000 RUR 2009 2008 2009 2008 Loans received: Carlsberg Breweries A/S - 2,009,294 - 1,071,000 Fellow subsidiaries - 3,033,888 - 1,844,129 Loans given: Carlsberg Breweries A/S 1,089,360 - 1,089,360 - Parent company 1,100,000 - 1,100,000 - 2,189,360 5,043,182 2,189,360 2,915,129

The loans to Carlsberg Breweries A/S and to the parent company bear interest at 6.6% per annum and are due in January 2010. (d) Pricing policies Sales to and purchases from related parties are made on terms that prevail in arm’s length transactions. For the year ended 31 December 2009, the Group recognized no impairment of receivables owed by related parties (2008: Nil).

29. SUBSIDIARIES

Ownership/ voting Ownership/ voting Name Nature of business Country of incorporation 2009 2008 OOO Baltika-Ukraine Distribution of Baltika beer Ukraine 100% 100% Baltika S.R.L. Distribution of Baltika beer Moldova 100% 100% Baltika-Almaty LLP Distribution of Baltika beer Kazakhstan 100% 100% OOO Baltika Distribution of Baltika beer Kirgizia 100% 100% OOO Baltika-Bel Distribution of Baltika beer Belorussia 100% 100% OOO Terminal Podolsk Warehouse Russia 100% 100% OOO Universalopttorg Warehouse Russia 100% 100% Baltika Deutschland GmbH Distribution of Baltika beer Germany 100% 100% Baltika-Baku LLC Beer Production Azerbaijan 100% 100% Baku Pivo JSC Beer Production Azerbaijan 91% 91%

30. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

On 19 February 2010, the Board of Directors recommended ers at the annual shareholders’ meeting to be held on 8 April 2010. Dividend payments dividends of RUR 20,997,269 thousand, and the recom- will be made between 27 April and 31 December 2010. mendation will be considered by the Company’s sharehold-

Baltika Breweries 81 INTERESTED PARTY TRANSACTIONS , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th th th th th th th th Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Date and adopting body February 6 February 6 February 6 February 6 February 6 February 6 February 6 February 6 February 6 February 6 February 6 February 6 party (parties) to the transaction Directors, A. V. Izosimov Directors, A. V. Izosimov Directors, A. Holding AB Holding AB, President, Member of the Board, A. O. Artemiev Shareholder Baltic Beverages Holding AB, Member of the B. Rasmussen Board, J. Shareholder Baltic Beverages Holding AB Holding AB, Member of the B. Rasmussen Board, J. Holding AB, Member of the B. Rasmussen Board, J. Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB Holding AB RUB 861,000.001,100,000,000. The interest rate for the period from 1 to 12 months is: for USD denominated credits – Libor + 0.75%; for EUR Euribor + 0.75%; for RUB credits – Borrower's Shareholder Baltic Beverages funding rate + 0.75%. The interest for a period over 12 months is the Borrower’s funding rate + 0.75% profit for selling the licensed product 4.5% from net revenue Shareholder Baltic Beverages 4.5% from net revenue Shareholder Baltic Beverages RUB 1,425,256.98 or BYB 128,501,292, RUB 1,425,256.98 or BYB RUB 217,412.08 or BYB including VAT 19,601,892, respectively RUB 3,985,792.20 or Kazakhstani tenge RUB 608,002.20 17,237,125.32, including VAT or Kazakhstani tenge 2,629,392, respectively RUB RUB 1,072,124.40, including VAT 163,544.40 RUB 93,689.69 RUB 614,188, including VAT Shareholder Baltic Beverages , 2007 on the usage of , 2007 on the usage of st st , 2008 , 2008 , 2008 , 2008 th th th th Additional agreement to the Agreement on agreement to the Agreement Additional the provision of services (№02/08-KZ) dated January 30 on agreement to the Agreement Additional dated the provision of services (№07/08-KG) January 30 on agreement to the Agreement Additional the provision of services (№04/08-MD) dated January 30 Additional agreement to the license Additional dated October 1 on the provision of servicesAgreement on the provision of services Agreement per month RUB 19,300, including VAT, on the provision of services Agreement per month RUB 1,500, including VAT, on the sale and purchase of Member of the Board Agreement equipment RUB 3,552,866.48, including VAT Member of the Board agreement to the license Additional dated October 1 Shareholder Baltic Beverages on a long-term credit lineAgreement The maximum amount of the credit is RUB on agreement to the Agreement Additional the provision of services (№04/08-BLR) dated January 30 License agreement License payment in the amount of 5% net Tuborg brand Tuborg brand Tuborg Baltika-Almaty LLC (Executor) (Executor) (Executor) Breweries A/S (Licensee) (Customer) JSC Vympel Telecommunications (Customer) JSC Vympel Telecommunications Baltika-Ukraina LLC (Executor) (Buyer) Breweries A/S (Licensee) Breweries A/S (Lender) LLC (Executor) Distillers (Aust) Pty Ltd. (Licensee) 2. Baltika Breweries (Licenser) and Carlsberg 3. and Baltika Breweries (Executor) 4. and Baltika Breweries (Executor) 5. Baltika Breweries (Customer) and 6. Baltika Breweries (Seller) and Baltika-Baku LLC 7. Baltika Breweries (Licenser) and Carlsberg 8. Baltika Breweries (Borrower) and Carlsberg 9. Baltika Breweries (Customer) and Baltika-Bel 1. Baltika Breweries (Licenser) and Independent № Parties to the agreement of agreement Type Price of agreement Information on interested 2009 interested party transactions concluded by the Company 10. Baltika Breweries (Customer) and 11. Baltika Breweries (Customer) and LLC 12. Baltika Breweries (Customer) and ICS Srl

82 Annual Report 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th rd rd rd rd rd rd rd , 2009 , 2009 , 2009 , 2009 nd nd nd nd Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors General Meeting of shareholders General Meeting of shareholders General Meeting of shareholders Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors March 10 March 10 March 10 March 23 March 10 April 2 April 2 April 2 March 10 March 23 March 23 March 23 March 23 March 23 March 23 April 2 Shareholder Baltic Beverages Holding AB, President, Member of the Board, O. Artemiev, Member of the A. board B. Sondenskov Holding AB, Member of the B. Rasmussen Board, J. Holding AB, President, Member of the Board, A. O. Artemiev Holding AB Holding AB, Member of the B. Rasmussen Board, J. Member of the Board, A. N. Shokhin Member of the Board, A. N. Shokhin Holding AB, Member of the B. Rasmussen Board, J. Holding AB, Member of the B. Rasmussen Board, J. Holding AB Holding AB Holding AB Holding AB, Member of the B. Rasmussen Board, J. Holding AB, Member of the B. Rasmussen Board, J. Holding AB Member of the Board, A. N. Shokhin License payment in the amount of 5% net licensed production turnover In accordance with the main agreement Shareholder Baltic Beverages RUB 1,485,000.00 Shareholder Baltic Beverages RUB 7,690,620.00 Shareholder Baltic Beverages based on current tariffs for JSC Russian Railways for the expediter (traffic rates, commission and expediter remuneration) In accordance with the main agreement Shareholder Baltic Beverages RUB 9,122,100 RUB 745,948 Shareholder Baltic Beverages for transport operator (traffic rates, commission and agent remuneration) Shareholder Baltic Beverages , 2007 th , 2005 th , 2007 on the usage of st , 2002 nd Additional agreement to the license Additional dated October 1 Tuborg brand Tuborg agreement to the license Additional on the usage of Carlsberg trademark, dated March 22 agreement to the license Additional (№1) dated December 20 on the sale and purchase of Agreement equipment agreement (№2) to the Contract Additional (№01-08-CB) dated October 9 on the sale and purchase of beerAgreement Swiss francs 1,625,088 Shareholder Baltic Beverages Agreement on the settlement of accountsAgreement Freight forwarding agreement The accounts are performed for transportation on the provision of servicesAgreement price set according to current tariffs Agreement EUR 420,600 Shareholder Baltic Beverages Agreement on the provision of servicesAgreement on the provision of servicesAgreement RUB 891,549 VAT RUB 4,953,050, excluding on the sale and purchase of goods Agreement for promotional events Shareholder Baltic Beverages VAT Kazakhstani tenge 61,228,981.6, excluding Consulting services agreement Shareholder Baltic Beverages Consulting services agreement EUR 9,180 VAT EUR 51,000, excluding on the sale and purchase of goods Agreement for promotional events contractAgency GBP 2,700 VAT GBP 15,000, excluding Shareholder Baltic Beverages Shareholder Baltic Beverages price set according to current tariffs Agreement Breweries A/S (Licensee) Breweries A/S (Licenser) (Licensee) (Buyer) Breweries A/S (Seller) (Seller) AG Getranke JSC Russian Railways CJSC Rusagrotrans (Forwarder) Breweries A/S (Executor) (Executor) Baltika-Almaty LLC (Executor) (Seller) Group Procurement AG Breweries A/S (Executor) Breweries A/S (Executor) (Seller) Group Procurement AG JSC Refservice (Agent) 13. Baltika Breweries (Licenser) and Carlsberg 14. Baltika Breweries (Licensee) and Carlsberg 15. Baltika Breweries (Licenser) and JSC Slavutich 16. Baltika Breweries (Seller) and Baltika-Baku LLC 17. Baltika Breweries (Buyer) and Carlsberg 18. Baltika Breweries (Buyer) and Feldschlossen 26. Baltika Breweries (Client) and 27. Baltika Breweries (Client) and 28. Baltika Breweries (Customer) and Carlsberg 19. Baltika Breweries (Customer) and ICS Srl 20. Baltika Breweries (Customer) and 21. Baltika Breweries (Customer) and Carlsberg 22. Baltika Breweries (Customer) and Carlsberg 23. Baltika Breweries (Customer) and Carlsberg 24. Baltika Breweries (Customer) and Carlsberg 25. Baltika Breweries (Principal) and

Baltika Breweries 83 INTERESTED PARTY TRANSACTIONS , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th rd rd rd rd nd nd Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors June 15 June 26 June 26 July 20 April 2 April 15 April 15 April 29 June 3 April 2 April 15 June 3 June 3 June 3 June 15 Shareholder Baltic Beverages Holding AB Holding AB Holding AB Holding AB, Member of the Board, B. Sondenskov, President, Member of the O. Artemiev Board, A. Holding AB, President, Member of the Board, A. O. Artemiev Holding AB, President, Member of the Board, A. O. Artemiev Holding AB Holding AB Holding AB Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB, President, Member of the Board, A. O. Artemiev Holding AB Holding AB Holding AB Holding AB 10% of net turnover from licensed production RUB 295,590 Shareholder Baltic Beverages Compensation is calculated based on the rental rate for Universalopttorg LLC in accordance with current normative acts of Voronezh 10% of net turnover from licensed production RUB 2,184,668, excluding VAT VAT RUB 2,184,668, excluding Shareholder Baltic Beverages RUB 313,180 Shareholder Baltic Beverages , 2009 th License agreementBeer supply agreement Beer supply agreement Caps supply agreement Quarterly license payments in the amount of Up to EUR 60,000 RUB 10,250,000 RUB 7,012,939.78 Shareholder Baltic Beverages Shareholder Baltic Beverages Shareholder Baltic Beverages Agreement on supplying equipmentAgreement RUB 96,302 Shareholder Baltic Beverages Agreement on the supply of retail equipmentAgreement RUB 3,560,050 contractAgency on the sale and purchase of goods Agreement for promotional events expenses on marketing Agreement Shareholder Baltic Beverages RUB 2,995,650 EUR 180,450 Shareholder Baltic Beverages Shareholder Baltic Beverages Agreement on compensation for land rental Agreement payments License agreement Quarterly license payments in the amount of Agreement on the provision of servicesAgreement Supplemental agreement to the Contract on the provision of services (№2009-BLR) dated RUB 453,120 or USD 14,160, including VATJanuary 29 Shareholder Baltic Beverages on the sale and purchase of goods Agreement for promotional events sales and purchase agreementKeg RUB 8,750,000 Shareholder Baltic Beverages LLC (Licensee) Ringness A.S. (Importer) (Customer) Ltd (Buyer) (Buyer) LLC (Importer) (Agent) (Seller) Procurement AG Oy Sinebrychoff Ab (Investor) Universalopttorg LLC (Receiver of compensation) LLC (Licensee) Canada Inc. (Executor) LLC (Executor) (Seller) Procurement AG LLC (Buyer) 40. Baltika Breweries (Licenser) and Baltika-Almaty 41. Baltika Breweries (Exporter) and 42. Baltika Breweries (Supplier ) and LLC 43. Baltika Breweries (Seller) and Derbes Brewery 29. Baltika Breweries (Seller) and Baltika-Baku LLC 32. Baltika Breweries (Exporter) and Baltika-Baku 33. Baltika Breweries (Principal) and ICS Srl 34. Baltika Breweries (Buyer) and Carlsberg Group 35. Baltika Breweries (Recipient) and 30. Baltika Breweries (Payer of compensation) and 31. Baltika Breweries (Licenser) and Baltika-Baku 36. Baltika Breweries (Customer) and Carlsberg 37. Baltika Breweries (Customer) and Baltika-Bel 38. Baltika Breweries (Buyer) and Carlsberg Group 39. Baltika Breweries (Seller) and Baltika-Almaty

84 Annual Report 2009 , 2009 , 2009 th th , 2009 , 2009 , 2009 , 2009 th th th th , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th th th September 10 July 20 Board of Directors September 10 Board of Directors July 20 August 13 Board of Directors July 20 Board of Directors Board of Directors Board of Directors July 20 Board of Directors July 20 Board of Directors July 20 Board of Directors Board of Directors August 13 Board of Directors Board of Directors August 13 Board of Directors July 20 August 13 Holding AB Holding AB, Member of the Board, J. B. Rasmussen Shareholder Baltic Beverages Holding AB, Member of the Board B. Sondenskov, President, Member of the O. Artemiev Board, A. Holding AB, Member of the Board, J. B. Rasmussen Shareholder Baltic Beverages Holding AB, Member of the Board, J. B. Rasmussen Holding AB, Member of the Board, J. B. Rasmussen Holding AB Holding AB Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB, President, Member of the Board, A. O. Artemiev Holding AB, Member of the board B. Sondenskov, President, Member of the O. board Artemiev A. Holding AB, Member of the Board, J. B. Rasmussen Holding AB, Member of the Board, J. B. Rasmussen, Member of the Board, B. Sondenskov EUR 1,000,000 Shareholder Baltic Beverages In accordance with the main license agreement Shareholder Baltic Beverages hour rates and the categories of specialists. The overall price of the agreement cannot exceed RUB 50,000,000 In accordance with the main license agreement Shareholder Baltic Beverages Increased the contract price from RUB 391,920 to RUB 1,682,955, including VAT RUB 2,757,660.00, including VAT RUB 420,660RUB 2,757,660.00, including VAT Shareholder Baltic Beverages on the list of provided services. The overall price USD 60,000 of the agreement cannot exceed rates and the categories of specialists. The overall price of the agreement cannot exceed RUB 50,000,000 RUB 1,607,500 Shareholder Baltic Beverages GBP 39,357 Shareholder Baltic Beverages In accordance with the main agreement Shareholder Baltic Beverages , 2008 on the provision of , 2007, on the supply of st th , 2008 st , 2007 on the usage of st , 2009 th , 2002 nd beer Agreement on the provision of servicesAgreement The price of services is defined based on per Additional agreement to the Agreement on the agreement to the Agreement Additional provision of consulting services (№1_2008) dated December 1 Tuborg brand Tuborg services Agreement on the alienation of the exclusive on the alienation of exclusive Agreement right agreement to the license Additional dated October 1 agreement to the license Additional on the usage of Carlsberg trademark dated March 22 Beer supply agreement Beer supply agreement on the provision of servicesAgreement agreement (№1) to the Contract Additional Up to EUR 370,000 (or RUB 16,244,924 )(№1) dated August 1 The price of services is defined monthly based Up to EUR 8,706,474 (or RUB 382,259,459) Shareholder Baltic Beverages on the provision of servicesAgreement Shareholder Baltic Beverages on agreement to the Agreement Additional The price of services is defined on per hour rent (№1) for non-residential premises, dated January 16 on the sale and purchase of Agreement equipment agreement to the Contract (№656) Additional dated December 26 Brewery Ltd (Customer) Breweries A/S (Executor) Breweries A/S (Rightholder) Breweries A/S (Licenser) Breweries A/S (Licenser) Deutschland GmbH (Importer) Danmark (Importer) Procurement (Shenzhen) Co., Ltd. (Executor) Breweries A/S (Consultant) LLC (Customer) Holding AB (Lessee) Ltd (Buyer) Deutschland GmbH (Buyer) 56. and Derbes Baltika Breweries (Executor) 44. Baltika Breweries (Customer) and Carlsberg 45. and Carlsberg Baltika Breweries (Acquirer) 46. Baltika Breweries (Licensee) and Carlsberg 47. Baltika Breweries (Licensee) and Carlsberg 48. Baltika Breweries (Exporter) and Carlsberg 49. Baltika Breweries (Exporter) and Carlsberg 50. Baltika Breweries (Customer) and Carlsberg 51. Baltika Breweries (Customer) and Carlsberg 52. and Baltika-Baku Baltika Breweries (Executor) 53. Baltika Breweries (Lessor) and Baltic Beverages 54. Baltika Breweries (Seller) and Derbes Brewery 55. Baltika Breweries (Seller) and

Baltika Breweries 85 INTERESTED PARTY TRANSACTIONS , 2009 , 2009 , 2009 , 2009 th th th th , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th th Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors October 15 October 15 October 15 October 15 November 13 September 10 September 10 November 13th, 2009 Board of Directors September 10 October 15 October 15 Holding AB, President, Member of the Board, A. O. Artemiev Holding AB, President, Member of the O. Artemiev, Board, A. Member of the board B. Sondenskov Shareholder Baltic Beverages Holding AB, Member of the Board, J. B. Rasmussen Shareholder Baltic Beverages Holding AB, Member of the Board, B. Sondenskov, President, Member of the O. Artemiev Board, A. Holding AB Holding AB, Member of the Board, J. B. Rasmussen, Member of the Board, B. Sondenskov Shareholder Baltic Beverages Holding AB, Member of the Board, B. Sondenskov, President, Member of the O. Artemiev Board, A. Shareholder Baltic Beverages Holding AB, President, Member of the O. Artemiev, Board, A. Member of the board B. Sondenskov Holding AB, President, Member of the Board, A. O. Artemiev Holding AB Holding AB, Member of the Board, J. B. Rasmussen of net profit from produced and sold licensed production the process of Customer filing an application later for conducting work and the Executor remuneration when accepting it. The Executor’s attracting third parties totals 5% of the price work performed by third parties (subcontractors of the Executor) RUB 10,000 hourly rates calculated depending on stations of loading and unloading. The overall price of the RUB 50,000,000 agreement cannot exceed Shareholder Baltic Beverages The price of services is defined separately for each provided consulting service based on per hour rates and the categories of specialists. The overall price of the agreement cannot exceed RUB 50,000,000 — Shareholder Baltic Beverages — Shareholder Baltic Beverages RUB 658,971 (USD 21,900 ) Shareholder Baltic Beverages , 2002 for nd , 2007 th , 2007, on the supply of th , 2009 on consulting services th Agreement on the supply of trade equipmentAgreement RUB 2,692,000Supplemental agreement to the Appendix S advertising investments under the ‘Additional license agreement dated March 22 Beer supply agreement Shareholder Baltic Beverages License agreement RUB 42,210,000 on the provision of servicesAgreement The price of performed works is defined under Quarterly license payments in the amount of 5% expenses on marketing Agreement Shareholder Baltic Beverages EUR 112,510 Shareholder Baltic Beverages Additional agreement to the Agreement (№w/o) agreement to the Agreement Additional dated August 25 Agreement on the alienation of the exclusive on the alienation of exclusive Agreement right on providing rail cars for useAgreement The price of services is defined based on the agreement to the Contract (№656) Additional dated December 26 on the provision of consulting Agreement services 2007-2009’, dated September 20 beer LLC (Importer) Breweries A/S (Licenser) JSC Slavutich (Supplier) Breweries A/S (Licenser) Derbes Brewery Ltd (Executor) Oy Sinebrychoff Ab (Investor) Baltika-Baku LLC (Customer) Beverages Holding AB (Rights holder) Derbes Brewery Ltd (Customer) Deutschland GmbH (Importer) Derbes Brewery Ltd (Customer) 61. Baltika Breweries (Exporter) and Baltika-Baku 62. Baltika Breweries (Licensee) Carlsberg 63. Baltika Breweries (Customer) and 64. Baltika Breweries (Licensee) Carlsberg 65. Baltika Breweries (Customer) and 66. Baltika Breweries (Recipient) and 57. Baltika Breweries (Consultant) and 58. Baltika Breweries (Legal successor) and Baltic 59. and Baltika Breweries (Executor) 60. Baltika Breweries (Exporter) and 67. Baltika Breweries (Consultant) and

86 Annual Report 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th th th th th th th th th Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors November 13 December 2nd, 2009, General Shareholders meeting December 10 December 10 December 10 December 10 December 10 December 16 December 16 December 16 December 10 December 10 December 10 Holding AB Shareholder Baltic Beverages Holding AB, President, Member of the O. Artemiev, Board, A. Member of the board B. Sondenskov Holding AB Holding AB, Member of the Board, J. B. Rasmussen Holding AB, President, Member of the O. Artemiev, Board, A. Member of the board B. Sondenskov Holding AB Holding AB, President, Member of the O. Artemiev Board, A. Holding AB, Member of the Board, J. B. Rasmussen Holding AB, Member of the Board, J. B. Rasmussen Holding AB, Member of the Board, J. B. Rasmussen Holding AB Holding AB Holding AB In accordance with current tariffs Shareholder Baltic Beverages 90,000,000 and quarterly royalty payments in the amount of 4.5% net profit from production produced and sold by the Licensee in of the respective calendar quarter, plus VAT Kazakhstan Republic VAT EUR 5,640, excluding RUB 34,550,000 Shareholder Baltic Beverages Shareholder Baltic Beverages USD 18,000 EUR 8,350 Shareholder Baltic Beverages Shareholder Baltic Beverages — Shareholder Baltic Beverages RUB 8,022,381.04, including VAT Shareholder Baltic Beverages RUB 24,647,000 Shareholder Baltic Beverages , 2007 th , 2008 , 2009 th th Agreement on rent compensation and other Agreement payments License agreementContract for the supply of production license payments in the amount of EUR Fixed agreement to the Contract (№656) Additional dated December 26 Up to EUR 2,000,000 on the provision of consulting Agreement services on the sale and purchase of Agreement equipment Shareholder Baltic Beverages Beer supply agreement on the provision of servicesAgreement VAT RUB 277,608, excluding agreement to the Contract (№701) Additional dated October 14 EUR 500,000 on the provision of servicesAgreement VAT RUB 4,286,088.19, excluding Shareholder Baltic Beverages License agreement (agreement on the right to use a product) on the sale and purchase of festival Agreement tickets Shareholder Baltic Beverages Shareholder Baltic Beverages Amendments to the Agreement on the provision Amendments to the Agreement of services (№2009-KG) dated January 28 and Terminal-Podolsk LLC (Receiver of and Terminal-Podolsk compensation) Brewery Ltd (Licensee) Deutschland GmbH (Buyer) Deutschland GmbH (Buyer) Breweries A/S (Executor) Ltd (Buyer) (Buyer) LLC (Customer) Brewery (Buyer) Breweries A/S (Executor) Breweries A/S (Licenser) Breweries A/S (Seller) (Executor) 68. Baltika Breweries (Payer of compensation) 69. Baltika Breweries (Licenser) and Derbes 71. Baltika Breweries (Seller) and 72. Baltika Breweries (Seller) and 73. Baltika Breweries (Customer) and Carlsberg 74. Baltika Breweries (Seller) and Derbes Brewery 75. Baltika Breweries (Seller) and Ringness A.S. 76. and UzCarlsberg Baltika Breweries (Executor) 77. Baltika Breweries (Seller) and JSC Olivaria 78. Baltika Breweries (Customer) and Carlsberg 79. Baltika Breweries (Licensee) and Carlsberg 80. Baltika Breweries (Buyer) and Carlsberg 70. Baltika Breweries (Customer) and LLC

Baltika Breweries 87 INTERESTED PARTY TRANSACTIONS , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 , 2009 th th th th nd nd nd nd nd nd Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors Board of Directors December 16 December 16 December 16 December 16 December 22 December 22 December 22 December 22 December 22 December 22 Holding AB Holding AB, President, Member of the O. Artemiev, Board, A. Member of the board B. Sondenskov Shareholder Baltic Beverages Holding AB, Member of the Board, J. B. Rasmussen Member of the Board, B. Sondenskov Shareholder Baltic Beverages Holding AB, President, Member of the O. Artemiev Board, A. Shareholder Baltic Beverages Holding AB, Member of the Board, J. B. Rasmussen Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB Shareholder Baltic Beverages Holding AB Holding AB EUR 50,000 Shareholder Baltic Beverages rate for a term up to 16 days – 6.6% annually, a term of one month – 8.2% annually, for of three months – 11.0% annually, for a term six months – 11.2% annually Sum of the loan is RUB 300,000,000; interest rate is set by the creditor on a monthly basis unilaterally for each next interest period depending on the financial situation in credit in any case, not less than MosPrime market, + 5% for ruble denominated loans, dollar denominated loans – Libor (USD) + 5%, for euro denominated loans – Libor (EURO) + 5% rate, but not less than 6.6% best market rate, but not annually; in dollars – best market less than 1.5% annually; in euro – best market rate, but not less than 1.4% annually 5,313, 325.27. The sum of the agreement is denominated in Belarussian rubles the 3,248,066,112, including VAT equivalent of BYB 495,467,712 BYB 534,234.71 1,415,035.03 2,908,318.27 RUB 859,284.60, including VAT RUB 131,077.31RUB 859,284.60, including VAT Shareholder Baltic Beverages , 2007 th , 2008 th Additional agreement to the Agreement on agreement to the Agreement Additional supply and distribution dated February 8 Beer supply agreementLoan agreement Up to RUB 1,123,000,000 on the provision of a multi-currency Agreement renewable credit line Sum of the loan RUB 1,100,000,000; interest Shareholder Baltic Beverages on the placement of monetary fundsAgreement Up to EUR 25,000,000; interest rate: in rubles – Additional agreement to the Agreement on agreement to the Agreement Additional dated the provision of services (№07/08-KG) January 30 on the provision of servicesAgreement RUB RUB 34,831,799, including VAT on the provision of servicesAgreement on the provision of servicesAgreement RUB RUB 3,502,205.32, including VAT on the provision of servicesAgreement RUB RUB 9,276,340.74, including VAT RUB RUB 19,065,642, including VAT Getranke AG (Buyer) AG Getranke Ltd (Buyer) Beverages Holding AB (Lender) LLC (Lender) Breweries A/S (Party-2) (Executor) LLC (Executor) Ukraina LLC (Executor) LLC (Executor) (Executor) 81. Baltika Breweries (Seller) and Feldschlossen 82. Baltika Breweries (Seller) and Derbes Brewery 83. Baltika Breweries (Borrower) and Baltic 84. Baltika Breweries (Borrower) and Baltika-Baku 85. Baltika Breweries (Party-1) and Carlsberg 86. Baltika Breweries (Customer) and LLC 87. Baltika Breweries (Customer) and Baltika-Bel 88. Baltika Breweries (Customer) and Baltika- 89. Baltika Breweries (Customer) and Baltika-Bel 90. Baltika Breweries (Customer) and ICS Srl

88 Annual Report 2009 INFORMATION FOR SHAREHOLDERS AND INVESTORS

Baltika Breweries

Company Headquarters +7 (812) 325 9 325 3, 6th Verkhny Pereulok St. Petersburg, Russia194292 www.baltika.ru

Shareholder Relations +7 (812) 329 91 09 [email protected] [email protected]

Registrar

CJSC Natsionalnaya Registratsionnaya +7 (812) 251 81 38 4-A Izmailovsky Prospekt, Office 314 Kompaniya +7 (812) 346 74 07 St. Petersburg, Russia 190005 St. Petersburg Branch Office www.nrcreg.ru

Independent Auditors

ZAO KMPG +7 (812) 313 73 00 69-71 A Marata Street St. Petersburg Branch Office Business Center ‘Renaissance Plaza’ St. Petersburg, Russia 191119 [email protected]

CJSC A&P Audit +7 (812) 251 69 23 26 Rizhsky Prospekt St. Petersburg, Russia 198103 [email protected]

Official print medium Newspaper Izvestia for information disclosure

Official corporate web site www.corporate.baltika.ru for information disclosure

Baltika Breweries 89 CONTACT INFORMATION

Company Breweries

Baltika-St. Petersburg Brewery +7 (812) 325 9 325 3 6th Verkhny Pereulok St. Petersburg, Russia 194292 Baltika-Voronezh Branch +7 (4732) 61 98 00 109 9th Yanvarya Street Voronezh, Russia 394027 Baltika-Novosibirsk Branch +7 (383) 230 14 02 34 2nd Stantsionnaya Street Novosibirsk, Russia 630041 Baltika-Pikra Branch +7 (3912) 59 12 00 90 60 Let Oktyabrya Krasnoyarsk, Russia 660079 Baltika-Rostov Branch +7 (863) 250 51 02 146-A Dovatora Street Rostov-on-Don, Russia 344090 Baltika-Samara Branch +7 (846) 276 43 66 1 Baltiisky Proezd Kinelsky District, Kinelsky Village Samara Oblast, Russia 446110 Baltika-Tula Branch +7 (4872) 39 55 35 85 Odoevskoye Shosse Tula, Russia 300036 Baltika-Khabarovsk Branch +7 (4212) 41 15 51 142 Voronezhskoye Shosse Khabarovsk, Russia 680042 Baltika-Chelyabinsk Branch +7 (351) 239 16 00 16 Ryleeva Street Chelyabinsk, Russia 454087 Baltika-Yaroslavl Branch +7 (4852) 58 32 03 63 Pozharskogo Street Yaroslavl, Russia 150066 Baltika-Baku Brewery +994 (12) 442 12 80 2/2 Shamakhinskoye Shosse +994 (12) 442 20 10 Absheronsky District, Hyrdalan Republic of Azerbaijan AZ0100

Company subsidiaries located abroad

Baltika-Bel LLC +375 (17) 28 9 54 69 15 Storozhevskaya Street, Office 302 Minsk, Belarus 220002

ICS Baltika Srl +373 (22) 23 84 60 57/1 Mitropolita Benulescu-Bodoni Street, Office 418 Kishinev, Moldova MD 2005

Baltika-Almaty LLC +7 (727) 258 59 40 153 Abaya Prospect, Office 24 Almalinsky District, Almaty, The Republic of Kazakhstan 050009

Baltika-Ukraina LLC +380 (44) 494 18 40 94/98 Krasnoznamennaya Street, Office 4 Kiev, The Republic of Ukraine 03026

Baltika LLC +996 (312) 30 60 82 121/1 Shopokov Street +996 (312) 30 60 83 Bishkek, The Kyrgyz Republic 720075

Baltika Deutschland GmbH +49 (40) 728 13 928 26 Glockengiesserwall Hamburg, Germany 20095

Representative offices in foreign countries

Representation in China +86 (10) 651 29 728 19 Tsziangomenvai, (The Citic Building, Tower A), Office 15-B Beijing, The People’s Republic of China 100004

90 Annual Report 2009 Appointments for tours of the Company’s breweries

Baltika Breweries conducts regular group tours tory and its activities, as well as becoming acquainted with beer produc- at the Company’s Russian breweries. During the tion technologies and taste the Company’s products. tours, visitors can learn about the Company’s his-

Tours can be booked by telephone:

Chelyabinsk, tel.: +7 (3512) 39 16 00 Khabarovsk, tel.: +7 (4212) 41 15 91 Kranoyarsk, tel.: +7 (3912) 59 13 41 Novosibirsk, tel.: +7 (383) 230 14 11 Samara, tel.: +7 (846) 276 43 33 St. Petersburg, tel.: +7 (812) 329 91 39 Rostov, tel.: +7 (863) 250 51 46 Tula, tel.: +7 (4872) 32 99 10 Voronezh, tel.: +7 (4732) 61 98 00 Yaroslavl, tel.: +7 (4852) 58 32 29

Baltika Breweries invites its guests to visit the the Krasnoyarsk Brewery and the 15th anniversary of the Pikra Brewery. Museum of the History of Brewing in Siberia, which The Museum has a unique exhibition on beer brewing. is located on the grounds of the Baltika-Pikra In 2009, 62,000 people visited Company breweries. For the period from Branch in Krasnoyarsk. The Museum was created 1999 to 2009, the total number of visitors amounted more than 400,000. in 2005, to help celebrate the 130th anniversary of

ASSOCIATION PARTICIPATION

Baltika is a member of the following public organizations: The Russian Union of Industrialists and Entrepreneurs (RUIE), a public association of employers; The Union of Russian Producers of Beer and Non-alcoholic Products (The Union of Russian Brewers); The Community of Producers under Company Trademarks, a non-commercial partnership (RusBrand); The St. Petersburg Association of Joint Ventures; The non-commercial partnership 'The Market Council for Organizing an Effective System of Wholesale and Retail Power and Capacity Trade (the NP Market Council).

DESIGN, PRINT ARTGROOVE

Baltika Breweries 91

Annual Report 2009 Baltika Breweries