Kofola Group generated a net profit and improved an operating profitability in the first quarter of 2010

Kofola Group – one of the leading producers of soft drinks in Central Europe – generated a net profit of 2.26 mln PLN (in comparison to net loss of 15.08 mln PLN in 2009Q1) and improved its operating profitability in the first quarter of 2010. The improvement occurred despite the adverse market conditions and the reduction of income, in relation to the comparative period.

Kofola Group has developed consolidated net profit attributable to shareholders of a majority in the amount of PLN 2.26 mln (as compared to a consolidated net loss of 15.08 mln in 2009Q1) in the first quarter of 2010.

The biggest impact on the financial results were:

- significant improvement in gross margin on sales from 33.1% to 41.4%, resulting from lower prices for purchase of raw materials for production (inter alia, by centralization of purchases), concentration on the most profitable brands and formats, reduction of the production costs by closing a plant of Hoop Polska in Tychy in the second half of 2009, reduction of employment in the operating department and improvement of its productivity;
- reduction of general management costs by 4.9 mln PLN (greater cost discipline, optimization of employment);
- reversal of foreign exchange gains and better management of risk currency in Group’s companies;
- reduction by 2.2 mln PLN interest costs by lowering the debt of the Group.

In the previous quarter the Company raised an operating margin (EBIT) from 1.7% to 2.2%, EBITDA margin remained unchanged at 10.6%.

We are pleased with good financial results, especially because we achieved them in difficult market conditions – said Jannis Samaras, President and majority shareholder of Kofola Group. – Financial results confirm the validity of the Group’s strategy and our daily efforts to build strong brands, their market position and maintaining cost discipline. Despite a decline in consolidated revenues by 23.9% compared to the first quarter of 2009, we have maintained an operating profit almost on the same level (PLN 5.1 mln in 2010Q, compared to PLN 5.3 mln in the same quarter last year). Financial results are even better at the level of consolidated net profit due to the positive impact of exchange rate and lower interest on loans.

Our financial results have been achieved in a difficult period on the market. In 2010 in Russia introduced restrictions in advertising alcoholic beverages and excise taxes on alcohol increased, therefore the part of our business partners made purchases in the fourth quarter of 2009. The result of this situation was a very significant drop in turnover in the first quarter of 2010. In Poland we went through a reorganization of sales department and we focused on a few key brands, which resulted in declines in sales of weaker brands, with no marketing support. In addition, the harsh, snowy winter, which did not encourage to purchase also had an impact on our sales. Only the Czech and Slovak market we have not seen any major changes in income (counting in local currencies) even despite the price pressure, especially in the category of cola drinks. In view of the appreciating zloty revenues from these countries, converted into zloty, unfortunately have fallen. The uncertainty of consumers about the immediate future and searching for savings in the basket of drinks was still visible.

Recently, we have invested a lot of efforts and resources in improving the distribution and building new sales channels, hence the percentage increase in cost of sales. In addition, in the first quarter of 2010 we introduced a number of innovations (including on the Czech and Slovak markets: ice tea, new flavored water, water with oxygen and drinks for children Jumper on the Russian market) to our portfolio and we see first positive signs of accepting them by the market – concluded Jannis Samaras.

April, in Poland, Hoop Polska introduced a new beverage category – Grandma Paola’s Homemade Compotes.

The first quarter is the worst period of the year for drinks producers, because of that the Group’s financial results should be regarded as successful.