Milkiland reports 13% sales growth, 15% EBITDA decline in 1H13

Milkiland (MLK PW), one of
Ukraine’s leading cheese producers, reported a 13% yoy increase in net revenue
to EUR 151.1 mln in 1H13. The company’s flagship cheese and butter segment
showed just 1% growth yoy to EUR 69.0 mln. The key contributors to the revenue
growth were the whole milk products (WMP) segment (+23% yoy to EUR 68.1 mln) and
ingredients (+29% yoy). EBITDA of the latter segment doubled yoy in 1H13 to EUR
2.1 mln, which Milkiland attributes primarily to an advance in skim milk powder
prices globally, or more than 50% yoy, according to the company. 
The increase in dairy
commodity prices and decline of raw milk supply in Ukraine affected negatively
Milkiland’s profitability, as raw milk producers raised their prices. Milkiland
faced a 14% yoy hike by the end of
June, while Astarta reported a 25% yoy increase in milk prices in 1H13. In
turn, EBITDA from the company’s cheese and butter segment declined 29% yoy.
While the company was able to keep flat EBITDA in its WMP segment in 1H13, that
was only because of spectacular growth in 1Q13: in the second quarter, WMP
EBITDA declined 26% yoy. 
Milkiland’s consolidated 1H13
EBITDA declined 15% yoy to EUR 13.7 mln. The company expects raw milk prices
will correct themselves in 2H13, which would enable compensating the yoy
decline in operating profit reported in 1H13. 
Milkiland’s net profit
declined only 12% yoy in 1H13 to EUR 5.5 mln, as the company increased its
financial income 1.5x, reported a 3x growth in foreign exchange gain and a 1.4x
decline in profit tax.
In its update on operations,
the company reported it obtained a permit to import its products from Polish
Ostrowia to Ukraine – starting the first shipments in August – and is now is
working to gain a green light in Russia. Meanwhile, the company confirmed that
its products were among those affected by strict customs clearance in Russia
earlier this month. Milkiland is reportedly working to increase its
self-sufficiency in raw milk by attracting more households to its cooperative
program and commission its newly constructed dairy farm in 2013.
Alexander Paraschiy: While
there is indeed a high chance that raw milk prices will start declining in
Ukraine and Russia (to follow the decline in grain prices), this time we are
not sure that Milkiland will be able to catch up to the 1H13 decline in EBITDA
by the end of the year. Notably, the Russian trade conflict – which spoiled the
company’s results a year ago – is likely to again affect the company’s results
in the current quarter. As Ukraine draws closer to signing the Ukraine-EU
Association Agreement in November, we see the potential for new trade
restrictions emerging for Ukrainian companies. Milkiland could become the first
to suffer.