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Market Stability, M&A Activity 2009-2010, Market Structure Changes 
Erste Ukraine Research "Sector Report Ukraine: Food and Beverage"

U.S.-Ukraine Business Council (USUBC)
Wash, D.C., Wed, July 15, 2009

WASHINGTON, D.C. - Erste Ukraine and Erste Group Bank AG, Kyiv, Ukraine and Vienna, Austria, have issued their latest research report entitled: "Sector Report Ukraine: Food and Beverage." 

According to the Erste Food and Beverage Report Ukraine's "Industrial production indicators show increasing domestic consumption, which is already reflected in the improving local statistics for the Food & Beverage industry, which was down only 2.1% y/y in May, compared to -8.7% y/y in 4M09.

Inflation increased at the lowest pace this year in May (0.5% m/m), bringing inflation down to 14.7% y/y. We expect inflation to accelerate in 3Q, due to what is likely to be a poor harvest in 2009. Due to the financial crisis, consumer expenditure will decline until at least the end of 2009. According to Euromonitor estimates, consumer expenditure on food might decline from USD 43.6mn to USD 41.7mn this year.

Despite this negative tendency, the Food & Beverage and agricultural markets might be the most stable during this crisis. Ukrainian companies are trying to improve their positions on external markets. In our base case, local Food & Beverage producers will finish this year with figures like those seen in 2008. 

The Ukrainian Food & beverage market is divided between big local market players and foreign producers with assets in Ukraine. Several segments in Ukraine’s Food & Beverage market remain attractive propositions for foreign companies."  (To read the entire Erste Group Food and Beverage Report for Ukraine, click here)

Most Stable Market in Times of Crisis
M&A Activity 2009-2010
Changes in Market Structure  

Introduction                                     Page 3
Alcoholic Beverages                       Page 3
Mineral Water and Soft Drinks       Page 7
Dairy Products                                Page 11
Confectionary Sector                      Page 15
Outlook                                           Page 17


"In general, the Food & Beverage market will be less impacted by the crisis than other industries. The reason is absolutely clear - people always buy food products. Nevertheless, for 2009,  we expect a decrease in demand for soft drinks and beer. Moreover, food manufacturing companies that produce
tinned foods will face lower demand.

Vertically integrated agricultural holdings are the most stable companies in the Ukrainian market. We expect some problems with grain traders in terms of cash flow shortages and opening  credit lines.

We anticipate 2% growth of the beer market this year. This growth is lower than experts predicted earlier, but is nevertheless positive, considering the market conditions. The cheap market segment will be more profitable. We expect that Ukraine will maintain beer production volumes at the 2008 level
in 2009, despite the market drop that started in 2H08.

In the base case, local sweets producers should finish this year with stagnant figures. In the worst case, they should cut production by 10–20%. According to market players, market indicators depend on export activity.

Ukrainian companies are trying to consolidate their positions in the nearest neighboring markets."

NOTE:  To read the entire Erste Group Ukraine Food and Beverage Report see the attachment to this e-mail. 

CONTACT: Report published by Erste Bank Group AG, Neutorgasse 17, OE 0543, 1010 Vienna, Austria.  Contact: Svitlana Bazilevich, Svitlana.Bazilevich@erstebank.ua, website: www.erstegroup.org.