Cool Russian summer brings chill to S&N's Baltika growth

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The Independent Online

It may have been the perfect summer for downing pints in Britain, but Scottish & Newcastle still found a way to blame the weather yesterday for a disappointing performance from one of its key businesses.

The Edinburgh-based brewer said "cold summer weather" in Russia meant the country's beer market had not enjoyed the phenomenal growth of recent years. S&N, which acquired a stake in Russia's biggest brewer, Baltika, when it bought Finland's Hartwell last year, cut its hopes for growth from the Russian market this year to just 5 per cent, down from between 7 and 9 per cent.

S&N trimmed its expectations after issuing a third-quarter update on Baltic Beverages Holdings, the eastern European brewer it co-owns with Denmark's Carlsberg. It said BBH's Russian volumes had climbed by 7 per cent during the year so far, growing 12 per cent over the summer. This was faster than the market, which has grown by 4 per cent since January, but slower than S&N had initially led the market to expect.

The Russian market has enjoyed annual growth of almost 20 per cent over the past five years - one of the key reasons cited by S&N for buying Hartwall. BBH accounts for nearly 30 per cent of the British group's earnings.

Carlsberg's chief executive, Nils Smedegaard Andersen, said he expected the Russian beer market to grow by just 5 per cent next year, adding that margin pressure would also affect BBH.

"We haven't been able to raise prices at the same pace as inflation in Russia. These price problems will most likely continue in the fourth quarter, and, we think, in the first quarter next year too," he said, unveiling nine-month results for the Danish brewer.

Pricing pressure meant BBH's margins were 1.5 percentage points lower for the nine months to September compared with the previous year. But this represented a "significant improvement" on he half year, it said. "BBH remains confident in the growth prospects for its markets, and anticipates continued profitable volume growth in the fourth quarter," S&N said.