30 August 2017
Despite worse than expected financial performance in H1 2017 financial standing of IMC keeps improving. We specially note significant decrease of debt burden of the company during last period of time.
H1 2017 financial results
EBITDA margin, %
In line with general IMC business seasonality, corn made 95% of total sales of the company in H1 2017 (generally IMC sells main part of wheat, sunflower seeds and soybeans right after harvesting, while corn is stored at the silos and sold more uniformly throughout marketing year).
According to press-releases of IMC in MY2016/17 total gross corn yield of the company made 9.1t/ha, which means total harvest (gross) – about 640k tons. Total sales of corn during the season amounted to about 535k tons, taking into account low corn stocks as of 30.06.17, according to our estimates, this figure can be rather good estimation of net corn harvest of IMC in MY2016/17 – i.e. net corn yield made about 7.2t/ha, so has been much (by 20%) lower vs. gross yield (but still higher vs. 6.9t/ha in MY2015/16).
One of main reasons of this fact can be weather conditions (snow in mid-November), which led to rather high losses of corn weight/quality during harvesting/drying etc. (we note that as of 31.12.16 unharvested area of IMC still made 11.1k ha or 15% of total area under corn).
Because of this fact (much lower net yield vs. gross yield) from financial perspective in H1 2017 the company under-performed vs. our expectations.
Total corn sales of IMC in H1 2017 made 381k tons (+12% y-o-y), average selling price – USD 156/t (USD 151/t in H1 2016). Despite this fact and similar vs. previous year gain from biological assets revaluation (at about USD 45M), profitability of the company decreased vs. previous year – in reporting period EBITDA made USD 40M vs. USD 49.6M in H1 2016.
We note that in H1 2017 IMC EBITDA value has been lower than its gain from biological assets revaluation, which means that disregarding above-mentioned gains the company obtained operating loss in H1 2017 (as main part of profits related to operations in MY2016/17 have been accounted in form of gains from biological assets before start of harvesting campaign).
Speaking about MY2016/17 as a whole, according to our estimations revenues of IMC made USD 133M, EBITDA – USD 49M (generally in line with our expectations). Operating cash inflow of the company during July 2016 – June 2017 made USD 36M (main part of difference vs. EBITDA is related to interest paid).
Operating cash flow has been directed mainly for debt repayment (USD 15M), investment activity (USD 7M), also cash position at the balance sheet of IMC increased from USD 4.7M as of 30.06.16 up to USD 12.4M.
Balance Sheet structure
Following ongoing deleverage of the company (almost USD 40M of debt has been repaid during last two marketing years), balance sheet structure of Industrial Milk Company largely improved.
At the moment Net Debt/EBITDA ratio stands at healthy 1.3x, Debt/Equity – 0.8x (though we emphasize that new marketing year profits have been largely accounted in P&L of the company in form of gain from biological assets revaluation for H1 2017).
In the structure of debt by its maturity positive is the fact that main part of debt (USD 50M out of USD 77M) is represented by long-term liabilities (we note USD 41.4M with maturity of Y2020). Also positive from short-term perspective is recent refinancing of short-term liabilities in amount of USD 20M. It is planned that by the end of 2017 the total debt of the IMC will be about $65 million, which is 22% less than in 2016.
Finally we specially note that on 28 August 2017, the Board of Directors of IMC announced a distribution of the interim dividend to the company’s shareholders. On 27 September 2017 IMC will pay the company's first ever dividend to all its investors as of 20 September 2017, at EUR 0.05 per share for an aggregate amount of about EUR 1.66 million (approximately USD 2M).