29 August 2016
Second quarter of Y2016 was not the most successful for the company, as because of Ukrainian retail eggs prices decline, profitability of activity significantly dropped. On the other side, taking into account good financial standing of Ovostar, active development of its export operations, we maintain our positive view on future activity of the company.
EBITDA margin, %
Realization in money terms in both Q2 and 1H 2016 remained on the level of previous year, as growing sales in natural terms offset prices decline. In natural terms shell eggs realization grew by 12.6% vs. 1H2015; export increased by 48% (the share of export in total shell eggs sales made more than 30%), while domestic realization has been stable. On the other side in 1H 2016 realization price in UAH increased y-o-y by 5.8% (UAH 1.27), while in USD – declined by 11%. Factually domestic prices slumped in March-April (so that average realization price in Q2 made UAH 1.09 vs. UAH 1.52 in Q1, main reason was oversupply of local market due to lower than expected export, not related to Ovostar activity, but to competitors’ operations), but somewhat rebounded in May-July (basing on official statistics data Ukrainian domestic retail prices in July have been higher than in April by 12%), so in Q3 situation is expected to partially improve.
Because of eggs products export growth, the volume of shell eggs processed increased by 24% year-on-year to 199M eggs. Important here to stress (and it was specially noted by CEO – Mr. Boris Bielikov – in his statement) that in reporting period the share of liquid and dry egg products export into EU made 9% of total revenues volume, which is very good result, as Ovostar started its export into EU only in 2H2015.
Because of mentioned prices drop in last reporting quarter profitability of operations significantly decreased: GPM made 25% vs. 43% in Q1. In addition, because of changes in VAT regulations since the beginning of Y2016, other operating profit of the company declined from USD 2.155M in 1H2015 to USD 0.341M. All a/m factors led to decrease of EBITDA margin to 31% in 1H2016 (vs. 47% a year ago).
Balance Sheet structure
Balance sheet structure and quality of Ovostar remains good, as debt burden is low, the company has very good margin of safety in its activity. Interesting to note here the fact that because of high cash balance (USD 12.6M as of 30.06.16) and low interest rates on disbursed loans of the company (close to 3%), in 1H2016 interest income of the company exceeded interest expenses. On the other side main part of cash position of the company as of 30.06.16 was nominated in UAH, which means risk for the case of further UAH devaluation.