US/RUSSIA: Central European Distribution Corporation sees H1 losses increase

• Net losses widen from US$5.4m to $33.5m
• Net sales decrease by 1% to 333m 
• Operating profits fall by 78.8% to $3.4m 
• Moody's drops credit ratings

Central European Distribution Corporation (CEDC) has posted a leap in losses in the first half of 2012, driven by weak foreign exchange rates and a decline in Russia sales. 

Net losses in the six months to the end of June soared from US$5.4m a year ago to $33.5m, the spirits maker said today (8 October). Net sales fell by 1% to $333m over the same period while operating profits dropped by 78.8% to $3.4m.

Sales for Poland, the company's main market, fell by $1.9m year-on-year from $105.2m thanks to a weaker Polish zloty against the US dollar. Decreases in sales in Russia were partly caused by a weak rouble, CEDC said.

Second-quarter sales and profits also declined, with net losses slumping to $93.6m from $3.3m a year earlier. Net sales dropped by 5.6% to 187m and operating profit fell by 33.6% to $7.2m. However, organic growth was 7% excluding the effect of foreign exchange, and increased pricing saw sales value in Russia climb by 4.7% despite almost flat volume sales. Domestic sales of vodka in Poland increased by 6% in volume in the second quarter and by 20% in value, driven by Zubrowka Biala and Soplica vodkas, the company said.

“(In the second quarter) in Poland, we achieved organic sales growth both in volume and value,” said CEDC CEO David Bailey. “In Russia, we saw operational improvement from previous quarters as steps taken by our new management team were fully implemented.”

Earlier this year, vodka rival Russian Standard agreed to invest US$310m into struggling CEDC to help pay outstanding debts. In return, Russian Standard will up its stake in CEDC to 28% with a view to raising it to as much as 42.9% in the future.

Bailey today said his company was focused “on the further development of our business and continuing discussions toward moving forward with the alliance with the Russian Standard Corporation”.

On Friday, credit rating company Moody's downgraded the corporate family rating and probability of default rating of CEDC to Caa2 from Caa1, according to a Reuters report.

To read the company's official statement, click here. For details of the company's Q1 numbers, click here.