Carlsberg Ukraine: What does Ukraine Offer for Business?

18.01.2017 / 10:15

About the overall situation in the brewery industry, standards of operation of Carlsberg in Ukraine, and challenges and opportunities of doing business in Ukraine.

Evgeny Shevchenko,
CEO of Carlsberg Ukraine

How do you evaluate your company’s success by the results of 2016?

The year of 2016 was not easy. The market was affected by significant increase of excise tax and fundamental change of regulation of brewing industry in July 2015. However, we have coped with most of the challenges. Of course, the increase of excise tax by 2 times last year did not have an immediate effect on production and consumption of beer in 2016, but we are still trying to mitigate possible negative consequences in 2017.

Just like in the previous years, Carlsberg Ukraine holds strong 2nd position in the beer market in natural terms according to Nielsen1 research. In 2016, we have launched several successful product innovations that immediately found its customers. Moreover, we have intensified the presence of some of our consumer’s favorite brands to increase sales and market share.

Your development strategy for the next years

As a part of the global Carlsberg Group, we have implemented the new strategy until 2022 called «SAIL’22». Besides marketing and sales, «SAIL’22» is based on the purpose of our company developed by our founder, Jacob Jacobsen. It includes responsible brewing and the concept of creating value to the society where we operate. For instance, already for two years we offer scholarships to talented students of the Ukrainian Catholic University and sponsor the ecological project in order to promote separate waste collection and recycling.

As to the investments, notwithstanding certain problems in the country, our central office considers Ukraine as a promising market; if the regulation and taxation of the industry stays logical and predictable, we will continue to invest.

What international standards does your company apply?

All companies of the Carlsberg Group apply the following guidelines of three main courses:

First, transparent system of financial accounting and audit. The company operates an open and transparent business according to high international standards of the Carlsberg Group and the requirements of Ukrainian legislation. The evidence to this is availability of financial reports of the company and presence of the Carlsberg Ukraine in the top-ratings of responsible taxpayers. According to the statistics of the State Fiscal Service for 11 months of 2016, Carlsberg Ukraine takes 20th position of the TOP 100 taxpayers.

Secondly, we use the business code based on compliance, zero tolerance to corruption, responsibility and fair business practices. This is an unbreakable rule for the company’s employees and our contractors, who are checked annually for compliance with the abovementioned standards.

And third, — top international quality standards. Every year all breweries of Carlsberg Ukraine (Kyiv, Zaporizhzhya and Lviv) are audited and checked by the integrated system of quality management, food safety and environment protection standards to confirm their compliance with the requirements of international certification bodies.

How do you estimate situation at Ukrainian market, and what should be changed immediately for its further development?

Today Ukrainian market is on its halfway from post-Soviet past to the pro-European future. On the one hand, this is a problem of the market, and on the other hand this is what makes the market attractive. The European approach to regulation will ensure for an Ukrainian producer an easier entrance to perspective new markets of strong customer capacity. Also, the European integration is a opportunity to overcome corruption, bureaucracy and overregulation of the state at the domestic market, too.

Anyway, a lot has been done already: deregulation of massive layers of outdated technical regulations and elimination of excessive document requirements and procedures. As for me, one of the biggest achievements of the Government is the abolition of the Public Enterprise «Ukrecocomresources» as the recipient of package tax that has done nothing on waste collection or recycling. By the way, today promoters of this scheme propose to renew packaging tax (however, in a slightly modified way); but I hope the MPs and the Government will not allow the throwback to the old scheme and support the adoption of European system of separate waste collection and the extended producer responsibility.

Other significant achievements include the system of public procurement and e-declaration of property by the government officials and the MPs. Ukraine is moving in the right direction and market and the market players feel more transparency and confidence in the future for their businesses.

But there is a fly in the ointment — many aspects of deregulation are delayed or «formatted” for Ukrainian market beyond recognition relative to European approach. Adaptation and transition periods are needed; it is impossible to implement a completely different regulation at once. However, often regulators or politicians «pick» something they like in one of the EU states and try to implement it in Ukraine. For instance, the system of deposit packaging. Recently, a group of MPs registered the Draft Law (No. 5614) to implement special marks for all beverages regardless of packaging type that will cost due amount to be included into product cost for the customer; such amount will be separately determined in retail receipts and returned to the buyer once they bring this packaging back. In this case, introduction of such a system requires legal implementation of separate waste collection and extended producer responsibility first. Otherwise it will be a serious financial pressure on producers, trade and customers. Moreover, European research has shown that deposit system is less effective than general separate package waste collection.

What can improve investment climate in Ukraine?

First, predictability, logic and professionalism in regulation and taxation rates. Any investor wants to know that the investment is safe and ensures development of the business, and the government authorities would take no spontaneous resolutions to kill such investments tomorrow by a single signature or voting. Financial capital is the most mobile resource. It is worthy to keep it in mind and think over resolutions that have impact on future investments not to provoke their withdrawal from the country.

Shadow economy is another problem to combat. Today any conscientious taxpayer, or a «fair» company cannot compete with tax dodgers. The only way out is a balanced tax policy including tax rates and tax administration, specific fees (rent and excise tax), etc.

Last, but not the least, Ukrainian market needs a long-term strategy. It seems that former political leaders, in various aspects, considered Ukraine as short-term project. We felt it constantly, when at the end of the year there was a deficit in the draft budget, and excise tax was increased in 1 day to cover the gap. Such a policy caused decrease in beer production twice since 2008. Theoretically, today it is possible to raise the duty even more, but tomorrow Ukraine will not have new investments and the day after tomorrow Ukraine will lose a healthy operating industry. Last year such situation repeated, when excise tax for beer increased twice just a couple of days before the new calendar year, when the tax rates became effective. This year the producers have been heard; we appreciate it, as the tax rates for beer were adjusted to the inflation rate according to the requirements of the Tax Code — for the first time in many years. We believe this will prevent further slide of the industry. We hope for the same positive approach next year.
1 Excluding the territory of the East, Autonomous Republic of Crimea and Sevastopol for January — December 2016


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