Avangardco sees zero to negative EBITDA in 2Q15

The management of Ukraine’s largest egg producer Avangardco (AVGR LI, AVINPU) said on May 29 that it expects further deterioration of its financials in 2Q15: the company may break even on EBITDA or report losses for the period, having reported EBITDA of just USD 6.6 mln in 1Q15 (-90% yoy). The key reason for such a drastic performance, as management puts it, is the inability to pass growing production costs onto customers. In 1Q15, the average selling price of Avangardco’s eggs grew 60% yoy to UAH 1.07 per unit, while production costs surged 130% yoy to UAH 1.01 per unit.

Moreover, management sees a further decrease in the laying hen flock to around 14.5 mln by the end of 2Q15, after the flock fell 37% yoy to 16.6 mln heads in March 2015. The company referred to growing egg production by households during macro downturn times as a reason for the decline in its business.

Regarding an upcoming repayment of USD 200 mln in Eurobonds scheduled for October, the company said it will give certain clarity to its creditors later, declining to offer details on what the restructuring might look like.

Roman Topolyuk: The company’s guided further decrease in its laying hen flock, which will cause a decline in egg production, contradicts with the previous outlook from management that egg sales would be flat yoy in 2015. Assuming the average laying hen flock remains at 15 mln in 2015, we project total shell egg production of 3.8 bln units (-39% yoy), which will exacerbate the divergence in costs and price development and worsen financial performance. Expectations of negative or close-to-zero EBITDA in 2Q15 are impairing Avangardco’s ability to prepay at least some part of the USD 200 mln Eurobond due in October, which may make the terms of the anticipated restructuring not very friendly at all.