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Milkiland is the leading producer and distributor of dairy products in Ukraine with the following shares in the respective dairy market segments: skimmed milk powder – 12,6%, hard cheese – 12%, butter –8,5%, milk – 8 %.
Key investment highlights:
• Leadership position on the Ukrainian dairy market
We have processed the largest volume of raw milk and ranked first in skimmed milk powder, butter, hard cheese and processed milk segments.
• Leading industry consolidator
During 2002-2007 the company acquired more then 20 dairy plants. We plan more acquisitions in the future.
• The largest raw milk base in Ukraine dispersed throughout 17 high-milk-yield regions
• High share (40%) of quality raw milk from industrial farms, which allows manufacturing of high quality products comparing to the average rate of 20%.
Only 18-20% of raw milk in Ukraine is produced by specialized agricultural farms, while the rest is supplied by the individuals. The quality of milk produced by specialized farms is significantly higher than that produced by the individual farmers.
• Vest plants and raw milk collection facilities network
Milkiland’s production and raw milk collection facilities are located in the most fertile Ukrainian regions which allows for: raw milk accessibility, plant-loading optimization, market coverage. Vest plants and raw milk collection network ensures economies of scale when it comes to raw milk transportation and finished goods delivery alike. Centralized planning of transportation needs allows optimizing the expenses with distribution and supplies provision.
• Attractive market
Ukraine is positioned among the world’s largest dairy producers, accounting for some 6,5% of European production volumes and 3,1% of global dairy production.
Ukraine plays a sufficiently important role in the global cheese market with 5% of global net exports in 2006.
Market growth
Ukrainian dairy market witnessed substantial growth in the last five years with cheese and whole-milk products being the main growth drivers with an average growth rate of 16% and 11% respectively. Cheese is ranked #2 on the dairy market, accounting for 16% of production in monetary terms followed by whole-milk products with some 31%.
Consumption growth potential
The market is unsaturated. Cheese consumption in Ukraine during 2006 increased by 15,3%. In spite of several years growth, the Ukrainian cheese consumption per capita 3,7 kg is notably low compared to 7 kg in EU new member states and 19 kg in EU-15 countries.
Business Strategy
We aim to hold our positions as a leading raw milk processor in Ukraine and constantly increase value of our business. To achieve these goals we will employ the following tactics:
1. Control the largest raw milk collection base.
We strongly believe that steady access to raw milk supplies is a key success factor for a milk processing enterprise. Ukrainian milk industry constantly suffers from raw milk shortages, which prevent many companies from expansion of their production volumes. For the last several years Milkiland has been pursuing rapid expansion of its raw milk base throughout Ukraine by acquiring milk processing plants with established raw base supplies base. Milkiland intends to hold its leading positions in terms of raw milk processing and to increase its share of total national raw milk processing up to 25%. We are committed to constantly increase the quality of raw milk, because milk’s appropriate condition is a pre-requisite to production of high quality finished product. For this purposes we established loyalty program to give incentive for the most efficient farmers to supply high-quality raw milk to us on exclusivity bases. We support our partners by advancing the raw milk supplies and that allows them to modernize milking equipment. Additionally we organize trainings for our partner farmers by recognized foreign specialists in milk industry. We intend to further develop these loyalty programs and add new incentives for farmers to work with us and increase the quality of their product. We see another possibility to expand supplies of high-quality raw milk in establishing join-ventures with the most competent farmers. This will allow Milkiland to receive safe and ensured supplies of raw milk.
2. Grow both through acquisitions and organically.
Milkiland with its proven track record of acquisitions plans to remain one of the most active industry consolidator. We will pursue selected acquisitions opportunities, which will fit Milkiland’s expansion pattern in terms of sufficient raw milk suppliers, capacities to produce Milkiland’s key products overall appropriate financial condition. At the same time we intend to derive all possible benefits from organic growth and will continue to invest into modernization of our existing assets and increase its efficiency. As the long-term goal we plan to consider possibility of acquiring or building processing plants in Russia and EU-countries to move closer to the customer and save on transportation costs.
3. Substantially increase presence on domestic market.
While currently about 43% of our total sales come from exports, we see great potential in Ukrainian domestic market. Given recent strong growth in personal disposable income of Ukrainian citizens, traditional Ukrainians’ diet based substantially on dairy products and long-term trends of migration from villages to the cities, we consider domestic market as a very promising and attractive and give it the top priority for further expansion. Though less diversified, Milkiland’s sales will become less dependent on the restrictions of foreign authorities and we will always be able to rely on established consumers’ preferences in terms of assortment.
4. Focus on our key products.
Milkiland will concentrate on production and marketing of cheese and whole-milk products. We posses substantial expertise in production of these products and are able to successfully compete in respective segments. We will gradually increase the share of whole-milk products in our products portfolio from current 10 % to at least 30% in mid-term at the expanse of other products’ share except cheese, which is our core product and will keep its share in the portfolio. Milkiland aims to be the market pioneer in capturing niche markets for differentiated and gourmet products, such as blue cheeses, high-quality delicacy cheese curd and non-traditional types of cheeses popular in other countries throughout the world. This approach will help to improve margins and seize additional market share.
5. Improve operational efficiency
To remain competitive and succeed in market consolidation we plan to stay in the top segment of dairy producers in terms of operational efficiency. We will achieve this by implementing the following mechanisms:
• Modernization of obsolete equipment. We will continue to replace all production equipment, which creates any bottlenecks in the manufacturing process or is cost-inefficient.
• Intensify direct distribution to retailers. By moving closer to the actual point of sales of our products we will be able to earn additional distribution margin and have better control over goods storage and transportation, which will help to ensure highest quality for our customers. We plan to reach direct-sale agreements such as we have with Metro Cash&Carry and Silpo retail networks with other major Ukrainian retailers.
• Optimization of logistics costs. Our extensive geographical coverage and multiple production sites allow us to develop our distribution center, which will allow us to save on distribution costs and better meet customer needs.
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