15 November 2016
After drop in Q1 Milkiland stabilized sales volumes, so in Q3 2016 total revenues have been slightly higher than in two previous quarters. The company keeps litigation process and at the same time restructuring negotiations with its lenders.
EBITDA margin, %
Total revenues in money terms in Q3 2016 made EUR 39.0M, slightly higher than in previous quarter, though vs. Q3 2015 decline made 20%. If we compare sales figures for nine months, decrease made 23%, it was related to all geographical and business segments:
Sales in key segments
Quarterly sales dynamics of the company during last period of time looked as follows:
Performance in Ukraine worsened mainly on the back of further UAH devaluation and increased by more than 20% hard cheese import from EU due to implementation of free-trade agreement (which up to now works against Ukrainian cheese producers – domestic cheese production declines). As a result Ukrainian sales of Milkiland in EUR terms slumped y-o-y by more than 30% in both Q3 and 9m.
If in 1H 2016 EBITDA of Ukrainian operations made EUR 1M, in Q3 2016 it was already close to zero (raw milk prices in Ukraine started to grow in the end of summer).
In addition in Q3 the company slowed down development of hard cheese production in Russia. If in 1H 2016 y-o-y growth made 50% (over 3kmt of hard cheese was produced on facilities of Syrodel cheese making plant), reported for 9m 2016 production figure is 3.78k tons, which means in Q3 output factually declined y-o-y, contributing to general decrease of hard cheese sales by 30% (in Q3 2016 vs. corresponding period of previous year).
Along with it we can note lower rate of sales decline and improved profitability related to Russian operations in general. Russian revenues in Q3 declined y-o-y by 10.5%, while EBITDA margin exceeded 8% (vs. 6.2% in H1 2016).
In 9m2016 general profitability of Milkiland further dropped – EBITDA margin comprised 4.7% vs. 7% a year ago, so that total EBITDA value made EUR 5.3M, while debt servicing ability remains below marginal (the company pays approximately half of accrued interest – in 9m 2016 total interest paid made EUR 4.5M). On positive side is that 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 (including deposit in related bank), during last reporting period balance sheet structure of the company has been more or less stable:
Balance Sheet structure