FINANCIAL AND OPERATIONAL RESULTS 2016: ANALYSIS AND CONCLUSIONS. 21 December, 2016

Transcription

1 FINANCIAL AND OPERATIONAL RESULTS 2016: ANALYSIS AND CONCLUSIONS 21 December, 2016

2 Key Financial and Operational Results in the 2016 Season /02 The 2016 season has been a difficult season for Mriya. The company faced challenges in operations caused in large measure by operational and financial problems inherited from the previous owners and delays in the current W/C financing. Also, difficult weather conditions as well as problems caused from continued hostile actions from previous owners & managers had a negative impact. These challenges have resulted in lower overall operational performance of the company and in lower yields and a lower planted area than had been initially planned. Despite all the challenges, Mriya has made significant progress implementing the optimization of its organization and raising the internal efficiency of the company. Farming operations have been reorganized into 7 clusters and more than 30 operational and administrative business processes have been reengineered and implemented across the company. As part of further optimization of the farming operations, management plans to divest 11k ha of sub-optimal land in 2017 & 2018 and use proceeds in 2019 to invest in land in optimal regions. Forecast for revenues from the sale of the 2016 harvest has been revised to $92,9 million, which constitutes 18% reduction from the June forecast. Net cash flow for the operational year 1 July June 2017 is forecasted to be minus $5 million as a result of lower revenues (partly compensated by lower costs). The difficult operational circumstances during the 2016 season has forced the management to revise the long term operational plan and to treat the 2017 season as an additional transition year to reach full operational capacity for the 2018 season. Also, the investment requirements for agricultural equipment for the period were increased by $20,4 million, including the non-fulfilled part of the plan for the 2016 season. The additional machinery capacity will ensure greater compliance with agronomic deadlines and technology and thus will improve productivity and the quality of field works in the coming seasons. In addition to the changes in the 2016 and 2017 cash flow and EBITDA forecast, the management has updated its long term strategic plan and adjusted crop structure, added sugar beets in crop rotation for next season, revised yields and prices. Overall, this update does not materially change forecasted long term EBITDA and management has maintained with the forecast for the annual EBITDA in full operational capacity in the range of $65-70 million. The company presented this plan to both Coordinating Committees of Creditors (CoComs). Both CoComs remain supportive of the restructuring of the company on the terms set out in the Heads of Terms published on 12 September The company is finalizing restructuring discussions with one remaining secured creditor. In accordance with the presented restructuring Heads of Terms, the creditors will become the key shareholders of the company after implementation of the restructuring which is expected to be completed in the first half of The company is establishing a Supervisory Board in the first quarter 2017, which will consist of 5 members appointed by the creditors. Also, as part of the implementation of the best international practices, the company has added 2 new independent experts to its Agronomy Management committee.

3 Updated Management Forecast for 2016 Season /03 Crop *Actual for winter wheat, rapeseed & barley, latest estimated for corn, soybeans, sunflower & potato ** Without VAT Comments Price**, Price**, Revenue, Revenue, Sown, kha Sown, kha Sown Yield, mt/ha Yield, mt/ha Yield Price USD/mt USD/mt mln USD mln USD plan/june actual % plan/june actual* % plan/june actual % plan/june plan Winter crops Winter wheat 61,3 61,3 0% 4,3 4,3 0% 150,0 149,0-1% 39,5 39,1-1% Winter rapeseed 6,6 6,7 1% 0,8 1,2 55% 411,0 390,0-5% 2,2 3,2 47% Spring crops Corn 9,3 9,2-1% 7,0 5,1-28% 155,0 160,0 3% 10,1 7,4-26% Soybeans 6,7 6,0-10% 2,1 1,2-45% 350,0 365,0 4% 4,9 2,6-48% Sunflower 45,8 42,6-7% 2,1 2,0-5% 378,0 322,5-15% 35,8 27,5-23% Barley 12,7 12,7 0% 3,8 4,4 16% 146,0 142,0-3% 7,0 7,9 13% Spring rapeseed 9,8 8,5-13% 1,5 1,0-33% 411,0 390,0-5% 6,1 3,3-46% Potatoes 2,0 2,0 0% 30,0 14,5-52% 122,2 65,0-47% 7,3 1,9-74% Total 112,9 92,9-18% Not all the area initially planned to be sown with sunflower was planted due to late start of the sowing campaign. The decrease in the area sown with soybeans is a result of the loss of crops due to drought. The potato campaign suffered from late planting, insufficient dedicated equipment and drought in July - August, resulting in significantly lower yields and low quality crop, which has impact on prices. Prices for main commodities are slightly higher than budgeted, which partly compensates the lower than budgeted yields. Revenue %

4 Key Factors Determining Low 2016 Crop Yields and Performance /04 Factor Less intensive production technology applied Reason Late W/C financing led to delays in supplies to spring campaign for all inputs (fertilizers/ seeds/ chemicals) and, as a result, the company used less intensive production technology with generic chemicals and started spring field works with delay. Consequently, field works in May - July were compounded with soil preparation and fertilizing from early spring and led to non fulfillment/higher risk technology. Insufficient productivity of machinery and equipment Insufficient investments into machinery, spare parts and equipment (partial seasonal use) due to late W/C financing. Poor and worn-out condition (worse than expected) of machinery fleet led to repeated breakdowns (particularly tractors and sprayers). Hostile takeover of assets in Khorostkiv led to temporary blocking part of the machinery park and the company s central spare parts warehouse. That caused operational disruptions leading to delays and interruptions in harvesting. Organizational issues in planning of field works at cluster level following the re-organization of the operational activities in 7 clusters implemented at the end of Underestimated needs of machinery and equipment required for potato farming as well as lack of sprayer capacity had bad impact on the performance of potato segment. Unfavorable weather conditions Prepayments EBITDA 2016 performance Drought in July - August that had bad impact particularly on potatoes, corn and soybeans. Excessive rain in October and unprecedented early snow in November impacted on the harvest progress and quality of crops. Mriya didn t receive prepayments for the sale of crops in 2016/2017 as it had been planning. Due to delay in implementation of the debt restructuring, the management doesn t plan receipt of prepayments in May - June 2017 and plans to start using it only for the 2018 season after closing of restructuring. Key factors that resulted in decrease in EBITDA 2016 were lower than expected yields (especially potato yields) and high direct production costs (i.e., higher than budgeted land lease costs and restructuring expenses).

5 Key Factors of Improving Results in 2017 Season /05 Operational Management made significant progress in implementing standard procedures in the material areas of production across the company. The 1C ERP accounting system has been implemented with an integrated GPS/GIS farming system providing automated planning and reporting about stage of field works and crop input usage. Personnel development and motivational programs have been introduced with focus on improving production level. Appointment of 2 independent experts on the Agronomy management Committee. Land bank is further optimized through divestment of 11k ha of sub-optimal land. Diversification of crops and addition of sugar beet growing into the crop rotation schedule. Hiring of renown international consultants to assist in technology for potatoes production. Yields Mriya expects to achieve much better yields for 2017 crop through: Timely procurements and application of seeds, fertilizers and crop protection chemicals and also its more intensive usage. Improvement of agricultural machinery fleet. Change of the structure of sown areas by regions, taking into account the previous seasons experience and climate conditions. Implementation of measures to reduce the impact of weather conditions. Reduction in SG&A costs (farming segment) SG&A costs are expected to be reduced by $3,1 million (from $16,1 million in 2016 to $13,0 million in 2017). The cost reduction will be achieved by reductions in salaries, social budget and savings on administrative expenses in connection with the completion of the debt restructuring process and implementation of the legal restructuring.

6 Management Forecast for 2017 Season /06 Crop Price***, Price***, Revenue, Revenue, Sown, kha Sown, kha Sown Yield, mt/ha Yield, mt/ha Yield Price USD/mt USD/mt mln USD mln USD 2016 actual 2017 plan % 2016 actual* 2017 plan % 2016 actual 2017 plan % 2016 plan 2017 plan Revenue % Winter crops Winter wheat 61,3 40,9-33% 4,3 5,0 17% 149,0 160,3 8% 39,1 32,8-16% Winter rapeseed 6,7 14,7 119% 1,2 2,0 61% 390,0 409,8 5% 3,2 12,0 271% Spring crops Corn 9,2 16,3 78% 5,1 6,0 18% 160,0 161,3 1% 7,4 15,8 112% Soybeans 6,0 21,2 251% 1,2 1,8 55% 365,0 358,0-2% 2,6 13,7 433% Sunflower 42,6 26,1-39% 2,0 2,2 10% 322,5 331,1 3% 27,5 19,0-31% Barley 12,7 25,3 100% 4,4 4,7 7% 142,0 146,9 3% 7,9 17,5 120% Spring rapeseed 8, , , ,3 - - Potatoes 2,0 0,7-66% 14,5 25,0 72% 65,0 108,0 66% 1,9 1,8-2% Sugar beets** - 3,0 100% - 40,0 100% - 500,0 100% - 4,4 100% Total 92,9 117,0 26% *Actual for winter wheat, rapeseed & barley, latest estimated for corn, soybeans, sunflower & potato **0,073 mt of sugar in result of processing of 1 mt of sugar beets. ***Without VAT

7 Expected Financials for Seasons /07 Key factors for increasing EBITDA Cash Flow Increase in yields as a result of improvement of quality of fields works and improvement of operational efficiency. Reduction in SG&A costs following completion of the debt restructuring and legal reorganization. Positive EBITDA from potato and sugar business. EBITDA Plan for season (in mln USD) 2016/ / / / /21 Farming 9,6 29,0 44,2 48,6 50,2 Grain elevators 5,3 5,4 5,1 5,4 5,5 Sugar 0,0 2,0 4,6 8,9 9,4 Potatoes -0,8 0,4 2,7 6,6 6,8 Total 14,0 36,8 56,5 69,4 71,9 Item Plan for season (in mln USD) 2016/ / / / /21 Cash at the beginning of the period 4,3 2,5 7,5 5,0 6,2 Cashflow from operating activities 6,9 47,5 68,8 62,0 73,2 Cash proceeds from operating activities 101,2 133,4 157,3 159,6 177,5 Operational costs -94,3-85,9-88,5-97,6-104,4 Cashflow from investment activities -13,5-15,4-22,0-13,5-10,2 Investment income 2,4 0,9 1,1 0,0 0,0 CapEx -13,9-13,7-20,6-11,0-8,7 Land registration and contracts resigning -2,0-2,7-2,5-2,5-1,5 Cashflow from financing activities 4,8-27,1-49,3-47,3-47,1 WC Debt (till 46 $mln.) 19,0 0,0 0,0 0,0 0,0 Repayments of existing secured debt -1,9-3,8-15,8-15,8-17,7 Interest on WC Debt -5,2-5,5-5,5-5,5-5,5 Interest on secured debt -7,1-6,1-7,4-5,4-3,3 Interest on Loan A / roll-ups 0,0-11,7-20,6-20,6-20,6 Cash at the end of the period 2,5 7,5 5,0 6,2 22,2

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