JSC "Latvijas balzams" Sustainability Report 2011-2012

20112012

SustainabilityReport

Table of Contents

Type of business, vision and mission 04

prioriTies and values of business 06

new Technologies: riga black vodka 012

Svarīgākie notikumi 2011– 2012 016

Acknowledgements and awards 018

Export 022

Exhibitions 023

new producTs 025

major producTs and main markeTs 028

Products and manufacturing 030

Trade and markets 032

LB Export 033

Latvia 034

LB in export markets 036

TOP 10 products 037

Key products 038

exporT markeTs 040

Export countries of Latvijas Balzams 042

social responsibiliTy 048

Management of supply chains, cooperation with suppliers 054

Human resource management strategy 055

Working environment 056

Public communication 058

environmenT 062

Main actions for saving natural resources in 2011-2012 065

fair enTrepreneurship 068

Participation in political processes 070

Fair competition 071

consumer relaTions 072

Ethical marketing 074

Quality and consumer safety 076

public involvemenT and developmenT 078

Pursuant to guidelines of Corporate Social Responsibility Standard ISO 26000.

04 Ilgstspējas pārskats2011 – 2012 04 Ilgstspējas pārskats2011 – 2012

Type of businessAS Latvijas balzams (further referred to as the Company) is the biggest producer of alcoholic beverages in the Baltic States, the range of its products including more than 130 different names of alcoholic beverages almost 53% of which are beverages with low alcohol content. Through direct exporting the Company exports its products to more than 30 countries while executing the exporting order of S.P.I. Group its products are exported to more than 160 countries all over the world. The Company was established in 1900 while its current name was acquired t in 1970.

04 Ilgtspējas pārskats2011 – 2012

VisionWe intend to be the leading manufacturer and exporter of alcoholic beverages in the Baltic States with accredited product brands and the most professional team.

MissionWe are the leading manufacturer of alcoholic beverages in the Baltics, providing consumers in local and export markets with high-quality products, based on long-standing traditions and latest achievements in the industry. We are a socially responsible company that appreciates the contribution of our employees to development of our business.

05Ilgtspējas pārskats2011 – 2012

Priorities and Values of Business



08 Sustainability Report2011 – 2012

The year 2012 was crucial for the operations and development of Latvijas Balzams. The non-audited 9-month performance results of the Company indicated growth in several substantial parameters: increased year-on-year turnover by 8% compared to 2011; increased exports by 8% in financial terms; the non-audited profit of the Company reached 2.5 mln lats, a 19% increase in comparison with indicators of nine months of 2011. In the previous year, we started manufacturing of eighteen new beverages both, for local and export markets. We would especially like to highlight the new vodka Riga Black® Vodka the production of which was commenced at the end of the year, considered by us as a product of high potential.

In 2012, the Company’s total investment in modernization of production and perfection of the product portfolio comprised 310 thousand lats.

guntis āboltiņš-āboliņšChairman of Board, AS Latvijas balzams

since March 23, 2012.

09Sustainability Report2011 – 2012

The direct exports of the Company in the year 2012 were focused on in-depth research of and finding our way into the existing export markets. Last year, the main export targets were the Baltic States, Russia, the Ukraine, and Scandinavia; at the same time a proactive capturing of new markets, such as Croatia and Georgia was high on our agenda. In 2013, the exports will be focussed on quality enhancement and strengthening our position on priority export markets.

In my opinion, one of the main challenges for the next year is maintaining of a constantly high product quality and sustaining continuous growth, despite the increasing costs of raw materials and resources as well as the standing high share of the shadow economy in the Latvian market of alcoholic beverages. The Company will keep working on improvement of the manufacturing strategy in view of the changing market conditions and the vision of the Company

development. The priorities set forth for the Company in 2013 are the further control of manufacturing and logistics costs, optimization and increase of the manufacturing efficiency, development of new competitive products and expansion in the main export markets.

The Company will continue implementation of responsible and sustainability-oriented policy placing a special emphasis on environment, labour safety and market relations aspects implementing continuous measures aimed

at reduction of the Company’s adverse impact on the environment and setting high requirements both for the Company itself and for its stakeholders.


Due to the excise duty policy implemented in this country over the economic crisis of 2008 and the following years, the Latvian market of legal alcoholic beverages shrank by one quarter in three years. Alongside with that, estimates of industry show that the shadow economy in the sector of alcoholic beverages became more powerful so that it currently accounts for 32- 38% of the total market of alcoholic beverages. The declined purchasing power, changes in consumers’ habits and the more intense competition among distributors and manufacturers of the legal production raised a challenge for Latvijas Balzams to keep up its leader position in the Baltic market maintaining a constantly high product quality.

In 2011, the main challenges of the Company were the following: achievement of the targeted company profit indicators at the same time maintaining the quality of manufactured products and increasing direct exports. The above targets were achieved while given the overall situation in the market of alcoholic beverages and external factors affecting business of Latvijas Balzams as a manufacturer, it should be rated as a challenge.


ronalds ŽarinovsActing General Director

of AS Latvijas Balzams

May 2011 – February 2012


Another challenge of 2011 was the substantial increase in the price of raw materials. Nevertheless, the Company managed to reach the planned profit targets, launch a whole range of new products, and get them established in local and export markets.

In 2011, we put a strong focus on optimization of the manufacturing processes and commenced production of several technologically highly complicated flavoured versions of vodka Stolichnaya with the USA as the largest market outlet. At the same time, consumers in Latvia were delighted to receive a conceptually new product – a non-alcoholic beverage Riga Sparkling Soft; thus, we professed ourselves a responsible manufacturer with a wide range of assortment. We were gratified with a number of international awards, which the brands Riga Black Balsam, Riga Black Balsam Black Currant, coffee liqueur Moka, and brandy Grand Cavalier were bestowed upon in 2011.

The Company managed to reach the planned profit indicators.


New Technologies: Riga Black Vodka



In the course of creating new flavours which is part the manufacturing process of strong alcoholic beverages in the liqueur workshop of the Company, as strong emphasis is placed on application of self-made extracts of natural ingredients. Thus, alongside with traditional extracts made from pepper, nutmeg, naturally roasted coffee beans, dried bilberries, apples, and other plants blended in Riga Black Balsam and Benedictine, in 2012 we have started brewing of extracts from natural cinnamon barks, star anise, bitter orange peels and cardamom. Our self-made distillate from fresh ginger roots is widely applied in new beverages Gingery Bitter and LB Ginger and Honey Infusion. To ensure the extract and distillate quality the liqueur workshop underwent renovation of distillation units installing additional tanks for treatment and extraction of raw materials.

Riga Black® bears the newly-created hallmark House of Riga Black Balsam symbolizing the experience of the Riga Black Balsam master craftsmen. This type of vodka is purified in a 7-stage filtration process through silver coals, obtaining the purest possible flavour. This process involves use of a special active coal containing silver ions. Silver provides the highest purification level. In contact with the coal, admixtures go through absorption, followed by oxidation-reduction reactions in which the particular flavour of vodka is formed. Both, coal and silver act as catalysts in these reactions facilitating the processes. Another important feature of the process is filtration in the Zeta plus filter, as it removes mechanical waste up to a 5-micron level and removes negatively loaded tiny particles thus averting potential formation of lees in a long run. Subsequently, a natural grain distillate is added to vodka serving as an aromathiser and imparting a warm, fresh and all-round flavour to it. A two-stage pre-filling filtration up to 2 and 1 micron ensures the crystal purity and shine of vodka. We test the lucidity of the beverage in laboratory by passing a ray of light through it and detecting Nephelo turbidimetric units.

aija ZablockaChief Technologist

Production Unit at A.Čaka


natālija antoņenkoChief Technologist

Production Unit at A.Briāna

In 2012, LB launched manufacturing of two new products on the basis of Spanish wines blended with natural concentrated fruit and berry juices. Riga Diva Gold Fusion 7.5% is based on Spanish white wine blended with peach juice concentrate, imparting to beverage a light and sweet fruitish flavour and a gentle peach aroma. Riga Diva Red Fusion 7.5% is made of Spanish red wine and Spanish Muscat wine flavoured with concentrates of peach and strawberry juice. The beverage has a beautiful red colour and a light flavour of Muscat and fruits/berries. The flavour is further enriched by undertones of peach and strawberries.


Most Important Events2011– 2012



The Company participated also in a competition in the United States of America, where it debuted in the first alcoholic beverage competition for small brands: MicroLiquor Spirit Awards. Both, the Riga Black Balsam and the Riga Black Balsam Black Currant were awarded triple golden medals, the golden medal for their flavour and the golden medal in category Design and Packaging. Meanwhile, the liqueur Moka received a golden medal for its flavour.

In 2011, a number of products of Latvijas Balzams: Riga Black Balsam, Riga Black Balsam Black Currant, coffee liqueur Moka, and brandy Grand Cavalier received high commendations in several international competitions of alcoholic beverages.

In the international competition Liqueur Master 2011 taking place in London, within the scope of The Spirit Master competition series, the jury of independent judges conferred silver medal to Riga Black Balsam for its flavour in category of herbal liqueurs and infusions as well as a golden medal for packaging in category Design and Packaging. Meanwhile, in the prestige International Wine & Spirits Competition, the Riga Black Balsam Black Currant was awarded ‘the best in class’ status and received a silver medal in category Flavoured Spirits. It became the best product in the respective class; gold medal was not conferred.

Furthermore, in the category Brandies of this prestige competition, the silver medal was awarded to beverage Grand Cavalier created by the Company especially for the Lithuanian market. It has been a bestseller in the neighbouring country already since 2009.

Acknowledgements and Awards

LATVIJAS B

ALZA

MS

- R

IGA

BLA

CK B

ALSAM CURRANT 30% - DESIGN & PA

CK

AG

ING

- LIQU

EUR MASTERS LATVIJAS

BALZ

AM

S -

RIG

A B

LACK

BALSAM CURRANT 30% - HERB &

BITTERS - LIQ

UEU

R M

ASTERS


According to the Baltic exchange NASDAQ OMX research, the Company ranks second among all Baltic companies with the most rapid improvement of investor relation quality. Tests performed within the framework of the project Baltic Market Awards showed that the investor relation quality of the Company in a year’s time has increased by 13 points out of 100. In total, since 2006, the Investor relation quality in the Baltics has improved by 40%. Companies with the best investor relation in 2011 quoted in the Baltic exchanges “NASDAQ OMX” received awards in a special ceremony of Baltic Market Awards held on January 26, 2012. Granting of rewards was synchronized in time in all three capitals of the Baltic States and virtually connected by video bridging.

Latvijas BaLzams: The 12Th MOST WELL-MERITED COMPANY IN LATVIA

In the Chart of Top Most Reputable Companies compiled by magazine Lietišķā Diena in cooperation with the PR agency Nords Porter Novelli, as the Company is the only manufacturer of spirits having entered this respectable chart over the last couple of years. In 2011, the Company took the 12th place in the total rating; in 2012, it took the 17th place. At the same time, in public opinion survey it ranked the ninth in 2011 and the twelfth in 2012.

In 2011 and 2012, the Company was awarded the Latvia Sustainability Index silver medal proving that its performance improves from year to year.

Riga Sparkling Wine: the third best- loved beverage brand in Latvia in 2012.


IN OCTOBER 2012,AS LATVIjAS BALzAMS jOINED THE EXTENDED COOPERATION PROGRAM OF THE STATE REVENUE SERVICE OR THE SO-CALLED “WHITE LIST”

It confirms the compliance of the Company’s commercial activity with requirements of the program and commitment for an even closer cooperation with the tax administration to improve the management and controlling processes of the Company. Company is among the five best Latvian companies having received a very special award: the Ministry of Welfare diploma “Senior-friendly company”.

In addition, Latvijas Balzams, Rimi Latvia, and Grifs AG are among companies, experience of which will be assessed also on a European level: we are finalists in a European competition devoted to the European Year for Active Ageing and Solidarity between Generations (2012).

RIGA BLACK BALSAM:LATVIA BUSINESS CARD NO.1

Over the tourism season, sales volumes of the Riga Black Balsam in outlet stores of Latvija Balsams AS located in Old Riga tend

to increase by 30%- 40%; this traditional beverage is mostly beloved by tourists from Russia. Estimates of the Company show that with increased flows of tourists also sales volumes of the Riga Black Balsam tend to go up which is evident in shops of LatvijasBalzams AS in Old Riga and Jurmala. For example, in July, under the impact of New Wave, annual contest of the young pop singers held in Jurmala and a massive inflow of guests from the neighbouring country in connection with that, sales of the Riga Black Balsam in Jurmala and Old Riga exceed those of the New Year’s Eve. Furthermore, a survey organized by the Bus Committee of the Russia Tourism Industry Association and presented during the international tourism exhibition Balttour 2012 confirms that the Latvia’s business card number one really is the Riga Black Balsam.


COMMUNICATION CAMPAIGN OF THE RiGa BLaCK BaLsam IS APPRECIATED IN BALTIC PR AWARDS 2012

"Re-labelling Latvian Symbol", the communication campaign of the 260th anniversary of the legendary “Riga Black Balsam” got the 2nd place in the largest forum of public relations and communication in the

Baltics, Baltic PR Awards 2012. Among 79 works submitted for the competition Judges singled out our campaign in the category Consumers Relations and nominated it for the finals. Out of five finalists of the category we took the honourable 2nd place!

We are satisfied with the work well-done which has been highly approved by international PR professionals and jury, who understood the challenge this campaign posed: in a communication campaign of a beverage of consistently “reputable age „addressing and attracting an audience in the age bracket of 24 – 35. We have received many favourable references from our colleagues, acquaintances, and business partners, who had noticed the news in mass media and in the social network Facebook, where we invited everybody to try their hand at creation of the label dedicated to the 260th anniversary of the Riga Black Balsam.

The communication campaign “Re – labelling Latvian Symbol” was developed through cooperation of several SPI Group companies: SPI Distribution Latvia,AS Latvijas balzams, and public relation professionals from McCann Consulting.The campaign started in spring this year and was completed in October, when we placed on the market the first bottles of a beverage from the anniversary batch. Celebrating 260th anniversary of one of the most ancient symbols of Riga and Latvia, the Riga Black Balsam the Company issued 10 000 bottles of special anniversary series with an aureate jubilee label. The label, ornating the bottles, was created by the young designer Madara Matisone especially for this occasion.

The Riga Black Balsam is one of the oldest spirits’ brands in Europe dating back to 1752.

LATVIjAS BALzAMS AMONG 10 LARGEST TAXPAYERS IN THIS COUNTRY

On November 22, in scope of the solemn TOP 500 award ceremony organized by Dienas Bizness Publishers, the largest taxpayers of the country were given tribute, including Latvijas Balzams. In 2011, 10 largest taxpayers had paid to the budget 740. 62 million lats, which composed 18.2% of the total budget income administered by the State Revenue Service (the SRS) in 2011.


Export

The Company operates in three geographical areas including sales in Latvia, S.P.I. Group orders' execution and direct export to other countries. Net Sales in Latvian Lats in these areas are as fiollows:

2012 2011 2010Ls Ls Ls

Sales in Latvia 16 616 122 15 728 177 17 095 761

Export goods produced according S.P.I. Group companies' orders

25 062 723 24 379 767 29 002 694

other export income

Lithuania 2 417 600 3 087 242 3 174 395

Russia 874 811 672 172 996 865

Estonia 492 739 617 358 632 376

Poland 81 365 264 074 231 406

Norway 290 650 285 752 292 435

Other countries 981 309 1 020 985 833 410

Other export income (total) 5 138 474 5 947 583 6 160 887

46,817,319 46 055 527 52 259 342


Exhibitions Latvijas balzams in cooperation with Investment and Development agency of Latvia has participated in trade shows in Japan, France, Finland, the Netherlands and China.

The Company accomplished an international marketing activity project in cooperation with Investment and Development agency of Latvia (Cooperation agreement No. L-ĀTA-11-0587) on November 30, 2001. Latvijas balzams took participation in trade shows which were held in Japan, France, Finland, the Netherlands and China.

trade Shows:• Hong Kong International Wine &Spirit Fair in China• Viking Line Tax Free fair in Finland• PMLA’s 2011 World of Private Label in the Netherlands

Latvijas balzams signed a new agreement with Investment and Development agency of Latvia on March 29, 2012 in order to proceed with international marketing activities and participated in two trade shows - MDD Expo Private label 2012 in France and PMLA’s 2012 World of Private Label in the Netherlands.As result of participation in these shows several marketing projects were generated and executed.


New Products



Briāna Street. The presentation of several popular entries of beverage lines: Riga Sparkling Wine, ciders Lucky Dog, Riga Black Balsam cocktails, lines of carbonated alcoholic cocktails Dins and Alkotops as well as the cocktail Moskovskaya Street – were changed to elegant, modern, and attractive designs.

◊ Designs were updated also for products manufactured at Aleksandra Čaka Street. In 2012, we created labels of new and modern design for the strong alcoholic beverage Bonaparte, the popular liqueur Moka and its variation Moka Truffle as well as the excellent vodka Moskovskaya.

◊ Celebrating anniversaries of the most remarkable brands of Latvijas Balzams an individual design label was created: to commemorate 260 years of Riga Black Balsam as well as the legendary Riga Sparkling Wine celebrating its 60th

anniversary was issued with an individual design label and a new innovative presentation.

◊ To provide stable and affordable product prices for consumers, the Company is constantly looking for innovative product design and packaging solutions. Thus in 2012, we reduced the product cost of Lucky Dog and Glintwein by substituting cardboard boxes for film package. .

PACKAGING AND DESIGN:

◊ As of 2011, in the production unit of spirits at Aleksandra Čaka Street, the magic drink Riga Black Balsam is filled also in 1.0 l ceramic jugs. In addition, Riga Black Balsam also as the consumer-favoured Riga Black Balsam Black Currant is available also in souvenir-packages of different volumes for special life events.

◊ The Company highly respects its consumers not only in Latvia, but also in the neighbouring countries, therefore in 2011 we supplemented labels of products popular in Lithuania – Moskovskaya and Moka Truffle – with information in the Lithuanian language.

◊ The packaging of spirits has to be not only highly presentable and elegant but also practical and applicable in different life situations. For this reason, in 2011, the Company responding to the customers’ wishes, placed on the market the excellent vodka Moskovskaya in a 0.5L PET bottles; in 2012 we introduced can packaging for the carbonated alcoholic long drink Din Gin & Tonic and for 2 the most favourite Lucky Dog ciders vanilla and pear flavoured ciders.

◊ The previous two years have been highly productive also for the production unit of the light alcoholic beverages at Aristīda

In 2011 and 2012, AS Latvijas balzams implemented several innovations: created new products, developed new presentation designs for the existing products and expanded ranges of the most popular beverage lines providing. customers with even wider choice.


NEW PRODUCTS:

Over the last 2 years, a number of new products have been developed; the year 2012 with more than 15 new entries placed on the market was extremely productive.

In 2011, in production unit at Aristīda Briāna Street, the manufacturing of the Riga Sparkling Soft drink was started to offer a non-alcoholic alternative to sparkling wines. The Company is proud of the excellent success of the Riga Sparkling Soft drink and the warm welcome it received on the part of our customers.

In 2012, technologists of the production plant of light beverages have created recipes both for entirely new brands and for series of spirits favoured by consumers. Meeting the consumers’ and flavour trends, the cocktail series Dins was supplemented with Dins Grapefruit.

Over the last couple of years, the classic values, e.g., dry ciders are highly valued on the Baltic markets. They are especially popular in Estonia. Therefore, the experienced and knowledgeable technologists of the company developed dry cider Apple Garden filled in brown glass bottles respecting the tradition.

However the Company is not only led by the market trends; it creates also ones of its own. In 2012, in the production unit at Aristīda Briāna Street, Chilli Vodka, a new Alkotop series cocktail was elaborated with chilli extract. The production plant at Aleksandra Čaka Street manufactured new beverages with a natural cinnamon bark added in the bottle: brandy Grand Cavalier Exclusive and the strong alcoholic beverage Bonaparte Cinnamon.

The staff members working in production units of AS Latvijas balzams are excellent professionals full of creative ideas. In 2012, they elaborated a strong alcoholic beverage Žolynu for the Lithuanian market with a complicated recipe containing 23 different herbs. Whereas the consumer-beloved series of Riga Diva was created by blending sparkling wines with natural peach and strawberry juices.

When developing new brands, the existing and legendary ones are not neglected either. In 2012, we supplemented the LB Vodka with series of infusions LB Infusions. In addition, we resumed the production of liqueur Charlotte according to its historic recipe. Two versions of the brand were placed on the market simultaneously.


Major Products and Main Markets



DIVISION OF LB PORTFOLIO BY CATEGORIES IN THE LATVIAN MARKET IN 2011 – 2012

Products and Manufacturing

RIGA BLACKBALSAM

18.8%

BRANDIES AND STRONG ALCOHOLIC BEVERAGES

13.4%

NON-ALCOHOLICCOCKTAILS

0.5%

VODKAS

12.7%CIDERS

2.5%LIQUEURS

4.0%

SPARKLINGWINES

26.3%

CARBONATED ALCOHOLIC COCKTAILS

19.7%

WINES

1.7%

GINS

0.4%


DIVISION OF LB PORTFOLIO BY CATEGORIES IN EXPORT MARKETS IN 2011 – 2012

JSC "Latvijas balzams " offers a wide range of products for export markets both standard portfolio and "private label" projects according customers requests.

RIGA BLACKBALSAM

22%

BRANDIES AND STRONG ALCOHOLIC BEVERAGES

31.4%

VODKAS

23.4%

LIQUEURS

2.1%

SPARKLINGWINES

15.7%

CARBONIZED ALCOHOLIC COCKTAILS, CIDERS, GINS

5.2%WINES

0.3%


The Company distributes alcoholic beverages both, on the local market and export markets as well as manufactures spirits implementing different private trademark projects. Products of the Company, including those manufactured pursuant to job-orders of SPI Group companies, are available in more than 80 countries; new export markets are entered into every year.

Trade and Markets


DIVISION OF SALES VOLUMES BY AMOUNTS

Basic brands Stolichnaya & Moskovskaya SPI Group

distribution network

Brands of Latvijas Balzams AS and

Private label projects

Brands of Latvijas Balzams AS

> 160 countries > 30 countries market leader

Lithuania, Estonia, Russia, and Germany form the largest share of LB product exports while vodkas Stolichnaya and Moskovskaya manufactured according to job-orders of the SPI Group are mainly exported to the USA, Canada, Chile, Great Britain, Lebanon, Spain, Greece, Austria, Israel, and Italy.

LB Export

SPI GROUP EXPORT

63%

LB EXPORT

11%

LOCAL MARKET

26%


DYNAMICS OF SALES, THOUS. LVL

Latvia

2008 2009 2010 2011 2012

34,270

8,585

30,312

28,512

7,550

19,538

29,003

6,16

17,096

24,380

5,948

15,728

25,063

5,138

16,616

Local market

LB export

SPI export


In 2011, due to the raise of the excise tax and increase of the illegal alcohol share the sales in the local market in terms of money diminished. The Company however still retained its leadership in the Latvian market with a 24% market share.

IN THE PERIOD OF 2011 – 2012, AS LATVIjAS BALzAMS RETAINED THE LEADING POSITION IN THE LATVIAN MARKET WITH A 24% MARKET SHARE.

IMPORT

61%OTHERS

15%

LATVIJASBALZAMS

24%


BREAKDOWN OF SALES VOLUMES BY AMOUNTS

LB in Export Markets

NETHERLANDS

4%NORWAY

5%GERMANY

5%LATVIA (TAXFREE)

6%ESTONIA

9%RUSSIA

13%

LITHUANIA

47%

POLAND

3%

OTHERS

5%UKRAINE

3%

The largest export markets of the Company are the Baltic States, Russia, Germany and Norway. As a consequence to the shrunken sales in the local market, AS Latvijas Balzams actively seeks new export outlets for its capturing new and new sales markets.


1

2

3

4

5

6

7

8

9

10

TOP 10 products

LATVIA

Riga Sparkling Wine

Riga Black Balsam

Bonaparte

Sovetskoje Šampanskoje

Svetskoje

BBC Cocktails

Cocktail Dins

3 Graudu Vodka

Moka

Cider Lucky Dog

EXPORT MARKETS

Grand Cavalier

Riga Black Balsam

Sovetskoje Šampanskoje

Dannoff Vodka

Moskovskaya

Riga Sparkling Wine

Kirow Vodka

Bravo Vodka

Spartaks Premium

Bang RTD


3 GRAUDU

Popular vodka, manufactured by applying multiple filtrations on top of the classic technologies of vodka production thus guaranteeing a special purity and clarity of the product.

LB VODKA

Exceptionally pure vodka produced from the top-quality grain spirit by applying a quadruple filtration method and combining modern technologies with the best traditions acquired by distillers of Latvijas Balzams in 110 years of its history. LB Vodka is the

first product, manufacture of which applies a newly patented freeze-out technology “Classic plus” which provides a constantly high and stable flavour and aroma quality.

BONAPARTE

Tenderly flavoured S strong alcoholic beverage with a fine nutmeg aroma, highly esteemed by lovers of brandy. It is the leading brand in its category in Latvia.

DINS

A classic gin-tonic long drink, combining the explosive energy of gin and the refreshing quality of tonic. Enjoy it chilled, on rocks, or straight.

LUCKY DOG

Fruity, sweet, lively, and cheerful bubbles. A line of high quality sweet apple ciders. A perfect companion for beach parties and summer holidays. Available with various flavor combinations: apple, sweet kiwi, pear, apple-vanilla, and strawberry.

Key Products


MOKA

A classical Coffee liqueur with more than 40 year long traditions of production. The liqueur is made of high quality coffee beans using classic recipes of coffee liqueurs. It is perfect both straight and with coffee, tea, and whipped cream or as a cocktail ingredient.

RIGA BLACK BALSAM

The elixir invented in the middle of 18th century in Riga, from infusions of roots, leaves, blossoms, and buds by druggist Abraham Kunze. Twenty-four bounties of nature incorporated in Riga Black Balsam form a unique bouquet, where tenderness of linden

tree blossoms intertwines with bitterness of birch buds while the spicy tones of ginger and nutmeg supplement the sweetness of raspberries and bilberries. In the course of time, the excellent qualities of Riga Black Balsam have been highly esteemed all over the world; the amber dark elixir has received more than 50 awards in different international exhibitions.

RIGA SPARKLING WINE

iThe most popular brand of sparkling wines in Latvia with harmonious flavour and aroma. Every fourth bottle of sparkling wine consumed in Latvia is the Riga Sparkling Wine. It is produced from selected European wines by applying the method of continuous fermentation.

STOLI ELIT

A premium class beverage of the most prestigious and the most popular Russian vodka Stolichnaya Premium. A unique freeze-out technology patented by the S.P.I. Group ensures the excellent quality of the Stoli Elit. After the classic water-spirit processing through the birch activated birch charcoal and quartz sand

filters, vodka is cooled down to -1800C thus reaching a treacly solidity of the beverage. In a cooled condition, vodka is put down for at least eight hours followed by the original filtration at decreased temperature. The process results in pure, harmonious, and exquisite flavour and aroma of the beverage.


Export Markets



United KingdomBelorussia Italy CanadaRussia (Kaliningrad Region)The NetherlandsSlovakiaThe Ukraine

The USADenmarkIsraelKazakhstanRussiaChinaNorwayFinlandHungary

Australia France IrelandCyprusLithuaniaCroatiaPolandSpainGermany

Export Countries ofLatvijas Balzams


Australia France IrelandCyprusLithuaniaCroatiaPolandSpainGermany

Austria EstoniaGreeceRussiaMoroccoGeorgiaPortugalSwitzerlandSweden


Visitors of the exhibition were given the opportunity not only to taste products of Latvijas Balzams but also and to purchase them for taking away. The cream liqueur Riga Black Balsam Cream, BBC cocktail series, Alko cocktails, and LB Vodka obtained the highest esteem and popularity among visitors of the exhibition.

In 2011, products of Latvijas Balzams were available in four shops in Windhoek (capital of Namibia) as well as in several restaurants and guesthouses. In addition, currently there are negotiations going on with several supermarkets, hotel chains, and restaurants about including of our products in the assortment.

On June 08 – 11 of 2011, in Windhoek/ Namibia, an exhibition Namibia Tourism Expo was organized where our new cooperation partner Life Soil Suppliers presented a wide range of the Company’s products.

This was already the 13th annual exhibition Namibia Tourism Expo where the exhibitors are broken down into the following groups: foodstuffs: beverages and foods; tourism service providers; direct tourism services (e.g., hotels etc); restaurants; different industries of outdoor recreation and car renters.


On March 01 - 04, 2011, in Tokyo, prefecture Chiba/Japan, exhibition FOODEX JAPAN 2011 was organized, where the Company was represented by its Export Department.FOODEX JAPAN is the largest food and beverage fair in the region of Asia gathering 2399 exhibition participants/stands from 63 countries and different regions (992 stands represented Japanese companies and 1407 stands represented other countries. In total, the fair went on in 8 halls. In four days, the exhibition was attended by 74.936 professionals of food industry from different countries.The stand of AS Latvijas Balzams was mainly visited by people from Japan and

such countries as Korea, Mongolia, UK, etc. Negotiations were conducted with several big importer companies as well as with visitors representing the HoReCa industry and willing to purchase LB products for their bars and restaurants. During the exhibition, the Company and its products were actively presented by offering to taste Riga Black Balsam, the Riga Black Balsam Cream Liqueur, the Riga Black Balsam Black Currant, liqueurs Moka, sparkling wines Riga Sparkling Wine, ciders, and long drinks.


part of general public and jury were given to name Clavis Riga (translation from Latin – Key of Riga). When time came to disclose the author of the name, it turned out that it was A.Noreikis! AAny interested person of age or older had the right to submit their version of the cocktail name by filling-in a form in the website: www.rigaskokteilis.lv. At the beginning of June, 22 bartenders made each a new unique long drink, which had never existed before. All the long drinks contained Riga Black Balsam as an ingredient. The ones created by Andris Noreikis, Ivars Ruktovskis, and Māris Gerāns were proclaimed the best. All three were available for testing and voting for in the “B-Bar” at 4 Torņa Street and 2 Dome-square .

Riga Official Cocktail – Clavis Riga

As the result of competition Riga CocktailClavis Riga, was proclaimed “official” Riga long drink. The creator of the cocktail and its name is Andris Noreiķis, the bartender of Lidojošā Varde (Flying Frog) pub. In total, approximately 1300 people tasted long drinks and voted for their favourite one. All the three cocktails promoted to finals underwent a tight competition; eventually, the cocktail of A.Noreiķis became the leader with 476 votes. Meanwhile, from almost 300 cocktail names sent in, the highest preference both, on the


The 260th Anniversary Label of the Riga Black Balsam has been Found

Side by side with the opening of the Riga Black Balsam exhibition in Dome-square on July 27, 2012, the anniversary label especially designed for its 260th anniversary was chosen to be used on anniversary design bottles. The joint jury of consumers and experts conferred the highest evaluation to the label made by artist Madara Matisone. The designer has created a jubilant, powerful and modern label, reflecting 260 golden years of Balsam’s life. The designs submitted by Aija Matuzele and Elvijs Salmiņš became the first and second runners-up in this competition..

“It was not a simple task to choose the jubilee label to be applied on anniversary bottles. It started by several hours discussion among the members of Jury on what the label should be like to reflect the capability of the Riga Black Balsam to follow the change of time. We are happy with the design selected, as it marks a new milestone in development of the balsam brand”, explains the Brand Director of the Company Valters Kaže. He is confident: the new label will create a sense of festive atmosphere for each balsam fan.

15 best works were displayed in a special Riga Black Balsam exhibition on Dome Square“Winning of the competition evokes in me an indescribable feeling; I am really happy that peoples both, in Latvia and abroad will see my label. The design was created under the influence of spontaneous emotions seeking to put to paper the festive feelings evoked by the coming anniversary, says Madara Matisone, designer .

The Jury evaluating the submitted label designs consisted of Karina Pētersone , Director of the Latvian Institute, Sabīne Markus, Head of the Riga Tourism Information Centre, Agris Dzilna , Member of Board, Latvia Designer Union, Valters Kaže, Brand Director of AS Latvijas balzams as well as Ģirts Liniņš, Brand Head of the Riga Black Balsam . The main assessment criteria included originality, aesthetics of the label, novelty, and creativity as well as the suitability of the label for industrial manufacture and conformity of the design to the brand concept.

Every inhabitant of Latvia registered in the social network Facebook had an opportunity to vote for the labels submitted in the Facebook profile of Riga Black Balsam.


Social Responsibility



Defined Corporate Position on Illegal Alcohol Trade Issues

In 2011 and 2012, a great work was done to improve the performance of the Company in the field of sustainability and social responsibility which is underpinned by the evaluation of the Sustainability Index experts and research results of the NASDAQ OMX Baltic Exchange t. The Company has been especially active in finding out the stakeholder opinions in various studies and it has taken an active part in work of the branch associations addressing critical issues. Representatives of the Company have expressed their opinion over mass media and in public events. It is undoubtedly possible to achieve large improvements in many sustainability aspects however our highest priorities currently are the environment

Signe BīdermaneDirector of the Human

Resources and Administrative

Department, Member of the

Management Board

Representatives of the Company participated in discussion organized by the Employers’ Confederation of Latvia on smuggling control within the campaign “No – to shadow economy; Yes – to fair competition”. Regarding the responsible use of alcohol, we have developed a new product: the Riga Sparkling Soft Beverage.

We are involved in working groups instituted under SRS in drafting of legislation on combating trade in illegal alcohol. In cooperation with the Ministry of Interior and the State Police we have performed expert examinations for detecting the composition and unsafety of the illegal alcohol.


In its systematic improvement of the Sustainability Index performance, the Company has taken account of recommendations of experts eventually resulting in numerous improvements:

◊ Guidelines of the ISO 26000 in drafting of the Sustainability Report 2011-2012 have been followed;

◊ Auditing of potential suppliers and cooperation partners before starting of cooperation; training of dealers and distributors;

◊ Information about the Company’s stakeholders has been gathered, finding out their opinions, and involvement of stakeholders in the decision –making process;

◊ 360˚ assessment of middle and top level managers, organisation of respective training based on results of the assessment;

STAKEHOLDERS:

◊ Employees◊ Clients◊ Suppliers◊ Sales brokers◊ Non-governmental organizations◊ Local community◊ Shareholders◊ Representatives of mass media◊ Governmental institution

THE IMPACT ASSESSMENT:

◊ On environment – energy audit;◊ In November 2011, with support

of the EFRD (the European Forum for Responsible Drinking), group of researchers of the Latvian Association of Manufacturers and Distributors of Alcoholic Beverages and the Latvia University performed a study adapting methodology of the International Centre for Alcohol Policies (Washington) approbated in 9 countries;

◊ Customer and consumer studies –Riga Black Balsam consumer attitude research;

◊ Process management system audit of the Company: assessment of internal processes, conformity of the Company’s structure, the quality management system, readiness to implement the approach of cost-effective manufacture, and received recommendations for implementation of improvements;

◊ Public opinion survey for needs of the services adaptation in cooperation with BRAVO SIA;

◊ Reputation analysis by using available public data – Reputation TOP, Stock Exchange.


of alcohol of a well-known brand from an original one and respectively were subjected to risk upon buying a mixture of spirits of unknown origin and composition.

The campaign was run in October – November of 2012. Within the campaign, in streets of Riga, Liepaja, and Daugavpils, attention attracting, graphic environmental posters were displayed which invited to reconsider use of unverified and unsafe composition alcoholic mixtures of unknown origin, which are frequently sold as “factory products”. Messages of the campaign and myths about origin of illegal alcoholic beverages were published also on the portal www.atbildigi.lv

A unique project: social campaign Backstage implemented

With an aim to draw attention of the society to consequences eventually caused for human life by purchase, distribution, and use of alcoholic beverages of unverified origin, the social campaign Backstage was implemented.

The Latvian Association of Manufacturers and Distributors of Alcoholic Beverages (LAMDAB) where AS Latvijas Balsams is involved as a member, in cooperation with the advertising agency Leo Burnett Riga, the media agency Starcom Latvia, the Environment Advertisement Association, and the EFRD organized the campaign Backstage.

The survey organized on the internet before the campaign showed that 40% of the respondents had purchased excise-free alcohol and 48.7% had used it (500 inhabitants of all Latvia aged 21 to 50 were survived of which 80% were men).More than a half or 53% of Latvian inhabitants acknowledged that they would not be able to distinguish a counterfeit bottle


Recent mass intoxication with alcohol of unknown origin in the Czech Republic and repeated domestic tragedies confirm the necessity of such project: several years ago more than 50 people got intoxicated in the town of Preili, the recent death of two young men in Liegi, fatalities of the previous year in Riga as well as many others, about which we will even never find out. The investigation of the ruling situation attests to the fact that alcohol of unknown origin or its substitutes are still freely available in Latvia and compose about 32% of the whole turnover of alcoholic beverages. Therefore, our aim is to emphasize the topicality of preventing such events in the future for the sake of public health.Specifies valters kaže ,member of the Board

of the LamDaB and the Brand Director of

Latvijas Balzams.

Latvijas Balzams collaborates with the Latvian National Symphony Orchestra in organization of the National Day concert on 18th of November

Support to Culture

Responding to the appeal of the society Deju kopa Zalktis, we donated funding for restoration of national costumes needed for participation in the XXV Nationwide Latvian Song and XV Dance Festival in 2013 and for performance of the newly choreographed dances and programs in different culture institutions of Latvia.

Offering a comment on cooperation described above, Guntis Āboltiņš-Āboliņš, Head of the Company, said: “Sometimes, we underestimate what a large number of fabulous places, talented people, and quality local products we have got. Therefore, on the eve of the National Day, I would like to call upon everyone to take pride in our achievements and success! Latvijas Balzams, for instance, has been manufacturing high-quality sparkling wines for already 60 years. Placing on the market of the special Jubilee Sparkling Wine produced according to the classical champagne manufacturing method in a limited size batch and investing the handwork of our champagne masters in each one of the 8000 bottles was our special way of celebrating this solemn occasion."


the work with suppliers is ongoing and a number of other measures is carried out. We have introduced our own stock management principles and a motivation system the staff members in charge of stocks; we are in the process of altering the supplier assessment system to satisfy the consumer in terms of quality and prices of our products.

Furthermore, in 2012, by way of merging two units we established a separate department in charge of handling both, supplier and consumer complaints. Analysis of complaints provide us basis for process improvement and the required changes aimed at reduction of complaints.

The years of 2011 and 2012 have been marked with significant challenges in management of the supply chains of AS Latvijas Balzams. The price increase of major raw materials such as spirit, wine raw material, and brandies affected the prime cost of products dramatically. Another challenge: diversification and individualisation of demand which forces the producer to extend its assortment and produce smaller batches. To maintain the cost on a level acceptable to the end consumer, we had to find solutions for decrease of the overall supply chain costs, thus amortising the cost increase. Consequently the stock remnants are balanced with swift order deliveries, the efficiency of logistical operations is improved,

Management of Supply Chains and Cooperation With Suppliers

intars geidānsDirector of Logistics,

Member of the Board


Management of Supply Chains and Cooperation With Suppliers

Human resource management strategy ensures an increase of competitiveness by improving organisational abilities, creating excellent performance culture, and facilitating upgrading of employees:

◊ Application of the performance management as the basic organisational process will serve for us as:• Motivator of main stakeholders and employees; • Tool for assessment of abilities and potential of current employees; • Investment in planning of personal development and training;

◊ Continued development of efficient succession planning process for reducing activity risks; ◊ Analysis of competence fields and elaboration of appropriate development program; ◊ Development of mentoring/couching culture;◊ Establishment of such salary system that supports middle term strategy and high

performance culture;◊ Development of a regional management team for achieving strategic aims.

INTERNAL COMMUNICATION:

◊ When we take a decision that affects the routine and comfort of the Company employees, we organize surveys for finding out their opinion about different issues, e.g.,: selection of insurance company and its offer, assessment of services provided by employees’ canteen and proposition of innovations, selection of banking services, and surveys on fitness opportunities ;

◊ Direct communication;

◊ We practice non-discriminatory personnel policies: we employ many people in retirement and pre-retirement age. Flexible forms of working time-tables are available: summarized working hours, work from home, part-time work;

◊ Economic, social, and cultural rights stimulating active lifestyle, sports, and culture; employees are involved in donation projects and articles donated delivered to orphanages. A computer, provided by one of our employees was donated to Pale primary school for establishment of an e-classroom.

Human Resource Management Strategy


We grant additional vacations to employees subjected to labour environment risks or having participated in consequences elimination of Chernobyl Power Station breakdown, to parents of first grade pupils on the first day of school, for studies, weddings and in case of funeral of immediate family member. The Company provides its employees with health an insurance policy, mandatory medical examinations, and preventive measures at the working place. We encourage also the use of fitness club and a swimming pool partly covering the expenses; in addition, we offer to our employees a high quality catering service at subsidized prices and potable water. Every year we allocate funds for solving the social issues of our ex-employees. For retired long-term employees, who have invested priceless efforts in development of the Company, we organize concerts – reunions at Christmas time as well as provide them with financial support. The Company is focussed on labour safety issues. In 2011, there were no accidents while in 2012 there were 4 accidents at work places. Each accident is carefully investigated; we are looking for reasons and taking measures to minimize the possibility of recurrent accidents. We have commenced registration of almost-happened accidents, and have called upon our employees to notify us of the potential risks more proactively. In 2012, we elaborated an information material for correct handling of heavy items and trained our employees in ergonomic aspects of handling heavy items, correct body positions when working, as well as relief exercises. In 2012, we organized practical training about on fire fighting in the production plant at A. Briāna Street.

The average number of employees in 2012: 613; in 2011: 613; in comparison with 2010, the number of employees has reduced by 3%; the staff turnover: 12%. 97% of employees are employed on bases of a permanent labour contract. We conclude a limited time period work contracts with persons who stand in for periods of employees’ absence, for short-term or one-off jobs, or due to short-term increase of manufacturing volumes. The Company employs 34 persons with specific needs. 12 women are on pre-maternity and maternity leaves; their working places and social guarantees are preserved.

The company employs 54% men, 46% women; as executives: 51% men, 49% women.The company has concluded a collective agreement embracing 100% of employees. In different situations of life, AS Latvijas Balzams may pay benefits to its employees and present them with gifts, e.g., in occasions of: childbirth, marriage, labour anniversary, retirement, to parents when their children start attending school, , to large families, for improvement of health, in case of funeral of immediate family member, in case of material loss.

Working Environment

46%54%


The training was organized with the help of attracting co-funding of the EU project Training of food industry employees for facilitating competitiveness enabling the employees to cover technical training of various profiles and receive certifications. In the same way, the managerial staff was involved in team-work training and upgrading of managerial skills. After mastering the basic course of LEAN management, we have started to work on LEAN implementation processes. On-the-job training where professionally already up-graded staff members act as trainers for other employees is regularly practiced at our Company. The analysis of training performance is carried out both, on the basis of the trainee feedback and discussions on applicability of the knowledge acquired.

In 2011-2012, the Company organized internal and external training for employees. Upon starting a working career at the Company, all new employees undergo an introductory briefing including the presentation of internal rules of operation, manual of the new employee; regulations of labour protection and fire safety as well as hygiene requirements as appropriate.

The training needs are defined during the annual development negotiations with department managers and directors as well as after the 360-degree assessment of managers carried out in the Company. Consequently, we obtained thorough information on the required training necessary for development of specific skills naturally coordinating the training requirements with the strategic goals of the Company.

613613634681

773779

674728

808

2004 2005 2006 2007 2008 2009 2010 2011 2012

TURNOWER OF THE NUMBER OF EMPLOYEES BY YEARS

344 employees or 55% have

covered in-service training.

145 employees or 23% have

benefited from external training.


and irregularities. Through our profile on Facebook, everyone interested is given an opportunity to vote for the newly designed labels.

SOCIAL NETWORKS

To facilitate more efficient public communication we have set up profiles of Latvijas Balzams and Riga Black Balsam on the portals Draugiem.lv and Facebook.com. In 2011, the Company put considerable

WEBSITE

The LB website is updated on regular basis uploading information on our latest products, publishing news on our corporate financial standing and other topicalities. The option of uploading complaints, proposals and references is open to everyone. Each comment is checked, analysed and answered. To improve the interaction process, a decision was taken on setting up a separate department handling claims

Public Communication Transparency of organisation: in its operations the Company follows the principle of transparency so that its customers, suppliers, potential cooperation partners, investors, management, and employees would have a timely and complete access of information regarding the operation, production and control processes as well as an insight regarding the amounts of financing spent, the grounding and reasons thereof.


efforts in its work with mass media, giving interviews, expressing opinions and informing on financial data.

Latvijas Balzams has organized factory tours for different groups of stakeholders, e.g., educational institutions, embassies, etc, acquainting their participants with the manufacturing process of balsam and the history of the company through changing times.

Dienas bizness , 22.11.2011. „Balzamam iegriež emigrācija un akcīze” Lietišķā Diena, 08.11.2011.„Ilgtspēja – klausās gan darbiniekos, gan klientos”


Every year, in summer, we organize the company sports games featuring a number of serious and less serious sports activities where we can spend some quality time together having leisure.

Latvijas Balzams AS keeps to its own traditions

There is a number of traditions established in AS Latvijas balzams of an annual character: : hobby exhibition, greeting of the university graduates, paying homage to ex-employees of the Company at the year-end, annual sports games , as well as different recreational activities. The hobby exhibition is a unique event open to all employees willing to display the results of their hobby.

Every summer we greet graduates of higher education institutions having obtained bachelors and masters degrees. We highly evaluate striving of our employees for education extension and upgrading of skills as a serious investment in development of the Company.


In 2011, we started on a new incentive: birthday celebration of Abraham Kunze, the creator of the Riga Black Balsam. Despite inability to find out the precise date of birth, we decided that the father of the unique Latvia brand deserves his own birthday commemoration and fixed it on the first Friday of December. The idea came from our staff members. We announced a flash action and invited employees on this day to dress in purple that symbolizes creativity and

innovation. In 2012, to mark this event, the Company presented the special Kuntze Prize for the first time; henceforth, it will be bestowed upon the most creative and innovative employee of the year . This year, following the internal survey organized by employees, the prise went to Jānis Mažis, a long/standing staff member of the Company and, liqueur master with a huge experience for his high contribution in product development and innovation.


Environment



Caring for the environment AS Latvijas Balzams prefers environmentally friendly technologies and packaging. In our support of environmentally friendly solutions we implement ongoing improvements targeted at reduction of the adverse impact upon environment and set forth strict requirements both, to ourselves and our stakeholders.

In connection with responsible approach to environment and its protection, the Company applies the separate waste collection and delivers waste for recycling thus reducing the amount of waste brought to the dumpsite. Recyclable materials (cardboard, glass, aluminium, foil, lees, etc.) are delivered to recycling companies.

The Company is one of largest natural resources duty payers in country.


ECONOMY OF GAS AND DIESEL OIL, MEASURES FOR REDUCTION OF EMISSIONS IN THE AIR

◊ replacement of the condensate pump from a steam pump to an electric pump◊ replacement of heating and hot water temperature controller drives for faster operation

drives;◊ reconstruction of heating management system at Sporta Street 18a;◊ replacement of 100 m of vapour and condensate line insulation thus reducing heat losses

and gas consumption;◊ installation of automatic temperature controllers and effective condensate drainers in heat

units; ◊ renovation of heating and hot water mains; ◊ nstallation of new and efficient hot water preparation unit in the Liqueur workshop; ◊ installation of automatic temperature management system in the Assembly room; ◊ reparation of heating and ventilation system in storerooms at Sporta Street thus reducing

consumption of diesel by 4%;◊ replacement of ammonia leakage safety valves by evaporation condensers that reduce

possible leakages into atmosphere; ◊ installation of three vapour reducers in the production unit at A.Briāna Street for optimum

steam consumption resulting in gas economy of up to 3%.

Main Measures for Saving Natural Resources


ECONOMY OF ELECTRIC ENERGY

◊ implementation of new energy-saving lighting systems saving up to 15% of electric energy◊ installation of frequency converters on controllers of electric motors saving 30% of

electric energy;◊ change of start-up regulating mechanisms in daylight lighting lamps (throttle mechanisms

have to be changed to electronic solutions); ◊ modernization of ventilation control cabinets in a customs warehouse at Sporta Street 18a;◊ modernization of product cooling system in the production unit at A.Briāna Street thus

reducing consumption of electric energy by 2%;◊ installation of spare pump and frequency converter on boreholes providing 5% economy of

electric energy;◊ Drawing of employees attention to importance of saving electric energy by providing

stickers on electricity switches with reminder phrases.

ECONOMY OF WATER

◊ using water drained after the reverse osmosis by filters in cleaning of iron removal filters.

Energy audit has been performed: the application of heat meters was specified and places generating heat losses were specified. Renovation of heat insulation of water and sewer pipes as well as transition to LED lighting is going on.


Like every year, employees of the Company took part in the National Voluntary Cleanup Campaign; this year, we cleaned the territory of the Open-Air museum.

SAVING RAW MATERIALS AND SUPPLIES:

◊ Design of several product lines is changed avoiding excess labelling: the number of back labels reduced from 3 to 2 or even 1 if design permits;

◊ Transition to lighter glass bottles.

SAVING PAPER AND ITS DELIVERY TO RECYCLING:

◊ Progress in transition to electronic circulation of documents; ◊ Collecting of the used paper in the office and its delivery to recycling.

The Company has not violated regulations with regard to utilization of allocated pollution quotas, as it has not exceeded the amounts allocated.

COOPERATION CONTRACT WITH ZAĻĀ JOSTA SIA ON WASTE MANAGEMENT PROVIDING FOR THE FOLLOWING SERVICES:

◊ Management of utilized packaging and disposable dinner and table ware;◊ Management of waste from environmentally harmful items;◊ Management of waste from electric and electronic equipment.


Fair Entrepreneurship



The Company is aware of its role in the Latvian national economy; being one of largest Latvian manufacturers, employers and taxpayers, it puts high efforts into straightening out of the alcohol circulation environment in Latvia. LB gets involved in political processes both directly and as a member of the LAMDAB. In 2011 – 2012, LB submitted proposals and argumentation for a line of regulatory enactments such as amendments to the Law on Circulation of Alcoholic Beverages, draft regulations on restriction of immoderate drinking drafted by Ministries of Health and Welfare, etc. LB got engaged in the process of development of regulatory incentives via the LAMDAB; in addition, it consolidated several other companies and non-governmental organizations operating in food, trade, advertising industries and other areas producing a united, joint stand. Experts of LB have presented their opinions, comments, and consultations on alcohol circulation problems as well as submitted proposals for policy incentives in dozens of mass media publications and several specialized forums in Latvia (the 7th Forum of Baltic Business Contacts, conference on shadow economy organized by the Employers’ Confederation of Latvia and the Parliament) and abroad (conferences in Tallinn, Brussels, and Washington).

Participation in Political Processes

valters kaže,Commercial Director of

Latvijas Balzams AS

Member of the Board, LAMDAB


In 2011, researchers of the University of Latvia in cooperation with the European Institute of Development and Innovation conducted an investigation permitting for the first time to estimate the proportion of non-commercial alcohol circulation which at the time of investigation had reached at least 32% in Latvia; as the result causing losses to national economy and public health which amounted annually to more than twenty million lats. .

Such amount of unregistered circulation ranks Latvia among the most problematic European countries. Considering the size of the problem, as the Company engaged proactively in a wide result communication in 2012: ◊ internationally: in academic and business

environment via project partners; ◊ In Latvia: in mass media, by sharing

the investigation information with the industry and legislators.

A considerable achievement was the wide social campaign on adverse effects of the unregistered alcohol on health. LB and the LAMDAB organized the campaign in October – December 2012. The initiative was joined by more than ten leading Latvian media and advertising agencies; we received support from addiction researchers, health specialists, and representatives of the State Police. The campaign attracted a broad public attention. In addition, more than 20 000 people visited the special information resource on the internet.

In 2011 -2012, experts of LB contributed to a project of the LAMDAB intended for combating of the shadow economy and regularising of the business environment. In cooperation with international partners such as the International Centre for Alcohol Policies (the ICAP, Washington) and the EFRD, (Brussels), an unprecedented investigation project was initiated and implemented already in 2011. The aim of the project was to study the proportion of the unregistered alcohol circulation, nature of its consumption as well as the related social and economic problems in Latvia.

Fair Competition


Consumer Relations



The Company supports responsible decisions concerning use or non-use of alcohol and does not recommend immoderate drinking. We call upon consumers of our products to consume them in a responsible way. We believe that every consumer makes an independent decision and is responsible for this decision and for consequences of their actions. Observing advertising and advertisement placement rules Company reminds to buyers the importance of responsible and moderate use of spirits thus, AS Latvijas Balzams contributes to establishment of socially responsible alcohol consumption habits and mitigation of negative side effects of the spirits.

The above code relates to all advertising and marketing activities in respect of alcoholic beverages manufactured by Latvijas Balzams.

In its operations, the Company observes legal requirements and has developed its own guidelines summarized in the Code of ethical communications, which are imposed also on our cooperation partners. The core of the code is placing on the market of Latvijas Balzams products in a responsible way and making them available only to consumers who have reached the age when alcohol consumption is legalised.

Ethical Marketing


advertisements and marketing Communications of AS Latvijas Balzams:

◊ have to be lawful , true, and impartial; they have to be developed in accordance with fair advertising practice. They have to conform to principles of fair competition and social responsibility;

◊ have to include only such notifications and visual materials that do not violate norms of ethics, humanism, morals, virtue, and decency;

◊ Clear and undistorted information dissemination: annual and quarterly reports are published on http://www.nasdaqomxbaltic.com/market/?instrument=Lv0000100808&list=3&pg=details&tab=reports and on the Company’s website. We inform the society on operation, accomplishments, aims, activities, and essential events, new products and investments of the Company;

◊ Have to be aimed at protection of consumer health and safety and sustainable consumption.

not limited only to the below listed bullet points, such activities involve:

◊ advertisements, namely, notifications or measures s of any form related to entrepreneurship or professional activity and popularization of the LB brand and intended for increasing popularity of or demand for goods or services;

◊ measures of product promotion; ◊ sponsoring activities;◊ publicity of products;◊ design of packaging;◊ application of other advertising or

marketing materials.

The code concerns all kinds of printed or electronic media as well as events participated by AS Latvijas Balzams.

Advertising and marketing materials of alcoholic beverages are intended for consumers having reached the legally permitted age for alcohol purchase and having chosen to use products of the Company.We admit that the code cannot foresee all possible problems therefore; we will observe it not only literally but also ideologically.


QUALITY

The Company provides a consistently high quality of products conforming to customers’ wishes and requirements of regulatory enactments. The management system is certified in accordance with the international standard ISO 9001:2008 embracing all the stages of production from product development to marketing.

UNDERLYING PRINCIPLES OF QUALITY, SAFETY, AND ENVIRONMENT POLICY OF Latvijas BaLzams ARE AS FOLLOWS:

◊ Continuous improvement of the Company’s performance in the field of quality, labour conditions and environment;

◊ Operation in coherence with interests of shareholders, employees, the state and society;

◊ Compliance with all regulatory enactments applicable. .

Quality; Consumer Safety


CONSUMERS SUPPORT SERVICE

The Consumers support service for handling complaints and applications, advising consumers: information on products has been published on the Company’s website. . http://www.lb.lv/lv/produkcija/atlasit-pec-produkta-veida/Contact information for feedback is provided on the Company’s website, printed information materials as well as on the product label. All complaints and proposals are registered: our staff members address every issue and ensure feedback.

CONSUMER SAFETY

AS Latvijas Balzams has developed, implemented, and maintains a food self-control system pursuant to HACCP principles, which is integrated in the management system. The HACCP is a food self-control system focused on ensuring food safety and prevention of food-related problems. The system is based on a set of activities averting threats to human health and life. With implementation of these principles, the Company demonstrates its responsibility for manufacturing and placing on the market of high-quality and safe beverages. In order to guarantee the highest quality of products, the Company ensures a careful selection of raw material suppliers. The supplied raw materials are tested; consistent application of the traditional production technologies is ensured introducing innovative improvements of the existing methods as appropriate. In bottling beverages, only new bottles are used; the recycling of bottles for production needs is not practiced. Water for the manufacturing process is sourced from artesian bores in depth of 198m and 189m which is subsequently treated and purified. At all stages of the manufacture process, the quality of products is thoroughly controlled and tested in laboratory.

Toll-free phone No.: 80009990

E-mail: [email protected]

For references


Society Involvement and Development



CREATION OF jOBS AND DEVELOPMENT OF SKILLS

The Company has managed to avoid high reductions of jobs. The average number of employees in 2011: 613; in 2012: 613; in comparison with 2010, the number of employees has reduced by 3%. The Company has largely increased its investment in education and training of employees mainly thanks to participation in the project for development and availability of technologies “Produktivitate.lv” (www.produktivitate.lv) in cooperation with the Investment and Development Agency of Latvia, the Latvian Chamber of Commerce and Industry, and the European Social Fund. In cooperation with the Investment and Development Agency of Latvia, the Latvian Federation of Food Enterprises, and the European Social Fund, we implemented a project for training of employees Training of persons employed in the food industry for facilitation of competitiveness.

EDUCATION AND CULTURE, INVOLVEMENT OF SOCIETY

The Company continues its cooperation with educational institutions by providing internship possibilities for 22 students, mainly prospective food and beverage technologists. Representatives of the Company have lectured on topics of interest at different higher education institutions. In cooperation with the University of Latvia, we performed research on the market of illegal alcohol. In cooperation with students of the Stockholm School of Economics in Riga, we conducted a survey and interviewing of employees about the social responsibility of the Company and involvement of employees in public support activities.


risks of immoderate drinking as well as co-participated in activities organized by www.dzeratbildigi.lv. We organized a presentation about responsible use of alcohol to senior students of the Riga Secondary School No.3. In our presentation, we discussed issues such as the meaning of responsible use of alcohol, if and why manufacturers and distributors of alcoholic beverages care about it, and how young people relate to it in their daily lives. In addition, it included studies of facts and risks of the alcohol impact, advice, and alternatives; students were involved in discussion and had an opportunity to ask questions to a doctor. In shopping centres Maxima, digital screens were placed with information on the website www.dzeratbildīgi.lv and risks of alcohol use.

CARE FOR PUBLIC HEALTH

Thinking of today, we are at the same time looking with responsibility towards the future. We support projects targeted at improvement of alcohol use culture. As manufacturers of spirits, we wish to enhance the sense of responsibility in consumers, for our concern is not only the development of our business but also health of the population. Within the project www.dzeratbildīgi.lv and supporting the LAMBDAB incentive the Chairman of Management Board of Latvijas Balzams started to institute a valuable tradition of educating young people at schools about responsible use of the alcohol. We have engaged in a dialogue with health experts and proactively cooperated with Latvian Physicians’ Association in preparation of competent, substantiated information about

Documents

JSC "Latvijas balzams" Sustainability Report 2011-2012