Milkiland halves net loss, EBITDA, improves cash flow in 2016

Dairy producer Milkiland (MLK PW) published its delayed annual report for 2016 on May 19. Based on the report, its net revenue decreased 23% yoy to EUR 146.8 mln, with sales facing a double-digit-percent decline in all its three geographical segments (Russia, Ukraine, Poland). Its EBITDA decreased 45% yoy EUR 5.4 mln, due to a 62% yoy decrease in Russia and 19% yoy decrease in Ukraine. Its operating cash flow before working capital changes fell 53% yoy to EUR 4.9 mln, while its cash flow from operations improved to EUR 9.5 mln (up from negative EUR 5.8 mln a year before). Positive cash from operations, as well as the divestment of minor assets, allowed the company to slightly decrease its leverage: Milkiland’s total debt and net debt decreased 5% yoy (to EUR 102.3 mln and EUR 101.2 mln, respectively).

At the same time, the company’s net-debt-to-EBITDA ratio skyrocketed to 18.6x as of end-2016, from 10.8x as of end-2015. Moreover, the company remained in default on most of its debt (at least 64% of total), including EUR 55.6 mln in syndicated loan from subsidiaries of UniCredit and Raiffesen banks and a total of EUR 9.8 mln from Poland’s Pekao, Russia’s Vozrozhdenie and Ukraine’s failed Forum Bank. The company expects to resolve the outstanding issues with creditors this year.

Alexander Paraschiy: The company’s 2016 EBITDA has hit a record low and its financial leverage has reached a record high, with unclear prospects for their improvement. Adding the increased pressure from smaller creditors amid the inability of the company to again finalize the restructuring of its largest loan facility, we see that the risk for Milkiland of losing some of its major assets is significantly increasing. All this makes Milkiland one the most risky stories in the Ukrainian equity universe. At the same time, we still see a good chance that the company will survive and return to investors’ radars in 2-3 years.