Ovostar - Q4 2016 operating report

23 January 2016

Despite all difficulties one of the leading Ukrainian eggs producer demonstrated good operating results both in latest reporting quarter and Y2016 in general. The company keeps to its investment plan with the aim to increase egg production by Y2018 up to 2bln pieces.

In line with previous plans total flock of Ovostar further increased up to 7.6M (thereof 6.5M laying hens flock) from 7.2M as of 30.09.2016 and 6.5M in the beginning of Y2016. Eggs production in Q4 made 401M, on the level of previous quarter and by 30% more than in Q4 2015. In total in Y2016 Ovostar Union produced 1 479M eggs (+23.7% y-o-y), so the company duly fulfilled its Y2016 production plan.

Shell eggs sales in Q4 2016 made 288M, thereof 24% - export, which declined by 24% vs. Q3, but still grew by 23% vs. corresponding period of previous year. One of possible reasons of such dynamics can be significant growth of domestic prices in October (please see below), so the company somewhat switched its realization to domestic markets. In any case eggs and egg processing products export remain main Ovostar priority for the nearest future, as purchasing power of Ukrainian population remains low.

In general we consider latest quarters shell eggs sales dynamics of the company as quite good (especially taking into account decline of Ukrainian eggs production in Y2016 which made 10% vs. previous year (moreover production by enterprises fell by 17%)):

Ovostar Union eggs realization volumes

For the whole Y2016 Ovostar shell eggs sales made 1 054M pieces (+22.3% y-o-y), domestic realization increased vs. previous year by 18% (up to 747M eggs), export by 34% (307M).

Average realization price in last quarter made UAH 1.67/egg, vs. 1.16/egg in previous quarter, but lower than figure for Q4 2015 (UAH 1.77/egg). Growth of domestic shell eggs prices in autumn is usual seasonal pattern for Ukraine, in current season producers increased their prices by 50% in October, then in November correction followed with relative stabilization thereafter.

In Y2016 average realization price made UAH 1.35/egg, close to Y2015 level, which means that in USD terms average price declined vs. previous year by about 15%. Taking this into account, we estimate that sales of the company in Q4 have been close to last years USD 23M, EBITDA about USD 7M. For the whole Y2016 estimations are USD 76M of revenues (flat y-o-y) and USD 21M of EBITDA (USD 35M in Y2015), main reason of decline average price in USD terms decrease.

Average quarterly realization prices of Ovostar (and its profitability in corresponding quarters) during last period of time looked as follows:

Average eggs realization price of Ovostar

Eggs processing volumes in last reporting quarter made 100M pieces (on the level of Q4 2015), in Y2016 407M (+17% y-o-y).

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