Ukrlandfarming reports 44% EBITDA drop in 2015

Ukraine’s largest crop farming company Ukrlandfarming (UKRLAN) reported a 40% yoy drop in net revenue to USD 937.5 mln and a 44% yoy plunge in EBITDA to USD 243.0 mln in 2015, according to its May 10 release. Its IFRS-based operating profit tanked 88% yoy to USD 31 mln in 2015. The key contributor to the negative performance was its egg and egg product business (consolidated in the Avangardco company), having reported a negative operating profit of above USD 80 mln.  Farming was the key positive contributor to its EBITDA, accounting for 71% of the total, based on our estimates.

Net operating cash flow, less coupon payments, dropped by almost half to USD 11.6 mln in 2015. CapEx fell 50% yoy, though was still impressive at USD 140 mln, while 66% of its total CapEx was recorded in the farming segment. Most of the rest of its investments was allocated to egg production.

Ukrlandfarming’s total debt declined 4.5% yoy to USD 1,601 mln as of December 2015, while its total debt-to-EBITDA ratio surged to 6.59x, compared to 3.86x a year ago. Its end-2015 net debt amounted to USD 1,539 mln (+3.8% yoy).

Roman Topolyuk: Based on our estimates, Ukrlandfarming earned EBITDA of USD 324 per hectare of cultivated land in 2015 (-14% yoy). The result is closer to what the company’s local peers reported recently, which is a sign that Ukrlandfarming is normalizing its reported EBITDA per hectare ratio, compared to its 2012 result that was more than three times higher (USD 1,086/ha).

While having adjusted its EBITDA per hectare to the levels of its peers, Ukrlandfarming continued to employ an excessive CapEx program, which is cause for significant concern. We don’t see projects to which such considerable investments could be attributed.

Ukrlandfarming’s 2015 earnings power (the adjusted net operating cash flow of USD 12 mln) was so low that we think the company has little capacity to accumulate USD 778 mln by 2018 to repay Ukrlandfarming its USD 542 mln in Eurobonds and Avangardco’s (AVINPU) USD 236 mln in Eurobonds. With its total debt-to-EBITDA ratio of 6.59x, its ability to refinance these facilities is limited. We reiterate our bearish view on UKRLAN and AVINPU.