Milkiland increases revenue by 15% y-o-y in 1Q11

Milkiland (WSE: MLK PW), the CIS’ 4th largest dairy processor, reported its 1Q11 financials on Friday: revenue grew by 15% y-o-y to EUR 63.7 mln, EBITDA increased by 7% y-o-y to EUR 9.6 mln (margin of 15.0% vs. 16.2%), and net income surged by 41% y-o-y to EUR 4.9 mln. The group remained the largest Ukrainian cheese exporter during the period, providing almost one-third of the country’s exports. The share of key cheese & butter segment in total revenue grew to 54%, from 48% a year ago, reflecting double digit growth in Russian cheese imports in 1Q11, a key market for Milkiland cheese. Yegor Samusenko: Despite the tough environment in 1Q11 (seasonally high raw milk prices, unfavorable change in VAT subsidies for the raw milk producers), the company’s EBITDA margin was above our annual forecast of 13.4% for 2011. Ukraine’s new tax code was enacted on January 1, changing the government’s support mechanisms to raw milk producers. Unlike the previous system where milk processors like Milkiland had the right to retain their share of VAT and repay it directly to its raw milk suppliers, the new system incorporates direct state subsidies to milk producers, while processors are obliged to pay full VAT to the state. However, as 1Q11 was the first quarter of the new tax code, the direct subsidy mechanism was not yet implemented and we do not expect it to be 100% functional until yearend, thus putting pressure on the cost side of milk processors.