Avangards 9m 2015 results come-back is possible?

Following successful finishing of Eurobonds restructuring in October, financial results of Q3 2015 provide investors with another portion of slight optimism, as the company shows signs of fragile recovery. Having improved EBITDA margin up to 24%, in latest quarter the company demonstrated net income at USD 1.1M (though for 9m 2015 net loss amounts to USD 150.5M).

At the moment we have rather ambiguous view on the quality of presented financials (the company has already written down part of its assets, cleaning its balance sheet), so below we try to focus on reporting results, not being in position to provide our opinion on general situation. More detailed analysis of results can be possible only after understanding of currently reported financials quality.

So, reported for Q3 2015 total revenues made USD 55.1M, -43% vs. corresponding period of previous year, figures for 9m 2015: sales at USD 176.5M, by 50% lower than in 9m 2014. Average realization price in USD terms in 9m 2015 declined by close to 18%, due to UAH devaluation (in UAH terms average price grew by 60%, but it was insufficient to compensate for devaluation effect). Export sales made 40% of consolidated revenue in 9m 2015.

Profitability remains significantly lower vs. peers (for example Ovostar), which can be resulted from both lower efficiency and artificial decrease of profitability (for instance, one can assume, that main part of raw materials for fodder production is purchased from parent Ukrlandfarming). In Q3 2015 EBITDA margin of Avangard made 24% (vs. 44% for Ovostar), data for the whole 9m 2015 period is distorted by write-down of sub-standard raw materials, inventories of finished goods with expired shelf life, provisions from doubtful debts and cash placed in related bank. Apart from other issues the company was negatively affected by conflict in the East of Ukraine, as part of facilities has been situated in conflict zone or close to it.

Due to negative effect of mentioned impairments, write-downs and UAH devaluation, current balance sheet structure of Avangard looks weak, with Equity at USD 294M and Debt at USD 340M. On the other side Fixed Assets volume has been at USD 477.5M (so Equity is far from sufficient to cover Fixed Assets). On positive side is the fact that on 28 October 2015, AVANGARDCO IPL completed a successful restructuring deal and extended the maturity of the Eurobonds from 29 October 2015 to 29 October 2018. Restructuring gives the company a chance to concentrate on improvement of its operating and financial performance and therefore improve financial situation.

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