Ukrlandfarming guides decrease in crop harvest in 2015

Ukraine’s largest farming company by land bank and largest egg producer Ukrlandfarming (UKRLAN) plans to harvest 3.6-3.7 mmt of crops in 2015, the company’s largest shareholder Oleg Bakhmatyuk stated on May 13 in his comments at a public conference. Out of that amount, 2.4 mmt may be produced as corn, 600-700 kt as wheat, 150 kt as sunflower and around 80 kt of soya. In its 9M14 presentation, Ukrlandfarming guided to produce 4.1 mmt of crops, as of result of 2014, including 2.7 mmt of corn and 0.54 mmt of wheat.

Bakhmatyuk also stated that the company plans to increase its export share in total egg sales to 50-60% during next 3-5 years, up from 13% in 2014. Commenting future capital investments, Bakhmatyuk disclosed that by the end of 2015, Ukrlandfarming will increase its grain storage facilities to 3.5 mmt from 3.0 mmt currently. The company intends to start construction of a grain terminal in the Odesa sea port in July. Ukrlandfarming plans to spend USD 100 mln in 2015 for finalizing its storage facilities project and the launch of sea terminal project.

Roman Topolyuk: The lowered grain production outlook was expected, as previously the company guided it would have to increase the portion of unsown land in 2015 to 110,000 ha (almost doubling yoy to 17% of the total) due to war in Donbas and the Crimea annexation.

Regarding the indicated increase of egg exports share, though it would be clearly a positive development for the company, which will increase the portion of revenue generated in hard currency, it bears certain execution risks, taking into account the large market size of Ukrlandfarming’s egg-producing subsidiary, Avangardco (AVGR LI, AVINPU). Moreover, the increase in exports is what the company needs right now, and not in three to five years, in order to avoid deflation of the selling price (in 2014, the dollar-denominated selling price plunged 24% yoy to USD 0.064 per egg).

Meanwhile, the construction of the Odesa grain terminal is a story that has been discussed for a long time by Ukrlandfarming representatives. However, we doubt that the company has enough financial resources to fund such a project at this stage. Net operating cash flow was just USD 100 mln in 2014, and we project flat net operating cash flow in 2015, in the best case. The company held USD 643 mln in short-term debt as of end-2014, including USD 200 mln in Eurobonds maturing in October, and has already broken the total debt-to-EBITDA covenant of 3.0x, having reported 3.86x as of end-2014, which caps its ability to raise new debt. Unless some alternative financing structure is developed, for example, project financing from the lender is provided, this project may be deferred to an uncertain period.

Источник: Конкорд Капитал