Ukrproduct Group, a producer and distributor of branded dairy products in the Ukraine, has warned that its half year results were affected by a ban on hard cheese exports to Russia.
However, progress in other divisions and a very high fuel inflation has ensured the company is confident of a gross profit for the six month period.
The ban caused an oversupply on the domestic market of hard cheese and consequently of butter and skimmed milk powder as several producers chose to switch to the output of these products.
More positively, the restrictions on export to Russia together with the re-introduction of the milk subsidy regime prompted higher milk volumes availability in the Ukraine and resulted first in stabilisation and later in a gradual decrease in raw milk prices. This has meant that, despite a decrease in sales revenues compared to the same period in 2011, there has actually been an increase in gross profitability.
The firm was keen to emphasise the performance of its recently acquired kvass business, which ferments the traditional beverage, which has resulted in a 'significant increase' in kvass sales as the firm expanded the location of sales and strengthened its presence in the existing regions, resulting in increased profitability.
The company's hard cheese sector has repositioned its product offering and its market position is growing though from the small base, while the processed cheese business's share also expanded, widening the gap to its closest competitor. Sales increased both in revenue and tonnage terms, allowing the gross profit to show a significant year-on-year increase.
The skimmed-milk-power sector remained suppressed, with profits pushed lower by increased energy costs, weak demand and a decrease in prices both due to global market conditions.
In a statement the firm said: "The outlook is to a similar economic environment perhaps accentuated by inflationary currency devaluation and government spending pre the autumn elections. The trading and volume trends will again be pursued in dairy and kvass. Margins pressured as seasonal milk prices increase and inflation pressures especially in fuel. Thus the cost optimization program ... is critical to Ukrproduct success.
"Within these dynamics Ukrproduct looks to deliver the improved performance evidenced in the first half on the year."
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