Milkiland reports 1H 2016 financials

31 August 2016

Having stabilized sales volume (in Q2 2016 total revenues have been on the level of previous quarter), the company tries to make some moves to improve its performance, while business environment in Russia and Ukraine remain unfavorable.

Key financials
EUR k 1H 2016 1H 2015
Sales 73 911 97 657
EBITDA 3 408 6 374
EBITDA margin, % 4.6% 7.0%
Net Profit -15 114 -24 096

Total revenues in money terms in Q2 2016 made EUR 37.4M, slightly higher than in previous quarter, though vs. Q2 2015 decline made 26.5%. If we compare semi-annual sales figures y-o-y, decrease made 25% and it was related to all geographical and business segments:

Sales in key segments
EUR k 1H 2016 1H 2015 Change, %
Cheese&butter 24 093 30 843 -22%
WMP 42 436 56 035 -24%
Ingredients 7 436 10 779 -31%
Russia 48 003 59 245 -19%
Ukraine 18 201 26 099 -30%

Trying to allocate available resources the most efficiently, in Russia the company tries to increase volumes of its cheese production on facilities of Syrodel cheese making plant (in last reporting period its total capacity was increased by 18%, growth of cheese realization made 50% to over 3kmt, though it is still much lower than during the periods when export of Ukrainian cheese to Russia was allowed and Milkiland was one of key exporters). Realization of WMP products in Russia declined both in money and natural terms, driving general decrease of revenues in this segment by 24%.

As for performance in Ukraine, it worsened largely on the back of further UAH devaluation and increased by 22% hard cheese import from EU due to implementation of free-trade agreement (which up to now works against Ukrainian cheese producers cheese production in 1H2016 declined by 10% y-o-y). As a result Ukrainian sales of Milkiland in EUR terms slumped vs. 1H2015 by 30% (hard cheese is mainly sold in Ukraine).

To somehow mitigate influence of all a/m negative factors, the company tries to develop new markets, having started supplies to China and seeking for new business opportunities in MENA region. Some dairy products prices recovery on the world market since the beginning of current year can be helpful for the company in this respect.

In 1H2016 profitability of Milkiland further dropped EBITDA margin comprised 4.6% vs. 7% a year ago, so that total EBITDA value made EUR 3.4M, while debt servicing ability remains below marginal. On positive side is the fact that in July the company reached agreement on restructuring of its USD 14.5M debt to Credit Agricole bank with decrease of interest rate and extension of maturity till Y2019. Along with it, negotiations with Raiffeisen and UniCredit on restructuring of USD 58.6M syndicated facility are still not finished (successful restructuring is critically important). So the company can still be tempted to show lower profits to push its creditors and obtain more favorable restructuring terms.

After significant amount of bad assets write-down in Y2015, during last reporting period balance sheet structure of the company has been more or less stable:

Balance Sheet structure
30.06.16 30.06.15
Total Assets 186 085 222 477
Fixed Assets 140 336 131 004
Current Assets 45 773 91 473
Equity 23 345 65 718
Debt 107 653 105 511

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