Ukrproduct Regulatory News (UKR)

21 Jun 2007 08:27

Ukrproduct Group Ltd21 June 2007 21 June 2007 Ukrproduct Group Ltd ('Ukrproduct' or 'the Group') AGM STATEMENT AND TRADING UPDATE Speaking at Ukrproduct's Annual General Meeting today, Iryna Yevets, ChiefExecutive Officer of Ukrproduct made the following comments: "During 2006, the Group was challenged by a combination of trading difficulties,including the Russian import ban on Ukrainian dairy products and weak prices forskimmed milk powder on world markets. Notwithstanding these, Ukrproduct finishedthe year with a good operating profit and a strong balance sheet. In anextremely challenging environment, we strengthened the group's asset base,retained our market-leading positions and preserved our core distributioncapability. Since the start of the current year I am pleased to report that the difficultiesof the past year have alleviated. Trading overall has been fully in line withexpectations in all three product segments. In processed cheese , low-quality, low-price domestic competitors active in theaftermath of the Russian export embargo found themselves under increasingpressure by a mixture of internal and external factors such as their inabilityto secure trading terms with supermarkets, quality problems, inadequacy of theirexisting distribution networks, financial insufficiencies and the return ofconsumers to quality products. Under these conditions, the Group has preservedits market position by careful differentiation of its brands through selectedretail and wholesale partners. Stable quality and predictability of supply fromthe Group has proved a major factor of attraction for the emerging retailchains. As a result, sales volumes of the Group's processed cheese productsstabilised and, in the opinion of the management, will remain steady for theremainder of the summer. Later in the year, volumes should pick up due to thetraditional autumn increase in consumption. Margins have remained satisfactoryand supporting merchandising and store promotion campaigns for selectedvarieties of processed cheese are being carried out by the Group. Packaged butter has enjoyed a continuing good run since the beginning of theyear. Regarded as a commodity elsewhere, butter plays an important role in thecontext of the Ukrainian dairy sector and the Group's product portfolio. Whilebutter is produced on a substantial scale in Ukraine by some 200 manufacturers,the quality, packaging and branding, by and large, continue to remaininadequate. Over the last several years, Ukrproduct has invested in quality,branding and new packaging of its butters. These efforts have borne fruit byproviding the Group with stable sales volumes and good margins. Owing mainly tothe increase in volumes of production of skimmed milk powder (SMP) in thecurrent year, the Group has had an extra supply of its own butter for packagingand has thus captured the incremental margins that hitherto went to third-partybutter producers. With volumes of butter increasing, the Group has the potentialfor further improvement in margins, although the management expect such progressto be very gradual due to the significant increase in margins already achievedin 2006. Skimmed milk powder ("SMP") has remained buoyant since the beginning of thecurrent year. The timing of the installation of the new SMP dryer facility inDecember 2006 proved prescient; in January 2007, world SMP prices startedincreasing by some 15% per month. This price run continued unabated until Junewhen supply-demand parity was somewhat restored at a price level favourable tothe Group. The new SMP dryer is the newest such facility in Ukraine with thecapacity to produce milk powder of premium quality. Consequently, the Group'sown skimmed milk has a distinction in quality grade and thus commands a materialprice premium vis-a-vis other SMP producers in Ukraine. The ongoing programmefor improvement of milk quality, the progress of which was recently reported tothe market, has also been a significant factor in securing the uninterruptedsupply of quality milk to the Group's processing plants. Going forward in thecurrent year, management expects continued strong demand for skimmed milkpowder. While the recent price increases are likely to take some time for endconsumers to absorb, the strong world demand remains conducive to the successfulfinancial performance of the Group's SMP operation. Final preparations for the production of the Group's new product, hard cheese,are continuing to plan. The hard-cheese facility is currently undergoing fulloperational testing, and equipment is being examined by the supplier's qualitycheck team. Production of trial batches of hard cheese product is currentlyunder way and personnel are receiving the appropriate training. Increasing milkloads for the new facility and initiation of the maturation process for trialbatches are expected to result in the gradual accumulation of mass-supply stocksof hard cheese within the next several months. The packaging design has beenagreed, and the suppliers of the label materials, a crucial element of theGroup's branding strategy, have been notified of the quantities required.Marketing, merchandising and store promotion are planned in time for the releaseof the initial stocks of hard cheese into certain retail channels. " For further information, contact: Ukrproduct Group +380 44 502 8014Iryna Yevets, CEODmitry Dragun, CFO WH Ireland 0161 832 2174David Youngman This information is provided by RNS The company news service from the London Stock Exchange