Avangardco improves its P&L in 3Q16 compared to 2Q

Ukraine’s leading egg producer Avangardco (AVGR LI, AVINPU) reported on Nov. 30 its 9M16 revenue dropped 37% yoy to USD 111.1 mln. The decline was a result of both output decline (production of eggs fell 31% yoy to 1,895 mln units) and lower prices of its key product, shell eggs (-6% yoy to USc 4.95 per unit). Its EBITDA was USD -10.0 mln, which was a significant improvement from USD -84.3 mln in 9M15.

Avangardco’s operating cash flow before working capital changes halved on a yoy basis to USD 14.0 mln in 9M16. Its net loss decreased to USD 38.8 mln in 9M16 from USD 150.5 mln a year ago. The company sold 1,093 mln of shell eggs (-53% yoy), including 904 mln in Ukraine (-54% yoy) in 9M16. Its sales of dry egg products fell 29% yoy to 6.2 kt, while the average price of its products improved 2% yoy to USD 5.66/kg.

In 3Q16 alone, Avangardco reported net revenue at USD 46.4 mln. This is 16% less yoy, but an 87% improvement from 2Q16. Its quarterly EBITDA was USD 2.45 mln, which is also a big improvement compared to 2Q16, when it reported EBITDA of USD -22.6 mln. The average price of a shell egg in the quarter was USc 4.37 per unit, which is 11% more qoq and 26% less yoy. The company also reported a seasonal increase in shell egg prices in 4Q16.

Avangardco’s laying hen flock reached 10.6 mln heads as of end-3Q16, which is a 23% decrease yoy and 2% decrease qoq. In the next quarter, Avangardco plans to keep its laying hen flock non-declining.

Avangardco’s total debt rose 3% YTD to USD 345 mln as of end-September, and its net debt increased 8% YTD to USD 331 mln. The company also reported it managed to reach an agreement with state Oschadbank on restructuring its debt (no debt value disclosed). In particular, it converted the loan into local currency from USD (at UAH 25.65/USD rate) and extended its maturity to 2022 from 2018.

Alexander Paraschiy: The qoq improvement in top line and EBITDA is definitely an encouraging event for Avangardco, which has been in a rut since mid-2014. At the same time, we note that most of the qoq improvement in top line was a result of “other” segment revenue, which brought USD 15.6 mln in sales, or 33% of its total (it has been historically less than 1%) and a comparable jump in sales to related parties (to USD 15.6 mln, from less than half a million in the previous quarters). Such operations, possibly with the involvement of related parties, look strange, to say the least. Meanwhile, its core segments generated USD 30.7 mln in revenue in 3Q16, which is 25% more qoq and 44% less yoy.

Otherwise, the company’s 3Q financials are better than we expected on slightly better achieved egg prices and possible cost-cutting efforts. We also suggest paying close attention to the results of the Oschadbank debt restructuring – a postponement of the loan repayment by four years is what the company could potentially offer to its Eurobond holders.