Ukraine currency plunge drags Astarta into the red

Astarta Holding highlighted the threat to Ukraine company balance sheets from the impact of country's financial crisis on its currency, but was upbeat over its crop prospects, foreseeing a "good harvest".

The sugar-to-dairy group tumbled to a loss of E44.8m (534.8m hryvnia, $62m) for the first three months of 2014, compared with a profit of E11.4m (123.0m hryvnia) the year before, as the 50% plunge in Ukraine's currency so far this year swelled the size of the group's foreign-currency debt.

"An important, one-off, non-cash revaluation of foreign currency-denominated loans, caused by the devaluation, had a significant negative impact on net profit in the reporting period," said the group, which has turned to foreign currency loans to finance its expansion.

Borrowings in other currencies "in most cases carry substantially lower interest rates than those in Ukrainian hryvnia", Astarta noted.

The group took a E70.0m ($97m) charge against foreign currency losses, adding that the falling hryvnia, which raises import costs and pushes up inflation, had "also caused operating expenses to appreciate".

The group's administrative expenses soared 74%, in hryvnia terms, with particularly fast increases in the likes of fuel costs, which appreciated by 83%, with the salary bill up by 80%.

'Natural hedge'

However, Astarta also highlighted some positives from the hryvnia's collapse, such as Ukraine's improved competitiveness in exports.

In its grains business, "given that most sales are export driven, with prices settled in hard currencies, we expect the devaluation to boost competitiveness and profitability in the medium- and long- terms.

"Exports serve as a natural hedge against currency risk."

Astarta's revenues, which in hryvnia terms grew 21% to 1.086bn, and in euros rose by 7.4% to E89.4m, came 22% from exports, primarily from the grains business, of which 95% of output is sold abroad.

Ukraine's grain exports had, until last month, proved strong, boosted by a strong volumes from the 2013 harvest and with no apparent logistical disruptions to the country's unrest.

'Weak price environment'

At an operating level, the group doubled profits to 358.2m in hryvnia terms, with the rise in euros, the currency in which Astarta reports, up 74% at E29.5m.

The improvement reflected largely an improvement in fortunes in sugar, of which Astarta is Ukraine's top producer, which achieved a 26% rise to E43.7m in revenues, helped by a 17% rise in volumes and a jump in the Ukraine sugar price of 67%, year on year, in hryvnia terms.

The rise in prices reflects, besides hrynia weakness, a drop in the country's swollen inventories, which the US Department of Agriculture attache sees falling 28% to 2.20m tonnes over 2013-14.

In grains, Astarta revenues fell 37% to E21.9m, despite a 10% rise to 153,000 tonnes in sales, with the drop "mostly due to a weak price environment".

'In good condition'

The group added that its winter crops, including 40,000 hectares of winter wheat, were "in good condition".

Crops have "resumed active vegetation, which provides grounds to expect a good harvest of early grains year".

And in spring crops, the company said that "favourable weather conditions" had allowed it to complete "successfully" its sowings in record time.

Overly dry weather has been a concern in some parts of the former Soviet Union, although recent showers have improved conditions for much of Ukraine, leaving North Caucasus, Volga Valley and Central regions of Russia as areas of concern.

Astarta shares, which are listed in Warsaw, stood 0.1% higher at 38.50 zloty in lunchtime deals.

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