WBD quarterly income drops 25 per cent

Related tags Cent Milk United states dollar

Wimm-Bill-Dann Foods, one of Russia's leading dairy and soft
beverage companies, has announced a fall of 25.4 per cent in its
net quarterly income due mainly to the rising price of milk and
depreciation of equipment.

The drop in income came despite the company reporting that sales increased 24.3 per cent year-on-year to $278.3 million (€227.6m) from $223.9 million in the first quarter of 2003. The company also said reported that gross margin declined to 26 per cent in the first quarter of 2004 from 29.3 per cent during the same period last year.

Sergei Plastinin, CEO of Wimm-Bill-Dann​ (WBD), said: "In order to gain a significant share of regional markets for our new premium segment yoghurts and dairy desserts, we are currently selling these products at introductory prices. We are also promoting our new products through extensive marketing and advertising in the regions, aimed at raising consumer awareness and generating loyalty. Further, following an extensive modernisation programme both in dairy and juice, our depreciation is relatively high as is the current cost of raw milk. All of these factors are putting strong pressures on our operating margins. This is why our profitability dynamics will be lagging behind those of sales in 2004."

Sales in the Dairy Segment increased 32.4 per cent from $159.0 million in the first three months of 2003 to $210.5 million in the first three months of 2004, while the average selling price increased by 19.4 per cent year-on-year from 0.62 per 1 kg in the first quarter of 2003 to 0.74 per 1 kg in the first quarter of 2004, driven by ruble appreciation, a change in product mix favoring higher priced products and ruble price increase. Gross margin in the Dairy Segment decreased from 26. per cent in the first three months of 2003 to 23.5 per cent in the first three months of 2004. This, the company said, was attributable to the substantially increased price of raw milk and depreciation of the newly installed production lines per 1 kg of dairy product.

Sales in WBD's Juice Segment increased 3.5 per cent from $64.9 million in the first three months of 2003 to $67.2 million in the first three months of 2004. The average selling price increased 18.2 per cent year-on-year from $0.55 per litre in the first three months of 2003 to $0.65 per litre in the first three months of 2004 primarily due to ruble appreciation, ruble price increase and the change in product mix in favor of higher priced brands. At the same time, increased depreciation caused by the installation of the new PET line and the full modernization of Ramensky Plant, rising personnel expenses resulted in gross margin reduction from 36.0 per cent in the first quarter of 2003 to 33.9 per cent in the first quarter of 2004.

Selling and distribution expenses increased in the first three months of 2004 by 27.0 per cent which the company said was due to an increase in transportation, a substantial growth in advertising and marketing expenses in the regions and personnel costs as a consequence of rising sales volumes. General and administrative expenses grew by 22.0 per cent as a result of the increase in personnel expenses and repeal of a privilege in paying property tax in WBD's Dairy segment due to changes in legislation.

Financial income totaled $1.8 million compared with financial expense of $4.7 million in the first quarter of 2003. This change, the company said, was attributable to a $7.5 million foreign currency gain resulting primarily from appreciation of the Russian ruble against the US dollar and its US dollar net monetary liability position.

Net income fell 25.4 per cent to stand at $5.3 million, which the company said was due to substantially higher raw milk prices, personnel costs and depreciation of newly installed lines. Adjusted EBITDA in the first three months of 2004 increased 19.9 per cent year-on-year and amounted to $25.9 million. Adjusted EBITDA margin was 9.3 per cent compared to 9.6 per cent in the first three months of 2003.

With rising costs continuing to be an issue the need to either cut costs or seek outside investment is now clearly paramount. Last year the company was in discussions with French food giant Danone, however the discussions came to what was described as a friendly end in October, 2003, a decision that many analysts saw as a major blow to the New York Stock Exchange listed company. At the beginning of this year WBD was knocked off the number one dairy spot by Danone.

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