Milkiland Sees 2.1-Fold Rise In Net Loss In Q1

Milkiland, a dairy group with assets in Ukraine, the Russian Federation and Poland, saw EUR 7.62 million of net loss in January-March 2020, which is 2.1 times more than in the same period in 2019.

According to the group’s report on the Warsaw Stock Exchange website, Milkiland revenue in the first quarter decreased by 22.8%, to EUR 22.79 million, gross profit – by 37%, to EUR 2.29 million, while operating loss increased 1.6 times, to EUR 2.86 million. Milkiland increased EBITDA with a negative value 5.6 times, to EUR 1.25 million.

Ukraine contributed 34.9% to the group’s revenue in Q1 2020 (1 pp decline y-o-y). Segment revenue decreased by 25.7% to c. EUR 7.95 million, again mainly due to increased selling prices for finished goods in line with general markets trends, as well as selling of higher value-added goods.

Poland contributed 7.8% to the group’s revenue in Q1 2020 (up 1 pp y-o-y), the segment’s revenue decreased by 10.3% y-o-y to c. EUR 1.79 million on the back of lower sales volumes.

Russia was the largest geographical segment in terms of revenue generation for Milkiland in Q1 2020 providing for 58% (up 0.7 pp compared to Q1 2019). The segment’s revenue was down by 21.9% y-o-y and stood at c. EUR 13.22 million, mainly due to selling volumes contraction triggered by lower processing volumes.

Whole-milk dairy was the largest segment in term of revenue providing for c. 41% of revenue in Q1 2020 (vs 51% in Q1 2019). The segment’s revenue declined by 38.4% y-o-y in Q1 2020 to EUR 9.3 million on a back of lower sales volumes.

Cheese & butter segment contributed approximately 33% to the group’s total revenue in Q1 2020 (35% in Q1 2019). Segment’s revenue decreased by 26.4% to EUR 7.6 million due to lower sales volumes in Russian, as well as export markets.

In Ingredients segment, revenue grew by c.41% y-o-y to EUR 5.9 million on the back of increased sales volumes, including at EU market. It contributed c. 26% to the group’s total revenue versus 14% in Q1 2019.

In the first quarter of 2020, Milkiland decreased its overall sales volumes by c. 40% y-o-y, mainly due to implications of the global COVID-19 crisis in the markets of the group’s operations. Lower volume sales of cheese and butter and whole-milk products were partly offset by increase of sales volumes of ingredients.

Aiming to support the profitability of the business Milkiland Ukraine focused on the development of sales of high value-added products, including innovative lactose-free cheese and whole milk products, primarily in the key accounts channel. But massive import of dairy to Ukraine, primarily from EU, growing competition in the local market together with limited export opportunities on the back of relatively high raw milk farmgate prices brought the EBITDA of Milkiland Ukraine to negative territory (c. EUR 0.2 million, negative vs c. EUR 0.2 million in the same period of 2019).

The lion’s share of the contraction of sales volumes in Q1 2020 was delivered by the group’s main Russian subsidiary – Ostankino. Fist reason for that is the inability of Ostankino to persuade some key clients, namely local retailers, to increase the shelf prices for the finished goods in line with general Russian dairy market trends. As the result, the collaboration with some key clients was diminished or interrupted in the reporting period.

Milkiland said that second reason is that Ostankino faced the most deep negative implications of the COVID-19 crisis in Russia. Strict quarantine measures imposed by the Russian Government, as well as municipal authorities of the City of Moscow in March 2020, inter alia, were included closure of the shopping centers, obligatory self-isolation of the population in their households. The latter requirement provoked the migration of a significant amount of Moscow inhabitants to the rural areas during quarantine period. On the back of this situation, Ostankino’s sales declined significantly (by more than c. 40% in value terms in Q1 2020 on y-o-y basis), which brought the EBITDA of this subsidiary to the negative territory.

On March, 6, 2020, the Arbitrage Court of Kursk oblast of Russian Federation adopted a decision of insolvency of LLC Kursk Milk, subsidiary of Milkiland RU, implemented the arbitrage management of this company and appointed an arbitrage administrator. Since that time, the group lost the control on operations of LLC Kursk milk, the financial results of this company was incorporated to the consolidated results of Milkiland Group only partially. This situation led to some difficulties in production and sales of several SKU’s in the product portfolio of Milkiland in Russia, including under Dobryana and Latter brands. The management of the group has been striving for entering into the debt settlement agreement with the creditors of LLC Kursk Milk.

Milkiland EU in Q1 2020 reported tiny positive profitability on EBITDA level of c. EUR 0.014 million due to better pricing environment for sales of dry milk products in EU and globally in comparison with negative EBITDA of c. EUR 0.4 million in Q1 2019.

In Q1 2020 Milkiland continued to develop its sales in new export markets and catch the opportunities of profitable international trade in the global dairy market. In particular, Milkiland Intermarket managed to increase the sales of dry milk products in Q1 2020 by 20% in volume terms on y-o-y basis due to the restoration of sales of the respective products produced by the group’s Polish subsidiary Milkiland EU in the European market.

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