Industrial Milk guides 17% EBITDA drop in 2016

Corn-focused farmer Industrial Milk Company (IMC PW) issued its financial guidance for 2016 last week that highlighted decreases in its key P&L items. It guided its full-year revenue at USD 122 mln (-13% yoy) and EBITDA at USD 55 mln (-17% yoy). The company sees its end-2016 debt at USD 97-103 mln.

Alexander Paraschiy: Decreases in revenue and EBITDA is what we expected given the weak prices for corn and expected decline in sales volumes in 2016.

What’s disappointing is the company’s changed guidance for total debt, which IMC earlier targeted to be USD 80 mln as of end-2016. This change in guidance seems to be the result of an amended loan agreement with International Financial Corporation (IFC), which increases the NPV of IMC’s debt liability by over USD 16 mln. According to the amended agreement, the IFC won’t use its option to purchase IMC shares (up to 3.1 mln), but IMC will instead repay to the IFC USD 11.0 mln by end-2018 and USD 11.8 mln by end-2019.

Even though such guidance implies an increase of IMC’s financial leverage to about 1.7x as of end-2016 (rising from 1.4x as of end-2015), the company would still remain among the least indebted in Ukraine’s equity universe. We are maintaining our positive mid-term view on IMC stock.