27.08.2013

Results of the first half of 2013

Press Release

Kyiv, August 27, 2013 - Milkiland N.V. has published the Group’s consolidated results of the first half of 2013

Highlights of the 1^st half of 2013

Operational highlights

• A decline in cheese sales in the first quarter 2013 limited segment performance for the first six months of the year. Despite of that, in the second quarter 2013, the Group managed to restore cheese sales to Russia after this drop.
• In Ukraine, cheese sales grew double-digit both in volume and value terms.
• WMP segment demonstrated a double-digit, namely 23% rise in revenue on the back of an almost 40% increase in Ostankino volume sales and improved sales in Ukraine.
• Ostrowia sales of dry milk products mainly contributed to a 30% increase of revenues in the Ingredients segment.
• In H1 2013, the Group modernized Ostrowia in order to bring it in full compliance with Russian and Ukrainian veterinary requirements and resume full scale production. The investments to finish this modernization comprised ca. EUR 3.5 million.
• Ostrowia has already received dairy import permission to Ukraine (July 30, 2013) and expects to obtain the same permissions to Russia in H2 2013.
• Ostrowia started production of dry milk products and curd cheese (February 2013), and hard cheese (May 2013). As the result, Milkiland entered the EU market by selling curd cheese in Poland market and dry milk products in several European countries, including Germany and the Netherlands.
• The Group finished acquisition of production assets of JSC “Syrodel” located in Rylsk city of Kursk region of Russia. The plant is designed to produce cheese (up to 3.5 kt/ year), whole milk products and butter. Milkiland plans to use Syrodel to produce hard and specialty cheeses for Russian market and serve as supplier of butter, cream and other products for the Group’s Ostankino Dairy Combine based in Moscow.
• Milkiland continued its efforts aimed at the development of own milk supply base and support of milk cooperatives. In H1 2013, milk supply from cooperatives and own farms comprised, respectively, c. 23% and 4% of the total milk intake in Ukraine.
• The first 1,300 stalls section of new dairy milk farm (total capacity of 6,800 milking cows stalls) was constructed and put in trial operations.
  
  Financial highlights
   
• In the first half of 2013, the Group’s revenue grew c. 13% y-o-y to EUR 151.1 million, on the back of better volume sales in WMP segment, as well as a sharp rise in dry products sales.
• Gross profit decreased by 2% to EUR 34.0 million, with the gross margin of 23% against 26% in the first half of 2012.
• EBITDA decreased by 16% to EUR 13.7 million, while EBITDA margin declined from 12.1% in H1 2012 to 9.1%, mainly due to a pressure put by high cost of sales on the gross margin in the first half of 2013, as well as an increase in operating expenses.
• Net profit fell to EUR 5.5 million, mainly due to an increase in operating expense. Net margin constituted 3.7% vs. 4.7% in the first half of 2012.
• Net debt grew 56% and stood at EUR 96.8 million as of June 30, 2013. Total Debt Ratio constituted 0.49 vs. 0.46 in 2012.
  
  
  Strategy and Operations
  
  Comment by Sergey Trifonov, IRO of Milkiland N.V.:

“The key global challenge for milk processors in H1 2013 was significant increase in raw materials prices. In order to offset such pressure, Milkiland continued its efforts aimed at the development of own milk supply base and support of milk cooperatives. In order to tactically support the profitability of the business, Milkiland put efforts to increase selling prices and partially offset rising costs. By the end of June 2013, revision of price lists was not yet completed; the main effect of these measures is expected in H2 2013, since the main price rise was implemented in July and August. Also, the Group scheduled cost saving programs for H2 2013.

Strategically, in the second half of 2013, we will focus on further international scaling of the Group’s business by developing at the EU market and seeking new markets for the Group, strengthening Milkiland’s position in the key markets of Russia and Ukraine, and on improvement of the business efficiency.”  

Financial overview

Revenue

In the first half of 2013, the Group’s revenue grew c. 13% y-o-y to EUR 151.1 million, mainly on the back of better volume sales in WMP segment, as well as a sharp rise in dry products sales.

In the total revenue, cheese and butter sales accounted for 46%, whole milk products for 45% (51% and 41% respectively in the first half of 2012).

Cost of sales and Gross profit

Cost of sales reached EUR 118.1 million (EUR 99.5 million in H1 2012). The growth of the cost of sales was faster than the revenue increase mainly due to fast growth in raw milk prices that were not immediately followed by respective increase in selling prices.

The Group’s gross profit declined 2% to EUR 34.0 million, with the gross margin of 23% against 26% in the first half of 2012.

Profit from operations and EBITDA

EBITDA decreased by 16% to EUR 13.7 million, while EBITDA margin declined from 12.1% in H1 2012 to 9.1% due to the pressure put by high cost of sales on the gross margin in the first half of 2013, as well as an increase in operating expenses.

Profit before tax and Net profit

In the first half of 2013, financial expense grew 10% as a result of a loan portfolio increase, while financial income grew 49% due to a significant other financial income received by the Group. The Group also recognized a foreign exchange gain of EUR 1.8 million vs. EUR 0.6 million a year before.

As a result of the decrease in operating profit, profit before tax decreased 16% y-o-y to EUR 6.2 million. Due to a 43% decrease in the income tax expense, net profit fell less significantly to EUR 5.5 million. Low net profit for the first quarter of 2013 contributed to a fell in net margin for the first half of the year. Net margin constituted 3.7% vs. 4.7% in the first half of 2012.

Net debt

Net debt of the Group grew 56% and stood at EUR 96.8 million as of June 30, 2013. Total Debt Ratio constituted 0.49 vs. 0.46 in 2012.

About Milkiland Group

Milkiland is a TOP-5 diversified dairy producer operating in Russia, Ukraine and Poland, offering a wide range of dairy products such as fresh dairy, cheese and butter, to satisfy consumers in their everyday needs for healthy and tasty foods.

In Russia, the Group produces fresh dairy products at Moscow-based OJSC “Ostankino Milk Combine” and sells under Ostankinskaya brand. Also, Ukrainian made cheese under international Dobryana brand is sold in most of Russian regions.

In Ukraine, the Group operates 10 plants and offers wide range of fresh dairy, cheese and butter under Dobryana and Kolyada brands.

In Poland Milkiland controls Ostrowia cheese plant in the city of Ostrów Mazowiecka and sells its products locally under Ostrowia brand and for export, including to Ukraine, under international Milkiland brand.

Milkiland exports dairy products from Ukraine to over 30 countries.

Shares of Milkiland N.V. – the Dutch holding company of the Group has been listed on the Warsaw Stock Exchange since December 6, 2010.

For additional information please contact:

Sergey Trifonov
IR Officer, Milkiland N.V.
tel. + 380 67 327 9838 mob.
e-mail: