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Ukrainian Agriculture Equity Guide

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UKRAINIAN FOOD & AGRICULTURE
EQUITY GUIDE

September 2011
IFC ART CAPITAL
1 Narodnogo Opolchennya Street, 6th floor
Kyiv, 03151 Ukraine
+38 (044) 490 51 85
Andriy Patiota patiota@art-capital.com.ua

www.art-capital.com.ua is@art-capital.com.ua ART CAPITAL

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

16.09.2011

TABLE OF CONTENTS

Summary ............................................................................................................. 3
Sector overview ................................................................................................... 5
Sector outlook ................................................................................................... 11
Company profiles: large agro-industrial holdings ................................................ 16
MHP (key product: poultry) .................................................................. 17
Avangard (eggs) .................................................................................... 19
Kernel Holding (sunflower oil) ............................................................... 21
Astarta Holding (sugar) ........................................................................ 23
Milkiland (dairy) ................................................................................... 25
Ovostar (eggs) ...................................................................................... 27
Company profiles: agricultural crop producers ................................................... 30
Mriya Agro Holding ............................................................................... 31
Agroton ................................................................................................ 33
Sintal Agriculture .................................................................................. 35
MCB Agricole ........................................................................................ 37
Landkom International.......................................................................... 39
Industrial Milk Company ....................................................................... 41
KSG Agro .............................................................................................. 43

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UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

SUMMARY

Privatization Timeline

SUMMARY

Sector snapshot
Total sector MCap, $mn
Average stock Mcap, $mn
Total free float, $mn
Average free float, $mn

Listed agro companies: 13; market cap: $6.1bn. This short equity guide covers 13 stocks listed on various bourses yet joined by a key feature – all the companies run their business in the Ukrainian agro-industrial sector. All of them cultivate farmland and have various agricultural assets in Ukraine.
Majority shareholders of 12 companies are Ukrainians.

6,097
469
2,363
182

*all prices are as of Sep 12, 2011 (COB)

2011E multiples

Total market capitalization of 13 Ukrainian agro stocks is almost $6.1bn, with a free float of almost $2.4bn. The sector trades at 2011E P/E median of 5.9 and 2011E EV/EBITDA of 5.1 (applying net earnings and EBITDA unadjusted for IAS 41 gain or loss). Almost all of the stocks have shown negative performance YtD in 2011, given a recent global downward trend on the stock markets.

Median sector’s P/E
Median sector’s EV/EBITDA
Median sector’s EV/S

5.9
5.1
1.7

YTD performance
MCB Agricole

16%

KSG Agro*

Large agro-industrial holdings vs. ‘pure’ grain growers. We divide up companies into two large groups. The first group consists of six verticallyintegrated and well diversified agro-industrial holdings. Farming activity for all of them serves as a non-core business segment which provides the holdings with a natural hedge against food price volatility and inputs for their core production operations.

-5%

Avangard

-16%

Kernel

-18%

Ovostar*

-19%

MHP

-19%

Mriya

-23%

Agroton

-27%

IMC*

The second group comprises seven agro-holdings with a cultivation of agricultural crops as a core activity. These companies are more prone to risks of price fluctuation and adverse weather conditions. Their margins, excluding gain from revaluation of biological assets and agricultural produce, are much lower on average than those of the larger holdings from the first group. -29%

Astarta

-30%

Sintal

-42%

Landkom
Milkiland

-44%
-59%

*since IPO

Stock performance and valuation
Stock
Exchange

EV,
$mn

Mcap,
$mn

Free float ADT,
'000$

TP, $ Upside

EV/EBITDA*

EV/S

EV/Cultivated area

P/E*

2011E 2012E 2011E 2012E 2011E 2012E

2011

2012E

Vertically-integrated agro-industrial holdings
MHP

London

2,256

1,486

35%

3,194

25.1

82%

2.1

2.0

6.0

5.8

7.0

7.4

Avangard

London

928

798

23%

669

27.4

119%

1.7

1.4

3.9

3.3

4.1

3.8

Kernel

Warsaw

1,980

1,656

62%

2,635

32.8

58%

1.0

0.8

6.4

4.9

7.6

5.1

Astarta

Warsaw

740

549

37%

333

34.6

57%

2.2

2.0

6.0

6.0

6.1

6.2

Milkiland

Warsaw

229

196

22%

118

14.4

129%

0.6

0.5

3.8

3.4

4.8

4.0

Ovostar

Warsaw

119

108

25%

202

2.5

1.9

7.8

5.8

9.2

6.6

1.9

not rated

Median

1.7

6.0

5.3

6.6

5.7

Mainly crop producers
Mriya

Frankfurt

871

776

20%

10

Agroton

Warsaw

205

189

45%

551

4.1

3.8

5.6

4.9

5.9

5.5

3,630

3,110

1.7

1.5

2.4

2.8

2.7

3.5

1,375

MCB Agricole

Frankfurt

47

40

24%

17

1,145

not rated

1.0

0.8

4.7

3.6

5.0

4.0

559

Sintal

Frankfurt

94

87

36%

530

13

not rated

1.3

1.1

5.1

4.5

6.6

5.9

895

752

not rated
11.7

34%

KSG Agro

Warsaw

110

106

33%

367

not rated

4.3

2.2

4.7

3.3

5.8

3.6

3,929

2,115

IMC

Warsaw

76

81

24%

168

not rated

1.5

1.0

2.5

2.1

3.2

3.0

1,867

1,288

Landkom

London

32

23

56%

187

not rated

1.0

0.8

5.1

3.8

neg

11.0

615

516

Median
1.5
1.1
4.7
Source: Bloomberg; company data; Art Capital estimates; * - unadjusted for IAS 41 (Agriculture) gain

3.6

5.4

4.0

1,375

1,145

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UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

SUMMARY

Privatization Timeline

SUMMARY

Companies’ MCap, $mn
Kernel

The Ukrainian winning mix: highly fertile and very cheap land. The
Ukrainian agriculture sector remains among the most attractive for investments in the long run due to the following reasons:
Ø Of Ukraine’s total area, agricultural land accounts for 70%, of which
80% is arable (over 33 million hectares).
Ø Ukraine possesses more than one fourth of the world stock of the best soil for crop cultivation. More than 60% of Ukraine is covered in black earth top soil, with organic matter running anywhere from
3 to 6%. In addition, Ukraine has a perfect climate with favorable sunlight hours during the growing season and mild winter, which prevent major winter yield losses.
Ø Agriculture plays one of the key roles in Ukrainian economy
(contributing c8% to GDP and employing c20% of labour force).
Food supply security is given a high level of government attention.
Ø Low labor and other operating expenses (including land lease) make domestic agricultural commodities competitive on the global market. Ø Ukraine is geographically well located compared to other European countries for marketing purposes, with easy access to the Black Sea and relative proximity to important markets. It has the best port access in the region (11 out of 18 sea ports are used for grain exports). 1,656

MHP

1,486

Avangard

798

Mriya

776

Astarta
Milkiland
Agroton

549
196
189

Ovostar

108

KSG Agro

106

Sintal

87

IMC

81

MCB Agricole

40

Landkom

23

*all prices are as of Sep 12, 2011 (COB)

Pending launch of the farmland market. There is a high chance of the moratorium on agricultural land sale being lifted on 1 January 2012. Prior to that, Parliament must introduce laws regulating the land market while the government must adopt a land cadastre mechanism. We forecast that land lease tariffs and land prices will rise at least by 10% CAGR in the first 10 years after the cancellation, but are likely to remain lower than in the EU.
Key risks in the Ukrainian agricultural sector:
Ø Frequent changes in legislation, export restrictions;
Ø Land leasehold instead of ownership;
Ø Agricultural crop and food price fluctuations, currency devaluation;
Ø Inability to manage rapid growth, to obtain land ownership rights.
Key financials and margins of listed companies
Net sales

EBITDA*

Net income*

EBITDA margin

Net margin

2010

2011E

2010

2011E

2010

2011E

2010

2011E

2010

2011E

MHP

944

1,096

325

377

215

213

34%

34%

23%

19%

Avangard

440

542

228

240

185

196

52%

44%

42%

36%

1,020

1,906

190

309

152

218

19%

16%

15%

11%

Astarta

293

331

138

123

105

90

47%

37%

36%

27%

Milkiland

343

411

59

61

29

41

17%

15%

9%

10%

Ovostar

37

47

12

15

9

12

33%

32%

25%

25%

162

213

158

155

144

131

53%

56%

49%

47%

Agroton

57

118

35

85

16

71

36%

49%

16%

41%

KSG Agro

16

26

12

23

10

18

38%

46%

31%

36%

IMC

35

50

18

12

15

7

40%

44%

33%

37%

Landkom

17

33

-4

8

-12

1

-26%

24%

-71%

3%

Kernel

Mriya

Source: company data; Bloomberg; Art Capital estimates; * - unadjusted for IAS 41 (Agriculture) gain

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SECTOR OVERVIEW

Financial and operation outlook

Global positioning
In 2008/09 and 2009/10 marketing years, Ukraine was among the biggest exporters of grain and oil bearing crops. Namely, it was the world’s largest exporter of sunflower oil, sunflower seeds and barley, the 4th largest exporter of corn and the 6th largest exporter of wheat.
According to the USDA data, Ukraine retained its leading position in the sunflower segment in the 2010/11 marketing year while moving down a notch in the wheat and coarse grain segments due to export restrictions imposed in October 2010.
Ukraine’s position on global agriculture market
Exports
Production
09/10
10/11 10/11 09/10 09/10 10/11 10/11
09/10
volume, volume, rank volume, rank volume, rank rank MMT
MMT
MMT
MMT
Wheat
9.3
6
4.2
7
20.9
9
16.8
10
Coarse grain,
10.9
3
8.1
4
24.1
10
21.4
10 including: - corn
5.1
4
6.0
4
10.5
9
11.9
9
- barley
5.8
1
2.1
3
11.8
3
8.5
3
- oat n/a n/a n/a n/a
0.7
7
0.5
8
- rye
0.1
3 n/a n/a
1.0
4
0.5
4
Oilseeds,
including:
- sunflower seeds
Vegetable oils, including: - sunflower oil

2.4

6

2.9

6

n/a

n/a

n/a

n/a

0.4
2.7

2
4

0.5
2.6

1
4

6.4 n/a 3 n/a 6.8 n/a 2 n/a 2.6

1

2.6

1

2.6

1

2.7

Ukraine is one of the largest exporters of agricultural commodities …

1

Source: USDA

Ukraine is the largest agricultural country in Europe, with around 33 million hectares of arable land, 80% of which is covered by extra-quality black soils called chornozems. Having harvested an area of 26 million hectares in 2011, Ukraine has the potential to boost acreage under crop cultivation by up to 7 million hectares.
Largest European countries by farmland
Total agricultural area, m ha
Ukraine
42.9
France
27.6
Spain
24.9
Germany
17.0
UK
16.0
Poland
14.8
Romania
13.9
Italy
12.7

Arable agricultural area, m ha

% of arable land

32.4
18.3
11.9
11.9
6.1
11.3
8.9
7.0

76%
66%
48%
70%
38%
76%
64%
55%

… and one of the world’s largest countries by farmland area

Source: Eurostat

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Ukraine has a well-developed transportation and port infrastructure yet lacks modern storage facilities despite their sharp increase in 2009-2010. Current transshipment capacity of
Ukrainian grain port terminals is estimated at over 26 million metric tons (MMT) with on-site grain storage capacity of about 3 MMT. Grain and oilseed inland storage capacity rose to around 36 MMT as of end-2010 compared to 28MMT two years ago. Only 15% of silo capacities are now state-owned.

Soil and climatic conditions
In Ukraine, three broad belts of soils corresponding to belts of natural vegetation dominate most of the territory. The first belt is the podzols of forested Polisia (19% of land), formed on outwash sandy plains or on clayey till plains, which contain pockets of bogsoils and ribbons of meadow soils on floodplains. The second belt is associated with forest-steppe (33% of land), consisting of gray forest soils (formed under broad-leaved deciduous forest), deep chornozems
(formed under prairie) and transitional podzolized chornozems or degraded chornozems, all of which evolved on calcium-rich loess deposits. The third belt is associated with steppe (40% of land), consisting of common chornozems in the northern part and southern chornozems to the south. Figure 1: Soil fertility in Ukraine

Ukrainian soils are among best ones in the world and are perfectly fit for crop cultivation

Source: FAO

Generally, the extra-fertile “black soils”, or chornozems, occupy 41% of Ukraine's surface area and even more of its agricultural land (54%) and plowland (58%). These land areas are characterized by a 0.4-0.5m humus layer. Covering 80% of Ukraine is a thick 5-meter layer of mineral-rich loess sediments, which improve the soil’s ability to plant various crops.

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SECTOR OVERVIEW

Figure 2: Loess distribution in Europe

Source: Helmholtz-Centre for Environmental Research (http://www.ufz.de/index.php?en=15536)

Figure 3: Total land distribution in Ukraine
2%
2%
4%

55%

4%
71%
17%
2%

5%

9%

Agricultural land

Lands covered with forests

Lands covered with water

Build-up lands

Open swampy lands

Other lands

Tillage

Pastures

Hayfields

Orchards and vineyards
Source: State Statistics Committee

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Figure 4: Arable land distribution by crops

Sugar beet
2%
Soybean
2%

Others
19%

Wheat
26%

Rape
5%
Potatoes
5%

Barley
16%
Corn
9%
Sunflower
16%

Source: State Statistics Committee

Nearly all of Ukraine is within the temperate zone. Only the southern coast of Crimea has sub2 tropical features. Annual total solar radiation varies from 96 to 125 kcal/cm . The average
º
º annual air temperature increases from 5-6 C in the north-east up to 9-11 C in the south-west.
º
Absolute values of the temperature range from the minimum of 34 to 37 C below zero to the
º
maximum of 36 to 38 C above zero. On average, 300-700 mm of precipitation falls annually on flat areas and up to 1200 mm on mountain regions. The climate is generally favorable for most of important crops.

Generally mild climate and plain relief are favourable for grain growing Sector’s performance
Grain growing
Output of the grain growing segment, which accounts for almost half the total output in agriculture, determines the dynamics of total agricultural production. The index of agricultural output has surged in the years of bumper harvest and declined sharply in times of poor harvest. Figure 5: Change in value added in agriculture
19.8%

16.6%

3.4%

2.0%

0.4%
-0.3%

-0.9%

2009

2010

-5.9%
-11.0%
2002

2003

2004

2005

2006

2007

2008

Source: State Statistics Committee (GDP composition)

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After a record crop harvest of 2008 (53.3 MMT) in Ukraine’s modern history, the results of the following two seasons were less encouraging but remained above the decade’s average. In
2010, Ukraine harvested just shy of 40 MMT. The estimated figure for 2011 is over 50 MMT.
Figure 6: Total harvest in Ukraine, MMT (1990-2011)
60

Average Ukraine’s harvest exceeded 36
MMT in the last 20 years 50
40
30
20
10

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1994

1995

1993

1992

1991

1990

0

Source: State Statistics Committee

Livestock breeding
After years of stagnation, Ukraine’s livestock breeding has shown clear signs of recovery during
2009-2010. Edging up by 0.4% YoY in 2009, meat production rose by almost 7% in 2010 due mainly to a rise in pig and chicken stock. Egg output rose by 6-7% YoY during the last three years. The pace of a decline in cattle livestock decelerated in 2010 to 2% YoY, in comparison to a 7% average fall in 2000-2009. Swine and poultry livestock both grew by 6% YoY in 2010.

Animal husbandry is now on the recovery track Except for poultry, the segment is still highly fragmented: individuals hold 69% of cattle and
59% of pigs. In addition, there are no big players with more than a 5% stake of the market.
Figure 7: Livestock, mn heads
Cattle

Swine

Figure 8: Meat, milk and egg production
3.5

Poultry

6

190

5

185

4

180

3

175

1

2

170

0.5

1

Milk

2.5

195

Eggs

165

0

160
2005

2006

2007

2008

2009

Source: State Statistics Committee

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2010

15

2
1.5
13

Milk, mn t. Eggs, bn pcs

200

7

Meat, mn tonnes

3

Poultry

205

8

Cattle&swine

9

17
Meat

11

0
2005

2006

2007

2008

2009

2010

Source: State Statistics Committee

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State regulations and support
The Land Code, adopted in 2001, regulates all key land issues in Ukraine. Currently, around
80% of agricultural land is owned by the population; the remainder is still owned by the state.
The average land plot, held by a citizen, totals 3.5-4 hectares.

80% of agricultural land are distributed between rural population

Despite the existing moratorium on agricultural land sale, investors have legal rights to consolidate and lease large land areas over the long term (up to 50 years), so do major
Ukrainian agro-holdings. In 2009, the moratorium was extended until 1 January 2012.
Annual land rent rates in Ukraine are relatively low, ranging from $30 to $80 per hectare. Yet, to rent a consolidated land plot ranging from 1,000 to 10,000 ha, a relatively large land area, the investor should buy a so-called “entry ticket” from an intermediary. This market is nontransparent and corrupt. Recently, the unofficial cost of acquiring lease rights to a large plot has declined to $300-600 per hectare from the pre-crisis $1500-2000 in 2006-2008, depending on the plot’s location.
As agriculture in Ukraine is a socially important but generally subsidized sector, it always receives state support in various forms, although its volume was significantly reduced in 20092010. Currently, two major incentives for agriculture producers are 1) the Fixed Agricultural
Tax (FAT) and 2) the special value-added tax (VAT) regime which allows farmers to direct this tax to modernization and expansion if more than 75% of total revenue comes from agricultural produce. The FAT is paid instead of corporate tax and is equal to 0.15% of the official land value under control of an agricultural company, or around $2.1 per hectare. Such a tiny amount of the FAT allows companies to receive indirect tax subsidies from the state if their profit before tax exceeds $10 per hectare.

Large agro holdings continue consolidating farmland, benefiting from its low cost

Ukrainian agrarians have historically been granted with various government incentives

Another form of government support comes through partial compensation of the interest paid by agricultural producers on bank loans. The compensation now equals the discount rate of the National bank of Ukraine (7.75%), or about a third of banks’ actual rates on loan and credit lines denominated in the national currency.
Other minor forms of government support include privileged leasing and an up to 30% redemption of the costs of purchasing domestically produced agricultural machinery and equipment; compensation of electricity costs of irrigating land; state financing of education and research in agriculture, etc.
Until 2010, the Ukrainian grain market has been operating somewhat liberally with little state regulation and restrictions. In October 2010, export quotas for wheat, corn and barley were initially imposed until the beginning of 2011 and then extended twice for a quarter-long period each time. The officially stated reason for export restrictions was to curb food inflation and to secure enough grain for domestic consumption. Yet, the crop balance showed that Ukraine might have exported up to 15 MMT of grain in 2010-11 with no danger of food supply shortage in the country. Actually, Ukraine exported only 12 MMT in the July 2010-June 2011 period.

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Export quotas on grain, imposed in October, limit Ukraine’s export potential 10

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Industry outlook

Cost efficiency and crop yield potential
An improvement in cost efficiency is one of the key untapped potentials of the Ukrainian agro sector. Average crop yields in Ukraine are still 30-50% below those in the EU. A recent research of Ukraine’s National Academy of Agrarian Science (NAAS) showed that a 2.2× increase in production costs per hectare from the current Ukraine’s average would lead to a 2.7× rise in wheat yields to a genetically justified level for Ukrainian soils. As a result, a rise in yields will automatically lead to an efficiency improvement, resulting in higher margins.
Figure 9: Wheat yields in selected countries
(2008), t/ha

Figure 10: Wheat yield: Ukraine’s current and potential level, t/ha
11.0

UK
Germany

8.5

Denmark
France
Czech rep.

3.1

EU-27
Poland
Italy
Ukraine

Current yield
0

2

4

6

8

10

Source: State Statistics Committee, Eurostat

Yield achived on Genetic potential tests Source: NAAS

Even the most cost-efficient Ukrainian grain producers have yet to fully utilize the potential of
Ukraine’s chornozems. Assimilating and introducing modern tillage technologies, Ukrainian grain growers continue utilizing fertilizers, crop protection products and machinery items per hectare less than farmers in the EU and North America. Yet, figures 10, 12 and 13 suggest that higher crop yields are associated with higher fertilizer and machinery use.
Figure 11: Fertilizer usage, kg/ha

Ukraine has a potential to more than triple yields of key crops …

Figure 12: Machinery item usage per
1,000ha

Germany

Poland

France

UK

Brazil

Germany

Poland

France

US

Denmark

Argentina

Czech Rep.

Ukraine

… in case of an increase in use of fertilizers, agricultural machinery and crop protection products Ukraine

0

50

100

150

Source: FAO

200

250

0

50

100

150

Source: FAO

Large agro-holdings, with better financial leverage and larger land banks, are best positioned to reap potential benefits of an improvement in cost efficiency. They can invest more in agricultural machinery and boost purchases of high-quality seeds, fertilizers and crop protection products in order to increase efficiency and yields.

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Impact of new legislation
According to recently amended Tax Code of Ukraine, the special VAT regime which allows agricultural producers to refund this tax (set currently at 20%) was cancelled since July 1, 2011.
Refunding VAT for grain exporters was also abolished as of that date. As a result, domestic grain traders, being price setters in Ukraine and price takers on the global market, are forced to buy grain and oil bearing crops from domestic producers at a deeper discount to global prices than before July 2011 to compensate for the additional expenses.
On the other hand, quotas for grain exports, lifted in May for corn and in June for wheat and barley, were replaced with export duties from July 1, 2011 through December 31, 2011. The corresponding amendments to Ukraine’s Tax Code impose a 9% duty for wheat (but not less than EUR 17 per tonne), 14% for barley (EUR 23 per tonne) and 12% for corn (EUR 20 per tonne). Those duties make Ukrainian grain less competitive on the international market than grain from Russia, which resumed exports from July 2011 after an almost year-long absence on the market due to severe harvest losses in the 2010 season caused by harsh summer drought.

Due to cancellation of special VAT regime and imposition of custom duties, prices for grain in
Ukraine will remain at least 30% lower than global ones

If export duties were prolonged through the second half of the 2011/12 marketing year,
Ukraine would suffer from spoilage of crops due to a lack of storage capacity and overstocking while farmers would incur additional losses on low selling prices which could hardly offset operating costs. In addition, Ukraine could finally lose its status of a reliable grain exporter. So, we do not believe in the prolongation of the grain export duties for 1H12 as well as in the imposition of any other export restrictions.
Although the export duties will have a negative impact on grain growers’ margins in 2011, we believe new rules will bring more stability and predictability on the market than the quota regime due to non-transparent and somewhat dodgy methods of quota allocation among traders. Thus, the average discount to global prices is expected to remain slightly above 30% as was the case after the imposition of export quotas (Figure 13).
Figure 13: Ukrainian wheat price discount to CBOT wheat price
0%

-10%

-20%

-30%

Jan-11

Feb-11

Dec-10

Oct-10

Nov-10

Sep-10

Aug-10

Jul-10

Jun-10

May-10

Apr-10

Mar-10

Feb-10

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

-40%

Source: Bloomberg, APK-Inform

Another key issue that makes grain traders wary is a possible monopolization of Ukrainian grain market. The Agriculture Ministry and some lawmakers are pushing to adopt the rules that would hand a single company virtual monopoly over grain export. The move, if materialized, would effectively push international grain traders out of the country.

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Foreign and domestic grain traders may be pushed out of Ukraine if government creates a new mega-player on the market 12

ART CAPITAL

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

16.09.2011

SECTOR OUTLOOK

Two laws have been drafted by lawmakers since the beginning of 2011. The first draft proposed to push private grain traders completely out of the export business, but it has been stalled by parliament’s agriculture committee. A second law would allow farmers to export whatever grain they produce. It also sanctions the creation of a “state agent” partly owned by the state and partly by private investors, which would stand to make a huge profit through the virtual monopoly. Other grain traders would also be allowed to export grain under the second draft law, but only if they pay 80% of the cost of the grain in advance, before it is planted (50% during spring sowing and 30% right before harvest).
Khlib Investbud, 49%-owned by the state, will most likely become the new powerful player on the Ukrainian grain market. The two ways of allocating grain export quotas proved unclear and unfair as some key traders failed to receive quotas after the Agriculture Ministry dragged its heels on approving applications by those companies. At the same time, Khlib Investbud obtained almost half the export quotas for wheat and a third of quotas for corn during the second allocation in January.
In any case, domestic farmers will not be able to export grain by themselves, and a new virtual monopolist will be able to force producers to accept offers below the market price.

Impact of cancellation of moratorium on land sale
The moratorium on the sale of agricultural land is expected to be cancelled as of January 1,
2012 if the Ukrainian parliament and government manage to adopt mechanisms badly needed for efficient recording, circulation, control, and enforcement of land property rights and for market evaluation of the true value of the land. These acts should be completed by the end of
2011, otherwise the moratorium will likely be extended through 2012.
The true market value of Ukrainian arable land is still unknown. Yet, it can be estimated by the cost of purchasing the rights for large consolidated land clusters, which is now an alternative to land purchase, plus the cost of annual lease payments. Given the current range for those costs, the implied “intrinsic” value is estimated at $600-800 per hectare. However, the official nominal value of agricultural land, adjusted annually for inflation, is currently set to $1,500 per hectare and is expected to rise from 2012. So, it is reasonable to assume that the market price of land will be between these two price levels when the moratorium is lifted.
Prices for agricultural land are expected to climb gradually (up to 10% annually) after the cancellation of the moratorium and remain well below European levels in the long run due to the following considerations:
Competition for land is likely to remain low, in the first several years, at least, given there will be a lot of land available for purchase. Over 82% of land is owned by a large number of individuals, many of whom are pensioners willing to sell their plots within a short time frame.
Potential demand will most likely be limited by a ban on land ownership by foreigners and foreign companies. This norm is stipulated in the current bill and is expected to remain in the law due to political considerations, public opinions and a Russian case of land reform of 2002.
The majority of large agro holdings, still controlling less than 15% of arable land, will probably be in favor of the existing land market model, whereby firms minimize their costs by paying mere lease rentals. These companies would easily protect themselves from possible hostile land buyers by purchasing small parts of their leased land (for instance, in the middle of a large land cluster) to make it unattractive to outsiders.

WWW.ART-CAPITAL.COM.UA

Moratorium on land sale will be lifted in 2012 if
Ukraine adopts land cadastre mechanism and land evaluation methodology Current agricultural land value is unknown but presumably ranges between $600 and $1500 per ha

Land price will likely rise at a moderate pace
(below 10% YoY) and remain lower than in the
EU in the long run

13

ART CAPITAL

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

16.09.2011

SECTOR OUTLOOK

Figure 14: Agricultural land prices in selected countries, ‘000 $ per ha
Netherland
Belgium
Denmark
Germany
Ireland
UK
Italy
Spain
Austria
Finland
France
Hungary
Poland
Ukraine
0

5

10

15

20

25

30

35

Source: Eurostat, USDA, Art Capital estimates

Another important issue of the moratorium cancellation is that individual farmers, which are typically cash-strapped, will receive more bargaining power to obtain loans under more attractive terms. They can legally use their own agricultural land as collateral.

WWW.ART-CAPITAL.COM.UA

Individual farmers could use its land as collateral to obtain loans

14

ART CAPITAL

WWW.ART-CAPITAL.COM.UA

16.09.2011

15

16.09.2011

ART CAPITAL

COMPANY PROFILES
LARGE AGRO-INDUSTRIAL HOLDINGS

WWW.ART-CAPITAL.COM.UA

16

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MHP
MHP S.A.

Rating
Current price, $
Target price, $
Upside

Key product: poultry

www.mhp.com.ua

BUY
13.8
25.1
82%

Bourse: London Stock Exchange (International)

INVESTMENT THESES
ST key driver: rapidly rising land bank. MHP has aggressively boosted its total area of agricultural land under lease by 100,000 ha to 280,000 ha in
2010 taking advantage of a low-cost land bank increase ahead of the cancellation of the moratorium on land sale. In 2011-2013, the company plans to further increase its land bank up to 400,000 ha.
LT key driver: construction of a new poultry complex is well under way. Given the existing poultry farms are running at their full capacity
(350,000 tonnes a year), MHP is building the largest poultry complex in
Europe, which will allow the company to more than double the output of broilers (to 780,000 tonnes). The launch of the first stage of the complex
(220,000 tonnes) is scheduled for 2014.
Margins to be high regardless of chicken prices and input costs. We believe MHP will secure an EBITDA margin of above 30% in 2011-2012 due to the high level of vertical integration. Even with flat prices for poultry, the company will manage to keep costs under control: higher production costs and prices for crops are usually offset by higher prices of sunflower oil, a byproduct which MHP sells in bulk for export.
Key risk: delay in permission to export poultry to the EU market. EU authorities may continue to drag on with opening of its market for Ukrainian poultry producers for years. In that case, MHP may face a challenge to seek other marketplaces for the excess chicken volume after the new complex being commissioned.

COMPANY OVERVIEW
MHP S.A. is a Luxembourg-registered holding company for the Ukrainian agroindustrial holding Myronivsky Khliboproduct, the leading producer of poultry in Ukraine with a market share of about 40%. Its flagship brand “Nasha Ryaba” enjoys close to 100% recognition. The company operates four chicken and two breeder farms, three fodder mills, two meat processing plants, and two sunflower oil crushing plants. It currently cultivates 240,000 hectares of land and runs about 620,000 cubic meters of storage facilities, all located in
Ukraine. MHP intends to increase its land bank to 400,000 by 2013. The company boasts a vertically-integrated business model and nearly total selfsufficiency in feed and protein.

Source: Company data; Art Capital estimates

WWW.ART-CAPITAL.COM.UA

Bloomberg

MHPC LI

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

107.9
1,486
2,256
35.1
527

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-2%
19.6/12.8
-30%/8%
6%
-23%
3,194

Stock Performance, $ per share
20
15
10
5
0
May-08

Nov-08 May-09

Nov-09 May-10

Nov-10 May-11

Source: Bloomberg

Shareholder structure
Yuriy Kosyuk, CEO
Management
Free float

64.5%
0.4%
35.1%

Multiples
P/E
EV/EBITDA
EV/S

2010
6.9
6.9
2.4

2011E
7.0
6.0
2.1

2012E
7.4
5.8
2.0

MHP poultry sales to third parties, ‘000t

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Market Data

800

2008
803
6
313
39%
15
2%
425

2009
711
35
271
38%
160
23%
483

2010
944
29
325
34%
215
23%
658

2011E
1,096
18
377
34%
213
19%
594

2012E
1,146
18
387
34%
201
18%
539

700
600
500
400
300
200
100
0
2007

2009

2011E

2013E

2015E

2017E

Source: Company data; Art Capital estimates

17

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MHP
FINANCIAL DATA
2007

2008

2009

2010

2011E

2012E

474

803

711

944

1,096

1,146

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

14

6

35

29

18

18

Cost of sales

-365

-572

-499

-681

-747

-792

Gross profit

124

238

247

293

367

372

EBITDA

167

313

271

325

377

387

Operating profit

122

255

219

257

302

294

Finance costs, net

-63

-52

-51

-63

-81

-82

Profit before tax

51

16

154

217

221

211

0

-1

6

-2

-9

-11

50

15

160

215

213

201

625

518

628

745

952

1,047

42

29

36

43

61

61

685

587

711

855

1,170

1,278

20

79

30

174

274

304

122

127

179

249

257

309

43

38

92

113

87

85

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets
Cash and cash equivalents
Biological assets
Inventories
Total current assets

267

338

427

719

828

936

Total assets
Equity

953

925

1,138

1,574

1,998

2,214

419

346

494

670

878

1,075

Long-term interest bearing debt

340

352

349

658

688

646

Total non-current liabilities

349

359

358

661

702

659

Short-term interest bearing debt

127

152

164

174

180

197

Total current liabilities

185

219

286

242

418

480

Total liabilities and equity

953

925

1,138

1,574

1,998

2,214

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported

26.1

29.6

34.8

31.0

34.4

33.4

Gross margin adjusted for IAS 41

23.1

28.8

29.8

27.9

32.8

31.8

EBITDA margin reported

35.2

38.9

38.1

34.4

34.4

33.8

EBITDA margin adusted for IAS 41

32.2

38.2

33.2

31.3

32.7

32.2

Net margin reported

10.6

1.9

22.5

22.8

19.4

17.5

7.6

1.1

17.6

19.7

17.7

15.9

ROE

12.0

4.3

32.4

32.1

24.2

18.7

ROA

5.3

1.6

14.1

13.7

10.6

9.1

Net debt/EBITDA

2.7

1.4

1.8

2.0

1.6

1.4

Net margin adjusted for IAS 41

Source: company data (2008-2010 IFRS audited), Art Capital estimates

WWW.ART-CAPITAL.COM.UA

18

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: AVANGARD

Avangardco Investments Public Limited
Key product: shell eggs and egg products www.avangard.co.ua Rating
Current price, $
Target price, $
Upside

BUY
12.5
27.4
119%

Bourse: London Stock Exchange (International)

INVESTMENT THESES
ST key driver: completion of two new production complexes.
Avangard is planning to launch its new egg production facilities Avis and
Chornobaivske by the end of 2011. This will allow the company to lift total output to 6.8 million shell eggs in 2012 when new farms start working at full capacity. The increased output would mainly boost exports given the
Ukrainian market is saturated.
LT key driver: further expansion to MENA and entering EU market.
Avangard has good potential to increase its presence in the MENA region due to a lack of domestic facilities and still low egg consumption by the population in those countries: about 92 eggs a year per capita vs. the world’s average of 152 eggs and 280 eggs in Ukraine. In addition, the EU may open its vast market to Ukrainian egg producers in 2011 and 2012.
High margins: forward purchases of grain, rising shares of retailers.
Avangard will continue securing low prices for inputs for fodder production by forward contracts with producers. The company intends to further raise the share of direct sales to retailers without intermediaries.
Key risk: related party transactions. Avangard still sells a large portion of its output to and buys inputs from related parties and does not reveal its pricing policy with them. This poses a risk of a sharp margin decline once the company gives up transfer pricing.

Market Data

Bloomberg

AVGR LI

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

63.9
798
928
22.5
180

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-5%
21.0/11.0
-40%/14%
9%
-30%
669

Stock Performance, $ per share
22
20
18
16
14
12
10
Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Source: Bloomberg

COMPANY OVERVIEW
Avangardco Investments Public Limited is a Cyprus-registered holding company for Avangard Agroholding, the leading producer of shell eggs and egg products in Ukraine, with 43% and 79% shares, correspondingly, in the industrial segment. The holding’s business is vertically integrated: currently
Avangard operates 19 farms for rearing laying hens with a total annual capacity of 5.2 mn eggs, three breeder and nine grow-out farms, three hatcheries, six fodder mills, and a modern egg processing plant. All facilities are located in Ukraine. The company exports its eggs and dried egg products to 15 countries, mainly to the MENA region.

Source: Company data; Art Capital estimates

WWW.ART-CAPITAL.COM.UA

77.5%
22.5%

Multiples
2010
4.3
4.1
2.1

P/E
EV/EBITDA
EV/S

2011E
4.1
3.9
1.7

2012E
3.8
3.3
1.4

Avangard egg output, million

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Oleg Bakhmatyuk, Chairman
Free float

8

2008
302
13
141
47%
77
26%
271

2009
320
8
193
60%
134
42%
108

2010
440
26
228
52%
185
42%
78

2011E
542
23
240
44%
196
36%
78

2012E
682
25
279
41%
212
31%
67

7
6
5
4
3
2
1
0
2007

2008

2009

2010 2011E 2012E 2013E 2014E 2015E

Source: Company data; Art Capital estimates

19

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: AVANGARD

FINANCIAL DATA
2008

2009

2010

2011E

2012E

302

320

440

542

682

13

8

26

23

25

-233

-220

-308

-377

-490

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
Gross profit

82

107

158

188

217

EBITDA

141

193

228

240

279

Operating profit

102

140

181

211

245

Finance costs, net

-53

-46

-30

-37

-35

Profit before tax

76

135

185

198

215

1

-1

0

-2

-3

77

134

185

196

212

368

376

396

657

777

9

22

59

27

24

Total non-current assets

483

415

516

703

822

Cash and cash equivalents

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets

239

158

183

304

335

Biological assets

48

45

45

99

140

Inventories

47

93

186

152

196

537

430

563

761

932

1,020

845

1,079

1,465

1,754

Total current assets
Total assets
Equity

119

361

746

688

895

Long-term interest bearing debt

201

92

231

253

252

Total non-current liabilities

208

99

238

259

257

Short-term interest bearing debt

309

173

30

129

150

Total current liabilities

693

385

95

517

601

1,020

845

1,079

1,465

1,754

27.1

33.5

35.9

34.7

31.8

Total liabilities and equity
Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported
Gross margin adjusted for IAS 41

22.9

31.1

29.9

30.5

28.1

EBITDA margin reported

46.5

60.4

51.8

44.3

40.9

EBITDA margin adusted for IAS 41

42.3

58.0

45.8

40.1

37.2

Net margin reported

25.6

41.8

42.0

36.2

31.1

Net margin adjusted for IAS 41

21.4

39.4

36.1

32.0

27.4

ROE

65.3

37.0

24.8

28.5

23.7

ROA

7.6

15.8

17.1

13.4

12.1

Net debt/EBITDA

1.9

0.6

0.3

0.3

0.2

Source: company data (2008-2010 IFRS audited), Art Capital estimates

WWW.ART-CAPITAL.COM.UA

20

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: KERNEL HOLDING
Kernel Holding S.A.

Rating
Current price, $
Target price, $
Upside

Key product: sunflower oil

www.kernel.ua

BUY
20.8
32.8
58%

Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key driver: More acquisitions in the pipeline. Kernel is now eyeing new takeover targets including a deep-water grain terminal in Ukraine and oil crushing facilities in Russia. The company is also planning to boost its existing land bank by 150,000 ha through acquisitions of existing farms.
Total investments are estimated at $400mn.
LT key drivers: diversification and leading spots in key segments. At the final stage of asset consolidation in Ukraine, Kernel will emerge as a top player in all of its key business segments: sunflower oil, grain and oilseed crops and sugar. The leadership will help keep margins at higher levels than industry averages.
Gradual transfer from rapid growth to mature business. Stable margins, a leading position on the quite consolidated Ukrainian agricultural market and a broad investor base will allow Kernel to become a mature business with western-style corporate governance and regular dividend payments. Key risk: frequent changes in legislation. Kernel operations may suffer from the imposition of new trading barriers, changes in the Ukrainian tax legislation, price regulation and other regulatory hurdles for traders and exporters of agricultural commodities.

Market Data

Bloomberg

KER PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

79.7
1,656
1,980
62.4
1,034

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-6%
31.1/19.7
-33%/6%
1%
-32%
2,635

Stock Performance, PLN per share
90
75
60
45
30
15
0
Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

Source: Bloomberg

COMPANY OVERVIEW
Kernel Holding S.A. is a Luxembourg-registered holding company for the
Ukrainian agro-industrial holding Kernel Group, which focuses on production, marketing and export of sunflower oil and agricultural commodities. In addition, Kernel is Ukraine’s leading company by volume of grain terminal throughput on the Black Sea and grain storage services. After recent acquisitions of crushing assets in Ukraine and Russia, Kernel’s total annual oil crushing capacity reached 2.8 mn tonnes of oilseeds while grain silo storage capacity exceeded 2.5 mn tonnes. The acquisition of a sugar producer Ukrros in FY2011 and a farming company Enselco in FY2012 allowed Kernel to enter new segments and raise its land bank to 215,000 ha.

Source: Company data

WWW.ART-CAPITAL.COM.UA

37.6%
62.4%

Multiples
FY2010
10.9
10.4
1.9

P/E
EV/EBITDA
EV/S

FY2011
7.6
6.4
1.0

FY2012E
5.1
4.9
0.8

Kernel bulk oil sales, ‘000t

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Andrey Verevskiy, Chairman
Free float

FY08
663
0
123
19%
82
12%
167

FY09
1,047
0
190
18%
132
13%
165

FY10
1,020
0
190
19%
152
15%
286

FY11
1,906
0
309
16%
218
11%
301

FY12E
2,477
0
408
16%
323
13%
432

1,000
800
600
400
200
0
2007

2008

2009

2010

2011E

2012E

2013E

Source: Company data; Art Capital estimates

21

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: KERNEL HOLDING
FINANCIAL DATA
FY2007

FY2008

FY2009

FY2010

FY2011

FY2012E

350

663

1,047

1,020

1,906

2,477

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

0

0

0

0

0

0

Cost of sales

-267

-505

-730

-709

-1,447

-1,811

Gross profit

83

159

317

311

459

666

EBITDA

46

123

190

190

309

408

Operating profit

39

112

167

167

277

374

Finance costs, net

-19

-28

-32

-23

-43

-51

Profit before tax

17

91

127

152

205

323

2

-9

5

0

13

-1

19

82

132

152

218

323

128

232

222

379

506

762

0

0

0

0

0

0

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets

159

378

321

526

743

1,039

Cash and cash equivalents

25

89

129

59

116

155

Biological assets

10

42

19

26

76

103

Inventories

40

145

99

148

188

279

Total current assets

116

377

378

599

808

1,035

Total assets
Equity

275

756

700

1,125

1,551

2,074

78

440

357

605

986

1,309

Long-term interest bearing debt

102

98

133

135

156

349

Total non-current liabilities

138

130

147

168

168

375

Short-term interest bearing debt

44

158

162

210

261

238

Total current liabilities

59

185

195

352

397

390

275

756

700

1,125

1,551

2,074

Total liabilities and equity
Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported

23.7

23.9

30.3

30.5

24.1

26.9

Gross margin adjusted for IAS 41

23.7

23.9

30.3

30.5

24.1

26.9

EBITDA margin reported

13.2

18.6

18.2

18.6

16.2

16.5

EBITDA margin adusted for IAS 41

13.2

18.6

18.2

18.6

16.2

16.5

Net margin reported

5.3

12.4

12.6

14.9

11.4

13.0

Net margin adjusted for IAS 41

5.3

12.4

12.6

14.9

11.4

13.0

ROE

23.9

18.7

36.9

25.1

22.1

24.6

ROA

6.8

10.9

18.9

13.5

14.0

15.6

Net debt/EBITDA

2.6

1.4

0.9

1.5

1.0

1.1

Source: company data (FY2007-FY2010 IFRS audited), Art Capital estimates; FY means year ended June 30

WWW.ART-CAPITAL.COM.UA

22

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: ASTARTA HOLDING

Astarta Holding N.V.

Rating
Current price, $
Target price, $
Upside

Key product: sugar

www.astartaholding.com

HOLD
22.0
34.6
57%

Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key driver: sales and profit rise on increased output. In 2011
Astarta plans to boost production in all segments: sugar by 75% YoY to
350,000 t, grain and oil bearing crops by 51% to 500,000 t and milk by
26% to 65,000 t. Land bank will rise to 250,000 ha by end-2011.
LT key drivers: organic growth and M&A deals in key segments.
We believe Astarta will continue pursuing its expansion program with a focus on efficiency. This will allow the company to grow by at least 6% a year in 2013-2016, keeping margins much higher than peers’ average:
EBITDA margin above 33% and net margin above 25%. Astarta intends to further expand in all three segments.
New opportunity: sugar export to Russia. In case of sugar overproduction in Ukraine in 2012 and beyond, Russia may decide to import Ukrainian beet sugar without customs duties. Astarta has prepared for a possible entry on the vast Russian market taking over two sugar plant close to the Russian border in 2011.
Cattle farming: new cash cow in the long run. Due to sound investments in the last five years, milk production is expected to become a highly lucrative segment for Astarta.
Key risk: sugar price fluctuation. The company may face a rapid sugar price decline following an increase in sugar beet acreage and sugar output amid relatively steady consumption volume in Ukraine.

Market Data

Bloomberg

AST PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

25.0
549
740
37.0
203

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-24%
35.8/22.0
-39%/0%
-8%
-29%
333

Stock Performance, PLN per share
100
80
60
40
20
0
Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

Source: Bloomberg

COMPANY OVERVIEW
Astarta Holding N.V. is a Netherlands-registered parent company of the agro-industrial holding Astarta-Kyiv, Ukraine’s largest sugar manufacturer.
The company’s production assets include eight sugar plants with a total daily capacity of 31,700 tonnes of sugar beet, a fodder plant, storage facilities and about 225,000 ha under lease. Over 80% of sugar is sold to large industrial customers, including Coca-Cola, Nestle, Kraft Foods and
Carlsberg. Astarta’s secondary business segments are crop cultivation and cattle farming.

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn
Source: Company data; Art Capital estimates

WWW.ART-CAPITAL.COM.UA

2008
184
10
57
31%
-17
-9%
133

2009
190
15
73
38%
42
22%
125

2010
293
14
138
47%
105
36%
155

2011E
331
10
123
37%
90
27%
166

2012E
366
9
123
34%
89
24%
122

Shareholder structure
Viktor Ivanchyk, CEO
Valery Korotkov, Chairman
Free float

37.0%
26.0%
37.0%

Multiples
2010
P/E
5.2
EV/EBITDA
5.4
EV/S
2.5
Astarta sugar sales, ‘000t

2011E
6.1
6.0
2.2

2012E
6.2
6.0
2.0

500
400
300
200
100
0
2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Source: Company data; Art Capital estimates

23

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: ASTARTA HOLDING

FINANCIAL DATA
2008

2009

2010

2011E

2012E

184

190

293

331

366

10

15

14

10

17

-146

-122

-172

-224

-257

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
Gross profit

48

83

136

118

126

EBITDA

57

73

138

123

128

Operating profit

29

59

115

102

106

Finance costs, net

-66

-18

-16

-12

-11

Profit before tax

-22

43

104

91

95

5

-1

1

-1

-1

-17

42

105

90

94

106

153

187

249

269

8

18

20

32

36

122

179

216

295

319

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets
Cash and cash equivalents

8

3

3

6

17

Biological assets

21

29

52

97

118

Inventories

85

101

159

157

155

Total current assets

135

156

253

303

336

Total assets
Equity

257

335

469

598

655

88

172

278

367

438

Long-term interest bearing debt

23

81

83

94

75

Total non-current liabilities

27

93

91

111

88

Short-term interest bearing debt

118

47

76

78

64

Total current liabilities

142

70

100

120

129

Total liabilities and equity

257

335

469

598

655

26.3

43.4

46.3

35.5

32.3

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported
Gross margin adjusted for IAS 41

21.0

35.7

41.5

32.5

29.8

EBITDA margin reported

31.1

38.2

47.1

37.2

33.7

EBITDA margin adusted for IAS 41

25.8

30.5

42.4

34.1

31.3

Net margin reported

-9.2

22.3

35.9

27.0

24.3

Net margin adjusted for IAS 41

-14.5

14.6

31.1

24.0

21.9

ROE

-19.3

24.7

37.8

24.4

20.3

ROA

-6.6

12.6

22.4

15.0

13.6

2.3

1.7

1.1

1.3

1.0

Net debt/EBITDA
Source: company data (2008-2010 IFRS audited), Art Capital estimates

WWW.ART-CAPITAL.COM.UA

24

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MILKILAND

Milkiland N.V.

Rating
Current price, $
Target price, $
Upside

Key product: dairy products

www.milkiland.com

HOLD
6.3
14.4
129%

Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key driver: facility upgrade and acquisitions in Russia and
Ukraine. After a recent IPO on the Warsaw Stock Exchange, Milkiland is planning to use proceeds for modernization and upgrade of its existing facilities as well as for several takeovers in both Russia and Ukraine.
LT key driver: stable margins on product mix and efficiency improvement. EBITDA margin is forecasted to level off at 14-15% in 20112015 while net margin is expected to rise moderately to 10% by 2015, both higher than industry’s average. Product mix optimization toward higher value added products and modernization would be offset by high input costs provoked by severe shortage of raw milk in Ukraine. To cope with the latter challenge, Milkiland is intending to strengthen its vertical integration by building new milk farms to increase the share of in-house input.
Risks: intensified competition and currency devaluation. In our view, the recent whirlwind Danone-Unimilk and Pepsico-WBD deals will play against Milkiland in the long run as new powerful players will highly likely bite into Milkiland’s market share on both key markets. Possible devaluation of national currencies in Ukraine and Russia would suppress purchasing power of households and put pressure on margins.

Market Data

Bloomberg

MLK PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

31.3
196
229
22.4
44

52-week performance
High-low, $
Change from high/low
1M change
3M change
Avg daily turnover (6M) $000

n/a
16.1/6.3
-61%/0%
-35%
-55%
118

Stock Performance, PLN per share
50
40
30
20
10
Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Source: Bloomberg

COMPANY OVERVIEW
Milkiland N.V. is a Netherlands-registered parent company for a diversified dairy producer operating in Russia and Ukraine. It manufactures and markets a wide range of dairy products including cheese, butter, whole and dry milk products under the Dobryana (Ukraine) and Ostankinskaya (Russia) trademarks, well recognized by customers. Milkiland also exports its cheese to over 30 countries. The company runs a large Ostankino milk plant in
Russia and 10 milk processing facilities in Ukraine with a total processing capacity of 1.1 million tonnes of milk. Milkiland is actively developing its own dairy farming to build vertical integration.

Source: Company data; Art Capital estimates

WWW.ART-CAPITAL.COM.UA

72.8%
4.8%
22.4%

Multiples
P/E
EV/EBITDA
EV/S

2010
6.7
3.9
0.7

2011E
4.8
3.8
0.6

2012E
4.0
3.4
0.5

Milkiland dairy product sales, ‘000t

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Anatoliy Yurkevych, Chairman
Vyacheslav Rekov, CEO
Free float

250

2008
396
0
40
10%
-23
-6%
134

2009
279
0
42
15%
11
4%
124

2010
343
0
59
17%
29
9%
56

2011E
411
0
61
15%
41
10%
60

2012E
469
0
68
14%
49
11%
68

200
150
100
50
0
2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Source: Company data; Art Capital estimates

25

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MILKILAND

FINANCIAL DATA
2008

2009

2010

2011E

2012E

396

279

343

411

469

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

0

0

0

0

0

Cost of sales

-274

-181

-214

-263

-306

Gross profit

121

98

129

148

162

EBITDA

40

42

59

61

68

Operating profit

25

31

46

49

55

Finance costs, net

-22

-20

-17

-9

-7

Profit before tax

-20

11

29

40

47

-4

0

0

1

2

-23

11

29

41

49

158

172

169

201

238

0

0

0

0

0

171

183

213

204

242

Cash and cash equivalents

4

10

50

27

11

Biological assets

0

0

0

0

0

Inventories

24

27

36

49

56

Total current assets

74

81

145

148

151

245

264

358

352

392

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets

Total assets
Equity

41

72

164

204

249

Long-term interest bearing debt

43

89

48

63

35

Total non-current liabilities

78

127

113

105

57

Short-term interest bearing debt

96

44

58

24

44

Total current liabilities

125

65

81

44

86

Total liabilities and equity

245

264

358

352

392

30.7

35.0

37.6

36.0

34.6

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported
Gross margin adjusted for IAS 41

30.7

35.0

37.6

36.0

34.6

EBITDA margin reported

10.0

14.9

17.2

14.8

14.5

EBITDA margin adusted for IAS 41

10.0

14.9

17.2

14.8

14.5

Net margin reported

-5.9

4.1

8.5

10.0

10.5

Net margin adjusted for IAS 41

-5.9

4.1

8.5

10.0

10.5

ROE

-57.0

15.8

17.7

20.3

19.8

ROA

-9.6

4.3

8.1

11.7

12.6

3.4

3.0

1.0

1.0

1.0

Net debt/EBITDA
Source: company data (2008-2010 IFRS audited), Art capital estimates

WWW.ART-CAPITAL.COM.UA

26

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: OVOSTAR
Ovostar Union N.V.

Rating
Current price, $
Target price, $
Upside

Key product: eggs

www.ovostar.ua

N/R
18.0
-

Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key driver: egg production capacity expansion. Ovostar plans to spend the IPO proceeds on a 75% increase in flock of laying hens to around
4.2 million and on the modernization of its egg processing facility. It will enable the firm to double shell egg output in 2013 to 1.1 billion as compared to 2010 volume.
LT key drivers: strong brand, B2B sales, new export destinations.
Ovostar’s eggs brand Yasensvit is well-recognized among the Ukrainian population. Moreover, key Ukrainian retail chains sell Ovostar’s eggs under private labels. The company offers end users a wide variety of eggs by size and quality. In B2B segment, Ovostar has long-term agreements with
McDonalds and the largest domestic sweet producers, among others. The company intends to extend its sales geography (currently, the company exports egg and egg products to CIS, African and Asian countries) by entering the vast EU market if such an opportunity arises.
Risks: eggs oversupply, market share squeeze-out. Ukraine is characterized by relatively high eggs per capita consumption, and a further increase in domestic production might lead to oversupply. Avangard, by far the largest market player with an over 40% share, may bite into Ovostar’s and smaller industrial producers’ shares using its pricing power as was the case in 2010.

Market Data

Bloomberg

OVO PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

6.0
108
119
25%
27

52-week performance
High-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1M) $000

n/a
22.8/14.7
-21%/23%
19%
n/a
202

Stock Performance, PLN per share
65
60
55
50
45
40
Jun-11

Jul-11

Aug-11

Source: Bloomberg

COMPANY OVERVIEW
Ovostar Union N.V. is a Netherlands-registered holding company for the second largest egg producer and the largest egg products manufacturer in
Ukraine. The company markets its shell eggs nationwide under Yasensvit brand and sells them through its own branded retail network or major
Ukrainian retailers, using its own distribution network. The Group’s production facilities comprise a breeder farm, a hatchery for 6 million chickens per year, two farms for laying hens with a total of 2.1 million bird places, two fodder mills, a silo with a capacity of 18,000 tonnes of grain, and a modern egg processing plant with a capacity of 1.2 million eggs per day.
Ovostar shares started listing on the WSE on June 29, 2011.

Source: Company data

WWW.ART-CAPITAL.COM.UA

37.5%
37.5%
25.0%

Multiples
2010
11.8
9.6
3.2

P/E
EV/EBITDA
EV/S

2011E
9.2
7.8
2.5

2012E
6.6
5.8
1.9

Ovostar egg output, million

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Boris Bielikov, CEO
Vitalii Veresenko, Chairman
Free float

900

2007
1

2008
37
5
14
34%
5
13%
10

2009
32
-4
6
20%
3
9%
6

2010
37
1
12
32%
9
24%
4

800

700

600

500
2008

2009

2010

2011E

2012E

Source: Company actual data and estimates

27

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: OVOSTAR
FINANCIAL DATA
2007

2008

2009

2010

-

37

32

37

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

-

5

-4

1

Cost of sales

-

-26

-20

-28

Gross profit

-

16

8

10

EBITDA

-

14

6

12

Operating profit

-

12

4

10

Finance costs, net

-

-7

-1

0

Profit before tax

-

6

2

9

Income tax expense/benefit

-

0

0

0

Net profit/loss

-

5

3

9

18

14

12

12

1

1

1

6

Total non-current assets

22

18

18

19

Cash and cash equivalents

12

0

2

0

Biological assets

5

8

6

5

Inventories

6

4

6

9

Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets

Total current assets

29

25

23

22

Total assets
Equity

52

43

42

41

34

29

30

31

Long-term interest bearing debt

4

4

2

0

Total non-current liabilities

4

4

2

0

Short-term interest bearing debt

9

6

6

4

Total current liabilities

14

11

10

9

Total liabilities and equity

52

43

42

41

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported

-

37.6

28.9

26.3

Gross margin adjusted for IAS 41

-

28.5

37.7

24.0

EBITDA margin reported

-

33.9

20.1

32.2

EBITDA margin adusted for IAS 41

-

24.3

30.1

30.2

Net margin reported

-

12.7

9.0

24.0

Net margin adjusted for IAS 41

-

0.0

20.3

21.7

ROE

-

18.7

8.5

29.2

ROA

-

12.4

6.1

22.5

Net debt/EBITDA

-

0.7

1.1

0.3

Source: company data (2008-2010 IFRS audited)

WWW.ART-CAPITAL.COM.UA

28

ART CAPITAL

WWW.ART-CAPITAL.COM.UA

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

16.09.2011

29

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

ART CAPITAL

16.09.2011

COMPANY PROFILES
AGRICULTURAL CROP PRODUCERS

WWW.ART-CAPITAL.COM.UA

30

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MRIYA
Mriya Agro Holding

Rating
Current price, $
Target price, $
Upside

www.mriya.ua
Bourse: Frankfurt Stock Exchange

INVESTMENT THESES
ST key drivers: sharp growth on large inventories, increased cultivation in 2011. Mriya planted in 2010/11 marketing year 220,000 ha, a
47% YoY rise. In addition, over 240,000 t of grain were left on silos to sell in summer. Coupled with favorable prices, revenue in 2011 should surge by at least 30%. Next year Mriya plans to boost cultivated area by 40,000-50,000 ha. Margins are expected to remain enormously high due mainly to a large gain from revaluation of biological assets.
LT key drivers: Ukraine’s highest yields, farmland doubled by 2014.
Mriya can boast 50-85% higher than Ukrainian average yields for its key crops – sugar beet, potato and winter wheat – due to highly efficient land treatment and its density: all cultivated area is located within 150 km radius from headquarters. The company intends to double its land bank to
480,000 ha by 2014 while remaining self-sufficient in storage capacity and agricultural machinery. In the long run, the company also plans to build its own sea grain terminals and export grain directly omitting intermediaries.
Specific risk: related party transactions. Sugar beet sales accounts for over a half of Mriya’s revenue, and the company sells it to sugar plants owned by Huta family, the majority shareholders. Although sale prices were close to Ukraine’s average in 2010, the risk of transfer pricing will remain high until the company merges with Huta’s sugar refining business or sugar plants are sold to other players.

N/R
7.3
-

Market Data

Bloomberg

MAYA GR

GDRs, mn (1 share=25 GDRs)
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

106.3
776
871
20.0
155

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-4%
11.1/7.3
-34%/0%
-12%
-31%
10

Stock Performance, € per GDR
10
8
6
4
2
0
Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Source: Bloomberg

COMPANY OVERVIEW
Mriya Agro Holding, one of Ukraine’s largest producers of agricultural commodities, currently cultivates 240,000 hectares of high-quality “black” soil. Its land bank, agricultural machinery and storage facilities have been rapidly growing for the last three years, and the company is planning further expansion. Mriya cultivates a wide range of crops, including sugar beet and potato. The company is self-sufficient in storage capacity, and has its own fleet of machinery for cultivation of all farmland under management. Eighty percent of shares are held by the Huta family. The remaining 20% were sold through a private placement in 2008 and have a listing on the Deutsche
Boerse through GDRs.

Source: Company data

WWW.ART-CAPITAL.COM.UA

80.0%
20.0%

Multiples
2010
5.4
5.5
5.4

P/E
EV/EBITDA
EV/S

2011E
5.9
5.6
4.1

2012E
5.5
4.9
3.8

Mriya cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Huta Family
Free float

2007
16
13
16
57%
14
49%
14

2008
90
40
69
54%
75
58%
-18

2009
148
43
99
51%
82
43%
-46

2010
162
136
158
53%
144
49%
28

300
250
200
150
100
50
0
2006

2007

2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

31

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MRIYA
FINANCIAL DATA
2007

2008

2009

2010

16

90

148

162

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

13

40

43

136

Cost of sales

-12

-60

-103

-145

Gross profit

17

70

89

153

EBITDA

16

69

99

158

Operating profit

16

68

91

153

Finance costs, net

-2

-8

-12

-26

Profit before tax

14

75

82

145

0

0

-1

0

14

75

82

144

18

50

47

181

0

0

0

1

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets
Cash and cash equivalents
Biological assets
Inventories

23

52

72

213

0

72

105

95

12

16

38

111

7

10

27

58

Total current assets

24

154

236

378

Total assets
Equity

47

206

309

591

29

147

222

424

Long-term interest bearing debt

8

29

23

35

Total non-current liabilities

8

29

23

46

Short-term interest bearing debt

6

24

36

89

Total current liabilities

10

29

63

121

Total liabilities and equity

47

206

309

591

Gross margin reported

59.3

54.1

46.6

51.4

Gross margin adjusted for IAS 41

28.1

33.9

30.9

10.5

EBITDA margin reported

56.8

53.5

51.4

53.3

EBITDA margin adusted for IAS 41

23.6

33.1

37.2

14.0

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')

Net margin reported

49.1

57.9

42.5

48.5

Net margin adjusted for IAS 41

10.1

39.3

25.7

5.3

ROE

48.7

50.9

36.7

34.0

ROA

30.5

36.4

26.4

24.4

0.9

-0.3

-0.5

0.2

Net debt/EBITDA
Source: company data (2007-2010 IFRS audited)

WWW.ART-CAPITAL.COM.UA

32

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: AGROTON
Agroton Public Limited

Rating
Current price, $
Target price, $
Upside

www.agroton.com.ua
Bourses: Warsaw Stock Exchange, Frankfurt Stock Exchange

INVESTMENT THESES
ST key driver: land bank and silo increase, focus on crop segment.
Agroton plans to raise its land bank by 36% to 201,000 ha and storage capacity by 56% to 367,000 tonnes by mid-2012 from the current level, using mainly proceeds from the IPO on the WSE in November 2010. At the same time, the company intends to discontinue operations in its non-core segments, selling off assets and subsidiaries. Sales are expected to double in 2011 due to $71mn of inventory as of end-2010, left at silos in the hope of a sale at a price peak in 2Q11.
Lack of funding for growth in the long run. Agroton has generated poor cash flows to finance rapid growth, as revenues have barely offset costs of sales in 2008-2010. We believe the company will need to increase leverage or issue new capital to make declared double-digit growth a reality, otherwise its sales will grow moderately, driven mainly by rising yields and prices. Recently, Agroton failed to raise $100mn from a debut
Eurobond issue. However, we believe it will try to come back on the
Eurobond market or choose another form of financing.
Key risk: adverse weather conditions. Winter frosts and summer droughts remain a challenge. Agroton’s farmland is located in the East and
South of Ukraine where probability of these adverse weather conditions is higher than in the other Ukrainian regions.

HOLD
8.7
11.7
34%

Market Data

Bloomberg

AGT PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

21.7
189
205
44.6
84

52-week performance
High-low, $
Change from high/low
1M change
3M change
Avg daily turnover (7M) $000

n/a
15.4/7.3
-44%/19%
4%
-26%
551

Stock Performance, PLN per share
45
40
35
30
25
20
Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Source: Bloomberg

COMPANY OVERVIEW
Agroton Public Limited is a Cyprus-registered holding company for a large
Ukrainian agro-industrial holding Agroton. The group operates various agricultural and food processing assets in the Eastern part of Ukraine. The land bank currently stands at 151,000 ha. The company is self-sufficient in storage facilities with a total capacity of 235,000 tonnes of grain and oilseed crops. The group also runs two poultry and six pig farms, two flour and a fodder mills, and bakery, pasta and cheese production facilities. By end2011, Agroton plans to dispose of all processing assets (for the exclusion of the fodder mill) and some farms, focusing on the crop segment. Wheat and sunflower are Agroton’s key crops.

Source: Company data; Art Capital estimates

WWW.ART-CAPITAL.COM.UA

55.4%
44.6%

Multiples
2010
12.0
5.8
3.6

P/E
EV/EBITDA
EV/S

2011E
2.7
2.4
1.7

2012E
3.5
2.8
1.5

Agroton cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Yuriy Zhuravlyov, CEO
Free float

200

2008
76
18
10
11%
-19
-20%
58

2009
55
21
21
28%
5
7%
23

2010
57
40
35
36%
16
16%
3

2011E
118
56
85
49%
71
41%
84

2012E
139
42
75
41%
54
30%
84

160
120
80
40
0
2007

2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

33

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: AGROTON
FINANCIAL DATA
2008

2009

2010

2011E

2012E

76

55

57

118

139

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce

18

21

40

56

42

Cost of sales

-79

-56

-57

-90

-107

Gross profit

15

20

41

84

74

EBITDA

10

21

35

85

75

Operating profit

5

17

29

78

67

Finance costs, net

-24

-12

-14

-7

-13

Profit before tax

-19

5

16

71

54

0

0

0

0

0

-19

5

16

71

54

45

40

38

72

94

2

2

3

10

11

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets

47

42

49

120

137

1

35

14

22

24

Biological assets

10

9

10

34

37

Inventories

20

31

63

56

61

Cash and cash equivalents

Total current assets

37

84

95

138

149

Total assets
Equity

84

126

144

257

285

16

56

122

137

149

Long-term interest bearing debt

8

6

3

103

101

Total non-current liabilities

8

6

3

104

102

Short-term interest bearing debt

51

52

14

3

6

Total current liabilities

59

63

19

16

34

Total liabilities and equity

84

126

144

257

285

Gross margin reported

16.0

26.1

41.8

48.5

40.9

Gross margin adjusted for IAS 41

-3.6

-1.7

1.3

24.0

23.0

EBITDA margin reported

11.2

27.9

36.1

49.0

41.1

EBITDA margin adusted for IAS 41

-9.5

0.7

-8.3

24.7

23.4

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')

Net margin reported

-20.2

6.6

16.2

60.2

38.9

Net margin adjusted for IAS 41

-48.3

-28.5

-42.1

12.7

8.7

ROE

-116.4

8.9

12.9

51.8

36.3

ROA

-22.5

4.0

10.9

27.6

19.0

5.5

1.1

0.1

1.0

1.1

Net debt/EBITDA
Source: company data (2008-2010 IFRS audited), Art Capital estimates

WWW.ART-CAPITAL.COM.UA

34

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: SINTAL AGRICULTURE

Sintal Agriculture Public Limited

Rating
Current price, $
Target price, $
Upside

www.sintalagriculture.com
Bourse: Frankfurt Stock Exchange

INVESTMENT THESES
ST key drivers: direct export sales, favourable prices. In 2010 Sintal started sales under direct export contracts and intends to increase their share to 80% in 2011. Total planted area in 2010/11 season has yet to be revealed and is estimated at 105,000 ha, a 17% increase YoY. Prices for grain and oilseed crops would also be supportive of revenue and margins in
2011.
Growth outlook has been scaled down. Currently, the company plans to increase its land bank to 150,000 ha by mid-2013 in comparison with
180,000 ha projected in 2010. Around 80,000 ha will be cultivated by minitill technology and 80,000 ha should be covered with irrigation system.
Poor IR/PR, delayed financial reports are drag on performance.
Sintal’s credibility suffers from irregular announcements of the company’s operating and financial performance. The audited annual reports have usually been released at the end of the year. All these hurdles hinder the assessment of the company and make the valuation less accurate.
Key risk: adverse weather conditions. Sintal’s farmland is located in the East and South of Ukraine where the probability of summer drought is higher than in the other Ukrainian regions.

N/R
2.7
-

Market Data

Bloomberg

SNPS GR

GDRs, mn (1 share=700 GDRs)
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn
52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

32.9
87
94
36.3
32
-38%
4.9/2.7
-45%/0%
-19%
-26%
13

Stock Performance, € per GDR
6
5
4
3
2
1
Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Source: Bloomberg

COMPANY OVERVIEW
Sintal Agriculture Public Limited is a Cyprus-registered holding company for a large Ukrainian agricultural company Sintal-D with around 120,000 ha of agricultural land in leasehold in the East and South of Ukraine. The company cultivates a wide range of crops, including sugar beet which serves as input for its two sugar plant. Sintal operates two silos with a total capacity of
215,000 tonnes. Irrigation systems cover about 19,300 ha of farmland in the
South. The company has also a smallish pig breeding subsidiary.

Source: Company data

WWW.ART-CAPITAL.COM.UA

53.3%
8.2%
2.2%
36.3%

Sintal cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Mykola Tolmachov
Vadim Mogyla, CEO
Management
Free float

2007
16
0
4
25%
1
9%
9

2008
38
15
12
24%
16
30%
10

2009
30
12
12
28%
9
20%
-1

2010
-

150
120
90
60
30
0
2007

2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

35

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: SINTAL AGRICULTURE

FINANCIAL DATA
2007

2008

2009

2010

16

38

30

-

0

15

12

-

-10

-37

-30

-

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
Gross profit

6

15

13

-

EBITDA

4

12

12

-

Operating profit

4

11

10

-

-1

-7

-2

-

Finance costs, net
Profit before tax

2

16

8

-

-1

-1

1

-

1

16

9

-

Property, plant and equipment, net

6

8

8

-

Non-current biological assets

0

0

0

-

Total non-current assets

9

17

16

-

Cash and cash equivalents

0

0

8

-

Biological assets

1

9

13

-

Inventories

15

15

18

-

Total current assets

26

30

44

-

Total assets
Equity

36

47

59

-

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)

8

26

46

-

Long-term interest bearing debt

1

2

1

-

Total non-current liabilities

1

2

1

-

Short-term interest bearing debt

7

8

5

-

Total current liabilities

26

19

12

-

Total liabilities and equity

36

47

59

-

37.3

29.1

30.2

-

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported
Gross margin adjusted for IAS 41

37.3

1.7

1.7

-

EBITDA margin reported

25.4

23.6

27.5

-

EBITDA margin adusted for IAS 41

25.4

-6.0

-2.0

-

8.9

30.0

20.3

-

Net margin reported
Net margin adjusted for IAS 41

8.9

3.0

-12.2

-

ROE

17.9

60.8

18.8

-

ROA

3.9

33.4

14.6

-

Net debt/EBITDA

2.2

0.8

-0.1

-

Source: company data (2007-2009 IFRS audited)

WWW.ART-CAPITAL.COM.UA

36

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MCB AGRICOLE

MCB Agricole

Rating
Current price, $
Target price, $
Upside

www.uzp-agro.com.ua
Bourse: Frankfurt Stock Exchange

INVESTMENT THESES
ST key drivers: favourable prices, weather conditions. MCB Agricole would capitalize on high prices for agricultural commodities in 2010 and
2011 as well as on expected favourable weather conditions in the springsummer period of 2011. The company increased cultivated area by 9% YoY to 84,043 ha in 2011.
Uncertain strategy in the long run. The company declares an increase in land bank, agricultural machinery and in crop yields due to improvement of cultivation technology, yet does not reveal any details of its expansion program. In money terms, MCB Agricole plans to almost triple sales in 2011 to $74mn compared to $26mn in 2009. Though, 2010 financials have yet to be disclosed.
Financial reports come with delay, no interim results. In 2009-2010, the company reported its annual consolidated financial statement at the end of the next year. This hinders the assessment of the company’s fair value and makes the valuation more vague.
Key risk: absence of in-house silos puts pressure on margins. MCB
Agricole is forced to rent storage facilities or sold crops immediately after their harvesting for unfavorable prices which usually fall during the harvesting campaign. Both options result in lower margins compared to peers which run their own silos.

N/R
2.3
-

Market Data

Bloomberg

4GW1 GR

GDRs, mn (1 share=2GDRs)
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

17.2
40
47
24.4
10

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-10%
3.4/2.3
-33%/0%
-2%
-18%
17

Stock Performance, € per GDR
12
10
8
6
4
2
0
Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11

Source: Bloomberg

COMPANY OVERVIEW
MCB Agricole Holding AG is an Austria-registered holding company for the group of companies Ukrzernoprom Agro. The holding has a land bank of
93,700 ha and cultivates almost 90% of them. Farmland is well-diversified geographically by 12 Ukrainian regions to minimize exposure of climatic risks. The own agricultural machinery fleet consists of 1,250 units and enables the company to cultivate 90,000 ha.

Source: Company data

WWW.ART-CAPITAL.COM.UA

30.2%
30.2%
15.2%
24.4%

MCB Agricole cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Anton Shyshkin, Chairman
Kirill Sintsov
Management
Free float

100

2007
18
2
4
17%
1
3%
15

2008
30
2
3
9%
-5
-17%
7

2009
26
-3
-2
-6%
-4
-18%
8

2010
-

80
60
40
20
0
2006

2007

2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

37

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: MCB AGRICOLE

FINANCIAL DATA
2007

2008

2009

2010

18

30

26

-

2

2

-3

-

-16

-25

-24

-

Profit & Loss ($ mn)
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
Gross profit

4

7

0

-

EBITDA

4

3

-2

-

Operating profit

2

1

-3

-

Finance costs, net

-1

-1

0

Profit before tax

1

-5

-4

-

Income tax expense/benefit

0

0

0

-

Net profit/loss

1

-5

-4

-

Property, plant and equipment, net

7

11

11

-

Non-current biological assets

0

0

0

-

Total non-current assets

7

12

11

-

Cash and cash equivalents

0

3

2

-

Biological assets

8

15

9

-

Inventories

3

3

3

-

Total current assets

18

30

26

-

Total assets
Equity

25

42

37

-

Balance Sheet ($ mn)

9

28

23

-

Long-term interest bearing debt

3

9

10

-

Total non-current liabilities

3

10

10

-

Short-term interest bearing debt

12

1

0

-

Total current liabilities

13

4

3

-

Total liabilities and equity

25

42

37

-

20.0

21.0

-1.5

-

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported
Gross margin adjusted for IAS 41

9.0

17.0

9.2

-

17.4

8.7

-6.5

-

EBITDA margin adusted for IAS 41

6.1

4.1

4.7

-

Net margin reported

2.9

-16.7

-17.8

-

EBITDA margin reported

Net margin adjusted for IAS 41

-10.5

-22.7

-5.4

-

ROE

6.8

-18.5

-18.0

-

ROA

2.3

-12.5

-11.3

-

Net debt/EBITDA

4.1

2.8

-5.1

-

Source: company data (2007-2009 IFRS audited)

WWW.ART-CAPITAL.COM.UA

38

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: LANDKOM

Landkom International

Rating
Current price, $
Target price, $
Upside

www.landkom.com
Bourse: London Stock Exchange (AIM)

INVESTMENT THESES
ST key driver: to post first profit in 2011. After a management reshuffle in September 2009, Landkom is expected to post its first ever profit in FY2011 ended October 31. The company substantially cut operating costs per hectare and signed forward contracts for the sale of
5,000 tonnes of rape seed at 75% higher price than in 2010 on average.
Meanwhile, the price environment remains favorable for both wheat and rape. LT key drivers: further cost cutting, land bank and crop mix optimization. Landkom has more room for improvement in terms of efficiency as its costs per hectare are still higher than those of its Ukrainian peers. The company also has one of lowest land utilization ratios among peers: only 70% of land was planted in 2011. We believe Landkom to raise its farmland in cultivation to 70,000 ha in 2013.
Risks: weather, poor management. Weather conditions remain one of the key risks for Landkom as its western farmland often suffer from heavy rainfall while land in Crimea are exposed to summer drought. As the company was founded and has been run mainly by foreigners, which lack expertise in dealing with peculiarities of Ukrainian legislation and corruption, the risk of inadequate management will remain high. The resignation of the current CEO Vitaliy Skotsyk and the appointment of a non-Ukrainian person would provoke a degradation of the company’s performance. COMPANY OVERVIEW
Landkom International Plc is a Ukrainian producer of agricultural commodities, registered in the Isle of Man in 2007. The company was founded by entrepreneurs from the UK in the intention to become large producers and exporters of two principal crops: wheat and rape seed.
Initially the company had 115,000 ha in leaseholds but cultivated just 17,600 ha in 2008. Currently, the land bank has decreased to 74,000 ha, located mainly in the Western Ukraine, while planted area has risen to 52,000 ha.
Landkom runs its own silo in western Ukraine with a capacity of 20,000 ha.

Source: Company data

WWW.ART-CAPITAL.COM.UA

Market Data

Bloomberg

LKI LN

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

435.0
23
32
55.5
13

52-week performance
52-week high-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1Y) $000

-58%
0.13/0.05
-58%/0%
-45%
-45%
187

Stock Performance, GBp per share
120
100
80
60
40
20
0
Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

Source: Bloomberg

Key shareholders
Hunter Hall IM
Invesco AM
Kairos AM
Odey AM

18.3%
13.7%
6.9%
5.4%

Multiples
P/E
EV/EBITDA
EV/S

2010 neg neg
1.9

2011E neg 5.1
1.0

2012E
11.0
3.8
0.9

Landkom cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

N/R
0.05
-

80

2007
2
5
-1
-22%
-1
-20%
-88

2008
11
-5
-52
-923%
-56
-991%
-4

2009
15
0
-21
-145%
-42
-291%
0

2010
17
0
-4
-26%
-12
-71%
-2

60

40

20

0
2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

39

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: LANDKOM

FINANCIAL DATA
2007

2008

FY2009

FY2010

Revenue

2

11

15

17

Net change in fair value of biological assets and agricultural produce

5

-5

0

0

-2

-38

-30

-16

Profit & Loss ($ mn)

Cost of sales
Gross profit

4

-32

-16

1

EBITDA

-1

-52

-21

-4

Operating profit

-2

-57

-27

-12

Finance costs, net

0

0

0

0

Profit before tax

-1

-56

-42

-12

0

0

0

0

-1

-56

-42

-12

13

48

41

36

0

0

0

0

Total non-current assets

14

49

41

36

Cash and cash equivalents

Income tax expense/benefit
Net profit/loss
Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets

88

4

0

2

Biological assets

7

13

4

8

Inventories

1

7

5

10

Total current assets

103

36

10

24

Total assets
Equity

117

85

51

60

113

76

43

46

Long-term interest bearing debt

0

0

0

0

Total non-current liabilities

0

0

0

0

Short-term interest bearing debt

0

0

0

0

Total current liabilities

4

9

8

13

117

85

51

60

-109.4

3.5

Total liabilities and equity
Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')
Gross margin reported

65.7

-566.9

Gross margin adjusted for IAS 41

-45.3

-254.0

-108.4

4.2

EBITDA margin reported

-21.5

-923.1

-145.1

-26.4

-414.1

-443.0

-143.9

-25.4

-20.0

-990.7

-290.8

-71.1

EBITDA margin adusted for IAS 41
Net margin reported
Net margin adjusted for IAS 41

-407.6

-478.9

-289.0

-69.8

ROE

-1.2

-73.6

-98.4

-25.7

ROA

-1.1

-66.0

-83.1

-19.9

Net debt/EBITDA

61.5

0.1

0.0

0.5

Source: company data (2007-2010 IFRS audited); FY means year ended October 30

WWW.ART-CAPITAL.COM.UA

40

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: IMC

Industrial Milk Company

Rating
Current price, $
Target price, $
Upside

www.imcmilk.com.ua
Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key driver: sharp rise in output in 2011-2012. IMC plans to harvest around 170,000 tonnes of grain and oilseeds in 2011, a 40% rise YoY, and boost potato output 2.5 times YoY to 15,000 tonnes. Given the company intends to increase land bank by 20,000-25,000 ha for the 2011/12 season, we expect double digit growth in output in 2012 as well.
LT key drivers: 5-year expansion program. IMC intends to use most of
IPO proceeds to further expansion in its key segments. Land bank is planned to increase to 126,000 ha by 2016. Total storage capacity for grain and oil seeds should rise by 130,000 tonnes by 2015 and for potato by 80,000 tonnes by 2016. The company intends to become the largest producer of high quality potato in Ukraine (over 100,000 tonnes a year) by 2016.
Key risk: upwardly skewed margins from biological assets gain. The company regularly reported quite a big gain from changes in fair value of biological assets (57% of EBITDA in 2010) according to the International
Accounting Standard 41. This practice is expected to continue by 2016 due to planned expansion of land bank.

N/R
2.6
-

Market Data

Bloomberg

IMC PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

31.3
81
76
23.9
19

52-week performance
High-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1M) $000

n/a
4.2/2.6
-38%/0%
-9%
-36%
168

Stock Performance, PLN per share
12
11
10
9
8
7
May-11

Jun-11

Jul-11

Aug-11

Sep-11

Source: Bloomberg

COMPANY OVERVIEW
Industrial Milk Company S.A. is a Luxembourg-registered holding company for the group of companies focusing on agricultural business in two
Ukrainian regions in the Northeastern Ukraine. The group’s principal activity is grain and oilseed production. IMC currently has around 38,000 ha under leasehold, most of them are used for crop cultivation. The company also produce potato and runs eight dairy farms with 5,600 heads of cattle including 1,550 milking cows. IMC’s aggregate capacity of two silos is
150,000 tonnes of grain and oilseeds, allowing the company to be selfsufficient in storage of crops. In May 2011, IMC started trading on the WSE.

Source: Company data

WWW.ART-CAPITAL.COM.UA

68.2%
7.9%
23.9%

Multiples
2010
5.5
4.2
2.2

P/E
EV/EBITDA
EV/S

2011E
3.2
2.5
1.5

2012E
3.0
2.1
1.0

IMC cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Oleksandr Petrov, Chairman
Management
Free float

80

2007
14

2008
25
1
23
87%
13
51%
27

2009
20
8
7
26%
2
6%
26

2010
35
10
18
40%
15
33%
10

60

40

20

0
2007

2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

41

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: IMC

FINANCIAL DATA
2007

2008

2009

2010

Revenue

-

25

20

35

Net change in fair value of biological assets and agricultural produce

-

1

8

10

Cost of sales

-

-22

-19

-28

Profit & Loss ($ mn)

Gross profit

-

4

8

17

EBITDA

-

23

7

18

Operating profit

-

21

5

14

Finance costs, net

-3

-2

-

-8

Profit before tax

-

13

2

13

Income tax expense/benefit

-

0

0

2

Net profit/loss

-

13

2

15

19

40

52

54

5

3

3

5

24

44

56

59

Balance Sheet ($ mn)
Property, plant and equipment, net
Non-current biological assets
Total non-current assets
Cash and cash equivalents

0

0

0

2

Biological assets

4

4

4

6

Inventories

6

8

14

13

Total current assets

16

22

30

28

Total assets
Equity

39

66

87

87

21

33

48

67

Long-term interest bearing debt

3

7

6

9

Total non-current liabilities

6

11

12

12

Short-term interest bearing debt

11

20

21

4

Total current liabilities

12

22

27

8

Total liabilities and equity

39

66

87

87

Gross margin reported

-

16.9

30.3

36.8

Gross margin adjusted for IAS 41

-

12.0

4.2

18.2

EBITDA margin reported

-

87.4

25.6

40.0

EBITDA margin adusted for IAS 41

-

86.7

-2.3

22.4

Net margin reported

-

50.6

5.8

32.8

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')

Net margin adjusted for IAS 41

-

47.7

-29.5

13.1

ROE

-

40.8

3.4

22.0

ROA

-

20.3

1.9

16.9

Net debt/EBITDA

-

1.2

3.7

0.6

Source: company data (2008-2010 IFRS audited)

WWW.ART-CAPITAL.COM.UA

42

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: KSG AGRO

KSG Agro

Rating
Current price, $
Target price, $
Upside

www.ksgagro.com
Bourse: Warsaw Stock Exchange

INVESTMENT THESES
ST key drivers: revenue, earnings rise on land bank expansion. KSG plans to boost revenue by 70% YoY to $26.5mn, to double EBITDA to
$24.2mn in 2011 due to a two-fold increase in land bank to 54,200 ha as of end-2011. The company also plans to use IPO proceeds for a purchase of agricultural machinery, for an acquisition of a modern silo, for irrigation of its land under crops and vegetables cultivation, and for working capital increase. LT key drivers: 5-year expansion program. KSG Agro intends to increase its land bank to 150,000 ha by 2016, doubling an operational efficiency of land usage. In vegetable segment, the company plans to raise its share in total revenue to 10% from 2% in 2010.
Risks: biological assets revaluation, related party transactions. Due to sharp growth in cultivated area, KSG Agro may report a huge gain from revaluation of biological assets (under the IAS 41), commensurate with its total revenue. Given high volatility of crop prices and the recently more persistent adverse weather, we adjust earnings for the IAS 41 gain in our forecasts. Another risk factor, which we draw attention to, is transactions with related parties. Their share may rise significantly in the next five years as the company intends to rapidly raise the share of sales to retailers in total revenue. KSG’s key retail customer is SPAR, ultimately controlled by
Sergiy Kasianov, a majority shareholder of the company.

N/R
7.1
-

Market Data

Bloomberg

KSG PW

Shares outstanding, mn
Market Capitalization, $ mn
Enterprise value, $ mn
Free float, %
Free float, $ mn

14.9
106
110
33.0
35

52-week performance
High-low, $
Change from high/low
1M change
3M change
Avg daily turnover (1M) $000

n/a
10.2/6.0
-30%/19%
14%
-25%
367

Stock Performance, PLN per share
30

25

20

15
May-11

Jun-11

Jul-11

Aug-11

Sep-11

Source: Bloomberg

COMPANY OVERVIEW
KSG Agro S.A. is a Luxembourg-registered holding company for the group of companies operating in the Ukrainian agricultural sector. The Group currently manages around 33,700 ha of farmland located in the central
Ukraine. KSG’s key segment is grain and oilseed production. The company also grows and markets fruits and vegetables and packages flour, cereals, pasta and sunflower oil. KSG supplies its fruits, vegetables and packaged products to retail chains, one of which is controlled by an ultimate majority shareholder of KSG Sergiy Kasyanov. The company operates its own storage facilities with a capacity of 30,000 tonnes of grain and 1,200 tonnes of vegetables. Since May 2011, KSG Agro shares are listed on the WSE.

Source: Company data

WWW.ART-CAPITAL.COM.UA

65.7%
1.3%
33.0%

Multiples
P/E
EV/EBITDA
EV/S

2010
10.6
9.0
7.0

2011E
5.8
4.7
4.3

2012E
3.6
3.3
2.2

KSG Agro cultivated area, ‘000 ha

KEY FINANCIALS AND RATIOS
Revenue, $mn
IAS 41 gain, $mn
EBITDA, $mn
EBITDA margin
Net profit, $mn
Net margin
Net debt, $mn

Shareholder structure
Sergiy Kasianov, Chairman
Undisclosed shareholder
Free float

60

2007
-

2008
7
5
3
27%
-1
-8%
10

2009
14
4
5
29%
3
14%
11

2010
16
17
12
38%
10
31%
8

40

20

0
2008

2009

2010

2011

2012E

Source: Company data; Art Capital estimates

43

ART CAPITAL

16.09.2011

UKRAINIAN FOOD & AGRICULTURE: EQUITY GUIDE

COMPANY PROFILE: KSG AGRO

FINANCIAL DATA
2007

2008

2009

2010

Revenue

-

7

14

16

Net change in fair value of biological assets and agricultural produce

-

5

4

17

Cost of sales

-

-9

-12

-20

Profit & Loss ($ mn)

Gross profit

-

3

6

12

EBITDA

-

3

5

12

Operating profit

-

3

5

12

Finance costs, net

-2

-2

-

-4

Profit before tax

-

-1

3

10

Income tax expense/benefit

-

0

0

0

Net profit/loss

-

-1

3

10

Property, plant and equipment, net

-

5

5

5

Non-current biological assets

-

0

0

0

Total non-current assets

-

11

11

11

Cash and cash equivalents

-

3

3

0

Biological assets

-

4

3

8

Inventories

-

3

5

5

Total current assets

-

12

16

15

Total assets
Equity

-

23

26

26

-

2

5

12

Long-term interest bearing debt

-

4

3

2

Total non-current liabilities

-

4

3

2

Short-term interest bearing debt

-

9

11

5

Total current liabilities

-

17

18

12

Total liabilities and equity

-

23

26

26

Gross margin reported

-

26.1

32.9

37.1

Gross margin adjusted for IAS 41

-

-30.0

12.2

-30.9

EBITDA margin reported

-

26.8

29.1

37.5

EBITDA margin adusted for IAS 41

-

-28.7

7.2

-30.2

Net margin reported

-

-7.6

14.0

30.9

Balance Sheet ($ mn)

Profitability/Solvency Ratios (%, except for 'Net debt/EBITDA')

Net margin adjusted for IAS 41

-

-89.1

-12.5

-44.0

ROE

-

-45.3

50.5

86.2

ROA

-

-4.0

9.7

38.2

Net debt/EBITDA

-

3.2

2.2

0.6

Source: company data (2008-2010 IFRS audited)

WWW.ART-CAPITAL.COM.UA

44

ART CAPITAL

16.09.2011

UKRAINE EQUITY RESEARCH: UKRAINIAN FOOD & AGRICULTURE

Company
Disclosures

IFC ART CAPITAL
1 Narodnogo Opolchennya Street, 6th floor
Kyiv, 03151 Ukraine
т. +380 (44) 490-51-85, 490-51-84 www.ART-CAPITAL.com.ua SALES & TRADING

st@art-capital.com.ua
+380 44 490 92 46

RESEARCH

research@art-capital.com.ua
+380 44 490 51 85 (185)

Head of Sales
Konstantin Shylin

shylin@art-capital.com.ua

Head of Research
Igor Putilin

putilin@art-capital.com.ua

Investment manager
Nina Bazarova

bazarova@art-capital.com.ua

Economist
Oleg Ivanets

ivanets@art-capital.com.ua

Senior analyst: machinery Oleksiy Andriychenko

andriychenko@art-capital.com.ua

Senior analyst: metals & mining
Dmitriy Lenda

lenda@art-capital.com.ua

Analyst:
Utilities, Energy
Stanislav Zelenetskiy

zelenetskiy@art-capital.com.ua

Senior Analyst:
Consumer, Agriculture
Andriy Patiota

patiota@art-capital.com.ua

Editor
Pavlo Shostak

shostak@art-capital.com.ua

Investment manager
Vitaliy Berdychevsky

Investment manager
Oleg Smyk

berdichevsky@art-capital.com.ua

smyk@art-capital.com.ua

INTERNATIONAL SALES

Head of International Sales
Roman Lysyuk

International sales
Bohdan Kochubey

is@art-capital.com.ua
+380 44 490 92 46

lysyuk@art-capital.com.ua

kochubey@art-capital.com.ua

This report has been prepared solely for information purposes and is not intended to be an offer, or a solicitation of an offer, to buy or sell any securities.
Descriptions of any company or companies or/and their securities, or markets, or developments mentioned herein are not represented to be complete.
There is no responsibility on our part to revise or update any information or correct any inaccuracies contained in this report on an ongoing basis. Although the information in this material has been obtained from sources that PJSC IFC ART CAPITAL believes to be reliable, we do not guarantee its completeness or accuracy. In making their investment decisions investors are expected to rely on their own analysis of all risks associated with investing in securities. PJSC
IFC ART CAPITAL, its top executives, representatives and employees accept no liability whatsoever for any direct or consequential loss arising from the use of the material or its contents. PJSC IFC ART CAPITAL, third parties related to it, its directors and/or employees, and/or any persons connected with them, may have interests in the companies or provide services to one or more companies discussed herein and/or intend to acquire such interests and/or to provide any such services in the future. All estimates and opinions expressed in this report reflect the judgment of each research analyst, who is fully or partially responsible for the contents of the document, and may differ from the opinions of ART CAPITAL. This document, or any part hereof, may not be reproduced or copies circulated without the prior express consent of PJSC IFC ART CAPITAL.

WWW.ART-CAPITAL.COM.UA

45

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