Research Notes

Lebedyansky Cannery remains the leading juice producer in Russia, controlling some 30% of the market. In addition, the company continues to bolster its positions on the promising baby food and mineral water segments. The juice manufacturer's short-term expansion strategy focuses on retaining its positions on the juice market and ramping up its share on the baby food market.

• 2005 operating results showed that the company is expanding at a faster clip than the market. Last year Lebedyansky saw juice sales surge 25%, whereas the market grew roughly 11%, which allowed the company to increase its market share to 30%. Longer term, we expect to see juice sales slow down to the market average, but Lebedyansky will manage to keep its market share.

• Lebedyansky continues to ramp up sales in the baby food segment which is currently one of the most promising in the Russian food industry. Based on 2005 results, Lebedyansky's baby food sales rocketed 48% in physical volumes and up a whopping 78% in monetary terms. We expect the company to continue to focus on the baby food segment, boosting its portion in the sales mix.

• Last year Lebedyansky launched mineral water production under the "Lipetsky Buvette" brand, with 2005 sales equaling 4 mln liters and 6.7 mln liters already in Q106. All in all, the company intends to produce at least 30 mln liters of mineral water in 2006.

• Lebedyansky's 2005 financial statement showed a 37% spike in sales and a 40% upturn in net profit. However, despite impressive sales growth, opex grew at a faster pace, which eventually depressed operating margin and EBITDA margin. This year the company also expects to see a reduction in gross margin and operating margin. Longer term, we project a slight contraction of expenses in sales.

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Olga Samarets

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