Milkiland sees profits tumble in Q1

16-May-2016 - Last updated on 17-May-2016 at 12:25 GMT

Currency issues and the continued ban on EU products entering Russia were factors in Milkiland's Q1 results.

International dairy producer Milkiland said the lack of cheese exports from Ukraine and Poland to Russia, unfavorable global pricing for dry milk products, and currency devaluation, resulted in an almost 22% drop in its Q1 2016 consolidated revenues to €36.5m ($41.3m).

It added that gross profit declined by approximately 30% to €5.2m ($5.9m).

Decline in the gross profit led to almost zero operating profit in Q1 2016 in comparison with a negative operating profit in Q1 2015. The group’s EBITDA increased by 6.7% to approximately €2m ($2.26m) in Q1 2016.

Milkiland said foreign exchange loss remained the key contributor to the net loss of €16.4m ($18.6m) in Q1 2016, compared to the net loss of €35.2m ($39.8m) in Q1 2015.

Geographic overview

Milkiland said that while the Russian market remained closed for Ukrainian cheese makers, the Ukrainian dairy market faced competition through the implementation of a Free Trade Zone agreement with the EU.

Russia’s trade barriers led to some oversupply in the EU market, which limited Ukraine’s potential to export dairy products to EU countries.

The company said that because of the closure of the Russian market, there was increased demand for products that were previously imported. As a result, Ostankino Dairy Combine reoriented towards higher value-added products.

Cheese volumes produced by Rylsk, in Russia, almost tripled over the period and contributed to an almost 90% increase in overall cheese volume sales and a 57% increase in cheese value sales in the country.

However, the company said that further depreciation of the Russian rouble and increased operating expenses at Ostankino because of higher land taxation in Moscow led to the decline of the Russian segment’s revenue by 12% to €24.8m ($28.1m).

There was also a decrease of its EBITDA by one-third to €1.9m ($2.2m) in Q1 2016 compared to the same period in 2015.

Steady production and sales of cheese in Q1 2016, as well as new distribution channels for Polish-made dry milk products in EU, including the Baltic states, brought profit to the Polish sector.

Results by business segments

Whole milk dairy was the largest segment in terms of revenue and business segments EBITDA, providing 61% of revenue (59% in Q1 2015) and being the largest EBITDA-generating segment in Q1 2016.

The segment revenue declined 19% to €22.3m ($25.2m), while segment EBITDA fell 48% from €2.7m ($3.1m) to €1.4m ($1.6m), reflecting a drop in profitability of the Russian division.

The cheese and butter segment total revenue decreased by approximately 22% to €11.2m ($12.7m) due to volume contraction and operational currencies devaluation. However, the segment generated a positive EBITDA of €0.7m ($0.8m).

In the ingredients and other products segment, revenue decreased by 40% to €2.9m ($3.3m).