US/RUSSIA: Central European Distribution Corporation sees YTD profits return to black

• Nine-month profits up to US$8.3m from $854.1m loss last year
• Net sales YTD drop by 4% to $524.5m 
• Operating profits increase to $24.6m from $641.9m loss 
• Vodka volumes in Russia down 22% in Q3 

Central European Distribution Corporation (CEDC) has returned to profit in year-to-date results, but declining vodka volumes in Russia, as well as net sales overall, highlight underlying concerns.

The US-based spirits company, which operates predominantly in Central and Eastern Europe, said late last week that net profits for the nine months to the end of September came in at US$8.3m, versus net losses the year previous of $854.1m. The performance in the first nine months of 2011 was skewed by a one-off impairment charge in Q3 of $674.5m. Stripping out this charge, net losses in the corresponding period in 2011 totalled $179.6m.

Net sales decreased by 4% to $524.5m over the same period while operating profits returned to black, up to $24.6m compared to a $641.9m loss last year.

The results are an improvement on disappointing first-half numbers that saw net losses widen to $33.5m and operating profits drop by 78% to $3.4m.

“In spite of the challenges faced by the company during this period, the changes in operational management and controls are starting to produce improved operating results,” said David Bailey, CEO of CEDC. “The efforts we have put into better execution of our pricing policy and focus on more profitable product mix in all of our key markets resulted in improvement of our comparable gross margin and significant increase of our comparable operating profit.”

Third-quarter numbers were also skewed by the one-off impairment charge last year. Net profits in the three months to the end of September were $35.8m compared to a $848.7m loss a year ago. Net sales decreased by 8.7% to $191.3m. Operating profits were $15.1m compared to $658m last year.

Third-quarter vodka volumes in Russia dropped by 22% to 24.4m litres, while vodka value also fell, by 5%.

In CEDC's Polish market, which is about half the size of its Russian business, vodka volumes grew by 6% while value increased by 27%, driven by growth price increases and a better product and SKU mix, the company said.

Despite CEDC's decreases in Russia, its market share in the country stayed flat at about 12%, suggesting a weaker spirits market in the country.

CEDC's share price on Friday ended 2.35% down at $1.66.

To read the company's official statement, click here.