REG - Ukrproduct Group Ltd - Half Yearly Report <Origin Href="QuoteRef">UKR.L</Origin> - Part 1
RNS Number : 6264AUkrproduct Group Ltd30 September 2015FOR 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: +380 44 232 9602
Sergey Evlanchik, Chief Executive Officer
ZAI Corporate Finance Ltd.
Nominated Adviser and Broker
Richard Morrison, Irina Lomova
Tel: +44 20 7060 2220
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:
+44 (0) 20 3003 2666 - 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)
Lossfor 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
Lossfor 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
Lossbefore 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
2548
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 decreasein 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
-
-
-
-
(2007)
(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
(12145)
10 672
-
10 672
Lossfor 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
3453
9 358
(13 768)
7 572
-
7 572
Lossfor 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
-
3398
8 327
(15754)
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.
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR PGUQPBUPAGMB
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