Ovostar revenue rises 6%, EBITDA drops 33% in 1H17

Net revenue at Ukrainian egg producer Ovostar (OVO PW)
rose 6% yoy to USD 36.5 mln in 1H17, according to its interim report released
on Aug. 30. Exports contributed to that growth with a 16% yoy increase in
revenue (to USD 14.9 mln), while revenue from domestic sales was flat yoy. Its
egg product segment was key growth driver as its revenue swelled 11% yoy to USD
10.9 mln. Revenue in its shell egg segment climbed just 4% yoy (to USD 24.9
mln) as egg sales rose 9% yoy to 518 mln units.

Ovostar’s EBITDA decreased 33% yoy (or USD 3.5 mln
yoy) to USD 7.0 mln, which was the result of faster cost growth (COGS increased
15%, or USD 3.7 mln yoy), higher selling costs due to intensified exports (up
20%, or USD 0.4 mln yoy), as well as due to a negative gain from revaluation of
biological assets. Government subsidies contributed just USD 0.008 mln to
EBITDA in 1H17 (down from USD 0.111 mln a year before). The company’s bottom
line fell 57% yoy to USD 3.9 mln in 1H17.

Its operating cash flow before working capital changes
fell 18% yoy to USD 7.9 mln, and its cash outflow for investments fell 24% yoy
USD 6.6 mln in 1H17. Its net debt decreased to USD 2.1 mln as of end-June 2017,
which is 32% less YTD and 60% less yoy.

Alexander Paraschiy: The key
frustration from the company’s results is that it was not able to secure
government subsidies, unlike its peer MHP, which got in 1H17 as much subsidies
as in 1H15 (Ovostar got USD 2.1 mln in 1H15).

Prices for shell eggs in Ukraine have been
accelerating since the beginning of August, and we see these prices will
seasonally grow faster in 4Q, which will allow the company to show better
profitability in 2H17.