Ukrlandfarming revenue drops 7%, bottom line halved in 1H14

Обзоры по компаниям и отраслям 03.10.2014 Ukraine’s leading agri- and food holding Ukrlandfarming (UKRLAN, ULF) reported a 7% yoy drop in its net revenue to USD 923 mln in 1H14, with both its egg production subsidiary (-14% yoy) and other operations (-4% yoy) being contributors to the decline. The holding’s EBITDA declined 7% yoy to USD 656 mln, we estimate, solely due to a 21% yoy fall in revaluation gains (which fell to USD 259 mln in 1H14). At the same time, the holding reported a 50% yoy increase in benefits from implicit and explicit government support, which amounted to USD 102 mln in 1H14 and contributed 16% to the holding’s total 1H14 EBITDA. Its LTM EBITDA amounted to USD 796 mln (-5% compared to the results of the full year 2013), the company reported. Its USD 185 mln in losses related to exchange differences were the main factor for its 51% yoy bottom line decline to USD 305 mln. ULF’s operating cash flow before working capital changes improved 6% yoy to USD 403 mln, while total cash flow from operations declined 42%yoy to USD 183 mln. The holding radically decreased its investment activity in the period, reporting increases in property, plant and equipment of USD 185 mln (down 72% yoy) in 1H14. With a positive free cash flow, the company managed to reduce its net debt by USD 119 mln YTD to USD 1,250 mln, as of end-1H14. Its total debt decreased USD 117 mln YTD to USD 1,550 mln and its total debt/LTM EBITDA ratio corrected slightly to 1.95x as of end-1H14 from 1.99x at the year start (vs. a Eurobond covenant of 3.0x). Alexander Paraschiy: ULF’s 1H14 results look encouraging, though in the following quarters its P&L might get much worse. The main factor would be a rapid decrease in prices for its main output, corn, which fell by about a third since the end of 2Q14. We are not sure that the holding accounted for this price correction when estimating its end-1H14 biological assets. Therefore, we see a high risk that ULF’s EBITDA will be corrected downward in the coming quarters and its financial leverage multiplier will increase. At the same time, we expect the multiplier will remain safely distant from the covenant, at least based on the results of full year 2014.