Milkiland reports 15% EBITDA decrease in 9M13

International cheese and milk company Milkiland (MLK PW) reported a 19% yoy increase in revenue to EUR 245.2 mln in 9M13, mostly driven by an increase in sales of ingredients (+62% yoy) and whole-milk products (+22% yoy). Its main segment, cheese and butter, demonstrated the slowest growth: +8% yoy. The company boosted by 18% yoy its sales to Russia and secured its second position among Ukrainian cheese suppliers to that market.



On the cost side, the company reportedly continues to suffer from a spike in raw milk prices (+24% yoy in Ukraine and +11% yoy in Russia), which resulted in the growth of Milkiland’s COGS by 26% yoy in 9M13. Other costs also showed remarkable increases: labor costs rose 24% yoy (mainly on costs from the new Polish asset Ostrowia), while marketing expenses nearly doubled yoy. All this resulted in a decrease in the company’s EBITDA by EUR 4.2 mln (15% yoy) to EUR 23.1 mln. A quarter of the decline is explained by the operating losses of Ostrowia.



Milkiland also stressed its strategy to maximize the supply of its own raw milk to better control input costs, with own milk accounting for 4% of total milk intake in Ukraine in FY9M13 (flat yoy), while milk intake from related cooperatives accounted for 23% (vs. 20% in FY2012).



The company’s management also presented its vision on the possible effect of signing the Association Agreement with EU. The key benefit that the company sees is the full liberalization of cheese supplies to the EU, which the company plans to capitalize on, providing the Ukrainian government improves its monitoring of standards for cheese production. On the negative side, the company expects tightening competition on Ukraine’s cheese market as Ukraine will have to gradually lift its import restrictions. Yet that will enable Milkiland’s Polish asset to capitalize by supplying cheese to Ukraine.



Alexander Paraschiy: The company’s reported financials look neutral to negative as its 3Q13 EBITDA continued demonstrating the same decline as in 1H13: -15% yoy. On the one hand, Milkiland was able to double yoy its revenue in its most profitable segment, ingredients (to EUR 16.1 mln in 3Q13), while on the other hand its Polish asset continued generating negative EBITDA (EUR 0.6 mln in 3Q13, which is more than in the two previous quarters).



On the one hand, the company was able to increase purchases of milk from related cooperatives, while on the other side its supplies of own milk showed no visible progress, implying its most ambitious project for 2013, a dairy farm in Ukraine designed for 6,800 milking cows worth EUR 20 million, has yet to start working. Meanwhile, we share Milkiland’s view that a possible Association deal with the EU may bring some benefits for its diversified business and we remain positive on the company’s value growth in the mid term.

Источник: Конкорд Капитал