On Tuesday Baltika reported its 1H 2008 performance. The press release says beer sales amounted to 22.8 million hectoliters, a rise of over 6% y-o-y. The report shows that the company continues to expand its sales volumes much faster than the market as a whole, which is lending support to its financial indices. Revenue surpassed EUR 1.26 billion, a 16.8% gain over the year-earlier period.
Table. Baltika brewery: key financial results for 1H 2008, mn euro
| Indicator | 1H2007 | 1H2008 | Change 1H2008/1H2007 |
|---|
| Revenue | 1067.3 | 1246.8 | 16.8% |
| Cost of production | 514.4 | 634.9 | 23.4% |
| Gross profit | 552.9 | 611.9 | 10.7% |
| Gross margin | 51.8% | 49.1% | |
| Expenses on distribution | 256.1 | 290.6 | 13.5% |
| Administrative expenses | 40.4 | 36.1 | -10.6% |
| Operating profit | 256.1 | 286.7 | 11.9% |
| Operating margin | 24.0% | 23.0% | |
| EBITDA | 317.8 | 359.0 | 13.0% |
| EBITDA margin | 29.8% | 28.8% | |
| Net profit | 188.2 | 213.6 | 13.5% |
| Net margin | 17.6% | 17.1% | |
Source: company data, Finam estimates
However, surging transportation and raw material costs ate into the company’s profit margins, despite serious efforts to reduce expenses, streamlining its logistics network and expanding its resource base.
In our view, the released financials will have no tangible impact on quotes for the company’s shares. However, Baltika may see its profitability grow in the mid-term, as the company expands its capacity in Voronezh, opens a brewery in Novosibirsk, goes ahead with the expansion of its resource base and boosts the capacity of its malt-house in Yaroslavl.
We currently do not have an official recommendation on Baltika shares.
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