Daily analyst comments

According to the company's press release, Baltika's revenue climbed 31.7% in dollar terms y-o-y to ˆ1,762.70 mln. Robust revenue growth was achieved due to over 22% rise in sales in kind, which is 5% higher than the Russian beer market growth, and an 11% increase in average selling prices on 9M06.

Table 1. Baltika's 9M07 headline financial showings (ˆ mln)

	9M06	9M07	9M07/9M06
Revenue	1,338.0	1,762.7	31.7%
COGS	613.6	835.6	36.2%
Gross profit	724.4	927.2	28.0%
Gross profit margin	54.1%	52.6%
Distribution expenses	159.3	223.5	40.3%
Selling expenses	165.4	191.1	15.5%
Administrative expenses	50.3	62.5	24.3%
Operating profit	348.9	450.2	29.0%
Operating profit margin	26.1%	25.5%
Net profit	254.1	334.8	31.8%
Net profit margin	19.0%	19.0%

Source: Company data, Finam estimates

The company's margins softened in line with expectations due to unfavorable conditions on the raw material market and strong growth of distribution costs. Meanwhile, a decline in Baltika's opex vs. earnings enabled the brewery to maintain net margin in 9M07 at the 9M06 level.

We are upbeat on Baltika's 9M07 results. Robust sales growth and an efficient strategy aimed to encourage promotion enabled Baltika to strengthen its leadership status on the Russian beer market where the company's share grew 1.4% to 37.7% in the reporting period. Thus, the gap between the brewery and its rivals has widened.

At present we have no recommendation on Baltika shares.