Wimm-Bill-Dann grows on dairy sales

The company’s net profit in the first quarter increased six-fold thanks to the dairy business, while the situation remains unchanged in the beverage segment

Wimm-Bill-Dann (WBD), the Russian fruit juice and dairy products company, has published its financial report for the first quarter of this year. WBD’s net profit stood at $17.4 million, six times more than in the first three months of last year. Analysts are satisfied with the company’s financial performance but attribute the impressive increase in net profit to increased sales and rising prices for dairy products. The beverage business is developing slower, growing by less than 1 percent in the first quarter. It will be difficult for WBD to restore its position on the juice market, observers say. WBD’s child food sales increased 25 percent from January to March 2006. David Yakobashvili, Chairman of the Board of Directors, told RBC Daily that his company would try to improve results in all sectors.

Wimm-Bill-Dann, founded in 1992, is one of Russia’s largest producers of juice and dairy products. The group has 30 companies in Russia and the CIS, and trade branches in 26 cities. It reported a net profit of $30.3 million in 2005, up 31.7 percent on the year. Revenue increased 17.7 percent, to $1.4 billion, and EBITDA climbed 45.4 percent, to $140.9 million. About 30 percent of WBD shares are traded on the New York Stock Exchange. The French food group Danone has a 9.9 percent stake in WBD. The share capital consists of 44 million ordinary shares with a nominal value of RUR 20 each.

On Thursday Wimm-Bill-Dann posted its report for the first quarter of 2006. Net profit totaled $17.4 million, a six-fold increase on the year. Revenue was up 18.4 percent, at $385.7 million, gross profit increased by 35.7 percent to $113.7 million, and EBITDA doubled to $44.3 million.

Commenting on the first quarter results, Tony Maher, Chief Executive Officer of Wimm-Bill-Dann, said he was satisfied. Revenue increased markedly, by 18 percent, while the gross profit margin grew from 25.7 percent in 2005 to 29.5 percent. During his two months in office, Maher visited more than 20 WBD companies in Russia and the CIS. The results of these inspections and the first quarter figures convinced him that the company was capable of achieving its strategic targets.

Analysts at the leading investment companies and banks seem to be satisfied with WBD’s performance in the first quarter, but they attribute the impressive growth to the group’s success in the dairy segment. From January to March 2006, WBD’s dairy sales increased by 23.3 percent, to $286.1 million, largely due to rising prices for dairy products.

“In the dairy segment, Wimm-Bill-Dann bet on more expensive products, and it is now less worried about raw material prices,” says Svetlana Sukhanova, at Alfa Bank. According to WBD, its average sales price for dairy products increased by 10 percent from $0.79 to $0.87 per 1kg.

But things are different with WBD’s juice business. “Trying to improve its position on the market, the company began selling cheaper juices. Its sales increased but revenue remained at the level of last year,” Sukhanova said. Indeed, WBD’s beverage sales remained almost unchanged at $73.5 million. The average sale price dropped by 4.5 percent from $0.7 to 0.67 per liter. “Wimm-Bill-Dann’s juice business does not inspire optimism,” agrees Maria Sulima, at ZENIT Bank. “With Russia’s juice market slowing down, I think it will be difficult for WBD to restore its position in the sector. Perhaps it should consider selling its juice business,” she said.

WBD’s child food sales increased 25 percent from January to March 2006, at $26.1 million. The average sales price rose by 13.9 percent, from $1.46 to $1.66 per 1kg. “The figures look impressive,” says Mikhail Krasnoperov, an analyst with IFK Metropol. Alfa Bank’s Sukhanova thinks WBD could significantly boost its child food sales by using its dairy plant in Kursk, purchased last year, at full capacity. She also hopes that Wimm-Bill-Dann will improve its position on the juice market.

David Yakobashvili, Chairman of the Board of Directors, agrees that his company had made some “big mistakes” in the juice business development strategy. But he expressed confidence that WBD would strengthen its position in the sector. “We will do everything we can to achieve this, developing both production and distribution. Tony Maher has huge experience, we rely on him. And we will try to keep growth at the same level as in the first quarter,” he told RBC Daily.

Analytical department of RIA RosBusinessConsulting