WBD hit by increased costs
marketing and distribution costs of widening product portfolio. The
Russian dairy giant announced that its net income had fallen 40 per
cent, despite a significant increase in its sales.
Compared to 2002 GAAP net income slipped from $35.7 million (€28.8m) to $21.2 million. This figure reflected a 20.6 per cent rise in administrative expenses, up from $63 million in 2002 to $76 million in 2003, as well as sales and distribution expenses which increased 28.5 per cent, from $109.5 million in 2002 to $140.7 million in 2003. The company said that media inflation, continuing regional expansion and provisions recorded for bad debts were the main factors affecting selling and distribution expenses, while increased personnel costs and expenses for professional services had bumped up administrative expenses.
But despite the affects of spiraling costs, Wimm-Bill-Dann's has still managed to significantly increase its share of the dairy, juice and bottled water market with sales rising by 13.8 per cent to $938.5 million compared to US$824.7 million in 2002. Gross profit increased by 11.6 per cent compared to last year, while gross margins decreased to 29.1 per cent in 2003 from 29.7% in 2002. The company also reported that EBITDA increased by 2.5 per cent year-on-year to $85.4 million.
"For Wimm-Bill-Dann, the year 2003 became a year of major modernisation initiatives and significant strategic choices", - David Iakobachvili, chairman of the board of directors of Wimm-Bill-Dann Foods OJSC, said in a statement. "The company retained its leading market position, despite a number of internal and external factors, which affected its performance in 2003. We remain committed to maintaining our leadership in both the dairy and juice segments while steadily increasing our share in the water and cheese markets. In 2003, we also made substantial changes to our management board and strengthened our management, which makes us confident that we have a strong and capable team taking the company into 2004 and beyond".
The company said that sales in the dairy segment increased 17.6 per cent from $563.0 million in 2002 to $662.3 million in 2003. Sales growth was made up of sales volume growth of 6.3 per cent and selling price increase. The average selling price increased by 10.0 per cent from $0.60 per 1 kg in 2002 to $0.66 per 1 kg in 2003 driven by incremental ruble price increase, ruble appreciation and change in product mix favoring value added products. Gross margins tightened from 29.3 per cent in 2002 to 27.1 per cent in 2003 due to the growth in raw milk prices, additional depreciation of newly installed capacity and personnel expenses growth.
Sales in the juice segment increased 4.9 per cent from $261.7 million in 2002 to $274.5 million in 2003. Sales growth was made up of sales volume decrease by 0.6 per cent and the increase of the selling price. The average selling price increased from $0.55 per litre in the year 2002 to $0.58 per litre in the year 2003, which the company said was primarily due to incremental ruble price increase and ruble appreciation partially offset by the change in product mix in favour of lower priced brands. Gross margins in juice segment rose from 31.0 per cent in 2002 to 34.2 per cent in 2003 as a result of a higher pricing on the backdrop of essentially flat sales volume and cost of sales.
In 2003, Wimm-Bill-Dann's total selling and distribution expenses increased 28.5% to US$140.7 million from US$109.5 million in 2002, reaching 15.0% of 2003 sales against 13.3% in 2002. News of the results made no great impact on the investment world. The company's NYSE listing closed the day 1 per cent down following the announcement.
Commenting on the results Sergei Plastinin, Wimm-Bill-Dann Foods CEO, said: "In 2003, we spent time and effort digesting our rapid growth. In addition to modernisation of our production facilities and warehouses we focused on innovative product development and improvement of our distribution network, laying a solid foundation for the future growth."
