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UKRPRODUCT ANNOUNCES UNAUDITED FINANCIAL RESULTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2008: Latest news

29 April 2009

Kyiv, Ukraine – 29 April, 2009 – Ukrproduct Group Limited (“Ukrproduct” or the “Group” or the “Company”) (AIM: UKR), a leading producer and distributor of branded dairy products in Ukraine, today announced its unaudited consolidated IFRS financial results for the twelve months ended December 31, 2008.

FULL YEAR HIGHLIGHTS
(Figures in brackets are for the twelve months ended or as at 31 December, 2007)

  • Consolidated revenue up by 8.7% year on year to GBP 52.3 million (GBP 48.1 million)
  • Revenue in branded products segment up by 51.8% year on year to GBP 38.2 million (GBP 25.2 million)
  • Gross profit increased by 3.4% year on year to GBP 10.8 million (GBP 10.5 million) with Gross margin of 20.7% (21.7%)
  • Gross profit for branded products increased by 45.9% year on year to GBP 9.1 million (GBP 6.3 million)
  • Global market conditions weakened for Skimmed Milk Powder segment
  • EBITDA declined by 13.4% year on year to GBP 4.8 million (GBP 5.5 million) with EBITDA margin of 9.1% (11.4%)
  • Profit after tax decreased by 30.2% year on year to GBP 2.3 million (GBP 3.3 million) with profit margin of 4.4% (6.8%)
  • Earnings per share declined 30.8% to 5.4 pence (7.8 pence)
  • Total dividend payment of 0.80 pence per ordinary share for the year ended 31 December 2008 (interim dividend of 0.40 pence), subject to shareholders’ approval
  • Total assets of GBP 22.5 million (GBP 23.7 million)

Sergey Evlanchik, Chief Executive Officer of Ukrproduct, commented: “Despite challenging market conditions during the period under review, Ukrproduct has delivered robust growth in branded products’ revenues and gross profits. In line with our stated strategy we continue to focus on branded products, including processed and hard cheese and packaged butter. We are well positioned to take advantage of changes in market demand by offering a range of products in relevant price categories and appropriate quality for the majority of consumer segments. Our skimmed milk powder (“SMP”) segment has reversed its highly positive trend in 2007 and has been impacted by price volatility in global dairy markets.

Looking forward, we seek to improve our market share in each product category and segment of operation. We believe that we have the right strategy for this market and expect it to see us through this challenging period successfully. We intend to continue promoting our brands and products through a series of targeted marketing campaigns and take further steps in developing and optimising our sales and distribution network. Furthermore, we plan to increase our export sales to new markets both geographically and through additional product offering. However, SMP prices are anticipated to remain weak until there are signs of recovery in the global economy and commodity markets.

We are optimistic that Ukrproduct will continue to benefit from its strong position in the domestic dairy market with a brand portfolio that targets a wide range of consumer segments. We believe that the Ukrainian dairy market offers growth potential despite the prevailing economic environment. Indeed, under current market conditions there may be consolidation opportunities that Ukrproduct will be able to take advantage of provided that they fit the Group’s strategy.

Ukrproduct’s financial position remains stable. The Group’s cash levels are sufficient to meet the current debt obligations in the short and medium term. In addition, the Group has access to additional banking facilities if required.”

FINANCIAL REVIEW

(GBP thousands) FY 2008 FY 2007 Year on Year
Change
Revenue 52,312 48,110 8.7%
Gross Profit 10,818 10,458 3.4%
EBITDA 4,781 5,521 (13.4%)
Profit after tax 2,277 3,262 (30.2%)
Basic earnings per share(pence) 5.4 7.8 (30.8%)

Ukrproduct’s consolidated revenues increased by 8.7% year on year or by GBP 4.2 million in 2008. The Group delivered strong growth in its branded products segment which comprises processed and hard cheese, butter and spreads. This segment generated 51.8% revenue growth year on year and accounted for 73.0% (53.4%) of total revenues. The Group’s market share of branded products also improved whilst prices kept pace with inflation. The volume growth was underpinned by a series of successful marketing and sales activities during the year targeting domestic national and regional retail chains, as well as the expansion of a direct sales network with two new depot branches in Donetsk and Dnepropetrovsk. Furthermore, Ukrproduct significantly increased production of hard cheese following its launch in December 2007. Ukrproduct’s sales of hard cheese more than tripled in the second half of 2008, compared to the first half. Skimmed milk powder revenues declined by 43.4% year on year and contributed 22.1% (42.4%) to total revenues.

In September 2008, the Group launched a nationwide marketing campaign for its leading brand ‘Our Dairyman’. The campaign was launched as part of the Group’s strategy to expand the distribution of its products to regional retail outlets and to increase shelf space in large national chains throughout Central, Eastern and Western Ukraine. As at the end of the reporting period, the number of national and regional retail chains and outlets selling Ukrproduct’s dairy products was 69 and 978, respectively. The Group’s products were sold in eight out of the top ten Ukrainian supermarket chains.

During September and October 2008, Ukrproduct conducted a retail audit to measure the presence of its branded products in stores across Ukraine. According to the audit’s findings, ‘Our Dairyman’ branded butter and cheese was found in 50% and 30%, respectively, of Ukrainian retail chains.

(GBP thousands) FY 2008 FY 2007 Year on Year
Change
Revenue      
- Branded 38,197 25,155 51.8%
- SMP 11,561 20,410 (43.4%)
- Other 2,554 2,545 0.4%
Gross Profit      
- Branded 9,138 6,263 45.9%
- SMP 1,274 3,804 (66.5%)
- Other 406 391 3.6%

The current product mix reflects the Group’s strategy to increase sales of higher value added branded products. Group gross profit increased 3.4% year on year with the gross profit margin declining to 20.7% compared to 21.7% in 2007 as a result of margin pressure in the skimmed milk powder segment. The gross profit in branded products increased by 45.9% year on year with a gross profit margin of 23.9% compared to 24.9% in the previous year. This was the result of additional costs associated with the roll-out of hard cheese. The Group’s gross profit margin was further impacted by a 35% increase in energy and raw material costs, as well as higher inflation in 2008.

Group EBITDA decreased 13.4% year on year to GBP 4.8 million in 2008 with an EBITDA margin of 9.1%, compared to 11.4% in the previous period, as a result of the decline in SMP prices.

Depreciation and amortisation expense increased by 28.6% year on year from GBP 1.4 million to GBP 1.8 million in 2008, following the launch of the hard cheese production unit and the installation of a smoking chamber.

Selling, Distribution and Administrative expenses increased by 22.2% year on year from GBP 5.69 million to GBP 6.95 million, primarily as a result of the rise in marketing and distribution expenses.

Profit after tax decreased by 30.2% year on year to GBP 2.3 million in 2008, compared to GBP 3.3 million in 2007. The Group’s basic earnings per share (EPS) declined 30.8% year on year from 7.8 pence to 5.4 pence in 2008. The diluted earnings per share declined 28.0% year on year from 7.5 pence to 5.4 pence in the same period.

An interim dividend of 0.40 pence per share was paid on 25 October 2008. In line with the Group’s dividend policy, the Board of Directors propose to pay a final dividend of 0.40 pence per ordinary share for the year ended 31 December 2008, resulting in a total dividend payment of 0.80 pence per ordinary share for the full year (2007: 1.4 pence). The final dividend is expected to be paid on 30 June 2009 to shareholders of record as at 5 June 2009, subject to the approval by shareholders at the AGM.

Net cash generated by the operating activities totalled GBP 2.6 million in 2008 (2007: GBP 3.6 million) after absorbing the increase in working capital given the rise in sales. 

Net cash used in investing activities totalled GBP 1.9 million in 2008 (2007: GBP 2.5 million), with GBP 1.4 million spent on capital expenditure (2007: GBP 2.7 million). During the year, Ukrproduct invested in the increase of hard cheese production capacity and the expansion of the milk collection zone. In the second half of 2008, the Group reduced its capital expenditure going forward to the level of essential maintenance expense.

Net cash used in financing activities amounted to GBP 0.66 million in 2008 (2007: GBP 0.08 million) following the redemption of GBP 0.81 million of local bonds.

The Group’s cash balances stood at GBP 0.69 million as at 31 December 2008, compared to GBP 1.1 million as at 31 December 2007. The Group’s net debt was GBP 2.99 million as at 31 December 2008, compared to GBP 3.13 million as at 31 December 2007.

Conference call information

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

The dial-in numbers for the conference call are:
UK/International: +44 20 8515 2301              
  

A replay will then be available for 7 days after the conference call. To access the replay, please dial:

UK/International: +44 207 154 2833
 
PIN number: 4060115#

 

 

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