20 May 2017
Financial performance of the company in both Q4 and Y2016 as a whole has been in line with our expectations.
Y2016 financial results
EBITDA margin, %
In Q4 the company usually sells the rest of produced in current season wheat, sunflower seeds and soybeans (unsold in Q3), and starts corn (main crop for the group, accounting for more than 50% of total sown area and for more than 60% of total revenues) realization.
In Y2016 total grains&oilseeds crop of Industrial Milk Company has been by approximately 18% higher vs. previous year, so we expect that in MY2016/17 (as a whole) volumes of crops realization by the company will be higher than in previous season. Sales of IMC in Q4 have been in line with these general expectations – by 15-20% higher vs. Q4 2015 in tons and by 11% higher in money (USD) terms.
In terms of profitability, as Industrial Milk Company accounts main part of profits related to crops even before their harvesting, their book value has been rather high (book value of 1 ha of corn as of 30.09.16 made almost USD 1k), so that profits in period when crops are factually sold are quite low. In addition we note relatively low selling price of corn, which in Q4 made USD 149/t (during reporting period Ukrainian market corn price (on CPT terms) have been in range USD 150-155/t).
As a result total EBITDA of Industrial Milk Company in Q4 made just USD 2.7M, along with it operating cash flow – almost USD 10M (mainly directed to bank loans repayment).
Gain from biological assets revalutation
EBITDA margin, %
Speaking about general Y2016 results, we should separate figures for H1 and H2. In H1 2016 revenues of IMC declined y-o-y by 26% (due to lower grains stocks in the beginning of Y2016 vs. corresponding period of Y2015), while profitability has been rather good.
As we already noted, the company is rather aggressive in accounting of its profits, so that gain from biological assets revaluation in H1 2016 made USD 44M vs. USD 34M a year ago. This gain was main part of IMC profits in H1 2016 (EBITDA of the company for this period made USD 50M).
As for H2, because of good Y2016 harvest, revenues of the company grew by 6% y-o-y, while profits remained rather low (EBITDA at USD 9.4M, because of their redistribution in favour of H1).
Under current market fundamentals for current season in general (July’16-June’17) we keep to our previous projections regarding total IMC revenues at about USD 125-130M. Projected EBITDA – about USD 45M, so average EBITDA margin to make about 30-35% vs. 25% in previous season (disregarding non-cash “accounting” impact from biological assets revaluation, estimated EBITDA was close to USD 30M, which has been confirmed by operating cash flow figures).
In terms of cash flow we note that in Y2016 total net operating cash flow of Industrial Milk Company made close to USD 30M. It allowed the company to further improve its balance sheet structure. Borrowings in total amount of USD 21.8 have been repaid during last year (in total during last two years IMC repaid USD 45M of its borrowings, which represents about 1/3 of total debt portfolio of the company as of 31.12.14). At the moment balance sheet structure of the company looks as follows:
Balance Sheet structure
Due to improvement of financial position during last years, margin of safety in activity of the company increased, for it’s now well positioned for further non-aggressive development (i.e. planned land bank expansion from 136k ha in Y2016 up to 206k ha in Y2020, including addition of 20k ha in Y2017).