11 September 2017
Due to further deterioration of Ukrainian eggs market situation, in reporting period financial performance of the company worsened vs. previous year, but remain much better vs. results of competitors. We note good financial standing of the company.
EBITDA margin, %
Total shell eggs production in H1 2017 made 815M pieces (+22% y-o-y). Shell eggs sales volume grew by 9% up to 518M eggs, however we note that in Q2 sales volume made 242M pieces, which was by 11% lower y-o-y and by 12.5% lower vs. Q1 2017.
By our opinion, taking into account significant decrease of local shell eggs prices in reporting period, while export dynamics has been good, the company decided to decrease local sales (-30% y-o-y) to at least partially maintain profitability. At account of domestic sales Ovostar increased eggs processing volumes – in Q2 they grew y-o-y by more than 30%.
Shell eggs export dynamics remain good – in Q2 2017 Ovostar increased their volume up to record-high quarterly figure of 104M eggs (+37% vs. Q2 2016), while for H1 2017 shell eggs export volume comprised 186M pieces (+28% y-o-y).
In general since the beginning of current year and till the end of June Ukrainian domestic eggs prices declined by more than 35%, but for Ovostar dynamics has been better. In H1 2017 average shell eggs selling price of the company made UAH 1.3/egg (vs. lower than UAH 1/egg for the largest as of today Ukrainian producer – Avangard).
Despite negative situation on Ukrainian local eggs market, total revenues of the group in H1 2017 made USD 36.5M, by 6% higher y-o-y.
60% of Ovostar proceeds (USD 21.6M) made domestic sales (have been flat y-o-y in money terms), 40% - export (though in Q2 proportion has already been almost 50/50).
In money terms total Ovostar export increased y-o-y by 15% and made approximately USD 15M. Main export destination – countries of Middle East with the share of 70%, followed by EU with 21%. At the moment Ovostar takes leading position among Ukrainian eggs exporters (in reporting period total export proceeds of Avangard made USD 12.5M, sheel eggs export in natural terms has been by 45% lower of Ovostar figure).
In H1 2017 EBITDA of Ovostar made USD 7M with margin of 19% (in H1 2016 – USD 10.6M and 31% correspondingly). Decrease of margin has been expected, taking into account above-mentioned situation with local eggs prices in Ukraine, we expect margin to increase starting from Q3, taking into account market seasonality and gradual export volumes recovery.
As for operating cash flow of the company, in H1 2017 it made USD 8.6M and was directed mainly for investment program realization – in reporting period total investments made USD 6.6M (mainly increase of biological assets – laying hens number). Balance sheet structure of Ovostar remains good:
Balance Sheet structure