Baltika performance impacted by costs

Related tags Cent Advertising Revenue

Baltika
continues its strong performance in the Russian beer market after
announcing a double digit increase in its sales volumes for the
first six months of the year. But increased expenditure on
advertising and packaging impacted profits.

Although sales volumes were up 11 per cent to 88.43 million deciliters and net sales grew by 24 per cent from $336 million (€277.4m) to $416 million compared to the first six months in 2003, net profits were only up 2 per cent to $65 million as a result of the added expenses.

"The active marketing programme in the first half of the year caused the growth of advertising costs,"​ company spokesperson Marianna Volodina told CEE-FoodIndustry.com. "This fact explains the small decrease in the EBITDA margin. Nevertheless, the share of these costs remains at an average level in the industry; this will allow the company to involve future additional investments into product advertising and promotion, if necessary."

Announcing the results, the company said that its new marketing strategy and balanced brand portfolio had allowed it to achieve its goal to become the leader in all segments of the Russian beer market. In the second half of this year, the company stood as the leader in the premium and average price segments having the market shares of 22 per cent and 30 per cent respectively. The company also reported that it had continued to increase its share in the license and economy segments.

Sales of its core Baltika brand in the first half year were in line with the market growth pace. Markedly strong sales Baltika 0 - up 25 per cent - and Baltika 7 - up 29 per cent - compared to the same period in the previous year. Over 60 per cent of sales of these brands were beer in cans which consume more material compared to other container types. This change reduced gross profitability by 2 per cent.

Representation of the Baltika brand in sales outlets exceeds 90 per cent according to Business Analytica research agency. This is the best figures among trademarks of FMCG's companies in Russia. Meanwhile sales of the premium brand Parnas were given a new impetus, growing by 55 per cent during the first half year.

In the main-stream segment, the company reported that the niche of local brands proved to be the quickest growing, which is the most accurate index of consumer preferences in regions; this fact is confirmed by the high sales of brands Samara, which was up 314 per cent and DV, which was up 428 per cent.

During the last half the company's performance was topped by the fact that in June it sold over 70 thousand hecolitres of draught beer, putting it in the number one position in Russia.

The company has also been investing heavily in production and logistics, with new warehousing terminals put into operation in Ekaterinburg, Novosibirsk and Voronezh and a new terminal built in Irkutsk during the six month period. Last week the company also announced the completion of a malt production facility in the Tula region. The facility has an annual capacity of 105,000 tons and will reduce the companies reliance on malt exports, which in turn is expected to reduce production costs.

However, the immediate effects on the company's financial results have, as expected, impacted the results for the second half of the year, with the company estimating that to knock 1 per cent off the growth in gross margin, which currently stands at a healthy 45 per cent.

The company added that in the coming months its investment priorities would remain the promotion of sales and distribution, along with an efficient cost management.

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