“Milkiland” doubled its net loss in the first quarter and revenue decreased by 23%
According to the report of the group on the website of the Warsaw stock exchange, the revenue of “Milkiland” in the first quarter decreased by 22.8% to 22.79 million euros, gross profit - by 37% to 2.29 million euros, while operating loss increased 1.6 times to 2.86 million euros. EBITDA remained negative and at the same time increased 5.6 times to 1.25 million euros.
Ukraine provided 34.9% of the revenue of the group in the first quarter of 2020 (a decrease of 1 percentage point in annual terms). The revenue in the segment decreased by 25.7% to 7.95 million euros. Poland contributed 7.8% to the revenue of the group (an increase of 1.1 p. p.), while segment revenue decreased by 10.3% to 1.79 million euros. Russia was again the largest geographical segment by revenue for “Milkiland” in the first quarter of 2020, accounting for 58% of all revenue (an increase of 0.7 p. p.). Segment revenue decreased by 21.9% compared to the same period last year and amounted to 13.22 million euros.
Whole-milk products remained the largest segment in product categories: 41% of revenue in the first quarter of 2020 compared to 51% in the first quarter of 2019. Segment revenue decreased by 38.4% to 9.3 million euros on the back of lower sales volumes. Cheese and butter accounted for approximately 33% of the total revenue of the group (35% in the first quarter of 2019). Segment revenue fell by 26.4% to 7.6 million euros due to lower sales in the Russian and export markets.
In the "Ingredients" segment, revenue increased by 41% to 5.9 million euros on the back of increased sales volumes, including in the EU market. This increased the share of the segment in total revenue to 26% from 14% in the first quarter of 2019.
“Milkiland” reduced its total sales by 40% in the first quarter of 2020, mainly due to the impact of the COVID-19 global crisis on the group's markets of operations. In particular, there were lower sales of cheese, butter and whole milk products, which was partially offset by an increase in sales of the "ingredients" segment.
In an effort to maintain business profitability, Milkiland Ukraine has focused on developing sales of high-value-added products, including innovative lactose-free cheeses and whole milk products. However, according to the company, the mass import of dairy products to Ukraine, primarily from the EU, increases competition in the local market, which together with limited export opportunities against the background of relatively high prices for raw materials brought the EBITDA of Milkiland Ukraine into a negative zone: about "minus" 0.2 million euros against "plus" 0.2 million euros for the same period in 2019.
The greater part of the decline in sales in January-March 2020, according to the company's report, fell on the Russian subsidiary of the group – “Ostankino”. One of the reasons is inability of the company to convince some key customers, local retailers, to increase prices for finished products on the shelves in accordance with the general trends of the Russian dairy market. As a result, during the specified period, cooperation with some key clients was weakened or interrupted.
The second reason is that “Ostankino” faced deep negative consequences of the COVID-19 crisis in the Russian Federation. Strict quarantine measures introduced by the Russian government and Moscow authorities in March 2020, in particular, included the closure of shopping centers, mandatory self-isolation of the population. The latter requirement caused a significant number of Moscow residents to migrate out of the city during the quarantine period. Against the background of the current situation, sales of “Ostankino” significantly decreased (by more than 40% in value terms), which led to bringing of EBITDA of this subsidiary to the negative zone, “Milkiland” reports.
In addition, on March 6, 2020, the Arbitration court of Kursk region decided to introduce arbitration management in LLC “Kursk Moloko”, a subsidiary of Milkiland RU. Since then, the group has lost control over its operations, and the financial results of “Kursk Moloko” have only been partially included in the group's financial statements, notes the group. This situation has led to some difficulties in the production and sale of Milkiland products in Russia, including products under the Dobryana and Latter brands. Now the management of the group is seeking to conclude a debt settlement agreement with the creditors of LLC “Kursk Moloko”.
Overall, EBITDA of Milkiland RU was "minus" 1.05 million euros compared to "plus" 0.001 million euros in January-March 2019. In the first quarter of 2020, “Milkiland” continued to develop its sales in new export markets. Milkiland Intermarket managed to increase sales of powdered dairy products in the first quarter of 2020 by 20% in real terms due to the recovery of sales of the corresponding products produced by the Polish subsidiary of the group Milkiland EU on the European market.
As reported, "Milkiland" plans to change the place of registration from the Netherlands to Cyprus. The company plans to complete the change of jurisdiction by the end of August 2020. The group of companies “Milkiland” is a major producer of dairy products. Its production facilities in Ukraine, Russia and Poland can process 1.33 million tons of milk per year. “Milkiland” made a net loss of 11.6 million euros in 2019, which is 1.7 times less than in 2018. Its revenue for the past year decreased by 5.2%, to 125.76 million euros.
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