Chairman and Chief Executive Statement

Ukrproduct, one of the leading Ukrainian producers and distributors of branded dairy foods and beverages (kvass), is pleased to announce its interim results for the half year ended 30 June 2023 ("1H 2023") and outlook for the remainder of 2023.              

2022 Half-Year Trading Update

Ukrproduct Group's consolidated revenue amounted to £18.3 million in the first half of 2023, the same as the half year ended 30 June 2022 ("1H 2022"). Whilst at the Group level, organic revenue growth in local currency was 19.5%, achieved mainly by the improvement of topline drivers, including volume, mix and price, this was impacted by negative exchange rate effects of £3.6 million.  On a nominal basis, total volumes of sales were 21% higher in 1H 2023 than the prior period due to an increase in domestic demand as well as the stabilization of exports, despite the effects of the war in Ukraine. 

In the period, sales of processed cheese and processed cheese products amounted to £12.0 million which was 17.2% higher than the 1H 2022. This was due to the increase of export sales as well as the launch of new products in Ukraine.

In 1H 2023, sales of spreads amounted to £2.2 million, which was 8.9% lower than 1H 2022 due to an increase in competition. However, sales increased by 11.0% in local currency compared to 1H 2022. This was mainly due to rising prices.

Sales of butter in the period amounted to £1.5 million which was 33.1% higher than 1H 2022, mainly due to the recovered domestic demand and export sales.

Sales of kvass and other beverages grew by 81.3% in volume amounting to £0.8 million compared to 1H 2022. This was due to the sale of beverages covering the whole period of 1H 2023 and active sales starting in April 2023 while in 1H 2022 sales were completely eliminated and restored in May-June 2022 due to the beginning of war in Ukraine.

The Group's gross profit in 1H 2023 decreased by 2.3% compared to 1H 2022, to £3.2 million. This was mainly as a result of marketing and trade marketing campaigns in response to local competition.

In 1H 2023, the Group's administrative expenses and selling expenses increased by 24.4% and 17.3% respectively, compared to 1H 2022. This was mainly due to salary increases, the significant level of inflation in Ukraine in 2022-2023, growth in marketing activities and resumption of fees for certain auxiliary services which had been negotiated for provision on a complimentary basis last year after the start of the full scale invasion. The major factor behind the 97.7% reduction of the Group's other operating expenses in 1H 2023 to £0.04 million was the impairment of trade receivables relating to temporary occupied territories in 1H 2022 reflecting the direct impact of war.

EBITDA increased to £1.5 million in 1H 2023, up by 242.8%, compared with £ 0.45 million in the prior period.

Finance costs in 1H 2023 grew by 68.0% year on year, to £0.39 million, primarily driven by  increased interest rates and recognized additional interest expenses for the European Bank for Reconstruction and Development ("EBRD") loan for the previous periods. In June 2023, the EBRD increased the interest rate on the loan retrospectively and charged additional interest from September 2021.

Financial position

As at 30 June 2023, Ukrproduct had net assets of £4.9 million (including cash balances of £0.3 million) compared to £6.3 million (including cash balances of £0.3 million)  as at 30 June 2022.                 

For the six months ended 30 June 2023, the Group continued to be in breach of several provisions of the loan agreement with the EBRD. The Company failed to repay Tranche A (aggregate EUR 2.1 million principal) before the maturity date of 1 December 2022 and has missed interest payments since 1 March 2022. In June 2023 the EBRD notified the Company about a recalculation and an increased interest rate in respect of the aggregate EUR 3.4 million principal and interest of Tranche B from 1 September 2021. The Company has been negotiating with the EBRD since June 2021 to potentially restructure the loan repayment and negotiations are ongoing. At present, the EBRD has taken no action to accelerate repayment of the loan. 

Outlook for 2023

The development of the business in the second half of 2023 remains highly uncertain due to the ongoing war in Ukraine. However, Ukrproduct has a positive economic outlook for the next six months running on the back of constant domestic demand, the stable operation of the energy system, and improved inflation. Due to developments of  the domestic market the Group expects to increase sales slightly. Higher costs for energy and logistics will likely require further sales price increases in the quarters to come.

Ukrproduct Group

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2023