UKRAINE: Ukrproduct H1 earnings plummet
By Katy Askew | 18 September 2013
Ukraine dairy Ukrproduct has booked a sharp fall in first-half earnings on the back of higher financing costs.
The company said profit after tax was down 73% in the six months to the end of June, declining to GBP173,000 (US$280,969). Finance expenses doubled to GBP541,000. EBITDA was down 11% to GBP1.2m.
Sales during the period were hit by the "challenging" economic environment, dropping 3% to GBP24.6m.
UKRPRODUCT ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Kyiv, Ukraine - 17 September 2013 - Ukrproduct Group Limited ("Ukrproduct" or the "Group") (AIM: UKR), one of the leading Ukrainian producers and distributors of branded dairy foods and beverages (kvass), today announces its unaudited interim consolidated IFRS financial results for the six months ended 30 June 2013.
(Figures in brackets are for the six months ended or as at 30 June 2012)
· Revenues in dairy branded products segment increased by 20% year on year to GBP 19.1 million (GBP 16.0 million) but gross profit decreased by 29% year on year to GBP 2.6 million (GBP 3.7 million) owing to high raw milk costs.
· In kvass the revenues increased by 8% year on year to GBP 1.2 million (GBP 1.1 million) and gross profit up 6% year on year.
· Skimmed Milk Powder (SMP) revenues decreased by 13% to GBP 3.5 million (GBP 3.9 million) but gross profit margin saw a significant improvement to GBP 0.2 million (minus GBP 0.16 million).
· EBITDA declined by 11% to GBP 1.3 million (GBP 1.5 million) year-on-year.
· Finance expenses doubled to GBP 541,000 (GBP 268,000) due to a major reconstruction project with the loan finance from the European Bank for Reconstruction and Development.
· Cash balance standing at GBP 0.6 million (GBP 0.8 million).
· Earnings per share decreased to 0.4 pence (1.6 pence).
The economic environment in the first half of 2013 continued to be challenging. The dairy sector was mainly marked by the significant increase in raw milk prices across both domestic and global markets and shortage of raw milk supply in Ukraine. The Company made an effort to off-set the pressure on the margins by lifting the consumer prices but the competitive market environment did not allow compensation for the increase in costs.
Nevertheless in terms of sales the branded dairy product groups performed well showing a 20% increase in value terms. However the profitability was undermined by the higher raw material costs resulting in a 29% decrease in gross profit.
The leading market shares in packaged butter and processed cheese were sustained and hard cheese increased.
In butter segment the Company saw the increase in both volumes and revenues, however the margins were challenged by the high input costs and competitive pricing. The overall market of spreads in Ukraine showed a declining trend as result of consumers switching their preferences back to the traditional butter. Ukrproduct managed to increase its sales of spreads and consequently the market share although similarly to butter the profitability was pressured.
Processed cheese showed further increase in revenues and volumes and improved aggregate margin due to securing new clients and adjusting the product mix especially in the premium price segment.
The Company continues to focus on the development of its hard cheese segment. In H12013 the sales showed a significant increase in both volumes and revenues along with the increase in profitability as result of better penetration into the profitable retail chains channel.
Skimmed Milk Powder (SMP) segment showed a strong recovery in profitability from the previous year benefitting from higher domestic and export demand and better prices. However the shortage of raw milk supply constrained the sales volumes. As result the sales declined by 13% year on year whilst the gross profit more than doubled compared to the last year.
BEVERAGES- The sales of kvass showed further increase supported by the improvement in geographical coverage as well as sales and marketing investment. Along with that the margins benefitted from the unique nature of this fresh product on the Ukrainian market.
DISTRIBUTION SERVICEScontinued to develop with the focus on growing quality business with sustainable margins. Sales of products becoming commoditized and cash consuming have been eliminated. As the issues with VAT refund on export persisted, the Company mainly concentrated on domestic operations. While sales have been reduced returns have been substantially maintained.
FINANCIAL RESULTS for the half year reflect the sensitivity of the dairy business margins to the ongoing high raw milk prices with the previously buoyant butter category being affected in particular. However such pressure could only be partially mitigated by the gradual improvement of branded dairy sales, the resumption of SMP profitability, the containment of overheads and also the successful move into the beverages where kvass again showed its worth. Overall these factors led to EBITDA lower than the last year. Net income was impaired by the sizeable increase in interest charges arising from the EBRD loan. The Group's cash levels are sufficient to meet current debt obligations in the short and medium term.
Trading - The Company will pursue the positive sales trends being achieved in dairy. Though kvass will be affected by the poor weather and the curtailment of the kvass season. Given the inflation of dairy purchases, cost management has become even more an issue. This is being addressed with an improved sourcing capability, planning of responsible price increases and the ongoing costs reduction program. Overall the Company plans to improve profitability in the second half, however the aggregate profit for the year is expected to be below FY2012.
Meanwhile in operations EBRD has approved a further Euro 1.3 million loan for the second stage of modernization. This will focus on upgrading the production platform for butter and spreads improving both quality and cost. Such approval shows confidence in the Company and its plans to progress. Also the EBRD monitoring system of its investment adds weight to the Ukrproduct corporate governance.
Original source: Ukrproduct
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