Industrial Milk reports improved bottom line in 1Q15

Ukrainian farmer Industrial Milk Company (IMC PW) reported a 19% yoy decrease in its top line to USD 32.2 mln in 1Q15, according to its May 14 release. The decline was caused mostly by weaker yoy prices for its products. In particular, revenue from its flagship commodity, corn, decreased 11% yoy to USD 30.1 mln in the quarter, while the volume of corn sold increased 5% yoy to 192 kt. As the company’s production costs decreased significantly yoy, due to devaluation of the  local currency, IMC boosted its gross profit 30% yoy to USD 13.9 mln, even though its IAS 41 revaluation gain turned out to be 11.5x smaller yoy at just USD 1.0 mln.

The company’s adjusted 1Q15 EBITDA grew 5% yoy to USD 9.8 mln, even though it suffered from decrease of VAT subsidiy to just USD 0.2 mln in the quarter (from USD 2.2 mln a year before). Hryvnia devaluation forced the company to report ForEx losses in the amount of USD 28.8 mln in 1Q15 (still 9% smaller yoy) and a net loss of USD 25.0 mln, which was still 21% lower than year ago.

The company generated USD 12.6 mln in cash flow from operations in 1Q15 (a year ago, it used USD 4.9 mln for operations) and reduced its capital expenditures to USD 0.3 mln (vs. USD 25.3 mln in 1Q14). Most of generated money, therefore, were used to partially repay its debt, or USD 10.1 mln in 1Q15 (vs. USD 32.4 mln in debt attracted in 1Q14). The company’s net debt decreased 13% YTD (and 27% yoy) to USD 108.4 mln as of end-1Q15. After the reporting date, the company attracted USD 21.5 mln in net debt and repaid USD 23.7 mln in old debt.

Alexander Paraschiy: The company’s 1Q15 financial result revealed little about its cash-generating potential for the full year, given that IMC was just selling its crops from its old harvest during the reporting period. At the same time, we are encouraged by IMC’s efforts to use all its earned money to reduce its debt. The company’s creditors also seem to be satisfied with its efforts, given that they were providing IMC with new loans. Recall, in the company’s annual report, its auditors expressed their concern that lenders may stop providing funding to the company after it had breached certain covenants. All in all, we see the company is heading into the right direction and we remain cautiously positive on IMC’s ability to increase its value in the mid-term.

An additional sweetener for IMC could be legislation changes that will return VAT reimbursement for grain producers and expoters – refer to our today’s respective news on that.