• H1 profits jump
  • Sales flat
  • Branded dairy and kvass help margins 

UK-listed Ukrainian dairy firm Ukrproduct reported higher first-half profits thanks to its branded products and its production of fermented beverage kvass.

Net profit more than doubled to GBP636,000 (US$1m) in the six months to the end of June. EBITDA was up 27% at GBP1.5m.

Ukrproduct said first-half revenues of GBP25.3m were "similar" to last year - when they were GBP25m - but said improved mix helped margins.

CEO Sergey Evlanchik said: "In the first half of 2012 the group focused on recovering the margins thus, whilst the sales remained in line with the previous year, the group achieved a substantial improvement in profitability. Branded dairy products accounted for the lion's share of the group's sales and gross profit. The newly acquired business of kvass also proved to be a success."

Ukrproduct said it "looks to continue an improved performance" in the second half of the year through dairy and kvass. It expects skimmed milk powder prices to also recover after low prices on the world market in the first half of the year.

Shares in Ukrproduct were up 2.86% at 9p at 12:49 BST.

Show the press release




Kyiv, Ukraine - 13 September 2012 - Ukrproduct Group Limited ("Ukrproduct" or the "Group") (AIM: UKR), one of the leading Ukrainian producers and distributors of branded dairy products and now in addition beverages (kvass), today announces its unaudited interim consolidated IFRS financial results for the six months ended 30 June 2012.



(Figures in brackets are for the six months ended or as at 30 June 2011)


·        Revenues similar to 2011 but improved sales product mix grew margins

·        Gross profit increased by 27% to GBP 4.3 m (GBP 3.4 m), with increase in gross profit margin to 16.9% (13.5%)

·        Dairy branded/own label products performed strongly, with gross profit growth by 32% year-on-year

·        Kvass grew significantly both in revenue and gross profit by 46.8% and 254% respectively year-on-year following the incorporation of the kvass producing company into the Group and growth of sales

·        Skimmed Milk Powder (SMP) saw an increase in revenue by 6% but a significant decline in gross profit as a result of low prices on the world market and a weak global economy

·        EBITDA increased by 27% to GBP 1.47 m (GBP 1.15 m) year-on-year

·        Tax management reduced the effective tax rate to 29% (41%)

·        Profit after tax up 106% year-on-year to GBP 0.636m (GBP 0.309 m)

·        Cash Flow from operating activities was GBP 1.775 m (GBP 0.5833 m)

·        Cash at the end of the 6 months was GBP 0.8 m (GBP 0.4 m)

·        Major cost saving capital expenditure at Starokostiantyniv Plant completed successfully

·        No interim dividend is proposed in view of this major capital expenditure program

·        Earnings per share increased to 1.6 pence (0.8 pence)

Sergey Evlanchik, CEO of Ukrproduct, commented: "In the first half of 2012 the Group focused on recovering the margins thus, whilst the sales remained in line with the previous year, the Group achieved a substantial improvement in profitability. Branded dairy products accounted for the lion's share of the Group's sales and gross profit. The newly acquired business of kvass also proved to be a success. The SMP sector remained challenging, with the market conditions severely undermining the profitability. A focus on efficient tax planning helped to mitigate the negative effect of the new stringent Tax Code."



In H1'2012 the economic environment in Ukraine remained challenging with consumer purchasing power further constrained by the effective inflation. The dairy sector was mainly affected by the ban on hard cheese exports to Russia which caused an oversupply on the domestic market of hard cheese and consequently of butter and Skimmed Milk Powder as several producers chose to switch to the output of these products. On the positive side, the restrictions on export to Russia together with the re-introduction of the milk subsidy regime prompted higher milk volumes availability in Ukraine which led to first stabilization and later a gradual decrease in raw milk prices.

The Group focused on improving the overall profitability thus, although the sales were in line with the last year, the gross profit showed an encouraging increase of 26.8%. The gross profit in branded dairy products improved by 31.5%, not least due to the repositioning of Group's product offering.

The butter market in Ukraine grew, mostly due to an increase in bulk butter output. The lack of hard cheese exports to Russia as mentioned above led to a domestic market cluttered with competitors. Ukrproduct therefore successfully focused on improving the sales margins rather than pursuing market share. Thus, despite some decrease in sales revenues compared to H1'2011, the Group achieved an increase in aggregate gross profit of 16.9%.   

As the market of processed cheese expanded, the Group increased its sales both in revenue and tonnage terms and therefore confirmed its leadership in terms of market share. The gross profit showed a significant increase compared with H1'2011.  

In the segment of hard cheese the Group has repositioned its product offering and its market position is growing though from a small base.

The Skimmed Milk Powder segment remained suppressed, with several factors further deteriorating profitability: namely increased energy costs, weak world market conditions and an overhang in the Ukrainian market. In order to minimize the losses, the Group decreased its output strictly to the volumes that need to be produced as the by-product of butter production.

The performance of the recently acquired business of kvass, a traditional fermented beverage, which the Group was exclusively distributing from September 2010 was a highlight. The sales of kvass increased by over 47% year-on-year in monetary terms as the Group expanded the geography of sales and strengthened the presence in the existing regions, largely supported by the integrated marketing communication. The Group thereby improved its market share with this authentic natural drink.  The gross profitability also showed a very encouraging growth unhindered by the economic environment.

A very important step forward was made on the operational side with the completion of the first stage of modernization project with finance from the European Bank for Reconstruction and Development (EBRD). This modernization will substantially improve energy efficiency and productivity of Starokostiantyniv Dairy Plant, driving down the unit cost. The Group is now seeing the benefits and will continue to build up the savings.





The outlook for the second half of 2012 is to a similar economic environment perhaps accentuated by inflationary currency devaluation and government spending pre the autumn elections. The trading and volume trends will again be pursued in dairy and kvass. Margins will remain pressured with seasonal milk prices increase and persisting inflation pressures, especially in fuel. This may be partially compensated by an anticipated improvement in SMP prices. Nevertheless, the cost optimization program including the EBRD financed project is critical to Ukrproduct success.

Within these dynamics Ukrproduct looks to continue an improved performance.


Original source: Ukrproduct