Ukrlandfarming EBITDA declines 33% yoy in 2016

Net revenue at Ukraine’s leading farming company Ukrlandfarming (ULF, UKRLAN) rose 2% yoy to USD 959 mln, according to its annual report. The growth was mostly driven by higher sales of its “distribution” division (not related to its farming), which grew 86% yoy to USD 347 mln. Its core segment, crop production, fell 11% yoy in revenue to USD 401 mln.

The holding’s EBITDA declined 33% yoy to USD 162 mln, driven by a 28% yoy increase in COGS to USD 765 mln. Its EBITDA margin worsened 9.0pp to 16.9% in 2016. ULF halved its net loss yoy to USD 175 mln in 2016.

ULF’s operating cash flow before working capital changes fell 39% yoy to USD 192 mln, and investments into working capital decreased 39% yoy to USD 113 mln. Its net CapEx dropped 82% yoy to USD 24 mln. With low free cash flow generation, ULF halved its cash interest payment to USD 57 mln and increased total debt 4% yoy to USD 1,669 mln in 2016.

Its cash balance increased 31% yoy to USD 81 mln as of end-2016, implying net debt of USD 1,588 mln and a net debt-to-EBITDA ratio of 9.8x (up from 6.3x a year before).

Alexander Paraschiy: The good news is that ULF has significantly reduced its CapEx appetite, but this did not help much to improve the holding’s liquidity or solvency. Its “investments” into working capital remained the key cash drainer, as it had been in the previous two years. The holding has yet to offer any restructuring conditions to its bondholders as it missed its latest coupon payment.

Meanwhile, its 30-business-day grace period for coupon payment recently expired, meaning ULF is now in default on its USD 500 mln Eurobond. As we see no willingness or capacity of ULF to service its bonds, we continue to treat them as highly risky instruments.