Avangardco reports 1H16 EBITDA at negative USD 12.6 mln

Ukrainian egg producer Avangardco (AVINPU, AVGR LI), being a subsidiary of Ukrlandfarming (UKRLAN), reported EBITDA of negative USD 22.6 mln in 2Q16 compared to negative USD 103.3 mln in 2Q15 and positive USD 9.6 mln in 1Q16, according to its financial statements published on August 31. If adjusted for non-cash, one-off items, the adjusted 2Q16 EBITDA almost broke even at negative USD 0.7 mln. Among the key factors was a sharp decrease in the average selling price of an egg (-33% qoq to USD 0.0396/unit in dollar terms).

For 1H16, EBITDA was negative at USD 12.6 mln, or positive USD 9.3 mln, if adjusted for non-cash items. Net operating cash flow was virtually zero in 1H16 (minus USD 0.8 mln from USD 3.3 mln a year ago), as operating cash flow of USD 11.6 mln was absorbed by working capital investments. The company stated its maintenance CapEx was USD 9.2 mln in 1H16 (-38% yoy), while its total recorded purchase of PP&E came in at USD 11.1 mln (-31% yoy).

Management said it sees a stable laying hen flock and shell egg sales amid an expected recovery in selling prices in 2H16, while sales of egg products might improve.

Roman Topolyuk: Avangardco’s adverse 2Q16 financial results came in line with our expectations as shell egg prices plunged to the level of production costs. The company’s accounts suggest it continues to burn cash (CapEx represented an additional charge of 14% of revenue, which is too high for maintenance investment). We anticipate the company may struggle to pay its 5% cash coupon in October 2016 (compared to 2.5% in April, as restructuring terms suggest) and may approach bondholders for another concession. We maintain our negative view on Avangardco’s and Ukrlandfarming’s Eurobonds.