IMC reveals its plan to increase land bank 1.5x by 2020

Ukrainian agriculture firm Industrial Milk Company (IMC PW) published key preliminary financials for 2015 and strategic plans till 2020 in its Feb. 15 exchange releases. Its revenue increased 1.2% yoy to USD 140.0 mln, while its total debt decreased 22.5% yoy to USD 98.7 in 2015, based on preliminary figures. This is consistent with the company’s  plan, revealed in July, to decrease its debt to USD 100 mln as of end-2015.

Among the company’s announced key priorities for the next four years, is a growth in its land bank by about 70,000 ha till 2020, from 136,700 ha now. In particular, the company is planning to have a 156,700 ha land bank by 2017, 176,700 ha by 2019 and 206,700 ha by 2020. IMC also reported that it has enough storage capacity to service the targeted land bank, stating that it only plans to reconstruct some storage facilities. The company is going to remain focused on production of corn (over 50% of its crop mix), as well as wheat, soybeans and sunflowers.

Alexander Paraschiy: By revealing an ambitious landbank growth plan, IMC seems to consider itself to be in good shape. The company’s ability to generate cash flow indeed remains strong  (its EBITDA was USD 56.9 mln, and net operating cash flow was USD 17.3 mln in 9M15), which potentially allows it to use its own money for expansion. The key risk for IMC’s mid-term strategy is the opening of Ukraine’s market of farmland which might significantly increase the landbank expansion costs (now the land cannot be traded in Ukraine, and no clear timing of the market opening is available). Nevertheless, we think it is highly likely that the company will perform in line with its plan. We continue to treat IMC as one of the few promising investment opportunities in the Ukrainian equity universe.