Half-year Report

RNS Number : 3606L

Ukrproduct Group Ltd

30 September 2016

 



FOR IMMEDIATE RELEASE                                                                        September 30, 2016

UKRPRODUCT ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016

Kyiv, Ukraine - September 30, 2016  - 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 2016.

KEY FIGURES

(Figures in brackets are for the six months ended and as at 30 June 2015 when the exchange rate was

32.41 UAH/GBP compared to 36.61 UAH/GBP in this reporting period)

Total revenues  decreased  by  16%  year  on year  to  GBP 8.2  m (GBP 9.8  m),  however  in Ukrainian Hryvna the sales revenues decreased  by 5%

Gross profit margin decreased to 9.2% (11.5%) resulting in gross profit decrease by 33.0% to GBP 0.8 m (GBP 1.1 m) which in Ukrainian Hryvna translated into a 25.0% decrease

Revenues in dairy branded products segment decreased by 12% year on year to GBP 5.4 m (GBP 6.3m) and the gross profit increased by 9.3% year on year to GBP 0.6 m (GBP 0.6 m)

In kvass the revenues decreased by 23% year on year to GBP 0.4 m (GBP 0.5 m) and gross profit down by 26 % year-on-year

Skimmed Milk Powder (SMP) revenues decreased by 34% to GBP 1.8 million (GBP 2.4 m) and gross profit decreased to GBP -0.1 m (GBP 0.2 m)

EBITDA decreased to GBP - 16 k (GBP 66 k)

Operating loss amounted to GBP -220 k (loss of GBP -221 k)

The negative effect of currency exchange differences amounted to GBP 0.3 million (GBP 0.5 m)

Cash balance as at June 30, 2016 stood at GBP 277 k (GBP 50 k).

CEO's REPORT

During the first half of 2016 Ukrproduct continued to experience the consequences of the storm in the Ukrainian economy in recent years. A devalued currency, a geographically contracted market place and consumers now pressured further by inflation provided a challenging business environment.

The Group's response has been to adjust its focus to relevant products, sales channels and customers providing acceptable margins and ability to pay on time. Working capital has been released and costs contained via improved productivity. Given the hryvnia devaluation increased effort has been made to develop the export business.

Trading

Volumes fell, though revenues fell only marginally in hryvnia terms. Gross margins showed an improving trend but prices remained constrained by competition and low consumer confidence and spending power. Branded products, now subject to more emphasis, showed improved revenues with the key categories of packaged butter, spreads and processed cheese advancing. Private Label contracts with only marginal profitability have been terminated. Those retained reflect the quality demanded by the retailer and commensurate margins.

The kvass beverage continued to make a good gross profit contribution. Plans are in place to extend the offering in this category with white kvass, uzvar and rose hip based healthy drinks.

Skimmed milk powder is subject to the vagaries of world prices which were not encouraging in this period. Milk prices trended upwards on the world market from midsummer. However the Group's spare spray drying capacities were utilized profitably for third parties during the period.

The continued exchange rate depreciation has facilitated the successful pursuit of export business not least to CIS countries, Russian intervention notwithstanding.  Further expansion has been made into the North Africa region. 

.

Finances

In the challenging trading environment hryvnia revenues have held up to within 5% of same period 2015. However whilst management efforts resulted in some improvement in gross margins, overall they remained below the required level. Although the Group made substantial progress in the second quarter, the first quarter negative result was not fully offset.

Overheads were reduced but EBITDA struggled to remain positive. This led to an operating loss which was accentuated by negative exchange differences for the period.

Cash under such trading circumstances is very much in focus. Along the lines mentioned the Company has adopted a trading model to release cash not least from working capital to fulfill its ongoing obligations. This importantly includes interest payments due to EBRD under the terms of the more favourable loan restructuring agreement signed by the end of June.

Outlook

The Group targets a return to profitability as the market place continues to work towards stabilization. Our markets will however remain competitive. Ukrproduct's strategy as detailed earlier is to target segments with differentiated products and services. In particular, pursuit of growth opportunities in beverages and export and improving the cost and service efficiency of the supply chain. Overhead reduction has included the remuneration of directors. Underpinning this all is the need to continue to create positive cash flows.

***

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

Ukrproduct Group Ltd
Jack Rowell, Non-Executive Chairman		Tel: [phone]
Alexander Slipchuk, Chief Executive Officer		www.ukrproduct.com
ZAI Corporate Finance Ltd.
Nominated Adviser and Broker Peter Trevelyan-Clark, Jamie Spotswood	Tel: [phone] www.zaicf.com

Ukrproduct Group Ltd is one of the leading Ukrainian producers and distributors of branded dairy products and kvass, a traditional fermented beverage. The Group's product portfolio includes processed and hard cheese, packaged butter, skimmed milk powder (SMP) 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 reported consolidated revenues of approximately GBP 20.2 million for the twelve months ended December 31, 2015 and  total assets of approximately  11.5 million as at that date . 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 2016 AND 2015
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2016					30 June 2015
																				£ '000					£ '000
	Revenue																			8 192					9 766
	including of branded and SMP products																			7 642					8 791
	Cost of sales																			(7 436)					(8 642)
	Gross profit																			756					1 124
	Administrative expenses																			(388)					(562)
	Selling and distribution expenses																			(554)					(733)
	Other operating income/ expenses, net																			(34)					(50)
	Profit from operations																			(220)					(221)
	Finance expense, net																			(512)					(340)
	Effect of foreign currency translation																			(346)					(514)
	Profit before taxation																			(1 078)					(1 075)
	Income tax expense																			(20)					(6)
	Profit for the Six months																			(1 098)					(1 081)
	Attributable to:
	Equity holders of the Parent																			(1 098)					(1 081)
	Non-controlling interest																			-					-
																				(1 098)					(1 081)
	Earnings per share:
	Basic																			(2,77)					(2,72)
	Diluted																			(2,77)					(2,73)
UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2016 AND 2015
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2016					30 June 2015
																				£ '000					£ '000
	Profit for the Six months																			(1 098)					(1 081)
	Other comprehensive income
	Exchange differences on translation to the presentation currency																			233					(1 986)
	Other comprehensive income for the Six months, net of tax																			233					(1 986)
	Total comprehensive income for the Six months, net of tax																			(865)					(3 067)
	Attributable to:
	Equity holders of the Parent																			(865)					(3 067)
	Non-controlling interests																			-					-
																				(865)					(3 067)

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2016 AND 31 DECEMBER 2015 AND 30 June 2015
(in thousand GBP, unless otherwise stated)
																				As at					As at					As at
																				30 June 2016					31 December 2015					30 June 2015
																				£ '000					£ '000					£ '000
	ASSETS
	Non-current assets
	Property, plant and equipment																			7 774					7 417					6 970
	Intangible assets																			628					596					725
	Long-term receivables																			-					-					286
	Deferred tax assets																			6					45					1
	Total non-current assets																			8 408					8 058					7 982
	Current assets
	Inventories																			2 383					1 496					2 381
	Trade and other receivables																			2 510					1 486					2 350
	Current taxes																			166					349					665
	Other financial assets																			16					11					91
	Cash and cash equivalents																			277					93					50
	Total current assets																			5 352					3 435					5 537
	TOTAL ASSETS																			13 760					11 493					13 519
	Equity and liabilities
	Equity attributable to equity holders
	Share capital																			3 967					3 967					3 967
	Other reserves																			(6 813)					(6 540)					(7 794)
	Retained earnings																			5 062					5 654					8 327
	Total equity attributable to equity holders of the parent																			2 216					3 081					4 500
	Non-controlling interest																			-					-					-
	Total equity																			2 216					3 081					4 500
	Liabilities
	Non-Current Liabilities
	Bank borrowings																			2 692					3 206					3 751
	Deferred tax liabilities																			457					466					213
	Total Non Current Liabilities																			3 149					3 672					3 964
	Current Liabilities
	Bank borrowings																			4 268					3 121					2 519
	Trade and other payables																			3 927					1 586					2 494
	Current income tax liabilities																			31					18					17
	Other taxes payable																			169					15					25
	Total Current Liabilities																			8 395					4 740					5 055
	TOTAL LIABILITIES AND EQUITY																			13 760					11 493					13 519
																				-					-					-

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2016 AND 2015
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2016					30 June 2015
																				£ '000					£ '000
	Cash flows from operating activities
	Profit before taxation for the six months																			(1 078)					(1 075)
	Adjustments for:
	Exchange difference																			346					514
	Depreciation and amortisation																			206					288
	Loss of disposal of non-current assets																			5					4
	Impairment of trade receivables																			31					-
	Disposal of subsidiaries																			(3)					(4)
	Interest income																			-					(1)
	Interest expense																			512					341
	Decrease / (increase) of inventories																			(887)					(851)
	Decrease in trade and other receivables																			(956)					479
	Increase/ (decrease) in trade and other payables																			2 143					571
	Cash generated from operations																			319					266
	Interest received																			-					1
	Income tax paid																			(8)					(21)
	Net cash generated by operating activities																			311					246
	Cash flows from investing activities
	Payments for property, plant and equipment																			(77)					(130)
	Proceeds from sale of property, plant and equipment																			9					17
	Repayments / (proceeds) from loans issued																			(8)					(13)
	Net cash used in investing activities																			(76)					(126)
	Cash flows from financing activities
	Interest paid																			(182)					(343)
	Net proceeds / (repayments) from short term borrowing																			(59)					(20)
	Repayments of investment borrowing																			-					-
	Net cash used in financing activities																			(241)					(363)
	Net (decrease) / increase in cash and cash equivalents																			(6)					(243)
	Effect of exchange rate changes on cash and cash equivalents																			190					78
	Cash and cash equivalents at the beginning of the six months																			93					215
	Cash and cash equivalents at the end of the six months																			277					50
																				-					0

UKRPRODUCT GROUP LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2016 AND 2015

(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			£ '000			£ '000			£ '000			£ '000
	As at 1 January 2015											3 967			4 562			-			3 453			9 358			(13786)			7 572			-			7 572
	Profit for the six months																							(1 081)						(1 081)			-			(108)
	Other comprehensive income																										(1 986)			(1 986)						(1986)
	Total  comprehensive income											-			-			-			-			(1081)			(1986)			(3067)			-			(3067)
	Depreciation on revaluation of non current assets																				(46)			46						-						-
	Reduction of revaluation reserve																				(9)			4						(5)						(5)
	As at 30 June 2015											3 967			4 562			-			3 398			8 327			(15754)			4 500			-			4 500
	Profit for the six months																							(2825)						(2825)			-			(2825)
	Other comprehensive income																				913						460			1 373						1 373
	Total  comprehensive income											-			-			-			913			(2825)			460			(1 452)			-			(1452)
	Depreciation on revaluation of non current assets																				(40)			40						-						-
	Reduction of revaluation reserve																				(79)			112						33						33
	As at 31 December 2015											3 967			4 562			-			4 192			5 654			(15294)			3 081			-			3 081
	Profit for the year																							(1098)						(1 098)			-			(1098)
	Other comprehensive income														(2)									-			235			233						233
	Total  comprehensive income											-			(2)			-			-			(1098)			235			(865)			-			(865)
	Depreciation on revaluation of non current assets																				(83)			83						-						-
	Reduction of revaluation reserve																				(7)			7						-						-
	Reclassified equity items																							416			(416)			-						-
	As at 30 June 2016											3 967			4 560			-			4 102			5 062			(15475)			2 216			-			2 216

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

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

The interim financial statements are unaudited but have been reviewed by the auditors.

The unaudited condensed consolidated financial statements have 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 consolidated financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2015.

The comparatives for the six months ended 30 June 2015 are extracted from the Group's consolidated financial statements for the year ended 31 December 2015. The auditor's report for those accounts was unqualified, but did include references to an emphasis of matter in respect of the Group incurring a loss during the year as well as the uncertainty surrounding the breach of loan agreement with the European Bank for Reconstruction and Development (the "EBRD").

Going concern The unaudited condensed consolidated financial statements have been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due, for the foreseeable future. The Group incurred a loss of £1,098k for the six months ended 30 June 2016. This is primarily due to the volatile political and economic situation in Ukraine.  This has resulted in a number of challenges to the Group, including but not limited to the significant devaluation of the local currency, the increase in raw milk prices and an overall fall in demand. Despite the negative economical conditional in Ukraine the Group signed new terms in respect of loan with EBRD. The previous sum of loan was divided on 2 tranches. Tranche A has maturity date 01 December 2022 and interest is payable at a margin of 5% over EURIBOR per annum, tranche B has maturity date 01 December 2024 and the rate at the higher of EURIBOR or 1% per annum before 01 December 2022 and after this date before 01 December 2024 -at a margin of 5% over EURIBOR per annum. First principal payment of the loan will be paid in accordance with new schedule in the March 2017. Based on the existence of these conditions, the condensed consolidated financial statements have been prepared on a going concern basis, because management believes that it has employed sufficient and appropriate measures to underpin its cost cutting strategy including but not limited to: reconstruction of manufacturing facilities in Starokonstantinov location, decrease in the number of subsidiaries and streamlining its business processes aimed to minimise non-value adding activities and related costs etc. According to the new terms of the contract, interest is paid in a timely manner.

2. Earnings per share

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

Six months ended

Six months ended

30 June 2016

30 June 2015

Net (loss) / profit attributable to ordinary shareholders, £'000

(1 098)

(1 081)

Weighted number of ordinary shares in issue

39 673 050

39 673 050

Basic earnings per share, pence

(2,77)

(2,72)

Diluted average number of shares

39 629 619

39 629 619

Diluted earnings per share, pence

(2,77)

(2,73)

3. Approval of interim financial statements

The unaudited condensed consolidated financial statements were approved by the board of directors on 30 September 2016. A copy will shortly be available on the Company's website at www.ukrproduct.com

 

END

 

 

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