Interim Results

Ukrproduct Group Ltd
19 September 2006

19 September 2006



                              Ukrproduct Group Ltd
                  ("Ukrproduct Group", "UPG" or the "Company")
          Interim unaudited results for six months ended 30 June 2006



Ukrproduct Group is a leading Ukraine-based producer and distributor of branded
dairy foods.



Consolidated results (figures for the six months ended 30 June 2005 in
brackets):

  • Net Sales stable at £17.4m (£17.3m)
  • Gross profit increased to £3.5m (£3.1m)
  • Operating cash flow down 14% to £1.36m (£1.56m)
  • Profit before tax down 46% to £0.65m (£1.2m)
  • Profit after tax down 44% to £0.59m (£1.05m)
  • Basic earnings per share down to 1.4p (2.5p)
  • Interim dividend of 0.1p (0.35p)



Note: In 1H 2006, some of the transportation expenses were reclassified from
Cost of Sales to Selling and Distribution Costs. The figures of 1H 2005 were
also reclassified and are presented in the comparable format.





Iryna Yevets, CEO of Ukrproduct Group, commented:



"As highlighted in the statement made to the market on 27 June, the performance
of the Group during the first six months of the year was impacted by Ukraine's
trade negotiations with Russia and associated substantial cost inflation. During
the first half of the year, exports of hard cheese from Ukraine to Russia were
severely restricted resulting in Ukrainian manufacturers reducing prices and
releasing excess products on to the Ukrainian market. As a result, the Group
suffered from the overall downward price pressure.  Alongside this, the increase
in cost inflation, in particular, the prices of gas and electricity also
resulted in major increases in costs of freight services, utilities and rents.
As a consequence of these difficult trading conditions during the first half of
the year, the Company continues to expect pre-tax profits for the full year 2006
to be lower than in 2005."



"Following the update on 27 June, the volumes and margins of packaged butter as
well as the production of skimmed milk powder and export sales have been in line
with expectations and we have continued to see a reduction in the excess stocks
of hard cheese. Pricing pressure due to the restriction has also been reduced.
The stabilisation of the political environment through the creation of a
coalition government following the elections earlier this year has resulted in
the return of consumer confidence. This has benefited UPG through the increase
in consumption trends for our products. The construction of the hard cheese
plant at Starkon remains on track with the intention that the plant becomes
fully operational by the third quarter of 2007."



"In view of the challenging trading in the first half and uncertain environment
in the second half of the year, the Board has proposed an interim dividend of
0.1p. The dividend will be paid on 26 October 2006 to those shareholders on the
register at the close of business on 6 October 2006."



"Going forward we will continue to focus on driving sales and margin growth
whilst improving the operational efficiency of the Company. We have reviewed the
cost structure of the Group and implemented a cost cutting programme where
appropriate. Our core brands remain the cornerstone of the Company, and we will
continue to position ourselves in the various segments that we operate in so
that we are able to explore future opportunities within the Ukrainian dairy
sector. From the information that is currently available, the Directors believe
that the Group is holding its pre-eminent position in terms of market share.
Accordingly, the directors believe that the Company will emerge successfully
from the current challenging circumstances."




For further information:

Ukrproduct Group                                                [phone]
Iryna Yevets, CEO, and Dmitry Dragun, CFO


Financial Dynamics                                              [phone]
Ben Foster/ Charles Watenphul






Consolidated financial results of the Group (with 1H 2005 figures in brackets):



  • Net Sales stable at £17.4m (£17.3m)
  • Cost of sales down 2% to £13.9m (£14.2m).
  • Gross profit up 12% to £3.5m (£3.1m)
  • Gross margin increased to 20.1% (18.1%)
  • Administrative expenses increased 53% to £1.34m (£0.88). This increase is
    mainly due to increase in wages, as well as the new administrative expenses
    of the production plants acquired in the 2nd half of 2005 (Letichev and
    Zhmerinka).
  • Selling expenses up 37% to £1.27m (£0.9m). The main factor influencing
    this increase was the increased costs of transportation and wages.
  • Operating cash flow down 14% to £1.36m (£1.56m)
  • EBIT down 42% to £0.72m (£1.25m). Significant depreciation difference
    arose between the comparable periods due to the large capital expenditure in
    FY2005 and acquisition of production facilities during the 2nd half of 2005.
  • Profit before tax down 46% to £0.65m (£1.2m)
  • Profit after tax down 44% to £0.59m (£1.05m)
  • Basic earnings per share down to 1.4p (2.5p)






CONSOLIDATED BALANCE SHEET
As at 30 June 2006 and 30 June 2005

                                                        30/06/2006    30/06/2005
                                                         Unaudited     Unaudited
                                                            £ '000        £ '000
Assets
Non-current assets
   Property, plant and equipment (PPE)                       9,055         6,945
   Intangible assets                                         1,502             9
   Investments                                                  92            92
   Deferred tax assets                                          28            41

Total non-current assets                                    10,677         7,087

Current assets
   Inventories                                               2,649         4,370
   Trade and other receivables                               3,662         3,481
   Other financial assets                                      132           727
   Cash and cash equivalents                                   370         1,264

Total current assets                                         6,813         9,842
Total  assets                                               17,490        16,929

Capital and reserves attributable to equity holders
of the company
   Share capital                                             4,121         4,121
   Other reserves                                            4,757         4,642
   Retained earnings                                         3,969         3,295
                                                            12,847        12,058

Minority interest                                              172           164
Total  equity                                               13,019        12,222

Liabilities
Non-current Liabilities
   Long-term credits                                           143            44
   Bonds                                                         0           119
   Promissory notes                                              0             5
   Deferred tax liability                                      730           758

Total non-current liabilities                                  873           926

Current liabilities
   Bank loans and overdraft                                  1,098           859
   Trade and other payables                                  2,351         2,787
   Current portion of long term liabilities                    106             0
   Current tax liabilities                                      43           135

Total current liabilities                                    3,598         3,781

Total equity and liabilities                                17,490        16,929




CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2006 and 30 June 2005

                                                      30/06/2006      30/06/2005
                                                       Unaudited       Unaudited
                                                          £ '000          £ '000

Revenue                                                   17,395          17,309

Cost of sales                                           (13,891)        (14,170)

Gross profit                                               3,504           3,139

Administrative expenses                                  (1,342)           (875)
Selling and distribution costs                           (1,275)           (930)
Other operating income/(expenses)                          (188)            (80)

Profit from operations                                       699           1,254

Income / loss from exchange rate differences                  25               0
Finance income                                                 0              41
Finance costs                                               (79)            (95)

Profit before tax                                            645           1,200

Tax expense                                                 (57)           (147)

Profit for the year                                          588           1,053

Attributable to:
Equity holders of the parent                                 590           1,040
Minority interest                                            (2)              13

Earnings per share
- Basic (pence)                                              1.4             2.5
- Diluted (pence)                                            1.4             2.4





CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2006 and 30 June 2005

                                                                   1/01/2006 to     1/01/2005 to
                                                                       30/06/06         30/06/05
                                                                      Unaudited        Unaudited
                                                                         £ '000           £ '000

Operating activities
Net profit from ordinary activities                                         645            1,200
Adjustments for:
   Foreign exchange losses                                                 (25)                0
   Depreciation                                                             663              308
   Interest expense                                                          79               95
   Interest income                                                            0             (41)

Operating profit before changes in working
capital and provisions                                                    1,362            1,562

   "-" Increase in trade and other receivables                              742            (588)
   "-" Increase in inventories                                            1,660          (1,666)
   "+" Increase in trade and other payables                                 188              868

Cash generated from operations                                            3,952              176

Interest paid                                                              (79)             (95)
Interest received                                                             0               41
Income taxes paid/(refunded)                                              (185)            (179)

Net cash flows from operating activities                                  3,688             (57)

Investing activities
Purchases of PPE                                                        (1,760)          (2,234)

Net cash used in investing activities                                   (1,760)          (2,234)

Financing activities
Issue of bonds and loans received                                            43          (1,054)
Issue of ordinary shares                                                      0            5,221
Dividends paid                                                            (206)                0
Net proceeds from short term borrowings                                 (1,809)            (321)
Loans repaid (issued)                                                         3            (461)

Net cash generated by/(used in) financing activities                    (1,969)            3,385

Effect of exchange rate changes and restatements on cash
and cash equivalents                                                       (42)            (130)

Increase/(decrease) in cash and cash equivalents                           (83)              964

Cash and cash equivalents at the beginning of the period                    453              300

Cash and cash equivalents at the end of the period                          370            1,264






NOTES



1. Accounting Policy Statement and Basis of Preparation



The accounting policies used in preparation of the above statements are those
used in preparing the annual financial results for the year ended 31 December
2005 and are expected to remain the same for the Company in preparing its annual
financial results for the year ended 31 December 2006.



2. Segmental analysis


                           Sales     Share in     Share in    Gross Profit       Gross        Gross
                         H1 2006        Sales        Sales         H1 2006      Margin       Margin
                           £ 000      H1 2006      H1 2005           £ 000     H1 2006      H1 2005
Cheese                     6,927          40%          42%           1,487       21.5%        23.8%
Butter                     5,431          31%          29%           1,332       24.5%        14.7%
Milk Powders               3,280          19%          21%             452       13.8%        14.5%
Services                     459           3%           1%              99       21.5%        21.7%
Other                      1,298           7%           7%             134       10.4%         7.3%
Total                     17,395         100%         100%           3,504       20.1%        18.1%





3. Earnings per share



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


                                                                            Consolidated        Consolidated
                                                                              Six months          Six months
                                                                                ended 30            ended 30
                                                                               June 2006           June 2005

Net Profit attributable to ordinary shareholders (£'000)                             590               1,040

Weighted average number of ordinary shares                                    41,214,953          41,214,953

Basic earnings per share (pence)                                                    1.43                2.52

Number of ordinary shares granted under warrants and option
agreements                                                                     2,214,924           2,214,924

Fully diluted average number of ordinary shares                               43,429,877          43,429,877

Fully diluted earnings per share (pence)                                            1.36                2.39





4. Dividend



The Board proposes an interim dividend of 0.1p per ordinary share (0.35p in H1
2005). The dividend will be paid on 26 October 2006 to those shareholders on the
register at the close of business on 6 October 2006.






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