Milkiland reports weak 1Q15 results in its core segment

International dairy company Milkiland (MLK PW) reported a 40% yoy decline in net revenue to EUR 46.7 mln in 1Q15, according to its earnings release of May 15. The core factor in the decline was devaluation of Ukrainian and Russian currencies: revenue of the company’s Ukrainian assets fell 64% yoy to EUR 13.7 mln, while its Russian assets showed a more moderate decline of 31% yoy to EUR 28.3 mln.

The 1Q15 EBITDA of Millikand’s Russian subsidiaries, which are focused on the supply of whole milk products to the domestic market, rose 8% to EUR 2.85 mln as they benefitted from a significant decline in competition due to Russia’s dairy product import ban. This increase was more than offset by a decline in operating profits in the Ukrainian assets of the company, which used to be focused on cheese production for the Russian market. The Ukrainian assets probably have become a key loser from Russia’s import ban. Once being the key contributor to Milkiland’s EBITDA (EUR 3.3 mln in 1Q14), its Ukrainian subsidiaries reported negative EBITDA in 1Q15 at EUR -0.08 mln. Its Polish subsidiaries, which were also designed to deliver their products to Russia, worsened its operating loss 6.3x yoy to EUR -0.35 mln. The company’s total EBITDA, as reported by the company, fell 59% yoy to EUR 2.42 mln.

Milkiland’s net loss deepened 46% yoy to EUR 36.1 mln in 1Q15, mostly fueled by a foreign currency loss of EUR 33.6 mln (which was up 22% yoy). Its operating cash flow was positive at EUR 3.1 mln (vs. negative EUR 7.5 mln in 1Q14) on significant reduction of working capital.

The company minimized its CapEx to EUR 0.68 mln and repaid debt of EUR 1.95 mln in 1Q15. However, this did not allow Mikiland’s leverage to decline: its net debt amounted to EUR 100.6 mln as of end-1Q15, which was a 10% YTD increase. The increase was caused by revaluation of foreign currency debt. Milkiland reported it is still in the process of restructuring talks with its creditors, including a syndicate of international banks (which provided USD 58.6 mln of financing), and is still expecting to sign a stand-still agreement by end-2Q15.

Alexander Paraschiy: As the 1Q15 results suggest, the process of refocusing Ukrainian and Polish subsidiaries to domestic markets, as an alternative to the closed Russian market, is going very painfully for Milkiland. Another worrying conclusion is that the company’s Russian segment is not powerful enough to compensate the decrease in profits from its Ukrainian subsidiaries. Such results, therefore, make Milkiland’s future dim and highly dependent on its ability to deal with debt holders. Meanwhile, the risk that the company is not a going concern is very high right now.

Источник: Конкорд Капитал