AVGR.L Regulatory News (AVGR)

November 30, 2017

AVANGARDCO INVESTMENTS PUBLIC LIMITED

FINANCIAL RESULTS FOR 9 MONTHS OF 2017

Кyiv, Ukraine - AVANGARDCO INVESTMENTS PUBLIC LIMITED (LSE: AVGR) (the "Company" or "AVANGARDCO IPL"), the largest producer of shell eggs and dry egg products in Ukraine and Europe, today announces its financial results for the nine months ended 30 September 2017.

9M 2017 Financial Highlights*

§ Consolidated revenue amounted to US$84.0 mln, a decrease of 24% YoY (9M 2016: US$111.1 mln).

§ Export revenue from sales of shell eggs and dry egg products amounted to US$21.4 mln, or 25% of the Company's consolidated revenue (9M 2016: US$48.1 mln, or 43% of the Company's consolidated revenue).

§ Gross loss amounted to US$22.1 mln (9M 2016: gross profit of US$3.2 mln). 

§ Operating loss amounted to US$25.0 mln (9M 2016: operating loss of US$22.6 mln).

§ Negative EBITDA was US$12.2 mln (9M 2016: negative EBITDA of US$10.0 mln).

§ Net loss reduced to US$20.8 mln (9M 2016: net loss of US$38.8 mln).

*Financials include operations with grain, purchased from an affiliated party. Detailed information on this is available in the Financial results overview section.

9M 2017 Operational Highlights

§ Production of shell eggs totalled 1,693 mln units, a decline of 11% YoY (9M 2016: 1,895 mln units).

§ Sales of shell eggs amounted to 1,331 mln units, up by 22% YoY (9M 2016: 1,093 mln units).

§ Export of shell eggs amounted to 341 mln units, up by 80% YoY (9M 2016: 189 mln units).

§ The average sales price of shell eggs was UAH0.96 per unit, excluding VAT, down by 24% YoY (9M 2016: UAH1.26 per unit, excluding VAT).

§ The average sales price of shell eggs in US dollar terms was US$0.036 per unit, excluding VAT, down by 28% YoY (9M 2016: US$0.050 per unit, excluding VAT).

§ The production of dry egg products amounted to 4,415 tonnes, a decline of 49% YoY (9M 2016: 8,612 tonnes).

§ Sales of dry egg products totalled 2,210 tonnes, down by 64% YoY (9M 2016: 6,169 tonnes).

§ Exports of dry egg products amounted to 1,763 tonnes, a decline of 68% YoY (9M 2016: 5,570 tonnes).

§ The average sales price of dry egg products was US$4.59/kg, down by 19% YoY (9M 2016: US$5.66/kg).

§ As at 30 September 2017, the total poultry flock amounted to 12.0 mln hens, down by 13% YoY (30 September 2016: 13.8 mln hens).

§ As at 30 September 2017, the number of laying hens amounted to 10.4 mln hens, down by 2% YoY (30 September 2016: 10.6 mln hens).

Important events:

Eurobonds: AVANGARDCO IPL continues to be in discussions with various creditor groups. As part of these discussions, the Company has begun working with an ad hoc committee of bondholders and its advisor on the proposal of restructuring of its US$200,000,000 10.0% Notes due in 2018 (ISIN: XS0553088708). The Company expects that any restructuring of the Company's debt including the Notes will include a request to restructure the interest payment due under the Notes on 2 May and 30 October 2017. Further updates will be made as the restructuring develops at: http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/US05349V2097USUSDIOBE.html?lang=en

Nataliya Vasylyuk, Chief Executive Officer of AVANGARDCO IPL, commented: 

"In the reporting period, AVANGARDCO's performance continued to be impacted by challenging conditions in the domestic and export markets which led to reduced revenue and profitability. However, we saw a gradual recovery in Q3 2017, driven by seasonal growth in consumer demand for shell eggs in Ukraine and its sales price, as well as the resumption of sales to the Company's traditional export markets. As part of our efforts towards further cost optimisation, the Company has replenished its laying flock, which resulted in higher productivity.

We expect that these positive developments will continue throughout Q4 2017, with these improvements expected to be reflected in the Company's performance in H2 2017."

Outlook:

In Q4 2017, in the run up to the winter holidays, AVANGARDCO expects the seasonal growth in demand and sales price for shell eggs to continue.

# # #

The management team will not hold an investor and analyst conference call for this set of results due to the ongoing discussions with the ad hoc committee of bondholders.

The press release, presentation and financial statements for the nine months ended 30 September 2017 will be available on the Company's website at: http://avangardco.ua/en/investor-relations/data-book/annual-reports/interim-reports/

# # #

Financial results overview:

*recalculated at the average UAH/USD exchange rate for the third quarter of 2016 and 2017

In 9M 2016 and in 9M 2017, the Company conducted operations on trading grain purchased from an affiliate of Ukrlandfarming PLC at market rates. This was reflected in the 'Other activities' segment. Since these operations are of a technical nature and have a minimum margin, they do not affect AvangardCo's operational and net profit.

Q3 2017:

\* The Company did not conduct any operations on trading grain in Q3 2017.

9M 2017:

Q3 2017:

In Q3 2017, the Company's consolidated revenue decreased by 6% YoY to US$29.3 mln (Q3 2016: revenue, excluding grain trading operations, of US$31.2 mln). This was largely due to the 78% YoY decline in sales of dry egg products amid the 52% YoY decrease in their average sales price and the drop in the average sales price of shell eggs in both the Ukrainian Hryvnia and US dollar by 13% YoY and 16% YoY respectively. However, the decline in revenue was largely offset by the increase in shell egg sales.

The gross loss amounted to US$10.1 mln (Q3 2016: gross profit, excluding grain trading operations, of US$0.7 mln) as a result of a negative margin in the key Shell Eggs and Dry Egg Products Segments (in Q3 2017 the average sales price of shell eggs and dry egg products was lower than the cost of sales).

In Q3 2017, the loss from operating activities amounted to US$7.1 mln (Q3 2016: operating loss, excluding grain trading operations, of US$1.4 mln).

Negative EBITDA amounted to US$3.2 mln (Q3 2016: EBITDA, excluding grain trading operations, of US$2.8 mln).

In Q3 2017, the Company's net loss was US$9.2 mln (Q3 2016: net loss, excluding grain trading operations, of US$6.0 mln). 

9M 2017:

The exchange rates used for the preparation of consolidated financial statements:

In 9M 2017, the Company's consolidated revenue, excluding grain trading operations, decreased by 23% YoY to US$74.3 mln (9M 2016: revenue, excluding grain trading operations, of US$96.0 mln). The revenue decline was partially offset by a 22% YoY increase in shell egg sales. Despite this, the following factors negatively impacted the Company's revenues:

§ The 64% YoY decline in dry egg product sales amid the 19% YoY decrease in their average sales price in US dollar terms;

§ The 24% YoY decline in the average sales price of shell eggs in the Ukrainian Hryvnia. In US dollar terms, their average sales price fell 28% YoY to US$0.036 per egg (9M 2016: US$0.050 per egg);

§ The decline in the share of export revenue; and

§ The ongoing devaluation of the Ukrainian Hryvnia against the US dollar.

In 9M 2017, the Company's export revenues from the sales of shell eggs and dry egg products decreased by 56% YoY to US$21.4 mln (9M 2016: US$48.1 mln) as a result of the decline in export sales of dry egg products by 68% YoY and the lower export price of shell eggs and egg products. The share of export revenue in the consolidated revenue was 25% (9M 2016: 43%).

In 9M 2017, the cost of sales, excluding grain trading operations, rose by 3% YoY to US$90.9 mln (9M 2016: cost of sales, excluding grain trading operations, of US$88.6 mln).

The gross loss, excluding grain trading operations, amounted to US$22.3 mln (9M 2016: gross profit, excluding grain trading operations, of US$3.4 mln) as a result of a negative margin in the key Shell Eggs segment. In 9M 2017, the Company's average sales price of shell eggs was lower than its cost of sales. The other major factor behind the gross loss was a reduced margin in the Dry Egg Products segment.

In 9M 2017, the loss from operating activities, excluding grain trading operations, amounted to US$24.8 mln (9M 2016: operating loss, excluding grain trading operations, of US$22.4 mln). In the reporting period, the Company received income from government grants and incentives amounting to US$7.3 mln, which had a positive impact on the Company's financial results.

Negative EBITDA, excluding grain trading operations, was US$12.0 mln (9M 2016: negative EBITDA, excluding grain trading operations, of US$9.8 mln).

In 9M 2017, the Company's net loss, excluding grain trading operations, reduced to US$20.6 mln (9M 2016: net loss, excluding grain trading operations, of US$38.6 mln). This was partially offset by forex gains of US$25.0 mln largely from the retranslation of long-term bond liabilities.

Cash flow and debt structure:

As at 30 September 2017, net cash generated from operating activities amounted to US$2.8 mln (30 September 2016: net cash used in operating activities of US$4.6 mln).

Net cash generated from investing activities amounted to US$0.6 mln (30 September 2016: net cash used in investing activities amounted to US$8.4 mln).

In the reporting period, there was no cash used/generated from financing activities (30 September 2016: net cash used in financing activities amounted to US$4.1 mln).

As at 30 September 2017, net cash inflow amounted to US$3.5 mln (30 September 2016: net cash outflow of US$17.1 mln). Cash and cash equivalents amounted to US$17.2 mln (30 September 2016: US$14.3 mln).

As at 30 September 2017, the Company's total debt amounted to US$365.1 mln (31 December 2016: US$344.1 mln). Net debt was US$347.9 mln (31 December 2016: US$331.5 mln).

The Company's Eurobond issue, which has a maturity date of 29 October 2018, amounted to 63% of the Company's total debt.

Segment review

Poultry flock management:

As at 30 September 2017, the total poultry flock decreased by 13% YoY to 12.0 mln heads (30 September 2016: 13.8 mln heads) due to the reduction in the size of the replacement flock. The Company had been replenishing its laying flock throughout H1 2017 and, currently, does not require a large number of hens in its replacement flock. As at 30 September 2017, the number of laying hens slightly decreased to 10.4 mln heads (30 September 2016: 10.6 mln laying hens).

Shell Eggs Segment:

The production volume of shell eggs rose by 8% YoY to 700 mln units in Q3 2017 (Q3 2016: 646 mln units) due to the replenishment of the laying flock, which resulted in greater productivity in Q3 2017. In 9M 2017, the production volume of shell eggs decreased by 11% YoY to 1,693 mln units (9M 2016: 1,895 mln units) due to the replenishment of the laying flock, which in H1 2017 had not yet reached its peak of productivity.

In Q3 2017, the volume of shell eggs for processing was reduced by 36% YoY to 173 mln units (Q3 2016: 272 mln units) whilst in 9M 2017 by 49% YoY to 376 mln units (9M 2016: 732 mln units) in order to avoid a further build-up of inventories of dry egg products.

In Q3 2017, sales of shell eggs rose by 67% YoY to 568 mln units (Q3 2016: 341 mln units) whilst in 9M 2017 increased by 22% YoY to 1,331 mln units (9M 2016: 1,093 mln units). This was due to a combination of factors, such as increased exports and a successful marketing effort to grow retail sales including sales of the "Kvochka" brand (up by 40% YoY).

In Q3 2017, exports of shell eggs grew fourfold YoY to 238 mln units (Q3 2016: 59 mln units) whilst in 9M 2017 rose by 80% YoY to 341 mln units (9M 2016: 189 mln units). This was due to greater diversification and increased sales to all export markets (with the exception of Iraq), the removal of most of trade import bans in Q3 2017, as well as a lower export price for shell eggs and a reduction of egg sales from the EU due to egg contamination.

In the reporting period, the share of export sales grew to 26% (9M 2016: 17%), with the Company exporting shell eggs to 12 countries in the MENA region, Sub-Saharan Africa, Asia and the CIS.

In addition to export sales, the Company sold shell eggs to domestic supermarkets and to wholesale customers. The share of sales through supermarkets was 56% of total sales (9M 2016: 58%), whilst the share of sales to the lower margin wholesale channel reduced to 18% (9M 2016: 25%).

In Q3 2017, the average sales price of shell eggs fell by 13% YoY to UAH0.97 per unit, excluding VAT (Q3 2016: UAH1.11 per unit, excluding VAT). In 9M 2017, the average sales price of shell eggs fell by 24% YoY to UAH0.96 per unit, excluding VAT (9M 2016: UAH1.26 per unit, excluding VAT). Although, the price for shell eggs in Ukraine has been rising since August, this growth wasn't sufficient enough to mitigate the price's sharp reduction in H1 2017, as well as the decreased export price, resulting from the temporary import trade ban following avian influenza in Ukraine.

In 9M 2017, despite the increased sales, the segment's revenue fell by 11% YoY to US$48.3 mln (9M 2016: US$54.4 mln) as a result of a lower sales price. The segment's net loss reduced to US$14.1 mln (9M 2016: net loss of US$18.7 mln) due to the higher cost of sales against the average sales price.

Dry Egg Product Segment:

In order to avoid a further build-up of inventories, the Company decreased the output of dry egg products by 37% YoY to 2,029 tonnes in Q3 2017 (Q3 2016: 3,206 tonnes) and in 9M 2017 by 49% YoY to 4,415 tonnes (9M 2016: 8,612 tonnes).

In Q3 2017, sales of dry egg products decreased by 78% YoY to 491 tonnes (Q3 2016: 2,251 tonnes) and in 9M 2017 by 64% YoY to 2,210 tonnes (9M 2016: 6,169 tonnes). This was mainly as a result of lower export sales.

In Q3 2017, the export of dry egg products fell by 87% YoY to 282 tonnes (Q3 2016: 2,101 tonnes). In 9M 2017, the export of dry egg products declined by 68% YoY to 1,763 tonnes and amounted to 80% of the total sales (9M 2016: 5,570 tonnes or 90% of the total sales). The decline in the export of dry egg products resulted from:

§ lack of sales to Denmark in Q2 and Q3 2017 due to the fact that mutually beneficial sales terms could not be agreed. The Company is currently negotiating new contractual terms for 2018 with its partners in Denmark;

§ a decline in sales to MENA, as a consequence of the import trade ban. It will take some time for the Company to reclaim its position in the region;

§ the ongoing competition for the Far East region.

In the reporting period, the Company sold dry egg products to 18 countries in the EU, Asia, the Far East, the Middle East and North Africa.

In Q3 2017, the average sales price of dry egg products decreased by 52% YoY to US$2.72/kg (Q3 2016: US$5.69/kg) as a result of the greater share of lower margin domestic sales and a lower export price. In 9M 2017, the average sales price of dry egg products decreased by 19% YoY to US$4.59/kg (9M 2016: US$5.66/kg) due to the reduction in the share of export sales, and the fact that, import restrictions forced the Company to sell its dry egg products at a lower price in order to restore the loyalty of former customers.

In 9M 2017, the segment's revenue was down by 71% YoY to US$10.2 mln (9M 2016: US$34.9 mln) due to the decreased sales of dry egg products and their lower sales price. The segment's net loss was US$5.3 mln (9M 2016: net loss of US$3.8 mln).

- Ends -

# # #

Information for editors

AVANGARDCO IPL is one of the largest agro-industrial companies in Ukraine, specialising in the production of shell eggs and dry egg products. As at 30 June 2017, the Company holds a 24% share of the industrial shell egg market and a 64% share of the dry egg product market in Ukraine. The Company's laying hens flock is one of the largest in Europe.

AVANGARDCO IPL has a vertically integrated production cycle. The Company's facilities are located in 14 regions of Ukraine and the Autonomous Republic of Crimea. The Company has 19 laying farms, 3 hatcheries, 10 rearing farms, 6 feed mills, 3 long-term storage facilities and the Imperovo Foods egg processing plant, which is one of the most technologically-advanced facilities for processing eggs in Europe.

The Company exports its products to the Middle East, Africa, Asia, the CIS and EU.

The Company's shares, in the form of Global Depositary Receipts, have been trading on the London Stock Exchange since May 2010. The Eurobond issue for approximately US$200 mln with a maturity on 29 October 2018 was included in the official list of the UK Listing Authority (UKLA) and admitted to trading on a regulated market of the London Stock Exchange on 1 November 2010.

# # #

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of AVANGARDCO IPL. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might", the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in the Company's geographical locations, rapid technological and market changes in our industry, as well as many other risks specifically related to AVANGARDCO IPL and its operations.

Condensed consolidated statement of financial position

AS AT 30 September 2017

(in USD thousand, unless otherwise stated)

Condensed consolidated statement of profit and loss and other comprehensive income

FOR THE 9 MONTHS ENDED 30 SEPTEMBER 2017

(in USD thousand, unless otherwise stated)

Condensed consolidated statement of cash flows

FOR THE 9 MONTHS ENDED 30 SEPTEMBER 2017

(in USD thousand, unless otherwise stated)

Condensed consolidated statement of cash flows (cont.)

FOR THE 9 MONTHS ENDED 30 SEPTEMBER 2017

(in USD thousand, unless otherwise stated)