Milkiland P&L worsens, loses part of Russian assets

Dairy firm Milkiland (MLK PW) reported a 0.4% yoy
decrease in net revenue to EUR 65.88 mln and a 85% yoy plunge in EBITDA to EUR
0.53 mln in 1H19, according to its interim report of Aug. 31. The company’s net
loss widened 2.9x yoy to EUR 7.28 mln. Its operating cash flow before working
capital changes withered 91% yoy to EUR 0.35 mln, while net cash flow from
operations surged 9.4x yoy to EUR 8.85 mln, mostly due to increased payables by
EUR 8.12 mln during the period.

The company got a new lender for part of a syndicated
loan amounting to USD 29.29 mln (out of a total of USD 58.58 mln) and is in
talks with the new lender on restructuring this debt. Also, the creditors of
its biggest Russian unit, Ostankino Dairy, have sold some of its assets (as a
part of its bankruptcy procedure) for EUR 9.5 mln. As a result of the sale,
Milkiland posted a EUR 4.76 mln loss from asset disposal. Meanwhile, Milkiland
will lease the assets needed to operate Ostankino Dairy from the new owners. On
top of that, Milkiland reported that it stopped the operations of its Polish
subsidiary in August due to its weak financial results, with plans to revise
its business model.

We estimate the company’s net debt decreased 8.6% yoy
and 4.4% YTD to EUR 79.3 mln as of end-1H19. Milkiland’s net debt to LTM EBITDA
remained almost unchanged YTD at 40.5x.

Alexander Paraschiy: The situation in the company is worsening as the only source of its
cash flow generation in 1H19 was increased payables, which now exceed EUR 80
mln. On top of that, it is gradually losing its Russian assets, which generate
most of its profit, while its Polish assets continue to eat away cash. So far,
we see no initiatives that could bring about a turnaround. Therefore, the risk
of the company splitting apart remains high.