9 September 2010
Ukrproduct Group (AIM: UKR LN) released its 1H10 financials yesterday, which revealed a 3.0% top line contraction y-o-y to USD 31.5 mln on the back of a 15% processed cheese price decline as compared to January 2010 on the back of the weak purchasing power of consumers and strong competition on the market. As a result of 60% y-o-y growth in raw milk prices to UAH 3.20/kg in January-June 2010, the group’s gross profit declined 17.1% y-o-y to USD 4.85 mln (gross margin: 15.4%, -2.6 pp y-o-y), while EBITDA was 29.5% down y-o-y to USD 1.75 mln (EBITDA margin: 5.6%, -2.1 pp y-o-y). Net profit decreased 32.3% y-o-y to USD 0.63 mln (net margin: 2.0%, -0.9 pp y-o-y). Ruslan Patlavskyy: We expect the company’s 2H10 financials to reflect a further decrease in profit margins given the weak forecast for consumer purchasing power in 2010 and approximately 20% higher raw milk prices anticipated in 2H10 vs. 1H10 to UAH 3.8/kg, spurred by an average 60% y-o-y grain price increase. As a result, we forecast Ukrproduct’s FY10 EBITDA to decline 30% y-o-y to USD 3.45 mln, which suggests a 2.7 pp y-o-y EBITDA margin contraction to 5.0%.