Monbat AD – MONB – Q4 2024 review

Management juggling maturing debt deadlines

Q4 2024 consolidated results

• The troubled battery maker has had a rough period over the last couple of years and the year end results for 2024 are painting a mixed picture. While Q2 2024 was showing deepening the crisis, Q4 results and events after the reporting period seem to show signs of dealing with the crisis but at the cost of taking major risks. Their main problems seem to be in 2 major and crucial groups – A) growing their sales and B) coping with the increased indebtedness and the portfolio of the lenders.
• Sales dropped 8% YoY to BGN 388.8 mln (at Q2 2024 there was an 8.2% YoY drop). The financial statements do not have an explanation why the drop took place. We can see that sales growth has been mediocre for the last years – 3.8% in 2023 and 0.6% in 2022. Such stale performance means that the management likely does not have a clear business development strategy or it is not putting the necessary effort and investment in expanding their sales networks. It is not clear if they have implemented such strategy with key sales professionals as the drop in Q2 was greater than the annual drop, i.e. there might have been an improvement in the second half of the year.
• We can see that the geographic markets are very diversified. The company has major presence in over 20 markets across the world, which are different by nature, mentality, ways of approaching sales and required certifications.
• It is understood that perhaps there must be different strategies for each market or at least each group (e.g. Eastern Europe, Western Europe, Africa, etc.) and proven experts in those markets should be hired. For this specific period (2024 vs 2023), 6 countries marked a double-digit percentage decline of sales. Unfortunately, besides Serbia, all of the others could be key markets, which could offer great sales potential as they are high GDP per capita countries – France, United Kingdom, Spain, Netherlands, and even Poland.
• Decreased sales were offset by the Operating profit of 4.8% to BGN 18.5mln and the growing EBITDA to BGN 42.3mln. The EBITDA margin grew by almost 0.8% to reach 10.9%. Yet, we have to take these positive signs with a pinch of salt. It would be nice to find signs of increased operational efficiency. However, the decline in OPEX is due to the 12.5% decline in the cost of materials account, which is also above 60% of OPEX. Had cost of materials remained at the same levels, the Operating profit and EBITDA results would not be so positive as Payroll (15.9% of OPEX) increased 12.3%, Hired services (11% of OPEX) increased 3.6% and Depreciation (6.4% of OPEX) increased 6.7%. It is not clear if the company was able to negotiate lower prices of the materials or the drop is the result of an overall macroeconomic shift, which is why it is not clear if the company has implemented a restructuring plan with a clear strategic vision. The lack of disclosure, however, suggests that this favorable drop was due to outside factors, i.e. the reasons were macroeconomic.
• Net Income showed an 18% increase to BGN 7.1mln. Earnings before taxes, however, marked a 44.3% decrease to BGN 9.4mln. The increase in Net Profit is due to much smaller losses from discontinued operations (BGN 3.7mln difference) and smaller taxes (BGN 4.8mln difference).
• Bond issue (ISIN: BG2100023170) liquidity hurdles – the company had a problem meeting the principal payment requirement in Q1 2024 in the amount of EUR 8.4mln (BGN 16.4mln) and after a call by one of the major bond holders for a general meeting of the bond holders to declare the issue as non-performing, the payment was done in full with a delay on 05.04.2024. The largest portion – 50% of the principal, or EUR 14mln (BGN 27.4), was due at the beginning of Q1 2025 and it posed credible questions about the availability of funds considering the presence of the other bank and leasing debt. The company managed to collect enough cash to repay the bond issue on 01.2025.
• The elephant in the room over the last year has been Monbat’s bank debt. Currently, it has over 33 bank loan facilities from 10 banks. When we started covering Monbat last year, it was clear that it would face liquidity problems as debt maturing in Q2 2024 was BGN 38mln and cash was less than BGN 10mln. In the same time, it was clear that enough liquidity had to be raised for the BGN 14mln repayment of the bond in Q1 2025. From the balance sheet of YE 2024 it is visible that cash was raised to BGN 17.8mln and that was made possible. From our conversations with the Investor Relations Director last year about their plans to meet bond and loan payments, we managed to conclude that their strategy was to renegotiate as many of the facilities as possible to further maturity dates and possibly find other debt.
• Too big to fail? The exposures to some of the banks are big and failure would get the banks into a territory they don’t want to get in – lower quality assets (NPLs) for their reporting, court proceedings, bad publicity, etc. Instead, banks could push for partial repayment to decrease exposure and negotiate a repayment plan with extended maturity date, while in the meantime collecting penalty fees and interest on the outstanding debt.
  • United Bulgarian Bank – their main banking partner with the largest exposure of BGN 55.2 mln in Q4 (BGN 50.5mln in Q1 and BGN 49.9mln in Q2). In 2024 they repaid some of the facilities and renegotiated the rest for later maturity dates. While it could be concluded that bank management had some worries about the abilities to repay the loans (considering the move of shorter maturity dates of the loans), they must have allowed further utilization as the exposure grew over 10% to over BGN 55mln. A large portion of that debt will be maturing in Q3 2025 (BGN 40.8mln), which likely means that there will be another round of negotiations for maturity extension.
  • Eurobank – It was their second largest exposure prior to Q2 2024, but even if they offered extension of loan maturities with 3 months, they have decided that they did not want to partner them in the future and nearly BGN 21 mln was repaid. As of year end 2024 there is no debt towards Eurobank.
  • DSK Bank – debt partially repaid; exposure decreased from BGN 13.9mln in Q2 to BGN 9mln in Q4.
  • Investbank – remains unchanged, exposure at BGN 19.6mln. However, the loans mature on 26.03.2025.
  • Raiffeisen Romania – while BGN 3.7mln out of BGN 7.7mln were repaid prior to Q2, by Q4 the exposure is back to BGN 7.8mln.
  • Raiffeisen Serbia – the same BGN 3.9mln exposure.
  • STB (Tunisia) – exposure dropped further from BGN 17mln in Q1 to BGN 15mln in Q2 to BGN 14.5mln in Q4.
  • Fibank – a new loan for EUR 10mln (BGN 19.6mln) was fully utilized in Q2. Another loan of EUR 15mln (BGN 29.3mln) was extended in Q4, of which BGN 21mln were utilized.
  • Mediocredito Italiano – Q2 had exposure of BGN 3.4mln, dropped to BGN 3.1mln in Q4.
• Maturities calendar and exposures in next year:
  • Q1 2025 – bank debt of BGN 32mln – Investbank’s 2 facilities for BGN 19.6mln, Raiffeisen Romania’s BGN 7.8mln and STB Tunisia’s BGN 4.7mln. The bond issue principal for BGN 27.4mln was also due, it was repaid.
  • Q2 2025 – BGN 9.1mln – DSK Bank BGN 9mln and a smaller facility by STB Tunisia.
  • Q3 2025 – BGN 41mln – United Bulgarian Bank’s BGN 40.8mln rolled exposure discussed earlier plus BGN 0.2mlb by STB (Tunisia)
  • Q4 2025 – BGN 3.9mln – Raiffeisen Serbia’s facility.
• We do not know the terms and conditions of the loans between Fibank and Monbat but we can guess that they are likely balloon payments at the end of the maturity. The company does not specify exact interest rate agreements, but if we assume that the range is between 4% and 7% annually (based on previous increases of exposures assumed to not be serviced), then between BGN 2mln and 3.5mln per year will have to be put aside to service these lines alone (assuming full utilization of the second facility). Considering Fibank is known to declare assets (loan collateral) callable fairly early after non-performance, then Monbat could face a litigation process where it has to part with the land, offices and other assets.
• The Cash at the end of Q4 was BGN 17.8mln. A large portion of that (BGN 14mln plus interest payment) was paid on 20.01.2025. Considering the maturities calendar above, it is unlikely that they will have the cash and the EBITDA to repay loan amounts. United Bulgarian Banks massive BGN 40mln exposure in Q3 would be impossible to be met, but they are likely to restructure that debt as the bank has shown signs that they seek such development.
• Investbank can agree to restructure the debt. Such move would keep their balance sheet in good terms. On the contrary, if Monbat has had indications from Fibank that they might be willing to finance them further, then a scenario of refinancing from a facility from them is also possible. So far Fibank has increased their exposure to Monbat to BGN 40.6mln (out of possible BGN 48.9mln). With that they improve their loan portfolio in the next couple of years, which can be a positive sign if the rumors of their sale turn out to be correct.
• Receivables from related parties – BGN 61.3mln, increased from BGN 55.8mln. It is likely that practically nothing of this account can be used to repay debt. 61% of that account (BGN 37.5mln) is receivables from Prista Oil Holding EAD, Monbat’s main shareholder with 42.73% of the shares. We do not have Prista Oil Holding EAD 2023 financial statements, but if they are similar to the 2022 financial statements, which are public, we can conclude that the majority of the cash (BGN 7.1mln out of BGN 9.5mln) is blocked servicing LGs for suppliers. Other receivables are from the owners of Prista Oil Holding EAD and associated companies owned by the same people.
• The ability of the management in the next quarters to negotiate with their banking partners will play a vital role in avoiding defaults on payments. In the same time, a greater effort in sales must be made to reap the potential of the diversified markets portfolio, which they have, but hardly use. Share NAV value shows that the company is undervalued, but it is possible that investors take into account the financial risks of the very high leverage that they have, which is shown by the steady decline over the last 12 months. One thing is sure – radical reforms in their financial management and the sales organization are needed.

Full report can be read here.