3rd Jan 2014 07:54
LONDON (Alliance News) - Ukrainian diary food and beverage producer, Ukrproduct Group Ltd said Friday that profitability in its branded dairy products division continues to be hit by escalating raw milk prices.
The company said in a trading update for the year to December 31 2013, ahead of its full-year results in April 2014, that it continues to operate in a challenging economic environment, with the dairy sector marked by the significant increase in raw milk across both domestic and global markets and a shortage of raw milk supply in Ukraine.
Ukrproduct said raw milk prices have increased by 24% on last years' results, on average.
Its branded dairy products division has recorded a positive sales trend and revenues for the period; of which the firm said it expects an 11% increase year-on-year. In order to minimise the affect of increasing raw milk costs, the company said it has gradually increases its consumer prices in line with the market, however, these rises, "still lagged the rising input costs and were not sufficient to fully compensate them."
As a result, annual growth profit form the sector is expected to drop by 33% for the year.
The skimmed milk powder segment showed a strong recovery in profitability from the previous year benefitting from higher domestic and export demand and better prices, although higher input costs also hit this division; sales are subsequently expected to decline 13% year-on-year, and gross profit is expected to achieve 6%, compared to the negative profitability in the previous year.
Ukrproduct's Kvass brand had a good period, during which its geographical coverage was improved, providing a boost to both market share and strength of the brand, said the company. However, sales were affected by the short high season caused by poor weather in the summer. Consequently both the revenues and gross profit are expected to decline by 15% on average.
The company said its financial results will reflect the sensitivity of its diary business margins and a drop in the butter category; such factors mean Ukrproduct expects that earnings before interest, taxes, depreciation, and amortization will be, "significantly lower than last year." The firm also notes that net income will be impaired due to a sizeable increase in interest charges from a loan from the European Bank for Reconstruction and Development, leading to the negative net profitability for the year.
Ukrproduct made its first instalment of EUR600,000 in December 2013.
Looking ahead, the firm said that it plans to return to profitability in 2014 and said that positive sales trends in dairy will be developed further. The market position of Kvass will be strengthened by marketing programs.It Skimmed Milk Powder margins will be sustained but overall profitability will be subject to milk availability, said the company.
Ukrproduct said in the statement, "Margins are under the ongoing pressure from input costs especially milk and utilities. To this end the Company has further enhanced its costs optimization program. This embraces site consolidation, outsourcing of distribution, sales force efficiency and overhead elimination. Benefits will be evidenced from the beginning of 2014."
Shares in Ukrproduct last traded at 11 pence per share.
By Alice Attwood; [email protected]; @AliceAtAlliance
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