Milkiland EBITDA surges 89%, leverage halved in 2017

Dairy producer Milkiland (MLK PW) reported a further
improvement in its bottom line in 2017, according to its annual report published
on Apr. 30. While its revenue decreased 4.3% yoy to EUR 140.4 mln, its EBITDA
surged 89% yoy to EUR 10.3 mln. The key contributor to EBITDA growth was the
firm’s Russian assets, which generated EUR 6.7 mln (a 95% yoy surge) in EBITDA,
benefiting from Russia’s imposed restrictions on supplies of milk products from
Ukraine and the EU.

EBITDA at Milkiland’s Ukrainian business also
increased (21% yoy to EUR 3.7 mln), while its Polish assets remained
loss-making (negative EBITDA of EUR 0.054 mln). The company’s cash flow from
operations before working capital changes more than doubled yoy to EUR 10.2
mln, now almost coinciding with its reported EBITDA number.

Milkiland continued deleveraging by repaying net EUR
7.9 mln of debt in 2017. Its total debt decreased 15% yoy to EUR 86.6 mln and
net debt decreased 16% yoy to EUR 85.1 mln as of end-2017.

With such debt reduction, the company’s net
debt-to-EBITDA ratio halved to 8.3x as of end-2017, from 18.6x a year before.
At the same time, the company is still in the negotiation process of
restructuring its biggest debt facility (syndicated loan for EUR 48.8 mln).
Also, the company has an outstanding debt issue with a Russian bank, whom it
owes EUR 5.1 mln, and an ongoing bankruptcy procedure of its main Russian
asset, Ostankino plant. The company expects the procedure will “take a
significant amount of time” and said it is “actively seeking a mutually
acceptable way” to resolve the issue.

Alexander Paraschiy: Significant improvement of Milkiland’s EBITDA and operating cash flow
increases the chance that Milkiland will survive as a business. However, some
solution of the Ostankino case and syndicated loan are necessary for the
company to completely eliminate breakdown risks. We still consider Milkiland stock
to be a highly risky investment, despite the company’s improved financial
sustainability.