Press-release

Milkiland N.V. has published its consolidated annual report for the year 2015. The Group’s strategy to develop sales on its key operational markets in expense of export orientation was fulfilled in order to address the markets challenges.

Key highlights of 2015

Financials

• Financial performance: Revenue declined c. 34% to EUR 191.5 million. Despite optimization in operating costs, lower gross profit resulted in the Group’s operating loss of EUR 26.9 million and in a 42% decrease in the consolidated EBITDA to EUR 9.9 million. EBITDA margin was depressed from 5.9% to 5.1% in 2015. As a result of the considerable foreign exchange loss, the Group recognized a loss before tax of EUR 73.1 million. Net loss for 2015 accounted for EUR 73.3 million.
• Financial position: Total assets decreased by 22% to EUR 186.6 million as of December 31, 2015. Total Debt Ratio constituted 0.81 vs. 0.61 in 2014; Net Debt stood at EUR 106.6 million as of December 31, 2015. Net Debt/EBITDA ratio increased from 5.35 to 10.82 due to increased indebtedness and lower euro-denominated EBITDA.

Operations

• Raw milk prices: Continued stagnation of milk farming in Milkiland’s core markets, as well as growing demand for locally-produced dairy in Russia and rising input prices in Ukraine resulted in raw milk prices up 5% in Russia and 9% in Ukraine in local currencies equivalent. In euro equivalent, farm-gate prices dropped due to Ukrainian hryvnia and Russian rouble devaluation. Russian dairy import limitations also created additional pressure in the EU market where the raw milk price continued its drop since late 2014, as additional volumes of milk became available for processing. In Poland, the average effective raw milk price was 14% lower y-o-y in 2015.

•   Milk sourcing system: Milkiland continued its downward integration aimed to secure raw milk supplies in Ukraine, including supporting milk cooperatives and developing in-house milk production. The share of cooperatives’ milk in the total volume of raw milk collected by the Group in Ukraine was stable and stood at c.27% in 2015 (vs. 28% in 2014). Milkiland Agro focused on efficiency improvements resulting in a 9% rise in per cow yield. As a result, the share of in-house milk intake in Ukraine grew to 9%, up 4pp y-o-y.

The events of 2014, when the escalating conflict in the Eastern Ukraine led to multiple restrictions and limitations in multilateral trade between Russia, Ukraine and EU, significantly cut the export business of the Group. All of these restrictions remained in place in 2015, when export supplies of Milkiland’s Ukrainian and Polish subsidiaries to Russian market were diminished.

In the last year the unfavourable influence of this factor was aggravated by deterioration of the macroeconomic situation in Ukraine and continued stagnation of the Russian economy. As the result, the Group’s operational and financial results in 2015 were under the significant pressure.

Being pushed to change its business pillar from export orientation towards growing competence in the local markets of the Group’s operations, in 2015 Milkiland focused at the expansion, primarily in the markets of Russia and Ukraine, as well as on participation in international trade of dairy goods through its Milkiland Intermarket subsidiary.

Last year, Moscow-based Ostankino Dairy Combine, the main subsidiary of the Group in Russia, delivered a moderate growth of sales (in RUB terms) fuelled by increased sales of high value-added fresh dairy together with better pricing for dairy milk products in Russia. This facility held the position of main revenue contributor of Milkiland in 2015 by generating over 50% of the Group’s sales in value terms and also delivered the highest profitability within the Group’s subsidiaries. An acceleration of Milkiland’s efforts aimed at the localization of cheese production in Russia led to growth of the production volume of this product by Rylsk Syrodel division of LLC “Kursk milk” by more than one third on y-o-y basis to c. 5.0 thousand tons.

In Ukraine the Group made additional efforts aimed at the expansion in the domestic dairy market. In particular, Milkiland’s share in the cheese segment grew by 0.3pp. to 8.3% in 2015. The Group held a position of TOP-5 player in this segment.

In its geographic diversification efforts, the Group in 2015 continued a development of its Polish division, which controls Ostrowia cheese plant. Milkiland here focused at the development of local distribution network by means of promotion of several types of traditional curd and hard cheese, including the most successful Milkiland’s original cheese type King Arthur.

New opportunities for entering to the new markets for Milkiland’s business were opened by the end of 2015-beginning of 2016. In November 2015 several production subsidiaries of Milkiland Ukraine were cleared for dairy export to China, while starting from 10 January 2016, three of them were also granted an access to EU dairy market.

Comment by Anatoliy Yurkevych, CEO, Milkiland N.V.

“Milkiland, being the international Group with production assets in Ukraine, Russia and Poland, for several years has been in the epicenter of major geo-political changes, and thus facing challenges on the back of economic and political tension between Russia and European countries triggered the economic crisis in our core markets in Russia and Ukraine.

While Milkiland’s business model remains strong for local sales, intra-region exports, that 2 years ago comprised significant share of the Group’s turnover, decreased dramatically. Also, extensive devaluation of local currencies in Ukraine and Russia hit the Group’s revenues in EUR terms. The above created necessity to find new exports destinations, adapt to changing local market conditions and also focus on the bottom line in the first place.

Our take to address these challenges was to focus on local operations and cost improvements, as well as searching for new markets, to compensate for blow in revenues caused by borders closure with Russia, and bad shape of Milkiland’s core consumer markets.

In 2015 Russian entities of Milkiland managed a moderate advance, both in revenue and profitability. In Ukraine, Milkiland has slightly improved its market share in cheese segment. The Group did fundamental job to decrease its running costs and overheads, with production base consolidated at best performing plants and several non-core farming assets put up for sale.

One of the main achievements of the Group in Ukraine was qualification of its plants for new exports markets, namely China and EU. While there was virtually no impact on business in 2015, in coming years Milkiland expects growing sales of our produce, including butter and dry milk products to these new markets.     

The Group’s management remains confident to continue further development of the unique international business of Milkiland controlled by Kazakh, Polish and other EU, US and also Ukrainian investors. We hope that the years of hard obstacles are already gone while recovery and steady growth are now returning to our business universe.”

About Milkiland N.V.

Milkiland is a diversified dairy producer operating in Russia, Ukraine and Poland, offering a wide range of dairy products such as fresh dairy, cheese and butter, to satisfy consumers in their everyday needs for healthy and tasty foods.

In Russia, the company produces fresh dairy products at Moscow-based OJSC “Ostankino Milk Combine” and sells under Dobryana and Ostankinskaya brands. In Ukraine, the company operates 10 plants and offers wide range of fresh dairy, cheese and butter under Dobryana and Kolyada brands.

In Poland, Milkiland Group controls Mazowiecka Spoldzielnia Mleczarska Ostrowia, the cheese production plant located in in Ostrów Mazowiecka town. Milkiland exports dairy products from Ukraine to over 30 countries.

Shares of Milkiland N.V. has been listed on the Warsaw Stock Exchange since December, 6, 2010.

For additional information please contact:

IR Officer, Milkiland N.V.
e-mail: ir@milkiland.com