Agriculture

In 2008, Astarta [AST PW, BUY] harvested more than 394 thsd mt of grains and oilseeds (+96% YoY), and processed more than 32 thsd mt of raw milk ( +20% YoY).The company processed 1.5 mln mt of sugar beet (+61% YoY) and its sugar production totaled 235 thsd mt (+51% YoY). Moreover, the company’s share on the domestic sugar market increased two times to 15%.

In line with its development strategy, in 2008 the Holding has fulfilled a large-scale investment program including the sugar plants’ modernization, which is worth USD15 mln. The company has invested a total of USD 20 mln into the expansion of its agricultural machinery fleet with the addition of new combines, cultivators, grain and beet harvesters.

In 2008, due to the completed modernization of five-owned sugar plants, Astarta increased its consolidated daily sugar beet processing capacity to 20 thsd mt, while decreasing its energy consumption per product unit.

In this same period, Astarta increased its land bank to 160 thsd ha (+19% YoY).

The company sowed more than 34 thsd ha of winter crops and has prepared fields for sugar beet sowing campaign in the spring at 35.5 thsd ha.

Our view: We view this news as POSITIVE, as the company has achieved all of the figures that were earlier planned by the management. We will be reviewing our estimates on the company’s performance shortly.

Astarta [AST PW, BUY], is planning to launch bioethanol production at its Yaresivskiy sugar plant. According to Mr. Ivanchyk, the CEO of the Astarta holding, work has been started and its planned output capacities can reach 200 cubic meters per day. Currently, the estimated total value of the project is not finalized and will be defined in the process.

Our view: Biodiesel accounts for 80% of European biofuel production, with bioethanol at 20%. Furthermore, the European Biofuel Directive, adopted by the European Parliament and the European Council, was designed to promote and support biofuel production and use. According to a European Commission forecast made for EU-27, biofuel production is expected to grow at a 10% CAGR over 2007-2010.

Despite the alluring prospects, the production of bioethanol in Ukraine is restricted until the Ukrainian Government will take appropriate moves towards implementing proper legislation. However, most agricultural companies involved in sugar processing are able to adopt their own facilities for biofuel production in the short-term, while, at the same time, continuing to carry out their sugar processing operations.

Astarta [AST PW, BUY] has reached an agreement on selling its carbonic credits to the International Fund of Carbonic Credits that was founded by the European Bank of Reconstruction and Development in cooperation with the European Investment Bank. The credit is estimated at 300 thsd tons of carbon dioxide from five sugar plants in Astarta’s ownership. The agreement will be valid until 2012 and is the first agreement on this issue conducted in Ukraine. The final sum of

In 2008, Astarta was able to reduce energy consumption at its sugar plants by at least 10%, while, at the same time, expanding its output capacities by 10-15%. Astarta has invested a total of USD 15 mln in the modernization of its sugar plants in 2008.

Our view: This news is definitely POSITIVE for Astarta, as its opens up a new opportunity for the injection of additional funds in such times that are tight regarding liquidity. Based on the statement of one EBRD representative that the average cost of the carbon quotes is EUR 10 per mt, we estimate approximately EUR 3 mln will be received to support Astarta’s financial position. Furthermore, the current agreement, in our view, is an obvious sign of stable and strong cooperation between Astarta and the EBRD, which provides a promising possibility for the company attracting additional debt financing in the future. Moreover, this would be advantageous as the average interest rate from international institutions for Ukrainian companies is LIBOR +10-15%, which is considerably lower than the interest rate from domestic banks (25-36%).

Mriya [MAYA GR, N/R], a Ukrainian agricultural holding, released its plans to expand the holding’s land bank under lease by 35.7% to 190 thsd ha in 2009. According to a press release made by the company’s management this Monday, Mriya has enough machinery to process 200 thsd ha. Currently the holding leases a total of 140 thsd ha.

Mriya has finished the preparation of its land for spring sowing campaign for next year. According to the company’s management, that will decrease operational costs and reduce the time required for next spring’s sowing campaign.

Our view: In 2009, M&A deals will definitely be fueled by problems that arose on the back of the global financial crisis, and particularly the downturn of the Ukrainian economy. We do not exclude the possibility of M&A, even for big companies. In our view, some restructuring in the land lease arrangements is quite possible.

Moreover, the stock of Ukrainian agricultural companies demonstrated its attractiveness, reaching a historically high level in July 2008 while stock from other sectors showed a tendency towards downgrading. We believe that new foreign capital will emerge in the Ukrainian agricultural sector next year.

As of December 12, 2008 a total of 1.53 mln mt of sugar has been produced by domestic sugar plants in Ukraine. An overall 12.5 mln mt of sugar beet was processed, which is 22.8% less YoY. Moreover, 83% of all sugar plants that obtained government permission for sugar processing in the 2008/09 marketing year have completed their sugar processing season.

Our view: We view this news as NEUTRAL, as we expected a sugar deficit this marketing year in Ukraine. According to government estimates, Ukraine is going to produce 1.6-1.7 mln mt of sugar in the 2008/09 marketing year.

The country’s annual sugar consumption amounts to approximately 2.2 mln mt. This tendency will definitely drive domestic sugar prices upwards. As soon as the sugar processing campaign in the 2008/09 marketing year will be completed and processed sugar will be counted, we expect domestic sugar prices to start their upward climb.

In our view, wholesale sugar prices could reach USD 450-500 per mt by February 2009. We see a promising opportunity to fulfill funds with additional profits for big agricultural holdings like Astarta [AST PW, BUY] and Ukrros [UROS UZ, N/R], which have sufficient in-house sugar beet supplies, at 82% and 50% respectively.