Milkiland EBITDA declines 26%, sale volume fall 39% in 1Q18

Dairy firm Milkiland (MLK PW) reported a 18% yoy
decline in net revenue to EUR 30.09 mln in 1Q18, according to May 15 release.
The decline was caused by a 39% drop in output in physical terms, which the
company attributed to its efforts to optimize profitability. Milkiland’s EBITDA
declined 26% yoy to EUR 1.66 mln, with its Russian assets being the best performing
subsidiaries whose EBITDA decreased just 2% yoy to EUR 1.74 mln. Such a result
was achieved due to a drop in the price for raw milk (the company’s key cost
item) in Russia by 9% yoy in the local currency. The company’s bottom line more
than doubled yoy to EUR 2.38 mln, mainly driven by a EUR 4.57 mln gain from
foreign currency revaluation.

The company generated EUR 0.18 mln in cash from
operations and spent the same amount for the acquisition of PP&E, thus
generating no free cash for debt repayment. Its net repayment of loans and
borrowings amounted to just EUR 0.34 mln, which resulted in about the same
decrease in its cash balance over the quarter. Its total debt decreased 2% YTD
to EUR 84.73 mln (mainly due to currency revaluation), while the ratio of net
debt-to-LTM EBITDA was 8.63x as of end-1Q18 (slightly more than a quarter ago,
8.28x). The company still hasn’t achieved any restructuring deal with its core
lenders, a syndicate of UniCredit Bank Austria and ZAO Raiffeisenbank,
expecting (as usual) to reach a deal “in the foreseeable future.”

Alexander Paraschiy: Recovery of the company’s operating activity has stopped as Milkiland
reportedly focused on improving its margins. But improvement of its EBITDA margin
was only observed in Russia, while its Ukrainian and Polish assets are
performing worse. It looks like the company has decided to rely more on
external factors (beneficial input and output prices) rather than its
management efforts to produce and sell more, which is a very risky approach for
a heavily indebted company. We continue to treat Milkiland as a too risky
investment.