Ukrproduct Regulatory News (UKR)

15 Sep 2005 07:01

Ukrproduct Group Ltd15 September 2005 15 September 2005 Ukrproduct Group Ltd Interim results for six months ended 30 June 2005 Ukrproduct Group is a leading Ukraine-based producer and distributor of brandeddairy foods. Combined* results (H12004 in brackets): • Net Sales up 57% to £17.3m (£11m) • Gross profit up 70% to £2.9m (£1.7m) • EBITDA up 56% to £1.6m (£1m) • Net profit up 78% to £1.16m (£0.65m) • Basic earnings per share**: 2.8p (2.1p) • Proposed first interim dividend of 0.36p per share Operating highlights • Continued growth in core processed cheese and packaged butter segments. • Strengthening of market leadership in core segments. • Further preparation to enter the hard cheese segment. • Redemption of bank debt to secure cheaper credit facilities. • Upgraded production facilities and improved the logistical and trading capabilities. • Successful IPO on AIM on 11 Feb 2005: • First Ukrainian trading group to be listed on London Stock Exchange • Offer oversubscribed, raising £6 million gross • Shares have consistently outperformed the placing price Sergey Evlanchik, CEO of Ukrproduct Group, commented: "In the first half of the year, I am pleased to report that we have madeprogress on all fronts with good growth in revenues, improved margins and,consequently, profits are ahead strongly. "We are well positioned to take advantage of the continuing economic growth ofUkraine. Dairy-based foods are directly benefiting from rising consumeraffluence and the shift of preferences towards packaged quality products. Inaddition, we are watching adjacent segments of the market closely, and inparticular hard (cheddar) cheese, in order to be able to react quickly toopportunities as they arise." For further information: Ukrproduct Group +38 044 502 8014Sergey Evlanchik, CEO, and Dmitry Dragun, CFO Financial Dynamics +44 20 7831 3113Ben Foster/ Charles Watenphul \* The combined figures refer to the aggregated results of the Enlarged Group, asdefined in the non-statutory financial statements for the period ended 31December 2004, for the six months ended 30 June 2005 and are fully comparablewith the financial results for the first half of 2004. The Directors believethat the combined method best illustrates like for like performance. Thecombined figures are also supplemented by the consolidated results which showthe results since Ukrproduct Group Ltd ("the Company") acquired the "OperatingGroup" on 11 February 2005 using purchase accounting. This consolidated methodwill form the basis for the statutory financial statements for the year ended 31December 2005 (Note 1). ** Earnings per share excluding non-recurring items: release of "negativegoodwill", income from exchange differences and other non-operating expenses CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT It gives us great pleasure to announce our first set of interim results sincebecoming a public company. This is Ukrproduct's first six month trading period -which includes the initial public offering (IPO) of Ukrproduct Group on 11February 2005. The flotation was a momentous step in the continuation of ourstrategy to become the leading branded dairy-based FMCG business in Ukraine. Trading Results Our results for the six month period show increases in both sales and operatingprofits (EBITDA) on a comparable, like for like basis, by 57% and 56%respectively. Net profits on the same basis grew more substantially by 78%,helped by lower interest charges. The growth in margins was also material. On the basis of the combined accounts for the six months to 30 June 2005 - whichwe believe provide the most appropriate comparison with the last year'scorresponding six month period - basic earnings per share increased by 33% from2.1p to 2.8p. The Board proposes to pay a 0.36 pence interim dividend to those shareholders onthe register on 23 September 2005. This dividend will be paid on 28 October2005. Operating Review The operating environment of the Group remained buoyant and dynamic. As in thelast year, the processed cheese and packaged butter segments in Ukraine onceagain experienced significant volume growth. Consumer demand remained strong inthe first half of the year and trading so far in the second half points to thecontinuation of this trend. Using the funds raised at flotation, the Group significantly strengthened itsdistribution network, conducted the forward storage in full volume (therebysecuring an uninterrupted supply of raw materials for production in wintermonths), and completed the new processed cheese workshop at Molochnik, whichresulted in capacity increasing to 2,000 tonnes of processed cheese per month. We are continuing to invest in the development of new products, with the firstinnovative products of this year, vacuum-packed processed cheeses are due toarrive on the shelves of the country's retail outlets shortly. We have broadenedthe product range to include several new taste varieties including paprika, craband bacon. Initial Public Offering On February 11, 2005 the Group successfully listed in section AIM of LondonStock Exchange. The number of the shares offered to the public was 11,214,953,which represented 27.2% of the enlarged issued share capital of the Company(41,214,953 shares). The Company's market capitalisation based on the placingprice of 53.5p per share was approximately £22 million when the dealingscommenced. The Company raised £6 million gross, with flotation expenses ofroughly £0.8m. On the date of the IPO, Ukrproduct Group Limited completed theacquisition of 100% of the share capital of CJSC Ukrproduct Group (Ukraine),Dairy Trading Corporation (BVI) and LinkStar Limited (Cyprus). Strategic update The Group intends to remain the leader in the two core segments of processedcheese and packaged butter, by increasing its presence domestically andfacilitating its corporate marketing and promotional activities in larger citiesthroughout the country. The Group is also active in developing its logisticalarm (Ukrproduct Logistics - a subsidiary of the Group's main operating companyin Ukraine), in order to serve its parent company and also to provide theservices to third parties. In addition, the Group plans to enter the lucrativehard (cheddar) cheese segment in 2006-2007. Outlook The Board believes that the Group remains well positioned to take advantage ofthe continuing economic growth of Ukraine. Dairy-based foods are directlybenefiting from rising consumer affluence and the shift of preferences towardspackaged quality products. We are watching adjacent segments of the marketclosely and in particular hard (cheddar) cheese in order to be able to reactquickly to opportunities as they arise. Jack Rowell Sergey EvlanchikChairman CEO Combined financial results for the Group: • Net Sales up 57% to £17.3m (£11m) • Cost of sales up 55% to £14.4m (£9.3m) • Gross profit up 69% to £2.9m (£1.7m) • Gross margin increased to 16.7% (15.5%) • Administrative expenses increased by 140% to £0.85m (£0.35). This increase was mainly due to the new expense category related to the post-IPO public nature of the Company, as well as increase in the wages category, due to employee number and average pay increase. • Selling expenses up 70% to £0.7m (£0.4m). The main factor influencing this increase was staff salaries. • EBITDA up 56% to £1.6m (£1m) • EBIT up 58% to £1.36m (£0.86m) • Profit before tax up 73% to £1.3m (£0.75m) • Profit after tax up 78% to £1.16m (£0.65m) • Earnings per share up 33% to 2.8p (2.1p) Combined segmental analysis: Sales Share in Share in Gross Profit Gross Gross H1 2005 Sales Sales H1 2005 Margin Margin £ 000 H1 2005 H1 2004 £ 000 H1 2005 H1 2004 Cheese 7,309 42% 40% 1,617 22.1% 20.4%Butter 5,081 29% 37% 759 14.9% 10.9%Milk Powder 3,611 21% 16% 490 13.6% 19.5%Services 201 1% - 9 4.4% 4.6%Other 1,107 7% 7% 14 1.3% 2.7%Total 17,309 100% 100% 2,889 BALANCE SHEET £ '000 30/06/2005 30/06/2005 31/12/2004 Consolidated Combined Combined __________ __________ __________ Unaudited Unaudited AuditedNon-Current AssetsProperty, Plant and equipment 6,945 6,945 5,023Intangible assets 9 9 3Investments 92 92 83Deferred tax 41 41 36Total non-current assets 7,087 7,087 5,145 Current assetsCash and cash at bank 1,264 1,264 300Inventories 4,370 4,370 2,328Loans issued 727 727 212Receivables and prepayments 3,481 3,481 2,029Total Current assets 9,843 9,843 4,869Total assets 16,929 16,929 10,014 Current LiabilitiesBank loans and overdrafts 859 859 1,077Trade and other payable 2,787 2,787 1,671Current income tax liabilities 135 135 253Total Current Liabilities 3,781 3,781 3,002 Non-Current LiabilitiesLong-term credits 44 44 221Bonds 119 119 933Promissory note 5 5 5Deferred tax 758 758 703Total Non-Current Liabilities 926 926 1,862 Minority interest 164 164 132 Capital and reservesShare capital 4,121 4,121 3,000Merger reserve -1,750 -1,866Additional capital 4,109 6,287 2,020Accumulated profit and other reserves 3,828 3,400 1,865Total shareholders' equity 12,058 12,058 5,018 Total liabilities and shareholders' equity 16,929 16,929 10,014 INCOME STATEMENT £ '000 30/06/2005 30/06/2005 30/06/2004 31/12/2004 Consolidated Combined Combined Combined __________ __________ __________ __________ Unaudited Unaudited Audited Audited Sales 15,389 17,309 11,026 27,115 Cost of Sales -12,906 -14,421 -9,319 -22,698 Gross profit 2,483 2,889 1,706 4,418 16.1% 16.7% 15.5% 16.3%Administrative expenses -780 -850 -354 -1,045Selling and distribution expenses -597 -706 -415 -1,070 1,106 1,333 937 2,303 Release of "negative goodwill" (Note 2) 2,368Income from exchange differences 367 105Other non-operating expenses -65 -79 -72 -233 Profit before interest and taxation 3,776 1,359 865 2,070 24.5% 7.8% 7.8% 7.6%Interest expense -78 -95 -112 -305 -0.5% -0.6% -1.0% -1.1%Interest income 41 41 2 -7 Profit before taxation 3,739 1,305 755 1,757 24.3% 7.5% 6.8% 6.5%Taxation -149 -147 -110 -301 Profit after taxation 3,591 1,158 645 1,456 23.3% 6.7% 5.8% 5.4%Minority interest -6 -13 -7 -19 Profit attributable to ordinary shareholders 3,585 1,144 638 1,437 22.3% 6.6% 5.8% 5.3% Earnings per share:- basic 2.2p 2.8p 2.1p 4.8p- diluted 2.1p 2.7p 2.1p 4.8p CASH FLOW STATEMENT £ '000 1/01/2005 1/01/2005 1/01/2004 to 30/06/05 to 30/06/05 to 31/12/04 Consolidated Combined Combined __________ __________ __________ Unaudited Unaudited Audited Cash flows from operating activitiesNet profit before taxation 3,739 1,305 1,757Adjustments for:Release of negative goodwill -2,368 0 0Exchange difference -367 -105Depreciation 260 308 516Interest expense 78 95 305Interest income -41 -41 7 1,302 1,562 2,586"-" Increase in trade and other receivables -1,071 -588 -71"-" Increase in inventories -1,704 -1,666 -872"+" Increase in trade and other payables 1,176 868 -349Cash (used by)/generated from operations -297 177 1,293 Interest paid -78 -95 -305Interest received 41 41Income tax paid/(refunded) -159 -179 -67 Net cash (used in)/generated by operating activities -493 -57 922 Cash flows from investing activitiesPurchase of property, plant and equipment -2,123 -2,234 -1,566Purchase of investments 207 0 1Proceeds from sale of property, plant and equipment 0 0 3Proceeds from sale of investments 0 0 -7Loans repaid (issued) -297 -461 -207 Net cash used in investing activities -2,213 -2,696 -1,776 Cash flows from financing activitiesProceeds from issue of bonds and other non current -833 -1,054 912loansProceeds from issue of shares 1,121 1,109 0Proceeds from issue of additional capital 4,111 4,112 0Distribution of profit 0 0 0Net proceeds from issue of promissory notes 0 0 -20Net proceeds from short term borrowing -307 -321 147 Net cash generated by/(used in) financing activities 4,093 3,846 1,039 Effect of exchange rate changes and restatements on -122 -129 -17cash and cash equivalents Net increase/(decrease) in cash and cash equivalents 1,264 965 168 Cash and cash equivalents at the beginning of the 300 132year 0 Cash and cash equivalents at the end of the year 1,264 1,264 300 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Consolidated) £ '000 Share Additional Retained Share- Minority Total capital capital and earnings holders interest equity revaluation equity reserveBalance at 1 January 2005Issue of shares 4,121 4,398 8,519 144 8,663Fund-raising expenses -286 -286 -286Exclusion from GroupIssued on acquisition ofOperating GroupNet profit for the period 3,585 3,585 6 3,591Exchange differences on -3 243 240 14 254translation to thepresentation currency ======= ======= ======= ===== ======= =====Balance at 30 June 2005 4,121 4,109 3,828 12,058 164 12,222 ======= ======= ======= ===== ======= ===== NOTES 1. Accounting Policy Statement and Basis of Preparation The accounting policies used in preparation of the above statements are thoseexpected to be adopted by the Company in preparing its annual financial resultsfor the year ended 31 December 2005. The main difference in the basis ofpreparation of these results as compared to those produced previously is themethod used to consolidate the results of the Group companies. The Groupprepared its financial statements for the year ended 31 December 2004 using onthe pooling of interests ("merger") method, to reflect the activities of thewhole Operating group for the full year. In practice such method is used toillustrate the "combined" results of a group of companies operating under commoncontrol and management, but formally not being linked by a common parentcompany. However, since all the companies within the Operating Group became subsidiariesof Ukrproduct Group Ltd (the Company) on the date of its floatation on AIM, theCompany will use the purchase method to consolidate its financial resultsstarting from the date of the IPO. Since the Group was formally established onFebruary 11 2005, the first half consolidated results for 2005 should beprepared from that day forth, thus resulting in exclusion of trading results forthe period 01.01.05 - 11.02.05. Due to operational and presentational reasons,the consolidated results have been prepared for the 5 months ended June 30,2005. However, in order to provide a more accurate and comparable information tothe shareholders, in addition to the consolidated 5 month results, themanagement has decided to also prepare the combined accounts for 6 months endedJune 30, 2005, which are comparable to the same period in the previous year.These combined results are referred to as "combined" results within this interimfinancial review. 2. Goodwill The consolidation of a group of companies using the purchase method gives riseto goodwill, which is measured as the excess of the consideration paid over thenet fair value of assets acquired by the acquirer ("goodwill"). In the case ofUkrproduct Group Ltd, such excess was negative, meaning that the Companypurchased the assets of its subsidiaries at a price lower than the net fairvalue of those assets, thus giving rise to "negative goodwill". The "negativegoodwill" is a non-recurring item which has been released through the IncomeStatement. As can be noticed, the "negative goodwill" number which was treatedas income in the Income Statement (2,368) is different from the number of the "negative goodwill" as calculated in Note 4 (2,792) for the purposes of theBalance Sheet. The difference is due to different treatment of the exchange rateof Ukrainian and British currencies, when calculating the Income Statement andthe Balance Sheet. The Income Statement is calculated using the average exchangerate for the period, while the Balance Sheet is calculated using the exchangerate as at the end of the period. 3. Earnings per share Basic earnings per share have been calculated by dividing the net profitattributable to ordinary shareholders excluding non-recurring items (release of"negative goodwill", income from exchange differences and other non-operatingexpenses) by the weighted average number of shares in issue during the period. Consolidated Combined Combined Combined Five months Six months Six months Twelve ended 30 ended 30 ended 30 months ended June 2005 June 2005 June 2004 31 December 2004 Net Profit attributable to ordinaryshareholders, £ 914,656 1,157,638 637,677 1,436,020 Weighted average number ofordinary shares 41,214,953 41,214,953 30,000,000 30,000,000 Basic earnings per share 2.2p 2.8p 2.1p 4.8p Number of ordinary shares grantedunder warrants and optionagreements 2,214,924 2,214,924 0 0 Fully diluted average number ofordinary shares 43,429,877 43,429,877 30,000,000 30,000,000 Fully diluted earnings per share 2.1p 2.7p 2.1p 4.8p 4. Acquisition of CJSC Ukrproduct Group, Linkstar Limited and Dairy TradingCorporation Limited With effect from 11 February 2005 the Company acquired a Group of Companies(previously referred to as the Operating Group) with business operationsprimarily in Ukraine. The assets acquired are summarised in the following table: £' 000 Net assets 5,792 Fair value of assets acquired 5,792 Consideration 3,000 Goodwill 2,792 5. Dividend: On 29 June 2005, the Board recommended the first interim dividendof 0.36 pence per share to be paid to the shareholders on record as at 23September 2005. The payment date is 28 October 2005. This information is provided by RNS The company news service from the London Stock Exchange