Kalina profits take a tumble on costs and taxes

By Simon Pitman

- Last updated on GMT

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Russian cosmetics player Kalina has reported a significant decrease in its profits despite a growth in sales following, significant taxation charges.

The company reported that net profits for the first half of the year fell by 10.1 per cent to reach RUB325.52m (€8.98m), compared to the first half of 2007.

This drop was recorded despite the fact that revenue for the period increased by 11.4 per cent to RUB5.46bn, while gross profits increased by 20.2 per cent to RUB2.85bn.

Manufacturing and distribution costs

The net profit was also impacted by higher manufacturing and distribution costs, reflected by the fact that pre-tax profits fell by 4.5 per cent for the six month period, to reach RUB466.70bn.

The company, which is based in Yekateringburg and also has a significant presence in the German market, said that the rise in its sales was largely attributable to a significant growth in sales of its cosmetics and fragrances due to a good product mix and a particularly strong performance from its key brands.

Its leading brands in the all-important and fast-growing Russian market include Cherniy zhemchug, Chistaya liniya, MIA, 100 retseptov krasoty and 32.

2007 will be a hard act to follow

For the full year 2007 the company reported particularly strong results, with sales up 15.1 per cent to $396m (€274m), and net profit up 40.2 per cent to $21m.

However, the impact of higher taxes and higher costs is likely to hit the company’s bottom line in 2008, despite the fact that strong economic and retail conditions continue to feed steady sales growth for the company.

But the issue of rising costs aside, if predictions from industry experts are to be believed, the good times should continue to roll for cosmetics players in Russia.

Russian market still holds huge potential

Russia has huge potential for manufacturers to tap into this growth, and according to a report from market researchers RNCOS, this potential extends to both domestic and foreign cosmetic manufactures.

The RNCOS report Russian Cosmetics Markets Forecasts 2008 – 2012, highlights the fact that the cosmetics industry is currently registering one of the highest growth of any industry segment in the country.

This is highlighted by the fact that the beauty industry registered growth of 11 per cent during 2007, compared to growth of just 3 per cent in the more developed Western European market.

Indeed, the report highlights the fact that this rate of growth is set to surge even further, providing average market growth of 13.2 per cent during the period 2008 to 2012.

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