Unaudited Interim Financial Results

RNS Number : 4912S

Ukrproduct Group Ltd

24 September 2014

 



FOR IMMEDIATE RELEASE                                                                             September 24, 2014

UKRPRODUCT ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

Kyiv, Ukraine - September 24 2014 - 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 2014.

KEY FIGURES

(Figures in brackets are for the six months ended and as at 30 June 2013 when the exchange rate was the 12.33 UAH/GBP compared to 16.99 UAH/GBP in this reporting period)

·        Total revenues decreased by 30% year on year to GBP 17.2 m (GBP 24.7 m), however the decrease in national currency made up 5%

·        Gross profit margin improved to 22.7% (15.0%) resulting in gross profit increase by 5% to GBP 3.9 m (GBP 3.7m)

·        Revenues in dairy branded products segment decreased by 41% year on year to GBP 11.3 million (GBP 19.1 million) and gross profit decreased by 20% year on year to GBP 2.1 million (GBP 2.7 million)

·        In kvass the revenues decreased by 40% year on year to GBP 0.7 million (GBP 1.2 million) and gross profit down by 39% year-on-year

·        Skimmed Milk Powder (SMP) revenues increased by 36% to GBP 4.7 million (GBP 3.5 million) and gross profit increased to GBP 1.3 million (GBP 0.3 million)

·        EBITDA increased by 42% to GBP 1.8 million (GBP 1.3 million) year-on-year

·        Profit from operations more than doubled year on year reaching GBP 1.3 million (GBP 0.6 million)

·        Profit before FOREX increased to GBP 835 k (GBP 33 k)

·        The negative effect of currency exchange differences amounted to GBP 2.8 million

·        Cash balance of GBP 0.4 million (GBP 0.6 million).

CEO'S REPORT

As to be expected the unstable political and economic situation has provided a challenging business environment for all businesses in Ukraine. Consumer confidence has fallen and the population's purchasing power has been reduced by rising costs including the very significant increase in fuel prices due to the deterioration of relations between Ukraine and Russia. The significant hryvna devaluation has further accentuated the management challenge. It has increased the cost of imported materials but potentially affords export opportunities.

In dairy the lack of exports to Russia led to an oversupply and some dumping on the domestic market. However and importantly it led to improved milk availability that was followed by a decline in raw milk prices. Branded dairy products experienced lower sales given the market conditions and also not least as the result of consumer price increases necessitated earlier in the year by the pressure on unit cost. At the same time more raw milk availability at lower prices coupled with the consumer price increase ensured a good improvement in the profit margins of branded dairy category. Thus despite the revenues decline the gross profit in H1'2014 has increased year-on-year.

In butter segment the Company saw the decrease in both volumes and revenues, however the margins improved substantially. The overall market of spreads in Ukraine continues to decline as consumers switch their preferences back to the traditional butter. Thus Ukrproduct's category of spreads saw a decrease in both sales and profits. Processed cheese showed the decrease in revenues and gross profit despite the improvement in contribution margin. The hard cheese sales have been the most affected by the restrictions on exports to Russia and dumping of product and as result have reduced year-on-year.

With the hryvna devaluation vs US dollar of 47% in H1'2014 the Company aimed at increasing export revenues significantly improving its SMP export sales and exploring new export markets for its branded products.

Skimmed Milk Powder (SMP)- The SMP segment showed a significant year-on-year growth in H1'2014 benefitting from higher domestic and export demand and better prices given the exchange rate. Moreover the Company continued to enhance its reputation as the high quality and reliable supplier to the large multinational companies in Ukraine as planned following the upgrade of production facility within the scope of the EBRD financed project.

The sales of kvass showed a decrease in H1'2014 compared to the same period last year due to the summer weather colder than usual and difficulties selling into Crimea. However the Company expects the second half of the season to improve on sales not least due to an extensive marketing support and further development of geographical coverage.

Distribution services- Given the commoditization in this business segment the Company now operates at a lower level with focus on growing quality business allowing good profitability. As result although the revenues in this segment decreased in H1'2014 compared to the last year, the gross margin showed an improvement.

Finances - Overall the aforementioned factors resulted in the sizeable year-on-year increase in Company's EBITDA and operating profit for the first half of 2014. Operating cash-flow was substantially improved during the period. The significant hryvna devaluation has offset such operating improvement via a negative exchange difference charge. The effect of exchange rate has led to the Group reporting a loss for H1'2014.

As previously announced the banking confidence in Ukraine has fallen and this is limiting credit facilities. Ukrproduct Group however has successfully renewed its bank facilities for working capital. Ukrproduct also benefited from further support of the European Bank for Reconstruction and Development ("EBRD") which has restructured the loan repayment taking into account significant hryvna devaluation.

The Group's cash levels and bank facilities are sufficient to meet current debt obligations in the short and medium term.

On the operational side the Company continued its progress implementing the second stage of modernization project with the European Bank for Reconstruction and Development. Meanwhile the Company is continuing to see the positive effect of the first stage of the project which has become even more relevant given the rise in energy costs.

Additionally the Company has adjusted its business model including change of sales and logistics structure. This proved to be successful and resulted in better efficiency of operations. The financial outcomes of these initiatives are now being seen.

Outlook - Within the context of the unstable environment, Ukrproduct will sustain its positive approach adapting to changes in opportunity with its trading partners and the consumer. In particular restoration of branded product volumes will receive focus underpinned by a strong marketing programme. The final stage of modernization project, EBRD supported, will become fully operational by the end of the year.

Conference call information

Ukrproduct management will host a conference call today at 12 am (London time) / 1 pm

(CET) / 2 pm (Kiev Time) to present and discuss the unaudited financial results for the six

months ended 30 June 2014.

The dial-in numbers for the conference call are:

[phone]  - Standard International Access

0808 109 0700  - UK Toll Free

Password - UKR

***

For the play-back of further information, please visit www.ukrproduct.com or contact: 

Ukrproduct Group Ltd. Sergey Evlanchik Chief Executive Officer Tel: [phone] [e-mail]

Cantor Fitzgerald Europe Nominated Adviser and Broker Stewart Dickson /  Jeremy Stephenson Tel: [phone]

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 total assets of approximately GBP 21.1 million as at June 30, 2014 and consolidated revenues of approximately GBP 17.2 million for the six months ended June 30, 2014. 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.

FINANCIAL REVIEW
												(GBP thousands)									(UAH thousands)
												Jan-June 2014			Jan-June 2013			YOY Change			Jan-June 2014			Jan-June 2013			YOY Change
Revenue												17 237			24 689			-30%			290 443			304 523			-5%
Gross Profit												3 913			3 710			5%			65 934			45 760			44%
EBITDA												1 840			1 299			42%			31 004			16 022			94%
(Loss) / profit after tax												-2 007			173			n/a			-33 818			2 122			n/a
												(GBP thousands)									(UAH thousands)
												Jan-June 2014			Jan-June 2013			YOY Change			Jan-June 2014			Jan-June 2013			YOY Change
Revenue
- Branded products												11 342			19 116			-41%			191 113			235 784			-19%
- Skimmed milk products												4 717			3 458			36%			79 481			42 652			86%
- Kvass												737			1 224			-40%			12 418			15 097			-18%
- Services												164			196			-16%			2 763			2 418			14%
- Other												277			695			-60%			4 667			8 572			-46%
Gross Profit
- Branded products												2 119			2 652			-20%			35 704			32 712			9%
- Skimmed milk products												1 293			270			379%			21 787			3 330			554%
- Kvass												390			640			-39%			6 572			7 894			-17%
- Services												70			28			150%			1 180			345			242%
- Other												41			120			-66%			691			1 480			-53%

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED 30 JUNE 2014 AND 2013
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2014					30 June 2013
																				£ '000					£ '000
	Revenue																			17 237					24 689
	including of branded and SMP products																			16 059					22 574
	Cost of sales																			(13 324)					(20 979)
	Gross profit																			3 913					3 710
	Administrative expenses																			(1 163)					(1 158)
	Selling and distribution expenses																			(1 349)					(1 907)
	Other operating income/ expenses, net																			(110)					(71)
	Profit from operations																			1 291					574
	Finance expense, net																			(456)					(541)
	Profit before FOREX																			835					33
	Effect of foreign currency translation																			(2 822)					112
	Profit before taxation																			(1 987)					145
	Income tax expense																			(20)					28
	Profit for the Six months																			(2 007)					173
	Attributable to:
	Equity holders of the Parent																			(2 007)					173
	Non-controlling interest																			-					-
																				(2 007)					173
	Earnings per share:
	Basic																			(5,06)					0,4
	Diluted																			(5,06)					0,4

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2014 AND 2013
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2014					30 June 2013
																				£ '000					£ '000
	Profit for the Six months																			(2 007)					173
	Other comprehensive income
	Exchange differences on translation to the presentation currency																			(5 377)					932
	Other comprehensive income for the Six months, net of tax																			(5 377)					932
	Total comprehensive income for the Six months, net of tax																			(7 384)					1 105
	Attributable to:
	Equity holders of the Parent																			(7 384)					1 105
	Non-controlling interests																			-					-
																				(7 384)					1 105

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014 AND 31 DECEMBER 2013 AND 30 June 2013
(in thousand GBP, unless otherwise stated)
																				As at					As at					As at
																				30 June 2014					31 December 2013					30 June 2013
																				£ '000					£ '000					£ '000
	ASSETS
	Non-current assets
	Property, plant and equipment																			11 719					18 185					19 192
	Intangible assets																			1 082					1 136					1 262
	Available for sale investments																			-					-					32
	Deferred tax assets																			12					66					87
	Total non-current assets																			12 813					19 387					20 573
	Current assets
	Inventories																			1 725					3 010					3 738
	Trade and other receivables																			4 615					6 919					7 442
	Current taxes																			1 435					2 399					2 659
	Other financial assets																			122					176					163
	Cash and cash equivalents																			434					1 006					653
	Total current assets																			8 331					13 510					14 655
	TOTAL ASSETS																			21 144					32 897					35 228
	Equity and liabilities
	Equity attributable to equity holders
	Share capital																			3 967					3 967					3 967
	Other reserves																			(4 051)					1 430					2 529
	Retained earnings																			10 758					12 672					13 798
	Total equity attributable to equity holders of the parent																			10 674					18 069					20 294
	Non-controlling interest																			-					-					-
	Total equity																			10 674					18 069					20 294
	Liabilities
	Non-Current Liabilities
	Bank borrowings																			5 322					5 118					4 998
	Deferred tax liabilities																			361					636					636
	Total Non Current Liabilities																			5 683					5 754					5 634
	Current Liabilities
	Bank borrowings																			2 482					5 802					5 883
	Trade and other payables																			2 230					3 226					3 272
	Current income tax liabilities																			28					18					90
	Other taxes payable																			47					28					55
	Total Current Liabilities																			4 787					9 074					9 300
	TOTAL LIABILITIES AND EQUITY																			21 144					32 897					35 228

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2014 AND 2013
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2014					30 June 2013
																				£ '000					£ '000
	Cash flows from operating activities
	Profit before taxation for the six months																			(1 987)					145
	Adjustments for:
	Exchange difference																			2 822					(112)
	Depreciation and amortisation																			549					725
	Loss of disposal of non-current assets																			9					1
	Impairment of trade receivables																			34					1
	Disposal of subsidiaries																			-					20
	Interest income																			(3)					(1)
	Interest expense																			459					542
	Decrease / (increase) of inventories																			298					(147)
	Decrease in trade and other receivables																			221					320
	Increase/ (decrease) in trade and other payables																			146					(1 545)
	Cash generated from operations																			2 548					-51
	Interest received																			3					1
	Income tax paid																			(48)					(156)
	Net cash generated by operating activities																			2 503					(206)
	Cash flows from investing activities
	Payments for property, plant and equipment																			(300)					(523)
	Proceeds from sale of property, plant and equipment																			12					12
	Repayments / (proceeds) from loans issued																			(8)					44
	Net cash used in investing activities																			(296)					(467)
	Cash flows from financing activities
	Own shares acquisition																			-					(109)
	Interest paid																			(459)					(542)
	Net proceeds / (repayments) from short term borrowing																			(1 928)					1 539
	Repayments of investment borrowing																			(64)					-
	Net cash used in financing activities																			(2 451)					888
	Net (decrease) / increase in cash and cash equivalents																			(244)					215
	Effect of exchange rate changes on cash and cash equivalents																			(328)					23
	Cash and cash equivalents at the beginning of the six months																			1 006					415
	Cash and cash equivalents at the end of the six months																			434					653
																				-					-

UKRPRODUCT GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2014 AND 2013
(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 2013											4 082			4 555			(367)			3 877			13 496			(6 339)			19 304			-			19 304
	Profit for the six months																							173						173			-			173
	Other comprehensive income																										932			932						932
	Total  comprehensive income											-			-			-			-			173			932			1 105			-			1 105
	Depreciation on revaluation of non current assets																				(135)			135						-						-
	Reduction of revaluation reserve																				-			(6)						(6)						(6)
	Dividends paid																							-						-						-
	Acquiring of shares											(115)			6															(109)						(109)
	As at 30 June 2013											3 967			4 561			(367)			3 742			13 798			(5 407)			20 294			-			20 294
	Profit for the six months																							(877)						(877)			-			(877)
	Other comprehensive income																				38						(1 361)			(1 323)						(1323)
	Total  comprehensive income											-			-			-			38			(877)			(1 361)			(2 200)			-			(2200)
	Depreciation on revaluation of non current assets																				(112)			112						-						-
	Reduction of revaluation reserve																				(32)			6						(26)						(26)
	Group restructuring completion																	367						(367)												-
	Acquiring of shares											-			1															1						1
	As at 31 December 2013											3 967			4 562			-			3 636			12 672			(6 768)			18 069			-			18 069
	Profit for the year																							(2 007)						(2 007)			-			(2007)
	Other comprehensive income																										(5 377)			(5 377)						(5377)
	Total  comprehensive income											-			-			-			-			(2 007)			(5 377)			(7 384)			-			(7384)
	Depreciation on revaluation of non current assets																				(91)			91						-						-
	Reduction of revaluation reserve																				(15)			2						(13)						(13)
	Effect from tax rate change																				2									2						2
	Acquiring of shares											-			-															-						-
	As at 30 June 2014											3 967			4 562			-			3 532			10 758			(12 145)			10 674			-			10 674

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 whose review report is set out below.

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 2013, except for the impact of the items described below.

The preparation of the unaudited condensed consolidated financial statements 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 2014 are extracted from the Group's consolidated financial statements for the year ended 31 December 2013. 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, primarily as a result of 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 and the increase in raw milk prices. The Group applied for a waiver from the EBRD in connection with financial covenants contained in the loan agreement, which was granted by the EBRD. Group management believes that they will continue to receive the support of the EBRD for the foreseeable future. The directors have also put in place a number of additional cost efficiency measures including but not limited to the reconstruction of manufacturing facilities in Starokonstantinov, further optimization in the number of its subsidiaries and streamlining its business processes. Additionally, due to the position in the Ukraine, there is a risk that the Group may not be able to operate in Crimea following its occupation by Russia. As at the year end 31 December 2013 and subsequently as at the period ended 30 June 2014 of this report the Group continues to operate in Crimea, and monitor the situation.

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. During the period, the Group has breached its loan covenants with the EBRD, and has since obtained a loan waiver from the EBRD. It is our view that the EBRD will continue to support the Group through our capital projects, during a time of political unrest. Director's view, have therefore concluded that is  appropriate to prepare these financial statements on a going concern basis. The financial statements do not include adjustments that would be required if the Group was unable to continue as a going concern.

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 2014

30 June 2013

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

(2 007)

173

Weighted number of ordinary shares in issue

39 673 050

39 673 050

Basic earnings per share, pence

(5,06)

0,4

Diluted average number of shares

39 673 050

39 673 050

Diluted earnings per share, pence

(5,06)

0,4

3. Approval of interim financial statements

The unaudited condensed consolidated financial statements were approved by the board of directors on 19 September 2014.

 

END

 

 

IR BZLFLZKFXBBQ