Thursday appeared an intense day for the largest Russian juice producer Lebedyansky. The company released its preliminary operating results for FY 2007, which missed our expectations. Moreover, the company reported that its four majority shareholders announced sell-off of 75.53% of the company’s shares, including baby food and mineral water subdivisions, for USD 1,357 mn.
The company’s consolidated sales in dollar terms rose by more than 33% y-o-y to USD 944.8 mn, which is generally in line with our forecasts. Revenue growth was due to regional expansion of the distribution system, development of a direct sales system and effective pricing and marketing policy. Gross margins grew to 42% thanks to increases in prices by 11% for juices, 17% for baby food, and 23% for mineral water. In total, prices grew by 9% in dollar terms. This made it possible to level down a 9% upturn in the cost of production primarily caused by a 7% rise in cost of raw materials and packaging materials.
Table. Lebedyansky FY 2007 financials, USD mn
| Indicator | 2006 | 2007 | 2007/2006 | FINAM forecast | Deviation from actual data |
|---|
| Revenue | 709.8 | 944.8 | 33.1% | 949.4 | 0.5% |
| including: | | | | | |
| Juices | 619.0 | 803.0 | 29.7% | | |
| Baby food | 83.4 | 123.8 | 48.4% | | |
| Mineral water | 7.3 | 18.0 | 146.5% | | |
| EBITDA | 137.5 | 155.6 | 13.2% | 162.0 | 4.1% |
| EBITDA margin | 19.4% | 16.5% | | | |
| Net profit | 87.7 | 79.2 | -9.7% | 95.3 | 20.3% |
| Net margin | 12.4% | 8.4% | | | |
Source: company data, Finam calculations
High operating expenses, primarily caused by rising freight, shipment, storage and labor costs, slowed growth in the company’s EBITDA, which increased by 13.2% in dollar terms. Commercial and administrative expenses in proportion to revenue rose to 28.8% from 24.5% in 2006.
As a result, the company’s net profit in 2007 declined by about 10% y-o-y to USD 79.2 mn, which is considerably below our forecasts.
In general, we are downbeat on the company’s FY 2007 results and believe they could produce a considerable negative impact on the company’s stock valuations. However, the most important event for Lebedyansky may be the arrival of PepsiCo as a strategic investor. This is likely to considerably strengthen the position of the company’s juice subdivision, due to a synergy effect and an inflow of financial resources. It is noteworthy that the current transaction practically gives the company’s current shareholders (which were included on the company’s shareholder register as of March 28, 2008) the option to sell their shares in Lebedyansky at about USD 88 per share if they back the company’s reorganization, which is in line with the current market valuations.
Our recommendation for Lebedyansky is currently under review due to its publication of FY 2007 results and its planned restructuring, involving spinning off the baby food and mineral water subdivisions into separate companies.
0.553
1.6
