Ukraine Markets Daily (December 01, 2016)

Market news

  • Avangard reduced net loss for 9M2016 by 74% y/y

Market comment

The UX index was up by 1.1% Yesterday, and the PFTS index increased by 0.2% (in UAH terms). The WIG-Ukraine index was up by 0.7%. On the interbank exchange market, the USD/UAH was up by 0.3% to UAH 25.55 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 25.56.


Avangard reduced net loss for 9M2016 by 74% y/y

On November 30, 2016, AvangardCo IPL (Avangard) - the largest producer of shell eggs and dry egg products in Ukraine presented its interim financial reports for the nine months ending on September 30, 2016, according to which the company reported a net loss of USD 38.8 mn (-74% y/y), compared with a net loss of USD 150.5 mn in the corresponding period of the previous year. The company’s revenue amounted to USD 111 mn (-37 mn y/y) over the period, as revenue from finished good contracted by 45.9% y/y to USD 95 mn. An increase in the average price of shell eggs by 12% y/y could not offset the loss from the reduction in shell eggs production by 31% y/y and sales by 53% y/y (to 1.09 mn units) as a result of the contraction in the stock of laying hens (-23% y/y) and shell eggs exports (-53% y/y due to continuing turbulence in the Middle East), as well as persisting weakness of the purchasing power on the domestic market. Avangard reported a negative EBITDA of USD 10 mn (-88% y/y), improving from –USD 84.3 mn for the corresponding period of the previous year, leaving a negative EBITDA ratio. As at September 30, 2016, the company's total debt amounted to USD 345.3 mn (+1.6% y/y), expanding at the expense of capitalized interests, and leaving a Net debt of USD 331 mn. Avangard reported a reduction of cash flow before working capital changes by 50.6% y/y to USD 14.0 mn, leaving a negative cash outflow from operations amounting to USD 4.6 mn. The change in the tax regulation, resulting in increasing tax burden on poultry companies, together with expansion in account payable have eroded operating cash flow. Meanwhile, the company reduced the cash used in investing activities by 72.3% y/y to USD 8.4 mn. The volume of cash used in financing activities decreased by 41.3% y/y thanks to reduction of payments on loans. The company’s assets decreased by 20% y/y to USD 548.4 mn on reduction of the stock of laying hens and some revaluation of plants and other properties. In the meantime the volume of trade accounts receivable fell by 45% y/y, whereas the company reported a contraction in the balance of cash and cash equivalent by 66% y/y to USD 14.3 mn. Avangard’s total liabilities remained unchanged at USD 390 mn, as the capitalization of the portion of the coupon payment on Eurobonds offset the reduction in the volume of banks’ loans. Meanwhile, in August of the current year Avangard successfully restructured its debt to state bank Oschadbank, extending the debt maturity to 2022 with a grace period until 2018, while agreeing on an annual interest rate of 12.5% per annum, according to the management report. The company’s equity dropped by 46% y/y mostly due to the depreciation of the national currency.

Our view:

Despite the reported negative results the company made substantial advances in rebalancing its financial position, benefitting from the stabilization of the national currency, and reducing among others the loss from the depreciation of the national currency. In the meantime, Avangard demonstrated some success in cost management. We also positively assess the results of the company’s debt operations, especially the restructuring of liabilities to banks. Though still suffering from the weak domestic environment and geopolitical turmoils, we see the company to receive support from the recovering purchasing power, from the ongoing market diversification, as well as improvement in the management of the company, especially toward cost reduction.