Interim Financial Results

RNS Number : 1460M

Ukrproduct Group Ltd

13 September 2012

 



FOR IMMEDIATE RELEASE                                                                                   13 September, 2012

UKRPRODUCT ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012

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.

FINANCIAL HIGHLIGHTS - MAJOR IMPROVEMENT IN PROFITABILITY

(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."

CEO'S REPORT

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.

OUTLOOK

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.

FINANCIAL REVIEW

		(GBP thousands)				(UAH thousands)
		Jan-Jun  2012		Jan-Jun 2011	Year-on-year change	Jan-Jun  2012	Jan-Jun 2011	Year-on-year change
Revenue		25,343		25,008	1%	319,084	321,850	-1%
Gross Profit		4,279		3,375	27%	53,875	43,436	24%
EBITDA		1,467		1,151	27%	18,470	14,815	25%
Profit after tax		636		309	106%	8,008	3,977	101%
Basic earnings per share (pence)		1.56		0.77	102%	-
	(GBP thousands)					(UAH thousands)
	Jan-Jun  2012		Jan-Jun  2011		Year-on-year change	Jan-Jun  2012	Jan-Jun  2011	Year-on-year change
Revenue
- Branded products	15,987		15,992		0%	201,286	205,815	-2%
- Skimmed milk products	3,970		3,738		6%	49,985	48,108	4%
- Kvass	1,130		770		47%	14,227	9,910	44%
- Services	200		400		-50%	2,518	5,148	-51%
- Other	4,056		4,108		-1%	51,068	52,869	-3%
Gross Profit
- Branded products	3,732		2,837		32%	46,985	36,511	29%
- Skimmed milk products	-239		-7		-	-3,009	-90	-
- Kvass	619		175		-	7,794	2,252	-
- Services	16		214		-93%	201	2,754	-93%
- Other	151		156		-3%	1,901	2,008	-5%

Ukrproduct's consolidated revenues in H1 2012 were in line with H1 2011 at GBP 25.3 million. The Branded products segment continued to account for the majority of the Group's revenues, representing 63% of total revenues (64% in H1'2011). Branded products segment revenues remained at the same level of GBP 16 million. Sales of processed cheese and processed cheese product increased by 23% year-on-year. The revenues of packaged butter and spreads decreased by 12% year-on-year due to focusing on increasing the profitability and abstaining from the low-profitability projects and activities. The revenue of the Skimmed milk products ("SMP") segment increased by 6% year-on-year. The revenues from kvass increased by 47% year-on-year.

The Group's gross profit increased by 27% from GBP 3.4 million in H1 2011 to GBP 4.3 million in H1 2012 with a gross profit margin of 16.7% in the first half of 2012 compared to 13.5% in the corresponding period of 2011. The rise in gross profit was mainly due to the focus on profitability in Branded product sales and kvass profit, which increased by 47%.

Ukrproduct continued to suffer from an unfavourable pricing environment in SMP in the first half of 2012, and as a result the gross losses from Skimmed milk products increased by GBP 0.2 m. The segment delivered a negative gross profit margin of -6% compared to -0.2% in the previous period.

Group EBITDA in H1 2012 increased by 27% from GBP 1.2 million in H1 2011 to GBP 1.5 million in H1 2012.

Profit after tax increased by 106% year-on-year to GBP 0.64 million in H1 2012 (GBP 0.31 million). These figures incorporate the exchange gain of difference growth by GBP 0.2 million year-on-year. 

The Group's basic earnings per share (EPS) doubled year-on-year from 0.8 pence to 1.6 pence in the first half of 2012.

Net cash generated by operating activities totalled GBP 1.5 million in the first half of 2012 (GBP 0.3 million), reflecting increased gross margins of Branded products and decreased inventories.

The Group's cash balances stood at GBP 0.8 million as at 30 June 2012, compared to GBP 0.4 million as at 30 June 2011. Bank borrowings include GBP 5.2 million of long term credit from EBRD for the financing of a project to increase energy efficiency and productivity of the Group's production facilities. As at 30 June 2012, the Group had a credit facility in UAH with OTP Bank equivalent to GBP 3.0 million (GBP 2.7 million). The Group's cash level is sufficient to meet current debt obligations in the short and medium term.

Business circumstances dictate prudence and the conservation of cash. The Board has therefore decided not to pay an interim dividend in respect of the first six months ended 30 June 2012 (six months ended 30 June 2011: Nil).

Conference call information

Ukrproduct management will host a conference call today at 10.30 am (London time) / 11.30 am (CET) / 12.30 pm (Kiev Time) to present and discuss the unaudited interim results.

UK dial-in (toll-free): 0808 109 0700

Ukraine (toll-free): 0 800 50 20590

International dial-in: [phone]

The participant password is: Ukrproduct

A replay will then be available for 30 days after the conference call on Ukrproduct Group web-site.

***

For further information, please visit www.ukrproduct.com or contact: 

	Ukrproduct Group Ltd. Sergey Evlanchik Chief Executive Officer Tel: [phone] [e-mail] Nick Piazza Tel: [phone] [e-mail]	Seymour Pierce Nominated advisor and Broker Guy Peters Tel: [phone] Jacqui Briscoe Tel: [phone]

Ukrproduct Group Ltd is one of the leading Ukrainian producers and distributors of branded dairy products and now in addition kvass, a traditional fermented beverage. The Group's product portfolio includes processed and hard cheese, skimmed milk powder (SMP), ) and butter and kvass. Ukrproduct has built a range of recognisable product brands ("Our Dairyman", "People's Product", "Creamy Valley", Molendam", "Farmer's") that are well known and highly regarded by consumers. The Group has modern production facilities that comprise four dairy plants in western and central regions of Ukraine (Zhytomyr, Starokonstantyniv, Krasyliv and Letychiv) with a total annual integrated capacity of approximately 60,000 tons of dairy products. With its own fleet of more than 125 vehicles, Ukrproduct has one of the largest logistics and distribution networks in Ukraine which covers the country's eight major cities. The Group reported total assets of approximately GBP 33.5 million as at June 30, 2012 and consolidated revenues of approximately GBP 25.3 million for the six months ended June 30, 2012. Ukrproduct's securities are traded under the symbol "UKR" on AIM, a market operated by the London Stock Exchange.Ukrproduct's securities are traded under the symbol "UKR" on AIM, a market operated by the London Stock Exchange.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. These statements are only predictions and they may differ materially from the actual events or results. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in such projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Ukraine, rapid technological and market change in our industry, as well as many other risks specifically related to the Group and its operations.

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED 30 JUNE 2012 AND 2011
(in thousand GBP, unless otherwise stated)
											Six months ended					Six months ended
											30 June 2012					30 June 2011
											£ '000					£ '000
	Revenue										25,343					25,008
	including of branded and SMP products										19,957					19,730
	Cost of sales										(21,064)					(21,633)
	Gross profit										4,279					3,375
	Administrative expenses										(1,510)					(1,384)
	Selling and distribution expenses										(1,573)					(1,323)
	Other operating expenses/income, net										(228)					33
	Profit from operations										968					701
	Finance expense, net										(268)					(155)
	Effect of foreign currency translation										192					(22)
	Profit before taxation										892					524
	Income tax expense										(256)					(215)
	Profit for the Six months										636					309
	Attributable to:
	Equity holders of the Parent										636					315
	Non-controlling interest										-					(6)
											636					309
	Earnings per share:
	Basic										1.6					0.8
	Diluted										1.6					0.8

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2012 AND 2011
(in thousand GBP, unless otherwise stated)
											Six months ended					Six months ended
											30 June 2012					30 June 2011
											£ '000					£ '000
	Profit for the Six months										636					309
	Other comprehensive income
	Exchange differences on translation to the presentation currency										(235)					(723)
	Other comprehensive income for the Six months, net of tax										(235)					(723)
	Total comprehensive income for the Six months, net of tax										401					(414)
	Attributable to:
	Equity holders of the Parent										401					(408)
	Non-controlling interests										-					(6)
											401					(414)

UKRPRODUCT GROUP LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 AND 31 DECEMBER 2011 AND 30 JUNE 2011 (in thousand GBP, unless otherwise stated)
										As at					As at				As at
										30 June 2012					31 December 2011				30 June 2011
										£ '000					£ '000				£ '000
	ASSETS
	Non-current assets
	Property, plant and equipment									19,181					17,173				11,220
	Intangible assets									1,305					1,055				960
	Available for sale investments									87					169				85
	Deferred tax assets									41					50				260
	Total non-current assets									20,614					18,447				12,525
	Current assets
	Inventories									2,955					4,634				3,564
	Trade and other receivables									7,526					6,906				8,215
	Current taxes									1,458					404				1,202
	Other financial assets									179					177				396
	Cash and cash equivalents									808					512				395
	Total current assets									12,926					12,633				13,772
	TOTAL ASSETS									33,540					31,080				26,297
	Equity and liabilities
	Equity attributable to equity holders
	Share capital									4,082					4,082				4,082
	Other reserves									2,484					2,868				1,091
	Retained earnings									13,145					12,367				13,182
	Total equity attributable to equity holders of the parent									19,711					19,317				18,355
	Non-controlling interest									-					-				14
	Total equity									19,711					19,317				18,369
	Liabilities
	Non-Current Liabilities
	Bank borrowings									5,155					3,844				-
	Deferred tax liabilities									843					881				1,295
	Total Non Current Liabilities									5,998					4,725				1,295
	Current Liabilities
	Bank borrowings									3,499					3,514				2,661
	Trade and other payables									4,192					3,165				3,679
	Current income tax liabilities									73					108				113
	Other taxes payable									67					251				180
	Total Current Liabilities									7,831					7,038				6,633
	TOTAL LIABILITIES AND EQUITY									33,540					31,080				26,297
										-					-				-

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2012 AND 2011
(in thousand GBP, unless otherwise stated)
										Six months ended					Six months ended
										30 June 2012					30 June 2011
										£ '000					£ '000
	Cash flows from operating activities
	Profit before taxation for the six months									892					524
	Adjustments for:
	Exchange difference									(192)					22
	Depreciation and amortisation									499					450
	Loss / (profit) of disposal of non-current assets									5					8
	Impairment of trade receivables									35					30
	Interest income									(1)					(18)
	Interest expense									269					173
	Decrease / (increase) of inventories									1,562					266
	Decrease / (increase) in trade and other receivables									(1,663)					(2,964)
	Increase in trade and other payables									369					2,091
	Cash generated from operations									1,775					582
	Interest received									1					18
	Income tax paid									(309)					(286)
	Net cash generated by operating activities									1,467					314
	Cash flows from investing activities
	Payments for property, plant and equipment									(2,520)					(223)
	Proceeds from sale of property, plant and equipment									11					400
	Repayments / (proceeds) from loans issued									(3)					(184)
	Net cash used in investing activities									(2,512)					(7)
	Cash flows from financing activities
	Dividends paid									-					(204)
	Interest paid									(269)					(173)
	Net proceeds from short term borrowing									28					(163)
	Increase in long term borrowing									1,629					-
	Net cash used in financing activities									1,388					(540)
	Net increase in cash and cash equivalents									343					(233)
	Effect of exchange rate changes on cash and cash equivalents									(47)					(48)
	Cash and cash equivalents at the beginning of the six months									512					676
	Cash and cash equivalents at the end of the six months									808					395

UKRPRODUCT GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2012 AND 2011
(in thousand GBP, unless otherwise stated)
											Attributable to equity holders																						Total attributable to equity holders of the parent			Non-controlling interest				Total Equity
											Share capital			Share premium			Merger reserve					Revaluation reserve			Retained earnings				Translation reserve
											£ '000			£ '000			£ '000					£ '000			£ '000				£ '001				£ '000			£ '000				£ '000
	As at 1 January 2011										4,082				4,555		(1,427)					4,366			12,817				(5,426)				18,967			20				18,987
	Profit for the six months																								315								315			(6)				309
	Other comprehensive income																												(723)				(723)							(723)
	Total  comprehensive income										-				-		-					-			315				(723)				(408)			(6)				(414)
	Depreciation on revaluation of non current assets																					(123)			123								-							-
	Reduction of revaluation reserve																					(131)			131								-							-
	Dividends paid																								(204)								(204)							(204)
	As at 30 June 2011										4,082				4,555		(1,427)					4,112			13,182				(6,149)				18,355			14				18,369
	Profit for the six months																								95								95			(4)				91
	Other comprehensive income																					206							695				901							901
	Total  comprehensive income										-				-		-					206			95				695				996			(4)				992
	Depreciation on revaluation of non current assets																					(179)			179								-							-
	Reduction of revaluation reserve																					(5)			(29)								(34)							(34)
	Exclusion from Group																1,060								(1,060)								-				(10)			(10)
	As at 31 December 2011										4,082				4,555		(367)					4,134			12,367				(5,454)				19,317				-			19,317
	Profit for the year																								636								636			-				636
	Other comprehensive income																												(235)				(235)							(235)
	Total  comprehensive income										-				-		-					-			636				(235)				401			-				401
	Depreciation on revaluation of non current assets																					(141)			141								-							-
	Reduction of revaluation reserve																					(8)			1								(7)							(7)
	Dividends paid																								-								-							-
	As at 30 June 2012										4,082				4,555		(367)					3,985			13,145				(5,689)				19,711			-				19,711

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The unaudited condensed consolidated financial information has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting.

The unaudited condensed consolidated financial information has been prepared under the historical cost convention, except for revaluation of certain properties.

The same accounting policies, presentation and methods of computation have been followed in this unaudited condensed financial information as were applied in the preparation of the Group's financial statements for the year ended 31 December 2011, except for the impact of the items described below.

Change in accounting for Goodwill

Goodwill in the amount of GBP 157 k, that arose at the time of purchase of LLC "Zhyvyi Kvass" in December 2011 was reclassified into the value of trade mark "Arseniyivskyi".

The preparation of the interim financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from those estimates.

The comparatives for the six months ended 30 June 2011 are extracted from the Group's consolidated financial statements for the year ended 31 December 2011. The auditor's report for those accounts was unqualified and did not include any references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

2. Earnings per share

Basic earnings per share have been calculated by dividing net profit attributable to the ordinary shareholders (profit for the year) by the weighted average number of shares in issue.

Six months ended

Six months ended

30 June 2012

30 June 2011

Net profit attributable to ordinary shareholders, £'000

636

315

Weighted number of ordinary shares in issue

40,817,600

40,817,600

Basic earnings per share, pence

1.6

0.8

Diluted average number of shares

40,817,600

40,817,600

Diluted earnings per share, pence

1.6

0.8

3. Comparative information

Certain information in the consolidated statement of cash flows has been reclassified to conform with the presentation format adopted in the current year. The restatement has no effect on the financial results or financial position of the Group.

4. Subsequent events

On July 2, 2012 a customer of the Group returned a batch of skimmed milk powder to the amount of GBP 312 k. The product will be sold under foreign economic contracts in August-September 2012.

5. Approval of interim financial statements

The interim financial statements were approved by the board of directors on 12 September 2012.

 

END

 

 

IR DLLFFLKFEBBE