Astarta EBITDA surges 72%, Forex headwind extends net loss in 1Q20

Ukrainian farmer and leading sugar producer Astarta
(AST PW) reported a 10% yoy decline in net revenue to EUR 101.3 bln in 1Q20.
The main factor was a 33% yoy decline in agro produce sales. At the same time,
the company’s EBITDA surged 72% yoy to EUR 27.8 mln, which mostly a result of
decreased farming COGS. Devaluation of the hryvnia, the company’s functional
currency, vs. hard currencies resulted in a EUR 18 mln in Forex losses, which
caused a bottom line of negative EUR 13.3 mln (up 2.7x yoy) in 1Q20. 

Astarta’s net debt fell 31% yoy to EUR 227.7 mln and
net debt to LTM EBITDA ratio improved to 2.54x as of end-1Q20, from 4.64x a
year before. Nevertheless, the company reported it was still in breach of some
covenants on the debt portion of EUR 65 mln, while seeing no negative
consequences of the breach.

The company’s operating cash flow before working
capital changes improved 65% yoy to EUR 18.9 mln, while a significant release
of working capital resulted in a 17% yoy increase of net cash from operations
to EUR 49.0 mln.

The company reiterated its plan to expand its sowing
area by 1% yoy in the current season to 217,000 ha by reducing the share of all
its key crops (corn, wheat, soybeans) and raising the planting area of
sunflower by 32% yoy to 31,000 ha. Sowings of sugar beet are will remain flat
at 35,000 ha.

Alexander Paraschiy: As usual,
we are warning the 1Q is not indicative of the company’s full-year fundamentals
as it is selling the goods produced in the last year during this period. If the
company continues to implement its cost-cutting measures and improve the
efficiency of its sugar production, it will be able to achieve smaller crop and
sugar production costs this season.

Also, as the weather looks favorable for spring crops,
the company might benefit from higher spring crop yields this year. All this
should be sufficient for the company slightly improving its profitability and
operating profits in 2020, despite expected weakening in prices for its core
products. All in all, we remain optimistic about Astarta’s mid-term value
generation potential.