Highlights of the 1st half of 2012
Operational highlights
· The export ban imposed by Russian Federal Service on Customer’s Rights Protection and Human Well-Being Surveillance (Rospotrebnadzor) for seven Ukrainian cheese exporters, including Milkiland’s Mena cheese plant, partially limited the ability of Milkiland to sell cheese in Russia
· On the positive side, Rospotrbnadzor’s restrictions triggered a 31% drop in raw milk prices in Ukraine from the beginning of 2012, ending up on average 3-10% lower y-o-y
· Partial re-introduction of government subsidies to dairy farmers also had a positive effect on margins of the Group’s Ukrainian business due to lower effective cost of milk
· The Group’s in-house milk production more than doubled y-o-y to c. 8,400 tons, EUR 13 million were invested into construction of two modern farms housing up to 6,000 milking cows
· Milkiland’s efforts to develop a sustainable milk supply system through supporting of agricultural milk cooperatives resulted an increase in their share in raw milk intake in Ukraine to 22% (from nil in H1 2011)
· The Group continued optimization of its product mix and introducing new products in order to build a winning portfolio
· The acquisition of Ostrowia cheese making plant in Poland will allow Milkiland to address its traditional markets in Russia and Ukraine from this country, thus partly mitigating the risk of possible Russian import bans, as well as to establish a footprint in the EU dairy market
Financial highlights
· Revenue grew by 5% to EUR 134 million driven by better pricing and better WMP sales in Russia
· Gross profit grew by 8% on a backdrop of re-introduction of government subsidies to dairy industry in Ukraine and a decrease in average raw milk prices both in Russia and Ukraine
· EBITDA decreased by 13% to EUR 16.2 million, while EBITDA margin declined from 14.7% in H1 2011 to 12.1%, mainly due to the fact that Q1 2012 results were still based on the sales of the products made from “non-subsidy” milk purchased in Q4 2011. In Q2 2012, the Group started to enjoy re-introduction of subsidies, however, Rospotrebnadzor’s restrictions inhibited Milkiland’s financial performance to some extent; as a result, the Group posted Q2 EBITDA of EUR 9.6 million (+ 4% y-o-y)
· Net profit fell 6% to EUR 6.3 million, mainly due to an increase in income tax expense. Net margin constituted 4.7% vs. 5.2% in the first half of 2011
· Net debt increased by 50% and stood at EUR 53.6 million
Comment by Anatoliy Yurkevych, CEO of Milkiland N.V.:
“Despite still challenging situation, the first half of 2012 triggered the recovery of the dairy markets in Russia and Ukraine. Reviving supply and lower prices for raw milk in both countries give us a good opportunity to develop our business and restore margins. In order to support the growth, the Group’s management has made a major effort to develop the raw milk base in Ukraine by investing into the new state-of-the-art dairy farms and supporting milk cooperatives in regions where we operate.
The partial restriction of cheese exports to Russia impeded our growth in the first half of 2012. However, we successfully resolved this unexpected issue and plan to be back on track in our growth plan.”
Financial overview
Revenue
In the first half of 2012, the Group’s revenue grew c. 5% y-o-y to EUR 134.1 million, mainly on the back of better pricing and better WMP sales in Russia.In the total revenue, cheese and butter sales accounted for 51%, whole milk products for 41% (53% and 39% respectively in the first half of 2011).
Cost of sales and Gross profit
Cost of sales increased by c. 3% to EUR 99.5 million which is less than revenue growth due to a decrease in the average raw milk prices both in Russia and Ukraine.
The Group’s gross profit grew by 8% to EUR 34.7 million, and the gross margin improved from 25% to 26%.The gross margin for the second quarter of 2012 when the effect of re-introduced subsidies became fully evident constituted 30% vs. 22% in the first quarter of the current year (23% and 27% in Q2 and Q1 2011 respectively).
Profit from operations and EBITDA
EBITDA decreased by 13% to EUR 16.2 million, while EBITDA margin declined from 14.7% in H1 2011 to 12.1% due to the above reasons.
Profit before tax and Net profit
Profit before tax grew 5% to EUR 7.3 million due to an increase in financial income by 79% because of a significant rise in cash and cash equivalents and recognition of a foreign exchange gain of EUR 0.6 million in comparison with loss of EUR 0.5 million a year before.
Net profit fell 6% to EUR 6.3 million due to a 3-fold increase in the income tax expense. Net margin constituted 4.7% vs. 5.2% in the first half of 2011.
Net debt
Net debt of the Group increased by 50% and stood at EUR 53.6 million as of June 30, 2012. Total Debt Ratio constituted 0.47 vs. 0.51 in H1 2011.
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 acquired Ostrowia cheese plant in the city of Ostrów Mazowiecka.
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:
