Kalina sales boom while net profit remains steady

By Simon Pitman

- Last updated on GMT

Russian fragrance and cosmetics giant Kalina has reported a 36.28
per cent hike in its sales, whereas net profits increased by 2 per
cent during the six months ending June 30, reflecting increased
production costs and loan repayments.

Sales increased from $132.23m in the first half of 2005, to reach $180.20m in the first half of 2006, while net profit increased from $14.90m to $15.15m during the same period.

This meant that net income represented 8.4 per cent as a percentage of sales for the first six months of the year, compared to 11.3 per cent for the same period in 2005.

Net profit did not rise in proportion to the rise in sales because the cost of sales went up significantly, which was further exacerbated by the fact that the company's debt repayments also increased following the purchase of German cosmetics player Dr. Scheller Cosmetics.

The cost of sales increased by just over 35 per cent, reflecting an industry-wide rise in the cost of materials for both ingredients and packaging.

The company attributed the increase in sales to the general growth in the Russian perfumery and cosmetics market in general, adding that an improvement in the company's product mix, combined with an increase in its share of brand name products and the consolidation of the Dr. Scheller had also helped to drive the results.

Breaking the figures down, the share of brand name products as part of the overall sales increased from 84.7 per cent from 76.2 per cent during the six month period.

The company also pointed out that natural sales growth increased 19.6 per cent, indicating the continued success of the company's product mix, and not only the increase provided by Dr. Scheller.

This was attributable to the continued popularity of its brands, strong marketing initiatives and continued product quality, further buoyed by the fact that it claims one of the most comprehensive distribution networks in the industry, including a total of 205 dealers in Russia, Ukraine and CIS countries.

Since 2004, Kalina has consistently reported yearly sales growth in excess of 30 per cent, putting its success mainly down to a re-positioning that places it more towards the top-end of the mass market.

Kalina was formed in 1999 and is an amalgamation of Russian and Western European cosmetics operations, including subsidiaries Pallada and Lola Atir Upa in Uzbekistan as well as Kosmetik in Germany and Kalina Overseas in the Netherlands, as well as Dr. Scheller, which was acquired at the start of 2005.

The company's main product areas include skin care, oral care, hair care, baby care, fragrances and male grooming.

The Russian market for cosmetics is currently growing at well into double figures, and that growth is expected to continue well into the future if economic stability is sustained. Currently the market for cosmetics in Russia is estimated to be valued at $6.2 billion and Euromonitor estimates that the value could grow by 60 per cent in the next 5 years.

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