26 August 2016
Financial performance of the company in last reporting period has been generally in line with our expectations – sales declined, but profitability of operations is acceptable and the company keeps its deleveraging process, improving financial stability.
EBITDA margin, %
Revenues of Industrial Milk Company in 1H 2016 made USD 54.4 mln, which was by 26% lower than in corresponding period of previous year. Reason is lower grains stocks in the beginning this year vs. previous years’ (-25%), so that such revenues dynamics was fully expected. Average corn realization price in reporting period made USD 151 per 1 ton (vs. USD 155 in 1H 2015; corn accounted for more than 95% of total realization in 1H 2016).
Speaking about marketing year of IMC operations, total sales volume during July’15-June’16 made USD 121M vs. USD 130M a year ago, mainly in a view of average realization prices decline.
During last period of time CPT corn price in Ukraine has been in USD 150-155 per 1 ton range, but in May-June forward price for new crop reached USD 170 per 1 ton, so that like other companies Industrial Milk Company had an opportunity to sell some part of its future corn crop on rather good price terms. At the moment prospects of new IMC crop are rather good, so provided there will be no sharp drop in corn price in short-term period, we can expect that volume of revenues in new season will be larger than in previous one.
As for profitability of reporting period operations, important factor is value of gains from biological assets revaluation. Historically the company has been quite aggressive with recognition of these gains (main part of profits related to new crops, unrealized at the moment, is already shown in financials), and new season is not an exception – in 1H 2016 it even increased up to USD 44.3M vs. USD 34M a year ago. Despite capitalized expenses related to crops growing in new season decreased vs. previous one (USD 48M vs. USD 59.5M) total book value of Inventory as of 30.06.16 is almost unchanged y-o-y (USD 104M). Basing on our analysis we estimate that factual EBITDA margin of IMC in last season has been at approximately 25% (disregarding positive accounting effect from UAH devaluation). Taking into account some decrease of inputs prices in new season (which is confirmed by lower capitalized expenses as of 30.06.16) and expectations of somewhat better corn yields, we can forecast improvement of this figure in new season.
Balance Sheet structure
Following ongoing deleverage of the company (more than USD 20M of debt was repaid in last marketing year), balance sheet structure of Industrial Milk Company improved, but can still be characterized as not better than average, so that margin of safety in activity for the future periods is not high, especially taking into account non-diversified business activity of the company.