Alex Morgun

morgunAlex MorgunFinancial Analyst of "UkrAgroConsult " (2010).

Alex is leading expert of financial analytics department of “UkrAgroConsult” with 4 years of job experience with the company. He has significant experience working with producers and traders of agricultural commodities in Ukraine. Participated in multiple company valuation projects, business and strategic planning. Alex monitors financial results of the agrarian businesses, connected multiple research studies regarding business and investment environments within Black Sea Region (Ukraine, Russia, Kazakhstan).




Ukrainian-American Liberal Arts Institute “Wisconsin International University (USA) Ukraine” (WIUU)

Masters in International Management-, 2012 Bachelor of Business Administration, 2011


Analyst's publications:


Financial sector liberalization contributes to business climate improvement in Ukraine


Under its liberalization program the National Bank of Ukraine removed a number of administrative restrictions introduced in 2014-2015. Initially the NBU’s restrictions had to stabilize Ukrainian currency and credit markets. The central regulator noted business climate improvement and macroeconomic stability, which was sufficient for restrictive measures easing.

Full article

Ukrainian land: To sell or not to sell


One of the International Monetary Fund’s requirements was to ensure free sale of agricultural land. Though land sale plays no role in provision of the next tranche to Ukraine, it is quite possible that Ukraine will not be able to obtain another tranche without this reform.

Full article

New cooperation strategies between Ukrainian agricultural and banking sectors


Considering the reform initiative in Ukraine, creation of cooperatives will be the prevailing course of Ukrainian agricultural sector development, as it is the most cost-effective for small and medium farmers. This suggests a new course of credit strategies and products development to banking sector. Banks will inevitably become integrated into the process. Long-term cooperation programs between banks and farmers, including training and efficiency improvement programs, as well as creation of cooperatives, will become a driver for potential growth and development. Financial institutions, which will be able to adapt to new challenges, develop and implement such forms of cooperation, will obtain greatest benefit in future.

Full article

Place your bets, ladies and gentlemen: Federal Funds Rate and commodity prices decrease


The US Federal Reserve, an analogue of a central bank, will hold its regular meeting on June 14-15, where the next increase of the Federal Funds Rate will be considered. This interest rate is a percentage, paid by commercial banks to the central bank for financial borrowing. Increase of the base interest rate directly means more expensive borrowing for commercial banks. However, it also has a number of indirect effects, including pressure on global commodity prices.

Full article

Ukrainian agricultural holdings as effective as European companies


Some experts of Ukrainian agrarian sector, including banks and investment funds representatives, believe that Ukrainian agricultural "giants" cannot be efficient, because it is impossible to manage such huge land allotments effectively. As a reminder, land banks of the largest agricultural holdings reach 300-500 Th ha. UkrAgroConsult experts tested this myth.

Full article

Profitability of agrarian enterprises more important than gross production


At times of low agricultural products prices, the issue of agricultural enterprises efficiency becomes frontmost. This factor will allow Ukrainian companies to remain competitive on the global market. UkrAgroConsult experts repeatedly noted the importance of cost optimization and targeting on new markets. Today the importance of this development factor is emphasized by the newly appointed Minister of Agrarian Policy and Food of Ukraine, Taras Kutoviy. The minister focuses on farmers' support mechanisms, development of rural areas and completion of the land reform. The Ministry will also focus on markets development, organic production and niche crops, state-owned enterprises, irrigation and food security.

Full article

Ukrainian agricultural companies stock liquidity ranking


Shares of Ukrainian agricultural holdings provide ample opportunities for investors. After the downfall caused by an economic crisis in Ukraine in 2014, as well as by price crisis, shares of many companies have recovered to the level of 2013, and some of them have even approached all-time highs. Experts of UkrAgroConsult note that the stock price of Astarta almost doubled from PLN 24.10 per share on May 01, 2015 to PLN 46.50 on May 04, 2016. Return on investments at 92.95% is a dream of any investor.

Full article

Risk Profile of Ukrainian Agrarian Holdings


It is no surprise that business activities are associated with a number of risks. Such fact is also true in the modern day, but companies have a variety of risk management mechanisms that allow careful identification of risks for the creation of the risk management systems. Ukrainian agrarian companies are not different in this regard. On the contrary, Ukrainian companies face additional types of risks. UkrAgroConsult analysts identified the main types of risks agrarian companies face in Ukraine.

Full article

Problematic loans of Ukrainian agrarian sector


The possibility to borrow on foreign markets on more favorable terms compared to loans on the domestic markets is one of the main advantages of international companies. However, these borrowings constantly involve currency risks, because loans on foreign markets are provided in currencies of these markets. Generally, these are US dollar or Euro. Thus, the less revenue this company generates in the borrowing currency, the higher its currency risk is.

Full article

How much could be earned by investing USD 100 thousand in Ukrainian companies a year ago?


2015 appeared to be one of the most difficult years for Ukrainian economy over the history of its independence. National currency devaluation, capital outflow, armed conflict, political crisis, as well as falling cost of key export commodities were the main problems. At the same time the country's public agricultural companies continued to search for new opportunities. Capitalization of these companies reflects their success in operating activity and financial policy in terms of cash flows redistribution for investors. UkrAgroConsult ranked the companies based on changes of their stock prices. We assumed an investment in the amount of USD 100 thousand made in March 2015 and compared to the cost of this investment as of March 18, 2016.

Full article

Export as a tool to minimize risks for Ukrainian agricultural enterprises


In light of annual financial reports of Ukrainian agricultural companies released for 2015, the role of foreign currency proceeds comes to the fore. Loss of markets in the CIS region, as well as falling domestic consumer purchasing power resulted in mediocre financial results of agricultural corporations for the second consecutive year. Devaluation of Ukrainian hryvnia appeared to be an additional reduction driver. That’s why agrarian sector of Ukraine started switching to exports. In today's business environment it is critical to understand the role of exports as well as main reasons for shifting of emphasis in this direction.

Full article

World trade reduction in 2015 is another wake-up call. Who is to blame? What to do?


Last two years were marked as a period of new trends in the world economy. Ongoing national debt increase of the leading countries, budgets deficit, as well as world economic slowdown became a wake-up call determining the new reality on global markets. These tendencies resulted from falling demand for major commodities and problems in the real sector. Baltic Dry Index is one of the most respectable indicators, which reflect the real market situation. Index reduction over two years is quite impressive. Just compare it with stock market indices, which had grown until January 2016, involving almost all financial resources and confirming unwillingness of the banking sector to credit the real production - its profitability declined, while credit risks remain high.

Full article

How can Cargill’s USD 130 million help boost foreign direct investment in Ukraine


Over the last two years the situation in Ukraine was not associated with an attractive investment climate. Revolution, political crisis, armed conflict, corruption, change of power and currency devaluation appeared to be "red flags" for foreign capital. However, against the backdrop of instability and economic crisis, the agricultural sector of Ukraine became the foundation, which strengthens the country's position. Even the default of “Mriya”, one of the country's largest agricultural holdings, was turned into a business case, which confirmed that even a bankrupt company can be managed effectively. Direct investment of the US company Cargill in Yuzhny port amounting to USD 130 million is the main subject of today’s discussion.

Full article

Global economy on verge of a new crisis


The US economy, which should be a buoy for the global economy, does not seem to cope with pressure. Despite increasing real estate market and employment rates in the USA, corporate earnings decreased along with economic slowdown in the fourth quarter of 2015. Raising of the base interest rate in December 2015 may appear to be temporary, and the Federal Reserve may be forced to lower the rate to near-zero level once again. Perhaps, the Federal Reserve will follow its Japanese and European colleagues and cut the rate below zero. The problem is that even negative interest rates no longer help to promote economic growth.

Full article

Crude oil prices below USD 20 per barrel is a new reality


Jeff Currie, the head of commodity group research at Goldman Sachs, noted that prices for crude oil below the level of USD 20 per barrel would not surprise him. This statement was made at the International Week of crude oil products in London on February 11.

Full article

European Commission reduced EU’s economic growth forecast


Despite European Central Bank’s efforts, EU countries do not show economic growth. Slowdown of Chinese economy, along with poor performance of European business, as well as risk warnings from leading EU economists, prompted European Commission to reduce the region's economic growth forecast from 1.8% to 1.7%.

Full article

Bank of Japan introduced negative base interest rate


For the first time ever the Bank of Japan introduced a negative interest rate at level of -0.1%. This step should encourage cheapening of commercial bank loans for population and business. In such a way the government intends to encourage economic growth and achieve the annual inflation rate at 2%. Previously the Bank of Japan (BOJ) planned to introduce this measure no sooner than mid-February 2016.

Full article

Market went too far with crude oil price reduction to USD 30 per barrel. Growth is possible as early as 2016?


Wishful thinking is typical for people who are in a crisis situation. It is also logical, when your company loses billions of dollars, and it affects the country’s economic growth; as it is based on business which stopped laying golden eggs. This refers to Mr. Khalid Al-Falih, Chairman of the Board of Aramco. This company is one of the largest state-owned companies in Saudi Arabia, whose main activity is crude oil extraction and its export. Mr. Khalid Al-Falih said that prices at level of USD 30 per barrel resulted from steep market reaction. He also forecasted "imminent" price growth before the end of the year.

Full article

Price reduction predetermines economy in 2016


Stock prices in China kept falling for the second consecutive week in 2016, and dropped by another 3.5%. Chinese authorities couldn’t halt the freefall and were forced to resort to halting trade in Shanghai. They did it three times since the year began.

Full article

Amount of foreign direct investments in Ukraine decreased by 9.42%


Summarizing the results of 9 months of 2015, the amount of foreign direct investments in Ukraine decreased by 9.42% in comparison with three quarters of 2014. Cyprus (27.73% from the total amount), the Netherlands (12.97% from the total amount) and Germany (12.42% from the total amount) remained the leading countries by investment.

Full article

Prices for crude oil will keep falling in 2016


Organization of crude oil-exporting countries (OPEC) published its report on the world's crude oil production, forecasts for the next 20-25 years, including volumes of crude oil production, demand, prices, as well as the major factors, which will determine these values. Taking into account high level of correlation between prices for grain crops and oilseeds with prices for crude oil, UkrAgroConsult experts analyzed the report and came to certain conclusions.

Full article

US Federal Open Market Committee raises Federal funds rate by 0.25%


For the first time since 2006, Federal Open Market Committee raised the Federal funds rate by 0.25%. This step will probably trigger the growth of interest rates of central banks around the world. Moreover, it will make credit means more expensive for developing economies, including Ukraine. They have already faced problems of economic growth in recent years.

Full article

Top-5 effective investments in Ukrainian agriholdings in 2015


After stormy and crisis 2014, the prices for Ukrainian assets fell to historic lows. Back in early 2015, experts of UkrAgroConsult noted high risk level of investments in Ukrainian agricultural holdings. At the same time, we forecasted high rate of return on these investments in future. Already on the results of 2015 the reasonableness of such a forecast is evident.

Full article

Amount of world indebtedness reached USD 57 trillion


It seems that the world community has not drawn conclusions from the 2008 financial crisis, as world’s indebtedness kept growing, and in 2015 it exceeded the level of 2007 by 17%. In 2008, exactly the bursting credit bubble led to global economic crisis. Necessity to increase companies’ revenue levels factitiously, use of non-transparent financial derivative instruments and concealment of the real level of debt led to collapse of financial markets in 2008. In seven years the situation has not changed fundamentally.

Full article

Ukraine. Threat sources to UAH/USD exchange rate


Last week UAH exchange rate against USD increased from UAH 23.05 per 1 USD to 23.90 per 1 USD. Strengthening of US dollar in the world market as well as further price reduction for the main export commodity groups appeared to be the most important reasons for growth of USD exchange rate. Potential necessity of payment USD 3 billion loan to Russian Federation as well as deferred tranche from IMF became additional factors of pressure. Announcement of Vladimir Putin at G20 summit on possible loan deferment and division of payment into parts appeared to be potentially good news. However, it is not all as easy as it sounds.

Full article

IMF on possibility of economic growth in Ukraine in 2016


Currently, realization of economic reforms in Ukraine directly depends on financing by International Monetary Fund (IMF). Against the backdrop of export reduction in 2014-2015, devaluation of national currency and inflation, Ukraine cannot afford to lose a source of financing represented by IMF. The Fund published its forecast of country’s economy state in 2015-2016.

Full article

US-based corporation of private investments OPIC is ready to finance companies in Ukraine


American corporation of private investments OPIC (Overseas Private Investment Corporation) is ready to provide funds to business in Ukraine. This was announced by John Didiuk, the director of corporation, during the meeting with representatives of Ukrainian business in American Chamber of Commerce. The corporation does business in more than 100 countries in the world except for developed ones and is “the most secret organization of Washington” according to John’s words. This means that few people know about it because the staff of 200 employees does not allow advertising its activity at an adequate level.

Full article

The strategy of bankrupt company: agriholding “Mriya” recovers after default


Honesty in cooperation with creditors and stockholders as well as transparency in company’s functioning are key factors for successful activity in times of crisis. This message was announced by the head of holding “Mriya” Ton Huls.

Full article

Ukraine is ready to have legal proceedings with Russia as for nonpayment of USD 3 billion


Russian Federation refused voting on restructuring of Ukrainian debt on Wednesday, October, 14. Debt payment date is scheduled for December 20, 2015. Full debt amount is USD 3 billion. Ukraine strived for writing off 20% of this amount as well as potential delay in payment. Russia did not accept the conditions, totally refusing to vote on restructuring issues. The rest USD 15 billion were negotiated, even with such “difficult” creditors as Franklin Templeton Fund, negotiations with which have lasted for months.

Full article

Credit ratings of Ukrainian top agriholdings are higher than score of the country


Credit ratings of the leading world agencies S&P, Moodys and Fitch are considered as litmus paper for investors from all over the world. These ratings include complex estimate of risks of the region or business. Credit rating of Ukraine slumped from B- - CCC+ level in 2013 to Са – С in 2015. The reasons are – economic crisis, capital outflow and low prospects for growth in the short run. The rating agency S&P cut the credit score of Ukraine to SD (Selective Default) on September 25, 2015. Drop of credit ratings for the country provokes reduction of companies’ ratings which carry on business and/or locate in domestic market of this country. However, slump of ratings for leading agrarian companies slowed down and remained higher than the rating of Ukraine.

Full article

Ukraine. Economy of the country reached the bottom, what comes next?


Economic situation in Ukraine has been characterized as “turbulent” since the beginning of 2014. The reasons for that were at first chaotic shift of power in the country, then the conflict in the Eastern regions and finally economic reforms which are aimed to optimize the processes in the country. Reforms must create a competitive environment inside the country, which will help to resume economic growth and create favorable climate for foreign investors. The experts of UkrAgroConsult have visited the panel discussion on economic forecasts of American Chamber of Commerce with participation of representatives of National Bank of Ukraine, International Monetary Fund and European Union. The main theses of the discussion with our comments are introduced below.

Full article

Six-headed dragon of Chinese problems


China remains the key player in the world agrarian market. Economic problems of the country now considerably influence the world economy not only by stock markets drop, but also by fall in prices for agricultural products. World price tendency for agricultural produce is an important factor for Ukrainian economy, the export of which consisted of crop farming and fats produce, animal or vegetable oil by 23.3% in 2014. That is why it is important to focus on key indices of Chinese activity to get an opportunity to forecast potential price movements and development of situation.

Full article

Damocles' sword of national debt is still hanging over Ukraine


The finance minister Nataliya Yaresko announced the end of negotiations on restructuring the part of Ukraine’s national debt. The parties arrived at a compromise in 20% remission of the debt that equaled around USD 3.6 billion. Besides, the decision on rescheduling the payment of some part of the debt to 2019-2027 was taken as well. However, the interest rate remains under wraps – some sources announce its growth from 7.22% to 7.75%, while other claim it remains at level of 7.22%.

Full article

Another crisis surge: Made in China


“Black Monday” started from China

People's Republic of China started economic growth about 20 years ago and since then has been increasingly progressing in the world economy. Economic globalization led to the growth of Chinese economy role. China is the second country after the USA by GDP level that equaled USD 10.3 trillion in 2014. China is the main importer of raw materials including agricultural products as well. That is why since June 2015 the whole world has been anxiously overwatching the turbulence in Chinese stock markets.

Full article

Ukrainian farming holdings begin a period of recovery and growth


The Ukrainian economy, along with Ukrainian businesses, experienced one of the most troubled periods in 2014-2015. Although the economic decline must give way to growth in 2016, agricultural businesses already are showing signs of recovery. This is suggested by several factors: firstly, strong operational performance of companies that continued growth; secondly, more active crediting of companies and investment in the development; finally, market capitalization of companies stopped falling and stabilized, regularly reflecting growth.

Full article

Capitalization of Ukrainian agricultural companies up 11.56% month-over-month


The Ukrainian Agrarian Index, which is calculated by UkrAgroConsult, has increased 11.56% over the past month, to EUR 2.4 Bl. The Index directly reflects market capitalization of Ukrainian public agricultural holdings. So, capitalization is up 11.56%. Most companies of the Index posted a rise of 20-30%.

Full article

Nasha Ryaba (MHP’s brand) boosted chicken exports by 47% in 2015


Myronivsky Hliboproduct (Nasha Ryaba brand) published an operational report for H1 2015. The company reported a rise in chicken production and exports. The latter grew due to the opening EU market and new markets in Asia, the Near East, and Africa. The company also reported growth of sunoil sales with a downward trend in export prices. UkrAgroConsult notes a 3.10% rise in Nasha Ryaba’s share price since the beginning of 2015, to USD 10.30.

Full article

Greek default – lesson for Ukraine


The Greek crisis was talked about the most in recent days. The main reason lies in the fact that Greece is the world’s first developed economy which has ended up in default. On Tuesday, June 30, 2015, Greece missed a EUR 1.55 Bl national debt payment. By the middle of the same day, Greek Premier Alexis Tsipras specified the amount of aid needed by Greece’s economy: EUR 29.15 Bl for repaying debts between 2015 and 2017.

Full article

Who is not willing to restructure Ukrainian debt


Country’s reputation is like a house of cards. It takes a long time to build it, and it gets destroyed as soon as a single card is displaced. Foreign debt has become such a card for Ukraine recently. Economic issues that resulted from unstable situation in the country lead to devaluation of national currency. Country faced the same problem many Ukrainian companies faced in the past: debt, denominated in foreign currency increased in value in national currency, while exports declined. Ukrainian government started negotiating with main creditors to restructure debt, as results of these negotiations will determine future economic development and business climate of the country.

Full article

China started agricultural expansion to Russia and Ukraine


One of the loudest deals in the CIS region was rental deal, signed between China and Russia for 115 thousand hectares in Zbaykalskiy Krai, Russia for 49 years. The land will be used by Chinese Corporation “Huae Sinban”. Land was rented at the rate of 250 Russian Rubles or 4.7 U.S. dollars per hectare for the total of approximately 26 million of U.S. dollars. In case of acceptable conditions, Chinese investor is expecting to rent another 200 thousand hectares after 3 years (after 2018). Company has already announced its intent to invest additional $445 million in infrastructure of the region. Company is planning to cultivate feed cultures, grains, oilseeds, and develop cattle breeding and poultry production.

Full article

Ukrainian farmers are ridding of assets in Russia


Just a couple of years ago purchase of assets in Russian Federation was considered to be a successful affair not only in terms of margins, but also in terms of diversification of revenue streams for Ukrainian farming companies. Situation changed significantly over the past two years: not only margins declined as a result of downward price tendency, but risks for Ukrainian companies have increased as a result of high geopolitical risks due to tensions between the countries. Based on Roshen Corporation case, such risks result in assets being blocked, along with constant inspections. Ukrainian farming companies recognized these risks and started ridding of assets in Russian Federation since the beginning of 2014.

Full article


Creditors are ready to fiancé transparent agrarian businesses in Ukraine – Mriya is about to receive $25 million


Agro holding Mriya is undoubtedly one of the most controversial Ukrainian companies of 2014. Sharp contrast between reassuring speeches of company’s owners in the beginning – middle of the year and default in the second half had tarnishing effect on Ukrainian agrarian sector. Considering the fact that geopolitical, economic and operational risks grew significantly in 2014 and continues growth in 2015, it was established that Ukrainian agrarian sector will be lacking external financing, as it will reach its low. However, few expected that Mriya will be able to attract financing just half a year after controversy with the company.

Full article

Leaders of agrarian sector of Ukraine suffered losses from Ukrainian currency depreciation in the first quarter of 2015


Leading companies of agrarian sector of Ukraine – Myronivskiy Khliboproduct and Kernel published results of the first quarter of 2015. Both companies indicated growth tendency of main production, however FOREX played the role of the anchor, which pulled down financial results of the companies.

Full article

Liquidity of Ukrainian agrarian companies fell by 14% over the past year


UkrAgroConsult experts calculated current ratio for Ukrainian agrarian companies based on 2014 annual or periodical results. Average decline of the ratio reached 14.07% to 2.10.

Full article

Capitalization of Ukrainian Agro Holdings grew by 20% since the beginning of 2015


According to UkrAgroConsult calculations, capitalization of Ukrainian agrarian holdings grew by 20% since the beginning of 2015.

Full article

Astarta ended 2014 with net loss of $90.5 million, but positive cash flow. Investment analysis of the company


Agro Holding Astarta ended 2014 with net loss of $90.5 million. Main reason for the negative figure is company’s loss on currency exchange rate, measured at -$179.6 million.

Full article

Inflation in Ukraine is expected to reach 30% in 2015, government debt to reach 93% of GDP


Starting April 2015, National Bank of Ukraine will be publishing quarterly inflation reports. The reports are reflecting state of the global economy, economy of Ukraine and are presenting forecast in short and medium term perspective.

Full article

GDP and Exports of Ukraine: prevailing sectors and development potential


International experts, representatives of investment funds and organizations consider 2015 to be one of the most difficult years for economy of Ukraine over the past decade. Unexpected changes in the government, military conflict in 2014, growth of foreign debt and depreciation of national currency put Ukraine in high-risk group of countries. However even now, when economic reforms are implemented, it is important to determine key growth sectors, which will determine future growth.

Full article

Capitalization of public Ukrainian agrarian holdings fell by 3.8% over the past week


UkrAgroConsult experts note decline of market capitalization of Ukrainian agrarian public agro holdings by 3.8% over the past week to USD 2.154 billion Capitalization was also affected by Zloty-Euro exchange rate, which reflected devaluation of Zloty against Euro by 4.4%.

Full article

Russia remains the main trading partner on Ukraine based on results of 2014


According to data, presented by the State Statistics Service of Ukraine, USD 53.913 billion worth of goods and services were exported in 2014 from Ukraine, which was 13.5% lower than 2013 level. Imports in 2014 reached USD 54.381 billion which was 28.3% lower than previous year level. Net trade balance of Ukraine was negative: at USD -468.2 million. UkrAgroConsult experts analyzed foreign trade data and made top-10 countries, to which Ukraine exported goods and services and top-10 of countries, from which Ukraine imported goods and services.

Full article

Economic recovery of Ukraine and IMF


One of the key discussion topics over the past week is provision of  IMF loan to Ukraine. This particular loan is critical for Ukrainian economy at the moment, as it should stabilize exchange rate of Ukrainian currency against US dollar, assist with implementation of reforms and, most importantly, cover foreign debt.

Full article

Exports orientation as a key goal for Ukrainian agrarian sector


Devaluation has become one of the main risk factors for Ukrainian business since the beginning of 2014 and until February 2015. Ukrainian Hryvnya (UAH) fell to record low against US Dollar (USD) in 2014 – 15.71 UAH/USD as devaluation reached 42.82% in annuals terms. However over the first 2 months of 2015 UAH hit new record low – 28.04 UAH/USD, meaning that over 2 months of 2015 devaluation reached 43.97%. Domestic market prices are constantly changing, only slightly lagging behind devaluation. Under such conditions, for agrarian companies it is as important as ever to start aiming at foreign markets.

Full article

Roller coaster ride for share prices of Ukrainian agrarian companies


Ukrainian national currency UAH devaluation is setting new all-time low for the fifth day in a row against USD, government is implementing IMF requirements by increasing utility prices and military conflict in the East remains in its complicated state. At the same time, just a week ago, it seemed that conflict in the East of the county was solved: agreements signed in Minsk led to significant growth of share prices of Ukrainian public companies. Share price fluctuations best reflect investor mood towards Ukraine these days.

Over the past week, market capitalization of Ukrainian agrarian holdings grew on the average by 6.3%. Core of the growth is attributed to the period of February 13-17, when it reached 10.34% after signing of Minsk agreements. When it became apparent that these agreements are not upheld either, total capitalization started decline, which reached 3.99%. Therefore, macroeconomic and regional risks at the moment are still determining investment climate for Ukrainian companies to larger extent than their operational and financial results.ukraine agrarian index

On one hand, share price volatility alienates investors, willing aiming at long-term growth. On the other, such tendencies hint towards limited funding, however not its complete absence. Funds acquired will be either short or provided for specific projects with guaranteed minimum return rate. For instance, Ovostar Union managed to attract USD 14.5 million for 7 years for purchase of storage facilities approximately a week ago.  

UkrAgroConsult expert are confident in the fact that sharp share price fluctuations will continue until conflict in the East is regulated. Only companies with the revenue in foreign currency will be able to secure loans from foreign investors. Small and medium business in such case will have to move towards merger in order to gain the ability to export. Foreign investors in any case will be showing interest to the market due to cheaper assets after devaluation and lower investors’ appetite on the domestic markets.


Will cooperatives replace agrarian holdings in Ukraine?


In present day, agrarian holdings in Ukraine are considered the leaders of agrarian sector. Despite the fact that these business entities account only for approximately 20-30% of agrarian commodities, they are undoubtedly innovators in terms of management, modernization and vertical integration. The main reason for such tendency is economy of scale effect and ability to operate in foreign markets, given volume of supply potential and their frequency.

Agrarian holdings are able to attract external funding, carry out initial public offerings and have wider range of risk minimization tools during economic recession. Small and medium companies (SMEs) in Ukraine do not have such tools. At the same time, in the medium-term period, situation might change, as cooperatives will start appearing in the market.

What is cooperative and what are its main characteristics?

According to the Law of Ukraine “On Cooperation”, cooperative is a legal entity, co-created by legal and/or physical entities, whom voluntarily united based on membership for carrying out agricultural and other activities with the purpose of satisfying their economic, social and other self-regulation needs.

Cooperative allows SMEs receive identical economy of scale effect, which benefits agrarian holdings. Cooperative members are stakeholders, they supply cooperative with crop, delegate development, marketing and sales functions. At the same time cooperative allows farmers to continue making decisions at the field level, thus accounting for land and crop specifics, which is not possible for large-scale centralized holding.

Cooperative is intended to allow farmers for direct exports, which is already being done by holdings. Availability of loans and cheaper financing as well as possibility to modernize operations are additional advantages of the cooperative. Such form of business also does not require high starting capital, which is usually not the case for holding.

Even Group is one of the largest cooperatives in France. It includes 1 400 member farmers, 5 320 employees, operates in 110 countries and reported EUR 2.06 billion net revenue in 2013. Even Group is a perfect example of a well-managed and developed cooperative.

Cooperatives in Ukraine – current issues

As of April 1, 2014, according to data provided by the Ministry of Agrarian Policy, there are 498 agricultural cooperatives registered in Ukraine, as 315 of them are active.  UkrAgroConsult experts note that the majority of these cooperatives are not cooperatives in their pure form. In fact, many of these just lease land to agrarian holdings, acting as lenders unions, while effectiveness of others is doubtful.

There are several issues that need to be addressed for cooperatives in their pure form to start existing in Ukraine:
•    Lack of awareness on behalf of Ukrainian farmers regarding advantages of cooperatives or even possibility to form one in general;
•    Legislation issues:
o    Ukrainian Law recognizes cooperatives as non-profit organizations, thus not requiring paying income tax. At the same time, Tax Code states the opposite, creating a situation when farmers have to pay income tax twice: once as farmers and once as cooperative members;
o    Cooperatives are obliged to pay income tax when either selling or buying through cooperative;
o    When joining cooperative, farmers in Ukraine lose their status of agricultural producer, thus also losing all of the advantages of the status.
•    Lack of managers and skilled personnel with experience working in cooperative.


Currently Ukrainian government, as well as international organizations, are making an effort for resolving existing legislation issues. Working group, which included Ukrainian government and OECD (Organization for Economic Co-operation and Development) representatives, is actively tackling current issues, preparing new reforms.

At the same time, UkrAgroConsult representatives, also members of the working group, note that interest of farmers is a key component for success of the effort taken. Current situation in Ukraine dictates new conditions. Domestic market no longer guarantees stable revenue level, which might have been available in the past.  Gaining access to foreign markets is a necessity, while such access is impossible without large scale. Modernization, growth and external funding is primarily available to large companies, which cooperatives may become. Understanding of these factors will determine success rate of SMEs in Ukraine.

To answer the question in the title whether cooperatives in Ukraine are able to take over holdings, our answer is definite “yes”. At the same time, we do not see this happening in the short-term. Education level of farmers and implementation of legislative reforms heavily determine future of cooperative in Ukraine.

UkrAgroConsult issues quarterly report “Agrarian Sector of Ukraine: Financial and Operational Analysis”. Report covers quarterly operating and financial results of Public Ukrainian Agrarian companies. January Q1 2015 issue will include summary of 2014 results, as well as our forecast for 2015.  You can subscribe to the report to receive it on a quarterly basis.


Exports potential of Ukrainian agrarian sector


Growing exports is a crucial task for Ukrainian economy in 2015. Ukrainian agriculture plays one of the leading roles in this process. Over the first 3 quarters of 2014 food and agricultural commodity exports share reached 30.5% from total exports. At the same time, global prices for agricultural commodities continued their decline tendency in January 2015 as well. Alas, international organizations still emphasize high demand level for food products, as well as consumption growth in the nearest decade.

Price decline puts additional pressure on revenues of agrarian companies, especially Ukrainian ones, since they also have to cope with declining demand internally. Decline of internal market demand is attributed to economic recession, inflation growth, devaluation and declining population income as a result. Contraction of national market requires active search for new foreign markets.


Global wheat exports %, 2014                        Global oilseeds exports %, 2014

While CIS region is currently less available for Ukrainian producers, as the result of economic recession as well as conflict with Russian Federation, EU markets, and, more importantly, Middle East, Africa and Asia markets gained more importance. Leading agrarian holdings, such as Myronivskiy Khliboporduct (LSE: MHP) started developing new distribution networks abroad back in 2012-2013.

Main importers of grains and oilseeds are countries from African, Middle-eastern and Asian regions, EU market remains highly attractive in terms of exports, however high competition level requires search for another alternatives. As the result, Ukrainian companies will be actively selling their products on new markets.

Therefore, basis for growth and development in 2015 is exports growth to new regions, search for new company development directions, expense optimization and modification of production lines in accordance with global standards.

Games of Currencies: Who is sponsored by agrarian sector of Ukraine


Over the past year National Bank of Ukraine (NBU) and Ukrainian companies were playing a very interesting game. Ever since central bank of Ukraine implemented floating exchange rate, it seems that Ukrainian Hryvnya (UAH) was really struggling to stay afloat. Initial devaluation to 11 UAH/USD was understandable and easily explained: artificial currency rate support policy, run by the previous government could not be carried out infinitely, thus instead of gradual year-by-year adjustments of exchange rate, devaluation hit Ukrainian economy hard. Loss of Crimea and military confrontation in the East of the country led to further drop to 15 UAH/USD. Decline of exports revenue was another main reason for this decline stage. After initial confrontations, conflict in the East went into stalemate, while national currency continued its decline.

National Bank of Ukraine was staying out of currency regulation, while recording new exchange rate on a daily basis, taking interbank forex trading as a basis, apparently expecting stabilization, which never came. When in fall of 2014 it became evident that situation will not stabilize by itself, NBU  rushed to defend national currency, implementing administrative measures, such as mandatory sale of 75% of foreign currency, received from exports as well as ban on dividend payouts. Some of these measures are still applied today. Their effectiveness may be debated infinitely. NBU even implemented new currency interventions for determining UAH exchange rate. At the same time, NBU kept the right to refuse claims for purchase of currency, which was seemingly higher than set rate. Checkmate, game over, central bank refused to acknowledge exchange rates, which were other than set by the institution itself. These measures were aimed at stopping further devaluation or at least slowing it down.

UkrAgroConsult experts conducted market analysis and would like to share the results of the measures taken.

The result of actions by NBU was predictable: creation of black forex market. There are 3-4 different exchange rates for Ukrainian currency. First rate is an official NBU rate: as January 30, 2015, it reached 15.95 UAH/USD. Second exchange rate is “cash” rate, the one applied in commercial banks. Such exchange rate applies at commercial banks during actual purchase of foreign currency by individuals. “Cash” rate is higher and reached 16.74 UAH/USD on January 30, 2015. The main issue with this exchange rate is lack of actual foreign currency in banks – in fact, it is literally impossible to purchase foreign currency at commercial banks. Final rate is actual or “black market” rate. The rate is applied during all of the operations, involving foreign currency in Ukraine at the moment. Such rate is not hidden, it is provided by banks upon request. As of January 30, it reached 21.10 UAH/USD.



Jan, 2015

Jan, 2014

UAH rate








Banks (cash)




Market (actual, black)





Therefore, difference between actual rate and NBU rate reached 5.15 UAH/USD or more than 32%. What does this mean for agrarian producers in Ukraine, as well as exporters?


Producer sets its price in UAH for sale inside the country. For instance, sunflower price reaches UAH 7 500 per ton and UAH 2 770 per ton in January 2015. Having sold these crops, producer will spend its money on purchase of fertilizers, plant protection, seeds, and machinery purchase and maintenance. Prices for said materials are calculated based on foreign exchange rate, set by the bank, which is the “real” exchange rate – 21.10 UAH/USD. Therefore, producers are facing higher expenses compared to previous years.


Exporter purchases commodities inside the country for UAH and sells it abroad, receiving exports revenue in foreign currency. What is supposed to be a beneficial operation for exporter, is not in reality. According to NBU decree, companies have to sell 75% of its foreign currency revenue as soon as the operation is complete. Sale of foreign currency is carried out by commercial bank that provides services to the company. Bank usually sells foreign currency for “cash” exchange rate – 16.74 UAH/USD, at best. More often than not, currency is sold only 10-15 kopiykas (coins – 1% of 1 UAH) higher than NBU rate.



Jan, 2015




Internal (elevator)


7 500

FOB (price of the exports contract)





6 699

FOB (cash)


7 031

FOB (actual)


8 862

FOB (calculated price)


7 489

Therefore, when we calculate export price for sunflower ($420), considering sale of 75% of foreign currency by commercial bank and 25% that may be sold at market price, we get UAH 7 489 per ton. Analysis indicated that exporters face the situation of declining sunflower oil price, which already matched internal market price. At the same time, exporter is responsible for additional transport and customs cost.

Who is winning?

Banking sector benefits the most from given situation, as it helps the sector to stay afloat. Banking sector in Ukraine faces one of the most difficult times in its history, given the factors, mentioned above. Thus, any influx of cash in banking sector is a lifebuoy, which is pumped by real sector companies, helping to either avoid or delay banking sector collapse, which is damaging to all parties involved. The question remaining on the table is how much strength left in real sector to keep pumping this buoy.


UkrAgroConsult: Agrarian businesses in Ukraine increased production and sales, despite recession


Three agrarian companies: Kernel, Astarta and Ovostar Union published their 2014 operational reports over the past week. Main tendency that can be observed for all three companies is stable growth, starting from crop harvesting and ending with sales volume. Key factors, that contributed to such results are management and planning systems within these companies.

Kernel is one of the leading companies, engaged in grains and oilseeds cultivation, processing, providing storage and handling services in elevators and ports, as well as exports of commodities and processed goods (mainly sunflower oil). Over the 4th quarter of 2014 Kernel:

  • Increased grain sales volume by 5.1% to 1.4 million tons;
  • Increased sunflower oil sales by 6.2% to 278 thousand tons;
  • Increased volume of bottled sunflower oil sales by 12.6% to 34 million liters;
  • Sunflower processing fell by 3.5% to 700 thousand tons;
  • Handling volume in terminal grew by 13.3% to 1.4 million tons
  • Volume of grains and oilseeds received for storage at elevators increased by 1.3% to 2.48 million tons.

Company paid out USD 0.25 per share in dividends. Board of directors signed the program which would allow company management to buy back shares, for incentive purposes.  

Astarta is one of the largest sugar beet producer and processor, as company is involved in sugar production. Later, company also went into grains and oilseeds cultivation, and launched new soybean processing plant in 2013, which had its first full operating year in 2014. Astarta also launched new gas production bioenergy plant in 2014. Over 2014 Astarta:

  • Increased sugar beet harvest by 15% to 2.4 million tons;
  • Produced 466 tons of white sugar, which is 53% higher than 2013 result;
  • Grains and oilseeds harvest declined by 11% to 680 thousand tons;
  • New soybean processing plant produced 150 thousand tons of soybean meal, 35 thousand tons of soybean oil and 5 thousand tons of husk;
  • Bioenergy plant produced 6.8 million cubic meters of biogas.

Company is planning to concentrate on modernization of new activities and is planning to continues production growth in 2015.

Ovostar Union is a major producer of chicken, eggs, solid and liquid egg products, sunflower oil and seeds. Company is also engaged in distribution of its own products. Over 2014 Ovostar Union:

  • Increased number of chickens by 12% to 5.6 million units;
  • Increase number of laying hens by 15% to 4.4 million units;
  • Increased egg production volume by 16% to 1 038 pieces;
  • Increased egg sales volume by 25% to 733 million pieces;
  • Increased export sales volume threefold to 89 million pieces;
  • Increased egg processing to 319 million pieces, which is 19.9% higher compared to 2013 results;
  • Increased dry egg products sales by 14% to 1 712 tons;
  • Exports of dry egg products grew by 55% to 828 tons;
  • Liquid egg products sales fell by 4% to 6 514 tons.

Company is planning to start Stavyshynskiy production plant in 2015. Plant is equipped with Moba Omnia 500 egg sorting technology with 180 thousand eggs per hour sorting capacity.

Thus, we are observing general tendency of production and processing volume growth, especially in areas that guarantee high margin. Given UAH devaluation and exports growth, UkrAgroConsult experts forecast improving financial results for Ukrainian agrarian businesses, which will improve ratings for these companies. Since product prices will continue growth in 2015, it can partially compensate increased raw materials and plant protection substances costs, once again as the result o devaluation. Business optimization and search for new exports markets are the main success conditions for Ukrainian companies in 2015.


UkrAgroConsult: Net foreign debt of Ukraine reached USD 135.9 billion


National Bank of Ukraine reported net foreign debt level of USD 135.9 billion after 3 quarters of 2015, which is USD 6.19 billion lower compared to January 1, 2014. Decline is mainly explained by decrease of foreign debt within “Other sectors” category, including non-government organizations, as well as other “Other deposit corporations”, e.g. other banking sector of Ukraine. Net foreign debt is of key importance for Ukraine at the moment, especially important is proceeding with debt payouts, given economic state of the country, its ratings, and, subsequently, ratings of companies that are operating in such economy.

As the result of 9 months of 2014, net foreign debt was 0.9% higher than 2013 level and USD 6.19 billion lower than beginning of the year. Thus, we are able to note slight decline of government debt over the past year, which is a positive tendency, given current state of Ukrainian economy.

When analyzing foreign debt structure, we underline growth of other sectors’ debt by 10% in 2014 compared to 2010. In addition, it is vital to note general government governance debt increase by 7%. At the same time, banking sector debt declined twofold to 15% of total debt and National Bank debt was 3 times lower at 2% from total debt.

Analyzing terms of debt payouts, we note the decline of short-term debt and stable growth of long-term debt. Thus, excluding intercompany debt, short-term level debt reached USD 25.32 billion, while long-term level reached USD 100.59 billion. Decline of short-term debt is a negative factor, meaning potential shortage of short-term loans. At the same time, such tendencies reflect situation in Ukraine.

Net foreign debt, USD million






Short-term debt

16 636

21 678

26 717

25 429

25 376

Change, %






Long-term debt

81 682

89 775

91 199

98 751

100 592

Change, %






Another key factor is currency of foreign debt. Foreign debt of Ukraine consists of foreign currencies (89%), mainly USD (78%) and Euro (11%). Foreign exchange fluctuations of national currency are an additional risk factor for repayment of foreign debt.

Decline of net foreign debt is contradictory in its nature: on one side, decline of debt level is a positive factor, which ideally should reflect increase of debt management effectiveness with decline of government management debt as well as debt of government-owned companies. On contraire, share of government debt in foreign debt has increased, along with lower debt capital available to businesses. Companies under such conditions are to expect the decline of investments. Thus, we recommend businesses to continue concentrating on expense optimization, increase of existing structure effectiveness and search of new exports markets.


Inflation level reached record high 24.9% over the past 13 years in Ukraine


According to the information, published by State Statistics Service of Ukraine, consumer prices index reached 100.5 in December, 2014. Therefore, inflation in Ukraine reached 7.3% for the fourth quarter of 2014. Annual inflation level reached 24.9%, which was 2.6% higher than recession year of 2008. However, recession in 2008 was global in its nature, while 2014 recession is local, or regional to be more precise.

According to UkrAgroConsult, the main reason for rapid growth of price in the country was devaluation of Hryvnya (UAH) – national currency of Ukraine. Fixed exchange rate, previously set by National Bank of Ukraine over several past years was replaced with free floating in the beginning of 2014, which was one of the IMF requirements for receiving funding. Decision to implement floating exchange rate was made in one of the most difficult periods of country’s history. Political instability, which grew into geopolitical crisis, involving Russian Federation and local conflicts played a “red flag” role for capitals, which started fleeing the country. Influx of investment funds in 2014 was carried out mainly by international organizations either at the state level or at the level of largest companies (usually with foreign capital in their structure). These issues were coupled with loss of exports revenue, partially from loss of Russian Federation markets, partially due to ceasing of operations for many companies in the East of the country. Factors, listed above lead to high demand for foreign currency, and loss of value of Ukrainian currency as the result: from 7.99 UAH/USD in the beginning of the year to 15.71 UAH/USD in the end of the year.

Inflation, which was held under control previously reacted with 3% increase in the first quarter of 2014 and 8.1% increase in the second quarter. For the first time in several years trade balance of Ukraine indicated prevalence of exports over imports – unfortunately as the result of deeper drop of the latter. We expect approximately USD 57.4 billion revenue from exports in 2014 and net of USD 56.9 billion imports expenses.

Inflation processes, which are sometimes seen as beneficial to country’s economy as an exports stimulus, are not having positive effects when they take place sharply, at high pace. Population income growth rate cannot catch up to growth of prices, which leads to decline of purchasing ability of the population, therefore lower interest on behalf of investors. At the same, exporting companies are usually the ones that should benefit from deep devaluation and inflation processes, however, given geopolitical issues Ukraine is facing, we do not see immediate recovery in the short term.

What is there to expect from 2015? Another inflation increase is almost inevitable, since most factors that affect prices are still in place. Actual devaluation reached 100% in 2014, while inflation reached 24.9%, thus difference between value of UAH and prices of goods is still significant. Depending on UAH exchange rate to foreign currency, inflation might reach 2014 level, or even top it, in case the gap between prices and value of currency widens. In case there is stability reached in the country, recovering processes in Ukrainian economy are expected to take place. Agrarian companies, which export, will continue increasing exports volume, especially to the EU region that kindly lowered import tariffs and quotas. In this regard, agrarian sector will be playing safe heaven role for Ukrainian economy.


Transfer Pricing Legislation Changes in Ukraine Are Likely to Cause Additional Expenses for Businesses


Parliament Bill “Regarding changes to Tax Code of Ukraine for modernization of fiscal control over transfer pricing” #1264-1 was registered in Verkhovna Rada of Ukraine on December 22, 2014. According to the Bill, starting 2015 several changes regarding transfer pricing will be introduced to the current legislation, which will affect legal aspects of operational activities of Ukrainian agrarian businesses. One key change that is being introduced in the Bill is exclusion of conformity presumption of the price during controlled operation relating to the market price level. Thus, starting from the publication date of the Law, Ukrainian companies will have to prove that price during control operation is at the level of market price for the same product. Companies will have to pay additional attention to documentation, when operating with contractors.  One of the methods that can be used to prove that the price level is according to the market price level is agreement expertise with provision of according certificate.

The Bill also includes broader list of conditions for defining related entities, introduces mechanism for recognition of the related entities, specifies method for determining share of corporate rights ownership, widens list of control operations. There are also several other additions that are less impactful for companies, operating in agriculture. Companies will have to file reports on transfer pricing under new Law in 2015, if it is published until May 1, 2015.

On December 25, 2014 Verkhovna Rada of Ukraine passed the Law “Regarding changes to Tax Code of Ukraine for modernization of fiscal control over transfer pricing” #1264-1 in the first session. Head of the according committee Roman Nasyrov stated that during next review of the Law, norms that suggest broader control over inside operations between residents may be excluded. There is also possibility that reports will not be filed in 2014 by the entities that were controlled after expansion.

In order to avoid difficulties when engaging with Fiscal Services, and to avoid additional material and time costs, we recommend preliminary preparation of documents that would prove that price during control operation is at the level of market price for the same product. UkrAgroConsult carries out expertise of the agreements along with provision of according certificate that can be used by the company as an according proof.


Ukraine in Debt: How Bad Exactly Is It?


Government debt is one of the hot topics actively discussed both: internally and externally. Naturally, debt is a pressing issue that cannot be overlooked: in case of country’s failure to meet its obligations, it has to go through default, a painful experience, which would be especially negative for Ukraine, given its current state. However, default is rather populist word, used by media that fail to conduct proper research. Therefore, we find it extremely useful for our readers to look into details of the issue.

Debt of Ukraine has grown from 40 to 60% of GDP over 2014, a record growth over entire history of the country, only beaten by 2008 recession, when debt rose from 10 to 40%. Hence, comparable decline constituted 20% in 2014 and 30% in 2008. The only difference is the range of factors that caused the decline. Unfortunately, factors in 2014 are far more risky and unpredictable, than they were in 2008. Back then, decline was caused by global economic recession. Rooted from the U.S., it spread to EU region, having domino effect on entire global economy. 2014 recession in Ukraine is different: it has combination of both: internal and external factors that are not easy to fix and cannot be resolved quickly. Most experts expect country’s debt to rise even further: to 70% in 2015.

Latest official data, provided by the Ministry of Finance of Ukraine, suggests level of debt reaching UAH 219.6 billion. Major reasons, sited by the Ministry include devaluation of UAH and necessity of government budget financing. Government budget financing includes capitalization of Naftogas Ukraine – state monopoly company, responsible for oil and gas usage and purchases. Naftogas financing reached UAH 33 billion in 2014. Another UAH 68 billion was financing of government budget and another UAH 5.2 billion – capitalization of banks. Naftogaz debt and operations are seen as a major issue for Ukrainian economy.

Despite negative tendencies in government debt, there is lack of critical signs that suggest Ukraine failing to carry on with its debt liabilities. As we take a closer look at debt structure, we can note that 49.7% of government debt is domestic, and 43.3% of total debt are denominated in UAH, which means it is not subject to further growth due to devaluation. The only major negative factor we see that cannot be ignored is an ongoing military conflict in the East of the country, which is draining not only lives of Ukrainians, but also remains an economic burden. Prolonged state of the conflict will mean higher risks and more negative outcomes for country’s state.

Our final conclusion is no different to those of multiple international experts, working in Ukraine: country is ready for reforms, new government had been formed, therefore, while conflict may last longer, necessary changes to economic system have to be implemented as soon as possible. Given high political will of the current government to make these changes, our forecasts remain positive, moving to the future.


When Liquidity Matters More Than Profitability: Banking Sector of Ukraine


Banking sector of Ukraine is one of the “hot topics” for Ukraine today. It is an indicator of current situation in the country, reflecting progress with the reforms in general, and those aimed at improvement of banking sector in particular. Starting with devaluation of Ukrainian currency and ending with outflows of capital, banks faced situation, in many ways resembling post-recession period of 2009-2010. Banks with foreign capital were the ones that were able to withstand difficulties in the first place, others faced loss of National Bank of Ukraine (NBU) license. Out of 180 banks in Ukraine, with license from NBU, there are 167 left as of November 30, 2014, according to official data, provided by NBU. Several others have temporary administration working in the banks.

Just as after 2008 recession, banks are facing rise in non-performing loans (NPLs). There are several reasons that cause such situation. First, it is devaluation of Ukrainian currency – by approximately 100% since the beginning of 2014. Since large share of loans were provided in foreign currency (especially car loans), it is natural that share of population faced increase in interest payments, which was a big issue. Second reason is inflation increase. Rising prices for most of the product groups in Ukraine was followed by more than moderate growth of average income per capita. Third, outflow of capital from the country led to increase in unemployment, which also affected population’s ability to make money, ergo repay debt. NBU suggests 11.5% of non-performing loans on the average for Ukrainian banks as an official number, while other experts suggest approximately 17% of NPLs.

These facts and conclusions bring us to our final point: performance in banking sector of Ukraine in 2014 is based on liquidity of the banks, rather than financial results. Lower number of banks in the country inevitably lead to decline in cash and precious metals within banking sector, however their share in total assets remained at approximately similar level of 2.32% in comparison to the level of 2013, where share reached 2.85%.

Finally, we can see negative return on assets and return on capital for Ukrainian banks as of November 30, 2014, as major decline happened exactly over the past year. It is vital to note that it had not been as critical as the decline of post-recession period, however crisis in Ukraine is not over yet. Lack of trust in banking system by the population of Ukraine is another major issue that still has to be tackled.


Weekly Success Story: Kernel Share Price Up 9.1% as Company Ends Q# 2014 with $22.3 Million Net Income


UkrAgroConsult reports 9.1% price per share growth for one of the largest producers of agricultural commodities and crusher in Black Sea region, Kernel. Company’s price per share grew to PLN 26.25 over November 26 trading session as company’s report revealed $22.3 million net income for the third quarter of 2014.

Kernel share price performance, PLN

*- Warsaw Stock Exchange, UkrAgroConsult Database

According to official reports, released, company managed to grow its sales revenue by 40.3% to $579 million compared to the same period in 2013. COGS rose only by 23.4% to -$466 million. Operating profit-expenses difference, as well as financial expenses-income difference were 5.4% and 213.6% higher respectively. Company’s $22.3 million net income figure said to reflect loss on devaluation of Ukrainian Hryvnya of $17.2 million.




9M 2014

Change, yoy, %

Total sales revenue

USD thousands

579 162


Change in bio/ag assets

USD thousands

-1 647



USD thousands

-465 982


Net revenue

USD thousands

111 533


Operating Profit-Expenses

USD thousands

-51 164


Financial Revenues-Expenses

USD thousands

-35 235



USD thousands

25 134



USD thousands

-1 056


Net income (loss)

USD thousands

24 078






Cash flow from operating activities

USD thousands

46 003


Cash flow from investing activities

USD thousands

-11 636


Cash flow from financing activities

USD thousands

-45 230


Cash for the period

USD thousands

-10 863


Company’s successful performance under high pressure of external factors is attributed to several factors. First, company managed to significantly increase sunflower crushing volume by 2.2 times to 506 386 tons compared to the same period in 2013. As the result, company’s sunflower oil sales were significantly higher. Profitability per ton in the segment reached USD 202 per ton compared to USD 164 per ton in the same period of 2013 – an 18.81% increase. Company also referenced lower competition in the market, which contributed to growth of sales.

Second, company increased exports sales of grains by impressive 38%. Company states that crops were 16-29% higher, allowing for lower costs per ton of crop. At the same time, it is vital to note that company had negative cash flow for the period as the result of significant increase of financial expenses.  Finally, throughput of export terminals was 56% higher due to significant increase of exports of agricultural commodities.

UkrAgroConsult always welcomes positive performance of the companies that prove viability of their strategic approach. At the same time, we would like to note negative result for the cash flows for the period as company’s cash at the end of the period has indicated declining trend over the past 4 years. Such tendency may become a factor that would affect company’s ability to repay interest on borrowings in the future. It is in no way an imminent threat, given the most recent report.


Ukrainian Agrarian Business: views from the outside and insider comments


Agricultural businesses in Ukraine are facing one of the most challenging times in their history. Declining price trend for the main commodities, grown and sold by the companies that started in 2013 became the first sign of the downfall that would later hit Ukrainian companies like an avalanche. Declining prices became a burden that would pressure sales revenues of the companies that were seen to grow slower that COGS expenses for the first time in 3-year period. The rest of the events that appeared in 2014 seemed to come out of nowhere: weakening of Ukrainian currency by 50% against USD and EUR, political instability that lead to decline of credit ratings at first and full-scale military conflict later on in 2014 that plummeted value of these businesses. Loans, calculated in foreign currency suddenly became 50% more expensive, leading to defaults on interest payments by several companies and the need for debt restructuring. While the pressure is high, situation is not as dire as it seems at the first glance.

Preparing one of my presentations for one of the largest international conferences Black Sea Grain back in 2012, I looked at agrarian holdings in Ukraine as industry leaders: they were amongst the first businesses in Ukraine that comprehended the concept of the economy of scale to the fullest. Later on, they were able to take full advantage of their position and go public, bringing their business activities at the level of transparency, rarely seen amongst Ukrainian businesses before. Adaptation of IFRS standards and publication of annual reports, along with impressive financial results allowed these companies to attract investments via IPOs. Funds, attracted through foreign stock exchanges (mainly Warsaw), started tendency of rapid growth through acquisition of smaller farms. These companies further vertically integrating their activities as well, but main focus was size of the operations.

As stock markets (especially Warsaw) became oversaturated with Ukrainian companies, agrarian holdings in Ukraine had to find another way to fund their ongoing growth and expansion. Funds from IPOs were replaced by loans from syndicates of banks and Eurobonds, which were gladly given to successful Ukrainian businesses in the still-growing market. Back in 2012, I rated companies, based on the volume of funds they were able to attract – in my mind higher volume of external funding meant faster growth and development of these companies. Majority of forecasts indicated stably growing global demand for food and agricultural goods, leading me to believe that there is almost nothing that can hinder upwards price growth trend.

It became apparent that forecasts were not correct. Favorable weather conditions, leading to high crops in U.S. and Argentina in 2013 started drawing prices down, putting pressure on margins of the agrarian companies. Lending tendencies slowed down, as well as rapid expansion, as for the first time companies had to take closer look at their costs and potential for their reduction. However, even then the situation was not dire. Later parts of 2013 brought another risk: peaceful protests against Ukrainian government that decided to slow down signing of EU association agreement grew into full-scale confrontations between militia and the protesters, adding to the political risks of Ukraine. Several companies received credit ratings downgrade, making it even harder to acquire external funding.

New barrier turned out to be positive one: in the beginning of 2014, namely in March, exchange rate of Ukrainian Hryvnya plummets by 27% against USD and EUR. Later in the year, devaluation reaches whooping 38%, as National Bank of Ukraine has to take drastic measures, such as mandatory sale of foreign currency by companies, operating in Ukraine, just to keep the rate at its current level. Drastic devaluation led to reassessment of debt by agro-holdings, leading to shocking results: USD 14 to USD 452 million losses just for the six months of 2014 solely on loss on currency devaluation. Having tracked these losses, I have determined that they origin from loans acquired by these companies in the past, which suddenly became 38% more expensive in national currency.

Natural question that rose immediately: “What is being done to mitigate this issue?” First and foremost, sales of the companies, even inside the countries were always closely tied to prices in foreign currency, meaning that immediately prices went up by the same amount Hryvnya devaluated. Such approach provided cushion, softening devaluation impact. It was harder for companies that had products solely made for Ukrainian market – consumer prices are expected to increase only by 10-15%, merely covering half of currency-related losses.

Figure: corn price vs UAH/USD exchange rate

Source: UkrAgroConsult

At the same time, prices for raw materials, plant protection, oil and gas became more expensive by exactly the amount of the devaluation. Companies immediately started looking for import substitutes, “green” energy and other means to minimize import purchases, however these measures are long term, meaning that positive impact will be seen in 2-3 years only.

While companies were dealing with currency-related issues, geopolitical conflicts suddenly came into play. First, loss of operations in annexed Crimea and later loss of operations, as well as assets in the Eastern regions of Ukraine. These issues combined became anchoring factor for capitalization, thus selling price of the businesses. According to UkrAgroConsult calculations, market capitalization of Ukrainian public companies fell by 44.8% since the beginning of 2014.

Figure: Capitalization of Public Ukrainian Agrarian Companies

Source: UkrAgroConsult

Based on our own sources, price of re-rental of land fell three-fold, making agrarian business in Ukraine an all-time cheap investment at the moment.

Taking a closer look at financial performance of Ukrainian agrarian companies, we noticed interesting tendency: gross profit indicated average increase of 10-15%, gross profit margin remained at strong 30-40%, while operational expenses were down 5-6% per 6 months of 2014. Therefore, taking out devaluation loss factor, we see that Ukrainian companies are able to maintain strong performance, even in the bearish price market. Such resilience is impressive and, combined with low purchasing price levels for these companies, present high-risk – high-reward investment opportunity.

I conclude that 2015 will be a slow decline year for Ukrainian agrarian sector. Raw materials, plant protection means for 2014 crops were purchased back in 2013, at strong Hryvnya. 2015 crop will be planted with new materials, purchased at new exchange rate. This can drive cause higher operational and production costs, taking more players out of the market. At the same time EU market remains open and willing to work with Ukrainian producers. New markets in Asia and Africa are seen as high-potential markets, currently being supplied with Ukrainian agrarian goods.

Here, at UkrAgroConsult we continue close monitoring of investment environment in Black Sea Region. We are always ready to help our customers with new solutions.


Attractiveness of Ukrainian Agrarian Sector in light of current events in Ukraine


Question in the title of this publication is the same one many analysts and investors have in their minds since the beginning of 2014. Ukraine had never been amongst the top of the countries with high investment potential. Things got a bit better back in 2006-2007, yet global economic recession of 2008 led to more skepticism towards investments in businesses of developing countries. Ukraine was no exception in this regard. At the same time, Ukrainian agriculture managed to become a phenomenon over these past 5-6 years. Newly formed agro holdings with average land banks of over 70 thousand hectares were able to demonstrate constant growth and stability. Possibility to attract cheap funds via public offerings of shares led to transparency within the top companies, enabling smaller-size companies to work on larger scale. Cheap labor and relatively cheap operation costs contributed to attractive prices of agricultural commodities from Ukraine on a global scale. Stable performance and stable growth are the recipe for attracting external funding.  Largest companies were able to attract sums as large as USD 300 million for financing growth and modernization. Land banks were growing as mergers and acquisitions market was booming in agricultural sector.

It all changed in 2013. Usually bullish market of commodity prices suddenly started showing bearish tendencies with prices dropping 10-20% on the average in the beginning of the year.

Figure 1. 3-week futures’ prices, c/bu, 2013- 6M 2014

Source: Data of Chicago Mercantile Exchange, UkrAgroConsult database

In addition to declining prices, we observed increase in prices for raw materials, such as gas and fertilizers, leading to additional financial pressure on the companies. Finance costs started to pile up as well, as interest on past loans had to be paid out. The result was sadly predictable: majority of Ukrainian largest agrarian companies ended 2013 with net income lower than the one indicated in 2012. Several companies ended in the red and only a few have shown growth. Usually, these few successful companies operated on the smaller scale and avoided attracting large loans, meaning less financial cost pressure on their operations. Please bear in mind that companies we are talking about here are vertically integrated business units, meaning that risk mitigation through diversification of revenue streams was nothing new to them.

In the meanwhile political and social situation Ukraine was not getting better either. Peaceful protests started in October of 2013 after then President of Ukraine Victor Yanukovych announced that Ukraine is temporarily stopping the process of signing Association Agreement with EU. Later these protests became violent as local police squads used force against the protesters. By the end of the year several government buildings were occupied by the protesters, yet situation still seemed to be under control of the government, despite the fact goal of the protests changes from pro-EU towards more anti-government.

In the beginning of 2014 most well know rating agencies, such as Standards and Poor, Fitch and Moody’s lowered Ukraine’s ratings, along with ratings of large Ukrainian companies, most of which were agricultural holdings. Violent protests turned into full-on fights with police forces, with protesters wanting nothing less than Yanukovych leaving the Presidential Office. Eventually, Yanukovych, along with many officials appointed by him, fled the country to Russia. Temporary government was formed from the people’s deputies, along with new Presidential elections scheduled for May. the same time, new anti-government and anti-revolution protests emerge in Southern and Eastern parts of Ukraine. The most tensions are seen in Crimea, most-Southern part of Ukraine. In the matter of days protesters break into local Parliament (since Crimea is an autonomy by definition, although with very limited rights given to the local government) and announce new referendum, which would allow people of Crimea to decide whether they want Crimea to remain being part of Ukraine or become part of Russian Federation. Self-proclaimed Prime-Minister of Crimea immediately sends official letter to Moscow, asking to protect people of Crimea from “bandits that took over the power in Kiev”. At this point, multiple reports are coming in, stating that Russian military is already in Crimea (that outside of the naval base, that had been located on the peninsula since the independence of Ukraine).

Putin responds to the letter immediately by requesting for the permission to use Russian Army troops on the territory of Ukraine from the Higher Council. He receives the approval on the same day. Referendum in Crimea is carried out, without any international observers, and local authorities claim 99% of the voters (98% of population was claimed to attend this referendum) indicated that they want Crimea to become a part of Russian Federation. Putin once again suggests changes to Russian constitution that would allow Crimea to become part of Russian Federation. Changes go though and within a week Russia claims Crimea as a part of its territory.

While these events unfold, the rest of Eastern and Southern regions continue rebelling. Local population, inspired by the example of Crimea, protests against current temporary government. While protests in Kharkiv and Odessa region are less violent, Donetzk and Luhansk regions repeat the scenario, already seen in Kiev in the end of 2013 – they take over government buildings. Simultaneously they proclaim their regions as separate countries, therefore forming Donetzk People’s Republic and Lugansk People’s Republic. Kharkiv protests seemed to calm down, as well as in Odessa, although latter one ended with deaths of approximately 50 people, shot and burned in bloody fights.

President of Ukraine is elected – it is Petro Poroshenko – successful entrepreneur, mainly known for his confectionary factories – Roshen, amongst the most popular on the territory of Ukraine and CIS countries. In the meanwhile conflicts in Donetsk and Luhansk region turn into armed fights. Local law enforcement is either overthrown or takes side of the protesters. Protesters officially ask for help from Russia, claiming to be oppressed by the new government of Ukraine. Ukrainian government starts Anti-Terrorism Operation (ATO), as protesters are well armed with machine guns, grenade launchers and other vehicles. In addition, they seem to get supplies and reinforcements from Russia, as border is close to the location of the main events. Latest news show tanks and heavy artillery being delivered across the border from Russia to the not-so-peaceful protesters. Situation becomes tenser as protesting forces shoot down a helicopter, with no survivors left (approximately 10 killed). Later, they kill and wound many military men with largest hit being a plane, shot down and approximately 50 people killed.

At the moment, President Poroshenko announced “temporary peace act”, which lasts until June 27, giving rebelling forces and armed mercenaries an opportunity to leave the territory of Ukraine. Depending on how the negotiations go, further actions will be taken. There are no forecasts possible at the moment as situation is very unclear and events develop quickly.

These events directly affected the state of Ukrainian economy and national currency as a result. Ukrainian Hrynnya (UAH) had devalued against US dollar by roughly 40% in 2 weeks period – from 8 UAH/USD to 12 UAH/USD, hitting as high as 13.8 UAH/USD in March, when National Bank of Ukraine issued new decree, allowing for the free float of the foreign exchange rates. Ukrainian Hryvnya also hit record high 16 UAH/EUR. Rates have stabilized by May, yet it definitely had impact on companies, operating in Ukraine. When agro holdings issued reports for the first quarter of 2014, the losses from currency devaluation reached as high as 100% of 2013 annual net income. This phenomenon is explained by loans, acquired in foreign currencies and interest that had to be paid out, but cost 50% higher in national currency. Gasoline caught up with exchange rate and jumped in price by 40% on the average as well, significantly increasing operating costs of the companies. Those that had significant part of exports sales in their revenue structure were a bit better off than others, yet not a single company remained unaffected.

In addition to that, companies with assets in Crimea, and Lugansk and Donetzk region later faced various issues, ranging from bans to operate in the region (Crimea) to inability to do so due to Anti-Terrorism Operation. Russia was also lost as trading partner due to either official or unofficial bans of Ukrainian imports. Despite the fact that many companies were not heavily invested in exports to Russia (in fact, my observations show decline of exports to Russia Federation over the past 3 years), additional losses will be imminent, and will already be reflected in the reports for the second quarter of the year.

Despite ongoing events, majority of the companies continue operating in normal regime. Modernization programs are still carried out, companies continue receiving investments for expanding their activities (although at admittedly lower rate compared to previous 5 years) and in general, entrepreneurs are very optimistic regarding new potential cooperation with EU region. The dimensions of this cooperation will be more transparent after signing the Association Agreement, which is expected to take place in the nearest weeks. High risk – high return is the best way to describe current situation of agriculture in Ukraine, as only a few would see opportunity here at the moment. Potential success for these few however, might beat the bravest expectations.