Kofola Group in the first half of 2010 – improvement of gross margin from sales and net profitability maintained

Kofola Group ended the first half of 2010 noting a slight increase in consolidated net profit attributable to shareholders of the parent company from PLN 8.7 million to PLN 10.0 million. The company’s consolidated revenues amounted to PLN 564.7 million and were lower by 24% compared year-on-year due to a fall in revenues of the Megapack Group, cease of consolidation of Maxpol (which was sold in December 2009), decrease in Hoop’s revenues and the strengthening of the Polish zloty against the Euro and Czech crown.

The first half of 2010 was not easy for Kofola Group, primarily due to adverse weather conditions. In the January and February we had a heavy snowfall, which discouraged consumers to leave their houses (in addition, in Russia strong frosts prevented transport of beverages) and in April and May were very heavy rains and floods in Poland, Czech Republic and Slovakia. Customers spend their money wisely. More often, they bought syrups instead products ready to drink. Clients went to restaurants less and consumed more at home. In addition, in Russia since January 2010 has been raised excise duties on alcohol and put restrictions on alcohol advertising. These factors had a significant impact on the decline in sales, which proved to be most acute in Russia and Poland.

To meet all difficulties beverage companies of Kofola Group have invested in strengthening sales forces, i.e. in: increasing the number of sales representatives, the number of points, to which our products are delivered, as well as launching new sales channels. All those activities resulted in increased costs of sales, but in the future they should increase market share and sales.

The drop in revenues in Czech Republic was mainly in the retail segment and had no significant impact on the level of margins. In Slovakia, the decrease in revenues occurred mainly in the gastro segment, and due to the direct distribution to costumers (started in this country in October 2009) this decrease was by half lower than decline in revenues of the whole gastro segment.

Not without effects on the financial results of Kofola Group were differences in the exchange rates used to calculate revenues from Czech Republic and Slovakia (revenues in local currencies have fallen by only 8% and 1%, when converted into Polish zloty by 15% and 12%). Lower revenues of Hoop by 15% are primarily the effect of the concentration on the most perspective brands and conscious lack of support to brands with no future.

By focusing on more profitable products and channels and better management of costs, we were able to increase the level of gross margin on sales from 36.4% to 42.0%, despite a decrease in revenues. In additions, through investments in our sale forces and support for key brands we have managed to maintain a satisfactory level of net margin. Closing the plant in Tychy in the second half of 2009 had an impact on a reduction of activity’s costs. – said Jannis Samaras, President and majority shareholder of Kofola Group. – Despite a decrease of EBITDA from PLN 93.2 million to PLN 60.7 million we have better managed currency risks and reduced interest costs (as a result of the systematic repayment of credits and lease obligations, so that the net debt was reduced by PLN 34.4 million), which allowed to achieve net profit comparable with the first half of the previous year.

Expecting a difficult market situation Kofola Group has launched several new products that have been received well by customers. In the first three months of this year our new products appeared in stores: iced tea Pickwick Just Tea, flavored waters Rajec, Top Topic drinks and well-known and popular throughout the world, the French brand Orangina. In Russia we have implemented a baby drink Jumper. In Poland a new product category: Grandma Paola’s Homemade Compotes is available since July 2010.

An important event for Kofola in the first half of 2010 was also signing by Hoop Polska a credit contract with a consortium of banks led by BZ WBK, so that the company has secured funding for the coming years. In Poland we have worked on strengthening of our sale forces – this process requires some time and I believe that its effects will be seen in subsequent quarters.

(000 PLN) 2009 H1 2010H1
Revenues 744.8 564.7
EBITDA 93.2 60.7
EBITDA margin 12.5% 10.8%
Operating profit 40.2 20.4
Operating margin 5.4% 3.6%
Net profit attributable to shareholders of the parent 8.7 10.0
Net margin 1.2% 1.8%