Half Yearly Report

RNS Number : 6264A

Ukrproduct Group Ltd

30 September 2015

 

FOR IMMEDIATE RELEASE                                                                             September 30, 2015

UKRPRODUCT ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2015

Kyiv, Ukraine - September 30, 2015 - 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 2015.

KEY FIGURES

(Figures in brackets are for the six months ended and as at 30 June 2014 when the exchange rate was 16.99 UAH/GBP compared to 32.41 UAH/GBP in this reporting period)

·        Total revenues decreased by 43% year on year to GBP 9.8 m (GBP 17.2 m), however in Ukrainian Hryvna the sales revenues increased by up 7.7%

·        Gross profit margin decreased to 11.5% (22.7%) resulting in gross profit decrease by 71.3% to GBP 1.1 m (GBP 3.9m) which in Ukrainian Hryvna translated into a 45.1% decrease

·        Revenues in dairy branded products segment decreased by 44% year on year to GBP 6.3 m (GBP 11.3 m) and the gross profit decreased by 72% year on year to GBP 0.6 m (GBP 2.1 m)

·        In kvass the revenues decreased by 37% year on year to GBP 0.5 m (GBP 0.7 m) and gross profit down by 38% year-on-year

·        Skimmed Milk Powder (SMP) revenues decreased by 48% to GBP 2.4 million (GBP 4.7 m) and gross profit decreased to GBP 0.2 m (GBP 1.3 m)

·        EBITDA decreased to GBP 66 k (GBP 1.8 m)

·        Operating loss amounted to GBP 221 k (profit of GBP 1.3 m)

·        The negative effect of currency exchange differences amounted to GBP 0.5 million (GBP 2.8 m)

·        Cash balance as at June 30, 2015 stood at GBP 50 k (GBP 0.4 million).

CEO's REPORT

During the first six months of FY2015 Ukrproduct has faced significant headwinds. The Ukrainian economy continued to decline mostly owing to the continuing unrest in the East of the country and the pressured state of Ukrainian economy overall. This is reflected in the devaluation of the hryvna, deterioration of consumer confidence and the shrinking domestic market. Furthermore the closure of the Russian market exerted further pressure causing an oversupply of dairy products on the Ukrainian market.

The Company sought to defy the increasing challenges of the business environment by revising the regional sales focus, enhancing its sales and operating efficiency as well as adjusting the sales mix in view of changing consumer preferences. This turnaround programme designed to focus on maintaining profit margins, improve working capital and reducing costs has been implemented in consultation with the European Bank of Reconstruction and Development.

In dairy domestic market demand shrunk across the Company's key product categories leading to fiercer competition. At the same time, raw milk prices showed a year-on-year increase of circa 12% prompted by the tighter competition for supply on the back of even higher price increases for imported dairy ingredients.

Branded dairy products showed a 8% increase in revenue in hryvna terms not least as the result of an increasing shift of sales focus from the occupied Eastern regions to other highly populated areas as well as the consumer price increases where achievable.

The comprehensive marketing campaign for the Company's "Our Dairyman" brand launched at the end of 2014 continued in 2015 and largely contributed to an improvement of Ukrproduct's packaged butter and processed cheese sales. Over the first half of 2015, packaged butter and processed cheese segments showed an increase in sales revenues of 3% and 14% respectively in hryvna terms. At the same time, the Company's market share in packaged butter has increased whilst the market share in processed cheese showed a slight decrease. This was due to the Company's decision to focus on only profitable products going forward and to eliminate some private label projects which were barely break-even.

Domestic sales of hard cheese were impacted by the ban on exports to Russia. Thus the Company strove to expand its geography of sales and successfully resumed sales to Crimea via a distributor. As a result sales of hard cheese showed good progress compared to the first half of 2014 in both volume and revenue terms increasing by 34% and 60% respectively.

At a gross profit level the contracting effective average wages made it very difficult to increase the consumer prices to fully offset the sharp rise in input costs namely energy and dairy ingredients, not least milk. As a result, gross profit of branded dairy products decreased by 48% in hryvna terms (72% in GBP terms) mostly owing to the packaged butter and processed cheese categories.

The sales of kvass showed a 24% increase in H1'2015 in sales denominated in Ukrainian Hryvna compared to the same period last year due to the successful sales promotion in the Southern Regions excluding Crimea and other large cities.

Skimmed Milk Powder (SMP) segment showed a considerable decline following the global dairy commodities prices contraction accentuated by the Russian embargo. Thus revenues and the gross profit in GBP Terms have decreased by 48% and 83% respectively. However in September the dairy commodities price trend reversed and the Company expects improvement in the SMP gross profit margins going forward.

Meanwhile the Company continued to improve the efficiency of its production capacities utilization via placement of the third party orders for skimmed milk. As a result the revenues and the gross profit of the third party services showed a healthy increase year on year.

Finances - Hryvna revenues overall grew by 9%. Exports accounted for approximately 27% of sales, with domestic sales being split principally between regional distributors, national retail chains and wholesale suppliers to other producers (such as Danone and Kraft).

Gross profit showed a very significant contraction of 45%. Therefore EBITDA while remaining positive fell similarly. This decline was further accentuated by negative exchange differences resulting in the expected overall loss of GBP 1.1 m.

There has been a focus to reduce overdue receivables in order to improve cash generation and reduce finance costs. New operating procedures and incentives have been introduced across the sales and marketing and finance function resulting in average cash collection period falling from 45 to 39 days. As at the date of this announcement, Ukrproduct continues its negotiations with the European Bank for Reconstruction and Development to restructure the loan repayment and expects the process to be completed in the second half of 2015. Meanwhile the Company's payments of interest on the loan are up-to-date.

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

Outlook - The Company is adapting to this most challenging business environment and is working to restore profitability according to a programme. Sales and marketing activities are orientated to the non-occupied regions with sales geared to cash and not just revenue. Productivity improving efficiencies and cost eliminations are being achieved and more are targeted. In this volatile trading environment, working capital is subject to most strict control with cash creation the focus of all these initiatives.

***

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

Ukrproduct Group Ltd
Jack Rowell, Non-Executive Chairman		Tel: [phone]
Sergey Evlanchik, Chief Executive Officer		www.ukrproduct.com
ZAI Corporate Finance Ltd.
Nominated Adviser and Broker Richard Morrison, Irina Lomova	Tel: [phone] www.zaicf.com

Conference call information

Ukrproduct management will host a conference call today at 9 am (London time) / 10 pm

(CET) / 11pm (Kiev Time) to present and discuss the unaudited financial results for the six

months ended 30 June 2015.

The dial-in numbers for the conference call are:

[phone]  - Standard International Access

0808 109 0700 - UK Toll Free

Password - UKR

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. 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 2015			Jan-June 2014			YOY Change			Jan-June 2015			Jan-June 2014			YOY Change
Revenue												9 766			17 237			-43%			315 554			290 443			9%
Gross Profit												1 124			3 913			-71%			36 502			65 934			-45%
EBITDA												66			1 840			-96%			2 273			31 004			-93%
Loss after tax												(1 081)			(2 007)			-46%			(47 619)			(33 818)			41%
												(GBP thousands)									(UAH thousands)
												Jan-June 2015			Jan-June 2014			YOY Change			Jan-June 2015			Jan-June 2014			YOY Change
Revenue
- Branded products												6 351			11 342			-44%			205 687			191 113			8%
- Skimmed milk products												2 440			4 717			-48%			79 075			79 481			-1%
- Kvass												466			737			-37%			15 359			12 418			24%
- Servises												71			164			-57%			2 299			2 763			-17%
- Other												438			277			58%			13 133			4 667			181%
Gross Profit
- Branded products												584			2 119			-72%			18 512			35 704			-48%
- Skimmed milk products												223			1 293			-83%			7 757			21 787			-64%
- Kvass												243			390			-38%			8 065			6 572			23%
- Servises												17			70			-76%			558			1 180			-53%
- Other												57			41			40%			1 611			691			133%

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED 30 JUNE 2015 AND 2014
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2015					30 June 2014
																				£ '000					£ '000
	Revenue																			9 766					17 237
	including of branded and SMP products																			8 791					16 059
	Cost of sales																			(8 642)					(13 324)
	Gross profit																			1 124					3 913
	Administrative expenses																			(562)					(1 163)
	Selling and distribution expenses																			(733)					(1 349)
	Other operating income/ expenses, net																			(50)					(110)
	(Loss) / Profit from operations																			(221)					1 291
	Finance expense, net																			(340)					(456)
	Effect of foreign currency translation																			(514)					(2 822)
	(Loss) before taxation																			(1 075)					(1 987)
	Income tax expense																			(6)					(20)
	Loss for the Six months																			(1 081)					(2 007)
	Attributable to:
	Equity holders of the Parent																			(1 081)					(2 007)
	Non-controlling interest																			-					-
																				(1 081)					(2 007)
	Earnings per share:
	Basic																			(2,72)					(5,06)
	Diluted																			(2,72)					(5,06)

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2015 AND 2014
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2015					30 June 2014
																				£ '000					£ '000
	Loss for the six months																			(1 081)					(2 007)
	Other comprehensive income
	Exchange differences on translation to the presentation currency																			(1 986)					(5 377)
	Other comprehensive income for the Six months, net of tax																			(1 986)					(5 377)
	Total comprehensive income for the Six months, net of tax																			(3 067)					(7 384)
	Attributable to:
	Equity holders of the Parent																			(3 067)					(7 384)
	Non-controlling interests																			-					-
																				(3 067)					(7 384)

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015 AND 31 DECEMBER 2014 AND 30 June 2014
(in thousand GBP, unless otherwise stated)
																				As at					As at					As at
																				30 June 2015					31 December 2014					30 June 2014
																				£ '000					£ '000					£ '000
	ASSETS
	Non-current assets
	Property, plant and equipment																			6 970					9 592					11 719
	Intangible assets																			725					829					1 082
	Long-term receivables																			286					-					-
	Deferred tax assets																			1					2					12
	Total non-current assets																			7 982					10 423					12 813
	Current assets
	Inventories																			2 381					2 085					1 725
	Trade and other receivables																			2 350					3 674					4 615
	Current taxes																			665					1 177					1 435
	Other financial assets																			91					108					122
	Cash and cash equivalents																			50					215					434
	Total current assets																			5 537					7 259					8 331
	TOTAL ASSETS																			13 519					17 682					21 144
	Equity and liabilities
	Equity attributable to equity holders
	Share capital																			3 967					3 967					3 967
	Other reserves																			(7 794)					(5 753)					(4 053)
	Retained earnings																			8 327					9 358					10 758
	Total equity attributable to equity holders of the parent																			4 500					7 572					10 672
	Non-controlling interest																			-					-					-
	Total equity																			4 500					7 572					10 672
	Liabilities
	Non-Current Liabilities
	Bank borrowings																			3 751					4 728					5 322
	Deferred tax liabilities																			213					302					363
	Total Non Current Liabilities																			3 964					5 030					5 685
	Current Liabilities
	Bank borrowings																			2 519					2 454					2 482
	Trade and other payables																			2 494					2 583					2 230
	Current income tax liabilities																			17					14					28
	Other taxes payable																			25					29					47
	Total Current Liabilities																			5 055					5 080					4 787
	TOTAL LIABILITIES AND EQUITY																			13 519					17 682					21 144

UKRPRODUCT GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED 30 JUNE 2015 AND 2014
(in thousand GBP, unless otherwise stated)
																				Six months ended					Six months ended
																				30 June 2015					30 June 2014
																				£ '000					£ '000
	Cash flows from operating activities
	Loss before taxation for the six months																			(1 075)					(1 987)
	Adjustments for:
	Exchange difference																			514					2 822
	Depreciation and amortisation																			288					549
	Loss of disposal of non-current assets																			4					9
	Impairment of trade receivables																			-					34
	Disposal of subsidiaries																			(4)					-
	Interest income																			(1)					(3)
	Interest expense																			341					459
	Decrease / (increase) of inventories																			(851)					298
	Decrease in trade and other receivables																			479					221
	Increasein trade and other payables																			571					146
	Cash generated from operations																			267					2 548
	Interest received																			1					3
	Income tax paid																			(21)					(48)
	Net cash generated by operating activities																			247					2 503
	Cash flows from investing activities
	Payments for property, plant and equipment																			(130)					(300)
	Proceeds from sale of property, plant and equipment																			17					12
	Payments from loans issued																			(13)					(8)
	Net cash used in investing activities																			(126)					(296)
	Cash flows from financing activities
	Interest paid																			(343)					(459)
	Net repayments from short term borrowing																			(20)					(1 928)
	Repayments of investment borrowing																			-					(64)
	Net cash used in financing activities																			(363)					(2 451)
	Net decrease in cash and cash equivalents																			(245)					(244)
	Effect of exchange rate changes on cash and cash equivalents																			77					(328)
	Cash and cash equivalents at the beginning of the six months																			215					1 006
	Cash and cash equivalents at the end of the six months																			50					434

UKRPRODUCT GROUP LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2015 AND 2014

(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 2014											3 967			4 562			-				3 636			12 672						(6768)			18 069					-		18 069
	Loss for the six months											-			-			-				-			(2 007)						-			(2 007)					-		(2 007)
	Other comprehensive income											-			-			-				-			-						(5 377)			(5 377)					-		(5 377)
	Total  comprehensive income											-			-			-				-			(2 007)						(5 377)			(7 384)					-		(7 384)
	Depreciation on revaluation of non current assets											-			-			-				(91)			91						-			-					-		-
	Reduction of revaluation reserve											-			-			-				(15)			2						-			(13)					-		(13)
	As at 30 June 2014											3 967			4 562			-				3 530			10 758						(12 145)			10 672					-		10 672
	Loss for the six months											-			-			-				-			(1 471)									(1 471)					-		(1 471)
	Other comprehensive income											-			-			-				-									(1 623)			(1 623)							(1 623)
	Total  comprehensive income											-			-			-				-			(1 471)						(1 623)			(3 094)					-		(3 094)
	Depreciation on revaluation of non current assets											-			-			-				(71)			71						-			-					-		-
	Reduction of revaluation reserve											-			-			-				(6)			-						-			(6)					-		(6)
	As at 31 December 2014											3 967			4 562							3 453			9 358						(13 768)			7 572					-		7 572
	Loss for the year											-			-			-				-			(1 081)						-			(1 081)					-		(1 081)
	Other comprehensive income											-			-			-				-			-						(1 986)			(1 986)					-		(1 986)
	Total  comprehensive income											-			-			-				-			(1 081)						(1 986)			(3 067)					-		(3 067)
	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						(15 754)			4 500					-		4 500

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 2014, 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 2015 are extracted from the Group's consolidated financial statements for the year ended 31 December 2014. 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 £1,081,000 for the six months ended 30 June 2015. 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. Moreover the Group did not make the principal amount payment of EUR 300 thousand due in September 2015 under the terms of its Loan Agreement with the EBRD dated March 31, 2011. The total overdue amount payable by the Group to the EBRD is EUR 900 thousand. Such breach of the provisions relating to the loan repayment gives the bank a formal right to demand early repayment of loans. The Board notified the EBRD in advance about all breaches of terms of the Loan Agreement and expected to obtain a waiver on the date of signing these condensed consolidated financial statements. However, the EBRD did not provide waiver in respect of breach of the repayment schedule in 2015. The representatives of EBRD provided a letter on 29 September  2015 to the Group's Board stating that: 1) EBRD is aware of the breach of the repayment schedule in 2015; 2) EBRD is currently considering a restructuring of the terms of the Loan Agreement, including extension of the maturity date under the Loan Agreement and; 3) as of the date of signing of the letter did not exercise any of its rights in accordance with the Agreement. The Board believes that the EBRD will not demand accelerated repayment of the loans due to the breach of the repayment schedule in 2015 and will continue to support the Group through their capital projects, during a time of political unrest. 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.

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 2015

30 June 2014

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

(1 081)

(2 007)

Weighted number of ordinary shares in issue

39 673 050

39 673 050

Basic earnings per share, pence

(2,72)

(5,06)

Diluted average number of shares

39 629 619

39 629 619

Diluted earnings per share, pence

(2,72)

(5,06)

3. Approval of interim financial statements

The unaudited condensed consolidated financial statements were approved by the board of directors on 29 September 2015.

 

END

 

 

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