The government sets minimum KPIs for alcohol producers
According to Vedomosti, there is a new state initiative to set minimum KPIs for alcohol producers in Russia. Starting from 1 January 2013, companies have to operate with a gross margin of 5% and 20% capacity utilisation. In the new legislation, gross margin is defined as the ratio of net income from alcohol sales to COGS and SG&A. There is no definition of capacity utilisation. The initiative was announced with the new alcohol law (July 2011), however the quantitative metrics were set in August 2012. The assumption is that it will be harder to report modest production volumes and hide the illegal share coming from the same facilities.
The new requirements are set to reduce the share of counterfeit production on the market even further. In our view, the proposal is positive as it broadens the market share for legal vodka companies in Russia. However, we note the significant execution risk.
Ivan Kushch, Maria Kolbina, Nikolay Kovalev
VTB Capital analyst
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