Sadovaya EBITDA decreases 53% yoy in 1H12, but ups threefold qoq

Sadovaya Group (SGR PW) decreased revenue by 37% yoy to USD 27.4 mln in 1H12, EBITDA plunged 53% yoy to USD 4.7 mln, net income fell 64% yoy to USD 2.8 mln. Cash flow from operating activity would have been close to EBITDA in 1H12, unless working capital adjustments made, which still kept net operating cash flow negative at minus USD 6.6 mln. Almost a third of half year net income was generated by finance income, from receivables, acquired under factoring agreement, while the company still accounted no allowance for non-recovering of these receivables. Another driver for bottom line was tax benefit of USD 0.5 mln. Quarterly revenue fell 12% qoq in 2Q12 to USD 12.8 mln, however, EBITDA jumped 221% qoq to USD 3.6 mln, net income grew 176% qoq to 2.1 mln. EBITDA margin leaped to 28% in 2Q12 compared to 8% a quarter before. Net debt grew 23% compared to March 2012, reaching USD 34 mln, following the drawing up of available credit lines. The company stated that the enrichment facility for coal production from waste will be launched beginning September, after a number of rescheduling of the commissioning date.

Roman Topolyuk: Though Sadovaya Group reported significant improvement of financial result and profitability in 2Q12, the nature and sustainability of these improvements still arouses some concerns. While the average selling price for coal in 2Q12 fell 12% qoq to USD 66 per tonne, the cost of goods sold per tonne, adjusted for depreciation, unexpectedly fell 35% qoq to USD 38 per tonne, on stable sales volumes, and while we anticipated cost inflation. Since the launch of waste recovery complex will have a substantial effect on the company’s bottom line in 4Q12, as long the as the facility will gradually increase the capacity load, we expect weaker qoq results in 3Q12. A tax benefit reversal, as well as the possible impairment of receivables of financial assets represent downside risks for coming quarters.