ASTARTA Holding NV BUY - cfasociety.org GIRC/Slides_2/DNTU Team'… · ASTARTA Holding N.V. is a public company with limited liability incorporated under Dutch law, which operates

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Agriculture

ASTARTA Holding NV

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AST

52 Week Price range, EUR 37.10-93.00

Average daily volume,

th. EUR 8.28

Beta 0.62

Dividend yield, % -

Shares outstanding, mln. 25

Market capitalization, mln. EUR* 536.3

Institutional holdings 0

Insider holdings, % 68.98 (31.02

free float)

Book value per share

EUR (2010 E) 7.7

Debt to Total Capital %(2010 E) 40

Return on Equity %(2010 E) 60.1

*(3 December 2010) EUR 1 = PLN 3.9952

BUY

Market Profile

AST Daily Stock Price

We initiate coverage of Astarta with a Buy recommendation, arriving at a

target price of Euro 24,6 which implies 17,7 % upside. We believe Astarta

will outperform the market, due to stable growth, driven by 193 million

Capex program, maintaining high margins and steadily growing FCCFs.

Positive market stance

We are bullish about the prices in Ukrainian sugar market due to low

ending stocks and lower than projected output combined with steadily

growing demand. The situation in the world markets bodes well for

producers, stemming from shortage of sugar cane due to its usage in

bioethanol production and growing demand from developing countries.

Strong financial fundamentals

Astarta will capitalize on the back of favorable prices which will contribute

to the revenues growth to Euro 175, 7 million (up 49, 2 % from 2009)

with subsequent tripling by the end of 2015 mainly due to steadily growing

demand in sugar market and significant expansion of output in all three

segments. We expect the increase in net profit by 142 % from Euro 76

million up to 184, 5 by the end of the projected period, backed by cost-

reduction and increased plants’ capacity.

Indisputable dominant position

Astarta, benefiting from its 90 % self-sufficiency in sugar beet, securing

around 70 % of its sales among large industrial consumers and raising

funds from foreign institutions leaves back its competitors. The diversified

portfolio strategy combined with modernization of existing capacities and

acquiring new ones, further land bank expansion and implementation of

energy-saving program will contribute to further strengthening of its

market position.

EUR' 000 2011E 2012E 2013E 2014E 2015E

Revenues 239 543 320 139 382 800 460 419 547 112

EBIT 90 689 120 388 141 935 164 801 184 829

Cash flows (used in) provided by

operating activities 39 020 59 754 91 397 112 141 134 004

Cash flows used in investing

activities -42 937 -35 939 -36 798 -62 738 -36 264

Cash flows provided by financing

activities 3 917 -23 815 -54 599 -49 402 -2 724

Discounted FCFFs 5 024 27 015 43 752 31 133 50 593

Net Profit 75 494 104 723 129 128 158 546 184 502

Net Profit Margin 31 32 33 34 33

Source: BI-5 estimates

Investment Fundamentals

CFA Global Investment Research Challenge

Student Research

7.12.2010

72%

15%

9%

2% 2%

Sugar

Crops

Cattle farming

Sugar by-products

Other

51,8 68,1 87,7 123,4 117,7330,9 432,9

615,3

970,7

1354,81643,1

2005 2006 2007 2008 2009 2010E

EUR,th UAH,th

0

1000

2000

3000

2005 2006 2007 2008 2009 2010 2011Е

Тotal sugar production in Ukraine,th.tonsTotal output of Astarta's sugar,th.tonsТotal sugar consumption in Ukraine,th. tons

0

500

1000

1500

2005 2006 2007 2008 2009 2010

Sweet biscuits and wafers, tons

Sugary foods containing cocoa, tons

Sugary products without cocoa, tons

Business Description

ASTARTA Holding N.V. is a public company with limited liability incorporated under Dutch law, which

operates on the territory of Ukraine through its subsidiary - Astarta-Kiev, established in 1993. ASTARTA is a

vertically integrated holding engaged in production and wholesale distribution of sugar and sugar by -

products. Its production profile is also supplemented with growing and selling grains and oilseeds, as well as

cattle farming. Since August 2006 ASTARTA’s shares are listed on Warsaw Stock Exchange and are the part

of WIG, sWIG 80 and WIG-SPOZYW indices.

The main source of revenue for the company is sales of refined sugar (72% of the total revenues as for the

nine months of 2010). It possesses 5 production units in 3 administrative regions of Ukraine, which comprise

6 sugar plants, a seed treatment plant and a mixed fodder plant, with 190 thousand hectares under lease.

In the nine months of 2010 revenue amounted to 130,741 thousand EUR (74%-increase compared to the nine

months of 2009) while net profit was 76,207 thousand EUR, compared to 21,077 thousand EUR in 2009.

Industry Overview and Competitive Positioning

Astarta is a leading sugar producer in Ukraine with 18 % market share in 2009. Grains and oilseeds

production constitute the second largest business segment, which secures foreign currency repayments and

adds to another non-core business – cattle farming.

Sugar production to keep margins high We consider Ukrainian sugar market to be rather attractive in terms of sustainable profitability for two

reasons: first – the lack of sugar beet production leads to constant mismatch between supply and demand for

sugar; the steadily growing demand in world sugar markets is to outpace the production.

Consolidation hampers competition

Small agricultural firms and households shorten the land under sugar beet and change it with more profitable

crops such as grains and oilseeds. Furthermore, self-sufficiency in terms of agricultural equipment and seeds

production give vertically integrated holdings absolute power.

Reaping benefits on the back of favorable pricing

The higher projected output of 1,6 million tons in 2010/11 marketing year relative to previous years still

doesn’t meet the demand in the domestic market, which underpins the maintenance of relatively high prices.

The demand will be bolstered by overall economy growth (4 - 4,5 %), and namely by growing confectionary

and beverage industries. Confectionary industry was one of the least affected by the crisis of 2008. A

National Association of Ukrainian confectionary producers "Ukrkonditer" in-kind market rose for the first

eight months 2.6% since the beginning of 2010.

Vital Government Support

“The plan for beet –sugar industry development by the Ministry of Agriculture till 2015” reveals the

intentions of the government to support the producers.

Region of presence Number of

production units

Agricultural

land, th. ha

Sugar beet processing

capacity, ton per day Cattle

Khmelnitsky 1 31 3,800 3,500

Vinnitsya 1 27 3,200 3,000

Poltava 3 132 20,000 17,500

TOTAL 5 190 27,000 24,00

CAGR 2005-2010:

31%(EUR), 20%(UAH)

Figure 1. Breakdown of Revenues, 2010

Figure 2. Growth of Revenues

Source: Company data

Figure 3. Astarta’s Assets and Regions of Presence


Figure 4. Deficit of Sugar Production in

Ukraine

Source: Ukrkonditer


Figure 5. Growth in Production of Basic

Confectionary in Ukraine

Source: Company data, State Statistic

Committee of Ukraine

175,7


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0,1

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2833

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2005 2006 2007 2008 2009 2010

%th.heads

Heads of cattle,ths headsHeads of cows, ths headsMilk production, ths tonsCattle heads in Ukraine,% to 2004

18%

10%

8%

8%6%

5%

45%

Astarta UkrrosUkrprominvest Rise-TsukorMriya Radekhiv-TsukorOther

Growth will be backed by the subsidies for sugar beet growing ranging from 1100 to 800, as well as loans

cost compensation. The quota for raw sugar under WTO agreement is to remain stable which supports the

overall upward trend in prices stemming from deficit in sugar market.

World market backs up positive sentiments

The situation in the world market puts the upward pressure onto the prices as well, mainly due to lower

ending stocks, combined with bad weather conditions in Brazil, growing demand from China and growth in

bioethanol production. In May and October 2010 prices of white sugar in London Stock Exchange increased

by 57, 1% to $ 730.3 per ton, while for raw sugar in New York York Stock Exchange the price surge

resulted in 90, 1% increase - to $ 632.9 per ton. The National Association of Sugar Producers of Ukraine

"Ukrtsukor" predicts growth in sugar prices by 5-18% in January 2011 - April 2011.

The leadership strategy carried out through diversification

The combination of such factors as growing oil prices, stronger demand driven by steady economic

recovery, and growing bioethanol and biodiesel production will put the upward pressure onto the grains

prices in the long run, which in turn will boost export sales of the main crops.

Prospects in the cattle farming segment The market of industrialized milk will favor producers in terms of pricing due to steady shortage of cattle

head-count and solid demand from dairy producers.

Astarta’s competitive advantages.

Astarta outreaches its main competitor, Sugar Union Ukrros owning to its 90 % self–sufficiency in sugar

beet. The competitive advantage is also obtained through sound logistics supply and modern agri-machinery

park. Yields in sugar beet and other crops such as corn, wheat, barley, sunflower and soy bean are 20% and

45% above Ukrainian average respectively as of 2009. Gas consumption in Astarta’s plants is 28 % below

than average in Ukraine in 2009. In August 2010 Astarta has launched a seed-treatment plant which will

allow further cost-cutting. In comparison to the average prices in Ukrainian sugar market Astarta gets a

premium of 7%. Astarta has increased its grain storage capacities to 260 thousand tons 2010 to be fully

hedged from unfavourable pricing. In 2009 the share of Astarta in the market of industrialized milk

amounted to 2%. The further develop the segment, Astarta has commissioned a modern dairy life-stock

facility in 2010.

Astarta UkrRos

Market share 17,80% 10%

Assets

6 sugar plants,

5 agricult. firms,

190 000 hectare of lands

7 sugar plants,

17 agricult. firms,

100 000 hectare of lands

Plants' capacity 27 th. of tonns of beet per day 25.6 th. of tonns of beet per day

Own beet share 90% 44%

2010 2011E 2012E 2013E 2014E 2015E

Sugar production, th.t

Consumption, th.t.

1594 1687 1726 1761 1771 1778

1900,7 1915,2 1929,5 1943,6 1957,5 1980

Import quota raw sugar, th.t. 267,8 267,8 267,8 267,8 267,8 267,8

Subsidies,UAH/ha

Operating sugar plants

Loans compensation,UAH, mln

500

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1100

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1000

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Sown area under sugar beet, th.ha 441 452 441 431 420 410

Sown area subsidised, th.ha 353 361 353 344 336 328

Figure 6. Plan for beet –sugar industry development by the Ministry of Agriculture till 2015

Source: Ministry of Agriculture

Figure 7. World Sugar Prices Growth

Figure 8. Achievements in the Dairy Sector


Source: CNNMoney

Source: Company data, State Statistic Committee of

Ukraine

Figure 9. Market Share of the Main

Ukrainian Sugar Producers , 2010

Source: Company data, UkrRos data


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0,00

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-50,00

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01.09.06 01.04.07 01.11.07 01.06.08 01.01.09 01.08.09 01.03.10 01.10.10

Average price of sugar in Ukraine (UAH per kg) AST WIG

Investment Summary Assuming further upward trend in prices in sugar market that is the main value driver, judging by

historical performance and, namely by the 262% y-o-y net profit increase in 9 months of 2010, we arrive at

the target price of EUR 24,6 with upside 17,7 %. We look positively to further capacities expansion

opportunities and cost-saving program implementation due to healthy financial position, backed by

sustainable cash flows.

Valuation

We based our revenue forecast on the company management’s target volumes of production till 2015.The

prices will be marked with steady growth.

We ground our BUY rating on the company’s leading position in the industry as well as on Astarta’s

positive outlook for future development.

Since the Fixed Agricultural Tax will be effective till 2015, according to the management’s expectations, we

find that an effective tax rate is to amount 0%. This contributes significantly to generation of high FCFFs.

We also excluded the possibility of tax benefit receipt.

We applied CAPM for the cost of equity calculation. However we do not rely on an extremely high level of

21,9% as most of companies have much lower cost of equity. Thus, we found it with the help of a build-up

method and obtained the level of 13,75%, conceding risk-free rate and equity risk premium to be 6,75% and

6% respectively and estimating company specific risk to be no higher than 1% due to Astarta’s strong

financial position and the overall positive market situation.

The FCFF growth rate is assessed to be 4% and such an estimate is based on expected GDP growth of 4 –

4,5 % on average during the observed period. WACC in perpetuity assessment included an assumption that

by reason of increase in financial stability required return on equity is to be reduced. That is why WACC in

perpetuity is estimated to equal 13%.

Inflation is assumed not to exceed 10%, while Exchange rate was used as fixed at the level of 10,9.

Since IPO Astarta has

added 355%

Historical minimum caused by the financial

crisis 2008-2009

Historical maximum on the back of price surge

caused by deficit on sugar

market

Source: Warsaw Stock Exchange Data


Student Research

7.12.2010

Risks to our price

As the target price react substantially on change of perpetuity growth rate and WACC in perpetuity, the

sensitivity of the target price, as well as sensitivity of upside can be characterized as considerable. Thereby,

if WACC in perpetuity is 14%, other things being equal, then the target price will drop to EUR 22,3, which

means upside of 6,5%. Otherwise, if WACC in perpetuity is 1% lower than our estimate, other things

being equal, the target price will be EUR 27,5, with upside of 31,6%. As far as perpetuity growth is

concerned, 3% rate and 5% rate, other things being equal, will mean upsides of 5,5% and 32,8%

respectively, which doesn’t imply the change of recommendation.

WACC in perp.

Perpetuity growth

1 2 3 4 5 6

10 23,9 27,0 31,0 36,3 43,7 54,8

11 21,6 24,1 27,3 31,3 36,6 44,1

12 19,8 21,8 24,4 27,5 31,6 37,0

13 18,2 20,0 22,0 24,6 27,8 31,8

14 16,9 18,4 20,2 22,3 24,8 28,0

15 15,8 17,1 18,6 20,3 22,5 25,0

WACC in perp.

Perpetuity growth

1 2 3 4 5 6

10 14,4 29,2 48,2 73,6 109,1 162,4

11 3,6 15,5 30,4 49,6 75,2 111,0

12 -5,3 4,5 16,6 31,6 51,0 76,8

13 -12,7 -4,5 5,5 17,7 32,8 52,4

14 -19,0 -11,9 -3,6 6,5 18,7 34,1

15 -24,4 -18,3 -11,1 -2,7 7,4 19,8

2010E 2011E 2012E 2013E 2014E 2015E

EBIT, th. EUR 59 077 84 919 114 618 136 165 159 031 179 059

Effective tax rate, % 0 0 0 0 0 0

D&A 7 897 9 702 11 267 12 192 13 112 15 904

Capex -36 324 -42 937 -35 939 -36 798 -62 738 -36 264

Change in working Capital 90 372 46 088 56 210 49 781 59 413 66 291

FCFF -59 723 5 595 33 737 61 777 49 991 92 408

WACC 10,9 11,4 12,1 13,1 13,7 13,8

Discounted FCFFs, January 1, 2011 5 024 27 015 43 752 31 133 50 593

Terminal Value, th. EUR 1 067 830

Sum of discounted FCFFs, th. EUR 155 003

Discounted Terminal Value, th. EUR 584 632

Enterprise Value 739 637

Less net debt -124 901

Equity value 614 736 Target price on January 1, 2011 24,6

Upside, % 17,7

Figure 12 : Sensitivity of upside

Figure 11: Sensitivity of the target price

Figure 10 : DCF-model




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0 200 400

2010 E

2011 E

2012 E

2013 E

2014 E

2015 E

Sugar (th. EUR) Crops (th. EUR)

Cattle farming (th. EUR) Other (th. EUR)

0 100 200 300

2010 E

2011 E

2012 E

2013 E

2014 E

2015 E

Sugar (th. EUR) Crops (th. EUR)

Cattle farming (th. EUR) Other (th. EUR)

0

50

100

150

200

250

2010 E 2011 E 2012 E 2013 E 2014 E 2015 E

Gross profit (th. EUR)Profit from operations (th. EUR)Net profit margin (th. EUR)

Financial Analysis

Astarta benefits from higher earning power, stipulated by organizational structure and cost efficiency. Strong

financial position mark out the company among its peers.

Earnings

Rapid growth in sugar prices was the favorable factor, which provoked revenue growth of 74% y-o-y to

EUR 130,7 million in the nine month of 2010. An increase in net profit in the nine month of 2010 was even

higher - 262%. Historically Astarta outperformed its peers in profitability ratios which is an indicator of

highly effective management.

Not only did Astarta ended 2009 with net profit of EUR 28,9 million while its peers suffered from loss, but

it also improved its gross profit margin from 28,08% in 2008 to 32,39% in 2009. Judging by Astarta’s

performance in 2010 we can make a conclusion that it moves to the targets steadily. This means that

realization of the company management’s plans of increase in production volumes will lead to significant

growth of earnings. Over the observed period revenues are expected to deliver CAGR of 19 % from Euro

175,7 million in 2010 up to Euro 547,1 million in 2015. Earnings per share are to grow 142 % in 2015,

constituting Euro 7,38 in comparison with Euro 3,04 in 2010.

Cash flow

The positive trend in y-o-y growth of cash flow provided by operating activity is the evidence of increasing

share of the company’s internal source of finance.

In 2009 cash flow provided by operating activity increased to EUR 14,1 million from EUR -1, 6 million the

year earlier. The estimated operating cash flow for 2010 is to shrink to EUR -5,5 million due to considerable

increase in inventories and high interest expenses. However it is expected to rise to EUR 39 million in 2011

owning to sustainable growth of operating profit.

Cash flow used in investing activity is expected to grow gradually in order to provide solid base for revenue

growth. As for the cash flows provided by financing activities, we expect inflow of EUR 41,6 million in

2010 for provision of Capex. Subsequently, Astarta is going to experience considerable decrease in cash

flows of EUR 3, 9 million and outflow of EUR 23, 8 million in 2011 and 2012 respectively due to execution

of principal payments on loans and borrowing.

Balance Sheet & Financing Astarta’s future expansion has a strong basis as debt and cash ratios prove auspicious conditions for the

company’ development. As on the 30th of September 2010 current ratio of 3.01 shows the company's ability

to meet its short-term obligations without reliance on operating cash flow and outside financing. Increase in

current ratio and quick ratio was associated with positive dynamics of total debt ratio, which reduced to 0.29

as on the 30th of September 2010. On the 31st of December 2009 total debt ratio constituted 0.37 compared

to 0.54 of the 31st of December 2008. Improvements in solvency and liquidity ratios indicate that Astarta

overcame temporary financial difficulties in 2008 caused by financial crisis. By the end of 2009 the

company’s net debt had been reduced to EUR 82,7 million from EUR 91,5 million in 2008. By the end of

the projected period, it is expected that considerable earnings will provide Astarta with ability to release

from debt burden.

Activity Ratios 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E

Inventory turnover 1,37 1,80 1,28 1,28 1,24 1,23 1,17 1,20 1,23

Days of inventory on hand 266,83 203,29 285,49 284,44 294,02 297,06 310,80 304,26 296,56

Receivables Turnover 6,69 16,83 16,45 17,47 16,39 16,25 15,47 15,51 15,43

Days of sales outstanding 54,52 21,68 22,19 20,89 22,27 22,46 23,59 23,53 23,66

Payables turnover 6,67 14,13 12,87 18,04 15,79 15,81 15,09 15,23 15,23

Number of days of payables 54,68 25,83 28,36 20,23 23,11 23,09 24,19 23,97 23,96

Working capital turnover 1,29 1,69 1,49 1,34 1,20 1,28 1,26 1,28 1,30

Total asset turnover 0,60 0,71 0,59 0,61 0,61 0,67 0,68 0,69 0,67

Liquidity Ratios

Current ratio 1,51 0,92 2,15 2,94 3,33 4,24 6,17 8,74 10,14

Quick ratio 0,35 0,21 0,37 0,35 0,38 0,48 0,68 0,95 2,49

Figure 13 : Forecast of Revenues


Figure 14: Forecast of Costs

Figure 16 : Financial Ratios


Figure 15: Profits and profit margin


Figure 13: Forecast of Revenues


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7.12.2010

Cash ratio 0,02 0,05 0,04 0,03 0,02 0,02 0,03 0,03 1,60

Defensive interval ratio 135,73 76,07 89,31 74,06 69,97 64,65 64,11 60,69 110,47

Cash conversion cycle 266,66 199,14 279,31 285,10 293,18 296,44 310,20 303,83 296,26

Solvency Ratios

Total debt ratio 0,30 0,53 0,37 0,36 0,30 0,20 0,09 0,00 0,00

Debt/Equity ratio 0,52 1,60 0,73 0,66 0,49 0,29 0,10 0,00 0,00

Debt/Capital ratio 0,34 0,62 0,42 0,40 0,33 0,22 0,09 0,00 0,00

Interest coverage 4,98 3,15 4,51 8,47 5,97 7,69 11,08 26,35 565,51

Profi tability Ratios

Gross profit margin 28,04 28,08 32,39 41,93 43,30 43,40 43,17 42,11 40,28

Net profit margin 26,26 -6,15 24,55 43,26 31,52 32,71 33,73 34,44 33,72

ROA 15,79 -4,38 14,38 26,34 19,28 21,86 22,88 23,88 22,51

ROE 28,65 -12,72 32,60 60,01 45,92 48,31 45,90 43,97 40,74

Outlook

Astarta's business model outlook reveals its plans to implement a heavy Capex programme during 2010 – 2015

amounting to Euro 178 million, intended mainly at land bank expansion and strengthening its equipment fleet as

well as increasing the number of livestock and acquiring new companies. According to the management’

expectations the project in biomass methanization will be launched in 2011-2012 MY, with costs amounting to 15

million Euro.

According to the management’ projections the capacity of sugar plants is to reach 40 thousand tons per day, which

will result in Capex of EUR 9,8 million by the end of the projected period. The expansion of the land bank will

amount to total EURO 85,1 million beginning with 2010. To reduce the portion of fixed costs as well as to

capitalize on the back of favorable pricing management plans to apply for WTO quota in 2010-2011 MY, having

reorganized one of its plants for raw sugar processing in 2010. Since 2007 Astarta managed to reduce 26% of its

gas consumption, which supports the feasibility of the management’s plan to reduce another 13 % of gas

consumption till 2015. The expansion of the market share is expected to reach 25 %.

Astarta tends to increase the volumes of such crops as corn, wheat and soybeans in the crops structure with total

grains volume production reaching 1000 thousand tons. Trading with external crops initiated in 2010 CY is to

reach 500 thousand tons in 2015.

Cattle farming is expected to remain the fastest growing segment – 229 % increase since 2006 for Astarta. The

presumed annual growth will be driven by improvement of cattle genetics and increase of milk yield per cow.

Astarta plans to increase its market share of industrialized milk to 5% by 2015 from current 2%.

2010 2011E 2012E 2013E 2014E 2015E

Land,th. ha 210 230 240 250 290 300

Equipment, ton per day 30 33 35 38 40 43

Days of work 100 104 108 112 116 120

Total cost of land,th EUR 16 720 15 200 7 600 7 600 30 400 7 600

Total cost of equipment,th. EUR 6 628 2 061 2 058 2 055 2 052 2 050

Cattle heads 26 000 28 000 30 000 32 000 34 000 36 000

Total cost of cattle, th. EUR 4 312 12 320 12 320 12 320 12 320 12 320

Total cost of methanization, th. EUR 3 759 3 759 3 759 3 759

Source: Company documents, BI-5 estimates

Figure 17: Future Plan of the Company Development till 2015



Student Research

7.12.2010

Investment risks

Market risk The price in Ukrainian sugar market is normally stipulated by the combination of such factors as output, ending

stocks, and the situation in the main exporting and importing countries. But even in case of a surplus in Ukrainian

as well as foreign sugar markets, Astarta will outperform the market due to its cost-efficient production, higher

than Ukrainian average yields, and marketing strategy, intended at securing on average 70 % of its sales among

confectionaries and beverages.

Foreign exchange risk

As for the first half of 2010 87 % of debt was dollar-denominated. The sharp Hrivnya depreciation can influence

significantly the company’s performance, evidenced in 2008. But since Astarta follows the strategy of hedging the

risk by growing the level of export sales with CAGR of 46,2 % since 2007, the risk is presumed to be moderate.

Costs surge risk Rising fuel and fertilizers prices, constituting 30 % of CoGs structure for 5 main crops and 39% for sugar beet can

boost the cost of production. Astarta has already cut its gas consumption significantly by 32 cubic meters per ton

in 2010 and plans to launch the project in biomass methanization. Both high-quality seeds produced in an own

seed treatment plant and efficient crop rotation structure are supposed to cut use of fertilizers.

Climate risk Weather makes sugar market as well as other commodities markets extremely volatile. Adverse weather

conditions influence negatively the projected output but offsets it with higher than projected prices. Natural

disasters such as excess rainfalls or droughts can influence our projections.

Regulation risks Government support can encourage farmers to expand the sown area under sugar beet, which in turn can increase

the sugar output and dampen the prices. Vertical integration of Astarta along with its diversified portfolio

production, aimed at increasing grains and oilseeds segment will support the stably positive performance.

Moratorium on land sale lift in 2012 can entail additional capital expenditures due to preferential land lease right

acquisition. Export restrictions if prolonged, initially adopted till 1, January 2011, as well as imposed in future,

can influence prices and hence projected revenues. Termination of loans cost compensation and other government

support for agricultural producers can result in higher costs, lowering the forecasted gross profit.

We ranged the risks for Astarta according to the level of significance and the ability to mitigate them.

High Moderate Low

Climate risk

Regulation risks

Foreign exchange risk

Costs surge risk

Market risk

Figure 18: Range of the Investment Risks

Source: Company documents, BI-5 estimates


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7.12.2010

APPENDIX

2008 2009 2010 E 2011E 2012E 2013E 2014E 2015E

Revenues 123 382 117 718 175 690 239 543 320 139 382 800 460 419 547 112

CoGs: 96 262 77 861 102 029 135 831 181 207 217 530 266 545 326 762

Gross profit 103 712 138 933 165 270 193 874 220 350 - - -

Changes in fair value of biological assets

-31 000 13 628 27 105 5 770 5 770 5 770 5 770 5 770

Other operating income 11 661 7 151 7 000 7 260 7 260 7 260 7 260 7 260

General and administrative expense 11 959 8 114 9 163 10 489 12 046 13 752 15 671 17 853

Selling and distribution expense 6 926 5 654 8 645 11 787 15 753 18 836 22 655 26 921

Other operating expenses 5 949 4 766 3 776 3 776 3 776 3 776 3 776 3 776

Profit from operations 21 443 40 379 86 182 90 689 120 388 141 935 164 801 184 829

Net financial expense 41 714 11 822 10 175 15 195 15 665 12 807 6 255 327

Financial income 406 343 - - - - - -

Other income (expense) 111 258 - - - - - -

Gain on asquisition of subsidiaries 8 951 172 000 - - - - - -

Profit (loss) before tax -10 803 29 330 76 006 75 494 104 723 129 128 158 546 184 502

Income tax (loss) benefit 3 209 -425 - - - - - -

Net profit (loss) -7 594 28 905 76 006 75 494 104 723 129 128 158 546 184 502

Source: Company Documents, BI-5estimates

Figure 1: Income Statement (th. EUR)


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7.12.2010

2008 2009 2010 E 2011Е 2012Е 2013Е 2014Е 2015Е

PP&E 72 717 105 495 129 611 150 526 162 877 175 164 212 471 220 510

Biological assets 5 150 12 747 17 059 29 379 41 699 54 019 66 339 78 659

Other 5 796 5 601 4 843 4 931 4 957 5 099 5 203 5 314

Non-current assets 83 663 123 843 151 513 184 836 209 534 234 282 284 013 304 483

Inventories 55 372 66 429 92 590 126 242 168 717 201 739 242 646 288 334

Biological assets 14 620 19 962 81 263 94 518 109 935 127 866 148 722 172 981

Trade accounts receivable 6 567 7 744 12 370 16 865 22 540 26 951 32 416 38 520

Cash and cash equivalents 949 1 930 1 722 1 722 1 722 1 722 1 722 96 739

Other 12 521 8 435 9 275 10 199 11 215 12 333 13 563 14 915

Current assets 90 029 104 500 197 220 249 545 314 128 370 612 439 069 611 488

ТOTAL ASSETS 173 692 228 343 348 733 434 381 523 662 604 894 723 082 915 971

Total equity 57 611 115 512 191 518 267 013 371 735 500 863 659 409 843 911

Long-term loans and borrowings 11 897 52 436 78 302 80 724 65 997 32 234 1 684 0

Other 6 777 11 765 11 765 11 765 11 765 11 765 11 765 11 765

Non-current liabilities 18 674 64 201 90 067 92 489 77 762 43 999 13 449 11 765

Short-term loans and borrowing 74 834 20 847 31 130 32 093 26 238 12 815 670 0

Current portion of long-term loans and borrowings

5 683 11 512 17 191 17 722 14 489 7 077 370 0

Trade accounts payable 8 169 3 932 7 378 9 823 13 104 15 730 19 275 23 629

Other 8 721 12 339 11 449 15 242 20 333 24 409 29 909 36 666

Current liabilities 97 407 48 630 67 148 74 880 74 164 60 031 50 223 60 295

TOTAL EQUITY AND LIABILITIES 173 692 228 343 348 733 434 381 523 662 604 894 723 082 915 971

Figure 2: Balance Sheet (th. EUR)



Student Research

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2008 2009 2010 E 2011E 2012E 2013E 2014E 2015E

(Loss) profit before tax -10 803 29 330 76 006 75 494 104 723 129 128 158 546 184 502

Adjustments for

Depreciation and amortization 9 450 8 178 7 897 9 702 11 267 12 192 13 112 15 904

Interest expense 7 131 8 203 10 175 15 195 15 665 12 807 6 255 327

(Loss) gain from changes in fair value of biological assets

31 -13 628 -61 301 -13 255 -15 417 -17 931 -20 856 -24 258

Increase in inventories -26 474 -13 070 -26 161 -33 651 -42 475 -33 023 -40 906 -45 688

Increase (decrease) in trade and other receivables

-2 078 -2 378 -5 465 -5 420 -6 691 -5 530 -6 695 -7 456

Increase (decrease) in other long-term assets

153 -516 758 -88 -26 -142 -104 -111

Increase (decrease) in trade and other payables

6 997 815 2 764 6 237 8 373 6 703 9 044 11 111

Interest paid -6 811 -8 952 -10 175 -15 195 -15 665 -12 807 -6 255 -327

Other -50 110 6 149 - - - - - -

Cash flows (used in) provided by operating activities

-1 576 14 131 -5 503 39 020 59 754 91 397 112 141 134 004

Purchase of property, plant and equipment, intangible assets and other non-current assets

-38 133 -10 362 -36 324 -42 937 -35 939 -36 798 -62 738 -36 264

Other -5 597 5 213 - - - - - -

Cash flows used in investing activities

-43 730 -5 149 -36 324 -42 937 -35 939 -36 798 -62 738 -36 264

Proceeds from loans and borrowings

101 975 34 821 41 828 3 917 - - - -

Principal payments on loans and borrowings

-51 773 -41 680 - - -23 815 -54 599 -49 402 -2 724

Other 2 388 -990 -208 - - - - -

Cash flows provided by financing activities

52 590 -7 849 41 620 3 917 -23 815 -54 599 -49 402 -2 724

Net increase (decrease) in cash and cash equivalents

7 096 1 133 -208 - - - - 95 017

Cash and cash equivalents as at 1 January

1 068 949 1 930 1 722 1 722 1 722 1 722 1 722

Currency translation difference -7 215 -152 - - - - - -

Cash and cash equivalents as at 31 December

949 1 930 1 722 1 722 1 722 1 722 1 722 96 739

Figure 3: Cash flow statement (th. EUR)



Student Research

7.12.2010

Traders22%

Other Industrial

30%Konti26%

AVK9%

Coca-Cola7%

Sandora6%

0102030405060

Astarta

Europe

Ukraine

From: Product To:

Agriculture Feed Cattle farming

Sugar Beet Sugar production

Sugar Production Fertilisers Agriculture

Feed (pulp, molasses) Cattle farming

Cattle farming - Sugar production

Fertilisers Agriculture

Figure 4: Astarta’s main consumers of sugar, 2010

Figure 5: Astarta’s Business Model

Figure 6: Yield of sugar beet, average ton per ha, 2010

Source: Company Documents

Source: Company Documents

Source: UkrSugar


Student Research

7.12.2010

Disclosures:

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company. The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content or

publication of this report. [The conflict of interest is…]

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next twelve month period, and recommends that investors take a position above the security’s weight in the S&P 500, or any other relevant index. A SELL rating is

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Research Challenge with regard to this company’s stock.