Dragon Capital Agribook Nov 19 2012

November 2012
Agriculture in Ukraine: Leading Player in World Corn Trade 3

Table of Contents

Executive Summary 5
Valuation Summary 6
Agricultural Land Market in Ukraine 8
Land Resources 8
Land Cultivation Technologies 10
Land Reform: History and Outlook 12
Land Reform: Neighbors Experience 16
Major Players 18
Lease Payments 20
Market Price of Agricultural Land 23
Weather Impact 25
Historical Weather Conditions Across Regions 25
Weather Impact on 2012 Harvest, Outlook for 2013 28
Agricultural Production in Ukraine 31
Crop Production and Yields 31
Global Grain Market and Ukraine 33
Agricultural Production Costs 39
Fertilizer Usage 40
Domestic and Export Prices 42
From Field to Port: Ukraines Agricultural I nfrastructure 44
Grain Storage Capacities 44
Railroad The Key Transport 50
Ports 53
Grain Handling Costs 57
Russian Ports: Kernel First Ukrainian Operator in Taman 59
Reform of Ukrainian Sea Ports 61
Ukrainian Agricultural Exports 63
Exports Dynamics 63
Export Destinations 65
Russia Ukraines Closest Competitor 66
Grain and Sunflower Oil Exporters in Ukraine 67
CBOT Black Sea Wheat Futures 68
FOB, CPT and CIF Export Terms and Price Formation 69
Sugar Market: Supply to Cover Demand in 2012/ 13 MY 70
Poultry Market: Leader Boosts Capacity 73
Egg Market: Listed Players Continue Expansion 77
Dairy Market: Russian I mport Ban Lifted 82
Sunflower Oil Market: Top Exporter Globally 86

November 2012

4 Agriculture in Ukraine: Leading Player in World Corn Trade

Table of Contents (contd)

State Regulation 91
Governmental Support for Agriculture in Ukraine 91
State Support to Individual Agricultural Companies 92
Capital Raising and M&A Deals 94
Bank Loans for Agriculture 96
I nternational Accounting Standards: I AS 41 Agriculture 98
Biofuel Production Potential 102
Risks 108
Company Profiles 109
Agroton 110
Astarta Holding 118
Avangard 126
Creativ Group 134
IMC 140
Kernel Holding 146
MHP 152
Milkiland 158
Mriya Agro Holding 164
Ovostar Union 174
Sintal Agriculture 182
Alpcot Agro 188
KSG Agro 194
AgroGeneration 200

November 2012


Executive Summary
Most extensive coverage of Ukrainian agricultural sector continues
This updated version of the Dragon Capital Agribook expands our coverage to
virtually all listed Ukrainian food and agriculture companies, supplementing it with
in-depth analysis of the sector and its outlook. Agriculture, historically one of the
most important economic sectors in Ukraine, has for years remained one the most
dynamic segments of listed Ukrainian universe, encouraging more sector companies
to go public when conditions are ripe.
Ukraine leading player in global corn trade
Ukraine is projected to become the third largest coarse grain exporter and eighth
largest wheat exporter globally in 2012/ 13 MY. The country, boasting some of the
worlds most fertile soil, has enjoyed record corn harvests in the past two years and
has significant potential to strengthen its position in the global grain trade by
improving yields. Meanwhile, global coarse grain demand is being fueled by big
importers such as China, Saudi Arabia and Japan, with changing diets towards
higher meat consumption increasing demand for feed.
Potentially higher 2013/14 MYF balances may put pressure on prices
2H12 signaled a new upward trend in soft commodities markets, with grain stocks
in major exporting countries remaining low. However, downside risk to our
2012/ 13 MY grain price forecast exists as higher global plantings for 2013/ 14 MY
may put pressure on prices when new projected global crop balances are published
towards end-1H13. We expect global corn and wheat prices to fluctuate around
$300-320/ t in 2012/ 13 MY, with downward pressure possible in 1Q13. We expect a
10% y-o-y decline in wheat and corn prices in 2013/ 14 MY.
Updated valuations suggest 7-97% upsides
Based on revised valuations for our entire food and agriculture universe, we
recommend MHP, Mriya, IMC, Avangard, Milkiland and Creativ Group as our top
picks, their main drivers being strong market outlook, expansion strategies and
solid operating and financial performance. Astarta, Agroton, Ovostar and Kernel
look close to fairly valued. The whole Ukrainian agricultural complex is currently
trading at a 2012E EV/ EBITDA of 4.8x, which represents discounts of 4% to Russian
peers, 25% to developed market peers and 51% to other EM peers.
Agricultural stock price drivers in 2012/13 MY
Going forward, we see the following key drivers for Ukrainian agricultural stocks:
price volatility on the grain, vegetable oil and sugar markets, globally and
domestically; potential state regulation of the grain market, including exports; and
prospects for the 2013 harvest based on actual winter crop survival rates next spring.
Domestic land reform, allowing for transactions with agricultural land and its use as
collateral, will serve as another strong driver if completed in the nearest future.

Recommendations

PT
( $ )
Upsi de
( %)
Recommendat i on

Agrot on
4 . 2 0
2 3 % Hol d

Ast art a Hol di ng
2 2 . 3 2
1 8 % Hol d

Avangard
1 3 . 5 0
3 2 % Buy

Creat i v Group
1 6 . 7 7
9 7 % Buy

IMC
6 . 8 0
5 3 % Buy

Kernel Hol di ng
2 1 . 3 7
8 % Hol d

MHP
2 1 . 6 0
5 0 % Buy

Mi l ki l and
7 . 0 5
4 8 % Buy

Mri ya Agro Hol di ng
8 . 5 7
3 7 % Buy

Ovost ar Uni on
3 1 . 1 3
7 % Hol d

YTD Price Performance

Note: all prices in this report are as of
Nov. 9, 2012 unless otherwise noted
Stock Overview
Company Ti cker Sect or Pri ce ( $ ) MC ( $ m) 1 2 E EV ( $ m) 1 2 E Sal es ( $ m) 1 2 E EBITDA ( $ m) 1 2 E NI ( $ m) 1 2 E EV/ EBITDA ( x) 1 2 E P/ E ( x)
Agrot on AGT PW Grai n 3 . 4 1 7 4 1 0 5 1 0 2 2 6 1 2 4 . 1 6 . 4
Ast art a Hol di ng AST PW Sugar 1 9 . 1 2 4 7 8 7 3 1 5 0 4 1 4 9 9 1 4 . 9 5 . 2
Avangard AVGR LI Shel l Eggs 1 0 . 2 0 6 5 1 8 6 1 6 3 9 2 5 6 2 0 5 3 . 4 3 . 2
Creat i v Group CRGR UK Sunf l ower Oi l 8 . 5 4 8 7 4 2 5 4 3 9 9 5 4 7 4 . 5 1 . 9
IMC IMC PW Grai n 4 . 6 3 1 4 7 2 0 5 9 5 3 9 2 6 5 . 0 5 . 4
Kernel Hol di ng KER PW Sunf l ower Oi l 1 9 . 6 6 1 , 5 6 6 2 , 1 6 5 2 , 1 6 9 3 2 5 1 9 9 6 . 7 7 . 9
MHP MHPC LI Poul t ry 1 4 . 4 0 1 , 5 0 3 2 , 2 2 9 1 , 3 2 2 4 6 4 2 2 9 4 . 8 6 . 5
Mi l ki l and MLK PW Dai ry 4 . 8 1 1 5 0 2 5 8 3 7 2 4 0 1 5 6 . 4 9 . 6
Mri ya Agro Hol di ng MAYA GR Grai n 6 . 2 2 6 6 0 9 4 9 3 5 2 2 1 5 1 4 1 4 . 4 4 . 7
Ovost ar Uni on OVO PW Shel l Eggs 2 9 . 2 5 1 7 5 1 6 8 7 3 3 3 3 1 5 . 1 5 . 7
Si nt al Agri cul t ure SNPS GR Grai n 0 . 3 3 1 1 1 6 . 6 ** 3 1 . 8 ** 1 2 . 8 ** 1 0 . 0 ** - -
Al pcot Agro ALPA SS Grai n 0 . 9 7 1 3 5 1 5 1 * 3 9 . 0 * ( 0 . 3 ) * ( 2 2 . 9 ) * - -
KSG Agro KSG PW Grai n 3 . 5 6 5 3 7 4 * 3 4 . 7 * 3 0 . 8 * 2 8 . 9 * - -
AgroGenerat i on ALAGR FP Grai n 2 . 2 7 8 0 8 9 * 3 0 . 5 * 6 . 4 * 3 . 0 * - -
Notes: *2011; **2010
( 4 3 . 3 %)
( 4 0 . 1 %)
( 1 6 . 7 %)
( 7 . 3 %)
( 7 . 1 %)
( 5 . 8 %)
2 . 2 %
6 . 9 %
1 1 . 1 %
1 8 . 5 %
3 4 . 5 %
( 5 0 %) 0 % 5 0 %
KSG Agro
Agrot on
Al pcot Agro
Kernel Hol di ng
Agrol i ga
Agrogenerat i on
Creat i v Group
Mri ya Agro Hol di ng
Mi l ki l and
Ast art a Hol di ng
MHP
November 2012


Valuation Summary
Company Pri ce Currency MC EV/ EBITDA P/ E
( $ m) 2 0 1 1 2 0 1 2 E 2 0 1 3 F 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Ukrai ni an Compani es
Agrot on 3 . 4 1 USD 7 4 1 0 . 6 4 . 1 2 . 6 neg. 6 . 4 2 . 9
Ast art a Hol di ng 1 8 . 8 5 USD 4 7 1 4 . 7 4 . 9 4 . 5 3 . 9 5 . 2 5 . 2
Avangard 1 0 . 2 0 USD 6 5 1 3 . 0 3 . 4 3 . 1 3 . 3 3 . 2 3 . 2
Creat i v Group 8 . 5 2 USD 8 7 5 . 0 4 . 5 3 . 7 2 . 1 1 . 9 1 . 4
Indust ri al Mi l k Company 4 . 4 4 USD 1 3 9 6 . 4 5 . 0 2 . 9 8 . 0 5 . 4 3 . 5
Kernel Hol di ng 1 9 . 7 1 USD 1 , 5 7 0 6 . 0 6 . 7 6 . 4 6 . 9 7 . 9 7 . 4
MHP 1 4 . 4 0 USD 1 , 5 0 3 5 . 9 4 . 8 3 . 9 6 . 0 6 . 5 5 . 4
Mi l ki l and 4 . 7 6 USD 1 4 9 4 . 2 7 . 4 3 . 9 7 . 2 1 2 . 9 4 . 3
Mri ya Agro Hol di ng 6 . 2 3 USD 6 6 2 4 . 4 4 . 4 4 . 1 4 . 4 4 . 7 5 . 2
Ovost ar Uni on 2 9 . 2 1 USD 1 7 5 7 . 1 5 . 1 4 . 3 8 . 7 5 . 7 4 . 9
Ukrai ni an Compani es Medi an* 5 4 8 5 . 4 4 . 8 3 . 9 6 . 0 5 . 6 4 . 6
Premi um ( Di scount ) t o Russi an Peers 4 1 % ( 2 9 %) ( 4 %) ( 3 0 %) ( 2 5 %) 7 5 % 1 %
Premi um ( Di scount ) t o DM Peers ( 9 2 %) ( 3 4 %) ( 2 5 %) ( 3 6 %) ( 5 9 %) ( 5 7 %) ( 6 3 %)
Premi um ( Di scount ) t o GEM Peers ( 9 1 %) ( 4 9 %) ( 5 1 %) ( 5 5 %) ( 6 6 %) ( 6 5 %) ( 6 8 %)
Russi an Peers
Cherki zovo Group 1 2 . 1 2 RUR 7 9 9 6 . 4 5 . 0 5 . 7 5 . 5 4 . 0 4 . 2
Rosagro 7 . 0 0 USD 8 3 5 7 . 7 4 . 3 4 . 5 1 0 . 4 5 . 4 4 . 9
Razgul ay 1 2 . 3 6 USD 6 2 - 5 . 6 5 . 6 - 2 . 3 1 . 4
Rusgrai n 1 4 . 5 3 SEK 2 0 1 8 . 3 2 . 0 2 . 0 neg. 0 . 5 -
Bl ack Eart h Farmi ng 1 2 . 3 5 SEK 2 2 9 neg. 1 2 . 6 1 0 . 5 neg. neg. 1 6 . 8
Russi an Peers Medi an* 3 8 9 7 . 7 5 . 0 5 . 6 7 . 9 3 . 2 4 . 5
Devel oped Market Peers
Bel l Hol di ng ( CH) 1 , 9 4 3 . 0 0 CHF 8 1 9 4 . 7 5 . 4 4 . 7 1 0 . 1 1 0 . 3 9 . 8
Campof ri o Al i ment aci on SA ( MX) 5 . 6 2 EUR 7 3 0 1 2 . 4 6 . 3 6 . 2 neg. 1 3 . 8 1 1 . 7
Tyson Foods ( US) 1 6 . 5 9 USD 6 , 0 0 8 4 . 2 4 . 4 4 . 2 8 . 0 9 . 0 1 0 . 6
Archer-Dani el s-Mi dl and ( US) 2 5 . 6 2 USD 1 6 , 8 7 1 5 . 8 6 . 6 6 . 0 1 3 . 8 1 1 . 4 9 . 4
Vi t erra ( CA) 1 5 . 7 5 CAD 5 , 8 4 9 9 . 0 8 . 7 8 . 0 1 8 . 6 1 7 . 6 1 6 . 0
Andersons ( US) 4 0 . 8 8 USD 7 6 0 6 . 0 4 . 4 4 . 4 9 . 4 1 0 . 0 -
Grai ncorp ( AU) 1 2 . 1 7 AUD 2 , 8 8 5 7 . 5 8 . 2 8 . 0 1 3 . 2 1 5 . 7 1 8 . 2
Bunge ( US) 7 1 . 6 0 USD 1 0 , 4 6 6 5 . 9 6 . 0 5 . 9 1 0 . 9 8 . 9 8 . 2
Suedzucker ( DE) 3 0 . 4 0 EUR 7 , 3 1 8 9 . 3 5 . 1 5 . 6 2 2 . 2 1 4 . 0 1 0 . 2
Agrana Bet ei l i gungs ( AS) 9 2 . 5 6 EUR 1 , 6 7 1 8 . 5 3 . 6 5 . 7 1 4 . 9 7 . 9 8 . 1
Ebro Pul eva ( SP) 1 3 . 8 2 EUR 2 , 7 0 2 8 . 5 8 . 3 7 . 9 1 2 . 8 1 3 . 4 1 2 . 4
Associ at ed Bri t i sh Foods ( GB) 1 , 3 7 9 . 0 0 GBp 1 7 , 3 7 1 9 . 3 7 . 0 7 . 8 2 0 . 0 1 9 . 9 1 4 . 7
Dani sco ( DE) 7 4 8 . 5 0 GBp 5 , 5 5 2 9 . 7 7 . 7 8 . 3 2 1 . 9 1 1 . 4 1 2 . 9
Dai ry Crest Group ( UK) 3 4 9 . 1 0 GBp 7 5 7 5 . 7 2 . 8 4 . 7 8 . 5 neg. 1 0 . 0
Bongrai n ( FR) 4 6 . 0 0 EUR 9 0 2 4 . 3 4 . 3 3 . 9 1 4 . 9 9 . 9 8 . 7
Gl anbi a ( IE) 8 . 0 1 EUR 3 , 0 0 1 1 2 . 2 1 1 . 7 1 1 . 2 1 9 . 2 1 7 . 2 1 4 . 7
Emmi ( CH) 2 3 7 . 8 0 CHF 1 , 3 4 1 6 . 7 6 . 3 5 . 9 1 4 . 3 1 3 . 1 1 2 . 9
Dean Foods ( US) 1 6 . 6 2 USD 3 , 0 7 9 9 . 7 7 . 8 6 . 9 neg. 1 3 . 8 1 3 . 1
Groupe Danone ( FR) 4 9 . 7 3 EUR 4 0 , 6 6 2 1 0 . 2 1 0 . 7 1 0 . 3 1 7 . 5 1 7 . 5 1 6 . 4
Cal mai ne ( US) 4 2 . 3 6 USD 1 , 0 1 3 8 . 1 7 . 5 6 . 2 1 6 . 7 1 1 . 3 1 3 . 2
Devel oped Market Peers Medi an* 6 , 4 8 8 8 . 3 6 . 5 6 . 1 1 4 . 6 1 3 . 1 1 2 . 4
Emergi ng Market Peers
Perdi gao ( BZ) 3 6 . 5 9 BRL 1 5 , 5 6 3 1 0 . 6 1 4 . 1 1 4 . 5 1 9 . 0 3 6 . 7 1 7 . 7
Ast ral Foods ( SA) 1 0 , 2 4 5 . 0 0 ZAR 4 9 5 4 . 4 6 . 7 7 . 3 8 . 0 1 3 . 0 1 3 . 7
Charoen Pokphand Foods ( TH) 3 6 . 0 0 THB 9 , 0 9 7 1 6 . 5 1 2 . 9 1 4 . 7 1 7 . 5 1 6 . 9 1 4 . 2
Chi na Agri -Indust ri es 4 . 6 3 HKD 2 , 4 1 2 1 1 . 3 9 . 8 8 . 7 1 1 . 0 8 . 3 7 . 4
IOI Corporat i on ( MZ) 5 . 0 3 MYR 1 0 , 5 5 3 1 3 . 6 1 1 . 9 1 1 . 0 1 8 . 2 1 5 . 8 1 4 . 7
Chi na Foods ( HK) 7 . 7 0 HKD 2 , 7 7 8 9 . 2 9 . 0 7 . 3 2 3 . 7 1 9 . 0 1 5 . 5
Thai Veget abl e Oi l ( TH) 2 4 . 9 0 THB 6 5 7 9 . 7 9 . 3 8 . 6 1 0 . 7 1 1 . 5 1 1 . 1
Emergi ng Market Peers Medi an* 5 , 9 3 6 1 0 . 6 9 . 8 8 . 7 1 7 . 5 1 5 . 8 1 4 . 2
Note: *average for market capitalization; prices as of Nov. 9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates

November 2012


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November 2012


Agricultural Land Market in Ukraine
LAND RESOURCES
Ukraine posesses
32.5 million ha of arable land
Ukraine has 42.8 million ha (Mha) of agricultural land comprising 71% of the countrys
total area, of which 32.5 Mha is arable (excl. pastures, grasslands, permanent plantings
etc.). Ukraine is richly endowed with chernozem (also known as black earth), one of
the most fertile soils worldwide. Ukraine accounts for about 25% of the global
chernozem area.
Highly fertile chernozems cover
41% of Ukraine
Chernozem, a black-colored soil that contains a very high percentage of humus (3% to
15%) along with phosphoric acids, phosphorus and ammonia, occupies 41% of
Ukraines total area and even more of its agricultural land (54%) and plow land (62%).
Only two chernozem belts exist worldwide: one extending from northeast Ukraine into
Russia, and the other in the Canadian Prairies.

Ukraine Soil Resources
Sources: Harmonized World Soil Database, FAO

Thick humus layer
improves soil fertility
The very thick dark topsoil layer typical of chernozems is the result of thousands of
years of accumulation of organic matter in a cool temperate climate. The fertile part of
chernozem is humus its content in chernozem is one of the highest among all types
of soil. A layer of humus exceeding 65 centimeters (cm) covers much of Ukraine,
followed by layers 51-65 cm deep. Overall, humus exceeding 51 cm in depth covers
about 80% of the country. The map below shows the distribution and depth of the
humus layer across Ukraine.

Chernozem
Podzol uvi sol
Greyzem
Phaeozem
Lept osol
Cambi sol
Kast anozem
Arenosol
Wat er bodi es
Gl eysol
Fl uvi sol

November 2012


Depth of Humus Layer in Ukrainian Soil
Source: Ukrainian Agriculture Ministry

Exceptional arable land and a good climate give Ukrainian agricultural producers
strong competitive advantages. Given the size of its population and its feedstock needs,
Ukraine is one of the few countries worldwide that can fully meet its domestic
agricultural needs and export substantially.
Ukraine can feed itself
and export to others
Ukraine enjoys one of the largest rates of arable land per capita compared to CEE and
CIS countries. Ukraines level of 0.7 ha of arable land per capita is surpassed only by
Kazakhstan (1.5 ha) and Russia (0.9 ha).
Ukraine has one of the largest
rates of arable land per capita
in CEE and the CIS

Arable Land per Capita: Ukraine vs. CEE/ CIS Peers (2009/ 10)
Source: FAOstat

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Arabl e l and per capi t a ( ha; rhs)

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Sat i sf act ory

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Very poor

( < 2 0 cm)

November 2012


Arable Land as a Share of Countrys Total Area: Ukraine vs. CEE/ CIS Peers (2011)
Source: FAOstat

Arable land covers 54% of
Ukraines total area, among the
worlds highest
Ukraine is an agricultural powerhouse with arable land covering 53.8% of the countrys
total area, ranking third in the world after Bangladesh (55.4%) and neighboring
Moldova (54.5%).

Arable Land as a Share of Countrys Total Area: World (2011)
Source: FAOstat

LAND CULTI VATION TECHNOLOGIES
Three major land cultivation
technologies are used by
Ukrainian agrarians
Three major land cultivation technologies are applied in Ukraine: till, low-till or mini-
till, and no-till. Tillage is the agricultural preparation of soil by mechanical agitation of
various types, such as digging, stirring, and overturning. Intensive tillage systems leave
less than 15% crop residue cover on arable land. The most important negative effect of
such technology includes erosion of soil. The soil loses a lot of its nutrients like carbon,
nitrogen and its ability to store water, thus requiring a higher rate of fertilizing and
increasing grain production costs. Low till or mini-till leaves between 15 and 30%
residue cover on the soil. In the no-till farming system, significant amounts of crop
residue remain on the soil surface, protecting it from water erosion and improving soil
cultivation. No-till farming (also called zero tillage or direct planting or pasture
cropping) is a way of growing crops from year to year without disturbing the soil
through tillage. It increases the amount of water and nutrients in the soil and decreases
erosion. It also contributes to the variety of life in and on the soil but may require
herbicide usage.

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November 2012


Land Cultivation Technologies: Tillage
Source: Wikipedia

Land Cultivation Technologies: Low Till or Mini-Till
Source: Wikipedia

Land Cultivation Technologies: No-Till
Source: Wikipedia

Land Cultivation Technologies: No-Till
Source: Wikipedia
Traditionally, Ukrainian agrarians used the full tillage technique for soil cultivation,
leaving almost no crop residue on fields. However, no-till and mini-till are starting to
gain favor in the country due to significant soil erosion from full tillage. Still, only about
10% of Ukraines arable land was cultivated with the help of the no-till technique while
full tillage accounted for over 45% of overall acreage in 2011, being used by both large
agribusinesses (operating over 5,000 ha) and small and medium-sized farms.
No-till land cultivation is
carried out on about 10% of
arable land in Ukraine

Land Cultivation Technologies in Ukraine:
Large Agricultural Companies (2011)
Source: APK-Inform

Land Cultivation Technologies in Ukraine:
Small & Medium Agricultural Companies (2011)
Source: APK-Inform

Ti l l
4 5 . 5 %
Mi ni -Ti l l
3 6 . 4 %
No-Ti l l
9 . 1 %
Mi xed ( t i l l &
mi ni -t i l l )
6 . 1 %
Ot her
3 . 0 %
Ti l l
4 8 . 0 %
Mi ni -Ti l l
3 2 . 0 %
No-Ti l l
1 4 . 0 %
Mi xed ( t i l l &
mi ni -t i l l )
2 . 0 % Ot her
4 . 0 %
November 2012


No-till is most popular in
countries where fuel is quite
expensive
Brazil and Argentina experienced a significant increase in fuel costs in 1991-95 and that
encouraged them to switch to no-till, which is the least fuel-intensive cultivation
technique. Brazil, Argentina and Paraguay are the leading no-till users in the world.
Overall, 94 million ha of land is cultivated with no-till technology globally, accounting
for almost 6% of the worlds total arable land (1.6 billion ha).

No-Till as Share of Total Arable Land: Ukraine vs. World Peers (2011)
Source: FAOstat

Agrarians still do not spend
much on soil nutrient analysis
Ukrainian farmers still do not spend much on soil analysis including nutrient tests as it
appears to be costly for most small and medium-sized companies. Some 21% of large
farm perform nutrient land analyses annually and 67% do it every 2-3 years according
to APK-Inform, a local agricultural consultancy. Over 50% of small and medium-sized
producers do not perform such analysis at all and only 38% do it once in 2-3 years.

LAND REFORM: HI STORY AND OUTLOOK
About 85% of agricultural land
in Ukraine is privately owned
Land reform in Ukraine, as in many other former Soviet republics, progressed very
slowly after the country declared independence in 1991. It was only in 1999 that
Soviet-era farms were restructured based on private ownership. All of them were
mandated to conclude lease contracts based on land deeds (certificates) distributed
among employees of former state and collective farms. Each deed was to be
allocated an individual land plot and delimited. As of Jan. 1, 2008, 6.9 million
people received land certificates, of which 6.2 million were allocated land plots. The
size of plots in a given region depends on land availability and the regions
population, ranging from 1.1 ha in the mountainous Ivano-Frankivsk region to 8.7
ha in Luhansk, with the national average totaling about 4 ha. Some 35.5 Mha, or
85% of total agricultural land, is privately owned in Ukraine today.

Breakdown of Agricultural Land in Ukraine (as of J an. 1, 2012)
Note: *orchards and vineyards; **incl. land under farm and administrative
buildings. Source: State Committee for Land Resources

Agricultural Land Ownership in Ukraine (J an. 1, 2012)
Source: State Committee for Land Resources

6 8 %
5 7 % 5 7 %
5 5 %
2 1 %
1 3 %
1 0 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
Paraguay Canada Brazi l Argent i na USA Aust ral i a Ukrai ne
Arabl e l and
7 6 . 0 %
Past ures
1 2 . 8 %
Grassl ands
5 . 6 %
Permanent
pl ant i ngs*
2 . 1 %
Fal l ow l and
0 . 6 %
Ot her agro
l and* *
2 . 8 %
Pri vat e
8 5 . 3 %
St at e and
muni ci pal
1 4 . 7 %

November 2012


The Land Code approved in 2001 introduced a moratorium on agricultural land sales.
The ban has since remained in effect, its removal being conditional on the passage of
two laws, on the land market and on the state land cadaster. Although the relevant
legal framework was drafted back in the early 2000s, successive Ukrainian
governments have lacked the political will to initiate change, expressing concern that
farmers would sell their land at very low prices, latifundia would emerge while small
and medium-sized farms would disappear, depressing rural regions. With the
moratorium in force, agricultural producers are not able to use their land as collateral
for loans, which severely limits their capacity to attract financing.
The ban on agricultural land
sales has been in effect since
2001
Potential land reform also met with strong resistance from local authorities and some
agro producers with an interest in the moratorium remaining intact. Local officials, in
charge of registering land lease agreements, are interested in executing short-term
leases to use the opportunity to extract bribes in the process. Moreover, they are
responsible for distributing the governments financial support to farmers in their
regions (i.e. subsidies per hectare of cultivated land and interest rate compensations on
commercial bank loans), which gives them additional power. The status quo is also
beneficial for agro producers pursuing short-term business strategies. Enjoying low
lease payments, they can plant highly profitable but soil-exhaustive crops, violating
crop rotation rules and not investing in soil improvement, and then leave the exhausted
fields and move on to lease new ones.
and has strong advocates
among regional authorities and
some agro companies
However, the turnaround may be near for land reform in Ukraine as the current
government looks determined to pass the required laws this year and allow
transactions from 2013 onwards. In January 2011, the State Committee for Land
Resources published and invited public discussion of its draft law On the Land
Market, one of the two pieces of legislation needed to revoke the ban on agricultural
land sales, before having it passed by the government and submitted to parliament for
approval. This bill is intended as the primary regulatory act for the future land market
in Ukraine, its key objectives being to facilitate investment inflows and enable
agribusinesses to acquire the land they lease and use it as loan collateral.
Land market reform is high on
the current governments
agenda, with preparations
underway to lift the ban on
agro land sales as of Jan. 1, 2013
after enacting prerequisite
legislation
On December 9, 2011, Ukrainian parliament passed the land market bill in the first
reading. The bill proposed launching transactions with agricultural land starting from
Jan. 1, 2013. We believe the land market bill will be fully approved after the
parliamentary elections in October 2012 but before end-2012 so as to launch the land
market starting from 2013. Until then, we believe a lot of changes could be proposed to
the current version of the bill.
The land market bill passed
first reading in December 2011,
expected to be voted on after
parliamentary elections in
October 2012
The other required bill, on the land cadaster, was approved in July 2011 and took effect
the following month. It governs the create of an up-to-date electronic database with
information on the exact sizes, locations and ownership rights of land plots as well as
data on each plots soil quality and economic value. The cadaster will serve several
purposes:
Most importantly, it will be the instrument that would ensure ownership rights
for land, and will be used to solve territorial disputes
Provide landowners with an independent appraisal of their land plots, giving
them a better understanding of the price they can charge for it
Allow for better regulated lease agreements, whereby land owners can demand
that producers maintain soil quality
The soil quality data in the cadaster will allow agricultural firms to more
effectively plan their land bank expansion, crop mix and yields.
The bill on the state land
cadaster came into effect in
August 2011

November 2012


The land market bills key
provisions: corporate entities
are not allowed to own land
The land market bill, which as we noted above can still be significantly amended or
revised before final approval, forbids ownership of agricultural land for any legal entity
in Ukraine, implying no changes for public agricultural companies who then will still
continue leasing land. The bill says land can be owned only by: citizens of Ukraine, the
state land bank and local village authorities. Moreover, the bill limits ownership of agri
land to 100 ha per buyer and caps the area under lease to 6,000 ha per individual or
other entity, or no more than 5% of total agricultural land in a given region. Should the
current version of the bill be enacted, it will put substantial limitations on land lease
holdings and as such implies additional paperwork for existing agricultural companies.
For example, Mriya Agro Holding (with 295,000 ha of leased land currently) would
have to register 49 separate legal entities in regions where it leases land, implying
additional personnel and legal costs. However, this and other controversial provisions
may still be changed during the final reading.
current leaseholders will
preserve their contracts in case
of ownership change
The bill also says that if the leased land gains a new owner, the current leaseholder will
preserve his lease contract and does not have to renew it while the new land owner
obtains the same rights and obligations as the previous owner of land in the lease
contract.
and foreigners may be barred
from directly owning
agricultural land
The current version of the land market bill bans direct land ownership by foreign
individuals or companies, though they may own non-agricultural land, e.g. plots under
buildings. We think this limitation can be overcome by setting up a duly registered
Ukrainian subsidiary which would in turn establish a legal entity to acquire agricultural
land. In some EU member states which joined the Union in 2004 foreign individuals
and companies are barred from acquiring agricultural land during seven transitional
years following accession (12 years in Poland). In Brazil, foreign ownership of
agricultural land is limited to 25% of the area of an administrative region. In Canadian
provinces, land ownership depends on both citizenship and residence, and foreign
individuals and legal entities are not allowed to own agricultural land.
The bill envisages creation of
state land bank
The land market bill also provides for creation of the State Land Bank to act as a market
player and consolidator of state-owned arable land and provide farmers with loans
collateralized by land. In June 2012, Ukrainian parliament approved two bills creating a
legal framework for the land bank, providing that it can issue loans to farmers at
targeted annual interest rates capped at 3% plus the NBU discount rate (currently 7.5%)
and collateralized by private or leased land. The bills deprive local authorities of control
over state-owned land, transferring it to the land bank. The banks other objective is to
consolidate all state-owned land so as to start auctioning it as early as January 2013,
when the existing moratorium on land sales may be lifted. The state owned about 15%
of total agricultural land in Ukraine as of end-2011. The State Land Bank will remain
fully owned by state and is not to be offered for privatization or reorganized.
More than 17.4 Mha of
agricultural land is under lease
We expect lease to remain the simplest and most effective instrument for
agricultural companies, especially those with foreign participation, to develop
large-scale operations in the short to medium term. As of July 2011, some 4.6
million lease contracts for 17.4 Mha of agricultural land (42% of national total) were
registered in Ukraine. Most of these contracts have a lease term of five to 10 years
(80% of total number of contracts) though the maximum allowed term is 50 years.
The share of longer-term 10-year contracts increased from about 2% in 2001 to over
11% in 2011. Also, the bulk of lease payments, or about 70%, are made in kind (with
agricultural products or services). The share of in-kind payments declined from
77.4% in 2001 to 68.7% in 2011 and we believe will continue to shrink in the long
run after the land market is launched.

November 2012


Land Lease Payments (as of J uly 15, 2011)
Note: payment is made by agricultural products grown on leased land.

Breakdown of Land Lease Contracts by Duration
(as of J uly 15, 2011)
Agricultural producers seeking to expand their land holdings may either sign direct
lease contracts with land owners or go to the secondary market to acquire lease-holding
enterprises. The latter option, enabling faster expansion, is commonly used by large
integrated holding companies and normally involves an acquisition premium paid over
the enterprise value ranging from $300-400/ ha depending on the region and area being
leased (pure land) and $500-1,100/ ha depending what infrastructure is sold together
with land lease rights (machinery, grain storage capacities, grain cleaning and drying
infrastructure) and inventories (seeded fields or grain harvested and stored in silos).
Mechanisms to acquire land
lease rights

Leased Arable Land in Ukraine (Mha; 2001-11)

Ukraines 1998 land lease law gives eligible leaseholders the preemptive right to
buy provided there is agreement on price. At the same time, the Land Code says
Ukrainian citizens residing in rural areas and local authorities have such a
preemptive right. We expect the new land market bill to resolve the existing
ambiguity. Agricultural companies view land lease as an effective instrument
because: (1) a lease contract, if appropriately executed, can be terminated by the
land owner ahead of schedule only if the leaseholder does not perform his
obligations (e.g. delaying payments due) or violates applicable legislation; (2) the
leaseholder has the preemptive right to extend the lease contract; and (3) a lease
contract is automatically extended on unchanged terms if the landowner does not
object in writing within a month of lease expiry.
Preemptive rights to buy land

In ki nd*
6 8 .7 %
Cash
2 7 .9 %
Servi ces
3 .4 %
4 5 .7 %
8 .5 %
4 1 .3 %
4 6 .2 %
1 1 .3 %
3 3 .9 %
1 .8 %
1 1 .4 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
2 0 0 1 2 0 1 1
1 -3 years 4 -5 years 6 -1 0 years > 1 0 years
2 2 . 4
2 1 . 6
2 2 . 1
2 1 . 1
2 0 . 0
1 8 . 8
1 7 . 7
1 7 . 4
1 7 . 7
1 7 . 5 1 7 . 4
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2 0 .0
2 5 .0
2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
November 2012


Results of Survey of Ukrainians Willingness to Sell
Agricultural Land (%; as of Feb. 2012)
Source: Razumkov Center

Results of Survey of Ukrainians Willingness to Buy Agricultural
Land (%; as of Feb. 2012)
A recent survey offers insight
into how many land owners
could sell when the market
opens
The local research center Razumkov conducted a land market survey in February 2012
ahead of potential completion of land reform, questioning 2,005 people all over
Ukraine, in cities and villages. Over 40% of respondents said they planned to let or
continue letting land in the future, around 30% said they would operate their own land
plots to produce food for themselves and another 12% said they would do nothing and
wait to see how the land market develops. Only 7% of respondents said they would be
willing to sell their land when the market opens. Alternatively, 18% of respondents
who do not currently have agricultural land plots would be willing to buy land when
the market opens.

Potential Outcome of National Referendum on Agricultural
Land Market (%; February 2012)

Survey: Who Should Set the Minimum Price of Agricultural Land
(%; February 2012)

If a referendum were held,
about 40% of participants
would vote for a liberalized
land market
According to the same survey, about 40% of respondents said they would vote for a
liberalized land market if a national referendum were held. However, 44% said the land
market should be liberalized later than Jan. 1, 2013. Also, 46% of respondents believe
the minimum price for agricultural land plot should be set and monitored by the state.

LAND REFORM: NEI GHBORS EXPERI ENCES
Ukraine is expected to complete
land reform no later than spring
2013
Although the Ukrainian authorities are still working on the final version of the land
market bill, the President and his majority in parliament seem willing to complete
land reform in 2012-spring 2013, as also confirmed by Agriculture Minister Mykola
Prysyazhnyuk in an interview in July. Lawmakers are currently discussing many
limitations concerning land ownership, lease rights, preemptive rights and size of
land plots to own. Below we provide a brief analysis of how land reform was
carried out in peer countries and compare Ukrainian lawmakers initiatives.

Wi l l l et or
cont i nue t o l et
4 1 . 9 %
Wi l l operat e
l and f or my
f ami l y needs
2 8 . 8 %
Wi l l do not hi ng
and see how
market
devel ops
1 2 . 0 %
Wi l l devel op
agri product i on
f or sal e
1 0 . 2 %
Wi l l sel l l and
7 . 1 %
Want t o buy
1 8 . 2 %
Al ready own
2 2 . 8 %
Don' t want t o
buy
4 6 . 3 %
Hard t o say
1 2 . 7 %
Wi l l vot e f or
l i beral i zed
market
3 9 . 0 %
Wi l l vot e
agai nst
l i beral i zed
market
4 3 . 8 %
Don' t know
1 7 . 3 %
St at e
4 6 . 0 %
Market
2 5 . 6 %
Hard t o say
2 8 . 4 %

November 2012


The experience of neighboring countries suggests limitations on the size of owned
land are justified and discourage land fragmentation and excessively oligopolistic
concentration. Such limitations are common in emerging markets and countries
with limited land resources. For example, Hungary limits land plot sizes to be
owned by individuals or legal entities to 300 ha, Romania to 200 ha, Denmark to 30
ha (one also needs to have agricultural education and experience). In Brazil, there
are limitations depending on region, whereby local authorities decide on the size of
so-called standard land plot (SLP). Thus, land plots sized below three SLPs can be
owned without limitations but larger plots require additional regulatory approvals,
with land plots larger than 100 SLPs requiring approval by Brazils Congress.
Nobody may own more than 40% of land in a single administrative unit in Brazil.
In Ukraine thus far, the maximum proposed area is 100 ha for individual farmers
while no legal entities are allowed to buy land.
Many of Ukraines peers have
limitations on land ownership
Foreigners are allowed to own agricultural land in Brazil but ownership is limited
to 25% of any administrative unit. In the EU, there are no limitations on land
ownership regarding particular size of plot and legal or individual ownership. For
some relatively new EU countries, like Estonia, Latvia, Lithuania, Slovakia,
Hungary, the Czech Republic, Romania and Bulgaria, a transition period of up to
seven years was created, during which no foreigners can own arable land. In
Poland, the transition period was set at 12 years, until May 1, 2016. The
aforementioned limitations apply for all non-EU residents. All EU-residents buying
agricultural land have to prove they lived in the country for at least three years and
operated leased land during that period. Transition periods are useful during land
market formation and creation of a unified land cadaster. Thus, it could be a useful
idea for the Ukrainian land market as well. The current version of the land market
bill stipulates that foreigners cannot own agricultural land in Ukraine.
Foreigners can own land in
Brazil but cant in Ukraine
The preemptive right for individuals or legal entities to buy agricultural land exists
in some EU countries, such as France, Germany, Italy and Lithuania. This right is
given to inheritor, co-owner, leaseholder or neighbor who intends to operate this
land. The preemptive right to buy land could also be given to the state for better
development of rural areas and for environmental protection. Preemptive rights are
absent in Switzerland, Great Britain and Slovakia. In Ukraine, the preemptive right
to buy agricultural land is foreseen for owners of neighboring plots and for co-
owners of the offered land plot. Preemptive right holders may issue a letter of
intent to buy offered land during one month after it has been offered for sale. If no
notification has been given, the land is to be offered on the market.
Preemptive right to buy land
exists in several EU members as
well as in Ukraine
The terms and conditions of land lease agreements are determined by market
players themselves in Germany, Slovakia, Sweden, Lithuania and Czech Republic
among EU states. In France, agricultural land can be leased for 9, 18 or 25 years. The
minimum annual lease payment is declared by the state in France, as it is in
Ukraine (3% of cadaster value). Ukraine also orders that the minimum price of
agricultural land cannot be less than its expert appraisal value. The expert appraisal
value for a given land plot is calculated based on its capitalized operating and rental
income, comparison with similar land plots, and investments in soil improvement.
Lease terms and minimum lease
payments can be regulated by
the state

November 2012


MAJ OR PLAYERS
Large operators control 20% of
leased arable land
As of end-2011, there were more than 56,000 agricultural enterprises in Ukraine
(mostly established on the basis of privatized Soviet-era farms) which operated 21.6
Mha of land, according to government statistics. However, no official statistics are
available on large integrated agricultural holding companies, which have expanded
at a dizzying pace in recent years. This is because only individual agricultural
enterprises, which the aforementioned holding companies control in large
numbers, report to the state statistics service. According to our estimates, which are
based on information from individual companies and media reports, large
agribusinesses presently lease over 3.9 Mha of land, or 12.0% (+3.5pp y-o-y) of total
arable land and 22% (+2.4pp y-o-y) of leased arable land, with the smallest
company in this group controlling over 30,000 ha.

Breakdown of Leased Land by Operated Acreage (2011)
Source: State Statistics Service (SSS)
Largest Land Operators in Ukraine (000 ha)
(listed companies are highlighted in green)
Notes: UAI - Ukrayinski Agrarni Investytsiyi, IMC Industrial Milk Company, ULF -
Ukrlandfarming. Source: Companies

The bullish outlook for
agricultural commodity
markets stimulated growth of
large land holding companies
The surge in global food prices in 2007 and 2008 and expectations of sustainable long-
term growth in food demand stimulated the development of large land operators in
Ukraine. Quite a few of these companies raised financing for expansion by placing
their shares with foreign portfolio investors in private and public offerings.
Specialization and strategy
differ from company to
company
Whereas large land banks are a common feature of these listed companies, their
specialization differs. For example, Mriya Agro Holding, MCB Agricole, Sintal
Agriculture and KSG Agro are pure agricultural producers for which crop growing is a
core activity. At the same time, MHP, while boasting a huge land bank, derives approx.
80% of its revenues from the poultry business; Kernel Holding is Ukraines leading
vegetable oil producer as well as a grain trader; and Astarta Holding is the largest
sugar producer. In addition, some of the existing large land operators could be viewed
as financial investors intending to sell their land holdings in the future.
Consolidation offers
advantages but efficient
management is vital
Consolidating land with a large holding company generally offers certain advantages
including: economies of scale; stronger bargaining power in future acquisitions and
purchases of inputs (fertilizers, seeds etc.); a wider range of financing (borrowing)
options; risk diversification; and better opportunities to take the company public to
finance further growth. Similar to other agricultural producers, large land holders
apply for state support and generally enjoy easier access to state-financed programs
given their more efficient management and close contacts with relevant authorities.
However, farm management and resources applied remain the decisive factors in
terms of operating and financial results, in addition to qualified personnel and high
corporate governance standards.

< 5 0 ha
3 . 0 %
5 1 -1 0 0 ha
1 . 6 %
1 0 1 -5 0 0 ha
8 . 2 %
5 0 1 -1 , 0 0 0 ha
8 . 5 %
1 , 0 0 1 -3 , 0 0 0 ha
3 1 . 8 %
3 , 0 0 1 -5 , 0 0 0 ha
1 7 . 6 %
5 , 0 0 1 -
1 0 , 0 0 0 ha
1 5 . 9 %
> 1 0 , 0 0 0 ha
1 3 . 4 %
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
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November 2012


Listed agricultural companies operate in different regions of Ukraine (some operate
across as many as 11 regions) depending on the location of their production assets
and the climate requirements for each particular crop. In addition, many large
producers seek to decrease machinery usage costs by concentrating operations in
adjacent regions (e.g. Agroton, Astarta Holding and Mriya Agro Holding). Others lease
land in regions with different climate conditions to diversify weather risks.
Large operators lease land in
various regions to diversify
weather risks and lower
machinery costs

Sintal Agriculture

IMC

KSG Agro

Agroton

Astarta Holding

MHP

Kernel Holding

Mriya Agro Holding
Listed Agricultural Producers Regions of Operations
Source: Companies
November 2012


AgroGeneration

Alpcot Agro*

Agroliga Group

MCB Agricole
Listed Agricultural Producers Regions of Operations (contd from previous page)
Note: *including Landkom International assets acquired in J an. 2012. Source: Companies

LEASE PAYMENTS
Approaches to appraising land Ukrainian legislation offers several approaches to valuing agricultural land: (1)
bonitation, which is part of the state land cadaster and mostly reflects soils fertility
level; (2) economic evaluation of land as a basis for comparing it with other natural
resources; and (3) monetary appraisal, which consists of expert and normative
appraisals.
The coefficient for arable land
revaluation increased by 76%
y-o-y for 2012
The minimum lease payment for land is linked to its adjusted normative appraisal. The
latter is calculated by multiplying the appraisal value as of Jul. 1, 1995 by inflation-
linked annual revaluation coefficients set for 1996 onwards. For 2011, the coefficient
totaled 3.2 as a product of all coefficients since 1996 (please see the table below). Before
opening up the domestic land market, the government approved a 76% increase in the
normative land appraisal value for arable land for 2012 (coefficient 1.756), to UAH
20,983 ($2,610)/ ha from UAH 11,949 ($1,496)/ ha in 2011. Previously, we viewed
normative land appraisal as the minimum benchmark for future land deals. However,
the current increased level of arable land appraisal seems too high and economically
irrational as pointed out by market players. Thus, the new land appraisal value is being
actively disputed and we believe will unlikely be the minimum land price when market
potentially opens in 2013 as market players currently value arable land at below
$1,000/ ha. The current normative land appraisal level is also expected to serve as the
basis for calculating the tax on land resale during the five years following initial sale.
The government is considering a 100% tax on land resale in the first year, 90% in the
second, 80% in the third, 70% in the fourth and 60% in the fifth. This tax barrier is
intended to prevent speculative transactions and encourage long-term ownership.

November 2012


The land appraisal conducted in 1995 was based on the economic evaluation of land
performed in 1988. Part of the final formula, rental income from arable land, was
calculated by adding absolute rental income (set at 0.16 t/ ha) to differentiated rental
income (in t/ ha), with the latter set as follows:
Differentiated Rental Income =(PY C(1+CPR))/P,
where P is average grain price in 1986-1990, Y is average grain yield for a given land
plot in 1986-1990 (in t/ ha), C is average grain production cost in 1986-1990 (in t/ ha),
and CRP is profit rate coefficient set at 0.35 in 1988. The normative appraisal value of
arable land as of Jul. 1, 1995 was then calculated as follows:
Arable Land Appraisal =RI P T,
where RI is total rental income (in t/ ha), P is average grain price in 1986-1990, and T is
capitalization period equaling 33 years. Normative appraisals of permanent plantings,
grasslands and pastures were based on arable land rental income adjusted by a
coefficient linked to the 1998 economic evaluation.
Normative land appraisal relies
on cash flow generation
per unit area

Peri od 1 9 9 6 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Eval uat i on i ndex 1 . 7 0 3 1 . 0 0 0 1 . 0 0 0 1 . 0 3 5 1 . 0 0 0 1 . 0 2 8 1 . 1 5 2 1 . 0 5 9 1 . 0 0 0 1 . 0 0 0 1 . 7 5 6
Agri cul t ural l and ( $ / ha) 3 , 2 1 9 1 , 5 9 9 1 , 6 0 3 1 , 7 2 2 1 , 7 4 7 1 , 7 9 6 2 , 0 1 5 1 , 3 9 3 1 , 4 2 6 1 , 4 1 9 2 , 4 8 9
Arabl e l and ( $ / ha) 3 , 3 8 8 1 , 6 8 3 1 , 6 8 7 1 , 8 1 2 1 , 8 3 9 1 , 8 9 1 2 , 1 2 4 1 , 4 6 8 1 , 5 0 3 1 , 4 9 6 2 , 6 1 0
Permanent pl ant i ngs ( $ / ha) 1 0 , 4 6 5 5 , 1 9 8 5 , 2 1 1 5 , 5 9 8 5 , 6 8 1 5 , 8 4 0 4 , 3 2 8 4 , 4 9 7 4 , 5 2 0 4 , 4 7 5 4 , 4 7 5 *
Grassl and ( $ / ha) 1 , 4 0 9 7 0 0 7 0 2 7 5 4 7 6 5 7 8 7 5 8 3 6 0 6 6 0 9 6 0 2 6 0 2 *
Past ure ( $ / ha) 1 , 0 7 2 5 3 3 5 3 4 5 7 4 5 8 2 5 9 9 4 4 4 4 6 1 4 6 4 4 5 9 4 5 9 *
Agricultural Land Appraisal in Ukraine
Note: *normative land appraisal for permanent plantings, grassland and pastures was left unchanged in 2012, at 1.000 coefficient.
A presidential decree, signed in 2002 and amended in 2008, orders that the lease paid
for agricultural land equal at least 3% of its normative appraisal value. However, this
order is not enforced properly, effectively allowing leaseholders to negotiate a lower
rate. Normative land appraisal is also used to calculate land tax, rental payments for
state-owned land as well state duties levied on swapping or inheriting a land plot or
conveying it as a gift. Large agri holdings and medium size agri companies try to pay in
excess of 3% of lands normative appraisal value to attract landowners to let their land
plots directly and not to other market players.
Rental payments are calculated
using land appraisal values

Rental Payments for Arable Land in Ukraine ($/ ha; 2012)
Sources: State Committee for Land Resources, Dragon Capital estimates

Arable Land Appraisal Values in Ukraine (Jan. 1, 2012; $/ ha)

As of Jan. 1, 2012, the normative appraisal value for arable land in Ukraine was set at
$2,610/ ha on average (+76% y-o-y, a substantial increase in view of planned launch of
land market transactions) and varied across regions depending on cash flows generated
from land operation, with the lowest rates set for Zhytomyr ($1,695/ ha), Chernihiv
($2,012/ ha) and Zakarpattya ($2,161/ ha) regions and the highest for Cherkasy
($3,280/ ha), Crimea ($3,043/ ha), and Donetsk ($2,871/ ha) regions.
The latest appraisal value for
arable land is $2,610/ha

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November 2012


Agricultural Land Normative Appraisal Values ($/ ha)

Minimum lease is set at $78/ha
on average
The lowest lease payments, equaling 3% of normative appraisal value, ranged from
$51-98/ ha across different regions, averaging $78/ ha. We also verified that the value of
lease payments does not neatly correlate with land fertility in a particular region,
implying that climate conditions also play a role in addition to soil quality.

Lease Payments for Agricultural Land
in Ukraine (2012/ 13; $/ ha)

Breakdown of Lease Payments
as a Share of Normative Land Appraisal (2011/ 12)

Some agribusinesses pay more
than 3% of normative appraisal
values for leased land
In many Ukrainian regions the obligation to pay rent in excess of 3% of the land
appraisal value is ignored. Last year, almost half of lease contracts (49%) were
concluded with average annual rental payments above 3%. But leaseholders interested
in establishing long-term relations with land owners pay in excess of the prescribed 3%
of normative land appraisal. Large agricultural holding companies report varying
average rental payments for leased land; e.g. MHP with $70-90/ ha, Astarta with $80-
90/ ha and Kernel with $90/ ha, due to their farms being located in different regions.
However, they generally pay at least the minimum required rate.

Lease Payments for Agricultural Land in Ukraine and the EU (2009; $/ ha)
Sources: Eurostat, Dragon Capital estimates
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November 2012


Large areas of agricultural land under lease are also found in several other European
countries, including Belgium, where 70% of the land sown with agricultural crops is
leased, and France and Germany (over 60%). In general, about 40% of agricultural land
in the EU is leased, compared with 30% in Canada, 20% in Japan, 14% in New Zealand,
12% in the U.S. and only 5% in Australia and Argentina. The highest annual rental
payments are observed in the EUs most developed markets, such as Denmark, the
Netherlands and Austria and countries with limited agricultural land resources, such as
Greece. Ukraines current annual rental average of $78/ ha is much lower compared to
most EU peers.
Rental payments in Ukraine are
lower compared with
most regional peers

MARKET PRI CE OF AGRI CULTURAL LAND
The aforementioned land market bill stipulates that the price of a land plot sold for the
first time must not be lower than its expert appraisal value. The draft sets no price
thresholds for subsequent sales but introduces special duties to prevent speculative
deals. The expert appraisal value for a given land plot is calculated based on its
capitalized operating and rental income, comparison with similar land plots, and
investments in soil improvement. Expert land appraisals are used for collateral or
insurance purposes and in case land is included in a companys stated assets.
Expert appraisal of land values
Based on normative appraisal, the value of agricultural land in Ukraine is estimated at
$110.8bn, including $84.9bn for arable land. Should the state revoke the moratorium on
agricultural land sales without imposing any price thresholds, we expect actual market
prices to be significantly lower than respective appraisal values in the short-term, one
reason for this being abundant supply of agricultural land and prospective buyers
strong bargaining power. However, we expect market prices for land to increase in the
long term as the secondary land market develops and consolidates.
Market prices for land are
expected to be lower than
appraisal values

Estimated Value of Arable Land after Market Liberalization ($/ ha; as of March 15, 2012)
Source: The Institute for Economic Research and Policy Consulting

Assuming no minimum price requirements, we expect market prices of arable land to
equal 30-50% of the normative appraisal value (or $8001,300/ ha on average)
depending on the region, local infrastructure and area being sold. This would value
Ukraines total agricultural land area at $26-42bn. We expect agricultural land prices
in Ukraine to remain much lower than in the EU due to higher land availability and
lower state support for agriculture in the country (for example, land prices in the UK
were reported at as high as $20,000-25,000/ ha and in France at $6,000-7,000/ ha).
ranging from $800-1,300/ha

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November 2012


Agricultural Land Prices in Ukraine and Europe ($ 000 per ha; 2009)
Note: *current normative appraisal value. Sources: Eurostat, Dragon Capital estimates

Lease to remain the preferred
land bank expansion option
We forecast lease to remain the preferred land bank expansion option for agro
producers should market prices for land be tied to normative or expert appraisal
values.
Large agro holdings will
succeed regardless of political
decisions
Abundant supply of highly fertile land, ongoing reform of land legislation and
institutional development of the land market imply positive growth prospects for large
agricultural land holdings. We think either of the scenarios discussed above, namely
the abolition or non-abolition of the land sale ban, would not significantly damage the
prospects of large agricultural companies. Moreover, even if the moratorium is
abolished, we think the land market will remain subject to state regulation in the
medium term due to political and related social considerations.

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November 2012


Weather Impact
HISTORI CAL WEATHER CONDI TI ONS ACROSS REGI ONS

The territory of Ukraine is divided into five main agricultural areas, based on
environmental, economic and historical conditions of farming: Polissya, Forest-Steppe,
Steppe, the Carpathian Mountains and the Crimean Mountains.
Ukraine has five main
agricultural zones

Ukraine Environmental Regions
Source: Bloomberg, UkrAgroConsult

The Polissya agricultural area covers Lutsk and Rivne regions, most of Zhytomyr
region, and northern districts of Chernihiv, Sumy and Kyiv regions. The climate of the
area is continental with warm and humid summers and mild winters. The average
temperature in July is +17-19C, in January it drops to -5-8C. The vegetation period
lasts from Apr. 10-20 to Oct. 20-30. So called peat-podzolic soils occupy about 75% of
Polissya. Arable land covers 33% of the area (more than 4.0 Mha), hayfields account for
1.2 Mha and pastures for 0.7 Mha. This area is the most suitable territory in Ukraine for
production of grains, industrial crops, flax, hops, sugar beets and potatoes, and meat
and dairy products. Among the crops most widely planted are winter rye and
buckwheat, oats and wheat.
Polissya is famous for winter rye,
buckwheat, oats and wheat
Ukraines Forest-Steppe covers parts of Lviv and Chernivtsi regions, eastern parts of
Ivano-Frankivsk region, Ternopil, Khmelnytskiy, Vinnytsia regions, the northern part
of Kirovohrad region, Cherkasy, Poltava and Kharkiv regions. The climate of the area is
moderate continental. The average July temperature in the northwestern part is +18C,
and in the south it reaches +22C. The average temperature in January is in the range of
-5-8C. The upper layers of soil are quite different in composition: from podzolic to
black soil. Agricultural land occupies 70% of the territory, including 66% of arable land.
The agricultural conditions of the Forest-Steppe are most suitable for beet and grain, as
well as for dairy, cattle and pig farming. The main grain crops planted in this area are
winter wheat, corn, and barley. More than 10% of the area is planted with sugar beet.
Forest-steppe is best for sugar
beet planting

November 2012


Steppe focuses on sunflower
seed cultivation
The Steppe agricultural area covers all southern regions and represents 40% of
Ukraines total territory and is the biggest producer of commodity grains. The climate
of the area is moderately continental with hot summers and cold winters. The average
January temperature ranges from -5-7C while July conditions average from +21-23C.
Black soil (covers approximately 90% of the area) dominates the top layer of soil.
Agricultural output is dominated by grains, fruits and vegetables, as well as viticulture.
The main grain crops are winter wheat, maize, sunflowers, and barley and industrial
crops. Vegetable cultivation is widespread, especially in suburban areas of large cities
such as Donetsk. This region of Ukraine is famous for sunflower seed cultivation.

Agri cul t ural area Area
( sq. km)
Preci pi t at i on
( mm per year)
Average t emperat ure
i n June ( C)
Average t emperat ure
i n January ( C)
Growi ng season
( days)
Pol i ssya 1 1 3 , 5 0 0 5 5 0 -6 5 0 1 8 -6 . 2 1 9 0
Forest -St eppe 2 0 2 , 0 0 0 4 5 0 -5 5 0 2 0 -6 . 5 2 0 5
St eppe 2 4 0 , 2 0 0 3 5 0 -4 5 0 2 2 -6 2 2 5
The Carpat hi an Mount ai ns 2 4 , 0 0 0 8 0 0 -2 , 0 0 0 1 8 -8 1 2 5
The Cri mean Mount ai ns 1 , 2 5 5 5 0 0 -1 , 0 0 0 2 4 4 2 0 0
Weather Patterns in Ukraines Environmental Regions (2012)
Source: UkrAgroConsult

Mountain areas of Crimea are
known for wine grapes and
aromatic plants
Foot-hill and mountain areas of the Carpathians cover parts of Lviv, Ivano-Frankivsk,
Chernivtsi and Zakarpattya regions. Moderately moist climate of the foot-hills is mostly
suitable for rye, wheat, corn and winter wheat. Foot-hill and mountain areas of Crimea
cover the southern coast of the Crimean peninsula. Local agriculture focuses on
viticulture, horticulture, vegetable production, as well as cultivation of aromatic plants
(lavender, rose, sage).
Western Ukraine gets the most
precipitation through the year
We estimate that western Ukraine (the Carpathian mountains and some regions of the
forest-steppe zone including Lviv, Ivano-Frankivsk, Ternopil, Chernivtsi and
Khmelnytskiy administrative regions) enjoy more than enough precipitation for crop
cultivation through the year. On the contrary, southern regions of Ukraine belonging to
the Steppe climatic zone are the driest regions in the country with high risk of drought.

Wheat Yields in Ukraine vs. Precipitation by Region (2011)
Source: SSS

Mykolayi v
desa
Simferopol
Zaporizhya
Dnipropetrovsk
Kharkiv
Kyi v
Vinnytsi
Kherson
Khmelnytski y
Rivne
Lviv
Ivano-Frankivsk
Donetsk
Chernivtsi
Uzhgorod
Lutsk
Ternopil
Zhytomyr
Chernihiv
Sumy
Poltava
Kirovohrad
Luhansk
Cherkasy
Wheat yi el d i n regi on ( t / ha)
3 . 6 5
3 . 4 0
2 . 6 8
3 . 4 6
3 . 0 8
3 . 3 5
2 . 5 3
3 . 0 1
3 . 4 7
3 . 0 7
3 . 1 9
4 . 4 5
3 . 9 6
3 . 6 9
3 . 0 1
3 . 8 0
4 . 1 4
2 . 9 1
3 . 2 4
3 . 4 9
2 . 6 8
2 . 6 2
3 . 6 9
3 . 8 2
3 . 3 4
2 . 8 3

Annual preci pi t at i on:

< 5 0 0 mm
5 0 0 - 6 0 0 mm
> 6 0 0 mm

November 2012


Wheat is a relatively water-intensive crop while sunflower seed requires ample
sunlight. Wheat can be cultivated in regions where annual precipitation is between 250
and 900 mm. Thus all regions of Ukraine are suitable for wheat cultivation. Still, regions
with over 600 mm of rainfall are most suitable for wheat cultivation. Heavy rainfall and
snowfall at the time of maturity cause severe losses to wheat crops, adversely affecting
yields and seed quality. On the map above, one can see the highest wheat yields in
Ukraine are where precipitation levels are also high.
Wheat yields closely correlate
with regional moisture
distributions

Sunflower Seed Yields in Ukraine vs. Precipitation by Region (2011)
Source: SSS

Sunflower can be grown in areas with precipitation of 350-500 mm, implying less need
for water compared to any other crop grown in Ukraine. Still, sunflower naturally
produces better yields in regions with precipitation of 500-600 mm (see map above).
Kirovohrad, Vinnytsia, Cherkasy, Poltava, Kharkiv and Dnipropetrovsk are Ukraines
traditional sunflower growing regions.
Sunflower seed requires less
rainfall compared to other
crops

Precipitation Requirements for Different Crops (mm)
Source: FAO

3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0 9 0 0
Sugar beet
Corn
Pot at o
Wheat
Sorghum
Soybean
Sunf l ower
Mykolayi v
desa
Simferopol
Zaporizhya
Dnipropetrovsk
Kharkiv
Kyi v
Vinnytsi
Kherson
Khmelnytski y
Ri vne
Lvi v
Ivano-Frankivsk
Donetsk
Chernivtsi
Uzhgorod
Lutsk
Ternopil
Zhytomyr
Chernihiv
Sumy
Poltava
Kirovohrad
Luhansk
Cherkasy
Sunf l ower yi el d i n regi on ( t / ha)
2 . 4 4
2 . 3 2
1 . 9 4
1 . 9 8
2 . 1 0
1 . 8 0
1 . 6 1
1 . 6 4
1 . 2 9
1 . 6 5
1 . 4 3
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2 . 2 1
2 . 2 5
1 . 6 8
1 . 6 4
1 . 8 2
1 . 6 4
0 . 8 5
1 . 5 3
1 . 9 4
1 . 8 1
1 . 4 5
1 . 7 1
1 . 0 3
2 . 0 4

Annual preci pi t at i on:

< 5 0 0 mm
5 0 0 - 6 0 0 mm
> 6 0 0 mm
November 2012


Largest Land Operators in Ukraine (2012)
Source: Focus Magazine

Most of Ukraines agricultural
holdings operate in regions
with solid precipitation levels
Most Ukrainian agricultural holdings, both public and private, concentrate their land
bank leases in regions with good precipitation levels in order to obtain better crop
yields. Thus, the most crowded agricultural zone is the Forrest-Steppe (parts of Lviv
and Chernivtsi regions, eastern parts of Ivano-Frankivsk region, Ternopil,
Khmelnytskiy, Vinnytsia regions, the northern part of Kirovohrad region, Cherkasy,
Poltava and Kharkiv regions), where the precipitation level of 500-600 mm is optimal
for cultivation of wheat, corn, barley, soybean, sugar beet, and sunflower seed.

WEATHER IMPACT ON 2012 HARVEST, OUTLOOK FOR 2013

Weather conditions were
challenging in 2012
Ukraines 2011/ 12 planting and harvesting season offers a good case study of multiple
weather impacts.
with lack of moisture in fall
being negative for winter crop
planting
Fall 2011 produced a wide array of weather conditions. After abundant precipitation at
the end of the 2011 harvesting period for early crops (July) the winter crop seeding
period (September-October) started with lack of moisture. Unusually high
temperatures were recorded in September 2011 mainly in southern and eastern regions
of Ukraine producing a soil drought and leaving only 10-15% of arable land, mainly in
western and northern regions, optimally humidified. Considering these unfavorable
conditions, the seeding campaign was partially postponed. Fall 2011 brought the worst
drought in 10 years to the Polissya area (northern Ukraine) creating extremely
unfavorable conditions for winter crop seeding. Precipitation throughout Ukraine was
irregular. The state of winter crops at the end of the fall growth period and subsequent
winter temperatures were the key determinants of winter crops poor harvest.
Ukrl andf armi ng
Kernel
Mri ya
MHP
Ast art a
HarvEast
Agrot on
Druzhba Nova ( MHP)
Argoprodi nvest
IMC
Ni bul on
Svarog Group
Gal s Agro
APK-Invest
Mi l ki l and
Creat i v Group
Donet skst al
KSG Agro
AgroGenerat i on
Agrot rade

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desa
Chernivtsi
1
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Simferopol
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Zaporizhya
Kherson
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Luhansk
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Dnipropetrovsk
Kharkiv
Kyiv
Vinnytsi
Khmelnytskiy
Rivne
Lviv
Ivano-Frankivsk
Donetsk
Uzhgorod
Lutsk
Ternopil
Zhytomyr
Chernihiv Sumy
Poltava
Kirovohrad
Cherkasy
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1 5
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1 6
1 6
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1 7
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7
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1 0
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1 3
1 4
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1 6
1 8
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1 9

November 2012


Weather in January-February 2012 further damaged winter crops, mainly wheat and
barley, due to extremely low temperatures and lack of snow cover in some regions of
Ukraine. As a result, winter wheat and barley dehydration and tissue freezing were
observed, as well as partial loss of foliage. Low humidity of soil adversely affected
development of winter rapeseed.
Thin snow cover in some
regions

Winterkill Areas in Spring 2012 (% of total plantings)
Source: Ukrainian Weather Forecast Agency

Spring 2012 revealed the extent of damage to winter crops. Between 30% and 50% of
seeded areas were harmed in the Steppe area (southern Ukraine), a consequence of the
most severe combination of drought, extreme temperatures and precipitation
conditions in the last nine years. Farmers thus had to reseed 1.6 Mha (19%) of the
winter crop area out of which winter wheat losses were around 1.0 Mha. The area was
planted mostly with corn and to a lesser extent with sunflower seed and soybean. But
extremely low soil humidity in southern regions (5-10 mm) created severe conditions
for spring crop seeding.
led to winter crop losses in
spring 2012

Estimated Crop Winterkill Rates in Ukraine (2002-12)
Sources: SSS, USDA, Dragon Capital estimates

Winter Grain Conditions in Ukraine (as of J anuary)
Source: Agriculture Ministry, UkrAgroConsult

0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Wheat Barl ey Rapeseed
3 2 %
5 3 %
6 1 %
6 3 %
4 6 %
5 6 %
2 3 %
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3 6 %
2 8 %
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2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Good Sat i sf act ory Weak or f ai l ed t o emerge
November 2012


Summer 2012 brought new
weather extremes
Summer 2012 brought high temperatures and insufficient precipitation, damaging
southern regions of the country with air temperatures in excess of +30C and upper
layer soil temperatures of over +60C. That caused early ripening of winter wheat and
spring barley. Rainfall in northern and eastern areas of Ukraine slightly improved the
situation in those regions. During June 2012 winter wheat, which was seeded in
September, reached full ripeness. The best yields were demonstrated by crops seeded
at the beginning and during the first half of the seeding campaign (4.2-4.7 t/ ha). Yields
of crops seeded during the second half of the seeding campaign totaled 1.0-1.2 t/ ha.
For example, corn development demonstrated low height (1.21.7 m) and weak
acceleration. Weather conditions also harmed sunflower seed crop development as
due to a lack of soil humidity (only 30-35 mm in summer months) plants grew
sluggishly, producing low yields. But the overall state of the crop remained solid
thanks to low overall exposure to drought risk.
The 2012 harvest is estimated
to be 21-24% lower y-o-y
Despite adverse weather conditions, good quality of soil and improving cultivation
technologies allowed Ukraine to preserve its grain export potential at over 20 Mt in
2012/ 13 MY. We estimate the 2012 harvest at 43-45 Mt (-21-24% y-o-y) with corn
currently being harvested and showing quite good yields (4.3 t/ ha; down 25% y-o-y).

Cumulative Precipitation in Central Ukraine (mm)
Source: USDA

Cumulative Precipitation in Eastern Ukraine (mm)
Source: USDA

Cumulative Precipitation in Southern Ukraine (mm)
Source: USDA

Cumulative Precipitation in Western Ukraine (mm)
Source: USDA

Current precipitation levels
favor winter plantings for 2013
harvest
Precipitation levels in Ukraine as of end-October suggest favorable weather conditions
for winter crops being planted for the 2013 harvest. As of Nov. 2, farmers planted 8.0
Mha with winter crops or 98% of the initially allocated area. Winter planting have
already sprouted on 86% of the planted area, with 91% of the sprouted crops being in
good or satisfactory condition, implying a solid outlook for the 2013 harvest.
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
1 0 -Sep Oct 1 0 Nov1 0 Dec1 0 Jan1 0 Feb1 0 Mar1 0 Apr1 0 May1 0 Jun1 0 Jul 1 0 Aug1 0
Normal
2 0 1 1
2 0 1 2
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
Sep1 0 Oct 1 0 Nov1 0 Dec1 0 Jan1 0 Feb1 0 Mar1 0 Apr1 0 May1 0 Jun1 0 Jul 1 0 Aug1 0
Normal
2 0 1 1
2 0 1 2
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
Normal
2 0 1 1
2 0 1 2
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
7 0 0
Normal
2 0 1 1
2 0 1 2

November 2012


Agricultural Production in Ukraine
CROP PRODUCTI ON AND YI ELDS
Ukrainian farmers planted 6.7 Mha with wheat for the 2012 harvest, or 24.4% of total
planted area (flat y-o-y). However, a severe winter killed the crop on 1.6 Mha, reducing
wheats total acreage to 5.8 Mha, or 21.1% (-3.4pp y-o-y). The killed area was replanted
in spring mostly with corn and sunflower seed. Thus, total corn acreage increased by
over 30% y-o-y to 4.7 Mha, or 17.2% of total (+4.1pp y-o-y), while sunflower area rose
by over 3% y-o-y to 4.9 Mha, or 17.8% of total (+0.7pp y-o-y). As of end-2012, we expect
a total of 9.4 Mha to be planted with winter crops (flat y-o-y) for harvesting in 2013,
including 6.7 Mha under wheat (flat y-o-y), 1.4 Mha under winter barley (flat y-o-y) and
1.0 Mha under rapeseed (flat y-o-y).
Wheat occupies the largest area
of any crop in Ukraine and corn
acreage increased by 30% y-o-y
for the 2012 harvest

Arable Land Distribution in Ukraine (for 2012 harvest)
Source: SSS
Areas Under Major Crops in Ukraine (Mha)
Note: *other crops include sugar beet, sunflower seeds, potatoes and
vegetables. Source: SSS

Ukraine, the breadbasket of the former Soviet Union, produced over 50 Mt of grain
annually in the late 1980s. As part of the Soviet economic planning system, Ukraine also
had large dairy, livestock and poultry operations. Following the collapse of the Soviet
Union in 1991, the Ukrainian agricultural industry entered a decade of decline: both
agricultural production and livestock population tumbled due to the states dwindling
farm subsidies and failure to reform the sector. Domestic consumption of cereal grains
remained steady in the 1990s but the diminishing livestock population led to lower
consumption of feed grains, which in turn provided for an increase in net exports from
1995 onwards despite declining crop output.
Historical background
Ukrainian wheat yields have averaged about 3 t/ ha (winter crops) and 2 t/ ha (spring)
since 1991 but fluctuated widely from year to year due to unstable weather and
insufficient fertilizer use (both these averages disregard 2000 and 2003, when crops in
Ukraine were damaged by severe droughts). Unusually good weather in 2008 and 2011
provided for a remarkable recovery in winter wheat yields to 3.8 t/ ha and 3.4 t/ ha,
respectively, but 2010 and 2012 saw a return to more customary 2.6 t/ ha and 2.4 t/ ha.
This again underscored the need for higher investment in fertilizers and crop protection
in order to avoid undue reliance on weather and thereby improve yields.
Wheat yields in Ukraine have
been volatile and dependent on
weather

Wheat
2 1 . 1 %
Sunf l ower
seed
1 7 . 8 %
Corn
1 7 . 2 %
Barl ey
1 2 . 5 %
Soybean
5 . 4 %
Rapeseed
2 . 1 %
Sugar beet
1 . 7 %
Ot her
2 2 . 2 %
7 . 6
5 . 5 5 . 2
6 . 6
5 . 5
6 . 5
7 . 1 6 . 7 6 . 8 6 . 3 5 . 8
7
8 . 5
7 . 4
8
8 . 7
9 . 0
8 . 5 9 . 1 8 . 7
8 . 3 9 . 8
1 7 . 9
1 7 . 0
1 4 . 6
1 1 . 4 1 1 . 7
1 0 . 6
1 1 . 4 1 1 . 2 1 1 . 6
1 2 . 4
1 1 . 9
0
5
1 0
1 5
2 0
2 5
3 0
3 5
' 9 0 ' 9 5 ' 0 0 ' 0 5 ' 0 6 ' 0 7 ' 0 8 ' 0 9 ' 1 0 ' 1 1 ' 1 2
Wheat ( Mha) Coarse grai n ( Mha)
Ot her crops* ( Mha)
November 2012


Ukraine Grain Output, Export and Consumption (Mt)
Sources: SSS, UkrAgroConsult, Dragon Capital estimates

Ukraine Wheat Yields (t/ ha)
Source: SSS

and remain low by
international standards
Around the world, the highest wheat yields are reported in the EU (7-8 t/ ha). Egypts
rather impressive wheat productivity of 6.3 t/ ha is offset by its very low harvested area
(1.4 Mha). China has demonstrated high efficiency of large-scale crop production. With
yields at 4.9 t/ ha and a sizable area under cultivation (24.3 Mha), China is the single
largest wheat producer in the world (17.8% of total). Ukraines average wheat yield of
2.6 t/ ha in 2012/ 13 topped that of Turkey (2.0 t/ ha) and Russia (1.9 t/ ha), while
Australia and Kazakhstan trailed with 1.9 t/ ha and 0.8 t/ ha, respectively.

Wheat Yields: Ukraine vs. International Peers (t/ ha; 2012/ 13E)
Sources: FAS, USDA, SSS for Ukraine

Coarse Grain Yields: Ukraine vs. International Peers
(t/ ha; 2012/ 13E)
Sources: FAS, USDA

Favorable weather provided for
record high harvest in 2011/12,
helping exports
Ukraine harvested 56.7 Mt of grain at an average yield of 3.4 t/ ha in 2011, a record high
harvest since the county declared independence in 1991. This enabled the country to
export about 22 Mt of grain in the 2011/ 12 marketing year (MY; July-June), while
retaining almost 27 Mt for domestic consumption. As of end-2011/ 12 MY, Ukraine held
9.8 Mt of grain stocks (+128% y-o-y due to a sharp decline in exports in July-October
2011 when export duties were in effect). In 2011/ 12 MY, Egypt was the largest importer
of Ukrainian wheat with a 23% share, followed by Spain (20%) and Israel (14%).

Grain Production and Yields in Ukraine*
Note: *in clean weight terms (after cleaning and drying). Source: SSS

Key Destinations of Ukrainian Wheat Exports
(volume terms; 2011/ 12*)
Note: *cumulative data for J ul. 11-J un. 12. Source: SSS
1 9 .8
4 .3
1 6 .5
1 7 .9
1 3 .8 1 3 .7
2 5 .9
2 0 .9
1 6 .8
2 2 .3
1 4 .7
1 6 .5
1 6 .1
2 1 .4 1 8 .7
2 0 .6
1 4 .5
2 7 .4
2 5 .1
2 2 .4
3 4 .4
3 0 .3
0
1 0
2 0
3 0
4 0
0
1 0
2 0
3 0
4 0
5 0
6 0
' 0 2 / 0 3 ' 0 3 / 0 4 ' 0 4 / 0 5 ' 0 5 / 0 6 ' 0 6 / 0 7 ' 0 7 / 0 8 ' 0 8 / 0 9 ' 0 9 / 1 0 ' 1 0 / 1 1 ' 1 1 / 1 2' 1 2 / 1 3 E
Ukrai ne coarse grai n out put ( Mt ; l hs) Ukrai ne wheat product i on ( Mt ; l hs)
Ukrai ne grai n export s ( Mt ; rhs) Ukrai ne grai n consumpt i on ( Mt ; rhs)
0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Wi nt er wheat yi el d ( t / ha) Spri ng wheat yi el d ( t / ha)
0 .8
1 .9 1 .9 2 .0
2 .6 2 .6
2 .9
3 .0 3 .1 3 .2
3 .5
3 .8
4 .9
6 .3
7 .3
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1 0 .0
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Grai n product i on ( Mt ; l hs) Average yi el d ( t / ha; rhs)
Egypt
2 2 . 8 %
Spai n
2 0 . 4 %
Israel
1 3 . 6 %
It al y
5 . 6 %
Tuni si a
5 . 4 %
Saudi Arabi a
5 . 1 %
Syri a
3 . 6 %
Jordan
2 . 9 %
Li bya
2 . 9 %
Thai l and
2 . 7 %
Ot her
1 5 . 0 %

November 2012


Notwithstanding the record high harvest in 2011, the Ukrainian authorities decided to
regulate grain exports in 2011/ 12 MY, creating distortions on the market and
facilitating corruption. In May 2011, the Ukrainian parliament approved a bill that
introduced export duties on wheat (9% but no less than EUR 17/ tonne), corn (12% but
no less than EUR 20/ t) and barley (14% but no less than EUR 23/ t) until Jan. 1, 2012.
The law became effective starting from July 1, 2011, or the beginning of 2011/ 12 MY.
However, the outstanding large supply of grain and trader lobbying helped to convince
the authorities export regulations were needless. A bill canceling export duties on
wheat and corn and leaving the tax on barley exports unchanged took effect on Oct. 22,
2011. Still, these export regulations reduced 1H11/ 12 (July-December 2011) grain
exports and resulted in large 2011/ 12 MY ending stocks.
but foreign sales of
Ukrainian grain were depressed
in July-October 2011 due to
export tariffs
We believe export regulations (either quotas or tariffs) are unlikely in 2012/ 13 MY
thanks to large ending stocks and sufficient grain supply from the 2012 harvest.
However, we still expect the government to continue to closely monitor export flows
and potentially impose unofficial curbs to prevent domestic grain stocks falling too low.
Production of early grains (wheat and barley) was reported at 25.2 Mt, the yield
averaging 2.6 t/ ha (-14.5% y-o-y). Harvesting of late crops will continue through
October.
Export regulations are unlikely
in 2012/13 MY thanks to large
ending stocks
The reported early-crop harvest includes 16.3 Mt of wheat in bunker weight, the yield
averaging 2.9 t/ ha (-16% y-o-y). This slightly outperforms our net-weight forecast of
14.5 Mt (-35% y-o-y) as collected grain reportedly does not contain high levels of
moisture and will not lose much weight after cleaning and drying. The barley harvest
totaled 7.2 Mt in bunker weight with an average yield of 2.2 t/ ha (-14% y-o-y), also
slightly better than our forecast of 6.1 Mt (-33% y-o-y). We currently forecast Ukraines
total grain harvest in 2012 at 43 Mt (-24% y-o-y) in net weight but do not rule out a
higher actual volume if the corn harvest exceeds 21.1 Mt.
and sufficient 2012 harvest

GLOBAL GRAI N MARKET AND UKRAI NE
According to U.S. Department of Agriculture (USDA) baseline projections for 2012-21
published in February 2012, global income growth is projected to continue over the
forecast period and slightly exceed the historical average long-term rate during the
latter half of the period. This growth provides a foundation for increasing global
demand and stronger trade in agricultural products. Consequently, agricultural
product prices are projected to remain high.
Global incomes are projected to
rise in 2012-21, supporting
agricultural demand and trade
Developing countries are the main source of growth in world agricultural demand and
trade. Food consumption and feed use are particularly responsive to income growth in
developing countries, with movement away from staples and/ or traditional foods and
toward more diversified diets. Agricultural demand in developing countries is further
reinforced by population growth rates that are about twice the average of developed
countries.
Developing countries will be
the main source of growth in
world agricultural demand and
trade in the long run

November 2012


Africa and the Middle East
account for 23% of the
projected growth in world
coarse grain imports over the
next 10 years
In particular, the combined region of Africa and the Middle East is projected to have
some of the strongest growth in food demand and agricultural trade over the coming
decade. Both poultry and beef imports have their largest projected increases in this
region. By the end of the forecast period, Africa and the Middle East are projected to
account for about half of global poultry imports and 22% of beef imports. Strong policy
support for domestically produced meat also drives growth in feed grain and protein
meal imports, especially where land constraints or agro-climatic conditions limit the
expansion of domestic crop production. As a result, the region accounts for about 23%
of the projected growth in world coarse grain imports over the next 10 years. Strong
import growth by Africa and the Middle East over the forecast period also accounts for
48% of the increase in global wheat imports, 47% of the growth in rice imports, and
39% of the rise in soybean oil trade.
Ukraine enjoys increasing
harvestable area
In most countries, the projected growth in total harvested area of all crops foresees rises
of less than 0.5% per year. Areas will expand more rapidly in countries with a reserve
of available land and policies which allow farmers to respond to higher prices. Such
countries include Brazil, Russia, Ukraine, Argentina, and some other countries in South
America and Eastern Europe.
Decelerating average crop yield
growth to be offset by slower
global population growth in
the long run
About two-thirds of the projected growth in global crops production is derived from
rising yields, even though yield growth is projected to slow. Growth in world-average
crop yields has actually been slowing for nearly two decades. The market impact of
slower yield growth will be partially offset by slower global population growth.
Nonetheless, population growth is a significant factor driving overall growth in
demand for agricultural products. Additionally, rising per capita income in many
countries supplements population growth gains in the demand for vegetable oils,
meats and coarse grains. World per capita use of vegetable oils is projected to rise 15%
over the next 10 years, compared with 6% for meat and total coarse grains. Per capita
use is projected to decline by about 1% for wheat and rice.
Developing countries such as
Ukraine are increasing their
presence in the world export
market
Traditional exporters of a wide range of agricultural products, such as Argentina,
Australia, Canada, the European Union (EU), and the United States, are set to remain
important in global trade in the coming decade. But countries that have made
significant investments in their agricultural sectors and are increasingly pursuing
policies intended to encourage agricultural production, including Brazil, Russia,
Ukraine, and Kazakhstan, are expected to have an increasing presence in export
markets for basic agricultural commodities.
World wheat consumption is
expected to sharply exceed
supply in 2012/13
According to the USDA, world wheat production in 2012/ 13 MY is projected to
decline by 32.4 Mt (or 4.7% y-o-y), to 662.8 Mt. Total world wheat production is
expected to remain much lower than global use, projected at 683.2 Mt (down 12.3 Mt;
or 1.7% y-o-y), resulting in a sharp decline in world wheat stocks to 177.2 Mt (-10.3% y-
o-y). This represents a 26.0% stock-to-use ratio slightly higher than the average for
the last decade (25%) and significantly higher than the 30-year low in 2007/ 08 (18%).
Thus, with consumption continuing to exceed supply, world wheat prices are forecast
to remain strong in 2012/ 13 MY.

November 2012


The USDA projects 2012/ 13 wheat production will decline the most in Kazakhstan (-
52% y-o-y), Ukraine (-32% y-o-y), Russia (-24% y-o-y) and Argentina (-23% y-o-y).
Russian wheat production in 2012/ 13 MY is forecast at 43.0 Mt, down 13.2 Mt or 24% y-
o-y. Winter wheat accounts for about 50% of the total wheat area but about two-thirds
of total production due to inherently higher yield. The USDA spring wheat production
estimate for Russia of 14.5 Mt would mark the fourth-lowest output in over 40 years. In
Ukraine, the reported wheat harvest volume reached 16.3 Mt in bunker weight, the
yield averaging 2.9 t/ ha (-16% y-o-y). This slightly outperformed our net-weight
forecast of 14.5 Mt (-35% y-o-y) as collected grain reportedly does not contain much
moisture and will not lose much weight after cleaning and drying. We therefore
upgraded our estimate to 15.4 Mt (-31% y-o-y). The USDA forecasts Kazakh 2012/ 13
MY wheat production at 11.0 Mt, down 11.7 Mt (or 52% y-o-y). The decline is based on
persistently excessive heat and dryness in two of the countrys three main wheat-
producing territories. Spring wheat comprises about 95% of Kazakhstans total wheat
output.
Lower 2012/13 wheat harvests
in Ukraine, Russia and
Kazakhstan contributing to
booming wheat prices

Global Wheat Production, Consumption and Ending Stocks
(1992/ 93-2012/ 13E)
Sources: FAS, USDA

Global Coarse Grain Production, Consumption and Ending
Stocks (1992/ 93-2012/ 13E)
Note: coarse grains include corn, barley, sorghum, oats, rye, millet and mixed
grains. Sources: FAS, USDA

Global Rice Production, Consumption and Ending Stocks
(1992/ 93-2012/ 13E)
Sources: FAS, USDA

Global Corn Production, Consumption and Ending Stocks
(1992/ 93-2012/ 13E)
Sources: FAS, USDA

1 0 0
1 5 0
2 0 0
2 5 0
4 0 0
5 0 0
6 0 0
7 0 0
1 9 9 2 / 9 3 1 9 9 6 / 9 7 2 0 0 0 / 0 1 2 0 0 4 / 0 5 2 0 0 8 / 0 9 2 0 1 2 / 1 3 E
Endi ng st ocks ( Mt ; rhs)
Wheat product i on ( Mt ; l hs)
Wheat consumpt i on ( Mt ; l hs)
1 0 0
1 5 0
2 0 0
2 5 0
7 0 0
8 0 0
9 0 0
1 ,0 0 0
1 ,1 0 0
1 ,2 0 0
1 9 9 2 / 9 3 1 9 9 6 / 9 7 2 0 0 0 / 0 1 2 0 0 4 / 0 5 2 0 0 8 / 0 9 2 0 1 2 / 1 3 E
Coarse grai n product i on ( Mt ; l hs)
Coarse grai n consumpt i on ( Mt ; l hs)
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
4 5 0
5 0 0
1 9 9 2 / 9 3 1 9 9 6 / 9 7 2 0 0 0 / 0 1 2 0 0 4 / 0 5 2 0 0 8 / 0 9 2 0 1 2 / 1 3 E
Ri ce product i on ( Mt ; l hs)
Ri ce consumpt i on ( Mt ; l hs)
5 0
1 0 0
1 5 0
2 0 0
2 5 0
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
9 0 0
1 9 9 2 / 9 3 1 9 9 6 / 9 7 2 0 0 0 / 0 1 2 0 0 4 / 0 5 2 0 0 8 / 0 9 2 0 1 2 / 1 3 E
Corn product i on ( Mt ; l hs)
Corn consumpt i on ( Mt ; l hs)
November 2012


Coarse grain outlook for
2012/13
According to the USDAs 2012-21 projections, world coarse grain trade will expand by
37 Mt (or 29%) from 2012 to 2021, to about 160 Mt. The share of global coarse grain
production used as animal feed trended lower from 66% of total coarse grain
consumption a decade ago to about 57% in 2011 and is projected to remain just below
60% over the next decade. Industrial uses, such as starch, ethanol, and malt production,
are much less significant than feed use but are increasing twice as quickly. The
expansion of livestock production in feed-deficit countries has also contributed to
growth in the coarse grain trade. Such countries are mostly found in the Middle East,
North Africa, and Asia. The USDA projected global coarse grain production to
decrease by 28 Mt (or 2% y-o-y) in 2012/ 13, to 1,121.4 Mt. Most of the decline is
attributable to falling corn output. World coarse grain consumption in 2012/ 13 MY is
forecast to stand at 1,138 Mt (-0.6% y-o-y), as economic growth in many countries
supports demand for meat. Global coarse grain production is thus expected to
significantly fall short of consumption in 2012/ 13, which would contribute to a
massive decrease in ending stocks to 152.1 Mt (-10% y-o-y), implying a stock-to-use
ratio of 13.4% (-1.3pp y-o-y), which is below its 10-year average of 16.2%. This would
definitely support high global prices for corn and barley.

Corn is the dominant feed
grain
Corn is the dominant feed grain traded globally. According to the USDA, corns share
of total world coarse grain trade will continue to rise slowly over the next decade,
averaging 80%. Barley has the second largest projected share (13%) followed by
sorghum (5%). The trade share of other coarse grains, mostly oats and rye, is projected
to continue its slow decline, reaching about 2% by 2021. Commercialization of livestock
feeding has been a driving force behind the growing dominance of corn in
international feed grain markets. However, as global pork and poultry production
becomes increasingly commercialized, higher-quality feeds are being used, boosting
the demand for corn and soybean meal.

Ukraine is the worlds largest
barley exporter
Ukraine became the worlds largest barley exporter in 2009 and is expected to remain
so throughout the 2012-2021 forecast period. Australia, the EU, and Canada are
expected to remain the largest exporters. Barley exports by the former Soviet Union
countries (FSU) are projected to reach 7.4 Mt by 2021 with Ukraine accounting for 5.1
Mt and Russia for 1.0 Mt. This regions exports are forecast to account for 44% of the
increase in global exports over the next decade.

World wheat market players The worlds top five wheat producers the European Union, China, India, the United
States and Russia accounted for an estimated 68% of total output in 2012/ 13 MY.
The EU is by far the largest producer, with 133 Mt (20% of total) this year, followed by
China with 118 Mt (18%), India with 94 Mt (14%) and the United States with 62 Mt
(9%).

Global Wheat Producers (volume; 2012/ 13E)
Sources: FAS, USDA

Global Wheat Exporters (volume; 2012/ 13E)
Sources: FAS, USDA
EU-2 7
2 0 . 1 %
Chi na
1 7 . 8 %
Indi a
1 4 . 2 %
USA
9 . 3 %
Russi a
6 . 5 %
Canada
4 . 1 %
Aust ral i a
3 . 9 %
Paki st an
3 . 5 %
Turkey
2 . 4 %
Ukrai ne
2 . 3 %
Ot her
1 6 . 1 %
USA
2 3 . 8 %
Aust ral i a
1 5 . 4 %
Canada
1 4 . 3 %
EU-2 7
1 2 . 8 %
Russi a
5 . 9 %
Kazakhst an
5 . 1 %
Argent i na
5 . 0 %
Ukrai ne
2 . 9 %
Ot her
1 4 . 8 %

November 2012


According to USDA projections for 2012/ 13 MY, Ukraine is expected to export approx.
4.0 Mt of wheat (our estimate is 4.8 Mt), accounting for an estimated 2.9% of total global
wheat exports over the period (+0.1pp y-o-y). The United States is forecast to be the
largest global wheat exporter (33 Mt; 24% of total wheat exports) and Egypt the largest
importer (9.5 Mt; 7% of total wheat imports).
Ukraine to remain the 8
th

largest wheat exporter globally
in 2012/13 MY

Global Wheat I mports (volume; 2012/ 13E)
Source: FAS, USDA

Global Coarse Grain Production (volume; 2012/ 13E)
Sources: FAS, USDA
In terms of coarse grains, we expect Ukraine to produce over 30.0 Mt in 2012/ 13 MY
(including corn, barley, sorghum, oats, rye, millet and mixed grains), or 2.6% of global
production. The U.S. is the largest coarse grain producer with a 26% share, followed by
China with 19%.
Ukraine to account for 2.6%
of world coarse grain output
in 2012/13

World Coarse Grain Exporters (by volume; 2012/ 13E)
Sources: FAS, USDA

World Coarse Grain Importers (by volume; 2012/ 13E)
Sources: FAS, USDA
According to the USDA Grain: World Markets and Trade report in August, global
coarse grain exports are estimated to reach 116 Mt in 2012/ 13, with Ukraine projected
to move up to third place (from fourth last year) with 12.9% of total exports (15.0 Mt).
Japan is forecast to be the largest importer of coarse grain (15% of total imports),
followed by Mexico with an estimated 9% share.
and become third-largest
coarse grain exporter globally
According to the USDA, world corn trade is projected to increase by 31 Mt (31%) to 131
Mt by 2021/ 22. Growth in coarse grain imports (mostly corn) is strongly linked to
expansion of livestock production in regions unable to meet their own feed needs. Key
growth markets include North Africa, the Middle East, China, Mexico, and Southeast
Asia. Japan and South Korea are large but mature markets for coarse grain imports.
Chinas net imports of corn are projected to reach 18 Mt by the end of the forecast
period as imports grow steadily while exports remain minor. The increase in Chinas
imports accounts for 45% of the 2012-2021F growth in the world corn trade.
Increase in world corn imports
is a long-term price driver

Egypt
7 . 0 %
Brazi l
5 . 1 %
Indonesi a
4 . 8 %
EU-2 7
4 . 4 %
Japan
4 . 3 %
Al geri a
3 . 7 %
Morocco
3 . 3 %
Ot hers
6 7 . 4 % USA
2 5 . 5 %
Chi na
1 8 . 5 %
EU-2 7
1 2 . 9 %
Brazi l
6 . 5 %
Argent i na
3 . 5 %
Indi a
3 . 4 %
Ukrai ne
2 . 6 %
Mexi co
2 . 6 %
Canada
2 . 2 %
Ni geri a
2 . 1 %
Ot hers
2 0 . 1 %
USA
3 1 . 1 %
Argent i na
2 0 . 5 %
Ukrai ne
1 2 . 9 %
Brazi l
1 2 . 4 %
Aust ral i a
4 . 6 %
Canada
3 . 9 %
EU-2 7
2 . 7 %
Ot her
1 1 . 9 %
Japan
1 5 . 4 %
Mexi co
9 . 2 %
Saudi Arabi a
7 . 9 %
Korea
6 . 5 %
Egypt
4 . 5 %
EU-2 7
3 . 1 %
Ot her
5 3 . 3 %
November 2012


while Ukraine strengthens its
position in global corn exports
U.S. corn exports are projected by the USDA to grow over the next decade and
approach record levels by 2021. However, large global supply of feed-quality wheat
will compete with U.S. corn exports at the beginning of the forecast period. The U.S.
share of world corn trade will decline slowly from an average of about 55% during the
last half decade to less than 47% by 2021 as exports rise more rapidly from the countries
of the former Soviet Union (including Ukraine), Brazil, the EU, and other European
countries. Corn exports from ex-Soviet republics, mostly Ukraine, will rise nearly 60%
to more than 17 Mt by 2021. Favorable resource endowments, increasing economic
openness, wider use of hybrid seed, and greater investment in agriculture all stimulate
corn production in this region.
Global corn prices began a new
upward trend in 2H12
following U.S. undersupply
fears
Global corn prices rallied starting July 2012 (agricultural commodities traditionally gain
at this time of year, as funds pump in fresh money). However, the latest rally was
fueled by weather upsets in the USA (a major world corn supplier) as well as Australia,
China and the former Soviet Union. Corn thus gained over 40% in price during July-
August (Chicago Board of Trade corn futures rallied from $230/ t to $327/ t in August)
as the USDA kept downgrading its U.S. corn supply forecast. The USDA reduced its
2012/ 13 MY export projection for the country to 33.5 Mt (-13% y-o-y) as of September
2012, with overall global corn exports projected to decline by 9% y-o-y to 90.9 Mt. The
recent dip in global corn prices in September was attributable to a new USDA report
which surprised investors by raising rather than lowering the forecast for 2012/ 13 U.S.
carryout corn stocks. However, fundamentally we expect global corn prices to fluctuate
around $300/ t in 2012/ 13 MY with possible downward pressure in July-August 2013
when the status of the new world corn harvest is known. In the long run, we believe
that rising human population and strong global demand from livestock feed producers
will keep prices above 2006 levels ($170/ t for wheat and $130/ t for corn). CBOT
December futures for corn currently trade at $291/ t (+13% y-o-y and +15% YTD) and
for wheat at $318/ t (+36% y-o-y and +38% YTD).

CBOT Wheat and Corn Daily Futures ($/ t; Oct. 06-Oct. 12)
Source: Bloomberg

with wheat prices following
suit
Weather, as was the case with corn, pushed global prices higher starting from July 2012.
Ongoing dry conditions in Australia represent a major risk to global wheat supply in
2012/ 13 MY. Even the latest October USDA report did not ease the pressure, with
wheat futures currently fluctuating around $320/ t. We believe this level will be
sustained through the rest of 2012/ 13 MY. However, a downside risk to our 2012/ 13
MY wheat price forecast exists given expectations of a record high wheat acreage for
2013/ 14 MY, potentially putting pressure on prices when new projected balances are
reported towards the end of 1H13.

5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
4 5 0
5 0 0
Oct -0 6 Aug-0 7 May-0 8 Dec-0 8 Aug-0 9 Mar-1 0 Nov-1 0 Jun-1 1 Jan-1 2 Sep-1 2
CBOT Wheat Fut ures ( $ / t ; l hs)
CBOT Corn Fut ures ( $ / t ; rhs)

November 2012


Prices for major crops are projected to decline in the near term as global production
responds to recent high prices. Nonetheless, after these brief declines, long-term growth
in global demand for agricultural products, in combination with the continued
presence of U.S. ethanol demand for corn and EU biodiesel demand for vegetable oils,
will sustain prices for corn, oilseeds, and many other crops at historically high levels.
Long-term grain price forecasts
remain strong

AGRI CULTURAL PRODUCTI ON COSTS
Fertilizers, seeds, fuel and land lease costs are the largest contributors to
agricultural companies grain production costs. The diagrams below show 2011
wheat, corn, sunflower seed and potato production cost data for Agroton, Astarta
Holding and Industrial Milk Company (IMC), which are typical large agricultural
holdings companies in Ukraine and can therefore serve as examples. Fertilizers
accounted for an estimated 28% of Agrotons 2011 wheat production costs and 10%
of Astartas corn costs, as well as 25% of Agrotons sunflower seed costs and for
57% of IMCs potato production costs combined with plant protection expenses.
Land lease, ranging from $40-55/ ha p.a. in 2011, accounted for an estimated 16% of
wheat costs and 9% of corn costs. Land lease costs as a share of total crop
production costs are set to increase in 2012 as lease payments rose by 76% y-o-y to
$70-100/ ha p.a.
Fertilizers, seeds, fuel and land
leases are the largest
contributors to grain crop
production costs

Wheat Production Costs per Hectare (value terms; 2011)
Source: Agroton

Corn Production Costs per Hectare (value terms; 2011)
Source: Astarta Holding

Sunflower Seed Production Costs (value terms; 2011)
Note: *includes repairs, organic fertilizers, electricity costs, amortization etc.
Source: Agroton

Potato Production Costs (value terms; 2011)
Note: *includes repairs, electricity costs, amortization etc.
Source: IMC

Fert i l i zers
2 8 %
Land Lease
1 6 %
Fuel
1 3 %
Seeds
9 %
Labor
2 %
Ot her
3 2 %
Seeds
1 6 %
Fert i l i zers
1 0 %
Fuel
1 0 %
Land l ease
9 %
Servi ces
9 %
Labor
7 %
Crop prot ect i on
5 %
Amort i zat i on
3 %
Ot her
3 1 %
Fert i l i zers
2 5 %
Land Lease
1 5 %
Fuel
1 1 %
Seeds
1 9 %
Labor
1 %
Ot her*
2 9 %
Fert i l i zers & PPC
5 6 %
Seeds
2 1 %
Labor
8 %
Fuel
7 %
Land Lease
2 %
Ot her*
6 %
November 2012


Ukrainian agricultural
producers enjoy cheap labor
and land lease costs
Ukrainian agro producers enjoy a number of competitive advantages over their
developed market peers, particularly low labor costs and moderate land lease rates.
Domestic agricultural companies pay farm workers $233/ month on average
compared to $1,470/ month in Germany, $417 in Russia, $306 in Kazakhstan and
$108-210 in other CIS countries. Land lease payments in Ukraine, averaging $40/ ha
p.a. in 2011 but increased to $80/ ha p.a. in 2012, are diminutive in comparison with
the $260/ ha prevailing in Spain but fall in line with CEE rates of $45-94/ ha. The
abundance of arable land as well as quite fragmented land ownership in Ukraine,
with only 15% of the total arable land consolidated by agro-holding companies,
leave land owners with little bargaining power and help to keep domestic lease
rates low. Moreover, according to government statistics, about 55% of land owners
in Ukraine are pensioners with limited capacity to cultivate land on their own.

Average Labor Costs in Agriculture: CIS vs. EU ($/ month; 2011)
Sources: FAO, USDA, Eurostat, EIU, SSS

Annual Land Lease Costs ($/ ha; 2011)

and low fuel and fertilizer
costs
Agriculture-related fuel costs in Ukraine averaged EUR 0.96/ liter in June 2012, or 40-
50% lower than in other European countries thanks to smaller excise taxes. In terms of
fertilizer expenses, domestic ammonia costs ($460/ t in June 2012) were also
comparatively low as they are calculated net of U.S. Gulf transportation costs.

Average Diesel Costs: Ukraine vs. International Peers
(EUR/ liter; June 2012)

Fertilizer Costs ($/ t; J une 2012)
Source: Argusmedia.com

FERTILI ZER USAGE
Fertilizer usage in Ukraine
remains lower than in peer
countries
Ukrainian fertilizer usage rates plummeted by 90% in the 1990s, from 141 kg/ ha in 1990
to 13 kg/ ha in 2000, as state support for agriculture dwindled. Fertilized area also
shrank over the period, from 25.1 Mha to 4.6 Mha. Both indicators have been recovering
since 2000, albeit slowly, as state subsidies remained low and farmers lacked financing.
Ukraines current fertilizer rate stands at 68 kg/ ha (2011) and is expected to reach 78
kg/ ha in 2012, which is higher than in neighboring Russia (33 kg/ ha) but still lower
than, for example, in developed EU countries (120 kg/ ha on avg.), the U.S. (150 kg/ ha)
or China (130 kg/ ha).
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November 2012


Area Fertilized and Fertilizer Usage Rates in Ukraine
Sources: SSS, Dragon Capital estimates

Despite low fertilizer usage, Ukrainian farms have demonstrated superior crop
productivity per unit of fertilizer applied thanks to the countrys fertile soil. Ukraine
reported 57 kg of crop output per 1 kg of fertilizer applied for 2011.
but still allows for
comparatively high crop
productivity thanks to fertile soil

Crop Productivity vs. Fertilizer Usage (kg/ kg; 2010)
Sources: IFA, FAO, SSS

Ammonium nitrate (AN) accounted for the biggest share (47%) of overall fertilizer
consumption in Ukrainian agriculture in 2011. Ukrainian farmers consumed 1,625 kt
of the product last year (+0.3% y-o-y), out of which 240 kt or 15% was imported,
mostly from Russia. Imports declined substantially from 25-30% of total AN
consumption in 2010 after Ukraine imposed import duties. In 2011, AN prices in
Ukraine ranged from UAH 3,040-3,176 ($375-400) per tonne, up 44% y-o-y.
Ammonium nitrate accounts for
the lions share of total fertilizer
consumption in Ukraine

Ukraine Fertilizer Consumption (volume terms; 2011)
Source: Marker

NPK Fertilizer Usage by Country (kg/ ha; 2011)
Source: TradingEconomics

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Area f ert i l i zed ( Mha; l hs) Fert i l i zer usage rat e ( kg/ ha; rhs)
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Ukrai ne Canada Argent i na Aust ral i a USA EU-2 7 Russi a Brazi l
Crop product i vi t y vs. f ert i l i zer usage ( kg/ kg)
Worl d average ( kg/ kg)
Ammoni um
Ni t rat e
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NPK
2 6 %
Urea
1 3 %
UAN
7 %
NP
5 %
Ammoni um
Sul phat e
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November 2012


followed by compound (NPK)
fertilizers
Compound (NPK) fertilizers, which are mainly imported, accounted for 26% (second
largest share) of total domestic fertilizer consumption in 2011, or 924 kt (+32% y-o-y).
The increase in consumption was supported by higher, though still relatively low, local
production (up six-fold y-o-y to 154 kt or 17% of total NPK consumption in 2011).
Imports rose 12% y-o-y to 770 kt, delivered mainly from Russia (597 kt or 77%) and
Belarus (144 kt or 19%). NPK prices fluctuated around $400/ t last year (+45% y-o-y).
Urea consumption surged by
43% y-o-y in 2011
Ukrainian farmers increased consumption of urea by 43% y-o-y, to 450 kt in 2011, out
of which 138 kt was imported (30% of total; compared to 50 kt in 2010). A temporary
shortage of widely used AN at the beginning of 2011 caused such a substantial
increase in alternative nitrogen fertilizer usage. Urea thus accounted for 13% of
domestic fertilizer consumption in 2011 and was priced at UAH 4,000 ($500)/ t on
average, up 50% y-o-y. In contrast to Ukraine, urea is the most popular nitrogen
fertilizer globally. While urea consumption in Ukraine amounts to roughly 20% of
the AN volume used, globally AN consumption is equivalent to 30-35% of urea
usage.
Fertilizer consumption structure
wont change much in 2012
We believe Ukrainian farmers will utilize the same fertilizer types in 2012 compared
to last year. In 1H12, Ukrainian farmers purchased 796 kt of AN (+0.9% y-o-y) for the
spring sowing campaign. This accounted for 70% of total fertilizer delivery to
farmers over the period (+7pp y-o-y) and we believe ammonium nitrate will still
account for almost 50% of fertilizer usage in the country for the full year (flat y-o-y).

DOMESTI C AND EXPORT PRI CES
2012/13 MY price outlook
mixed
World wheat prices have climbed by 37% YTD in 2012, to $315/ t (CBOT), with the
upward trend starting in June when the USDA continued to report reduced global
wheat ending stocks due to bad weather in major producing countries. Ukrainian
wheat export prices are up 36% YTD, to $338/ t (FOB Black Sea). Current Ukrainian
grain export prices follow CBOT dynamics as exports remain unrestricted, with prices
on the local market tending to follow export quotes with a 1-2 week lag. Ukrainian
domestic wheat prices rose 29% YTD to $257/ t (EXW, incl. VAT), driven by global
markets. Domestic grain producers wheat price in 9M12 stayed almost flat y-o-y, at
$223/ t, as it suffered from downward pressure in late 2011beginning of 2012 and only
in the summer enjoyed an upward trend (which still holds for now). We forecast local
wheat prices will average $225/ t (EXW, incl. VAT) for the full year, staying flat y-o-y.
In 1H13, we believe global prices may start to retreat in February-March if farmers
plant more than usual to benefit from current high prices. This might drag Ukrainian
producers prices down in 1H13 although 2013/ 14 MY global grain balances are still
very much dependent on weather in spring 2013 and could mitigate the downside risk.
In 2013, we forecast an average 10% y-o-y decline in wheat and corn prices assuming
current prices have peaked reflecting the usual cycle in the agricultural sector. Still,
government restrictions on grain exports pose another risk to our price forecasts.

November 2012


Average Weekly Prices for Wheat, Corn and Barley in Ukraine (EXW; incl. VAT)
Following Ukraines accession to the WTO in May 2008, liberalized exports led
domestic grain prices to become more closely correlated with global trends.
However, the export quotas and tariffs imposed in 2010/ 11 MY and 2011/ 12 MY
caused domestic wheat prices to diverge from global dynamics. Currently, no
export restrictions are foreseen for 2012/ 13 MY. However, the Ukrainian
government still keeps an eye on grain exports having signed memorandums with
major traders. According to the latest memorandum signed in September, 2012/ 13
MY grain exports are capped at 20.4 Mt, including 5.0 Mt of wheat, 3.0 Mt of barley
and 12.4 Mt of corn. This prevents local grain prices from perfectly correlating with
the global trend and maximizes the time lag for domestic prices to catch up with
global trends.
No grain export restrictions
foreseen in 2012/13 MY

CBOT Wheat Futures vs. Ukraine 3
rd
Grade Wheat Prices ($/ t)
Sources: Bloomberg, UkrAgroConsult
Such a situation in fact favors local grain exporters as they stand to improve their
trading margins by taking advantage of excess domestic leftover stocks as of end-
2011/ 12 MY (about 10 Mt compared to 10-year average of 5-6 Mt). For example, in
October, the difference between export and local wheat prices totaled about $80/ t,
with approximately $50/ t accounted for by trading and transportation costs and
the rest (about $30/ t currently) constituting traders margins (about 8-9% on EBIT
level).
Export curbs may in fact benefit
grain traders
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
Jan-0 8 Jul -0 8 Feb-0 9 Aug-0 9 Feb-1 0 Sep-1 0 Mar-1 1 Sep-1 1 Mar-1 2 Oct -1 2
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Nov-0 0 May-0 2 Dec-0 3 Jul -0 5 May-0 7 Dec-0 8 Jul -1 0 Jan-1 2
CBOT wheat f ut ures
Domest i c 3 rd grade wheat pri ce
November 2012


From Field to Port: Ukraines Agricultural Infrastructure
GRAI N STORAGE CAPACI TI ES
Substantial grain export
growth potential, but
investments in infrastructure
are required
Ukraine possesses some of the best agricultural soil in the world and has a unique
opportunity to almost double future grain harvests by improving yields per
hectare. Although Ukraine has undergone significant grain export logistics
development, including improvement of port transshipment facilities,
modernization and expansion of existing port terminals, revival of inland river
navigation, and improved automotive transportation utilizing a growing truck
fleet, the country still needs large-scale investment in infrastructure
modernization. Insufficient modern elevator storage capacities and the high
depreciation level of grain hoppers owned and operated by the state railway
monopoly Ukrzaliznytsya currently represent major obstacles to efficient grain
exports.
Grain storage capacities in
Ukraine total 30.1 Mt while
annual harvests have ranged
from 40-50 Mt
Ukraines grain harvest has ranged from 40-50 Mt over the past 10 years and the
existing storage infrastructure of 30.1 Mt only provides for immediate storage of
50-75% of the annual harvest. International experts claim that in order to ensure
sufficient grain storage a country should strive to create capacities equal to harvest
volumes plus 15-20%. Thus, should Ukrainian grain producers seek to ensure at
least 100% of harvested grains can be safely stored they will need to invest in the
construction of 15-30 Mt of storage capacity. However, experts claim that Ukraine
currently has storage capacities of 40-50 Mt, but only about half of those are
certified (all grain elevators in Ukraine should be certified on an annual basis but it
is planned to extend the certification for a three-year period). The quality of
storage (silos vs. old granaries) is another concern. The shortage of high efficiency
modern silos in Ukraine works in favor of grain traders, who operate their own
modernized private elevator capacities.
Existing storage facilities
consist of old and modern silos
as well as granaries
Currently, about 619 certified elevator complexes operate in Ukraine, including
modern silo elevators made of hot rolled steel coils, Soviet era infrastructure such
as concrete-silo elevators, and floor-type granaries (images below). Both concrete
and steel silos provide a high quality storage environment which allows grain to
be stored for between one and three years, provided grain is rotated within the silo
thus preventing bacteria and insect contamination. Floor granaries are not
equipped with modern quality control systems and offer only 3-4 months of
optimal storage without damage to grain quality.

November 2012


Modern Steel Silo in Ukraine
Source: Mriya Agro Holding (site visit on May 29, 2012)

Concrete Silo in Ukraine
Source: Kernel Holding (site visit on April 2, 2009)

Floor Type Granary

Plastic Silage Bags

Plastic Silage Bag Being Filled
Plastic silage bags offer a cheap alternative to traditional storage facilities. Grain can be
stored in silage bags for up to 18 months. Their sealed environment allows the carbon
dioxide level to increase while the level of oxygen decreases thereby reducing the
risk of fungus and grain pest infestation. However, there are certain disadvantages,
such as high humidity accumulation inside the bag, the higher security risk of storing
grain outside of a silo and complications with grain load/ unload procedures. Silage
bags can be easily cut or broken if stored on a rocky surface or attacked by rodents.
Plastic silage bags offer an
alternative means of storage

November 2012


Grain Storage Facilities in Ukraine (August 2012)
Source: SSS

Granaries account for 54% of
Ukraines storage capacities
The lions share of storage facilities in Ukraine were built during the Soviet era. Despite
some modernization following the first wave of privatization in the 1990s, many
elevators, especially granaries, remain outdated. Ukraines storage infrastructure is still
underdeveloped with about 80% of farmers lacking access to grain cleaning and drying
equipment, which leads to significant (est. 5-7%) harvest losses and reduces grain
quality. Granaries account for 54% of total storage capacities whereas elevators (steel
and concrete silos) constitute the remaining 46%. Granaries are not mechanized and are
usually not equipped with drying and cleaning machinery, and are able to hold grain
for only 3-4 months (vs. up to 2 years for elevators). High humidity, which is a
consequence of the varying moisture content and the temperature divergence in
different parts of the storage space, could significantly damage grain quality during
storage. High temperature and humidity create the perfect environment for mold
development. Moldy grain, in turn, attracts insects that can spread around mold spores
thereby quickly enlarging the mold layer on the grain surface.

Storage Capacity and Harvest Breakdown by Region (kt; 2011)

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Harvest ( kt ) St orage Capaci t i es ( kt )
Mykolayi v
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Simferopol
Zaporizhya
Dnipropetrovsk
Kharkiv
Kyi v
Vinnytsi
Kherson
Khmelnytski y
Rivne
Lviv
Ivano-Frankivsk
Donetsk
Chernivtsi
Uzhgorod
Lutsk
Ternopil
Zhytomyr
Chernihi v
Sumy
Poltava
Kirovohrad
Luhansk
Cherkasy
Tot al st orage capaci t y i n regi on
( 0 0 0 t onnes)
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4 9
1 ,1 0 3
3 2
7 5 9
1 6
1 ,2 1 5
2 9
1 ,2 1 1
3 3
1 ,6 5 2
2 9
2 ,3 4 5
2 9
1 ,8 9 7
4 6
1 ,5 4 0
2 9
Number of el evat ors i n regi on
8 1
4
4 0 7
1 7
2 1 8
5
1 ,1 0 2
2 4
2 7
2
2 2 3
1 1
1 8 6
1 0 1 ,1 3 7
2 9
1 ,0 4 3
3 2
3 0 3
7
4 6 8
1 6
9 2 0
1 6
1 ,4 2 4
3 2

Regi ons wi t h st orage capaci t y over
1 . 5 Mt

November 2012


Modern steel elevators and concrete silos offer reliable all-seasons mechanisms of
grain quality control as they are equipped with technology for temperature control,
aeration and insect detection. More importantly, grain can be easily rotated and
dried in modern silos. Granaries, on the other hand, are not mechanized and are
usually not equipped with drying and cleaning machinery. Ukraines elevator
capacities range from 25,000 tonnes to above 200,000 tonnes while the capacity of
each silo ranges from 8,000-25,000 tonnes. Poltava, Odessa, Dnipropetrovsk, Poltava,
Vinnytsia and Kirovohrad regions possess the largest storage volumes in Ukraine,
jointly accounting for 38% of total national storage capacity. Market players expect
further investments in storage infrastructure with total capacities expected to rise by
12-15 Mt in the next 10 years.
Total storage capacity is forecast to
rise by 12-15 Mt in the next decade

Grain Storage Capacities in Ukraine (August 2012)

Breakdown of Silo Storage Capacities in Ukraine (kt; 2011)

State-owned operators are major players in Ukraines grain storage market,
possessing joint storage capacities of an estimated 5.6 Mt, or 18% of total. The State
Food and Grain Corporation of Ukraine (that now incorporates Khlib Ukraine), the
largest owner of grain elevators in the country and the most powerful state operator,
owned total storage capacity of 3.4 Mt last year (11% of total), including highly
attractive assets such as the Odessa and Mykolayiv port elevators. The second
largest state owner is the State Reserve, which has a network of elevators covering
most regions of Ukraine with total estimated storage capacity of 1.9 Mt (6% of total).
State-owned operators control 18%
of total storage capacity

Grain traders represent the second largest group of storage owners, operating
mostly modern steel and concrete silo units. Swiss-based trader Glencore owns
elevators with total storage capacities of 1.9 Mt (6% of total) in Ukraine which makes
it the largest among private traders. Nibulon, which is owned by a Ukrainian
businessman, is another large exporter of agricultural commodities which operates
storage capacities of up to 1.6 Mt (5% of total), including a modern terminal at
Mykolayiv port and elevators and river terminals in Dnipropetrovsk, Cherkasy,
Poltava and Zaporizhya regions. Other large grain traders include international
trading giants such as Louis Dreyfus, Alfred C. Toepfer and Cargill. It is estimated
that major grain traders jointly own storage capacities of 6.2 Mt, or over 20% of the
total in the country.
followed by grain traders

Granari es
5 4 % Si l os
4 6 %
1 3 . 0 %
1 8 . 0 %
2 4 . 0 %
1 5 . 0 %
1 6 . 0 %
9 . 0 %
5 . 0 %
0 % 5 % 1 0 % 1 5 % 2 0 % 2 5 % 3 0 %
under 2 0
2 0 -4 0
4 0 -7 0
7 0 -1 0 0
1 0 0 -1 5 0
1 5 0 -2 0 0
above
November 2012


Grain Storage Capacity Ownership Structure (August 2012)

Storage Capacity Breakdown by Region (kt; J une 2012)
Sources: UkrAgroConsult

and other agribusinesses Large integrated Ukrainian agribusinesses have actively expanded their storage
capacities to become major players in the grain storage market and to lower their
exposure to short-term grain price volatility. Most listed large agricultural holdings
have sufficient storage capacities for their own operations, and provide the remainder
for lease to other companies and farmers. WSE-listed Kernel Holding, the largest
Ukrainian sunflower oil producer, is also the largest domestic silo company, currently
operating more than 20 silo units with total capacity of 2.7 Mt (9% of total domestic
capacity). LSE-listed MHP, the countrys largest poultry producer, operates 1.1 Mt of
storage capacities and ranks second among agribusiness storage operators.

State-Owned and Top-15 Private Silo Operators in Ukraine (Mt; J une 2012)
Sources: UkrAgroConsult, Companies, Dragon Capital estimates

Silo construction costs range
from $150-250 per tonne of
storage
Ukrainian agribusinesses report total elevator construction costs of $150-250 per
tonne of storage capacity. The expenses attributed to the construction of a new
elevator can be recouped in 5-7 years assuming full-year 100% silo utilization, with
the possibility to accelerate the payback period through increased grain turnover,
proper usage of modern equipment and employment of skilled and qualified staff.
Small farms lack working capital and experience difficulties in attracting loans due
to Ukraines constrained lending environment and are thus unable to finance
construction of new elevators. They have to lease storage capacities from either
state-owned operators or large agribusinesses.

St at e-owned
2 3 %
Pri vat e
7 7 %
Odesa
8 .7 %
Dni propet r.
8 .0 %
Pol t ava
7 .8 %
Vi nnyt si a
7 .0 %
Ki rovohrad
6 .9 %
Mykol ai v
6 .1 %
Kharki v
6 .0 %
Cherkasy
5 .7 %
Sumy
5 .3 %
Zapori zhya
4 .5 %
Ot her
3 4 .0 %
5 . 6
2 . 7
1 . 9
1 . 6
1 . 1
0 . 9 0 . 8
0 . 7 0 . 7
0 . 6
0 . 4 0 . 3 0 . 3 0 . 3 0 . 3
0
2
4
6
S
t
a
t
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-
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s

D
r
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f
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s
A
g
r
o
t
o
n

November 2012


Silo Maintenance Costs (%)

Ukraine Silos: Storage Cost Structure (%; 2005/ 06-2010/ 11)

State company Khlib Ukraine provides grain storage services, charging an average of $9
per tonne. However, according to a Kernel estimate, grain storage costs at Ukrainian
elevators average $14.6/ t, including costs attributed to acceptance of grain ($1.29/ t)
such as the unloading of trucks and railway hoppers and loading grain to an elevator,
storage ($3.15/ t), and loading for further transportation to port ($6.67/ t). Kernel itself
set monthly storage rates at $12.42-16.55/ t for 2012 depending on the crop. Thus, total
grain storage expenditures in Ukraine are higher compared to Russia ($11.39/ t), and
the storage cost itself ($3.15/ t in Ukraine) is higher than in Russia ($2.01/ t), the U.S.
($2.00/ t) and Western European countries such as the Netherlands ($2.00/ t), reflecting
a shortage of modern storage facilities and lower competition locally. Grain storage
prices vary depending on the availability of elevators in different regions. More
importantly, the operation of elevators is highly energy-intensive and thus the rates
charged for storage depend on energy price dynamics (however, rates are set annually
and are usually fixed for one season).
Average cost of storage in
Ukraine is high compared to
European counterparts

St orage Cost s ( $ / t onne/ mont h) Ukrai ne average Khl i b Ukrai ne Russi a U. S. Net herl ands
Truck/ hopper unl oad t o si l o 1 . 2 9 1 . 4 1 4 . 0 2 - -
Cl eani ng and dryi ng ( $ / t onne-%) * 3 . 4 9 2 . 3 6 - - -
St orage 3 . 1 5 1 . 6 6 2 . 0 1 2 . 0 0 2 . 0 0
Loadi ng f or t ransport at i on t o port 6 . 6 7 3 . 5 9 5 . 3 6 - -
Tot al 1 4 . 6 0 9 . 0 0 1 1 . 3 9 2 . 0 0 2 . 0 0
Grain Storage Costs ($/ tonne/ month; 2011-2012)
*Note: tonne-% is a conventional measure used for cleaning and drying services of the elevator, which accounts for
difference in humidity of grain already stored at the elevator and of that being delivered to the elevator.
Sources: Kernel, Khlib Ukraine, AgroActual, World Bank, Dragon Capital estimates

St orage Cost s ( $ / t onne/ mont h) Sunseed Soybean Corn Earl y Crop Rapeseed
Truck/ hopper unl oad t o si l o 1 . 5 4 1 . 3 8 1 . 3 9 1 . 0 5 1 . 4 2
Cl eani ng and dryi ng ( $ / t onne-%) 3 . 5 5 4 . 2 1 4 . 5 2 3 . 0 1 4 . 1 8
St orage 3 . 5 3 2 . 8 8 3 . 1 8 2 . 4 5 3 . 3 3
Loadi ng f or t ransport at i on t o port 7 . 9 0 6 . 8 9 7 . 4 7 5 . 9 1 6 . 4 9
Tot al 1 6 . 5 2 1 5 . 3 5 1 6 . 5 5 1 2 . 4 2 1 5 . 4 1
Kernel: Grain Storage Costs ($/ tonne/ month; 2012)
Sources: Kernel, Dragon Capital estimates

4 7 %
2 5 %
1 1 %
5 %
1 1 %
0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 %
Gas
Sal ari es
El ect ri ci t y
Overheads
Ot her
1 5 % 1 4 %
2 6 %
1 0 % 1 1 % 1 0 %
2 3 %
2 1 %
1 0 %
1 4 %
7 %
6 %
6 %
7 %
1 5 %
1 6 %
2 0 %
1 9 %
1 8 %
1 7 %
1 6 %
1 9 % 2 2 %
2 5 %
3 8 %
4 2 %
3 3 %
4 1 % 4 0 % 4 0 %
0 %
2 5 %
5 0 %
7 5 %
1 0 0 %
' 0 5 / 0 6 ' 0 6 / 0 7 ' 0 7 / 0 8 ' 0 8 / 0 9 ' 0 9 / 1 0 ' 1 0 / 1 1
Recei vi ng Cl eani ng Dryi ng St orage Loadi ng on rai l cars
November 2012


Silage bags are the cheapest
grain storage alternative
The alternative method to grain storage in elevators is the aforementioned plastic
silage bags, or sleeves. Placed in the open air, these sleeves allow for
optimization of grain storage costs, which are estimated to be 2-3 times lower than
costs associated with storage in an elevator. One bag can contain 180-200 tonnes of
grain with storage costs estimated at $3-5/ t for a season lasting up to 10 months
(vs. $9-13/ t per month in an elevator). Also, the usage of silage bags involves
minimal acceptance costs (load/ unload of trucks) and has lower transportation
costs but requires additional expenditure such as security at field, rent/ purchase of
grain-packaging machinery (total costs of $11,000-20,000), and about the same
amount for platform preparation of where grain sleeves will be stored (est. $1 per
tonne of stored grain during amortization life of equipment assumed at 15 years).

Silage Bag Storage Cost Structure
Sources: Plastic Planet (Ukrainian producer of sealed bags), Dragon Capital
estimates

Silo Storage Cost Structure
Sources: Plastic Planet, Dragon Capital estimates

RAI LROAD THE KEY TRANSPORT
Ukraines railway system Ukraine has a developed network of railways with around 22,000 km of operational
tracks. Almost 70% of the countrys rail lines are equipped with modern
management systems, centralized traffic control and automatic blocking systems.
The Ukrainian railroad system (which is linked to railways in Russia, Belarus,
Moldova, Poland, Romania, Slovakia and Hungary) utilizes six railways connecting
all regions of the country and serves all 18 Ukrainian sea ports in the Black Sea-
Azov basin. State-owned Ukrzaliznytsya, established in December 1991, is the
monopoly operator of rail transportation in Ukraine. Currently Ukrzaliznytsya is
expected to follow the example of Russian Railways reorganization which started a
decade ago. From the beginning of this year, Ukrzaliznytsya has transferred most
of its open and hopper car fleets to its fully owned subsidiaries. The railcars status
was changed from inventory (meaning they could be used by other CIS rail
operators pursuant to a relevant multilateral agreement) to private (similar to
how Russian Railways transferred its fleet to Freight One and Freight Two) in order
to ensure more efficient use of available railcars. In the medium-term
Ukrzaliznytsyas restructuring should encourage investments in the railway sector
(e.g. via privatizations, similar to Russian Railways Transcontainer or Freight One)
and spur large-scale modernization of the domestic railcar fleet, benefiting
domestic railcar makers.

Transhi pment
bunker
2 6 %
Grai n packagi ng
machi nery
1 9 %
Si l age bags
5 5 %
Unl oad t o si l o
9 %
Cl eani ng and
Dryi ng
2 4 %
St orage
2 1 %
Transhi pment
t o port
4 6 %

November 2012


Ukrainian Railroad Map and Access to Sea Ports

High depreciation of rolling stock and inefficient usage by Ukrzaliznytsya pose
logistical hurdles for Ukrainian grain market operators. This is compounded by red
tape in obtaining relevant sanitary permits, causing delays in grain deliveries and
holding up hopper cars while they may be needed in other regions. At the same time,
Ukrzaliznytsyas existing 11,579-strong hopper fleet, which can carry close to 2 Mt of
grain monthly, is deemed sufficient to meet demand for grain transportation from
elevators to ports, as annual grain exports from Ukraine have ranged from 15-20 Mt.
However, evidence points to the contrary.
is one of the weakest links in
the grain logistics chain due to
inefficient use of available
capacities

Grain Hopper
Source: Ukrzaliznytsya

Grain Hopper Unloading
Source: Nibulon

Apart from the inefficient use of available hoppers due to red tape and other
reasons, the shortage for local agricultural producers has been compounded by
Ukrzaliznytsyas practice of leasing grain-hoppers to local and Russian rail
operators, leading to a further reduction in capacity utilization. For example, while
the travel time of a grain hopper in Ukraine averages 10 days (from elevator to port
and back, assuming it returns empty from port), it would be used for up to 40 days
if leased by a Russian operator for operations outside of Ukraine. The lack of
hoppers thus led to Ukrzaliznytsya failing to deliver about 6% of grain, or more
than 70 kt per month, in 2008 (when the grain harvest in Ukraine hit 53 Mt, one of
the best levels in 10 years). Moreover, due to the existing hopper fleet growing
outdated and too few new hoppers being purchased, agribusiness players expect
the grain hopper deficit to increase by up to 30% by 2015.
State monopoly Ukrzaliznytsya
faces a growing shortage of
grain hoppers

November 2012


Car Type Avai l abl e Fl eet Surpl us/ Short age*
Uni versal open cars 4 2 , 1 1 9 ( 3 4 , 8 3 2 )
Oi l t anks ( 8 -wheel ) 5 , 0 7 5 ( 4 , 3 6 6 )
Tanks ( 1 6 -wheel ) 1 5 2 ( 3 9 8 )
Grai n hoppers 1 1 , 5 7 9 ( 8 8 )
Cement hoppers 2 , 8 2 2 ( 3 , 6 0 9 )
Cement hoppers ( cl osed) 9 , 8 7 4 8 5 2
Pl at f orms 3 , 9 0 3 1 , 3 4 1
Tot al 7 5 , 5 2 4 ( 4 1 , 1 0 0 )
Ukrzaliznytsya Rail Fleet Breakdown (units; 2010)*
Note: *Ukrzaliznytsya estimates. Sources: Transport Business, Ukrzaliznytsya

Indi cat or St at e-owned Pri vat e
Turnover ( days) 6 . 0 9 . 0
Empt y runs ( %) 3 7 % 4 9 %
Tari f f growt h ( % p. a. ) 5 -1 0 5 0 -7 0
State-Owned and Private Rail Fleets Comparison (2010)

Grain Transportation by Rail in Ukraine (Mt)*
Note: *Grain deliveries per calendar year.
Sources: UkrAgroConsult, Dragon Capital estimates

Grain accounts for only 3% of
overall rail traffic
Grain has accounted for an unchanged 3% volume share of total freight rail
transportation in Ukraine since 2002. Ukrzaliznytsya has not expanded its grain-
hopper fleet in the past few years, purchasing additional cars only to replace those
going out of service. Factoring in optimistic projections of growth in Ukrainian
grain exports to some 42 Mt by 2020, Ukrzaliznytsya would need to increase its
hopper fleet by 14,000 units thereby spending an est. $1.1bn (based on current
hopper prices) in order to ensure delay-free transportation. However, due to grain
transportation by rail accounting for a small share of total rail freight turnover,
Ukrzaliznytsya is expected to give priority to more strategically important cargoes
such as coal, whose share of total freight turnover is close to 30%.

Ukrzaliznytsya Turnover Breakdown by Cargo Type (%)
Source: SSS

Only 7-8% of the grain hopper
fleet is privately owned
Only around 800-950 hoppers are estimated to be in private ownership in Ukraine (vs.
11,597 owned by Ukrzaliznytsya). We believe that private hoppers are owned by large
agribusinesses and grain traders that aim to ensure timely exports of their own
produced/ purchased crops through decreasing exposure to the supply of rented
hoppers. However, the still relatively small stock of private grain-hoppers is explained
by the high seasonality of the business, making hoppers fully loaded only in July-
August and late September-October. For the rest of the year, the equipment is not
utilized but still requires substantial maintenance costs related to repairs, parking and
security. Moreover even during the high season, grain hoppers are utilized only on the
way from silo to port but run empty on the way back due to their special design
permitting only transportation of grains.

5 .6
9 .2
1 1 .5
9 .2
7 .3
1 5 .5
1 8 .9
1 2 .2
1 4 .3
0 .0
0 .2
0 .4
0 .6
0 .8
1 .0
1 .2
1 .4
1 .6
1 .8
2 .0
0
3
5
8
1 0
1 3
1 5
1 8
2 0
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Grai n del i veri es by rai l ( Mt ; l hs)
Average mont hl y del i veri es ( Mt ; rhs)
0 %
2 5 %
5 0 %
7 5 %
1 0 0 %
2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E
Coal Coke Pet rol eum and product s Iron and manganese ore Ferrous met al s Grai n Ot her goods

November 2012


Overall grain railroad transportation costs in Ukraine averaged $14.90/ t for
distances from 200 km to 500 km, and $18.93/ t for distances from 500 km to 1,000
km in 2011, including transportation ($15.96/ t) and veterinary and quarantine
certificates ($2.97/ t). Compared to Russia, Ukraines grain transportation cost was
10% cheaper last year.
Ukrzaliznytsya offers cheaper
transportation rates than Russia

Ukrai ne Russi a
Transport at i on cost i t ems ( $ / t onne) :
Transport at i on ( 2 0 0 -5 0 0 km di st ance) 1 1 . 9 3 -
Transport at i on ( 5 0 0 -1 ,0 0 0 km di st ance) 1 5 . 9 6 2 1 . 0
Qual i t y cert i f i cat es 2 . 9 7 -
Tot al ( 2 0 0 -5 0 0 km di st ance) 1 4 . 9 0 -
Tot al ( 5 0 0 -1 , 0 0 0 km di st ance) 1 8 . 9 3 2 1 . 0
Grain Transportation Cost Comparison (2011)*
Note: *quality certificates: Veterinary and Quarantine, Certificate of State Inspectorate for Bread Products.
Sources: Ukrzaliznytsya, Ukrainian agricultural companies, Grain Ukraine, RZD-Partner, Dragon Capital estimates

The shortage and wear and tear of the grain hopper fleet in Ukraine has fueled
demand for automotive transportation, which is expected to play an increasing
role. This stands in contrast to the dominant pattern in Europe, where the share of
railroad transportation is increasing at the expense of auto transport due to
stringent environmental regulations and high fuel costs.
Roads are an alternative to rail

Length of Railways and Roads in Ukraine (000 km)
Source: SSS

Freight Turnover Structure by Transport Type in Ukraine (%)
Source: SSS

PORTS
Ukraine operates 18 ports along the Black Sea and Sea of Azov coastlines, 12 of which
deal with grain transshipment and jointly operate grain storage capacities totaling an
estimated 2.1 Mt. All ports, including the underlying land and coastline, are state-
owned, with some of their transshipment terminals leased to private grain traders
under long-term contracts. The most attractive ports for grain transshipment in terms of
relevant infrastructure and utilization are the three sea ports near Odesa (Odesa,
Yuzhny and Illichivsk), cumulatively accounting for 60% of Ukraines maritime
turnover. The largest grain traders such as Glencore, Toepfer, Kernel and Bunge have
their grain terminals in this region. The Odesa ports offer berths 13.5 meters deep and
serve Panamax vessels of 50,000-80,000 deadweight tons (DWT). Capesize vessels of
80,000-300,000 DWT can also be partially loaded in these ports and then fully loaded in
a deeper area off the coast.
Ukraine has 18 ports on the
Black Sea and Sea of Azov
coastlines

1 6 0
1 6 5
1 7 0
1 7 5
0
5
1 0
1 5
2 0
2 5
1
9
8
0
1
9
8
5
1
9
9
0
1
9
9
5
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Rai l ( ' 0 0 0 km; l hs) Aut o roads ( ' 0 0 0 km; rhs)
0 %
2 5 %
5 0 %
7 5 %
1 0 0 %
1
9
4
0
1
9
5
5
1
9
6
5
1
9
7
5
1
9
8
5
1
9
9
5
2
0
0
1
2
0
0
3
2
0
0
5
2
0
0
7
2
0
0
9
Rai l Roads Sea Ri ver Pi pel i ne Ai r
November 2012


Ukrainian Sea Ports
Source: Dragon Capital

Odesa area ports are the largest
hub for grain trading in
Ukraine
Among Crimean ports, Sevastopol and Feodosiya offer infrastructure comparable with
that of the Odesa port area. The Avlita grain terminal in Sevastopol, owned by System
Capital Management (SCM), the largest industrial group in Ukraine, works closely with
Cargill. Feodosiyas port is mainly used for oil transshipment. Mykolayiv ports offer
berths 9 meters deep, allowing their grain terminals to accept Handysize and
Handymax type vessels capable of carrying 25-30 kt of grain.

Ukrainian Ports by Grain Export Volume (2011)
Largest Grain Traders in Ukraine (volume terms; 2011/ 12)
Sources: Delo, Dragon Capital estimates

Nibulon was the largest grain
trader in 2011/12 in volume
terms
Nibulon, the largest grain trader in Ukraine in the 2011/ 12 season (July-June),
accounted for an est. 15.8% of total grain throughput in volume terms, transshipping
over 3.5 Mt via the Mykolayiv port. Khlib Ukraine was second largest with an est.
13.6% share, followed by Kernel Holding, which accounted for an est. 9.5% of grain
throughput, transshipping 2.1Mt of grain.

Bi g port s
( Odesa, Yuzhny,
Il l i chi vsk,
Sevast opol )
4 6 %
Medi um-si zed
port s
( Mykol ayi v,
Mari upol ,
Kherson, Kerch)
3 0 %
Smal l sea and
ri ver port s
2 4 %
Ni bul on
1 5 . 8 %
Khl i b Invest bud
1 3 . 6 %
Kernel Hol di ng
9 . 5 %
Loui s Dreyf us
7 . 2 %
Al f red C. Toepf er
4 . 5 %
Cargi l l
4 . 1 %
Sunt rade
( Bunge)
3 . 6 %
Serna
( Gl encore)
3 . 6 %
Nobl e Resources
2 . 7 %
Hermes-Tradi ng
1 . 8 %
Ot her
3 3 . 5 %
0 . 3
Feodosi ya
0 . 9
Kerch
0 . 1
Skadovsk
Bel gorod-Dni st rovski y
0 . 4
Ni kka-Terra
0 . 5
Reni
0 . 2
Izmai l
0 . 4
Ust -Dunaysk
0 . 2
0 . 2
Nort ek -Azot

November 2012


Grain Transshipment Terminal Site in Illichivsk
Source: Kernel Holding

Grain Transshipment Terminal Site in Mykolayiv
Source: Nibulon

Direct Grain Loading to Vessel in Black Sea Port
Source: Expert
In addition to sea ports, Ukraine boasts 11 river ports. As grain harvests in the
country improve and competition in its sea ports grows, the attractiveness of river
terminal facilities is set to increase. Currently, out of 11 river ports in Ukraine only
three (Dnipropetrovsk, Kherson and Mykolayiv) are involved in grain
transshipment. Only 5% of available capacities (2.3 Mt throughput and 125 kt
storage) are being utilized due to underdeveloped river transport infrastructure.
One of the largest owners of river grain elevators in Ukraine is Nibulon, which
invests heavily in the construction of river grain terminals to foster the recovery of
merchant shipping in Ukraine.
Ukraine operates 11 river ports

River Grain Throughput Terminals by Operator (2010)

Ri ver Port Owner/ Operat or Throughput ( kt )
St orage
Capaci t y ( kt )
Dni propet rovsk St at e 6 0 0 3 0
Prydni provska Agrari an Group 1 5 0 -
Kherson UkrKazexport ast yk 8 0 0 2 0
Nort ek-Azot 3 0 0 8
Mykol ayi v Agroexport 4 0 0 6 6 . 5
Tot al 2 , 2 5 0 1 2 4 . 5

Ukrainian River Ports Annual Throughput Capacity (2011)

Ni bul on
5 9 % Khl i b Ukrai ne
2 3 %
NKZ
1 0 %
Kernel Hol di ng
( Al l seeds)
3 %
Toepf er
1 %
Ot her
4 %
November 2012


Ukraines grain throughput
capacities in sea ports amount
to almost 40 Mt p.a.
The combined throughput capacity of Ukrainian sea ports currently totals 39.8 Mt
of grain p.a. (+4.0 Mt y-o-y thanks to Bunge launching a grain transshipment
terminal in Mykolayiv port last year), well above annual exports which range from
15-25 Mt p.a. Record high capacity utilization of 80% was recorded in the 2008/ 09
season following a bumper harvest of 53.3 Mt. In 2012/ 13 MY, we expect Ukraine
to utilize ports at a rate of 55% thanks to the grain export memorandum signed by
the government and major traders in September 2012. The document caps 2012/ 13
MY grain exports at 20.4 Mt, including 5 Mt of wheat, 12.4 Mt of corn and 3.0Mt of
barley.

Throughput Capacity and Utilization Rate
in Ukrainian Sea Ports (2002-2011)
Monthly Grain Throughput vs. Exports in Sea Ports (Mt)
Sources: SSS, UkrAgroConsult

Monthly sea port grain
transshipment exceeds exports
thanks to foreign sub-
contractors
Ukraine exported 22.0 Mt of grain in 2011/ 12 MY while we estimate the countrys
sea port throughput reached 29.8 Mt, or 35% higher than actual exports. This is
explained by foreign sub-contractor activity in Ukrainian ports, including exports
of grain originating in Russia. Grain accounted for 3.2% of total Ukrainian transit
last year.
Growing international demand
for Capesize vessel grain
transshipment to stimulate deep
sea port development in Ukraine
Domestic ports have started to increasingly serve vessels with deadweight of 150,000
tonnes and more (Capesize) but only on roadsteads as their berths are not equipped
properly and sea depth is less than 15.5 meters in the deep-water Odesa, Illichivsk,
Yuzhny and Avlita ports.

Capesize Vessel (178.5 DWT)
Source: Nautic Expo

Handysize Vessel (15-35 DWT) Loaded with Grain
Source: AnyFoodAnyFeed

7 .9
9 .8
1 5 .7
2 0 .8
2 3 .7
2 7 .8
3 1 .2
3 4 .7
3 5 .8
3 9 .8
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
0
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Throughput capaci t y ( Mt ; l hs) Ut i l i zat i on ( %; rhs)
0 . 0
0 . 5
1 . 0
1 . 5
2 . 0
2 . 5
3 . 0
3 . 5
4 . 0
J
u
l
-
1
1
A
u
g
-
1
1
S
e
p
-
1
1
O
c
t
-
1
1
N
o
v
-
1
1
D
e
c
-
1
1
J
a
n
-
1
2
F
e
b
-
1
2
M
a
r
-
1
2
A
p
r
-
1
2
M
a
y
-
1
2
J
u
n
-
1
2
Export ( Mt ) Mont hl y t ransshi pment ( Mt )

November 2012


Sea Port s St orage Capaci t i es Share of Tot al Throughput

Share of Tot al Draf t Vessel s Max Deadwei ght
( kt ) ( %) ( Mt / year) ( %) ( met ers) ( t ype) ( kt )
Odesa area 1 , 2 6 9 6 0 % 2 0 . 6 5 4 % 1 3 . 5 - 1 5 . 5 Panamax 6 0 -8 0
Odesa 3 4 0 1 6 % 6 . 0 1 6 % 1 3 . 5 Panamax 6 0 -8 0
Il l i chi vsk 5 4 0 2 5 % 1 0 . 7 2 8 % 1 3 . 5 Panamax 6 0 -8 0
Yuzhny 3 8 0 1 8 % 3 . 5 9 % 1 3 . 5 - 1 5 . 5 Post -Panamax 8 0 -1 6 0
Bel gorod-Dni st rovski y 9 0 % 0 . 4 1 % 4 . 5 Handysi ze/ Handymax < 6 0
Cri mea port s 2 3 8 1 1 % 4 . 2 1 2 % 8 . 1 1 4 . 2 Panamax 6 0 -8 0
Avl i t a 1 7 0 8 % 3 . 0 8 % 1 2 . 3 - 1 4 . 2 Panamax 6 0 -8 0
Feodosi ya 8 0 % 0 . 3 1 % 1 1 . 5 Panamax 6 0 -8 0
Kerch 6 0 3 % 0 . 9 2 % 8 . 1 Handysi ze/ Handymax < 6 0
Mykol ayi v regi on 3 8 0 1 8 % 5 . 9 1 5 % 1 0 . 3 - 1 0 . 5 Panamax 6 0 -8 0
Mykol ayi v port 2 0 7 1 0 % 4 . 0 1 0 % 1 0 . 3 Panamax 6 0 -8 0
Ni bul on 1 3 3 6 % 1 . 7 4 % 1 0 . 5 Panamax 6 0 -8 0
Ni kka-Terra 4 0 2 % 0 . 2 1 % 1 0 . 3 Panamax 6 0 -8 0
Sout hern Dni pro port s 1 3 4 6 % 1 . 8 5 % 6 . 0 8 . 1 Handysi ze/ Handymax < 6 0
Kherson 1 2 0 6 % 1 . 5 4 % 8 . 1 Handysi ze/ Handymax < 6 0
Skadovsk 6 0 % 0 . 1 0 % 7 . 6 Handysi ze/ Handymax < 6 0
Nort -Azot 8 0 % 0 . 2 1 % 6 . 0 Handysi ze/ Handymax < 6 0
Danube port s 4 7 2 % 1 . 1 3 % 7 . 5 Handysi ze/ Handymax < 6 0
Izmai l 2 0 1 % 0 . 2 1 % 7 . 5 Handysi ze/ Handymax < 6 0
Reni 2 5 1 % 0 . 5 1 % 7 . 5 Handysi ze/ Handymax < 6 0
Ust -Dunaysk 2 0 % 0 . 4 1 % 7 . 5 Handysi ze/ Handymax < 6 0
Sea of Azov port s 6 4 3 % 2 . 2 6 % 8 . 0 Handysi ze/ Handymax < 6 0
Berdyansk 1 8 1 % 1 . 6 4 % 8 . 0 Handysi ze/ Handymax < 6 0
Mari upol 4 6 2 % 0 . 6 2 % 8 . 0 Handysi ze/ Handymax < 6 0
Tot al 2 , 1 3 2 1 0 0 % 3 5 . 8 1 0 0 % 6 . 0 1 5 . 5 Panamax 6 0 -8 0
Ukrainian Sea Ports (end-2011)
Sources: SSS, UkrAgroConsult

Before the economic downturn of 2008-09, several projects for deep-water ports were
announced but none have been delivered so far. Grain traders and agribusinesses
estimate sea port grain terminal construction costs at $25-40 per tonne of grain
transshipped. Thus, a deep-sea port in Odesa region with a throughput capacity of
5 Mt would cost about $150-200m.
Port construction costs are
estimated at $25-40 per tonne of
throughput

GRAI N HANDLI NG COSTS
The export price (FOB) of Ukrainian 3
rd
grade milling wheat stood at $340/ t at the
beginning of October, while the local price (EXW; field price at which grain-grower
sells) totaled $260/ t. The difference of $80 between the FOB and EXW quotes is
explained by logistics costs. Field grain (sold at EXW price of $260/ t), is
transported first from field to storage facilities (storage cost of $15/ t/ month), and
then from storage to port (transportation costs $12-16/ t depending on distance).
After all necessary documents are received (quality certificates $3/ t), grain is
loaded on to the vessel (loading $14/ t). The traders margin, ranging from $32-
36/ t, accounts for the remainder of the aforementioned $80/ t difference. This
margin translates into 9-11% profitability in relative terms for the trader in the
current environment, but historically it has varied significantly and, for example,
stood at 3.5% in 2Q12.
From field to port: how grain
export prices are determined

November 2012


Ukrainian 3
rd
Grade Milling Wheat Price Formation: from Field to Port*
Note: prices as of Oct. 5, 2012. Source: Dragon Capital

Port throughput charges in
Ukraine are higher than in
developed European countries
Grain transshipment rates at Ukrainian ports (charged by port operators in excess
of international freight rates) tripled over the last five years and currently range
from $15-17/ t, compared to $7/ t in France and Germany. Rising harvest volumes
and lack of effectively managed grain logistics chains exert upward pressure on
grain handling costs at domestic ports.

Average Grain Handling Rate at Ukrainian Ports ($/ t)

Port charges ( $ / t ) Ukrai ne France Germany
Throughput 1 5 . 0 0 6 . 7 8 6 . 2 1
Fumi gat i on 0 . 6 8 - 0 . 4 1
Cust oms cl earance

1 . 0 7 - 0 . 0 2
Tot al 1 6 . 7 5 6 . 7 8 6 . 6 4

Port Charges in Ukraine, France and Germany (2009/ 10)
Sources: Cargill, SSS, Dragon Capital estimates

Port charges should decline as
more capacity is launched in
neighboring countries
According to market players, grain throughput charges at Ukrainian ports should
decline as ports in other Black Sea countries are increasingly investing in new storage
and throughput capacities, increasing competition for grain shipment in the region.

5 .0
6 .0
8 .8
1 3 .0
1 6 .8
1 4 .9
1 4 .0
0
3
5
8
1 0
1 3
1 5
1 8
2 0
2 0 0 5 / 2 0 0 6 2 0 0 6 / 2 0 0 7 2 0 0 7 / 2 0 0 8 2 0 0 8 / 2 0 0 9 2 0 0 9 / 2 0 1 0 2 0 1 0 / 2 0 1 1 2 0 1 1 / 1 2 E
Average grai n handl i ng compl ex rat e ( $ / t )
EXW:
$ 2 6 0 / t
Si l o:
$ 1 5 / t
Transport at i on t o Port :
$ 1 2 -1 6 / t
Qual i t y cert i f i cat e:
$ 3 / t
Loadi ng t o vessel :
$ 1 4 / t
Trader s margi n:
$ 3 2 -3 6 / t

FOB:
$ 3 4 0 / t

November 2012


RUSSI AN PORTS: KERNEL FI RST UKRAI NI AN OPERATOR I N TAMAN
Joint grain throughout capacities at Russian ports reach about 25-27 Mt p.a., including
deep water ports on the Black Sea (15-16 Mt), shallow water ports on the Azov Sea (6
Mt), Volga-Don basin (4 Mt), Caspian Sea, and the Russian Far East. The Black Sea
ports, including Novorossiysk (11-12 Mt), Tuapse (2.5 Mt) and Taman (1.5 Mt), jointly
account for an est. 55-65% of Russias total grain throughput capacity. In 2011, Russian
grain terminals operated at 84% capacity utilization compared to 45% in Ukraine.
Russia can export 25-27 Mt of
grain p.a. with over half
shipped through Black Sea
ports

Russian Black Sea and Azov Sea Ports
Source: Russian Business Newspaper

Novorossiysk, which alone accounts for 41-44% of Russias total grain throughput
capacity, consists of two grain terminals and can load Panamax-sized vessels.
Terminals at the port have both railroad and truck access. The port is owned by both
the state (terminal with throughout capacity of 4-5 Mt p.a.) and private investors (6-7
Mt). Market experts estimate that traders will increase grain exports via Novorossiysk
to 14 Mt by 2015/ 2016 MY, accounting for 35% of total projected grain exports from the
country over the period.
Novorossiysk is the main
Russian port for grain exports

Black Sea: Grain Export Capacities and Exports (Mt p.a.)
Source: UkrAgroConsult, Dragon Capital estimates

Grain Export Capacity at Russian Ports (Mt p.a.)*
Note: Taman port effective capacity.
Source: USDA Foreign Agriculture Service, Dragon Capital estimates

0
1 0
2 0
3 0
4 0
Ukrai ne Russi a
Current Export Capaci t i es Maxi mum Grai n Export s
Novorossyi sk
( 1 1 . 5 )
Vol ga-Don-Azov
( 1 0 . 0 )
Tuapse ( 2 . 5 )
Taman ( 1 . 5 )
Ot her ( 1 . 0 )
November 2012


Tuapse port grain throughput
is constrained by lack of access
to railroads

Tuapse (9-10% of Russias grain throughput capacities) is the second largest terminal
complex in Russia with storage capacity of 100 kt and, similar to Novorossiysk, can
serve Panamax-sized vessels and is connected inland only by rail (loaded trucks cannot
access due to steep roads in the area). Tuapse does not work at full capacity due to its
railway infrastructure also being used for heavy traffic in Sochi where construction
works for the 2014 Winter Olympics are ongoing.
Taman port, recently purchased
by Kernel and Glencore,
remains under-developed, but
an investment program is
underway

Traders exported about 1.5 Mt of grain through Taman port in 2011/ 12 MY, which we
believe is the ports current effective throughput capacity (though nameplate capacity
is 3.0 Mt), being constrained by the lack of railway access. Taman is still under-
developed and does not have railway access, but with its deep waters (18 m) that allow
for serving vessels with 100-160 kt deadweight (post-Panamax vessels) and close
proximity to major Russian grain-growing regions it has the potential to become
Russias second largest Black Sea port after Novorossiysk. Attracted by Tamans
strategic importance, Kernel and global grain trader Glencore (50/ 50 joint venture)
acquired a 100% stake in a deep water grain export terminal in Taman port from EFKO
Group in September 2012. The deal was valued at $265m, or $88 per tonne of
throughput capacity. It was announced that the grain export terminal has installed
throughput capacity of 3 Mt p.a. and will serve as a platform for large scale
deployment of Kernels Russian grain export business. Kernel plans to invest $30-40m
in the port in 2013-2014 and intends to boost its throughput capacity to 5-6 Mt.

Port s 2 0 0 9 / 2 0 1 0 2 0 1 1 / 2 0 1 2 E 2 0 1 5 / 2 0 1 6 F
Novorossi ysk 1 0 . 4 1 1 . 0 1 4 . 0
Azov and Vol ga-Don port s 8 . 9 9 . 0 1 1 . 5
Tuapse 0 . 8 1 . 7 3 . 0
Taman - 0 . 7 6 . 0
Samur 0 . 4 0 . 5 -
Bal t i c port s - 0 . 5 -
Caspi an sea port s 0 . 3 0 . 3 0 . 5
Ukrai ne 0 . 2 0 . 2 -
Far East port s 0 . 1 0 . 1 1 . 0
Kal i ni ngrad 0 . 1 0 . 1 4 . 0
Ot her 0 . 4 - -
Tot al 2 1 . 6 2 4 . 1 4 0 . 0

Breakdown of Russian Grain Exports by Port (Mt)
Source: RusAgroTrans
Russia: Grain Exports and Throughput Capacity (Mt p.a.)

0
5
1 0
1 5
2 0
2 5
3 0
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Export s Grai n Handl i ng Capaci t i es

November 2012


REFORM OF UKRAI NI AN SEA PORTS
President Viktor Yanukovych signed a bill on Ukrainian sea ports into law on June 8,
2012, and the legislation will enter into effect in June 2013. The document contains
detailed regulations regarding operations and ownership of Ukrainian sea port
infrastructure (it does not apply to river ports). According to the law, the government
will remain the sole owner of ports strategic facilities, including waters and hydraulic
structures (mainly docks), but other port facilities can be privatized or leased once the
law takes effect. Private investors can only own the hydraulic structures they build
themselves.
Reform of Ukrainian ports was
approved in June 2012...
Previously, any clear legislative framework outlining the rights of private investors
regarding their investments in sea port infrastructure was absent in Ukraine, which
prevented major private sector involvement in the sector. Now, the state undertakes to
guarantee the right of private ownership of port infrastructure that was acquired in
accordance with the new law. The legislation also allows for preserving existing
contracts with operators (contracts signed before the law was enacted), but unlike
before, investors will have clear guarantees of their contracts from the state. There are a
number of opponents of the decision to leave existing contracts in effect, claiming that
there are currently operators/ joint ventures that control the terminals but have no
actual throughput, i.e. capitalizing on their monopoly position but having no intention
to invest in port infrastructure development.
...providing for protection of
private investments...
The law allows for concession and lease (not possible before) of docks and related
infrastructure, including access roads, communication lines, and utilities for up to 49
years. The law also foresees the possibility for investors to lease land plots where the
facilities in concession are located without an auction. Thus, private investors will be
given land and docks on lease or concession terms in order to develop terminals and
increase throughput capacities, while the state will own the waters. Private investors
will capitalize from growing throughput while the state will receive payments for
land/ docks lease or concession and for use of port waters.
...introducing concession of
docks and state-owned port
infrastructure...
The law forbids privatization of strategic facilities at Ukrainian sea ports, but foresees
the privatization of single port property complexes (including all types of
equipment/ facilities used in operations) and purchase of shares of PJSCs formed in the
process of port reorganization. The law provides that if an investor privatizes a single
port property complex, it becomes eligible without an auction to lease docks and land
plots where the privatized complex is located (both leases for up to 49 years).
...privatization of single
property complexes...
Private investments in state port property (strategic facilities) through repairs,
modernization, renovation or construction, are subject to a compensation mechanism.
Provided the modernization and construction works are carried out on the basis of
relevant agreements with the state, investors will be compensated by the state through
port charges or other sources not prohibited by legislation.
...and providing for
compensation of private
investments
The law on Ukrainian sea ports was passed on to the Constitutional Court after the
President signed the bill into law in June, where it is being checked for conformity with
existing legislation. Therefore, there is a possibility that the law will be modified.
The law is being examined by
the Constitutional Court

November 2012


We hypothetically value
Ukraines sea port grain
terminals at $3.2bn
Based on the experience of privatization of Turkish ports during the last few years with
an average valuation of $1.6 per tonne of throughput capacity and assuming 49 years of
operational life (i.e. the lease term for the land and docks), we hypothetically value
Ukraines grain terminals at $3.2bn. However, we note that the valuation does not
account for infrastructure other than grain throughout facilities (such as grain silos,
railroads, etc.) and that there is a large number of private terminals at local ports that
will not be put up for sale, thus our estimate is approximate and hypothetical.

Sea Port s Grai n Throughput Capaci t y Hypot het i cal Val uat i on
( Mt / year) ( $ m)
Il l i chi vsk 1 0 . 7 8 4 6
Mykol ayi v 6 . 0 6 3 3
Odessa 8 . 0 4 7 5
Yuzhny 3 . 5 2 7 7
Avl i t a 3 . 0 2 3 7
Ni bul on 1 . 7 1 3 4
Berdyansk 1 . 6 1 2 7
Kherson 1 . 5 1 1 9
Kerch 0 . 9 7 1
Mari upol 0 . 6 4 7
Reni 0 . 5 4 0
Bel gorod-Dni st rovski y 0 . 4 3 2
Ust -Dunaysk 0 . 4 3 2
Feodosi ya 0 . 3 2 4
Ni kka-Terra 0 . 2 1 6
Nort -Azot 0 . 2 1 6
Izmai l 0 . 2 1 6
Skadovsk 0 . 1 8
Tot al 3 9 . 8 3 , 1 4 8
Ukrainian Sea Port Grain Terminals: Hypothetical Valuation
Sources: UkrAgroConsult, dragon Capital estimates

November 2012


Ukrainian Agricultural Exports
EXPORT DYNAMI CS
Following its accession to the WTO in May 2008, Ukraine set out to abolish grain export
quotas which it had imposed to protect domestic consumers and keep local bread
prices low. However, the country had a grain deficit and imposed export quotas in the
2010/ 11 marketing year (MY; July-June) followed by export duties in the first half of
2011/ 12 MY despite the fact grain stocks were sufficiently high as Ukraine harvested a
record high harvest of 56.7 Mt in 2011. The Ukrainian government realized the
irrationality of its tariff policy when it calculated ending stocks for end-2011/ 12 MY and
as a result abolished wheat and corn duties as early as October 2011 and barley tariffs
from Jan. 1, 2012. Still, export dynamics did not recover to 2008/ 09 levels when exports
peaked at 25.3 Mt (the highest since independence). Export tariffs that were in effect in
June-October 2011 totaled 9% or EUR 17/ t for wheat, 14% or EUR 23/ t for barley and
12% or EUR 20/ t for corn.
Grain export tariffs were
enacted in 2011/12 despite WTO
membership
Given the 56.7 Mt grain harvest in 2011 and domestic needs of about 26.0 Mt, Ukraine
enjoyed grain export potential of about 30.0 Mt. However, the aforementioned duties
discouraged exports and grain traders sold only 8.8 Mt in 1H11/ 12 (July-December
2011), up 27% y-o-y but 37% lower than the same period in 2008/ 09 when the country
collected a comparable harvest (53.3 Mt) and exported over 25.0 Mt. In 2011/ 12 MY,
Ukraine exported 22.0 Mt of grain (+73% y-o-y).
Ukraine exported 22.0 Mt of
grain in 2011/12

Ukraines Quarterly Grain Exports (kt; 3Q08-2Q12)
Sources: UkrAgroConsult, SSS

Corn accounted for 62% of total grain exports in 2011/ 12 MY, wheat contributed
another 24% and barley added 11%.
mainly corn and wheat

Ukraines Monthly Grain Exports (kt; J ul11-J un12)
Sources: UkrAgroConsult, SSS

3 , 0 1 8
3 , 6 1 5
2 , 8 3 6
3 , 1 6 9
3 , 6 2 4
3 , 2 5 5
1 , 4 9 8
7 8 1
1 , 2 6 3 1 , 3 1 8
5 5 4
1 , 0 3 2
1 , 5 4 5
9 3 6
1 , 3 2 3 1 , 4 1 5
2 , 7 4 5
1 , 9 2 6
8 9 4
7 6 9
2 , 2 8 2
1 , 5 4 4
1 , 2 0 8
1 , 1 9 9
1 , 8 0 2
5 7 6
3 3 6
1 , 4 5 3
2 6 7
4 8 6
7 3 8
2 , 2 4 2
2 , 0 4 3
4 7 3
2 , 4 2 0
1 , 7 5 2
7 0 3
1 9 7
1 , 4 0 5
1 , 5 4 9
1 , 9 4 6
1 0 9
4 , 1 1 9
4 , 9 0 2
4 , 4 6 6
0
2 ,0 0 0
4 ,0 0 0
6 ,0 0 0
8 ,0 0 0
3 Q0 8 4 Q0 8 1 Q0 9 2 Q0 9 3 Q0 9 4 Q0 9 1 Q1 0 2 Q1 0 3 Q1 0 4 Q1 0 1 Q1 1 2 Q1 1 3 Q1 1 4 Q1 1 1 Q1 2 2 Q1 2
Wheat Barl ey Corn Ot her crops
1 3 9
5 7 1
8 3 5
1 4 3
4 4 2
3 5 1 3 6 7 3 8 8
5 6 9
4 9 4
6 0 7
3 1 7
1 5 7
6 2 7
6 6 8
2 2 9
6
3 2
6 8 1 0
1 8 0
1 1 2
1 6 8
3 3
1 3
6 3
6 3 5
1 , 7 0 0
1 , 7 8 3
1 , 7 7 6
1 , 2 1 1
1 , 9 1 4
1 , 4 1 5
1 , 7 3 9
1 , 3 1 3
0
5 0 0
1 ,0 0 0
1 ,5 0 0
2 ,0 0 0
2 ,5 0 0
3 ,0 0 0
Jul -1 1 Aug-1 1 Sep-1 1 Oct -1 1 Nov-1 1 Dec-1 1 Jan-1 2 Feb-1 2 Mar-1 2 Apr-1 2 May-1 2 Jun-1 2
Wheat ( kt ) Barl ey ( kt ) Corn ( kt ) Ot her ( kt )
November 2012


creating the largest ever
ending stocks
As of July 1, 2012 Ukraine possessed its highest ever (9.8 Mt) grain stocks in storage
(excl. small enterprises), being 2.3 times higher y-o-y, including 5.4 Mt of wheat, 2.7 Mt
of corn, and 1.2 Mt of barley a result of the irrational tariff policy at the beginning of
2011/ 12 MY. The level of ending stocks in Ukraine as of July 1 normally ranged from
5.0-6.0 Mt in previous years.

Ukraines Quarterly Grain Ending Stocks (kt; 4Q08-3Q12)*
Note: *stocks at the end of marketing year are highlighted in oval areas. Sources: UkrAgroConsult, SSS

Compliance with WTO rules is
possible even with market
limitations
Ukraine will not face sanctions from the WTO as long as quotas and limitations are
temporary and introduced in order to prevent shortages of foodstuffs. Under WTO
rules, countries can restrict exports of agricultural products, but only temporarily, and
have to comply with GATT Article XI (export prohibitions or restrictions temporarily
applied to prevent or relieve critical shortages of foodstuffs or other products essential
to the exporting contracting party), in this case paragraph 2(a), and with Article 12 of
the Agriculture Agreement (to notify the WTO as soon as possible). These require the
relevant country to take into account the impact on importing countries food security,
be prepared to discuss the restrictions with importing countries, and to supply detailed
information when requested. Despite general disapproval of such limitations from the
WTO, the organization still has exceptions to the rule. For example, a country has the
right to establish quotas for definite timeframe in order to prevent exports of food
products from the country during a period of shortages or in order to increase food
security.
Ukraine exported 3.3 Mt of
vegetable oil in 2011/12
Sunflower oil exports from Ukraine totaled 3.2 Mt (+22% y-o-y) between September
2011 and August 2012 (the marketing year for sunflower), while sunflower seed
exports fell significantly (by 37% y-o-y; to 282 kt).

Ukraine Sunflower & Soybean Quarterly Exports by Product (kt; 4Q08-2Q12)*
Note: *sunflower seed and soybeans are annually harvested in September, which explains relatively low exports for this month. Sources: UkrAgroConsult, SSS

1 0 . 2
6 . 8
3 . 4
1 3
7 . 6
4 . 8
2 . 4
9 . 9
6 . 6
4 . 4
1 . 9
1 3 . 9
9 . 7
7 . 1
5 . 4
1 0 . 5
3 . 3
1 . 3
1 . 8
6 . 2
4 . 1
2 . 3
1 . 1
3 . 2
1 . 9
1 . 3
3 . 5
2 . 4
1 . 7
5 . 5
1 . 6
1 . 1
1 . 1
4
1 . 8
0 . 7
3 . 3
6
3 . 6
0 . 9
3
1 2 . 2
7 . 4
2 . 7
4 . 3
0
5
1 0
1 5
2 0
2 5
3 0
4 Q0 8 1 Q0 9 2 Q0 9 3 Q0 9 4 Q0 9 1 Q1 0 2 Q1 0 3 Q1 0 4 Q1 0 1 Q1 1 2 Q1 1 3 Q1 1 4 Q1 1 1 Q1 2 2 Q1 2 3 Q1 2
Wheat Barl ey Corn Ot her crops
5 0 6 5 5 7
6 1 6
5 1 8
6 4 4
5 7 2
7 7 6
5 6 0
7 9 5 7 7 8
6 9 6
3 8 4
8 1 2 7 7 6
9 7 8
5 1 1
6 2 9
6 8 7
4 7 3
7 0 2
6 6 8
6 9 2
4 6 3
8 3 7
9 2 8
7 7 2
4 7 0
9 4 7 1 0 5 6
1 1 4 1
4 0 8
1 , 2 4 5
2 3 5
6 3 7
9 4 3
1 3 8
7 6 0
5 4 1
4 6 0
4 3 2
1 4 8
1 6 4
0
5 0 0
1 ,0 0 0
1 ,5 0 0
2 ,0 0 0
2 ,5 0 0
3 ,0 0 0
3 ,5 0 0
4 Q0 8 1 Q0 9 2 Q0 9 3 Q0 9 4 Q0 9 1 Q1 0 2 Q1 0 3 Q1 0 4 Q1 0 1 Q1 1 2 Q1 1 3 Q1 1 4 Q1 1 1 Q1 2 2 Q1 2
Sunf l ower Oi l Sunf l ower Seed Sunf l ower Meal Soybean Rapeseed

November 2012


Rapeseed exports totaled 1.2 Mt (-15% y-o-y) in 2011/ 12 (July-June), while soybean
exports amounted to 1.3 Mt (+35% y-o-y) in 2011/ 12 (Sep.-Aug.).
and increased exports of
soybean by 35% y-o-y to 1.3 Mt

Ukraine Sunflower & Soybean Monthly Exports by Product (kt; September 2011-August 2012)*
Note: *sunflower seed and soybeans are annually harvested in September, which explains relatively low exports for this month. Sources: UkrAgroConsult, SSS

The Agriculture Ministry estimates grain exports from Ukraine in 2012/ 13 MY at 22.2
Mt, or flat y-o-y. We think a potential increase in grain exports in the 2012/ 13 season is
possible given substantial leftovers from 2011/ 12 MY (estimated at 12.6 Mt as of end-
June, or +103% y-o-y). Given that the government promised to impose no export
restrictions for grain exporters in the current marketing year, we estimate Ukraines
grain exports will reach 22.3 Mt (+1% y-o-y). Sunflower oil exports are estimated at 3.0
Mt (-8% y-o-y) for 2012/ 13 MY (September-August), due to a lower expected sunflower
seed harvest this year of about 7.9 Mt (-10% y-o-y).
2012/13 MY grain exports are
estimated at 22.3 Mt
From the beginning of the marketing year 2012/ 13 in July until Nov. 1, Ukraine
exported 8.4 Mt of grain crops, up more than 78% y-o-y. A total of 12.13 Mt of grain was
reported to have been contracted for export delivery as of the same date, comprising 5.3
Mt of wheat (incl. 4.06 Mt exported in July to end-October), 2.0 Mt of barley (incl. 1.53
Mt already exported) and 3.5 Mt of corn (incl. 2.69 Mt already exported). Grain exports
accelerated after major exporters signed a memorandum with the Agriculture Ministry
to export 20.4 Mt of grain in 2012/ 13 MY and received verbal guarantees from the
government that no export curbs will be imposed in the current marketing year.
Current grain export dynamics
support our full-year outlook

EXPORT DESTI NATI ONS
Egypt was the largest importer of Ukrainian wheat and corn in 2011/ 12 MY, with a
23% share of wheat exports and 25% share of corn exports over the period. Saudi
Arabia was the largest importer of Ukrainian barley (69% of total).
Egypt was the largest importer
of Ukrainian wheat in
2011/12 MY
Egypts state-owned grain purchasing company (GASC) renewed Ukraines status as a
priority grain exporter to the country in October 2011, after an Egyptian delegation
visited Ukraine and certified the quality of domestic grain. The decision was also
helped by cancellation of Ukrainian grain export duties and the potential introduction
of export duties in Russia. Egypt imports 10 Mt of wheat and 5 Mt of corn annually.
after renewing Ukraines
status as a priority grain
exporter in October 2011

8 5 . 1
2 6 9 . 8 2 8 0 . 1
2 6 2 . 2
2 3 5 . 7
2 5 6 . 3
2 8 3 . 4
3 3 9 3 4 9 . 2
2 8 5 . 7
2 3 7 . 7
3 4 2 . 6
5 4
1 8 8
1 4 7 2 0 2
1 0 0
1 0 9
1 4 7 1 1 1
1 4 9
8 8
3 9
2 7 6
1 2 9
1 8 7
1 1 5 6 3
3 2
5 3
5 5
6 7
4 2
4 9
2 0 4
0
2 5 0
5 0 0
7 5 0
Sep-1 1 Oct -1 1 Nov-1 1 Dec-1 1 Jan-1 2 Feb-1 2 Mar-1 2 Apr-1 2 May-1 2 Jun-1 2 Jul -1 2 Aug-1 2
Sunoi l ( kt ) Sunseed ( kt ) Soybean ( kt ) Rapeseed ( kt )
November 2012


Ukraine Wheat Exports by Country (volume terms; 2011/ 12*)
Note: *J uly 11-J une 12. Source: SSS

Ukraine Barley Exports by Country (volume terms; 2011/ 12*)
Note: *J uly 11-J une 12. Source: SSS

Ukraine Corn Exports by Country (volume terms; 2011/ 12*)
Note: *Oct. 11-J une 12 cumulative, MY: Oct. 11-Sep. 12. Source: SSS

Ukraine Sunflower Oil Exports (volume terms; 2011/ 12*)
Note: *Sep. 11-J une 12 cumulative, MY: Sep. 11-Aug. 12. Source: APK-inform

Sunflower oil is exported
mainly to India, Egypt and
Russia
India is the largest importer of Ukrainian sunflower oil, accounting for 37% of total
exports from September 2011June 2012. The top-3 importers (India, Egypt and
Algeria) jointly accounted for 54% of total sunflower oil exports from Ukraine during
the same period.

RUSSI A UKRAI NES CLOSEST COMPETI TOR
Russia accounted for 14% of the
global wheat trade in 2011/12
MY
Russia is Ukraines closest grain export competitor, with the two countries sharing
main export destinations. As Russia became a WTO member in August 2012, this
should intensify competition in the Black Sea region as WTO membership limits scope
for trade restrictions. In 2011/ 12 MY, Russia exported almost 28 Mt of grain, including
21.6 Mt of wheat (+440% y-o-y), becoming the third largest global wheat exporter after
the U.S. and Australia. For 2012/ 13 MY, the Russian Agriculture Ministry anticipates
exports of about 20 Mt (-40% y-o-y) with a downside risk due to exceptionally
unfavorable weather this year (some experts estimate grain exports may be cut in half,
declining to 12-15 Mt out of which 8-9 Mt is wheat).

Egypt
2 2 . 8 %
Spai n
2 0 . 4 % Israel
1 3 . 6 %
It al y
5 . 6 %
Tuni si a
5 . 4 %
Saudi Arabi a
5 . 1 %
Syri a
3 . 6 %
Jordan
2 . 9 %
Li bya
2 . 9 %
Thai l and
2 . 7 %
Lebanon
2 . 3 %
Ot her
1 2 .8 %
Saudi Arabi a
6 8 . 5 %
Syri a
9 . 4 %
Iran
4 . 8 %
Jordan
3 . 9 %
Israel
3 . 2 %
Ot her
1 0 . 2 %
Egypt
2 5 . 4 %
Spai n
1 5 . 0 %
Iran
1 2 . 5 %
Japan
6 . 9 %
Korea
6 . 2 %
Port ugal
6 . 1 %
Syri a
4 . 0 %
Israel
3 . 5 %
Tuni si a
3 . 1 %
Al geri a
2 . 6 %
Ot her
1 4 .7 %
Indi a
3 6 .6 %
Egypt
1 1 .0 %
Al geri a
6 .6 %
Turkey
6 .6 %
Iran
5 .5 %
Spai n
3 .9 %
Chi na
3 .4 %
The Net herl ands
2 .6 %
Pol and
2 .2 %
France
2 .0 %
Ot hers
1 9 .6 %

November 2012


Top Global Wheat Exporters (volume; 2011/ 12)
Sources: FAS, USDA

Top Global Corn Exporters (volume; 2011/ 12)
Sources: FAS, USDA
Russia was the fifth largest wheat exporter globally in 2011/ 12, accounting for over 14%
of world wheat trade. The country competed with Ukraine in every tender and
managed to significantly ramp up exports while Ukrainian wheat export tariffs were in
effect (July-October 2011). Russia ranked only seventh in world corn trade in 2011/ 12
MY with a 2% share, as wheat is more widely grown in the country than corn.
and for only 2% of world
corn trade
Egypt accounted for 35% of Russias wheat exports in 2011/ 12 MY and 23% of
Ukraines wheat exports over the same period. Ukraine actively competes with Russia
in Egyptian tenders. Thus far in 2012/ 13 MY (July through mid-October), Russia
exported 8.7 Mt of grain to Egypt compared to Ukraines 6.7 Mt for the same period,
out of which 7.1 and 3.4 Mt was wheat respectively.
Ukraine competes with Russia
in Egyptian tenders

Russia Wheat Exports by Country (volume terms; 2011/ 12*)
Note: *J uly 11-J une 12. Source: APK-inform

Russia Corn Exports by Country (volume terms; 2011/ 12*)
Note: *Oct. 11-J une 12 cumulative, MY: Oct. 11-Sep. 12. Source: APK-inform

GRAI N AND SUNFLOWER OIL EXPORTERS IN UKRAI NE
Privately owned Nibulon was the largest grain exporter in volume terms in 2011/ 12
MY, accounting for 16% of total exports over the period. Partially state-owned
Khlibinvestbud ranked second with a 14% share. WSE-listed Kernel Holding, Ukraines
largest sunflower oil producer, was the third largest grain exporter in 2011/ 12 with an
almost 10% share of total grain exports.
Private Nibulon was the largest
grain exporter by volume in
2011/12 MY

USA
1 8 . 4 %
Aust ral i a
1 5 . 1 %
Russi a
1 4 . 2 %
Canada
1 1 . 5 %
EU-2 7
1 0 . 8 %
Argent i na
7 . 8 %
Kazakhst an
7 . 0 %
Ukrai ne
3 . 6 %
Ot her
1 1 . 7 %
USA
3 7 . 5 %
Argent i na
1 6 . 3 %
Ukrai ne
1 4 . 6 %
Brazi l
1 2 . 4 %
Indi a
4 . 3 %
EU-2 7
3 . 1 %
Russi a
2 . 1 %
Ot her
9 . 8 %
Egypt
3 4 . 7 %
Turkey
1 4 . 2 %
Yemen
5 . 2 %
Keni a
3 . 4 %
Israel
3 . 2 %
It al y
2 . 9 %
Li bya
2 . 7 %
Jordan
2 . 0 %
Spai n
2 . 0 %
Ot her
2 9 . 7 %
Spai n
2 2 . 6 %
Turkey
1 9 . 5 %
Israel
1 7 . 4 %
Syri a
5 . 4 %
It al y
5 . 2 %
Azerbai j an
4 . 7 %
Lybi a
4 . 2 %
Greece
3 . 5 %
Iran
2 . 8 %
Tuni si a
2 . 8 %
Ot her
1 1 . 9 %
November 2012


Largest Grain Traders in Ukraine (volume terms; 2011/ 12)
Sources: Grain Ukraine, Transport of Ukraine, Khlib Ukraine, Dragon Capital

Ukrainian Bulk Sunflower Oil Exporters (2011/ 12E)*
Note: data for September 2011-J uly 2012. Source: Grain Ukraine

Kernel Holding is the leader in
sunflower oil exports
Kernel Holding exported over 800 kt of sunflower in 2011/ 12 MY and was the leader in
sunflower oil exports from Ukraine over the year, accounting for 25% of total, followed
by Cargill (owns two crushing plants in Ukraine) with a 14% export share.

CBOT BLACK SEA WHEAT FUTURES
CBOT Black Sea Wheat futures
were launched on June 6
On June 6, 2012, trading of Black Sea Wheat Futures was launched on the Chicago
Board of Trade (CBOT). Contracts, 136 tonnes each, are deliverable in Russian,
Ukrainian and Romanian ports on the Black Sea. Futures thus set the benchmark price
for wheat from the Black Sea exporting region, which accounts for more than 20% of
global wheat exports, also providing a hedging tool for effective risk management. To
date, Black Sea Wheat futures are not as liquid as other CBOT contracts, but are
becoming more popular among traders as the Black Sea region is expected to play a
major role in world grain exports in the future.

CBOT Black Sea Wheat Futures vs. Other I ndicative Wheat Prices
(since launch on J une 6, 2012)
Source: Bloomberg, UkrAgroConsult
Ni bul on
1 5 . 8 %
Khl i b Invest bud
1 3 . 6 %
Kernel Hol di ng
9 . 5 %
Loui s Dreyf us
7 . 2 %
Al f red C.
Toepf er
4 . 5 %
Cargi l l
4 . 1 %
Sunt rade
( Bunge)
3 . 6 %
Serna
( Gl encore)
3 . 6 %
Nobl e
Resources
2 . 7 %
Hermes-Tradi ng
1 . 8 %
Ot her
3 3 . 5 %
Kernel Hol di ng
2 5 . 0 %
Cargi l l
1 4 . 0 %
Maj ol a
6 . 0 %
MHP
6 . 0 %
Vi Oi l
5 . 0 %
Ot hers
4 4 . 0 %
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
Jun-0 6 Jun-2 1 Jul -0 6 Jul -2 1 Aug-0 5 Aug-2 0
CBOT Bl ack Sea Wheat Fut ures ( $ / t )
CBOT Wheat Fut ures ( $ / t )
Wheat UkrAgroConsul t , FOB ( $ / t )

November 2012


FOB, CPT AND CI F EXPORT TERMS AND PRI CE FORMATION
FOB (Free on Board) is the trade term under which the seller is responsible for
arranging transportation of goods to a vessel at a named port, and for all costs of
placing the goods on board the vessel if this is not included in the ocean carriers basic
transportation rate. The sellers responsibility is satisfied when the cargo is on-board
the vessel. The seller is not responsible for costs of actually stowing the goods on board,
but is responsible for that portion of the terminal charges which cover services other
than stowage and vessel wharfage charges. The seller is not responsible for the cost of
ocean carriage, marine cargo insurance, nor for arranging the contract of carriage unless
the buyer requests assistance. Ukrainian crops traded on an FOB basis are available at
Black Sea ports, with the price covering costs of transportation to the port, export
cleaning, loading costs and traders margin.
FOB is the most widely used
export contract among traders
in Ukraine
CPT (Carriage Paid To) is the delivery term under which the seller is responsible for
arranging transportation and paying the freight for goods to a named point, typically in
the destination country. The seller has fulfilled his obligation when he has tendered the
goods to the transportation carrier who, under the contract of carriage, will accomplish
this transportation to the named point. At this point, typically in the origin country, the
buyer assumes the risk of loss of the goods and/ or unforeseeable costs. Under CPT
terms, the seller has no obligation to insure the shipment. Hence, under CPT the seller is
also responsible for freight and under CIF is responsible for cargo insurance costs, while
the buyer bears the same risks of loss or damage as under FOB.
CPT is when freight is paid by
seller
CIF (Cost, Insurance and Freight) is the trade term under which the seller is responsible
for arranging and paying for transportation of the goods and shipping insurance
through a named ocean or inland waterway destination port. The seller has fulfilled his
obligation when it has tendered the goods to the transportation carrier who, under the
contract of carriage, will complete transportation to the named point. Once the cargo is
on-board the vessel, typically in the origin country, the risk of loss of the goods
and/ or unforeseeable costs transfers to the buyer. CIF prices, including freight and
cargo insurance costs, vary based on port of destination and cargo weight.
with CIF entailing further
responsibilities

Export Contract Pricing: FOB vs. CPT vs. CIF
Source: Dragon Capital

As of end-September 2012, Ukrainian 3rd Grade wheat was traded at $325-328/ t (FOB
Black Sea) and 2nd Grade wheat at $332-336/ t (on the same basis). As of the same date,
CIF prices for Ukrainian wheat stood at $370/ t (Syria), implying about $34/ t of freight
and insurance costs. As of the same date, freight costs in Black Sea ports varied from
$15/ t to Egypt and Turkey and up to $35/ t to Saudi Arabia, down from $40/ t and
$25/ t respectively at the beginning of the year.
Grain freight costs to Egypt
currently fluctuate around $15/t

CIF: Port of
dest i nat i on
FOB: Ori gi n port Frei ght Cargo Insurance CPT: Port of
dest i nat i on

November 2012


Sugar Market: Supply to Cover Demand in 2012/ 13 MY
Overproduction in the 2011
processing season
Ukrainian refineries produced 2.34 Mt of sugar in 2011 (+51% y-o-y) having processed
17.8 Mt (+36% y-o-y) of sugar beet. Last years production volume significantly
exceeded domestic demand (estimated at 1.9-2.0 Mt p.a.) implying significant ending
stocks for 2011/ 2012 MY (ended in August 2012).
formed high beginning
stocks in 2012/13 MY
End-August sugar stocks were officially reported to be 43% higher y-o-y at 124.2 kt
despite the state Agrarian Fund buying about 200 kt of 2011-produced sugar and
another 160 kt being exported, both helping to reduce stocks and ease pressure on
domestic prices. However, taking into account household sugar stocks, which we
believe the official figure does not include, we estimate 2011/ 12 MY sugar ending
stocks at 283 kt, or almost 15% of annual domestic consumption.

Annual Sugar Production in Ukraine

Ukraine Sugar Supply & Demand Balances (kt; Oct. 12)
Note: year starts in September and ends in August. Sources: SSS, DC estimates

We expect 2012 sugar output to
decline 19% y-o-y to 1.9 Mt but
fully cover internal
consumption
Ukrainian farmers planted 466,000 ha with sugar beet for the 2012 harvest, down 10%
y-o-y. As of Oct. 22, sugar beet was collected from 0.3 Mha (68% of planted area) at an
average yield of almost 37 t/ ha (+4.5% y-o-y), bringing the harvested volume to 11.4
Mt. Assuming an average crop yield of 37 t/ ha and a sugar extraction rate of 11%, we
estimate Ukraine will produce 1.9 Mt of sugar in the 2012 processing season
(September-December), down 19% y-o-y. This would almost cover internal annual
consumption of 1.9-2.0 Mt, however ample leftover stocks should offset the possible
slight shortage.
Agrarian Fund plans to
purchase 400 kt of 2012-
produced sugar
The government has ordered the Agrarian Fund to purchase up to 400 kt of sugar to be
produced in the current season. This volume accounts for about 20% of annual
domestic consumption and could help absorb oversupply and support prices. In
2011/ 12 MY, the Fund was ordered to buy 247 kt of sugar (12% of annual
consumption), but actual purchases totaled 200 kt or 81% of the planned volume.
Industry consumes about 34%
of total sugar output
Domestic sugar consumption is dominated by households thanks to a strong tradition
of producing homemade jams and preserves. Among industrial consumers,
confectioners accounted for over 70% of industrial sugar consumption in 2011,
followed by distilleries with a 5% share

2 . 7
1 . 9
1 . 6
1 . 3
1 . 5
2 . 3
1 . 9
0 .0
0 .5
1 .0
1 .5
2 .0
2 .5
3 .0
2 0 0 6 / 0 7 2 0 0 7 / 0 8 2 0 0 8 / 0 9 2 0 0 9 / 1 0 2 0 1 0 / 1 1 2 0 1 1 / 1 2 2 0 1 2 / 1 3 E
Sugar Product i on ( Mt )
2 0 1 1 / 1 2 2 0 1 2 / 1 3 E Change ( %, y-o-y)
Openi ng st ocks 2 5 2 8 3 1 , 0 2 8 %
Beet sugar product i on 2 , 3 3 0 1 , 9 5 3 ( 1 6 %)
Cane sugar processi ng 0 0 -
Tot al sugar out put 2 , 3 3 0 1 , 9 5 3 ( 1 6 %)
Legal i mport s 1 0 1 0 0 %
" Gray" i mport s 0 0 -
Tot al i mport s 1 0 1 0 0 %
SUPPLY 2 , 3 6 5 2 , 2 4 6 ( 5 %)
Legal export s 1 6 0 7 0 ( 5 6 %)
" Gray" export s 2 2 0 %
Tot al export s 1 6 2 7 2 ( 5 6 %)
Indust ri al consumpt i on 6 5 0 6 5 0 0 %
Househol d consumpt i on 1 , 2 7 0 1 , 2 7 0 0 %
DEMAND 2 , 0 8 2 1 , 9 9 2 ( 4 %)
Cl osi ng st ocks 2 8 3 2 5 4 ( 1 0 %)

November 2012


Ukrainian Sugar Consumption (volume; 2001-12E)
Source: Ukrtsukor, Dragon Capital estimates

Industrial Consumption of Sugar (volume; 2011E)

We do not expect Ukraine to import any raw cane under WTO agreements in 2012 or
2013 thanks to oversupply of beet sugar on the local market. Even if international
pricing conditions provide for cheaper imports, we think processing raw cane will be
economically viable for domestic sugar producers only if they find export destinations
for their beet sugar. Besides, Ukraine cannot export cane sugar processed from
imported raw cane according to its WTO membership terms. In 2011/ 12 MY
(September-August), Ukraine imported only 13.5 kt of sugar (or 0.7% of annual
consumption), mainly from Belarus under bilateral agreements, while exporting 167 kt,
mainly to CIS countries such as Kazakhstan (vs. almost no exports in 2010/ 11 MY).
No imports expected under WTO
agreements
The prospect of Ukraine enjoying its first sugar surplus in five years drove domestic
sugar prices down 33% between mid-September 2011, when the sugar production
season began, and the end of the year. Domestic sugar prices remained depressed in
1H12 (-39% y-o-y), but posted 25% m-o-m growth in July due to diminished sugar
ending stocks and expected output decline. In the beginning of September, farmers
corrected their outlooks for 2012 sugar beet production and a new wave of downward
pressure on local sugar prices emerged. Prices have averaged $660/ t in 10M12 (-35% y-
o-y; incl. VAT) and currently stand at $637/ t, down 21% y-o-y and 10% lower
compared to the beginning of the year.
Overproduction depressed sugar
prices in 4Q11 and has kept them
subdued this year

Sugar Prices in Ukraine (incl. VAT) vs. LIFFE White Sugar and NYBOT Raw Cane Sugar
Futures ($/ t; J an. 11-Oct. 12)
Sources: ICIS, Astarta Holding, Bloomberg
We expect downward pressure on sugar prices to persist in 2012/ 13 MY due to large
remaining stocks. We currently expect an average 2013 sugar price forecast for relevant
listed companies of $660/ t incl. VAT (flat y-o-y).
Prices to remain subdued in 2013

0
2 5 0
5 0 0
7 5 0
1 , 0 0 0
1 , 2 5 0
1 , 5 0 0
1 , 7 5 0
2 ,0 0 0
2 ,2 5 0
2 ,5 0 0
2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Indi vi dual consumpt i on Indust ri al consumpt i on
Conf ect i onery
7 0 . 1 %
Spi ri t s
5 . 0 %
Canned mi l k
4 . 2 %
Beer
4 . 1 %
Wi ne
3 . 6 %
Bread
2 . 9 %
Sof t dri nks
2 . 7 %
Jui ces
2 . 6 %
Ot her
4 . 8 %
4 0 0
6 0 0
8 0 0
1 ,0 0 0
1 ,2 0 0
Jan-1 1 Apr-1 1 Aug-1 1 Nov-1 1 Mar-1 2 Jun-1 2 Sep-1 2
Ukrai ni an sugar pri ce ( $ / t )
LIFFE Whi t e Sugar Fut ures ( $ / t )
NYBOT Raw Cane Sugar Fut ures ( $ / t )
November 2012


Fuel and electricity account for
about 20% of total sugar
production costs
Below we analyze production costs based on data provided by Astarta Holding, the
largest domestic sugar producer. The figures should not be significantly different for
other large sugar processors as their operating environment is similar to Astartas.
Sugar beet was estimated to account for 63% of the companys total production costs in
2011. We note Astarta is 90% self-sufficient in sugar beet, which is an important
profitability factor since beet growing costs for vertically integrated agribusinesses
averaged $45/ t last year compared to an overall market price of $55/ t. Fuel (harvest
collection and transportation), natural gas (sugar beet processing) and electricity
accounted for 15% of Astartas sugar production costs (20% if one accounts for another
6% related to beet growing costs).

Astarta Holding Sugar Beet Production Costs
(value terms; 2011)
Sources: Astarta Holding, Dragon Capital estimates

Astarta Holding Sugar Production Costs
(value terms; 2011)
Sources: Astarta Holding, Dragon Capital estimates

The domestic sugar industry
remains fragmented
The Ukrainian sugar industry remains relatively fragmented. The top six players
accounted for 51% of total production in 2011. Astarta Holding, which operated eight
sugar plants in 2011, accounted for 16% of total sugar output, followed by
Ukrprominvest (operating one of the largest confectionery producers in Ukraine) with
an 8% share. Dakor sugar plants (owned by Ukrlandfarming) also accounted for 8% of
total sugar production in 2011, while Ukrros (owned by Kernel Holding) had a 7%
market share. The sugar refining business controlled by the major shareholders of
Mriya Agro Holding (which is not consolidated into the eponymous listed company)
also accounted for 7% of total sugar production in 2011. Most sugar refineries in
Ukraine have processing capacity of 3 to 6 kt of sugar beet per day, while western
European plants can normally process more than 7.5 kt/ day.

Top Sugar Producers in Ukraine (volume; 2010-11)
Note: *not part of Mriya Agro Holding. Source: Ukrtsukor
Fert i l i zers
1 9 . 6 %
Seeds
1 2 . 0 %
Crop
prot ect i on
1 0 . 7 %
Servi ces
7 . 7 %
Fuel
6 . 5 %
Sal ari es
5 . 9 %
Amort i zat i on
4 . 1 %
Land l ease
3 . 2 %
Ot her
3 0 . 2 %
Sugar beet
6 2 . 6 %
Nat ural gas
1 5 . 2 % Transport .
4 . 0 %
Repai rs
3 . 0 %
Sal ari es
6 . 1 %
Ot her
processi ng
cost s
9 . 1 %
1 3 %
8 %
5 %
7 %
6 %
5 %
5 6 %
1 6 %
8 % 8 %
7 % 7 %
5 %
4 9 %
0 .0 %
5 .0 %
1 0 .0 %
1 5 .0 %
2 0 .0 %
A
s
t
a
r
t
a
U
k
r
p
r
o
m
i
n
v
e
s
t
U
k
r
L
a
n
d
F
a
r
m
i
n
g
K
e
r
n
e
l

H
o
l
d
i
n
g
M
r
i
y
a
*
R
a
d
e
k
h
i
v
-
T
s
u
k
o
r
O
t
h
e
r
s
2 0 1 0 2 0 1 1

November 2012


Poultry Market: Leader Boosts Capacity
Poultry production in Ukraine increased dynamically at a CAGR of 16% from 2003-
11, and reached to 1.0 Mt last year (+5% y-o-y), including 799 kt supplied by
industrial producers (80% of total) and 203 kt by private farmers (20%). In 2012, we
expect domestic poultry production to increase 5% y-o-y to 1.05 Mt, with industrial
producers contributing 80% of the total.
Ukraine produced 1.0 Mt of
chicken meat in 2011

Ukrainian Poultry Production (kt; 2002-12E)

Ukrainian Poultry Production Breakdown (by volume)
Meat consumption in Ukraine has been increasing steadily in recent years, boosted
by growing disposable income. In 2011, per capita poultry consumption rose by 4%
y-o-y to 24 kg. Poultry accounted for almost 50% of Ukrainians meat diet last year
(flat y-o-y but up from 35-40% five to six years ago).
while per capita consumption
stood at 24 kg
We estimate domestic poultry production will increase by 5% y-o-y to 1,052 kt in
2012. Production growth may accelerate as market leader MHP increased its
production capacity by 110 kt p.a. this year and expects to fully utilize it in 2013.
Total chicken meat output may thus rise by 9% y-o-y in 2013 thanks to MHP.
We expect Ukraine to increase
chicken meat output by 5% y-o-y
in 2012

Ukraine Poultry Consumption per Capita (kg; 2004-12E)

Ukraine per Capita Meat Consumption (kg; 2004-11)
Sources: GfK, Dragon Capital estimates
Poultry products in Ukraine are mainly distributed to retailers or to industrial
producers for further processing. Domestic industrially produced chilled poultry is
mostly supplied to retailers, while cheaper frozen chicken is sold to industrial
processors for production of meat products (e.g. sausages).
Distribution

0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
0
2 5 0
5 0 0
7 5 0
1 ,0 0 0
1 ,2 5 0
' 0 2 ' 0 3 ' 0 4 ' 0 5 ' 0 6 ' 0 7 ' 0 8 ' 0 9 ' 1 0 ' 1 1 ' 1 2 E ' 1 3 E
Tot al Product i on ( ' 0 0 0 t ; l hs) Growt h ( %; rhs)
4 0 %
5 0 %
6 1 %
6 4 %
7 0 %
7 6 %
7 9 %
8 1 %
8 2 %
8 0 %
8 0 %
6 0 %
5 0 %
3 9 %
3 6 %
3 0 %
2 4 %
2 1 %
1 9 %
1 8 %
2 0 %
2 0 %
0
2 0 0
4 0 0
6 0 0
8 0 0
1 ,0 0 0
1 ,2 0 0
' 0 2 ' 0 3 ' 0 4 ' 0 5 ' 0 6 ' 0 7 ' 0 8 ' 0 9 ' 1 0 ' 1 1 ' 1 2 E
Indust ri al Suppl y ( %) Pri vat e Farmers' Suppl y ( %)
1 4 1 4
1 6
1 8
2 2
2 3
2 3
2 4 2 4
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
4
8
1 2
1 6
2 0
2 4
2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Poul t ry Consumpt i on per Capi t a ( kg; l hs)
Growt h ( %; rhs)
1 4 1 4
1 6
1 8
2 2 2 3 2 3 2 3
4
4
4
4
3 3
1
1 3
1 2
1 3
1 6
1 4
1 2 1 2 1 7
1 1
1 2
1 3
1 1
1 0
9 9
9
0
1 0
2 0
3 0
4 0
5 0
2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Poul t ry ( kg/ year) Unof f i ci al Poul t ry Import ( kg/ year)
Pork ( kg/ year) Beef ( kg/ year)
November 2012


Ukraines consumption of
poultry is relatively high
Poultry consumption in Ukraine is moderately high by international standards.
Last year for example, the country consumed more poultry per capita (24 kg) than
both neighboring Russia (22 kg) and the EU (21 kg), although this figure lagged far
behind the United States (45 kg) and some other countries.

Per Capita Poultry Consumption (kg; 2011)
Source: OECD-FAO
Imports, primarily from the
U.S., account for about 13% of
domestic poultry consumption
Notwithstanding impressive production growth over the past five years, Ukrainian
demand for poultry continues to exceed domestic supply. Imports accounted for
13% of total poultry consumption in 2011 (-6.0pp y-o-y and down from 38% in
2005). Ukraine imported 61 kt of poultry last year (-61% y-o-y), with an estimated
91% of this volume (56 kt) delivered from other European countries. Volumes
imported from Great Britain (18% of total imports) and the Netherlands (15%)
could have any other origin (most probably the U.S.) as they were imported
through off-shore trading companies. Official statistics, however, disregard illegal
imports (estimated at 80 kt in 2011), which are delivered for processing to domestic
meat plants. Frozen meat accounts for most such illegal imports and thus does not
directly affect domestic producers who focus on fresh and chilled meat.

Ukraine Domestic vs. Imported Poultry (kt; 2004-11)
Source: SSS

Ukraine Poultry Imports Breakdown (by volume; 2011E)**
Note: *volumes imported from Great Britain and the Netherlands could have other
(most probably U.S.) due to imports being structure through offshore trading
companies; **official data. Sources: SSS, Dragon Capital estimates

Poultry production has a low
fodder ratio
Poultry processors enjoy competitive advantage over other meat producers thanks
to poultry being the least fodder-intensive type of meat (2 kg of grain per 1 kg of
poultry as compared to 6.0 kg for beef). Large players in this industry have
invested extensively in modernization and new capacities and thus boast much
more advanced technologies compared to local pork and beef producers.

4 5
4 2
3 4
2 4
2 2
2 1
0
1 0
2 0
3 0
4 0
5 0
USA Brazi l Aust ral i a Ukrai ne Russi a EU-2 7
3 7 6
4 9 1
5 8 9
6 9 0
7 9 9
8 6 0
9 3 0 9 5 2
3 9 6
2 4 2
2 5 2
2 6 2
2 5 3
1 9 3
1 5 5
6 1
0
2 0 0
4 0 0
6 0 0
8 0 0
1 ,0 0 0
1 ,2 0 0
2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Domest i c Poul t ry Suppl y Of f i ci al Poul t ry Import s
Unof i cci al Import s
Germany
2 2 . 6 %
Great Bri t ai n*
1 7 . 8 %
The
Net herl ands*
1 4 . 9 %
Ot her EU
members
3 5 . 4 %
USA
8 . 0 %
Ot her
1 . 4 %

November 2012


Ukraine Meat Production and Fodder Ratios (kt; 2010-11)
Source: MHP, SSS, DC Estimates

Total Ukrainian Poultry Sales (volume; 2011)
Source: Dragon Capital estimates
MHP, the largest domestic market player in volume terms (34% of total) in 2011, is
expected to retain its leading position in 2012. The company reported 2011 net sales
of $1,299m (+30% y-o-y), EBITDA of $401m (+24%) and net income of $259m
(+20%). With a 2011 EBITDA margin of 33%, MHP is the most profitable poultry
producer in Ukraine. The companys poultry production units continued to operate
at full capacity in 2011 and the company sold 371 kt of chicken meat (+12% y-o-y).
MHP embarked on a major capacity expansion project in 2010, a poultry farm in
Ladyzhyn (Vinnytsia region), which is expected to be launched over 2013-2015,
increasing the companys total poultry capacity to 580 kt p.a. (+220 kt) by 2016 from
an estimated 360 kt in 2012. Two more lines with a combined 220 kt of poultry meat
production capacity may potentially be built over 2016-18 conditional on market
demand. Thus, when fully built, the Vinnytsia poultry farm will add 440 kt of
chicken meat production capacity, bringing MHPs total to 800 kt p.a. The company
began production trials at its new facility in June and plans to produce 15 kt of
poultry there by year-end. MHP expects domestic poultry consumption to increase
to 1.3 Mt in 2015 from the current 1.1 Mt.
MHP remained the leading
chicken meat producer in 2011
Domestic demand for chicken meat remained high throughout 2011 as consumers
continued to substitute poultry for other types of meat. MHP thus sold close to
100% of its output, increasing its market share of industrially produced chicken to
50% (+1.0pp y-o-y) in 2011.
increasing its market share by
1pp to 50% of total industrial
production

Ukraine Industrial Poultry Producers (volume; 2010)
Source: MHP

Ukraine Industrial Poultry Producers (volume; 2011)
Source: Agromars
Poultry prices in Ukraine averaged UAH 15.55/ kg ($1.9; net of VAT) in 2011 (+8%
y-o-y), having peaked at UAH 17.9 ($2.2)/ kg in December. MHP outperformed the
market increasing its average selling price by 10% y-o-y to UAH 15.00/ kg. In 9M12,
the average price of domestically produced poultry rose by 20% y-o-y to UAH
17.70 ($2.2)/ kg, with MHP reporting UAH 17.29/ kg (+20% y-o-y).
Domestic chicken meat prices
increased 8% y-o-y in 2011 and
20% y-o-y in 9M12

4 2 8 4 0 8
6 3 1 6 9 9
9 5 4
1 , 0 0 2
0
5 0 0
1 ,0 0 0
1 ,5 0 0
2 ,0 0 0
2 0 1 0 2 0 1 1
Beef Pork Poul t ry
Fodder Rat i o
2 . 0
4 . 0
6 . 0
MHP
3 4 %
Agromars
1 0 %
Dni provsky
5 %
Ot her Indust ri al
Producers
1 7 %
Househol ds
2 0 %
Import s
1 4 %
MHP
4 9 . 0 %
Agromars
1 5 . 4 %
Dni provski
6 . 5 %
Agro-Oven
4 . 5 %
Vol ynska
3 . 1 %
Landgut -Broi l er
1 . 9 %
Gubi n
1 . 7 %
Agroukrpt aha
1 . 3 %
Ot hers
1 6 . 6 %
MHP
5 0 . 0 %
Agromars
1 5 . 0 %
Dni provski
8 . 0 %
Agro Oven
6 . 0 %
Ot hers
2 1 . 0 %
November 2012


Poultry Prices in Ukraine (UAH/ kg; 2009-2012)

with 15% y-o-y growth
expected for the full-year
We expect domestic poultry prices to increase by 15% y-o-y in UAH terms this
year, thanks to recovering consumer demand and the fact that chicken remains the
cheapest source of protein. MHPs reported 9M12 selling price matches our full-
year estimate of UAH 17.3/ kg (+15% y-o-y).

1 1
1 2
1 3
1 4
1 5
1 6
1 7
1 8
J
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-
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9
M
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0
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S
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-
0
9
N
o
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-
0
9
J
a
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-
1
0
M
a
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-
1
0
M
a
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-
1
0
J
u
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-
1
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S
e
p
-
1
0
N
o
v
-
1
0
J
a
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-
1
1
M
a
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-
1
1
M
a
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-
1
1
J
u
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-
1
1
S
e
p
-
1
1
N
o
v
-
1
1
J
a
n
-
1
2
M
a
r
-
1
2
M
a
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-
1
2
J
u
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-
1
2
S
e
p
-
1
2
Avg. Mont hl y Pri ce 2 0 0 9 Avg. Annual Pri ce
2 0 1 0 Avg. Annual Pri ce 2 0 1 1 Avg. Annual Pri ce
+2 %
+8 %
+2 0 %

November 2012


Egg Market: Listed Players Continue Expansion
Ukraine is the second largest shell egg producer in Europe and #9 in the world.
Domestic egg production rose at a CAGR of 6.2% during 2005-11, reaching 18.7
billion pieces in 2011 (+9.6% y-o-y). Per capita consumption stood at 310 eggs last
year, up from 280 in 2010 and 240 five years before.
Egg output increased by 10% y-o-
y to 18.7 billion pieces in 2011

Per Capita Egg Consumption vs. Real Disposable Income in
Ukraine (2003-11E)
Sources: SCU, Pro-Consulting

Egg Production in Ukraine (millions of pieces; 2005-12F)

Taking into account production capacity expansion plans announced by two
leading market players (LSE-listed Avangard and WSE-listed Ovostar Union), we
estimate shell egg production in Ukraine will increase by 7% y-o-y to about 20.0
billion pieces this year.
and we expect 7% y-o-y growth
in 2012
The total number of egg-laying hens worldwide is estimated at 4.93 billion,
including 800-1,000 million in China, 276 million in the U.S., 290 million in the EU-
15, 133 million in India, and 115 million in Mexico. Ukraine had around 66 million
laying hens out of a total chicken flock of 199 million as of end-2011. China is the
worlds largest egg producer with annual output of more than 28 Mt forecast for
2012. Per capita egg consumption varies from country to country, ranging from 355
eggs in Mexico to 255 in the U.S., 248 in France, 186 in Portugal and only 40 in India
in 2010. Ukraines rate (280 in 2010 and 310 in 2011) was close to the higher end of
the global range.
Ukraines per capita egg
consumption is in line with peers

Per Capita Egg Consumption in Different Countries (2010)
Sources: IEC, SSS, Dragon Capital estimates

( 1 5 %)
( 1 0 %)
( 5 %)
0 %
5 %
1 0 %
1 5 %
2 0 %
2 5 %
3 0 %
1 4 0
1 9 0
2 4 0
2 9 0
3 4 0
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E
Egg Consumpt i on Per Capi t a ( l hs)
Real Di sposabl e Income ( %, y-o-y; rhs)
1 3
1 4 1 4
1 5
1 6
1 7
1 9
2 0
0
5
1 0
1 5
2 0
2 5
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
3 4 4
3 2 5
2 8 0
2 5 5 2 4 8 2 4 2
1 9 7
1 8 6
1 4 9
1 2 3
4 0
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
Chi na Japan Ukrai ne USA France UAE Argent i na Port ugal UK S. Af ri ca Indi a
CAGR =6 %
November 2012


Households accounted for 37%
of 2011 egg production
Households accounted for 37% of Ukraines total egg production in 2011 (-3.0pp y-
o-y), having grown only marginally in absolute terms since 2003 (from 6.5 billion
to 6.9 billion pieces). Total output growth was thus driven by more cost-efficient
industrial producers which doubled output over 2003-11, to 11.8 billion eggs or
63% of total production last year, thanks to increasing domestic and foreign
demand. The largest industrial egg producer in 2011 was Avangard, whose market
share increased to an estimated 51% (+4.0pp y-o-y).

Ukraine Egg Production Breakdown
(volume terms; 2003-11)
Sources: SCU, Pro-Consulting

Major Industrial Egg Producers in Ukraine (volume; 2011)
Sources: Avangard, Ovostar, Pro-Consulting

Egg exports surged by 120% y-
o-y in volume terms in 2011
Ukraines shell egg exports totaled 39 kt or about 710 million pieces in 2011 (+120%
y-o-y), accounting for 3.8% of total egg production (+1.9pp y-o-y). Another 6.5% of
last years egg output (or about 1.2 billion pieces; +99% y-o-y) was processed into
dry and liquid egg products (+2.9pp y-o-y).

Ukraines Egg Production and Exports (billions of pieces; 2005-12E)

Avangard was the leading
exporter of shell eggs in 2011
Avangard, the largest domestic egg producer, was also the leading exporter in 2011,
accounting for 42% of total egg exports (-10.9pp y-o-y). Ovostar Union followed with
an 11% share (-2.8% y-o-y). Although both companies share of total exports fell y-o-y
in 2011, they both increased export volumes by 74% and 76% y-o-y, respectively.
Imports are regulated Ukraine currently maintains import duties on shell eggs (12%), hatching eggs (5%),
dry and liquid egg products and frozen yolk (all 10%) and albumen (2%). In
addition to the import duties, VAT is applied (17% since January 2011). Due to the
higher prices of shell eggs produced in neighboring countries and relatively high
transportation costs, we believe that even full abolition of the import duties on
shell eggs would not significantly increase shell egg imports. However, a reduction
or elimination of the duties on egg products may provide a significant boost to
imports.

4 4 %
4 6 %
5 0 %
5 4 %
5 4 %
5 7 %
5 8 %
6 0 %
6 3 %
0
5
1 0
1 5
2 0
2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Househol ds Indust ri al Producers
Avangard
5 0 . 7 %
Int er-
Zapori zhya
9 . 6 %
Ovost ar Group
5 . 7 %
Agrof i rma
Berezanskaya
5 . 1 %
Landgut
Ukrai ne
2 . 8 %
Ot her
2 6 . 1 %
0
5
1 0
1 5
2 0
2 5
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E 2 0 1 2 E
Egg Out put ( net ) Export Processed i nt o Egg Product s

November 2012


Ukraines Shell Egg Exports by Destination
(volume terms; 2011)
Source: SSS

Listed Egg Producers Export Share
(volume terms; 2011)
Sources: Avangard, Ovostar, Dragon Capital estimates
Egg prices in Ukraine are subject to seasonal fluctuations and normally drop in
summer when warmer temperatures increase egg yields and supply from
households while fodder prices hit their intra-year low (moreover, egg
consumption normally decreases during summer months when food markets offer
more fresh fruits and vegetables). With fodder being the main cost component in
egg production, egg prices follow grain price dynamics. In 2011, Ukrainian egg
prices averaged UAH 0.54 ($0.07)/ piece (net of VAT; +1% y-o-y), while corn
averaged UAH 1,273 ($159)/ t (net of VAT; +45% y-o-y). Avangard managed to
increase its average egg price in 2011 by 12% y-o-y to UAH 0.64 ($0.08). Ovostar
recorded 14% y-o-y growth, to UAH 0.62 ($0.08). In 1H12, when egg producers still
used expensive 2011-produced feed grain, egg prices surged by 53% y-o-y to UAH
0.65/ piece.
Domestic egg prices averaged
UAH 0.54/piece in 2011 (+1% y-o-
y) in 2011, but listed egg
producers reported 12-14% y-o-y
price growth

Average Monthly Shell Egg Prices in Ukraine (EXW, net of VAT; UAH/ 10 eggs)

CIS
5 1 . 3 %
Iraq
3 5 . 8 %
Li beri a
6 . 1 %
Ot her
6 . 8 %
Avangard
4 1 . 5 %
Ovost ar Group
1 1 . 1 %
Ot her
4 7 . 3 %
0
2
4
6
8
1 0
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Ukrai ne 2 0 1 0 shel l egg pri ce ( EXW, net of VAT; UAH/ 1 0 eggs)
November 2012


EU reform underpinned egg
price growth in 1Q12
Egg prices in the EU surged by 42% y-o-y in February 2012 and were up 75% y-o-y
as of mid-March due to regional industry reform (EU ban on battery hens), with all
EU egg producers required to change cages in line with new standards towards
free-cage breeders. Instead of investing in new standardized equipment, many EU
egg producers decided to go out of business. Improved welfare for hens thus
resulted in a pan-European shortage of eggs and pushed prices higher. This
affected international price benchmarks and led Ukrainian egg producers to
allocate more output for export due to favorable pricing, thus creating shortages
on the local market in 1Q12 when industrial egg production is the only source of
supply while the household sector awaits warmer temperatures for hens to start
laying eggs. Normally, cage-free private flocks start producing eggs only when
outdoor temperatures reach +15C. As a result of the aforementioned EU reform
and domestic shortages, Ukrainian egg prices increased by 72% y-o-y to UAH
0.78/ egg ($0.098) in 1Q12. However, prices started to correct in April when supply
from households increased.
We expect egg prices to
increase by 12% y-o-y in 2012
Taking into account strong price growth in 1Q12, we do not rule out another strong
price hike in 4Q12 when household supply will shrink and industrial producers may
again decide to increase exports. We currently forecast the average domestic egg price
in 2012 at UAH 0.72 ($0.09), up 12% y-o-y, while in 5M12 prices averaged UAH 0.70
($0.088), up 60% y-o-y.
The egg powder market
expanded by 11% y-o-y to 18 kt
in 2011
Egg products are represented by dry and liquid egg products and are sold mainly to
the food industry to use in the production of bread, sauces, confectionery and other
products. The market for egg products in Ukraine has enjoyed much faster growth
than the shell egg market (42% CAGR in 2005-11). In 2011, 6.5% of total domestic egg
output or about 1.2 billion pieces (+99% y-o-y) was processed into dry and liquid egg
products (+2.9pp y-o-y). Last years egg product volumes totaled 18.4 kt (+10.5% y-o-
y). Dry egg products are easy to export as they are not fragile like shell eggs and have a
much longer storage period as well as much lower transportation costs.

Egg Product Output and Exports (kt; 2005-12E)
Sources: Companies, Pro-Consulting, Dragon Capital estimates

Egg Product Output Breakdown (volume terms; 2005-12E)
Sources: SSS, Pro-Consulting, Dragon Capital estimates
1 1 %
1 9 %
4 6 %
4 2 %
4 1 %
0
5
1 0
1 5
2 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Product i on ( net ) Export s
4 7 %
3 5 %
4 6 %
3 8 % 4 0 %
2 3 %
2 4 % 2 4 %
0
5
1 0
1 5
2 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Dry Egg Product s Li qui d Egg Product s

November 2012


Ukraine started to export egg products only in 2007 (to Tunisia), though domestic
production had been launched in 2002 (by Ovostar). Ukrainian egg products were
uncompetitive prior to 2007 because domestic producers lacked modern egg processing
equipment. Currently, only a few domestic producers export egg products, including
Avangard, Ovostar and Inter-Zaporizhya. They export mainly dry egg products as the
shelf life of liquid egg products is limited to 21 days, making transportation more
challenging. According to statistics compiled by market players, Ukraines egg product
exports reached about 7.7 kt in 2011 (almost flat y-o-y). However, official data from the
State Statistics Services shows exports reached only 1.7 kt. Such a discrepancy has been
observed since 2010 when Avangard boosted exports after completing reconstruction at
its egg processing plant Imperovo Foods and increasing egg product output from 0.7 kt
to 10.2 kt. Imports of egg products to Ukraine are tiny, totaling 10.5 tonnes in 2011.
Exports accounted for an
estimated 41% of total egg
product output in 2011

Ukraines Egg Product Exports (volume terms; 2011)

Average Prices of Dry Egg Products in Ukraine (2007-11)
Sources: SSS, Pro-Consulting
Ukraine exports egg products mainly to the MENA region. The United Arab
Emirates (UAE) was the leading importer of egg products from Ukraine with a 32%
share of total exports in 2011, followed by Jordan with 28%.
Egg products were mainly
exported to MENA region in 2011
Ukraine produced 14.1 kt of dry egg products in 2011 (+9.2% y-o-y), which
accounted for 76% of total egg product output (-1pp y-o-y). Liquid products are
fresh and more suitable for food processors but are only starting to find customers
in the Ukrainian food market as processors need to change equipment to use liquid
products. Egg products are mostly used in biscuit and cake production where they
account for 40% of recipes.
Dry egg products accounted for
76% of total egg product output
in 2011
Avangard also enjoys the leading position in the egg product segment, accounting
for over 66% of total egg product output and for an estimated 87% of dry egg
product output in 2011. The entire market for egg products in Ukraine is basically
shared by two players, Avangard and Ovostar. Avangard focuses mainly on dry
egg products and sells mostly in bulk, exporting 70% of its annual output, while
Ovostar is a more client-oriented player focusing on liquid products (74% of total
egg products output in 2011 in volume terms).
Avangard was the leader in egg
product output in 2011
We expect Ukraines egg product output to increase substantially in the next 2-3
years as both Avangard and Ovostar are due to complete announced capacity
expansion programs in 2012-2013, intending to more than double their egg
processing capacities. We thus expect domestic egg product output to increase by
40-45% over the next two to three years (this year, though, we expect production to
increase by only 6% y-o-y to 19.5 kt as the new capacities being installed will
mostly start operating in 2013). We believe that additional egg product volumes
will mostly be exported as local consumption has grown by 15-20% annually in the
past three years.
Outlook for 2012-13

UAE
3 1 . 7 %
Jordan
2 8 . 3 %
Korea
7 . 6 %
CIS
7 . 4 %
Indonesi a
6 .9 %
Saudi Arabi a
6 .5 %
Iran
6 .1 %
Egypt
5 .6 %
Avangard
6 6 . 3 %
Ovost ar Group
3 1 . 3 %
Ot her
2 . 4 %
November 2012


Dairy Market: Russian Import Ban Lifted
Milk production declined for
the sixth consecutive year in
2011...
Milk production in Ukraine declined at a 1% CAGR in 2000-10 as the domestic
milking cow population shrank at a 6% CAGR over the period. In 2011, domestic
milk production decreased by 1.4% y-o-y to 11.1 Mt, while the cow population
declined by 1.6% y-o-y to 2,588,800 head (slowing the pace of decline from -3.9% y-
o-y in 2010).
...and we expect further decline
in 2012
In 2012, we expect milk production in Ukraine to decline by about 1% y-o-y due to
the lack of funds for households to invest in livestock development and a further
slight decline in livestock population.
The local milk market is still
highly unconsolidated
Private livestock owners (households) account for 80% of total Ukrainian raw milk
output, and dairy farms produce the remaining 20%. Poor sector consolidation
entails additional expenses for dairy producers as they have to invest in equipment
for improving the quality of purchased milk (in terms of fat content, bacterial
resistance and other parameters).

Ukraine Milk Production and Livestock Population (kt, 000 head; 2001-11E)

Domestic producers fully
satisfy local demand for whole
milk products and cheese
Ukrainian production of whole milk products (WMPs) has tripled in the past
decade to reach 1.3 Mt (+3% y-o-y) in 2011, fully satisfying local demand. Imports
(1% of 2011 consumption) and exports (1% of output) are negligible in this
segment. Cheese output has also tripled in the past decade, to 247 kt in 2011 (-1%
y-o-y and still below the pre-crisis level). Cheese imports account for only 5-7% of
the local market while cheese exports from Ukraine have increased sevenfold in
the past decade and currently account for 32% of total output (up from 14% in
2000).
However, demand for butter is
partially satisfied by imports...
Domestic butter production has almost halved since peaking in 2003, to 76 kt in
2011, almost matching the decline in demand. Ukraine thus became a net importer
of the product over the past three years. The drop in butter consumption resulted
from growing popularity of spreads (butter alternatives) and 2.5x growth in local
butter prices since 2003.
...while dry milk is
predominantly exported
Output of dry milk products in Ukraine has been quite volatile over the past
decade. Domestic dairy producers exported an est. 95% of produced dry milk
products last year. Dry milk products have a long shelf life and are used in the
production of other foodstuffs including other dairy products (cheese, WMPs,
butter), confectionary and bakery.

( 2 0 %)
( 1 0 %)
0 %
1 0 %
2 0 %
3 0 %
3 ,0 0 0
6 ,0 0 0
9 ,0 0 0
1 2 ,0 0 0
1 5 ,0 0 0
2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Mi l k Product i on ( kt ; l hs) Li vest ock Popul at i on ( ' 0 0 0 head; l hs)
Mi l k Product i on Growt h ( % y-o-y; rhs) Li vest ock Growt h ( % y-o-y; rhs)

November 2012


Consumption of Whole Milk Products in Ukraine (kt)
Sources: UkrAgroConsult, SSS, Dragon Capital estimates

Consumption of Cheese in Ukraine (kt)

Consumption of Butter in Ukraine (kt)

Consumption of Dry Milk Products in Ukraine (kt)

The Tax Code enacted in January 2011 changed the procedure for VAT settlements
between milk producers and processors by ordering that processors start paying the
tax to a special state budget fund for subsequent redistribution among milk producers
by the government. Prior to 2011, all retained VAT was transferred to processors
special accounts and paid out to raw milk producers directly, preventing the latter
from inflating milk prices. In 2011, the average milk price stood at UAH 3.03
($0.38)/ liter net of VAT, up 5% y-o-y.
Raw milk prices increased by
5% y-o-y in 2011...
Ukraines average raw milk price ($0.38/ liter) was around 14% below the global
average of $0.44/ liter in 2011, according to our estimates, and 20-22% lower than in the
EU ($0.48/ l) and Russia ($0.49/ l) last year. However, such a difference between
Ukrainian and EU raw milk prices can be explained by the quality of produced milk.
EU raw milk prices are set using different quality parameters, and accounting for
additional investments made into improving the quality of milk by Ukrainian dairy
processors, the average milk cost for Ukrainian dairy producers is higher than that for
EU peers.
...remaining below the global
average, but quality
improvement expenses are
substantial

( 2 5 0 )
0
2 5 0
5 0 0
7 5 0
1 ,0 0 0
1 ,2 5 0
1 ,5 0 0
2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0
Product i on Import s
Export s Consumpt i on
( 1 0 0 )
0
1 0 0
2 0 0
3 0 0
4 0 0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
( 5 0 )
0
5 0
1 0 0
1 5 0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
( 1 5 0 )
( 1 0 0 )
( 5 0 )
0
5 0
1 0 0
1 5 0
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
November 2012


Average Milk Producer Prices ($/ liter; 2010-11)
Sources: MilkUA, Dragon Capital estimates

VAT subsidies were again
revised this year
Since the state budget paid out only tiny amounts to raw milk producers in 2011, the
aforementioned subsidy mechanism introduced by the Tax Code was changed. In
December 2011, parliament approved a bill on state subsidies for milk and meat
processors, partially reinstating the original scheme which was viewed favorably by the
market. The bill took effect on Jan. 1, 2012. According to this legislation, each processing
company is required to distribute retained VAT amounts between two accounts: the
processors own special account (used solely to pay subsidies to raw milk producers)
and a special state budget fund managed by the government. Reinstating subsidies for
milk producers helped to stabilize raw milk prices and allowed for better control of
processing companies raw material costs and margins.

2010 2011 2012 2013 2014
Company Special Account 100% 0% 70% 60% 50%
Special St at e Budget Fund 0% 100% 30% 40% 50%
Distribution of Retained VAT
Source: Verkhovna Rada

Russia banned cheese imports
from seven Ukrainian plants in
February-May 2012
In February 2012, Russia announced a ban on cheese imports from seven
Ukrainian plants, citing non-compliance with Russian food safety standards (and
possibly as a result of lobbying by Russian cheese producers). However, due to
Russias domestic dairy production falling short of demand, Ukraine and Russia
agreed measures to end the ban. Three major producers, including WSE-listed
Milkiland, resumed exports to Russia as early as May.
...depressing local raw milk
prices
The aforementioned Russian cheese import ban forced several domestic plants to
either discontinue cheese production or shift to butter, dry milk or processed
cheese. As some 40% of local milk output is consumed by cheese producers, this
created a surplus of raw milk on the domestic market, pressuring prices.
Household raw milk prices declined by 9% y-o-y in 9M12, sliding by 22% q-o-q in
1Q12 and 23% q-o-q in 2Q12, when the Russian ban was in effect, and stabilizing in
3Q12 (+1% q-o-q).

0 . 3 8
0 . 3 9
0 . 3 9
0 . 4 8
0 . 4 9
0 .0
0 .1
0 .2
0 .3
0 .4
0 .5
Ukrai ne New Zeal and USA EU Russi a
2 0 1 0 2 0 1 1

November 2012


Raw Milk Monthly Purchase Price for Dairy Companies
(UAH/ liter, net of VAT and transportation costs; J an. 10 - Sep. 12)
In August 2012, the Ukrainian government set the minimum price of raw milk
purchased from households for further processing at UAH 2.2/ liter (net of VAT)
for the rest of 2012 while purchase prices ranged from UAH 1.6-1.8/ liter in August.
The decision seemed to be another reflection of the approaching Oct. 28
parliamentary elections. Raw milk growing more expensive will be negative for
milk processors, inflating their COGS and forcing them to pass this cost growth on
to end-consumers, thus potentially dampening demand.
The government approved the
minimum purchase price for raw
milk in 2012
Rising global grain prices have triggered growth in local grain prices which in turn
may boost feed costs and lead to intensified cattle slaughter by poorer households,
thereby decreasing raw milk supply and potentially fueling raw milk price growth
in 4Q12. However, our current 2012 forecast of flat y-o-y raw milk costs for traded
milk processors already factors in grain price growth. Also, we believe that raw
milk prices will be pressured by the latest revision of VAT subsidies for the dairy
sector aimed at preventing raw milk price inflation.
We expect the average raw milk
price to be flat y-o-y in 2012

1 .3
1 .5
1 .7
1 .9
2 .1
2 .3
2 .5
2 .7
2 .9
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3 .3
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2 0 1 0
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November 2012


Sunflower Oil Market: Top Exporter Globally
The global vegetable oil market
grew by 4% y-o-y in 2011/12
The international market for vegetable oil continues to grow dynamically. According to
the USDA, global vegetable oil production expanded by 60% over the last decade and
was expected to reach 154 Mt in 2011/ 12 MY (September-August), up 4% y-o-y.

World Production of Vegetable Oils* (Mt)
Note: *coconut, cottonseed, olive, palm, palm kernel, peanut, rapeseed, soybean, sunflower seed. Source: USDA

Sunflower oil accounts for 10%
of global vegetable oil output
World vegetable oil production is dominated by palm oil with a 32% share of total
output in 2011/ 12 MY. Soybean oil followed with a 27% share and rapeseed and
sunflower oils accounted for 16% and 10%, respectively. Global vegetable oil exports
were projected to increase by 5% y-o-y to 60 Mt in 2011/ 12 MY (39% of total
production). According to the USDA, the largest global exporters of vegetable oils in
2011/ 12 MY were Indonesia (32% of total), Malaysia (28%), Argentina (8%), Ukraine
(5%), Canada (4%) and Brazil (3%).

World Sunflower Oil Producers (2011/ 12E)
Source: USDA

World Sunflower Oil Exporters (2011/ 12E)*
Note: *year starts in September and ends in August. Source: USDA

Ukraine is the worlds largest
sunflower oil producer and
exporter
Ukraine is the worlds largest sunflower oil producer. In 2011/ 12 MY, global output of
sunflower oil was estimated at 14.7 Mt, with Ukraines share at 27%. The country also
ranks first among world sunflower oil exporters with 49% of total exports (3.1 Mt)
expected in 2011/ 2012 MY. The potential of Ukraines sunflower oil sector is enhanced
by the fertility of its soil, favorable climate and European location.

0
2 0
4 0
6 0
8 0
1 0 0
1 2 0
1 4 0
1 6 0
' 0 3 / 0 4 ' 0 4 / 0 5 ' 0 5 / 0 6 ' 0 6 / 0 7 ' 0 7 / 0 8 ' 0 8 / 0 9 ' 0 9 / 1 0 ' 1 0 / 1 1 ' 1 1 / 1 2 E
Pal m Oi l Soybean oi l Rapeseed oi l Sunoi l Ot hers
Ukrai ne
2 7 . 1 %
Russi a
2 4 . 2 %
EU
1 9 . 9 %
Argent i na
9 . 3 %
Turkey
4 . 9 %
Ot her
1 4 . 6 %
Ukrai ne
4 8 . 6 %
Russi a
2 1 . 9 %
Argent i na
1 5 . 4 %
Turkey
4 . 4 %
EU
3 . 0 %
Ot her
6 . 8 %

November 2012


Producers 0 0 0 t onnes % of t ot al
Russi a 9 , 6 2 7 2 5 . 6 %
Ukrai ne 9 , 5 0 0 2 4 . 3 %
EU-2 7 8 , 2 8 0 2 1 . 2 %
Argent i na 3 , 3 4 0 8 . 5 %
Turkey 9 2 5 2 . 4 %
Ot hers 7 , 4 7 3 1 9 . 1 %
Tot al
3 9 , 1 4 5 1 0 0 . 0 %

Export ers 0 0 0 t onnes % of t ot al
EU-2 7 5 5 0 2 9 . 5 %
Russi a 3 4 0 1 8 . 3 %
Ukrai ne 2 6 0 1 4 . 0 %
Argent i na 6 5 3 . 5 %
Turkey 4 0 2 . 1 %
Ot hers 6 0 8 3 2 . 6 %
Tot al 1 , 8 6 3 1 0 0 . 0 %

World Sunflower Seed Production in 2011/ 12E*
Note: *data as of mid-September 2012. Source: USDA

World Sunflower Seed Exports in 2011/ 12E*

Producers 0 0 0 t onnes % of t ot al
Ukrai ne 3 , 9 8 8 2 7 . 1 %
Russi a 3 , 5 5 2 2 4 . 2 %
EU-2 7 2 , 9 1 8 1 9 . 9 %
Argent i na 1 , 3 6 7 9 . 3 %
Turkey 7 1 8 4 . 9 %
Ot hers 2 , 1 4 7 1 4 . 6 %
Tot al 1 4 , 6 9 0 1 0 0 . 0 %
Export ers 0 0 0 t onnes % of t ot al
Ukrai ne 3 , 1 0 0 4 8 . 6 %
Russi a 1 , 4 0 0 2 1 . 9 %
Argent i na 9 8 0 1 5 . 4 %
Turkey 2 8 0 4 . 4 %
EU-2 7 1 9 0 3 . 0 %
Ot hers 4 3 1 6 . 8 %
Tot al 6 , 3 8 1 1 0 0 . 0 %
World Sunflower Oil Production in 2011/ 12E*

World Sunflower Oil Exports in 2011/ 12E*

The area devoted to sunflower production in Ukraine increased to 4.7 Mha (17% of
the total area harvested) in 2011/ 12 MY, compared to 1.6 Mha in 1990/ 91 (5% of
total arable land at the time). Ukraines 2011/ 12 MY sunflower acreage accounted
for 18% of the global area sown with sunflower seed (based on preliminary data).
Annual sunflower crop yields in Ukraine have varied widely, with the lowest level
of 0.89 t/ ha registered in 2005 and the highest, 1.87 t/ ha, in 2011. This is still lower
than the output of global leaders such as the EU (expected average of 1.94 t/ ha in
2011) but higher than the global average of 1.50 t/ ha estimated for 2011/ 12 MY.
Ukraine more than doubled the
area dedicated to sunflower
production in the last 15 years

Ukraine Sunflower Seed Production and Exports
As Oct. 22, 2012 Ukrainian farmers harvested 7.65 Mt of sunflower from 4.7 Mha
(97% of planted area) at an average yield of 1.64 t/ ha (-11% y-o-y). The current
sunflower seed yield outperformed our initial expectation of 1.55 t/ ha, suggesting
higher than projected supply of seeds for listed crushers and boding well for their
processing margins. We expect Ukraine to harvest 7.9 Mt of sunflower seed in 2012
(-10% y-o-y from a record high of 8.8 Mt in 2011) and produce 3.4 Mt of oil (-7% y-
o-y).
with the 2012 harvest projected
at 7.9 Mt (-10% y-o-y)

0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
6 .0
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
' 0 5 / 0 6 ' 0 6 / 0 7 ' 0 7 / 0 8 ' 0 8 / 0 9 ' 0 9 / 1 0 ' 1 0 / 1 1 ' 1 1 / 1 2 ' 1 2 / 1 3 E
Product i on ( Mt ; l hs) Export ( Mt ; l hs)
Area ( Mha; rhs)
November 2012


2 0 1 1 / 1 2 2 0 1 2 / 1 3 E Chg. ( y-o-y)
Begi nni ng st ocks 4 5 0 6 3 0 4 0 %
Pl ant ed area ( ' 0 0 0 ha) 4 , 7 5 0 4 , 8 9 0 3 %
Harvest ed area ( ' 0 0 0 ha) 4 , 7 1 6 4 , 7 9 2 2 %
Yi el d ( t / ha) 1 . 8 7 1 . 6 5 ( 1 2 %)
Harvest 8 , 8 1 9 7 , 9 0 7 ( 1 0 %)
Import s 6 6 -
SUPPLY 9 , 2 7 5 8 , 5 4 2 ( 8 %)
Crushi ng 8 , 1 0 0 7 , 5 0 0 1 9 %
Ot her use 2 5 2 5 0 %
Seeds 3 0 3 0 0 %
Export s 4 5 0 4 9 7 1 %
Losses 4 0 4 0 0 %
DEMAND 8 , 6 4 5 8 , 0 9 2 1 8 %
Endi ng st ocks 6 3 0 4 5 0 4 0 %

Ukraine Sunflower Seed Supply & Demand Balances
(kt; Oct. 12)
Note: *data differs from aforementioned official statistics due to discrepancies in
acreage reported by farmers and officially. Source: Dragon Capital estimates
Ukraine Sunflower Seed Harvest and Yields
(2007/ 08-2012/ 13E)

The soybean harvest increased
by 35% y-o-y in 2011
Despite all the advantages of sunflower production, local agricultural producers
have been increasing acreage under soybean and rapeseed due to natural
constraints on further expansion of sunflower cultivation. The problem is that
sunflower production exhausts soil and the same land can only be used for
sunflower cultivation every 6-7 years. At the same time, land under soy and oilseed
rape requires much less time for renewal (two and three years respectively). In
2011/ 12 MY, soybeans in Ukraine were sown on 1.1 Mha (+7% y-o-y; vs. 0.6 Mha in
2009/ 10). Oilseed rape occupied 0.8 Mha in 2011/ 12 MY (-3% y-o-y), reflecting
decreased demand for biodiesel. Ukraine harvested 2.3 Mt of soybeans in 2011,
boosting the harvest by 35% y-o-y thanks to both increased average yields (+26% y-
o-y to 2.0 t/ ha) and larger area planted (+7% y-o-y). This implies sufficient supply
of the crop for local processors such as Creativ Group. The company processes
soybean into high-protein fodder and fats used in the food processing industry.

Ukraine Rapeseed Production and Export

Ukraine Soybean Production and Export

About 95% of sunflower seed
produced in Ukraine is
processed domestically
Only a small volume of the sunflower seed harvested in Ukraine is exported (est.
5% of total in 2011/ 12 MY). The rest is processed domestically for sunflower oil and
oil cake.

4 . 7
6 . 5
7 . 2
7 . 6
8 . 8
7 . 9
0 . 0
0 . 2
0 . 4
0 . 6
0 . 8
1 . 0
1 . 2
1 . 4
1 . 6
1 . 8
2 .0
0 . 0
2 .0
4 . 0
6 . 0
8 . 0
1 0 . 0
2 0 0 7 / 0 8 2 0 0 8 / 0 9 2 0 0 9 / 1 0 2 0 1 0 / 1 1 2 0 1 1 / 1 2 2 0 1 2 / 1 3 E
Sunf l ower Seed Harvest ( Mt ; l hs) Sunf l ower Seed Yi el d ( t / ha; rhs)
0
0 .3
0 .6
0 .9
1 .2
1 .5
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Area ( Mha)
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1 . 2
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1 . 5
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9
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1
0
'
1
0
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1
1
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1
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E
Product i on ( Mt )
Export ( Mt )
Area ( Mha)

November 2012


Prior to Ukraines WTO accession in May 2008, sunflower seed exports from the
country were limited by a high export duty of 17%, in effect from 2001 (23%
previously), and by minimum indicative export prices set by the government. These
export barriers were intended to support local vegetable oil producers and encourage
exports of higher value-added products (i.e. vegetable oil instead of sunflower seed).
While such restrictions benefited oil producers, they hurt agricultural companies
margins. According to government officials, as part of its WTO accession package
Ukraine undertook to reduce the sunflower seed export duty by 1.0pp annually until it
reached 10% in 2015. The government also abolished minimum indicative export prices
for sunflower seeds starting from 2008. The export duty on sunflower seed was set at
13% in 2012 and will decline to 12% in 2013.
as exports are taxed
Unlike sunflower seed, more than 90% of rapeseed crops harvested in Ukraine are
exported to satisfy international demand for biofuel. However, most soybeans grown in
Ukraine are processed domestically (exports in 2011/ 12 MY were estimated at 22% of
production).
Soybeans are mostly processed
domestically and over 90% of
rapeseed is exported
Kernel Holding is the largest sunflower oil producer in Ukraine, operating 36% of
Ukraines total sunflower seed crushing capacity, and is also the largest domestic seller
of bottled sunflower oil seller, with a 32% share in 2011. Kernel accounted for a quarter
of Ukraines sunflower oil exports in 2011/ 12 MY, while Cargill had a 14% share.
Kernel is the largest sunflower
oil producer and exporter in
Ukraine

Sales of Bottled Sunflower Oil in Ukraine (%; 2011/ 12E)

Sunflower Oil Crushing Capacity in Ukraine (%; 2011/ 12E)
India was the largest importer of Ukrainian sunflower oil with 37% a share of total
exports in September 2011-June 2012. Egypt and Algeria followed with 11% and
7%, respectively.
India was the most significant
importer of Ukraines sunflower
oil in 2011/12

Bulk Sunflower Oil Exporters in Ukraine (2011/ 12E)*
Note: *data for September 2011-J uly 2012. Source: Grain Ukraine

Ukraine Bulk Sunflower Oil Exports (volume; 2011/ 12)*
Note: *Sep. 11 to J un. 12 cumulative data. Source: SSS, Dragon Capital estimates

Kernel Hol di ng
3 2 %
Bunge
2 2 %
Korol i vsky
smak
7 %
Ot hers
3 9 %
Kernel Hol di ng
3 6 %
Cargi l l
1 4 %
Bunge
6 %
Ot hers
4 4 %
Kernel Hol di ng
2 5 %
Cargi l l
1 4 %
Maj ol a
6 %
MHP
6 %
Vi Oi l
5 %
Ot hers
4 4 %
Indi a
3 6 . 6 %
Egypt
1 1 . 0 %
Al geri a
6 . 6 %
Turkey
6 . 6 %
Iran
5 . 5 %
Spai n
3 . 9 %
Chi na
3 . 4 % Net herl amds
2 . 6 %
Pol and
2 . 2 %
Ot hers
2 1 . 6 %
November 2012


Sunflower oil prices are
projected to decline by 10% y-
o-y in 2012
Domestic sunflower oil prices declined by 15% y-o-y to $1,139/ t (incl. VAT) as of
end-2011 and averaged $1,320/ t for the year (+36% y-o-y). In 10M12, prices
averaged $1,193/ t (-12% y-o-y), recovering slightly in the summer to $1,219/ t by
end-August from $1,138/ t at end-June (+7% over the period). Ukraines sunflower
oil market is driven mainly by processors, who use international bids (which are in
turn a representation of global demand for vegetable oils) to calculate net-back bid
prices for sunseed producers (such as WSE-listed Agroton), in order to maintain a
stable EBIT margin on processing (about 25-27%). Thus, the domestic sunseed
price closely follows the sunflower oil price (see chart below). However, in times of
reduced sunseed supply (e.g. the 2012 harvest is foreseen to decline by 10% y-o-y)
sunseed producers might win better prices for seeds while processors fight for it.
In 2012, we expect Ukraine to follow the trend in global sunflower oil prices on the
back of increased sunflower oil supply and resulting weaker prices (global
sunflower oil ending stocks were projected to increase by 53% y-o-y as of end-
2011/ 12 MY). We estimate this will cause local sunflower oil prices to decline by
about 10% y-o-y to $1,190/ t in 2012 and sunseed prices to follow the same trend,
reaching $500/ t on average (-8% y-o-y) for the year.

Ukraine Sunflower Seed and Oil Avg. Weekly Prices (J an. 09-Oct. 12)

Global sunflower oil ending
stocks are forecast to decline by
27% y-o-y in 2012/13 MY,
pushing prices higher
As of October 2012, global sunflower oil ending stocks in 2012/ 13 MY (September-
August) were projected to decrease by 27% y-o-y to 1.42 Mt, still remaining above
their 10-year average of 1.08 Mt. We conservatively forecast Ukrainian sunflower
oil will average $1,190/ t in 2013, flat y-o-y.
Sunflower seed producers are
entitled to government
subsidies
Domestic sunflower seed producers, similar to grain growers, continue to enjoy
government support, including tax benefits (Fixed Agricultural Tax) and
subsidized loans. As for oil crushers, we expect no new restrictions on exports of
sunflower oil from Ukraine in the long run. However, the government still keeps
an eye on the industry and prevents sunflower oil processors from increasing
prices. In late 2010, all major sunflower oil producers signed a memorandum with
the state promising to keep local sunflower oil prices unchanged in exchange for
the governments pledge not to interfere with exports. The same agreement was
reached in 2011 for the 2011/ 12 marketing year (September-August).

0
2 0 0
4 0 0
6 0 0
8 0 0
1 ,0 0 0
1 ,2 0 0
1 ,4 0 0
1 ,6 0 0
Jan-0 9 May-0 9 Sep-0 9 Jan-1 0 May-1 0 Sep-1 0 Jan-1 1 May-1 1 Sep-1 1 Jan-1 2 May-1 2 Sep-1 2
Bul k Crude Sun Oi l Pri ces ( $ / t ; i ncl . VAT, EXW) Sunf l ower Seed Pri ces ( $ / t ; i ncl .VAT; EXW)

November 2012


State Regulation
GOVERNMENTAL SUPPORT FOR AGRI CULTURE IN UKRAINE
Agriculture in Ukraine continues to rely on state subsidies. Soon after the global
financial crisis struck in 2008, Ukrainian parliament approved a package of laws to
further support the sector. The operation of some of these laws was discontinued in
2010, including obligatory bank debt prolongation for agro producers. However, the
state still agreed to partly compensate interest on bank loans issued to agricultural
producers, with compensation equal to the NBU discount rate (currently 7.75%). In
reality, listed agricultural companies reported receiving no interest rate compensation
in 2010. The government also intervenes in the grain market with purchases and
collateralized loans to support prices. Last year, the state Agrarian Fund was allocated
UAH 1.5bn ($189m) for forward grain purchases to help farmers finance spring sowing
in March-April. In 2012, the government planned to allocate UAH 2.2bn ($270m) to buy
1.3 Mt of grain or 3% of this years estimated total harvest. Still, we do not expect the
government to pay grain growers any direct subsidies per hectare of land in 2012-15.
The state continues to support
agricultural producers but pays
no direct subsidies
Under Ukrainian law, agricultural producers may choose between general and special
regimes of taxation with respect to certain state levies. Specifically in accordance with
the Law on Fixed Agricultural Tax (FAT), companies engaged in the production,
processing and sale of agricultural products may choose to be registered as payers of
FAT, provided that sales of goods they themselves produce account for more than 75%
of their gross revenue. FAT is paid in lieu of corporate income tax (currently 23%), land
tax, duties for special use of bodies of water, municipal tax, duties for geological survey
works and duties for trade patents. The amount of FAT payable is calculated as a
percentage of the cadaster value of all land plots (determined as of Jul. 1, 1995) leased or
owned by the individual taxpayer. Annual FAT payment usually does not exceed 1% of
NIBT for listed companies. Agricultural producers are allowed to use the FAT regime
indefinitely provided they meet the annual criteria set by the Tax Code.
Fixed Agricultural Tax (FAT)
Ukrainian VAT legislation allows agricultural companies to retain the difference
between VAT paid on items purchased for operations and VAT charged on sales
(current VAT rate is 20%). The amount retained is transferred to a special bank account
and may be reinvested into operations. This measure is effective until 2018.
VAT benefits
As the new Tax Code entered into effect on Jan. 1, 2011, some VAT preferences for both
agricultural producers and exporters were canceled as part of the governments
commitments to the IMF. Starting from July 1, 2011, VAT is not levied on agricultural
producers selling grain, meaning they neither pay the tax to the state budget (as was the
case before) nor keep it in their bank accounts for reinvestment. However, they will still
pay VAT on purchased raw materials and production services. Grain traders (e.g.
Kernel) buying crops directly from producers and exporting do not deal with VAT at
all. Intermediaries, however, have to pay VAT on grain purchased from producers and
sold to exporters.
were largely cancelled in
2011

November 2012


STATE SUPPORT TO INDI VI DUAL AGRI CULTURAL COMPANIES
Public companies enjoy
substantial state support
through retained/refunded
VAT
Ukraines public agricultural companies enjoy substantial government support
through retained VAT, which is the difference between VAT obtained on revenues and
VAT paid on COGS that can be reinvested. Selected exporters of agricultural produce
(e.g. sunflower oil) are also entitled to VAT refunds on exported volumes.
but the sector overall has
relatively low support
Listed agricultural companies account for only about 20% of the domestic agricultural
sectors total turnover and thus are not fully representative of governmental support.
Compared to the EU, for example, where farmers receive direct subsidies per hectare
of cultivated land, Ukrainian small farmers receive only indirect subsidies through
retained VAT.
LSE-listed MHP: VAT refunds
and government grants
MHP, as a company whose sales of own agricultural produce account for more than
75% of gross revenue, is entitled to the aforementioned VAT retention regime. In view
of that, and also considering its fruit and vine cultivation business, MHP received VAT
refunds and other government subsidies in previous years. MHPs VAT refunds have
on average comprised 8% of net sales and 25% of EBITDA. In 2011, the company
reported $88m of government grants 22% of last years EBITDA and 7% of
revenues.
LSE-listed Avangard gets about
5% of revenues through
retained VAT
LSE-listed Avangard, the largest shell egg producer in Ukraine, also enjoys special
VAT treatment and reports retained VAT as part of other operating income that on
average comprises 5% of the companys net sales and almost 12% of EBITDA. As of
end-2011, Avangard retained $38m of VAT (7% of revenues and 16% of EBITDA) and
reported $318m of other governmental grants or subsidies. Moreover, in 2010
Avangard received $233m of VAT refunds for development of its poultry business
(this VAT compensation scheme was canceled last year).
WSE-listed Astarta Holding,
the largest sugar producer in
the country, also enjoys a
favorable VAT regime
Astarta Holding, Ukraines largest sugar producer and one of the largest grain
growers, is another example of preferential VAT treatment. However, starting from
2010 the company changed its accounting policy regarding retained VAT and started
to recognize sales and purchases on a gross basis, i.e. including VAT, while previously
the retained difference was included into other operating income in the P&L. Based on
our estimates, Astarta received net VAT gains of approx. $30m in 2010 and $42m in
2011 to finance its agricultural activities, while the company also reported $6.7m and
$1.1m of government subsidies, respectively, related to cattle farming and crop
production.

Company 2 0 0 9 2 0 1 0 2 0 1 1
MHP
VAT ret ai ned ( $ m) 6 5 . 6 8 2 . 1 8 8 . 0
( % of sal es) 9 . 2 % 8 . 7 % 7 . 2 %
( % of EBITDA) 2 4 . 2 % 2 5 . 3 % 2 1 . 9 %
Avangard
VAT ret ai ned ( $ m) 1 2 . 3 2 1 . 9 3 8 . 0
( % of sal es) 3 . 8 % 5 . 0 % 6 . 9 %
( % of EBITDA) 8 . 1 % 1 1 . 3 % 1 5 . 5 %
Ast art a Hol di ng
VAT ret ai ned ( $ m) 8 . 0 2 9 . 6 4 1 . 6
( % of sal es) 4 . 4 % 7 . 0 % 8 . 3 %
( % of EBITDA) 1 1 . 8 % 1 9 . 1 % 2 8 . 0 %
VAT Retained by Agricultural Companies
Source: Companies, Dragon Capital estimates

November 2012


For Kernel Holding, while VAT refunds are not significant (in 2011FY Kernel gained
$7.9m of retained VAT and other farming-related subsidies, or 0.4% of full-year net
sales and 2.6% of EBITDA), the company is entitled to VAT refunds on exports of
sunflower oil (grain exports, the companys other major sales item, are exempt from
VAT). But considering Ukraines policy of VAT refunds to exporters, Kernel faces
accumulation of significant amounts of VAT recoverable due to delayed refunding by
the state. As of end-2011FY, the company accumulated $218m of VAT recoverable, or
27% of its total current assets and 14% of total assets. VAT recoverable mainly
represents VAT credits in relation to purchases of agricultural products on the domestic
market. In the absence of previous impairment losses, the company does not charge
reserves on VAT, meaning VAT is actually refunded from the state, but with delays.
WSE-listed Kernel Holding,
Ukraines largest sunflower oil
crusher receives VAT refunds
as the biggest sunoil exporter

November 2012


Capital Raising and M&A Deals
Sector CAPEX has been partially
financed by equity offerings and
debt raising
Surging prices of agricultural commodities, as well as expected continued growth of
international food demand provides impetus for Ukrainian agribusinesses to expand.
Rapid expansion has been financed by retained earnings and credit resources, as well
as through private and public share placements. Bullish commodity and equity
markets in previous years further inspired companies to raise capital from both equity
and debt markets.
Capital raising activity
intensified in 2010
After a quiet period during the economic crisis in 2009, we observed a resumption of
activity on capital markets. The total value of agribusiness deals amounted to an
estimated $618m in 2010. Avangard, the countrys largest egg producer, attracted
$208m in an IPO (21.7% stake) on the London Stock Exchange (LSE). Kernel Holding,
the largest sunflower seed and oil producer, raised $81m (6.25% stake) on the Warsaw
Stock Exchange (WSE) in an SPO. MHP, the countrys top poultry producer, attracted
$190m in an SPO on the LSE. Another large agribusiness, Agroton, raised $54m
through an IPO on the WSE in October 2010. AgroGeneration, a French oilseed
producer operating in Ukraine, obtained $16m through an IPO in March 2010. In the
M&A market, a notable transaction was Kernel Holdings acquisition of Allseeds, one
of the largest domestic sunflower oil crushers, at an estimated EV of $230m in January
2010.
...and continued in 2011 Five placements by Ukrainian agricultural companies through either IPO or private
placements (AgroGeneration) occurred in 2011, with these deals jointly raising $138m,
including two deals in spring (KSG Agro and Industrial Milk Company) and three
deals in summer (Ovostar, Continental Farmers Group and AgroGeneration). All of
them were placed on foreign stock exchanges. Regarding debt markets, a notable
transaction was WSE-listed Agrotons placement of a $50m Eurobond in July 2011,
paying a 12.5% coupon and maturing in 2014. Kernel was active in the M&A market in
2011, acquiring two oilseed crushers (Black Sea Industries and Russian Oils for a total
consideration of $200m) and Ukrros (Ukraines fourth largest sugar producer at an
estimated EV of $147m). Another notable deal was acquisition of local agricultural
producer Landkom by Swedish Alpcot Agro AB, at an estimated EV of $39m.

November 2012


Company Ti me of pl acement St ake sol d Proceeds Market Cap Market Cap Type of St ock Exchange
( %) ( $ m) ( $ m) ( current ; $ m) * Pl acement
AgroGenerat i on Jul y 2 0 1 1 1 6 % 1 6 9 9 8 0 PP Al t ernext ( NYSE)
Cont i nent al Farmers Group June 2 0 1 1 3 9 % 2 4 6 1 5 3 IPO LSE AIM/ ISE
Ovost ar June 2 0 1 1 2 5 % 3 4 1 3 6 1 5 9 IPO WSE
Indust ri al Mi l k Company Apri l 2 0 1 1 2 4 % 2 4 1 2 7 1 4 6 IPO WSE
KSG Agro Apri l 2 0 1 1 3 3 % 4 0 1 2 0 7 5 IPO WSE
MHP December 2 0 1 0 1 1 % 1 9 0 1 , 8 2 7 1 , 4 0 0 SPO LSE
Mi l ki l and December 2 0 1 0 2 2 % 6 9 3 1 4 1 7 0 IPO WSE
Agrol i ga December 2 0 1 0 1 7 % 1 . 4 8 . 4 6 IPO WSE/ NewConnect
Agrot on Oct ober 2 0 1 0 2 6 % 5 4 2 0 6 7 5 IPO WSE
Avangard Apri l 2 0 1 0 2 2 % 2 0 8 9 5 9 6 3 2 IPO LSE
Kernel Hol di ng Apri l 2 0 1 0 6 % 8 1 1 , 2 9 6 1 , 7 5 3 SPO WSE
AgroGenerat i on March 2 0 1 0 2 5 % 1 6 6 4 8 0 IPO Al t ernext ( NYSE)
Agrot on November 2 0 0 9 2 5 % 4 2 1 6 8 7 5 PP FSE
Si nt al Agri cul t ure Oct ober 2 0 0 9 1 7 % 1 3 7 6 1 9 SPO FSE
Landkom Int . March 2 0 0 9 1 0 % 4 3 5 suspended SPO LSE AIM
Si nt al August 2 0 0 8 1 5 % 3 5 2 3 0 1 9 PP FSE
Mri ya Agro Hol di ng June 2 0 0 8 2 0 % 9 0 4 5 0 6 6 1 PP FSE
MHP Apri l 2 0 0 8 1 9 % 3 2 3 1 , 6 6 2 1 , 4 0 0 IPO LSE
MCB Agri col e March 2 0 0 8 2 4 % 5 6 2 3 3 5 PP FSE
Landkom Int . March 2 0 0 8 5 % 2 2 4 0 7 suspended SPO LSE AIM
Kernel Hol di ng March 2 0 0 8 9 % 8 4 9 3 3 1 , 7 5 3 SPO WSE
Land West December 2 0 0 7 2 0 % 4 3 2 1 5 1 3 PP FSE
Kernel Hol di ng November 2 0 0 7 3 8 % 2 1 8 5 7 4 1 , 7 5 3 IPO WSE
Landkom Int . November 2 0 0 7 5 5 % 1 1 1 2 0 2 suspended IPO LSE AIM
Creat i v Group November 2 0 0 7 2 3 % 3 0 1 3 0 1 0 3 PP FSE
Ukrros Jul y 2 0 0 7 2 0 % 4 2 2 1 0 1 3 PP PFTS/ FSE
Dakor May 2 0 0 7 2 0 % 2 1 1 0 3 3 PP PFTS/ FSE
Ast art a Hol di ng August 2 0 0 6 1 9 % 3 2 1 6 8 4 8 2 IPO WSE
Ukrproduct February 2 0 0 5 3 2 % 9 4 1 7 IPO LSE AIM
Ukrainian Agricultural Sector Equity Capital Market Deals (2006-2011)
Note: *based on prices as of Aug. 14, 2012. Sources: DealWatch, Bloomberg, Dragon Capital estimates

Acqui ri ng Company Target Dat e St ake ( %) Deal Val ue ( $ m) Est . EV ( $ m) EV/ EBITDA
Ukrproduct Zhyvyi Kvass Apri l 2 0 1 2 1 0 0 % 0 . 5 na na
Al pcot Agro AB Landkom January 2 0 1 2 8 3 % 2 0 3 9 na
Si nt al Agri cul t ure Agri ca Oct ober 2 0 1 1 1 0 0 % 4 1 5 na
Kernel Hol di ng Russi an Oi l s Sept ember 2 0 1 1 1 0 0 % 6 0 6 0 3 . 0
Kernel Hol di ng Bl ack Sea Indust ri es June 2 0 1 1 1 0 0 % 1 4 0 1 4 0 na
Kernel Hol di ng Ukrros March 2 0 1 1 7 1 % 4 2 1 4 7 3 . 8
Ukrl andf armi ng Dakor Agro Hol di ng January 2 0 1 1 7 6 % $ 1 5 -2 0 na na
Ukrl andf armi ng Ri se January 2 0 1 1 1 0 0 % $ 4 0 -5 0 na na
Kernel Hol di ng Al l seeds January 2 0 1 0 9 4 % 7 0 2 3 0 4 . 6
Ukrainian Agricultural Sector M&A Deals
Sources: DealWatch, Bloomberg, Dragon Capital estimates

Company Vol ume ( $ m) Coupon ( %) Pl acement Yi el d ( %) Issuance Dat e Mat uri t y Dat e
Agrot on 5 0 1 2 . 5 0 % 1 2 . 5 % 0 7 / 1 4 / 2 0 1 1 0 7 / 1 4 / 2 0 1 4
Mri ya Agro Hol di ng 2 5 0 1 0 . 9 5 % 1 1 . 2 5 % 3 / 3 0 / 2 0 1 1 3 / 3 0 / 2 0 1 6
Avangard 2 0 0 1 0 . 0 0 % 1 0 . 5 % 1 0 / 2 9 / 2 0 1 0 1 0 / 2 9 / 2 0 1 5
MHP 3 3 0 1 0 . 2 5 % 9 . 8 7 5 % 4 / 2 9 / 2 0 1 0 4 / 2 9 / 2 0 1 5
MHP* 2 5 0 1 0 . 2 5 % 1 0 . 2 5 % 1 1 / 3 0 / 2 0 0 6 1 1 / 3 0 / 2 0 1 1
Ukrainian Agricultural Sector Public Debt I ssuance
Note: *the issue was exchanged for new Eurobonds maturing in April 2015. Sources: DealWatch, Bloomberg, Dragon Capital
estimates

November 2012


Bank Loans for Agriculture
Agricultural loans account for
about 7% of overall corporate
debt
Provision of debt financing for Ukrainian agricultural companies recovered steadily at
a CAGR of 15% in 2009-12 after the credit squeeze in 2008 when lending activity
virtually ceased. As of end-September 2012, domestic banks allocated UAH 37.0bn of
loans ($4.5bn) in hryvnia and other currencies to agricultural enterprises (+9.6% y-o-y),
or about 7% of the banking sectors overall corporate loans. Due to limited sources of
F/ X revenues and significant F/ X risks, loans to the agricultural sector in Ukraine are
about 70% UAH-denominated. But starting from mid-2011 the share of F/ X-
denominated loans in newly attracted debt started to increase, especially for short-term
borrowings. This could be explained by higher interest rates on hryvnia loans as well
by exporters probably borrowing more in F/ X.
with interest rates having
declined by 2-3pp since 2008
but remaining high
Interest rates on agricultural loans decreased from close to 25% for UAH-denominated
debt in 2008-2009 to about 20% in 2010, and as of September 2012 averaged 16.6% for
UAH-denominated and 8.1% for F/ X-denominated debt, compared to average rates
for the corporate sector of 18.5% and 8.5% respectively.

Breakdown of Total Agricultural Loans by Currency
(UAH bn; 2010-12)
Source: NBU

Breakdown of New Agricultural Loans by Currency
(UAH bn; 2010-12)
Source: NBU

NPL risks NPLs in Ukraines agricultural sector remain stable at UAH 3.0bn (-7.5% y-o-y),
representing 8.1% of total portfolio (as of September 2012). Accounting for 4.5% of total
credits allocated to enterprises in Ukraine, agricultural NPLs amounted to 5.5% of total
NPLs in the country, implying high-risk exposure.
Mainly short-term financing In terms of maturity, the total portfolio of loans allocated to Ukraines agricultural
sector is mainly represented by short-term debt of up to one year (46.3% of total
portfolio) and debt with maturity of 1-5 years (45.6% of total portfolio). In recent years
the share of short-term loans (within one-year maturity) surged significantly and
amounted UAH 16.2bn (+20.2% y-o-y; $2.0bn) in September 2012. The volume of
medium-term debt (with maturity from one to five years) totaled UAH 17.6bn (+4.7%
y-o-y; $2.2bn), while the volume of long-term credits fell to UAH 3.2bn (-8.0% y-o-y;
$0.4bn).

0 %
5 %
1 0 %
1 5 %
2 0 %
2 5 %
0
1 0
2 0
3 0
4 0
5 0
Jan-1 0 Jun-1 0 Nov-1 0 Apr-1 1 Sep-1 1 Feb-1 2 Jul -1 2
UAH-denomi nat ed ( l hs) F/ X-denomi nat ed ( l hs)
Int erest rat e ( UAH; rhs) Int erest rat e ( F/ X; rhs)
0
1
2
3
4
5
6
Jan-1 0 Jun-1 0 Nov-1 0 Apr-1 1 Sep-1 1 Feb-1 2 Jul -1 2
UAH-denomi nat ed F/ X-denomi nat ed

November 2012


In 2009, the government launched a program of state support for agricultural
companies through partial interest rate compensation for short-term and long-term
loans. The program envisaged interest compensation equivalent to double the NBU
discount rate (currently 7.5%) for UAH-denominated loans and up to 7% for F/ X-
denominated loans, with a maximum limit for interest rates of 21% and 13%
respectively. In 2012, the state budget provisioned UAH 0.5bn ($0.06bn) for this support
program.
Special interest rate regime for
farmers

Agricultural UAH-Denominated Loans by Maturity
(UAH bn; 2010-12)
Source: NBU

Agricultural Foreign Currency Loans by Maturity
(UAH bn; 2010-12)
Source: NBU
While currently banks in Ukraine are willing to provide short-term loans for
agricultural companies for working capital financing purposes secured by inventories
(e.g. grain) or PPE (machinery), the share of long-term credits is still low (8% of total
portfolio). Despite strong need for long-term affordable financing, banks fail to satisfy
this demand due to volatile soft commodities markets. Due to the generally weak
financial state of Ukrainian agricultural companies, lack of collateral and volatile
environmental conditions for agricultural activities, long-term financing is considered
high risk for financial institutions, encouraging banks to provide financing mainly to
the most stable vertically-integrated holdings. We believe land reform could create
collateral in the form of land ownership or land lease agreements and facilitate bank
financing.
Banks remain cautious but land
reform could help
The State Land Bank is intended to act as a market player and consolidator of state-
owned arable land and provide farmers with loans collateralized by land. In June 2012,
Ukrainian parliament approved two bills creating a legal framework for the land bank,
providing that it can issue loans to farmers at targeted annual interest rates capped at
3% plus the NBU discount rate (currently 7.5%) and collateralized by private or leased
land. The bills deprive local authorities of control over state-owned land, transferring it
to the land bank. The banks other objective is to consolidate all state-owned land so as
to start auctioning it as early as January 2013, when the existing moratorium on land
sales could be lifted. The state owned about 15% of total agricultural land in Ukraine as
of end-2011. The State Land Bank will remain fully owned by state and is not to be
offered for privatization or reorganized.
State land bank could provide
cheaper financing for the sector

> 1 Year
4 6 . 3 %
1 -5 Years
4 5 . 6 %
< 5 Years
8 . 1 %
> 1 Year
3 6 . 0 %
1 -5 Years
5 4 . 1 %
< 5 Years
9 . 9 %
November 2012


International Accounting Standards: IAS 41 Agriculture
Why agricultural companies use
IAS 41 Agriculture
The core assets employed into activities of all agricultural companies are biological
assets, which are subject to growth, degeneration, production, and procreation during
their production cycles. Due to these unique features of biological assets, specific
accounting and reporting treatment is provided under IFRS. Under IFRS, companies
involved into management of biological transformation of living animals or plants
(biological assets) for sale, into agricultural produce, or into additional biological assets
are required to comply with IAS 41 Agriculture. IAS 41 prescribes the accounting
treatment, financial statement presentation, and disclosures related to agricultural
activity. It also prescribes the accounting treatment for biological assets during their
production cycle, and for the initial measurement of agricultural produce at the point
of harvest. IAS 41 does not deal with processing of agricultural produce after harvest.
Increases in value are recognized
as the asset grows
IAS 41 Agriculture applies to companies that are involved into growing or rearing of
biological assets for profit. The principle of the standard is that increases in value are
recognized as the asset grows and not solely on harvest or sale. The scope of IAS 41
regulation is relevant to:
biological assets - a living animal or plant;
agricultural produce (the harvested product of the entitys biological assets) at
the point of harvest;
government grants related to biological assets.
Hence, all agricultural activities connected with crop production, raising livestock, fish
or poultry, forestry, etc. are subject to IAS 41 treatment.
Biological assets are recognized
at fair value less estimated
point-of-sale costs at each
balance sheet date
In order to avoid financial reporting biases due to mismatch of production cycles and
financial reporting periods, under IAS 41 biological assets are required to be measured
on initial recognition and recognized at fair value less estimated point-of-sale costs at
each balance sheet date except the cases when the fair value cannot be estimated with
reasonable assurance. Agricultural produce harvested from an entitys biological assets
should be measured at its fair value less costs to sell at the point of harvest. The
company should recognize a biological asset or agriculture produce only when it
controls the asset as a result of past events, it is probable that future economic benefits
will flow to the company, and the fair value or cost of the asset can be measured
reliably.
Fair value should represent a
market price for the biological
asset based on current
expectations
Under IFRS there is a presumption that fair value can be measured reliably for a
biological asset. Fair value should represent a market price for the biological asset
based on current expectations. Based on this presumption, IAS 41 requires biological
assets to be measured on initial recognition and at each balance sheet date at their fair
value less costs to sell, except in limited circumstances when fair value of biological
assets cannot be reliably assessed. Under IAS 41, there are two occasions when the
presumption can be rebutted:
at the early stage of an assets life;
when fair value cannot be measured reliably on initial recognition.
The IAS 41 allows that cost may approximate fair value where little biological
transformation has taken place since the initial cost was incurred (for example, for tree
seedlings planted immediately before the balance sheet date). Due to the lack of
observable market prices for crops under cultivation in their condition at midyear
reporting dates, the fair value of such biological assets is estimated by present value of
the net cash flows expected to be generated from the assets discounted at a market-
determined pretax rate.

November 2012


Such fair values of biological assets are based on the following key assumptions:
the expected crop yield is based on the past crop yield adjusted for weather
conditions;
prices for grains are obtained from externally verifiable sources;
cultivation and production costs are projected based on actual historical
information;
the discount rate is usually calculated as the companys weighted average cost
of capital estimated by independent appraisers.
The second exemption is only applicable to initial recognition for a biological asset for
which market prices or values are not available and for which alternative estimates of
fair value are deemed to be clearly unreliable. In that case biological asset is measured
at its cost less any accumulated depreciation and any accumulated impairment losses.
Assumptions for calculating fair
value of biological assets are
straightforward
Under IAS 41, all agricultural produce should be measured at fair value less estimated
costs to sell at the point of harvest. Because harvested produce is a marketable
commodity, there is no measurement reliability exception for produce. The gain or
loss arising from the variation in fair value of the agricultural products, after deduction
of the cost of sales, is incorporated into the companys financial statements for the year.
In addition, at the reporting date the company has to assess the need to adjust the
carrying amount of inventories to their net realizable value. The measurement of
impairment is based on the analysis of market prices for similar inventories existing at
the reporting date. Such assessments can have a significant impact on the carrying
amount of inventories.
Agricultural produce fair value
should be measured at harvest as
well
Under IAS 41, a gain or loss arising on initial recognition of a biological asset or due to
change in their fair value should be incorporated into the companys income statement.
In particular, the gain or loss on initial recognition of biological assets is included in
profit or loss in the period in which it arises. And all subsequent changes in fair value
should be included in profit or loss in the period they arise. With respect to agricultural
produce the gain or loss on initial recognition is included in the profit or loss in the
period in which it arises.
Gain or loss arising on initial
recognition of a biological asset
should be incorporated into the
companys income statement

Recognition of Fair Value of Biological Assets and Agricultural Produce
Sources: IFRS, Dragon Capital
For example, biological assets of plant breeding include crops which have been planted
but not yet harvested. In accordance with IAS 41, in order to measure the fair value of
such biological assets company needs to recognize that, at the reporting date, a certain
amount of biological transformation of the assets had taken place since the initial
recognition and incurrence of cost usually its when not less than about 20% of overall
biological transformation of the crop or animal on grow-out occurred at the reporting
date. The carrying amount of biological assets is determined at each balance sheet date
as their fair value less estimated selling and distribution expenses. For example, winter
crops are assessed at fair value starting Dec. 31 (if the company reports quarterly for
example), spring crops starting June 30 (again if the company reports quarterly or
semi-annually for example). Prior to those dates, the crops under cultivation are
recorded at cost incurred up to date due to very low percentage of biological
transformation taking place. Gains or losses from movements in the fair value of
biological assets, less estimated selling and distribution expenses, are recorded in the
period they were incurred.
Biological transformation gives
grounds for fair value estimate of
biological assets

Acquisition of
biological assets
Development costs
Harvest and initial
recognition of
agricultural produce
Additional costs to
complete production
process
November 2012


Biological assets are, for
example, crops which have
been planted but not yet
harvested
For example, for spring wheat grown on an area of 1,000 ha with an expected yield of
5.0 t/ ha and expected costs of UAH 1,200 and UAH 1,800 incurred in subsequent
periods, the measurement and recognition of fair value of biological assets can be
illustrated in the following way (see table below). For measurement purpose the price
of wheat was assumed at UAH 1,200/ t at the initial recognition of assets, UAH 1,050/ t
at the moment of harvest and UAH 1,250/ t at the moment of sale.

Recognition of Fair Value of Biological Assets and Agricultural Produce Methodology
Sources: Mriya Agro Holding, IFRS

Planting or
growing
March 31

J une 30

J uly 15
Harvest
September 10
Sale
December 31

Biological
transformation
Biological assets
are booked at fair
value (UAH 3,500)
Biological assets
are booked at fair
value (UAH 6,000)
Agricultural
produce booked at
fair value
(UAH 5,250)

Cost of sales
(UAH 5,250)
Closing inventory
(UAH 0)
Fair value of
future cash flows
estimated using
DCF (UAH 3,500)
Fair value of
future cash flows
estimated using
DCF (UAH 6,000)

Biological assets
were booked at
fair value
(UAH 6,000)

Revenue obtained
(UAH 6,250)
Retained earnings
(UAH 3,250)
Expense incurred
in period
(UAH 1,200)
Expense incurred
in previous period
(UAH 1,200)
Net loss from
initial recognition
of agricultural
produce
(UAH 750)
Gross profit
(UAH 1,000)
Revenue
(UAH 6,250)

Net gain on
changes in fair
value of biological
assets recognized
in P&L
(UAH 2,300)
Net gain on
changes in fair
value of biological
assets recognized
in prior period
(UAH 2,300)
Net gain from
initial recognition
of agricultural
produce and
changes in fair
value of biological
assets
(UAH 2,250)
Net gain on
changes in fair
value of biological
assets recognized
in P&L
(UAH 700)

Gross profit on
sale
(UAH 3,250)
Expenses incurred
in period
(UAH 1,800)
Cost of sales
(UAH 5,250)
Net result
(UAH 3,250)

November 2012


By its impact on the income statement, the sale of agricultural produce is clearly
revenue as defined by IAS 18 Revenue. According to IFRS framework, biological assets
fair value gains are income and fair value losses are expenses. Fair value gains may be
shown as part of total income but separately from revenue. Income under IAS 41 can be
classified into: initial gain or loss on biological assets; changes in fair value less costs to
sell of biological assets; initial gain or loss on agricultural produce. Upon all
aforementioned items IAS 41 requires all gains and losses arising to be disclosed on an
aggregated basis on the face of the income statement or in the notes.

November 2012


Biofuel Production Potential
Strong potential for biofuel
production
As a country with all the necessary conditions for major agricultural sector
development, Ukraine has significant prospects for biofuel production, supported by a
need to provide self-sufficiency in fuel supply. With specific conditions of production
and use, biofuels allow to significantly reduce oil and gas consumption, decrease fuel
price uncertainty and mitigate negative environmental consequences of fossil fuel
consumption. The most common types of biofuel used worldwide are bioethanol,
biodiesel and biogas.
The EU plans to reach a 20%
share of energy produced from
renewable sources by 2020
Reflecting its desire to reduce fossil fuel consumption, in December 2010 the EU
implemented Directive 2009/ 28/ EC on renewable energy that set ambitious targets for
all member states, aiming for the bloc to reach a 20% share of energy from renewable
sources by 2020 and a 10% share of renewable energy specifically in the transport
sector. Due to the continuing high oil prices and dependence on imported fuel, use of
agricultural potential for production of biofuels is of high interest to Ukraine.
We consider bioethanol
production to be the most
feasible option for Ukraine
Of the three most widely used first-generation biofuels bioethanol, biodiesel and
biogas Ukraine is best prepared to develop bioethanol production. Bioethanol in
Ukraine could be produced from molasses (a by-product of sugar refining) at existing
distilleries, whose current capacity utilization is less than 50%. Although alcohol
production in Ukraine is currently monopolized by the state, three private production
sites are expected to receive bioethanol production license by end-2012. Due to low
CAPEX required to set up distilleries for bioethanol production, we consider
bioethanol to be the most feasible option for Ukraine compared to other biofuels.
Recently enacted legislation making 5-7% bioethanol fuel blends mandatory in Ukraine
starting from 2014 offers additional incentive to develop local bioethanol production.
as there is no sufficient
capacity for biodiesel
production
Ukraine also has significant potential for biodiesel production as its annual production
of rapeseed, the main raw material for biodiesel, is about 1.5 Mt. This amount is
sufficient to replace all Ukrainian diesel consumption with 5% biodiesel/ 95% diesel
blend. However, the country lack the capacity to process such significant rapeseed
volumes, meanwhile continuing to export more than 90% of domestically grown
rapeseed to the EU, the worlds top biodiesel producer. Moreover, unlike ethanol, the
use of biodiesel blends is not mandated in Ukraine.
and developing biogas
production is CAPEX-intensive
Biogas is not hugely popular among domestic agricultural producers because of its
significant CAPEX requirements and long payback and the need for sustainable
supply sources. Biogas production sites in Ukraine can therefore be found mostly at
large agricultural holding companies which use this fuel as a means of satisfying their
in-house energy needs and diversifying energy supplies.
Below we consider each type of biofuel in more detail.

November 2012


Bioethanol is biologically produced alcohol that can be used in petrol engines as a
partial replacement for gasoline (up to 15% blends). In 2011 global bioethanol
production reached almost 110,000 Ml. The biggest bioethanol producers are the USA
(48% of total production) and Brazil (20%), accounting for up to 70% of total output.
The two countries use different crops as sources of ethanol (corn in the USA and sugar
cane in Brazil). The EUs contribution to global bioethanol production is only 5%.
Bioethanol is biologically
produced alcohol
In June 2010, Ukrainian parliament passed a bill on the required content of bioethanol
in gasoline in order to facilitate biofuel production and use in the country. The bill set
recommended biofuel content in gasoline at 5% in 2013, and made it mandatory in 2014
and 2015, with an increase to 7% starting from 2016. Considering Ukraines mostly
outdated vehicle fleet, blends with up to 6% bioethanol content could be used. Given
Ukrainian consumption of petrol of 4.4 Mt in 2011, production of 5% blends would
require about 220 kt of bioethanol annually.
Ukraines parliament passed a
bill on minimum content of
bioethanol
The most efficient crops for bioethanol production are corn, cassava, sweet sorghum,
sugar beet and sugar cane. Among these crops, sugar beet and corn are cultivated in
Ukraine. Significant bioethanol production capacity in Ukraine could be provided by
molasses, a by-product of sugar production. Use of molasses in bioethanol production
is stipulated by the technology of alcohol production in Ukraine, approx. 50% of which
is produced from molasses.
Corn and sugar beet can be used
for bioethanol production in
Ukraine
Molasses normally accounts for up to 4% of processed sugar beet volume or about 25%
of sugar output. About 300 liters of bioethanol can be received from a tonne of
molasses. Hence, the required 5% bioethanol content in gasoline can be provided by
processing 22.9 Mt of sugar beet (above Ukraines 2012E harvest of 17.1 Mt). Assuming
a sugar beet yield of 40 t/ ha, the additional needed volume of sugar beet for bioethanol
will require a 105% increase in sugar beet plantings (up to 1.1 Mha vs. 466,000 ha
planted for the 2012 harvest).
as well as molasses
Bioethanol production capacity in Ukraine is made up of alcohol plants, and is limited
and controlled by the state. Ethanol plants controlled by state monopoly Ukrspyrt have
combined annual capacity of 3.0 Mhl (with maximum potential of 6.5 Mhl) but are
currently less than 50% utilized, producing only 1.4 Mhl p.a. At the same time,
producing 5% bioethanol blend would require 2.8 Mhl of alcohol, or approx. 90% of
Ukrspyrts existing capacity. Thus, bioethanol production could increase Ukrainian
alcohol plant utilization to 65% of capacity in the long term. In 2011, bioethanol
production in Ukraine totaled 9.7 kt (+1,500% y-o-y), and Ukrspyrt plans to increase
output to 200 kt in 2013.
Ukraine has enough existing
capacities for bioethanol
production

2 0 0 8 / 2 0 0 9 2 0 0 9 / 2 0 1 0 2 0 1 0 / 2 0 1 1 2 0 1 1 / 2 0 1 2 2 0 1 2 / 2 0 1 3 E
Sugar beet product i on, Mt 1 4 . 8 1 0 . 3 1 3 . 7 1 8 . 7 1 7 . 0
Sugar product i on, Mt 1 . 6 1 . 3 1 . 5 2 . 3 1 . 9
Mol asses out put , Mt 0 . 5 9 0 . 4 1 0 . 5 5 0 . 7 5 0 . 6 8
Pot ent i al et hanol out put , Ml 1 7 8 1 2 4 1 6 4 2 2 4 2 0 4
Mol asses export , Mt 0 . 1 7 0 . 1 7 0 . 1 5 0 . 2 6 -
Potential Production of Bioethanol from Molasses in Ukraine (2008/ 09-12/ 13E)

November 2012


Ukraine is a net exporter of
molasses
Bioethanol production at existing distilleries or sugar refineries does not entail
significant technological modernization. The biggest concern is the shortage of
molasses. Approximately 200 kt of molasses is exported annually at an average price of
$120/ t, while local prices range from $103-107/ t. However, Ukrainian producers could
potentially unlock higher value by selling molasses to state monopoly Ukrspyrt for
bioethanol production.
Bioethanol production from
molasses in Ukraine could
have a minimum gross margin
of 14%
Assuming raw materials comprise 60% of bioethanol production costs and applying
the domestic molasses price of $110/ t and output rate of 300 liters of bioethanol per
tonne of molasses, we estimate bioethanol production costs at UAH 5 ($0.61)/ liter. The
current CBOT price for bioethanol stands at $0.71/ liter, which implies profit margin
potential for Ukrainian bioethanol producers of approx. 14% on the gross margin level
assuming sales in Ukraine at CBOT prices. Compared to the current price of RON-95
petrol in Ukraine of approx. $1.4/ liter, that implies profit potential of up to 56% on the
gross margin level if bioethanol is sold at the same price as petrol. Costs of bioethanol
production depend significantly on the prices of molasses and natural gas (key cost
components), thus profitability margins could differ.
Bioethanol production from
corn is less profitable
A possible alternative source for bioethanol production in Ukraine is corn. While 4.3
tonnes of molasses is needed for production of one tonne of bioethanol, the same
volume of bioethanol can be produced from 3 tonnes of corn. Production of the
aforementioned 220 kt of bioethanol will thus require an additional 660 kt of corn.
Considering current prices of molasses ($103-107/ t) and corn ($230-250/ t), raw
material costs per tonne of bioethanol would be 55% higher compared to molasses.
Higher energy costs of bioethanol production from grain also contribute to molasses
competitiveness as a bioethanol source.
Sweet sorghum can be used for
bioethanol production but is
very soil exhaustive
Another potential raw material for bioethanol production in Ukraine is sweet
sorghum. It is a high-yield and drought-resistant crop, but its cultivation leads to
significant soil depletion. Considering one tonne of bioethanol can be produced from
28 tonnes of sweet sorghum, with the crop yielding 3-5 t/ ha, 1.5 Mha of arable land
will be depleted each year in order to produce 220 kt of bioethanol. That makes
molasses the most promising source of bioethanol production in Ukraine, potentially
giving a boost to the domestic sugar production industry and alcohol producers and
providing partial self-sufficiency in light oil products.
Licensing of bioethanol
producers in Ukraine
The issue of bioethanol production licenses is yet to be decided. Despite relevant
legislation allowing bioethanol production at both state-owned and private enterprises,
licenses have been issued solely for the 12 alcohol plants owned by state-owned
Ukrspyrt. While the government has proposed issuing licenses for 26 more state-
owned alcohol plants and three private entities, the resolution is still to be passed.
Additionally, when Ukraine finally signs a free trade agreement with the EU, the
country will be able to export up to 100 kt of duty-free bioethanol to the EU.

November 2012


While bioethanol production can improve Ukraines self-sufficiency in light oil
products and generally follows developed countries practice, some concerns remain:
Oil price fluctuation determines profitability of bioethanol production, with oil
prices lower than $50-70/ barrel making bioethanol production unprofitable,
which may necessitate governmental support for bioethanol producers.
While pricing of bioethanol in other countries, including Russia, is tied to global
gasoline prices (based on Platts system), pricing in Ukraine is based on the
domestic price of RON-95 gasoline, making imported bioethanol more
competitive for national oil product producers (approx. $1,500/ t vs. $1,300/ t)
unless the difference is offset by import tariffs.
Bioethanol technologies in Ukraine are less efficient compared to those used in
developed countries in terms of energy saving and quality, making Ukrainian
bioethanol uncompetitive compared to world analogs.
Considering unstable weather conditions, crop yields in Ukraine fluctuate
significantly, implying uncertainty regarding crop prices and supply.
Although it is considered that 6% bioethanol content in gasoline does not require
vehicle modifications, there are concerns about the impact of biofuel usage.
Constraints on bioethanol
production

Light Oil Product Prices (UAH/ t, FCA)
Source: Energobusiness
Biodiesel is an environmentally friendly biofuel produced from vegetable oil or animal
fat and used as a substitute for diesel consumption. Biodiesel is the second most
commonly produced biofuel. World output in 2011 totaled 24.3 Ml, with the EU being
the main producer (48% of total volume). Biodiesel in the EU is mainly produced from
rapeseed (which the EU imports from Ukraine).
Biodiesel is a biofuel produced
from vegetable oil or animal fat
2 ,0 0 0
4 ,0 0 0
6 ,0 0 0
8 ,0 0 0
1 0 ,0 0 0
1 2 ,0 0 0
1 4 ,0 0 0
1 6 ,0 0 0
2 9 / 0 1 / 2 0 0 9 3 0 / 1 1 / 2 0 0 9 3 0 / 0 9 / 2 0 1 0 2 5 / 0 7 / 2 0 1 1 3 1 / 0 5 / 2 0 1 2
Pet rol ( RON-9 5 )
Di esel
November 2012


Rapeseed can be processed into
biodiesel

Ukraine also cultivates rapeseed the same raw material for biodiesel production as in
the EU. Assuming total replacement of common diesel by B20 mix (20% biodiesel and
80% oil diesel), Ukraine would require 1.2 Mt of biodiesel to be produced (or 20% of last
years domestic diesel consumption of 6.1 Mt). This volume of biodiesel requires 4.5 Mt
of oilseed crops and 2.7 Mha of arable area for cultivation. Assuming 100%
consumption of the rapeseed currently produced, the area for rapeseed cultivation
would need to be expanded by 170%. Ukraine planted 567,000 ha with rapeseed for the
2012 harvest and collected 1.2 Mt of the crop this year (-15% y-o-y). Currently almost all
rapeseed produced in Ukraine is exported due to high foreign demand and attractive
prices as well as a lack of domestic processing capacities. The main importer of
Ukrainian rapeseed is the EU (up to 90% of total exports). At the moment Ukraine does
not use all potential rapeseed production capacities. In 2011/ 12, rapeseed was seeded
on approx. 1 Mha of arable land, while almost 75% of all arable land in Ukraine is
suitable for rapeseed cultivation. Due to the unique characteristics of rapeseed, it can
also be produced in abandoned areas such as Chernobyl. Factoring in relevant radiation
safety requirements, we estimate radiation-safe rapeseed could be cultivated on 100,000
ha of abandoned areas for use in biodiesel production.
Ukraine produces more than
enough rapeseed to meet its
agricultural sectors diesel
needs
The Ukrainian agricultural sector consumes 1.5 Mt of diesel annually. Considering that
most diesel vehicles used in agribusiness can consume B20 mix, production of 1.5 Mt of
B20 will require 300 kt of biodiesel. This volume is obtainable from 1.0 Mt of rapeseed
(83% of last years domestic rapeseed harvest), suggesting that Ukraine is potentially
capable of producing enough B20 mix to supply its total agricultural diesel needs.
Biodiesel production from
rapeseed is economically
viable
Modern technologies allow for producing biodiesel at a cost of UAH 3 ($0.37) per liter,
whereas old technologies using rapeseed bought at a market price UAH 3,000/ t yield a
biodiesel price of UAH 10 ($1.22)/ liter. With diesel in Ukraine currently selling for
UAH 9.7 ($1.18)/ liter, the country is capable of producing economically viable
biodiesel, being self-sufficient in relevant inputs.
but demand is low and
crushers prefer sunflower
Rapeseed is not used for oil or biodiesel production in Ukraine due to the main role of
sunflower as an oil crop and no governmental support for biodiesel producers.
Moreover, there is limited demand for biodiesel in Ukraine. Currently only one oil
crushing plant in Ukraine processes rapeseed, meaning virtually no capacity for
industrial biodiesel production. We therefore expect no significant production of this
biofuel in Ukraine until the government takes supportive measures or sufficient
production capacity is built.

( Jul y/ June, kt ) 2 0 0 8 / 0 9 2 0 0 9 / 1 0 E 2 0 1 0 / 1 1 2 0 1 1 / 1 2 E 2 0 1 2 / 1 3 E
Openi ng st ocks 6 1 0 4 5 5
Sown areas ( ' 0 0 0 ha) 1 , 4 1 0 1 , 0 6 0 9 0 7 8 7 2 9 6 2
Areas f or harvest i ng ( ' 0 0 0 ha) 1 , 3 8 0 1 , 0 1 4 8 6 3 8 3 3 5 6 7
Yi el d ( t / ha) 2 . 1 1 . 9 1 . 7 0 1 . 7 3 2 . 1 5
Crop 2 , 8 7 3 1 , 8 7 3 1 , 4 7 0 1 , 4 3 8 1 , 2 1 8
Import 5 5 5 5 5
SUPPLY 2 , 8 8 4 1 , 8 8 8 1 , 4 7 9 1 , 4 4 8 1 , 2 2 8
Crushi ng 2 0 8 1 0 0 1 0 0 1 0 0 1 0 0
Seeds 1 0 9 1 0 1 0 1 0
Export 2 , 6 5 1 1 , 7 7 0 1 , 3 5 9 1 , 3 2 8 1 , 1 0 8
Losses 5 5 5 5 5
DEMAND 2 , 8 7 4 1 , 8 8 4 1 , 4 7 4 1 , 4 4 3 1 , 2 2 3
Cl osi ng st ocks 9 4 5 5 5
Ukraine Annual Rapeseed Balances

November 2012


Biogas originates from bacteria during the process of bio-degradation of organic
material under anaerobic conditions. There is a wide range of organic substrates for
biogas production such as cattle and pig manure, chicken dung, and various wastes
(e.g. from plants, slaughterhouses, food industry, waste water).
Cattle and pig manure main
biogas production sources
With 4.5 million head of cattle, 7.9 million pigs and 255 million head of poultry as of
August 2012, Ukraine also has promising potential for biogas production. However,
ensuring secure supply of raw materials (animal waste) is a problem due to most cattle,
pigs and fowl in the country being grown by small owners (households and small
farms). For example, households account for approx. 34% of cattle, 42% of pigs and 50%
of poultry in the country.
Ukraine has promising potential
for biogas production
With the feedstock available in Ukraine such as pig and cattle manure, chicken dung
and corn silage, the country could annually produce up to 5.5 billion m3 of biogas.
Converting this into electrical energy implies about 11.1 billion kWh, or 4-7% of
Ukraines annual electricity production. Biogas plants operating on pig and cattle
manure are viewed as a more attractive investment compared to facilities using chicken
dung and corn silage, which are profitable only if their capacity is at least 1 MWh.
Biogas production could equal 4-
7% of annual electricity output in
Ukraine
Ukraine has set a favorable price setting regime for electricity production from
renewable sources (wind, biomass, sun and water). The green tariff is a feed-in tariff
differentiated for 1) each company that produces electricity from alternative sources of
energy, 2) each type of alternative energy and 3) each single facility. For example, the
tariff for electric energy from biomass (hay burning technology) is UAH 1.34/ kWh
(incl. VAT; $0.16) compared to current regular tariffs of UAH 0.28-0.96/ kWh for
households ($0.03-0.12) and over UAH 1.50/ kWh ($0.18) in peak consumption periods
for industrial consumers. The green tariff for energy produced from biogas has not
been approved yet.
If approved, the green energy
tariff will favor biogas producers
Public agricultural holdings have started to invest in biogas production, primarily for
in-house needs. In September 2012, WSE-listed Astarta Holding, Ukraines largest
sugar producer, attracted a $12m loan from the EBRD for construction of a biogas plant.
The plant will process 120,000 tonnes of beet pulp p.a. yielding 14.4 million cubic
meters of biogas, which would lower Astartas annual gas consumption by 7.7 million
m
3
(est. $3.8m at current gas price, or 2-3% of Astartas annual EBITDA). Once the
project is implemented, it will enable Astartas main sugar plant to decrease natural gas
consumption by 46%, water consumption by 10% and achieve a reduction in
greenhouse gas emissions to around 15,000 tonnes of CO2 in the first year and
subsequently to up to 35,000 tonnes. LSE-listed Avangard, Ukraines largest egg
producer, also plans to build a biogas plant with capacity of 20.4 MWh, fully meeting
demand from its new poultry complex Chornobaivske. LSE-listed MHP, the countrys
largest chicken meat producer, is carrying out a $20m biogas project at its Oril-Leader
farm in Dnipropetrovsk region. MHP expects the farms biogas facility, to be launched
in November, to produce 30.4 million kWh of electricity p.a., or more than its annual
demand of 21 million kWh, and the investment to be recouped within four years.
Listed agricultural producers are
investing in biogas production,
thus far for internal needs

November 2012


Risks
Political risk high Agricultural markets and agricultural production generally are subject to prevailing
political and social policies. At times, governments impose production and selling
restrictions and limitations in the form of quotas, tariffs and other mechanisms to
protect national producers both at international and domestic levels. These restrictions
and limitations can affect volumes and prices in national, regional and world markets.
Any change in government regulations or legislation concerning the agricultural
market, the markets in which the traded companies compete, or in the markets of
competitors could adversely affect the business, results of operations and financial
condition of the traded companies.
Weather risk high Weather conditions are a significant operating risk affecting agricultural producers
grain growing operations, especially where climate conditions are not always
conductive to maximizing crop yields. Weather does not only have a direct effect on
grain yields but also on the ability to and cost of harvest. Weather and other aspects of
growing conditions may also lead to a greater use of fertilizers and other chemicals,
which may also increase costs.
Price fluctuation risk high Business and financial results of agricultural companies are very dependent on
demand and price levels for grain commodities globally and in Ukraine. Fluctuations
in prices of grains and related products may materially affect companies earnings.
Prices of agricultural commodities are influenced by a variety of unpredictable factors
that cannot be controlled by any individual agricultural company, among them
weather conditions and changes in global supply and demand.
Raw material supply and
pricing risk medium
The performance of agricultural processors such as Kernel Holding or Creativ Group is
linked to stable supplies of raw materials, primarily sunflower seed and soybean, and
prices for those commodities. Any negative change in those factors would pose a risk
to our financial forecasts. Another example of raw material supply and pricing risk is
Avangard, which unlike its closest peer MHP does not cultivate grain in any significant
quantities and does not have plans to do so. Thus, any fluctuations in feed grain prices
on the market significantly affect the companys profitability. Additionally, there is a
risk of further growth in raw milk prices in Ukraine, stemming from a possible revision
of state subsidies to the dairy sector, negatively affecting producers such as Milkiland.
Geopolitical risk in dairy sector
high
Russia remains the main consumer of Ukrainian cheese, accounting for 86% of total
Ukrainian cheese exports, and this implies additional geopolitical risk for domestic
cheese producers. This risk has to date materialized twice, in 2006 and 2011, when
Russia banned imports of any dairy products from Ukraine due to alleged violations of
veterinary and sanitary standards. As a result of imposed import curbs only producers
cleared by the Russian Veterinary and Phytosanitary Authority were allowed to export
to Russia. Although Russia recently joined the WTO and is expected to follow WTO
procedures, it still can examine the quality of Ukrainian milk products for compliance
with Russian standards and ban imports of low-quality produce.
Reporting risk medium Under IFRS, companies involved into management of biological transformation of
living animals or plants (biological assets) for sale, into agricultural produce, or into
additional biological assets are required to comply with the IAS 41 Agriculture
standard. There are no strict rules to calculate gains on revaluation of biological assets
for agricultural producers and calculation is based on market assumptions which often
may be under/ overstated. Thus, we believe a reporting risk exists for agricultural
companies when including gains from revaluation of biological assets and initial
recognition of winter crops, as underlying assumptions are never made public.

November 2012


Company Profiles
November 2012


Agroton: Strong 2012 Wheat Yield
Price Target (PLN) 13.75
Price Target ($)
4.20
Highlights Upside (%) 23%
Profile
Agroton is the largest sunflower seed producer in Ukraine with a close to 1% share
of total domestic sunflower seed output in 2011, and also cultivates wheat, corn and
other crops in line with crop rotation best practice. Agroton currently controls
209,000 ha of land, all located in the Luhansk region.
Valuation implies 23% upside
We recommend Agroton as a Hold based on a 12-month price target of $4.20/ share
(23% above current market price). Our valuation factors in a solid operating outlook
on one hand, and corporate risks and the yet-to-be-resolved issue of 2011 receivables
on the other.
Strong 2012 wheat yield brightens 2012 outlook
In 2012, Agroton harvested 140.3 kt of winter wheat (+17% y-o-y) from an area of
43,327 ha, recording an average yield of 3.24 t/ ha (+19% y-o-y and 22% above the
national average of 2.65 t/ ha. Both the harvest volume and yield fell in line with our
expectations (139.1 kt and 3.2 t/ ha). The company also projected a strong sunflower
seed yield of 2.0 t/ ha (flat y-o-y) notwithstanding challenging weather conditions in
Ukraine this year. We thus expect Agroton to increase its 2012 revenues by 3% y-o-y
to $102.4m, the increase being attributable to a larger planted area as we assume the
company will report higher y-o-y sunflower seed inventories as of end-2012 for sale
at better prices next year. We estimate Agrotons 2012 EBITDA at $25.8m (+153% y-
o-y due to discontinued pig breeding last year and a lower comparison base),
implying an EBITDA margin of 18.1%.
but 1H12 results were weaker y-o-y
Agroton reported 1H12 net sales of $41.3m (-35% y-o-y, including gains from
revaluation of biological assets totaling $31.4m), EBITDA of $38.8m (-3%), for an
EBITDA margin of 53.3% (+11.1pp y-o-y), and net income of $30.5m (-11%).
Agrotons outstanding trade receivables stood at $25.4m as of June 30, including
almost $24.0m of unsettled receivables highlighted by the companys previous
auditors, Baker Tilly Ukraine, in the 2011 annual report. According to Agrotons
founder and CEO Yuriy Zhuravlov, outstanding receivables were reduced to
$11.7m as of Aug. 31 and were going to be fully settled by end-September. Agroton
plans to issue 9M12 results on Nov. 28, potentially shedding more light on the
receivables issue.
Expansion to be financed with internal cash flow and Eurobond proceeds
Agroton reported acquiring 10-year lease rights to 38,000 ha of land in 1H12, paying
$25.4m (or $668/ ha). The company previously announced plans to increase its land
bank to 290,000 ha by 2015. Concurrently, by 2014, Agroton plans to boost its storage
capacity to 544 kt p.a. We expect the company to finance its CAPEX projects with
internally generated cash and proceeds from a $50m three-year Eurobond sold in
July 2011 and paying a 12.5% coupon.
Risks
Key risks for Agroton are potential negative weather impact and volatility of crop
prices. We also note the companys weak corporate governance standards.

Sell Hold Buy

Company Data
Market Pri ce ( PLN) 1 1 .1 4
Market Pri ce ( $ ) 3 .4 1
Market Cap ( $ m) 7 3 .9
Ent erpri se Val ue ( 1 2 E; $ m) 1 0 4 .4
Free Fl oat ( %) 4 8 .9 6 %
Free Fl oat ( $ m) 3 6 .2
Shares Out st andi ng 2 1 ,6 7 0 ,0 0 0
Nomi nal Val ue ( EUR) 0 .0 2 1
Bl oomberg Code AGT PW
DR Rat i o -
Number of Empl oyees 4 ,2 8 0

Shareholder Structure

12-month Price Performance ($)

1 2 -mont h Perf ormance ( $ ) ( 4 9 %)
1 2 -mont h Rel . Perf orm. ( KP-Dragon) ( 3 9 %)
1 2 -mont h Low/ Hi gh ( $ / share) 2 .2 4 / 7 .7 3
Al l -t i me Low/ Hi gh ( $ / share) 2 .2 4 / 1 5 .4 4
1 2 -mont h Tradi ng Vol ume ( $ m) 3 6 .3

Valuation Summary
2012E Revenues ($m)
Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 5 5 .3 5 7 .3 9 9 .7 1 0 2 .4 1 2 6 .5
EBITDA ( $ m) 2 1 .2 3 5 .3 1 0 .2 2 5 .8 4 1 .7
Net Income ( $ m) 4 .5 1 5 .7 ( 2 .1 ) 1 1 .5 2 5 .8
P/ E 1 6 .5 4 .7 nm 6 .4 2 .9
EV/ EBITDA 4 .3 2 .2 1 0 .6 4 .1 2 .6
EV/ Sal es 1 .6 5 1 .3 4 1 .0 8 1 .0 2 0 .8 5
P/ Book 2 .7 1 1 .7 1 1 .8 0 1 .4 0 0 .9 4
IFG Di rect ors Lt d - 5 1 .0 4 %
Free Fl oat - 4 8 .9 6 %
0
2
4
6
8
1 0
Nov-1 1 Feb-1 2 May-1 2 Aug-1 2 Nov-1 2
Agrot on KP-Dragon ( rel . )
Crops
6 1 %
Li vest ock
& Mi l k
1 0 %
Poul t ry
2 9 %

November 2012


Investment Highlights
Agroton is a diversified vertically integrated agricultural producer in eastern
Ukraine. The companys core business is crop production, principally comprising
cultivation of sunflower seeds and wheat. Agroton is also involved in livestock
business (poultry and production of milk). The company currently harvests
155,000 ha of land out of 209,000 ha it controls (up from 41,000 ha in 2001), all
located in the Luhansk region. Agroton operates storage facilities with a combined
capacity of 285,000 tonnes, which enables it to store all of its current crop
production and thereby achieve better pricing terms.
Agroton is a diversified agro
producer with 209,000 ha of
land in eastern Ukraine
Crop production accounted for 76% of Agrotons 1H12 revenues while livestock
business contributed 24%. Thanks to its crop production segment Agroton is 100%
self-sufficient in wheat, corn and barley used for feed by its livestock segment.
Vertical integration (self-sufficiency in fodder for poultry and livestock operations)
reduces the companys dependence on suppliers, ensuring quality of inputs such
as feed for its livestock operations.
Crop production accounts for
over 75% of sales

Agroton Land Bank Location (1H12)
Source: Company

Agroton Revenue Breakdown (value terms; 1H12)
Source: Company

The company harvested 262 kt of grain and oilseeds in 2011 (+9% y-o-y). Last years
harvest included 121 kt of winter wheat (+6% y-o-y), 73 kt of sunflower seeds (-21%
due to 28% lower acreage) and 45 kt of corn (+125% thanks to favorable weather and
higher yield). Production of other crops (rapeseed, barley, sorghum and rye) was up
50% y-o-y, to 24 kt. Agrotons sunflower seed yield outperformed the Ukrainian
average by 6% and stood at 1.9 t/ ha in 2011. Winter wheat and corn yields totaled 2.7
t/ ha and 4.5 t/ ha, underperforming the respective domestic averages of 3.4 t/ ha
(wheat) and 6.4 t/ ha (corn). But yields on barley (2.8 t/ ha) and rapeseed (2.0 t/ ha)
were better than across the country (see chart below).
Grain and oilseed harvest
reached 262 kt in 2011

Agroton Cropland Breakdown (2011 harvest)
Note: *barley, rye, rapeseed, sorghum, oats. Source: Company
Agroton Crop Yields vs. Ukrainian Averages (t/ ha; 2011)
Sources: Company, SSS
Crop
Product i on
7 6 %
Li vest ock
Product i on
2 4 %
Wheat
3 3 %
Sunf l ower
2 9 %
Corn
7 %
Feed crops
5 %
Ot her crops
7 %
Fal l ow l and
1 9 %
2 . 7
1 . 9
4 . 5
2 . 8
2 . 0 2 . 0
3 . 4
1 . 8
6 . 4
2 . 5
2 . 1
1 . 7
0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
6 .0
7 .0
8 .0
Wi nt er wheat Sunf l ower
seed
Corn Barl ey Rye Rapeseed
Agrot on ( t / ha) Ukrai ne ( t / ha)
November 2012


Wheat and sunflower account
for 55% of 2012 total acreage
Agroton planted 52,000 ha of winter crops for the 2012 harvest (+4% y-o-y), including
48,553 ha under wheat (+8% y-o-y), 2,000 ha under rye (+122%), 1,000 ha under barley
(-41%) and 400 ha under rapeseed (-79%). The company seeded an additional 103,000
ha in the spring, with 49,000 ha earmarked for sunflower (+26% y-o-y), 14,500 ha for
corn (+56%) and 7,000 ha for sorghum (+59%), bringing its total acreage for the 2012
harvest to 155,000 ha (+10% y-o-y; excl. fallow/ newly consolidated land).
We expect Agroton to produce
317 kt of grain and oilseeds in
2012 (+21% y-o-y)
We expect Agrotons 2012 harvest to increase by 21% y-o-y to 317 kt, thanks to
increased acreage and a shift towards higher-yield crops (corn). The winter wheat
harvest reached 140.3 kt (+17% y-o-y), largely unimpaired by weather conditions,
with the yield averaging 3.24 t/ ha (+19% y-o-y and 22% above the national
average). The company also reported signing a forward contract with the State
Agrarian Fund to sell 60 kt of wheat at $235/ t (incl. VAT). Agrotons outlook for
the 2012 sunflower seed harvest is also strong with yield projected at 2.0 t/ ha (flat
y-o-y). As of end-August, Agroton harvested 7,000 ha out of the total area of 40,000
ha under sunflower seeds, confirming an average yield of 2.0 t/ ha.

Agroton Cropland Breakdown (2012E harvest)
Note: *barley, rye, rapeseed, sorghum, oats.
Source: Company, Dragon Capital estimates
Agroton Crop Production (kt; 2005-12E)
Sources: Company, Dragon Capital estimates

Poultry output to almost
double in 2012
Agroton launched a breeder farm (Myrny) in 2011, with its first four poultry
houses for young breeding stock put into operation by the end of April 2011 and
the other four launched at the beginning of 2012. We expect the farm to reach its
full capacity of 14.8 million hatching eggs in 2016. Given Agrotons successful
poultry capacity expansion, we expect the company to report 2012 chicken meat
output of 15.4 kt (up from 7.5 kt in 2011), with its share of total revenues to expand
to 28% (+15pp y-o-y). We expect Agroton to produce 26.6 kt of chicken meat in
2016 when its Myrny breeder farm is expected to reach full capacity.
Livestock and milk to
contribute 10% to 2012
revenues (flat y-o-y)
Agrotons dairy and beef operations comprise 20 cattle farms, all located in the
Luhansk region. Agrotons 2011 milk production stood at 10 kt, flat y-o-y. The
company plans to increase its milking cow herd by 8% y-o-y to 3,334 head in 2012,
which should provide for 13 kt of milk output (+27% y-o-y). Beef output reached
an estimated 2.3 kt in 2011 (+32% y-o-y as its total number of cattle increased by
32% to almost 6,000 head) and is expected to remain flat y-o-y in 2012 as beef is a
non-core segment for the company. Thus, we expect both milk and livestock
production to contribute 10% to Agrotons 2012 revenues (flat y-o-y).

Sunf l ower
3 3 %
Wheat
2 9 %
Corn
1 0 %
Feed crops
8 %
Ot her crops*
9 %
Fal l ow l and
1 1 %
1 4 8
1 3 1
1 3 4
2 5 7
2 3 7
2 4 1
2 6 2
3 1 7
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Wheat ( kt ) Sunf l ower ( kt ) Ot her ( kt )

November 2012


Agroton Chicken Meat Production (kt; 2008-12E)

Agroton Milk Production (kt; 2008-12E)

Crop production costs account for an est. 51% of Agrotons total COGS in 2012 and are
roughly 50% linked to the dollar. Poultry and livestock costs followed with a 34% share
of total COGS, with feed grain contributing about 40% to total costs in the segment. We
estimate milk production costs accounted for 15% of Agrotons 2011 COGS.
Crop production accounts for
51% of COGS

Agroton COGS Breakdown by Business Segment (2011)

Agroton Poultry Cost Structure (2011)
Note: *non-grain fodder includes vitamins, lysine, etc. Source: Company

We analyze Agrotons production cost structure based on winter wheat and sunflower,
the companys largest revenue contributors. Fertilizers represent the largest cost item in
both wheat and sunseed production, accounting for 22-28% of the total, followed by
seeds with 15-29%. Increased land lease payments (est. +76% in 2012) rank third with
an approx. 20% share. Agroton capitalizes on the economies of scale when buying crop
production inputs by conducting its purchases centrally from suppliers.
Fertilizers, land lease and seeds
are the largest contributors to
crop production costs

Agroton Winter Wheat Production Costs (value; 2012E)
Note: *repairs, organic fertilizers, electricity costs, amortization etc. Source:
Dragon Capital estimates

Agroton Sunflower Seed Production Costs (value; 2012E)
Note: *repairs, organic fertilizers, electricity costs, amortization etc. Source:
Dragon Capital estimates

7
7
5
8
1 5
1 7
0
5
1 0
1 5
2 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
1 2
1 4
1 1
1 0
1 3 1 3
0
5
1 0
1 5
2 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Crops
6 1 . 9 %
Poul t ry &
Li vest ock
2 3 . 1 %
Dai ry
1 4 . 8 %
Ot her
0 . 2 %
Grai n
3 3 %
Sal ari es
1 6 %
Non-grai n
f odder
component s*
1 5 %
Ut i l i t i es
1 2 %
Prot ei n
1 0 %
Vet eri nary
servi ces
5 %
Renewal of
parent al st ock
3 %
Ot her
6 %
Fert i l i zers
2 8 %
Land Lease
2 2 %
Fuel
2 0 %
Seeds
1 5 %
Labor
2 %
Ot her*
1 3 %
Seeds
2 9 %
Fert i l i zers
2 2 %
Land Lease
2 1 %
Fuel
1 6 %
Labor
2 %
Ot her*
1 0 %
November 2012


2011 results were below
expectations
Agroton reported 2011 gross revenues of $122.1m (+25% y-o-y), including $22.3m of
gains from changes in the fair value of crops. EBITDA totaled $18.6m (-47% y-o-y), for
an EBITDA margin of 15.3% (-20.8pp y-o-y), and the bottom line showed a loss of 2.3m
(vs. $15.5m net income in 2010). Reported net sales fell generally in line with our
forecast but profitability underperformed significantly, with gross profit falling below
our projection due to a $14m net loss on IAS 41. Agrotons reported 2011 EBITDA also
came in below our forecast, which was attributable to lower than expected gross profit
and $15m of other operating expenses (mainly impairment related to trade and other
receivables of $9.4m). Adjusted for $8.4m of non-recurring items, Agrotons 2011
EBITDA was $10.2m.
Auditors qualified opinion
included in the 2011 financial
report
Auditors Baker Tilly Ukraine, which audited Agrotons 2011 results, added a qualified
opinion stating that no adequate documentary evidence was provided for $66.2m of
revenues (66% of 2011 total net revenues), of which $41.1m of receivables remained
unpaid as of April 30, 2012 (the 2011 reports publication date). According to Agroton,
the outstanding receivables concerned sales of crops (wheat, rapeseed, sunflower and
corn) to two of the companys customers.
was only partially resolved
with issuance of 1H12 results
Agrotons outstanding trade receivables stood at $25.4m as of June 30, 2012, including
almost $24.0m of the unsettled receivables highlighted by Baker Tilly (Agroton hired
new auditors, KPMG, in 1H12). According to Agrotons founder and CEO, Yuriy
Zhuravlov, outstanding receivables were reduced to $11.7m as of Aug. 31, and were
going to be fully settled by end-September. The 1H12 cash flow statement showed a
gross change in accounts receivable of $18.6m (vs. $3.0m in 1Q12). Agroton reported
1H12 net sales of $41.3m (-35% y-o-y, including gains from revaluation of biological
assets totaling $31.4m), EBITDA of $38.8m (-3%), for an EBITDA margin of 53.3%
(+11.1pp y-o-y), and net income of $30.5m (-11%). The yet-to-be-settled receivables
issue poses a risk to our financial forecast for Agroton, though the company states this
was a one-off.
We expect 2012 EBITDA to
improve to $26m from
$10m in 2011
We expect Agroton to increase its 2012 revenues by 3% y-o-y to $102.4m, the increase
being attributable to a larger planted area as we assume the company will report
higher y-o-y sunflower seed inventories as of end-2012 for sale at better prices next
year. We estimate Agrotons 2012 EBITDA at $25.8m (+153% y-o-y due to discontinued
pig breeding last year and lower comparison base), implying EBITDA margin of 18.1%
for the year.
and to $41.7m in 2013,
factoring in hryvnia
depreciation impact
Agroton generates about 30% of revenues in UAH, including sales of poultry, raw milk
and cattle breeding. The company sells grain (67% of 2013F revenues) at dollar-linked
prices to local grain traders. Poultry production costs (est. 23% of 2013F total COGS)
are 90% hryvnia-linked, while cattle breeding costs (9%) are 70% USD-linked due to
fodder inputs which correlate with global grain prices. Grain production costs (53% of
total) are roughly 50% linked to the dollar. Thus, about 35% of Agrotons overall COGS
are dollar-linked. We currently assume the hryvnia will depreciate to UAH 8.8:USD by
end-2013 (vs. UAH 8.2:USD estimated previously). As Agrotons revenues in UAH
terms will increase faster than COGS, we expect a positive effect on operating
profitability. Thus, we estimate Agrotons 2013 revenues at $126.5m (vs. $129.6m at
UAH 8.2:USD) and EBITDA at $41.7m (vs. $41.2m at UAH 8.2:USD).
Land bank expansion to
290,000 ha by 2015
Agroton reported acquisition of 10-year lease rights to 38,000 ha of land in the Luhansk
region in 1H12, paying $25.4m (or $668/ ha), which brought its total land bank to
209,000 ha. The company previously announced plans to increase its land bank to
290,000 ha by 2015, with 40,000-45,000 ha additions in 2013 and 2014.

November 2012


Agroton is proceeding with construction of a modern silo that will increase its annual
storage capacity by 82 kt (or 29%), with CAPEX estimated at $8.5m and completion
scheduled for this year. By 2014, Agroton plans to boost its storage capacity to 544 kt
p.a. in order to support planned land bank expansion. Storage expansion will be
achieved through both acquisitions and construction of new silos.
to be supported with grain
storage capacity growth to
544 kt p.a. by 2014
We expect Agroton to finance its CAPEX projects with internal cash flow and last
years Eurobond proceeds. The company reported end-1H12 debt of $48.7m, including
the $48.2m of bonds net of issue costs. Agrotons end-1H12 Net Debt/ EBITDA stood at
an est. 0.4 (vs. the covenant of 3.0).
End-1H12 debt at $48.7m

November 2012


Valuation
COMPARATI VE VALUATI ON
Company Pri ce Currency MC* EV/ EBITDA ( x) P/ E ( x)
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Agrot on 3 . 4 1 USD 7 4 4 . 1 2 . 6 6 . 4 2 . 9
Premi um/ ( di scount ) t o Ukrai ni an peers ( 8 2 %) ( 1 6 %) ( 3 6 %) 1 7 % ( 4 5 %)
Premi um/ ( di scount ) t o Russi an peers ( 7 1 %) ( 2 8 %) ( 5 4 %) 6 7 % ( 3 8 %)
Ukrai ni an Peers
Mri ya Agro Hol di ng 6 . 2 3 USD 6 6 2 4 . 4 4 . 1 4 . 7 5 . 2
Ast art a Hol di ng 1 8 . 8 5 USD 4 7 1 4 . 9 4 . 5 5 . 2 5 . 2
MHP 1 4 . 4 0 USD 3 6 0 4 . 8 3 . 9 6 . 5 5 . 4
Indust ri al Mi l k Company 4 . 4 4 USD 1 3 9 5 . 0 2 . 9 5 . 4 3 . 5
Ukrai ni an Peers Medi an 4 0 8 4 . 8 4 . 0 5 . 3 5 . 2
Russi an Peers
Rusgrai n 1 4 . 5 RUB 2 0 2 . 0 2 . 0 0 . 5 -
Razgul i ay 1 2 . 3 6 RUB 6 2 5 . 6 5 . 6 2 . 3 1 . 4
Tri gon Agri 5 . 7 0 SEK 1 1 0 7 . 5 7 . 8 9 0 . 0 4 . 3
Ros Agro 7 . 0 0 SEK 8 3 5 4 . 3 4 . 5 5 . 4 4 . 9
Bl ack Eart h Farmi ng 1 2 . 3 5 USD 2 2 9 1 2 . 6 1 0 . 5 neg. 1 6 . 8
Russi an Peers Medi an 2 5 1 5 . 6 5 . 6 3 . 9 4 . 6
Notes: *average for market capitalization; prices as of Nov. 9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates

HISTORI CAL PRI CE TARGETS/ FAIR VALUES

Agroton (AGT PW)

Note: *fair values were calculated between Feb. 2, 2009 and J an. 23, 2011

0 .0
5 .0
1 0 .0
1 5 .0
2 0 .0
Nov-0 9 Apr-1 0 Sep-1 0 Feb-1 1 Jul -1 1 Dec-1 1 May-1 2 Oct -1 2
Market Pri ce ( $ / share)
PT ( $ / share)

November 2012


Financial & Operating Summary
Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Wheat ( kt ) 1 3 6 . 1 1 1 3 . 7 1 2 0 . 6 1 3 9 . 1 1 8 9 . 5
Growt h ( %) 3 % ( 1 6 %) 6 % 1 5 % 3 6 %
Sunf l ower Seed ( kt ) 7 6 . 5 9 1 . 7 7 2 . 8 9 8 . 0 1 2 5 . 4
Growt h ( %) 1 3 % 2 0 % ( 2 1 %) 3 5 % 2 8 %
Poul t ry ( kt ) 6 . 7 5 . 3 7 . 5 1 5 . 4 1 7 . 3
Growt h ( %) ( 3 %) ( 2 1 %) 4 2 % 1 0 6 % 1 2 %
Mi l k ( kt ) 1 3 . 6 1 0 . 8 1 0 . 1 1 2 . 9 1 2 . 9
Growt h ( %) 1 2 % ( 2 1 %) ( 6 %) 2 7 % 0 %
Profit & Loss Statement (IFRS; $m)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 5 5 . 3 5 7 . 3 9 9 . 7 1 0 2 . 4 1 2 6 . 5
EBITDA 2 1 . 2 3 5 . 3 1 0 . 2 2 5 . 8 4 1 . 7
Depreci at i on ( 4 . 6 ) ( 5 . 6 ) ( 4 . 4 ) ( 3 . 7 ) ( 4 . 2 )
EBIT 1 6 . 6 2 9 . 7 5 . 8 2 2 . 1 3 7 . 5
Net Fi nanci al Income ( Loss) ( 9 . 9 ) ( 9 . 9 ) ( 5 . 6 ) ( 6 . 4 ) ( 6 . 4 )
NIBT 5 . 1 1 6 . 1 0 . 3 1 1 . 6 2 6 . 0
Income Tax Benef i t ( Expense) 0 . 0 ( 0 . 1 ) ( 0 . 0 ) ( 0 . 1 ) ( 0 . 2 )
Net Income ( Loss) 4 . 5 1 5 . 7 ( 2 . 1 ) 1 1 . 5 2 5 . 8
Balance Sheet (IFRS; $m)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 1 2 6 . 0 1 4 4 . 3 1 7 9 . 9 1 9 1 . 5 2 1 7 . 8
Fi xed Asset s 4 2 . 3 4 9 . 1 5 8 . 3 6 1 . 2 6 3 . 5
PPE 4 0 . 1 3 8 . 3 3 1 . 2 3 4 . 0 3 6 . 3
Current Asset s 8 3 . 8 9 5 . 2 1 2 1 . 6 1 3 0 . 3 1 5 4 . 3
Invent ori es 3 1 . 0 6 2 . 7 5 2 . 4 4 3 . 4 5 3 . 8
Account s Recei vabl e 7 . 5 7 . 8 3 9 . 7 4 4 . 9 5 5 . 5
Cash & Cash Equi val ent s 3 5 . 1 1 3 . 6 1 7 . 6 2 0 . 8 1 7 . 9
Tot al Li abi l i t i es & Equi t y 1 2 6 . 0 1 4 4 . 3 1 7 9 . 9 1 9 1 . 5 2 1 7 . 8
Tot al Li abi l i t i es 6 9 . 6 2 2 . 2 6 0 . 1 6 0 . 1 6 0 . 6
Account s Payabl e 2 . 0 1 . 2 1 . 9 2 . 0 2 . 5
S/ T Debt 5 1 . 8 1 3 . 6 3 . 8 0 . 0 0 . 0
L/ T Debt 0 . 5 2 . 8 4 7 . 6 5 1 . 4 5 1 . 4
Equi t y 2 7 . 3 4 3 . 3 4 1 . 1 5 2 . 7 7 8 . 5
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 2 7 %) 4 % 7 4 % 3 % 2 4 %
EBITDA Growt h ( y-o-y) 1 0 3 % 6 7 % ( 7 1 %) 1 5 3 % 6 2 %
Net Income Growt h ( y-o-y) nm 2 5 1 % nm nm 1 2 4 %
EBITDA Margi n 2 7 . 9 % 3 6 . 3 % 8 . 3 % 1 8 . 1 % 2 4 . 1 %
Net Margi n 8 . 1 % 2 7 . 5 % ( 2 . 1 %) 1 1 . 2 % 2 0 . 4 %
Net Debt / Equi t y 6 3 % 6 % 8 2 % 5 8 % 4 3 %
ROE 1 6 . 4 % 3 6 . 4 % neg. 2 1 . 9 % 3 2 . 9 %
EBITDA Coverage 2 . 1 3 . 6 1 . 8 4 . 0 6 . 5
Net Debt / EBITDA

0 . 8 0 . 1 1 . 8 1 . 2 0 . 8

November 2012


Astarta Holding: Grain Price Growth
Helps while Sugar Prices Retreat
Price Target ($)
22.32
Upside (%)
18%
Highlights

Profile
Astarta Holding is the largest sugar producer in Ukraine with a 16% share of total output
in 2011. The company cultivates 245,000 ha of land in central Ukraine and harvested 660
kt of crops in 2011 (1% of Ukraines total).
Our DCF and comparative valuation models yield a 12-month price target of
$22.32/ share, suggesting a 18% upside to the stocks current market price and justifying a
Hold recommendation.
Sugar oversupply in Ukraine is expected to restrain prices in 2012 and 2013
Sugar prices remained suppressed in 9M12 ($661/ t; incl. VAT; -37% y-o-y) following
overproduction in 2011. We expect total sugar supply of 2.2 Mt in 2012/ 13 MY
(September-August) including about 280 kt of ending stocks from the 2011 processing
season, while annual domestic consumption is estimated at 1.9-2.0 Mt. This implies sugar
surplus in the country for the second consecutive year and potentially more downward
pressure on local sugar prices. We keep our 2012 sugar price forecast at $660/ t (-31% y-o-
y; incl. VAT), which matches the 9M12 average, and project next years average price at
$600/ t (flat y-o-y in UAH but -8% y-o-y in USD accounting for expected hryvnia
depreciation).
Higher volume sales and grain prices in 2012 help offset sugar price decline...
Astarta boosted 1H12 crop sales in volume terms by 75% y-o-y, with sugar sales up 42%
and milk sales rising 33%. We think Astarta will be able to offset weaker sugar prices this
year with higher grain prices in 2H12 and also higher y-o-y volume sales, given its
significant leftover stocks of 2011-produced sugar (70% of last years output) and grain
(approx. 50%). We thus forecast Astartas 2012 sales will increase by 18% y-o-y (to
$498.7m) but expect EBITDA to decline by 2% y-o-y to $152.1m, for an EBITDA margin of
30.5% (-6.0pp y-o-y).
2013 outlook depressed by sugar oversupply and hryvnia depreciation
We expect Astarta to post 2013 revenues of $512.6m (+3% y-o-y). Our estimate factors in
negative impact of projected hryvnia depreciation, on one hand, and higher expected
sugar volume sales (+21% y-o-y) thanks to strong 2012E output of 400 kt (+8% y-o-y) and
assumed flat y-o-y sugar prices in UAH terms, on the other. We forecast 2013 EBITDA
will decline to $135.2m (-11% y-o-y), implying an EBITDA margin of 26.4% (-4.1pp y-o-y),
due to higher contribution of low-margin sugar to 2013E sales.
Soybean facility to be launched in 2013
Astarta started construction of a soybean processing plant with daily crushing capacity of
700 tonnes (about 220 kt annually) this year. The facility, to be launched in 2013, will be
able to produce up to 160 kt of meal, 40 kt of soybean oil and 9 kt of granulated husk. The
project also includes construction of a 42 kt silo, with total CAPEX estimated at $35m.
Astarta has already attracted $50m of financing from the International Finance
Corporation.
Risks
Price volatility on the local sugar market and global grain markets as well as shifting
global weather patterns constitute major risks for Astarta

Sell Hold Buy

Company Data
Market Pri ce ( $ ) 1 8 .8 5
Market Cap ( $ m) 4 7 1 .3
Free Fl oat ( %) 3 7 .0 2 %
Free Fl oat ( $ m) 1 7 4 .5
Nomi nal Val ue ( EUR) 0 .0 1
Bl oomberg Code AST PW
DR Rat i o -



1 2 -mont h Perf ormance ( 1 %)
1 2 -mont h Rel . Perf orm. ( KP-Dragon) 1 8 %
1 2 -mont h Low/ Hi gh ( $ / share) 1 2 .8 9 / 2 2 .3 1

Valuation Summary 2012E Revenues ($m)
Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
1 8 1 .9 2 9 3 .4 4 2 3 .8 4 9 8 .7 5 1 2 .6
EBITDA ( $ m)
6 8 .1 1 3 2 .5 1 5 4 .7 1 5 2 .1 1 3 5 .2
Net Income ( $ m)
4 0 .5 1 0 5 .2 1 2 2 .2 9 3 .8 7 6 .4
P/ E
1 1 .6 4 .5 3 .9 5 .0 6 .2
EV/ EBITDA
8 .7 4 .7 4 .7 4 .7 5 .2
EV/ Sal es
3 .2 5 2 .1 1 1 .7 0 1 .4 4 1 .3 6
P/ Book
2 .8 2 1 .6 9 1 .1 9 1 .0 0 0 .9 0
Mr. V. Ivanchyk - 3 6 .9 9 %
Mr. V. Korot kov - 2 5 .9 9 %
Free f l oat - 3 7 .0 2 %
1 0
1 5
2 0
2 5
3 0
Ast art a Hol di ng KP-Dragon ( rel . )
Sugar
5 2 %
Crops
3 9 %
Cat t l e
f armi ng
8 %
Ot her
1 %

November 2012


Astarta Holding remains the largest sugar producer in Ukraine with a 16% share of
total output in 2011 and is expected to account for 18% of total sugar output in
2012. The company cultivates 245,000 ha of land in central Ukraine and harvested
660 kt of grain crops (1% of Ukraines total) and 2.1 Mt of sugar beet (12% of
Ukraines total) last year. We estimate Astartas 2012 grain harvest at 556 kt (-16%
y-o-y due to negative weather impact on yields).
The largest sugar producer in
Ukraine

Astarta Land Bank Location (J une 2012)
Source: Company

Astarta Land Bank Growth (000 ha; 2005-12)
Source: Company

Sugar and by-products (molasses and dry pulp) normally serve as the main
revenue contributors for Astarta in the first half of the year, while the company
sells grain crops mostly in the second half after completing harvesting in
September-October. In 2011, sugar and by-products accounted for 49% (-9pp y-o-y)
of Astartas revenues while the share of crops grew to 43% (+8pp y-o-y), reflecting
higher sales of grain inventories in the wake of export curbs (Oct. 10-May 11). In
1H12, Astarta generated 55% (-12pp y-o-y) of revenues from sales of sugar and by-
products and 32% (+9pp y-o-y) from grain sales. For the full year, we expect sugar
and by-products to account for 52% of Astartas total revenues.
Sugar and by-products account
for half of revenues

Astarta Revenue Breakdown (value terms; 2011)
Source: Company

Astarta Revenue Breakdown (value terms; 2012E)
Source: Company

Astarta enjoyed increased sugar beet yields in 2011 (50 t/ ha; +43% y-o-y and 39%
above Ukrainian average) thanks to favorable weather, and its sugar extraction rate
also improved to 14.5% (+1.7pp y-o-y). Combined with increased area under sugar
beet, Astarta harvested 2.1 Mt of sugar beet (+58% y-o-y) and purchased an est. 0.5
Mt from local farmers, thus processing 2.6 Mt in total last year (+65% y-o-y).
Astartas self-sufficiency in sugar beet remains the highest in the sector. The
bumper sugar beet harvest and higher sugar extraction rate enabled Astarta to
produce 370 kt of sugar last year (est. 93% capacity utilization), recording output
growth of 88% y-o-y.
2011 sugar output up 88% y-o-y
to 370 kt thanks to improved
yields and land bank
expansion

6 7
9 0
1 3 5
1 6 6
1 7 5
2 1 0
2 4 5 2 4 5
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Sugar
Product i on
4 9 %
Crops
4 3 %
Cat t l e f armi ng
7 %
Ot her
1 %
Sugar
Product i on
5 1 %
Crops
3 9 %
Cat t l e f armi ng
9 %
Ot her
1 %
November 2012


Astarta Sugar Extraction Rate vs. Ukrainian Avg. (%)
Astarta Sugar Beet Yields (t/ ha; 2007-13F)
Sugar beet processing capacity
rose by 21% last year
Astarta acquired Novoivanivsky and Savinsky sugar plants in 2011, which possess
combined processing capacity of 5 kt/ day of sugar beet. Accounting for these
acquisitions and modernization of the companys other sugar plants, Astartas total
daily processing capacity increased to c. 33 kt of sugar beet (+21%) last year.
No raw cane processing
planned in 2012
As of end-2011, the company had processed 31 kt of raw cane sugar at its Yaresky
plant, producing 30 kt of white sugar. The company processed the aforementioned
raw cane sugar volume on a tolling basis and did not own the final product, thus
earning only on processing services. In 2012, we think Astarta will not process any
raw cane sugar as Ukraine is enjoying sugar oversupply.
Sugar output is set to increase
8% y-o-y in 2012 on strong
sugar beet yield
We expect Astarta to produce 400 kt of sugar in 2012 (+8% y-o-y), projecting a
sugar beet yield of 50 t/ ha, in line with management guidance and flat y-o-y. The
company planted 50,000 ha (+18% y-o-y) with sugar beet in 2012, and we project in-
house sugar beet output to reach 2.5 Mt (+19% y-o-y; in line with management
guidance), accounting for 79% of total expected processing volume in the 2012
production season (flat y-o-y). For 2013, we expect a sugar beet yield of 41 t/ ha,
Astartas average for the past five years, thus forecasting 2013 sugar output at 361
kt (-10% y-o-y).

Astarta Annual Sugar Beet Production (000 tonnes)

Astarta Annual Sugar Production (kt; 2007-13F)
Sugar price outlook for 2012-13 We expect 2012 sugar output in Ukraine at 1.95 Mt (-16% y-o-y), which implies total
sugar supply of 2.2 Mt in 2012/ 13 MY (Sep.-Aug.), while annual domestic consumption
is estimated at 1.9-2.0 Mt. These estimates imply continued sugar surplus in the country
and downward pressure on local sugar prices. We keep our 2012 sugar price forecast at
$660/ t (-31% y-o-y; incl. VAT), which matches the average of $661/ t in 9M12 (-37% y-o-
y) and project the 2013 average at $600/ t (flat y-o-y in hryvnia terms but down 8% in
dollar terms accounting for expected hryvnia depreciation).

1 3 . 8 %
1 4 . 8 %
1 2 . 8 %
1 4 . 5 %
1 3 . 6 % 1 3 . 6 %
1 2 . 8 %
1 3 . 5 %
1 0 . 9 %
1 3 . 1 %
1 1 . 5 %
1 1 . 5 %
0 %
5 %
1 0 %
1 5 %
2 0 %
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Ast art a ( %) Ukrai ne average ( %)
3 7
4 8
4 1
3 1
5 0 5 0
4 1
2 9
3 6
3 2
2 8
3 6 3 7 3 6
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Ast art a ( t / ha) Ukrai ne average ( t / ha)
9 5 0
1 , 5 6 0
1 , 5 3 0
1 , 3 3 0
2 , 1 0 0
2 , 5 0 0
2 , 2 5 8
0
5 0 0
1 , 0 0 0
1 , 5 0 0
2 , 0 0 0
2 , 5 0 0
3 , 0 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sugar Beet Product i on ( kt )
1 5 6
2 3 6
2 2 5
2 0 0
3 7 0
4 0 0
3 6 1
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sugar Product i on ( kt )

November 2012


We estimate sugar beet accounted for around 63% of Astartas 2011 sugar
production costs, followed by natural gas with a 15% share. Fertilizers, seeds and
crop protection products jointly accounted for over 40% of Astartas sugar beet
production costs last year. Astarta decreased natural gas consumption by 10% y-o-y to
around 30 m
3
per tonne of processed sugar beet in 2011 and is proceeding with an
energy saving program, aiming to cut gas consumption to 25 m
3
/ tonne by 2015.
Sugar beet accounts for 63% of
Astartas sugar production
costs

Astarta Sugar Production Costs (value terms; 2011)

Astarta Sugar Beet Production Costs (value terms; 2011)
The companys grain and oilseed harvest doubled y-o-y to 660 kt in 2011, thanks to
both improved yields (+8-64% y-o-y) and increased land bank (+17% y-o-y).
Astarta increased arable land under grain and oilseeds by 15% y-o-y to 236,000 ha
for the 2012 harvest, but expects yields to decline on unfavorable weather
conditions (June and July were extremely dry and hot). We forecast Astartas 2012
grain harvest will decline 10% y-o-y to 600 kt.
Grain harvest doubled last
year but will decline in 2012 on
falling yields

Astarta Planted Area Breakdown (2012)

Astarta Crop Yields vs. Ukrainian Averages (t/ ha; 2010-2012E)
Source: Company, Dragon Capital estimates for Ukrainian average
Astarta started construction of a soybean processing plant with daily crushing
capacity of 700 tonnes (about 220 kt annually) in the Poltava region (Globyno) in
June this year. The facility, to be launched in 2013, will be able to produce up to 160
kt of high-protein toasted meal, 40 kt of soybean oil and 9 kt of granulated husk.
Astartas farming division operations are expected to make the future plant more
than 60% self-sufficient in soybeans. The project, with estimated total costs of $35m,
also includes construction of a 42 kt silo. The company attracted $50m of financing
from the International Finance Corporation in August 2012 to partially finance the
soybean project.
New soybean processing
facility

Sugar beet
6 3 %
Nat ural gas
1 5 %
Sal ari es
6 %
Transport at i on
4 %
Repai rs
3 %
Ot her
processi ng
cost s
9 %
Fert i l i zers
2 0 %
Seeds
1 2 %
Crop prot ect i on
1 1 %
Servi ces
8 %
Fuel
6 %
Sal ari es
6 %
Amort i zat i on
4 %
Land l ease
3 %
Ot her
3 0 %
Sugar beet
1 9 %
Wheat
1 3 %
Soybeans
2 7 %
Corn
1 6 %
Forage crops
1 3 %
Barl ey
5 %
Sunf l ower
7 %
6 .5
3 .4
2 .6
1 .6
9 .5
4 .5
3 .0
2 .3
7 .0
3 .5
3 .0
1 .8
4 .3
2 .6 5
2 .1 1 .7
0
2
4
6
8
1 0
Corn Wheat Barl ey Soybean
Ast art a 2 0 1 0 ( t / ha)
Ast art a 2 0 1 1 ( t / ha)
Ast art a 2 0 1 2 E ( t / ha)
Ukrai ni an Average 2 0 1 2 E ( t / ha)
November 2012


Raw milk to contribute 9% to
2012 revenues
Astarta had 14,000 milking cows as of end-2011 (+28% y-o-y), while its total
livestock herd reached 28,000 head (+17% y-o-y). We estimate Astartas 2011 raw
milk selling price increased by 5% y-o-y to UAH 4.18/ kg and expect its 2012 milk
price to remain flat y-o-y. Raw milk prices in Ukraine were restrained in 7M12
following partial reinstatement of state subsidies to the sector and the Russian
cheese import ban that created milk oversupply, but our projection of flat y-o-y raw
milk prices accounts for rising grain prices that should boost milk prices. We expect
milk sales to contribute 8% to Astartas 2012 revenues (flat y-o-y).

Astarta Milk Yield vs. Ukrainian Average (kg/ cow/ year; 2006-11)
Source: Company

Strong 1H12 results Astarta increased 2Q12 revenues by 17% q-o-q and 7% y-o-y, to $100.9m, and
boosted EBITDA to $68.5m (+182% q-o-q and +14% y-o-y) and net income to
$57.1m (+401% q-o-q and +12% y-o-y). The companys 1H12 sales stood at $187.3m
(+14% y-o-y), EBITDA at $92.8m (-2%) and net income at $68.5m (-13%), implying
EBITDA and net margins of 49.5% (-8.2pp y-o-y) and 36.6% (-11.4pp), respectively.
The company boosted 1H12 crop sales in volume terms by 75% y-o-y, with sugar
sales up 42% and milk sales up 33%. Notably, exports increased to 31% of total
revenues in 1H12. With foreign currency revenues accounting for over 40% of
Astartas 1H12 sales (including 10% from grain sales locally, but at USD-linked
prices, and 31% from direct exports) and about 40% of its COGS being USD-linked,
we highlight the stocks lower exposure to hryvnia devaluation risk.
Declining sugar prices should
be partially offset by higher
grain prices and volume sales
in 2012
Almost 70% of Astartas 2011 sugar output and about 60% of grain harvest have
been carried over for sale in 2012. We estimate higher volume sales and stronger
grain prices in 2H12 will help to offset lower sugar prices this year ($660/ t avg.; -
31% y-o-y; incl. VAT), supporting the top line. We thus forecast Astartas 2012 sales
will increase by 18% y-o-y (to $498.7m) but expect EBITDA to decline by 2% y-o-y
to $152.1m, for an EBITDA margin of 30.5% (-6.0pp y-o-y). In 2013, we expect the
company to increase revenues by 3% y-o-y to $512.6m thanks to higher sales
volumes (we forecast flat y-o-y sugar prices).

Astarta Net Sales and Profitability (2007-12E)
3 ,9 0 0
4 ,0 6 8
3 ,9 1 4
4 ,3 8 0
5 ,0 0 0
5 ,1 0 0
3 ,5 6 2
3 ,6 6 5
3 ,7 9 3
4 ,0 4 9 4 ,1 4 2
4 ,2 0 0
2 ,0 0 0
3 ,0 0 0
4 ,0 0 0
5 ,0 0 0
6 ,0 0 0
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Ast art a Hol di ng Ukrai ni an Average
1 2 2
1 8 3 1 8 2
2 9 3
4 2 4
4 9 9
5 1 3
1 6 4
1 8 7
( 2 0 %)
0 %
2 0 %
4 0 %
6 0 %
8 0 %
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 1 H1 1 1 H1 2
Net sal es ( $ m; l hs) EBITDA margi n ( %; rhs) Net margi n ( %; rhs)

November 2012


We expect Astarta to post 2013 revenues of $512.6m (+3% y-o-y). Our estimate factors in
negative impact of projected hryvnia depreciation (to UAH 8.8:USD by end-1Q13), on
one hand, and higher expected sugar volume sales (+21% y-o-y) thanks to strong 2012E
output of 400 kt (+8% y-o-y) and assumed flat y-o-y sugar prices in UAH terms, on the
other. We forecast 2013 EBITDA will decline to $135.2m (-11% y-o-y), implying an
EBITDA margin of 26.4% (-4.1pp y-o-y), due to higher contribution of low-margin
sugar to 2013E sales.
Astarta Holding generates 62% of revenues in UAH, including sales of sugar and
byproducts, sugar processing services, raw milk and cattle breeding. The company
sells grain (25% of 2013F revenues) and soybean products (13% of 2013F revenues)
at dollar-linked prices to local grain traders. Sugar production costs (est. 64% of
total COGS) are 80% paid in hryvnia, while gas costs (15-16% of sugar production
costs and 11-13% of total costs) are linked to USD. Grain and soybean production
costs (29% of total) are roughly 50% linked to the dollar. Thus, about 35% of
Astartas overall COGS are USD-linked. This implies that in case of hryvnia
depreciation Astartas revenues will decrease in line with its COGS, shrinking in
absolute dollar terms but not affecting the EBITDA margin.
2013 outlook depressed by
sugar oversupply and hryvnia
depreciation

November 2012


Valuation
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Premi um/ ( Di scount ) t o Mri ya Agro Hol di ng ( 2 9 %) 7 % 2 5 % 7 % 2 0 %
Premi um/ ( Di scount ) t o Rusagro 5 5 8 % ( 1 7 %) ( 9 %) 8 6 % 2 9 2 %
Premi um/ ( Di scount ) t o DM Peers ( 9 6 %) ( 3 6 %) ( 3 2 %) ( 6 1 %) ( 5 0 %)
Russi an Market Peers
Rusagro 7 . 0 0 USD 8 3 5 4 . 3 4 . 5 5 . 4 4 . 9
Suedzucker ( DE) 3 0 . 4 0 EUR 7 , 3 1 8 5 . 1 5 . 6 1 4 . 0 1 0 . 2
Agrana Bet ei l i gungs ( AS) 9 2 . 5 6 EUR 1 , 6 7 1 3 . 6 5 . 7 7 . 9 8 . 1
Ebro Pul eva ( SP) 1 3 . 8 2 EUR 2 , 7 0 2 8 . 3 7 . 9 1 3 . 4 1 2 . 4
Tat e & Lyl e ( GB) 7 4 8 . 5 0 GBp 5 , 5 5 2 7 . 7 8 . 3 1 1 . 4 1 2 . 9
Associ at ed Bri t i sh Foods ( GB) 1 , 3 7 9 . 0 0 GBp 1 7 , 3 7 1 7 . 0 7 . 8 1 9 . 9 1 4 . 7
Du Pont ( E. I. ) de Nomours ( US) 4 3 . 6 6 USD 4 0 , 7 1 2 7 . 8 7 . 3 1 2 . 6 1 1 . 7
DM Peers Medi an - - 1 2 , 5 5 4 7 . 4 7 . 5 1 3 . 0 1 2 . 4
Notes: *averages shown for market capitalizations; prices as of Nov.9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates


Astarta Holding (AST PW)

0 .0
1 0 .0
2 0 .0
3 0 .0
4 0 .0
5 0 .0
Aug-0 6 Jul -0 7 Jun-0 8 May-0 9 Mar-1 0 Feb-1 1 Dec-1 1 Nov-1 2
PT/ FV ( $ / share)

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sugar ( 0 0 0 t ) 2 2 5 . 0 2 0 0 . 0 3 7 0 . 0 4 0 0 . 0 3 6 1 . 2
Growt h ( %, y-o-y) ( 4 %) ( 1 1 %) 8 5 % 8 % ( 1 0 %)
Sugar Byproduct s ( 0 0 0 t ) 9 2 . 3 8 3 . 0 1 0 2 . 0 1 2 0 . 0 1 0 8 . 4
Growt h ( %, y-o-y) 8 % ( 1 0 %) 2 3 % 1 8 % ( 1 0 %)
Grai n Crops ( 0 0 0 t ) 3 8 8 . 7 3 3 0 . 2 6 6 0 . 3 5 9 5 . 8 6 6 4 . 6
Growt h ( %, y-o-y) ( 1 %) ( 1 5 %) 1 0 0 % ( 1 0 %) 1 2 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 1 8 1 . 9 2 9 3 . 4 4 2 3 . 8 4 9 8 . 7 5 1 2 . 6
EBITDA 6 8 . 1 1 3 2 . 5 1 5 4 . 7 1 5 2 . 1 1 3 5 . 2
Depreci at i on ( 1 1 . 4 ) ( 1 7 . 6 ) ( 2 4 . 4 ) ( 3 0 . 3 ) ( 3 3 . 4 )
EBIT 5 6 . 7 1 1 4 . 9 1 3 0 . 3 1 2 1 . 8 1 0 1 . 8
Net Fi nanci al Income ( Loss) ( 1 5 . 7 ) ( 1 5 . 7 ) ( 2 2 . 3 ) ( 3 2 . 0 ) ( 2 9 . 7 )
NIBT 4 1 . 2 1 0 4 . 5 1 2 5 . 6 9 4 . 8 7 7 . 2
Taxes ( 0 . 7 ) 0 . 7 ( 3 . 4 ) ( 0 . 9 ) ( 0 . 8 )
Net Income ( Loss) 4 0 . 5 1 0 5 . 2 1 2 2 . 2 9 3 . 8 7 6 . 4
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 3 3 0 . 0 4 6 9 . 1 7 3 9 . 0 8 2 4 . 1 8 2 1 . 4
Fi xed Asset s 1 7 9 . 0 2 1 6 . 4 3 0 4 . 4 3 3 4 . 8 3 3 9 . 7
PPE 1 7 0 . 9 2 0 6 . 4 2 8 7 . 5 3 1 8 . 2 3 2 3 . 3
Current Asset s 1 5 1 . 0 2 5 2 . 7 4 1 2 . 9 4 6 8 . 4 4 6 1 . 9
Invent ori es 1 2 4 . 8 2 1 0 . 8 3 1 8 . 8 3 5 5 . 7 3 7 9 . 2
Account s Recei vabl e 1 1 . 2 1 6 . 6 3 7 . 8 3 9 . 5 4 2 . 1
Short -t erm Bank Deposi t s

0 . 0 1 . 4 1 6 . 2 3 9 . 0 7 . 6
Cash & Cash Equi val ent s 2 . 8 1 . 5 6 . 6 1 . 8 1 . 7
Tot al Li abi l i t i es 1 5 8 . 1 1 8 2 . 6 3 4 1 . 4 3 5 3 . 0 2 9 5 . 4
Account s Payabl e 5 . 7 7 . 5 1 1 . 8 1 3 . 2 1 4 . 0
S/ T Debt 4 6 . 8 7 5 . 6 1 3 2 . 5 1 4 3 . 6 1 4 2 . 6
L/ T Debt 7 5 . 8 7 4 . 2 1 3 9 . 4 1 4 4 . 0 9 2 . 5
Equi t y 1 6 6 . 9 2 7 8 . 1 3 9 7 . 6 4 7 1 . 1 5 2 6 . 1
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 0 %) 6 1 % 4 4 % 1 8 % 3 %
EBIT Growt h ( y-o-y) 8 1 % 9 4 % 1 7 % ( 2 %) ( 1 1 %)
Net Income Growt h ( y-o-y) nm 1 5 9 % 1 6 % ( 2 3 %) ( 1 9 %)
EBITDA Margi n 3 7 . 5 % 4 5 . 2 % 3 6 . 5 % 3 0 . 5 % 2 6 . 4 %
Net Margi n 2 2 . 3 % 3 5 . 9 % 2 8 . 8 % 1 8 . 8 % 1 4 . 9 %
Net Debt / Equi t y 7 2 % 5 3 % 6 7 % 6 1 % 4 4 %
ROE 3 2 . 5 % 4 7 . 3 % 3 6 . 2 % 2 1 . 6 % 1 5 . 3 %

November 2012


Avangard: Capacity Increases
Planned
Price Target ($/ DR) 13.50
Upside (%)
32%

Highlights
Profile
Avangard is the largest vertically integrated Ukrainian producer of eggs and
dry egg products. The company accounted for 53% of Ukrainian industrial shell
egg production and 93% of dry egg products output in 1H12.
Our DCF and comparative valuation models yield a 12-month price target of
$13.50/ DR, implying a 32% upside to the stocks current market price and
suggesting a Buy recommendation.
Good 1H12 operating results
Following 35% y-o-y shell egg production growth (to 6.0 billion eggs) in 2011,
Avangard continued to increase output in 1H12, reporting production of 3.1
billion shell eggs (+8% y-o-y) and 7.1 kt of dry egg products (+22% y-o-y) We
expect its full-year shell egg output to increase by 5% y-o-y to 6.2 billion pieces,
with dry egg product output forecast at 12.1 kt (almost flat y-o-y). The company
increased its average egg price by 26% y-o-y in 1H12 to UAH 0.67/ egg, and
based on current egg price dynamics we forecast the company will increase its
2012 sales price by 10% y-o-y to UAH 0.70/ egg (net of VAT).
suggest a solid 2012 outlook
We expect Avangard to post 2012 net sales of $639m (+16% y-o-y) and EBITDA
of $257m (+4%), implying an EBITDA margin of 40.1% (-4.3pp y-o-y due to
increased feed prices affecting profitability). In 2013, we estimate Avangards
sales at $723m (+13% y-o-y on 12% production growth and 3% egg price
growth) and EBITDA at $263m (+2%), implying an EBITDA margin of 36.3% (-
3.8pp y-o-y; again due to expensive feed as Avangard will use 2012-harvested
grain for feed in 1H13).
2012-2013 CAPEX
Avangard is in the process of expanding capacities at its Avis and
Chornobaivske egg production complexes, which are expected to boost the
companys total shell egg production capacity to 8.2 billion pieces p.a. and egg
producing flock to 28.9 million birds in 2013. The company plans to complete
both projects in 2013. Total CAPEX is estimated at $611m over 2008-2013, with
$449m already spent in 2008-2011, and the remaining $162m to be allocated in
2012 ($142m) and 2013 ($20m). Avangard is also increasing capacities at its egg
processing plant Imperovo Foods, planning to double processing capacities to 6
million eggs per day in January 2013, and then to boost this figure to 10 million
eggs per day in July 2013. CAPEX for Imperovo Foods is estimated at $160m
over 2012-2013 (incl. $158m to be spent in 2012). We expect Avangards 2012-
2013 CAPEX program to be financed mostly with own cash.
Risks
Feed price volatility and unpredictable weather conditions are the major risks.
Sell Hold Buy

Company Data
Market Pri ce ( $ / DR) 1 0 .2 0
Market Cap ( $ m) 6 5 1 .5
Free Fl oat ( %) 2 2 .5 1 %
Free Fl oat ( $ m) 1 4 6 .7
Shares Out st andi ng 6 ,3 8 7 ,1 8 5
Nomi nal Val ue ( EUR) 0 .1
Bl oomberg Code AVGR LI
DR Rat i o 1 :1 0


12-month Performance ($/DR)

1 2 -mont h Perf ormance ( $ ) 3 1 %
1 2 -mont h Low/ Hi gh ( $ / DR) 6 .0 0 / 1 4 .2 3
Al l -t i me Low/ Hi gh ( $ / DR) 6 .0 0 / 2 1 .0 0
1 2 -mont h Tradi ng Vol ume ( $ m) 1 6 0 .2

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 3 1 9 .9 4 3 9 .7 5 5 3 .3 6 3 9 .4 7 2 2 .8
EBITDA ( $ m) 1 5 2 .1 1 9 3 .5 2 4 5 .8 2 5 6 .5 2 6 2 .6
Net Income ( $ m) 1 3 3 .7 1 8 4 .8 1 9 6 .3 2 0 4 .6 2 0 5 .2
P/ E 4 .9 3 .5 3 .3 3 .2 3 .2
EV/ EBITDA 6 .0 3 .8 3 .0 3 .4 3 .1
EV/ Sal es 2 .8 6 1 .6 6 1 .3 2 1 .3 5 1 .1 3
P/ Book 1 .8 1 0 .8 7 0 .6 9 0 .5 7 0 .4 8
Ol eg Bakhmat yuk - 7 7 . 4 9 %
Free Fl oat - 2 2 . 5 1 %
3
6
9
1 2
1 5
Avangard KP-Dragon ( rel . )
Shel l
Eggs
7 3 %
Egg
Product s
1 7 %
Ot her
1 0 %

November 2012


Avangard is the largest vertically integrated egg and dry egg products producer in
Ukraine. The company held a 53% share of Ukrainian industrial production of shell
eggs and a 93% share of dry egg products output in 1H12. The company operates 19
poultry farms for laying hens, three breeder farms, nine grow-out farms, six fodder
mills, three egg storage facilities and an egg processing plant, Imperovo Foods.
Avangards production facilities are located throughout Ukraine.

The largest shell egg producer
in Ukraine

Avangard Business Locations (1H12)
Source: Company

Avangard increased its hen flock to 25.9 million birds as of end-1H12, up from 25.1
million birds as of end-2011 and 24.3 million in 2010. The company plans to complete
construction of two new egg production complexes, Avis (western Ukraine) and
Chornobaivske (southern Ukraine), in 2012-2013 that will allow for a total flock of 28.9
million birds.

Avangards current flock totals
25.9 million birds

Avangards Laying Hen Flock (millions)

Ukraines Industrial Shell Egg Production (billions)
Sources: Company, Pro-consulting

1 2 .2
1 4 .0
1 8 .7
2 0 .5
1 8 .8
2 0 .6
1 .8
2 .1
5 .6
4 .7
5 .6
5 .3
0
5
1 0
1 5
2 0
2 5
3 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 1 H1 1 1 H1 2
Layi ng Hens Young Layi ng Hens
2 .4
3 .6
4 .4
6 .0
3 .1
6 .0
5 .6
5 .8
5 .3
2 .8
2 9 %
3 9 %
4 3 %
5 1 %
5 3 %
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
6 0 %
0
2
4
6
8
1 0
1 2
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 1 H1 2
Avangard ( l hs) Ot her ( l hs)
Avangard' s Share ( rhs)
Khmelnytskiy
Lviv
Uzhgorod
Ternopil
Rivne
Lutsk
Zhytomyr
Kyiv
Vinnytsia
Chernihiv
Sumy
Poltava
Cherkasy
Kirovohrad
Mykolayiv
Odesa
Kherson
Crimea
Zaporizhya
Kharkiv
Luhansk
Donetsk
Chernivtsi
Dnipropetrovsk
Ivano-Frankivsk
Farms for laying hens
Fodder mills
Egg processing plant
Breeder farms
Grow-out farms
Projects (Avis & Chornobaivske)
Long-termstorage facilities
November 2012


Shell egg output to reach 6.2
billion pieces (+5% y-o-y) in
2012

Following 35% y-o-y shell egg production growth (to 6.0 billion eggs) in 2011,
Avangard continued to increase output this year. The company produced 3.1 billion
shell eggs (+8% y-o-y) in 1H12, thereby accounting for 53% of Ukraines total industrial
shell egg production. Avangard also produced 7.1 kt of dry egg products in 1H12
(+22% y-o-y). We expect the company to increase shell egg output by 5% y-o-y to 6.2
billion pieces in 2012, with dry egg product output forecast at 12.1 kt (almost flat y-o-y).

Avangard Production of Shell Eggs and Dry Egg Products

Ukraines Industrial Dry Egg Product Output (kt)
Sources: Company, Pro-consulting, Dragon Capital estimates

Avangard plans for exports to
account for 30% of revenues in
2012

Avangard exported about 1.1 billion eggs and dry egg products (in egg equivalent) in
2011, which accounted for 18% of total sales and brought the companys share of
Ukrainian shell egg and egg product exports to an est. 77% (value terms). The company
exported 342 million eggs and dry egg products (in egg equivalent) in 1H12, and plans
to bring the share of exports to 30% of total revenues in 2012 or 1.9 billion pieces of eggs
and dry egg products in egg equivalent. Dry egg products were mainly exported to
Jordan, Turkey and Egypt, which jointly accounted for 72% of Avangards 1H12 total
egg powder exports (volume terms). Shell eggs were mainly exported to Iraq, which
accounted for 76% of the companys total shell egg exports in 1H12. Avangard also
exported eggs and dry egg products to Azerbaijan, Moldova, Pakistan, South Korea,
Turkmenistan and Taiwan.
Focus on domestic sales
expansion through modern
retail outlets

Avangard is focusing on the expansion of its presence in modern Ukrainian retail
chains (supermarkets) through promotion of its shell eggs under an umbrella brand
Kvochka. The company managed to increase the share of organized retail in its volume
revenues to 30% of total in 2011 and to 31% in 1H12, compared to 16% in 2010.
Avangards major customers included Fozzy Group and ATB, each accounting for 18%
of the companys sales through modern retail in 2011, followed by Metro (9%), Velyka
Kyshenya (5%), Eko (3%), Karavan (2%) and Vopak (1%). The company aims to be
present in 2,500 retail outlets by end-2012, and to bring the share of modern trade in its
total volume sales to 35%.

Ukraines Shell Egg and Egg Product Exports (value terms)
Sources: Company, Pro-consulting, Dragon Capital estimates

Avangard Sales by Distribution Channel (volume terms)

2 . 4
3 . 6
4 . 4
6 . 0
6 . 2
7 . 0
2 . 9
3 . 1
0 . 5
2 . 2
1 0 . 2
1 2 . 2
1 2 . 1
1 3 . 9
5 . 8
7 . 1
0
2
4
6
8
1 0
1 2
1 4
1 6
0
1
2
3
4
5
6
7
8
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 1 H1 1 1 H1 2
Shel l Egg Out put ( bl n pi eces; l hs) Dry Egg Product Out put ( kt ; rhs)
0 . 5 2 . 2
1 0 . 2
1 2 . 2
7 . 1
9 %
5 2 %
7 9 %
8 7 %
9 3 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
0
5
1 0
1 5
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 1 H1 2
Avangard ( l hs) Ot hers ( l hs)
Avangard' s Share ( rhs)
3 6 . 6
8 1 . 6
1 0 2 . 9
1 1 . 5
1 5 . 1
3 1 . 1
7 6 %
8 4 %
7 7 %
0 %
5 0 %
1 0 0 %
0
5 0
1 0 0
1 5 0
2 0 0 9 2 0 1 0 2 0 1 1
Avangard ( $ m; l hs) Ot her ( $ m; l hs)
Avangard' s Share ( %; rhs)
9 %
2 3 % 2 3 %
3 0 %
1 0 0 %
8 9 % 6 1 %
4 7 % 3 5 %
2 %
1 6 %
3 0 %
3 5 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Export Domest i c Whol esal e Domest i c Supermarket s

November 2012


Fodder accounts for 75% of Avangards egg production costs. The content of fodder
depends on the age of birds. On average, it contains about 55-65% of grain spread
almost equally between corn and wheat and about 25-30% of protein spread between
sunflower and soya meal. Other ingredients include limestone, soya or sunflower oil,
vitamin and mineral mixes and other elements. Avangard does not use animal origin
feedstuffs in its animal feed. Raw materials accounted for 81% of the companys 2011
COGS.

Fodder accounts for 75% of
Avangards egg production
costs

Avangard COGS Structure (2011)
Source: Company

Avangard SG&A Cost Structure (2011)
Source: Company
Avangards 1H12 results were solid, with net sales rising 27% y-o-y to $283.6m thanks
to higher average selling price (shell egg prices were up 26% y-o-y in 1H12) and growth
in volume sales due to launch of new production capacities. EBITDA reached $122.1m
(+34% y-o-y), for an EBITDA margin of 43.1%, with the surge attributed to early fodder
grain purchases from the 2011 harvest at reduced prices (-15% y-o-y).

Avangard posted strong 1H12
results
Our EBITDA margin estimate is highly dependent upon Avangards grain purchase
prices. The company claims it obtains a discount in grain purchase prices thanks to its
long-term established relations with farmers and suppliers and pre-financing of sowing
campaigns. Fodder accounts for over 65% of Avangards annual COGS, thus if the
company for any reason would not be able to pre-finance agrarians in advance and
secure sufficient grain volumes and lower prices for the season, this would yield a
strongly negative effect on profitability. Expecting stronger grain prices in 2H12 based
on global trends, we decided to stay on the conservative side. Thus, our current 2012
corn price estimate for Avangard is $170/ t EXW, assuming the company used grain
purchased in 2011 at reported $155/ t and will purchase grain at market prices in 2H12.

Profitability is heavily
dependent upon grain purchase
prices
Avangards mature laying hen flock is expected to increase by 11% y-o-y to 22.7 million
head this year. Based on current egg price dynamics, we forecast the company will
increase its 2012 average egg price by 10% y-o-y to UAH 0.70/ egg (net of VAT).
Expecting Avangard to increase its shell egg output by 5% y-o-y to 6.2 billion pieces in
2012 thanks to partial launch of new poultry complexes, Avis and Chornobaivske, and
based on 1H12 trends, we forecast the companys 2012 net sales at $639m (+16% y-o-y)
and EBITDA at $257m (+4%), implying an EBITDA margin of 40.1% (-4.3pp y-o-y). ). In
2013, we estimate Avangards sales at $723m (+13% y-o-y on 12% output growth and
3% egg price growth) and EBITDA at $263m (+2%), implying an EBITDA margin of
36.3% (-3.8pp y-o-y; again due to expensive feed as Avangard will use 2012-harvested
grain for feed in 1H13).

2012-13 outlook

Raw Mat eri al s
8 1 %
Ut i l i t i es and
Wages
6 %
Depreci at i on
4 %
Ot her
9 %
Wages
3 2 %
Ext ernal
Servi ces
2 7 %
Transport at i on
2 6 %
Depreci at i on
2 %
Repai rs and
mai nt enance
0 %
Ot her
1 3 %
November 2012


Avangard Net Sales and Profitability (2007-12E)
Production expansion plan

In 2007-08, Avangard began construction of the Avis and Chornobaivske egg
production complexes in order to meet expected growth in demand. These new sites
are being built in addition to the companys existing facilities at Avis and
Chornobaivske, boosting Avangards total shell egg production capacity to 8.2 billion
pieces p.a. (vs. 6.0 billion pieces in 2011) and egg producing flock to 28.9 million birds in
2013. The company plans to complete both projects in 2013. Total CAPEX was
estimated at $611m, with $271m invested prior to the companys IPO (April 2010),
$178m spent in 2010-11, $142m to be allocated in 2012 and the remaining $20m to be
invested in 2013. Additionally, Avangard is also proceeding with increasing production
capacities at its egg processing plant Imperovo Foods, planning to allocate $160m to the
project over 2012-2013 (incl. $158m to be spent in 2012), targeting to double processing
capacities to 6 million eggs per day in January 2013, and then to boost this figure to 10
million eggs per day in July 2013. We expect Avangards 2012-2013 CAPEX program to
be financed mostly with own cash.

Avangards Capacity Expansion Plans
Sources: Company

Avangards CAPEX for Avis and Chornobaivske ($m)
Source: Company
End-1H12 debt stood at $328.5m

Avangards 1H12 debt stood at $328.5m, mostly comprised of long-term debt (62% of
total) attributable to a $200m bond issued in October 2010. As of end-1H12, the
companys net debt stood at -$4.1m due to a high cash balance ($332.6m), with the cash
accumulated for Avangards investment program. The companys Net Debt/ LTM
EBITDA stood at -0.02x, the lowest ratio among domestic peers. We expect Avangards
net debt position to increase substantially to $221m, attributable to major CAPEX plans
that would decrease the companys net cash position by $160-170m. Thus, we estimate
Avangards 2012E Net Debt/ EBITDA at 0.8x, which is still low compared to local peers
such as MHP (2012E Net Debt/ EBITDA of 1.4x), Astarta Holding (1.9x) and Mriya
Agro Holding (1.2x).

1 2 8
3 0 2
3 2 0
4 4 0
5 5 3
6 3 9
7 2 3
2 2 4
2 8 4
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
7 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 1 H1 1 1 H1 2
Net Sal es ( $ m; l hs) EBITDA margi n ( %; rhs)
Net margi n ( %; rhs)
1 5 .7 1 8 .9 1 8 .9
2 4 .9
2 8 .0
2 8 .9
5 .2 5 .2
5 .2
6 .8
8 .0
8 .2
0
1
2
3
4
5
6
7
8
9
0
5
1 0
1 5
2 0
2 5
3 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Layi ng Hens Capaci t y ( mi l l i on heads; l hs)
Shel l Eggs Product i on Capaci t y ( bi l l i on pi eces; rhs)
1 2 4
5 4
5 9
7 0
1 4 7
1 4
5 1
7 2
2 0
0 .0
0 .3
0 .5
0 .8
1 .0
Bef ore IPO 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 E
Avi s Chornobai vske

November 2012


Avangard Net Debt ($m)

Avangard Debt Structure (1H12)
Source: Company

Our current macroeconomic forecast for Ukraine assumes the hryvnia will depreciate
to UAH 8.8:USD by end-1Q13 (vs. UAH 8.2:USD estimated previously). We expect
Avangard to generate 42% of 2013F revenues from exports and the remainder in UAH.
At the same time, its shell egg production costs account for 75% of total COGS, with
64% contributed by grain costs (50% USD-linked). This suggests that about 24% of
Avangards total production costs are dollar-linked (vs. 42% for revenues). Thus,
Avangards costs would shrink faster than revenues in USD-terms if the hryvnia
depreciated, implying higher profitability.

Hryvnia depreciation would be
positive for Avangards 2013F
margins

2 5 8
2 2 1
1 0 3
7 8 8 0
2 1 2
6 . 7
1 . 9
0 . 7
0 . 4
0 . 3
0 . 8
0 .0
2 .0
4 .0
6 .0
8 .0
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Avangard ( l hs)
Net Debt / EBITDA ( rhs)
Long-t erm debt
6 2 %
Short -t erm debt
3 8 %
November 2012


Valuation
Company Pri ce Currency MC EV/ EBITDA P/ E
( $ m) 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Avangard 1 0 . 2 0 USD 6 5 1 3 . 4 3 . 1 3 . 2 3 . 2
Premi um ( Di scount ) t o MHP ( UA) ( 5 8 %) ( 3 0 %) ( 2 1 %) ( 5 1 %) ( 4 1 %)
Premi um ( Di scount ) t o Cherki zovo ( RU) ( 1 8 %) ( 3 3 %) ( 4 6 %) ( 2 1 %) ( 2 4 %)
Premi um ( Di scount ) t o Cal mai ne ( US) ( 3 6 %) ( 5 5 %) ( 5 0 %) ( 7 2 %) ( 7 6 %)
Premi um ( Di scount ) t o DM Peers ( 6 3 %) ( 4 6 %) ( 5 0 %) ( 7 7 %) ( 6 8 %)
Premi um ( Di scount ) t o GEM Peers ( 9 0 %) ( 7 4 %) ( 7 9 %) ( 7 9 %) ( 7 7 %)
Cl osest Peers
MHP ( UA) 1 4 . 4 0 USD 1 , 5 6 2 4 . 8 3 . 9 6 . 5 5 . 4
Cherki zovo Group ( RU) 1 2 . 1 2 USD 7 9 9 5 . 0 5 . 7 4 . 0 4 . 2
Cal mai ne ( US) 4 2 . 3 6 USD 1 , 0 1 3 7 . 5 6 . 2 1 1 . 3 1 3 . 2
At ri a Group ( FI) 6 . 5 8 EUR 2 3 6 7 . 1 6 . 9 1 8 . 2 9 . 4
HKSCAN ( FI) 3 . 8 5 EUR 2 6 9 6 . 0 5 . 6 2 3 . 6 9 . 4
Bel l Hol di ng ( CH) 1 9 4 3 . 0 0 CHF 8 1 9 5 . 4 4 . 7 1 0 . 3 9 . 8
Campof ri o Al i ment aci on SA ( MX) 5 . 6 2 EUR 7 3 0 6 . 3 6 . 2 1 3 . 8 1 1 . 7
L. D. C. ( FR) 7 6 . 0 1 EUR 7 8 8 2 . 8 2 . 9 1 0 . 1 9 . 8
Sanderson Farms ( US) 4 5 . 4 5 USD 1 , 0 4 4 8 . 7 7 . 7 2 1 . 4 2 9 . 3
Tyson Foods ( US) 1 6 . 5 9 USD 6 , 0 0 8 4 . 4 4 . 2 9 . 0 1 0 . 6
Hormel Foods ( US) 2 9 . 7 5 USD 7 , 8 2 1 8 . 7 8 . 1 1 5 . 6 1 5 . 0
DM Peers Medi an* - - 1 , 7 4 8 6 . 3 6 . 2 1 3 . 8 9 . 8
Perdi gao ( BZ) 3 6 . 5 9 BRL 1 5 , 5 6 3 1 4 . 1 1 4 . 5 3 6 . 7 1 7 . 7
Charoen Pokphand Foods ( TH) 3 6 . 0 0 THB 9 , 0 9 7 1 2 . 9 1 4 . 7 1 6 . 9 1 4 . 2
Ast ral Foods ( SA) 1 0 , 2 4 5 . 0 0 ZAr 4 9 5 6 . 7 7 . 3 1 3 . 0 1 3 . 7
EM Peer Medi an* - - 6 , 6 7 1 1 2 . 9 1 4 . 5 1 5 . 0 1 3 . 9
Notes: *average for market capitalization; prices as of Nov. 9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates


Avangard (AVGR LI)


5
1 0
1 5
2 0
2 5
3 0
Apr-1 0 Sep-1 0 Jan-1 1 Jun-1 1 Oct -1 1 Feb-1 2 Jun-1 2 Nov-1 2
Market Pri ce ( $ )
1 2 -mont h PT ( $ )

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Shel l Eggs ( bi l l i ons) 3 . 6 4 . 4 6 . 0 6 . 2 7 . 0
Growt h ( %, y-o-y) 5 0 % 2 2 % 3 5 % 5 % 1 2 %
Egg Powder ( 0 0 0 t ) 0 . 7 1 0 . 2 1 2 . 1 1 2 . 1 1 3 . 9
Growt h ( %, y-o-y) 5 4 % 1 2 7 7 % 1 9 % 0 % 1 5 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 3 1 9 . 9 4 3 9 . 7 5 5 3 . 3 6 3 9 . 4 7 2 2 . 8
EBITDA 1 5 2 . 1 1 9 3 . 5 2 4 5 . 8 2 5 6 . 5 2 6 2 . 6
Depreci at i on ( 1 2 . 3 ) ( 1 2 . 6 ) ( 1 4 . 3 ) ( 1 6 . 9 ) ( 2 6 . 3 )
EBIT 1 3 9 . 8 1 8 0 . 9 2 3 1 . 5 2 3 9 . 6 2 3 6 . 3
Fi nanci al Income ( 5 . 0 ) 4 . 1 ( 3 1 . 4 ) ( 3 1 . 0 ) ( 2 7 . 2 )
Fi nanci al Loss ( 4 6 . 2 ) ( 2 9 . 9 ) ( 3 3 . 1 ) ( 3 3 . 0 ) ( 2 9 . 4 )
NIBT 1 3 4 . 8 1 8 5 . 0 2 0 0 . 1 2 0 8 . 6 2 0 9 . 1
Taxes ( 1 . 2 ) ( 0 . 3 ) ( 3 . 8 ) ( 3 . 9 ) ( 4 . 0 )
Net Income ( Loss) 1 3 3 . 7 1 8 4 . 8 1 9 6 . 3 2 0 4 . 6 2 0 5 . 2
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 8 4 4 . 1 1 , 0 7 9 . 0 1 , 3 0 5 . 7 1 , 4 8 6 . 5 1 , 6 6 1 . 4
Fi xed Asset s 4 1 4 . 1 5 1 6 . 0 6 5 2 . 0 9 3 6 . 2 1 , 0 4 6 . 2
PPE 3 7 5 . 4 3 9 6 . 2 5 1 2 . 7 7 9 5 . 8 9 0 4 . 5
Current Asset s 4 3 0 . 0 5 6 3 . 0 6 5 3 . 7 5 5 0 . 3 6 1 5 . 2
Invent ori es 1 3 7 . 7 2 3 0 . 3 2 6 1 . 2 3 0 1 . 8 3 4 1 . 2
Short -t erm Bank Deposi t s 1 5 5 . 9 0 . 0 0 . 0 0 . 0 0 . 0
Cash & Cash Equi val ent s 1 . 7 1 8 3 . 1 2 3 7 . 8 8 1 . 9 9 5 . 8
Tot al Li abi l i t i es & Equi t y 8 4 4 . 1 1 , 0 7 9 . 0 1 , 3 0 5 . 7 1 , 4 8 6 . 5 1 , 6 6 1 . 4
Account s Payabl e 6 8 . 0 2 3 . 2 1 7 . 9 2 0 . 7 2 3 . 4
S/ T Debt 1 7 3 . 2 3 0 . 5 1 0 4 . 6 7 8 . 1 4 5 . 1
L/ T Debt 9 2 . 1 2 3 0 . 8 2 1 3 . 8 2 1 3 . 8 2 1 3 . 8
Equi t y 3 6 0 . 6 7 4 6 . 2 9 3 9 . 3 1 , 1 4 3 . 9 1 , 3 4 9 . 1
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) 6 % 3 7 % 2 6 % 1 6 % 1 3 %
EBITDA Growt h ( y-o-y) 3 4 % 2 7 % 2 7 % 4 % 2 %
Net Income Growt h ( y-o-y) 7 3 % 3 8 % 6 % 4 % 0 %
EBITDA Margi n 4 7 . 6 % 4 4 . 0 % 4 4 . 4 % 4 0 . 1 % 3 6 . 3 %
Net Margi n 4 1 . 8 % 4 2 . 0 % 3 5 . 5 % 3 2 . 0 % 2 8 . 4 %
Net Debt / Equi t y 3 0 % 1 0 % 9 % 1 8 % 1 2 %
ROE 5 5 . 8 % 3 3 . 4 % 2 3 . 3 % 1 9 . 6 % 1 6 . 5 %
EBITDA Coverage 3 . 3 6 . 5 7 . 4 7 . 8 8 . 9
Net Debt / EBITDA 0 . 7 0 . 4 0 . 3 0 . 8 0 . 6

November 2012


Creativ Group: Capacity Growth
and Improving Profitability
Price Target ($) 16.77
Upside (%)
97%

Highlights
Profile
Creativ Group is a leading Ukrainian vegetable oil and fats producer. The
company accounts for 18% of total bottled oil output and 17% of soybean
crushing volumes in Ukraine. Creativ Group is the largest producer of
vegetable fats in Ukraine with a 33% volume share of total output.
Our DCF and comparative valuations yield a price target of $16.77/ share or
97% above the stocks current price, suggesting a Buy recommendation.
However, we note Creativs low stock liquidity compared to local peers.
Production capacity boost in 3Q12 as oilseed and fat plants commissioned
In 2011-2012, Creativ invested in the construction of a brown-field sunflower
seed crushing plant and launched the facility in 3Q12 adding 651 kt of crushing
capacity p.a. Creativs overall sunseed crushing capacity thus reached 1,077 kt
p.a. (+153% y-o-y and 11% of Ukraines total). In 3Q12, the company also
launched a new workshop at its existing plant to produce vegetable fat spreads
(annual capacity 70 kt p.a.), bringing its total fat and margarine production
capacity to 214 kt p.a. (+49% y-o-y). Creativ invested more than $95m in 2011.
Soybean processing capacity to triple by end-2012
Creativ operates a brand-new soybean processing plant with 88 kt p.a. of
crushing capacity and estimated 91% capacity utilization in 2011. The company
plans to launch a second line with 182 kt p.a. capacity at the plant this year,
tripling its annual soybean crushing capacity to 270 kt.
Financial outlook for 2012-13
We expect Creativ to increase its 2012 revenues by 16% y-o-y to $439m and
report EBITDA of $95m (+10% y-o-y due to a lower sunseed harvest and
possible margin squeeze on processing). In 2013, we estimate Creativs
revenues at $530m (+21% y-o-y thanks to new production capacities) and
EBITDA of $111m (+17%).
Debt
As of end-2011, Creativ Group had $242.6m of long-term bank debt and
$152.2m of short-term loans, or $394.8m in total. In October, the company
negotiated a $255m syndicated credit line to finance its working capital needs,
with the funds available until Aug. 31, 2015. Creativs 2011 Net Debt/ EBITDA
stood at 4.0x, being quite high vs. the sector average of 2.5x. The reason for the
high ratio for sunflower oil producers is that they need significant working
capital at the end of the calendar year to purchase sunflower seeds for crushing.
Risks
Sunseed and soybean market price volatility is a key risk for Creativ.
Sell Hold Buy

Company Data
Free Fl oat ( %) 2 3 .4 %
Bl oomberg Code CRGR UK, 4 C8 A GR
DR Rat i o 1 :1



1 2 -mont h Perf ormance ( $ ) 6 %
1 2 -mont h Low/ Hi gh ( $ / share) 8 .1 0 / 1 2 .4 7
1 2 -mont h Tradi ng Vol ume ( $ m) 0 .2

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
2 2 2 .2 2 6 4 .9 3 7 8 .1 4 3 8 .8 5 2 9 .9
EBITDA ( $ m)
5 0 .2 6 1 .7 8 6 .5 9 5 .3 1 1 1 .2
Net Income ( $ m)
2 6 .0 2 9 .7 4 2 .2 4 6 .7 6 4 .5
P/ E
3 .4 2 .9 2 .1 1 .9 1 .4
EV/ EBITDA
4 .9 5 .3 5 .0 4 .5 3 .7
EV/ Sal es
1 .1 0 1 .2 3 1 .1 5 0 .9 7 0 .7 8
P/ Book
1 .7 3 1 .1 0 0 .8 0 0 .5 6 0 .4 0
Management - 7 6 .6 %
Free f l oat - 2 3 .4 %
6
9
1 2
1 5
1 8
Oct -1 1 Jan-1 2 Apr-1 2 Jul -1 2 Oct -1 2
Creat i v Group
KP-Dragon ( rel .)
Fat s &
margari ne
3 7 %
Sunf l ower
oi l
5 0 %
Meal &
soybean
1 3 %

November 2012


Creativ Group is a leading Ukrainian vegetable oil and fats producer. The company
accounts for about 5% of domestic bulk sunflower oil output, 18% of the bottled oil
market and 17% of soybean crushing volumes. Creativ Group is the largest producer of
vegetable fats and margarines in Ukraine with a 33% volume share of total output.
Creativ is the largest Ukrainian
producer of vegetable fats and
margarines

Creativ Group Revenue Breakdown (value; 2011)
Source: Company

Creativ Group Revenue Breakdown (value; 2012E)

In 2011, sunflower oil accounted for a major chunk of Creativs revenues in value terms
(46%; -3.3pp y-o-y). Fat and margarine sales represented 39% (-8.9pp y-o-y) of 2011 net
sales. In 2012, we expect sunflower oil to contribute 50% to Creativs revenues (+3.9pp
y-o-y) while fats and margarines share is forecast to decline to 37% (-1.9pp y-o-y).
Sunflower oil to increase its
share of 2012 revenues thanks
to new capacities
Over 2011-2012, the company has invested in construction of a brown-field sunflower
seed crushing plant located opposite its existing crushing facility that was launched in
2009. The new plant was launched in 3Q12, adding 651 kt of seed crushing capacity
p.a. Creativs overall sunseed crushing capacities thus reached 1,077 kt p.a. (+153% y-
o-y and 11% of Ukraines estimated total). Capacity expansion was more rapid than
expected compared to earlier plans to add about 300 kt p.a. to crushing output. We
expect Creativ to increase its 2012 sunflower oil revenues by 26% y-o-y to $218.2m (at
50% capacity utilization).
Creativ boosted sunflower
seed crushing capacities by
153% in 3Q12, to 1,077 kt p.a

Creativ Group Sunflower Oil Production
Source: Company

Creativ Group Fat and Margarine Production
Source: Company

Creativ produces margarines and fats for the food processing industry (mainly
confectionary and dairy), and sells margarines directly to the end-consumer under
Sonola and Divnoe brands. The company launched production of new spreads in
3Q12 with capacity of 70 kt p.a., bringing its total fat and margarine production
capacity to 214 kt (+49% y-o-y). More importantly, the company uses in-house
sunflower oil for fats production and thus earns about 30% gross margin the highest
among all of Creativs business segments.
and increased its fats and
margarines production
capacities by 49%...

Sunf l ower oi l &
f eed
4 6 . 1 %
Fat s &
margari nes
3 9 . 1 %
Meal &
soybean
product s
8 . 3 %
Ot her
6 . 6 %
Sunf l ower oi l &
Fodder
4 9 .7 %
Fat s &
margari nes
3 7 .0 %
Meal &
soybean
product s
1 1 .3 %
Ot her
2 .0 %
2 4
4 8
6 2
4 4
7 7
1 0 8
1 1 9
1 6 7
2 3 4
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
0
5 0
1 0 0
1 5 0
2 0 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Product i on i n vol ume t erms ( kt ; l hs)
Product i on i n val ue t erms ( $ m; rhs)
2 4
3 3 4 2
6 6
1 1 3
1 2 4 1 2 8 1 3 2 1 3 2
0
5 0
1 0 0
1 5 0
2 0 0
0
5 0
1 0 0
1 5 0
2 0 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Product i on i n vol ume t erms ( kt ; l hs)
Product i on i n val ue t erms ( $ m; rhs)
November 2012


Creativ Group Fat and Margarine Production Capacities (kt p.a.)
Source: Company

Creativ Group Fat and Margarine Revenues ($m)
Source: Company

paving the way for higher fat
and margarines sales in 2012-13
We expect Creativ to increase fat and margarine sales this year by 10% y-o-y to
$162.3m, thanks to increased volumes and prices, accounting for 37% of total projected
revenues. In 2013, we expect the company to earn $161.3m (or 30% of total revenues)
from the vegetable fats segment (-1% y-o-y due to assumed hryvnia depreciation as
vegetable fats are sold in Ukraine).
Soybean crushing capacity is
expected to triple in 2012
Creativ also operates a brand-new soybean processing plant in which it holds a 51%
stake (49% is owned by a Russian partner). The plant has annual crushing capacity of
88 kt p.a. and was 91% utilized in 2011. Creativ plans to launch a second production
line with 182 kt p.a. capacity in 2012, bringing the total to 270 kt p.a. The plant
produces fodder meal, oil and high-protein products for the food processing industry.

Creativ Group Sunflower Oil Segment
Source: Company

Creativ Groups New Oil Extraction Plant
Source: Company

implying higher soybean
sales in 2012-13
We estimate Creativ will increase sales of soybean products (oil and protein cake,
which are highly demanded by food processors) by about $30m this year (flat y-o-y).
Should the company complete the second production line at its soybean crushing
facility, it could triple soybean product sales as early as 2013, to $90m. Staying
conservative, we did not incorporate this possible growth into our valuation model.
New businesses: crop
cultivation, biofuel pellet
production, and pig breeding
Creativ started cultivation of sunflower seeds, soybeans, rapeseed and grains in 2011,
with the agro-farming segment so far contributing an insignificant share to revenues
(0.5% in 2011). The company cultivated 20,000 ha of land last year, and plans to grow its
land bank to 100,000 ha by end-2014. Creativ also started biofuel pellet production last
year. The first plant with 40 kt p.a. capacity was launched in July 2011, followed by a
husk pellet workshop with 93 kt p.a. capacity at the new oil-extraction plant (launched
in 3Q12). The company plans to add another 40 kt p.a. of pellet production capacity in
early 2013. Creativ also expanded into pig breeding with a 60,000 head farm launched
at full capacity in March 2012.
3 6 3 6 3 6 3 6
7 2 7 2
1 4 4 1 4 4 1 4 4 1 4 4 1 4 4
2 1 4 2 1 4
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
E
2
0
1
3
E
Capaci t i es i n vol ume t erms ( kt )
1 0 7
1 3 8
1 2 6
1 4 7
1 6 5
1 7 8
0
5 0
1 0 0
1 5 0
2 0 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Revenues ( $ m)
9 1
4 2 6 4 2 6 4 2 6
1 , 0 7 7 1 0 7 7
7 0 7 7
1 2 9
1 7 3
2 1 8
3 0 6
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
0
2 0 0
4 0 0
6 0 0
8 0 0
1 , 0 0 0
1 , 2 0 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 E
Crushi ng capaci t i es ( kt p. a.; l hs)
Revenues ( $ m; rhs)

November 2012


Creativ Group Soybean Crushing Segment

Creativ Groups First Oil Extraction Plant
Source: Company

As of end-2011, Creativ Group had $242.6m of long-term bank debt and $152.2m of
short-term loans (incl. $80.3m current portion of long-term debt), bringing the total to
$394.8m. The companys Net Debt/ Equity ratio totaled 285%, which is quite high and
outperformed the 54% ratio reported by the companys closest peer Kernel Holding as
of end-1H12FY (Dec. 31, 2011). The reason for the high ratio for sunflower oil producers
is that they need significant working capital at the end of the calendar year to purchase
sunseed for crushing. Sunflower is harvested in September-October and the second half
of the year is the best time to increase inventories. Crushers short-term debt levels are
therefore lowest in summer, before the new harvest arrives. Thus, moving the fiscal
year to July-June, in line with Kernel, would produce much lower leverage ratios for
Creativ. In October, Creativ agreed a $255m credit line to finance its working capital
needs. The facility will be disbursed in two tranches paying 1mLIBOR+7% and
1mLIBOR+7.4%, respectively, with the funds available until Aug. 31, 2015.
Debt position
In 2012, Ukraines sunflower seed crushing capacity totaled more than 8.5 Mt, with
Kernel being the largest seed crusher with 3.0 Mt capacity. At the same time, the 2012
sunflower seed harvest in Ukraine is forecast at 7.9 Mt (-10% y-o-y). The excess of
processing capacities over sunflower seed production implies tighter competition for
sunflower seed purchases. We believe this may push sunflower seed prices higher in
the long run and squeeze crushers gross margins.
Raw material supply risk

Creativ Group Sunflower Seed Purchase Schedule
(volume terms; 2012E)
Source: Company

Creativ Group Debt Structure (end-2011)
Source: Company

Creativ sells fats and margarines in Ukraine, obtaining hryvnia-denominated
revenues (30% of total net sales). However, 70% of its revenues (sunflower and
soybean products, which are exported) are USD-linked. Creativs vegetable fat
segment costs are about 80% USD-linked (i.e. sunflower oil and palm oil costs), and
sunseed and soybean processing costs are approx. 90% dollar-linked. Thus, about
85% of Creativs overall COGS are USD-linked (vs. 70% for revenues), meaning
negative impact of potential hryvnia depreciation. This implies a margin squeeze in
2013 if our new F/ X rate forecast of UAH 8.8:USD (vs. UAH 8.2:USD previously)
materializes.
Hryvnia depreciation negative
for Creativs EBITDA
8 8
8 8
2 7 0 2 7 0 6 .7
3 1 .3 3 0
3 1
0
1 0
2 0
3 0
4 0
0
1 0 0
2 0 0
3 0 0
4 0 0
2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Crushi ng capaci t i es ( kt p. a.; l hs)
Revenues ( $ m; rhs)
2 %
5 %
6 %
7 % 7 %
5 %
3 %
1 %
1 8 %
1 2 %
1 6 %
1 8 %
0 %
5 %
1 0 %
1 5 %
2 0 %
Share of annual sunf l ower seed purchases
Long-t erm debt
6 1 . 5 % Short -t erm debt
3 8 . 5 %
November 2012


Valuation
Pri ce Currency MC EV/ Sal es EV/ EBITDA P/ E
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Creat i v Group
8 . 5 2 USD 8 7 0 . 9 7 0 . 7 8 4 . 5 3 . 7 1 . 9 1 . 4
Premi um ( Di scount ) t o Kernel Hol di ng ( 9 4 %) ( 3 %) ( 1 7 %) ( 3 3 %) ( 4 2 %) ( 7 6 %) ( 8 2 %)
Premi um ( Di scount ) t o GEM Peer Medi an ( 9 7 %) 4 2 % 1 7 % ( 5 7 %) ( 6 1 %) ( 8 5 %) ( 9 0 %)
Kernel Hol di ng 1 9 . 7 1 USD 1 , 5 7 0 1 . 0 0 0 . 9 4 6 . 7 6 . 4 7 . 9 7 . 4
GEM Peers

Chi na Agri -Indust ri es ( CH) 4 . 6 HKD 2 , 4 1 2 0 . 4 3 0 . 4 1 1 1 . 3 9 . 8 1 1 . 0 8 . 3
IOI Corporat i on ( KL) 5 . 0 MYR 1 0 , 5 5 3 2 . 0 8 2 . 0 7 1 3 . 6 1 1 . 9 1 8 . 2 1 5 . 8
Chi na Foods ( HK) 7 . 7 HKD 2 , 7 7 8 0 . 5 6 0 . 5 5 9 . 2 9 . 0 2 3 . 7 1 9 . 0
Thai Veget abl e Oi l ( TH) 2 4 . 9 THB 6 5 7 0 . 8 1 0 . 7 8 9 . 7 9 . 3 1 0 . 7 1 1 . 5
GEM Peer Medi an*
3 , 3 0 1 0 . 6 8 0 . 6 6 1 0 . 5 9 . 6 1 2 . 2 1 3 . 6
Notes: *averages shown for market capitalizations; prices as of Nov. 9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates


Creativ Group (CRGR UZ)

0
1 0
2 0
3 0
4 0
Nov-0 7 Jul -0 8 Apr-0 9 Dec-0 9 Sep-1 0 May-1 1 Jan-1 2 Oct -1 2
Market Pri ce ( $ ) PT/ Fai r Val ue ( $ )

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Fat s and Margari ne ( kt ) 1 1 2 . 8 1 2 4 . 1 1 2 7 . 8 1 3 1 . 7 1 3 1 . 7
Growt h ( %; y-o-y) 7 0 % 1 0 % 3 % 3 % 0 %
Sunf l ower Oi l ( kt ) 7 7 . 4 1 0 8 . 3 1 1 9 . 1 1 6 6 . 8 2 3 3 . 5
Growt h ( %; y-o-y) 7 7 % 4 0 % 1 0 % 4 0 % 4 0 %
Soy Product s ( kt ) - - 5 9 . 8 6 2 . 8 6 6 . 0
Growt h ( %; y-o-y) - - 5 % 5 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 2 2 2 . 2 2 6 4 . 9 3 7 8 . 1 4 3 8 . 8 5 2 9 . 9
EBITDA 5 0 . 2 6 1 . 7 8 6 . 5 9 5 . 3 1 1 1 . 2
Depreci at i on 4 . 5 6 . 1 8 . 7 1 3 . 2 1 3 . 3
EBIT 4 5 . 7 5 5 . 6 7 7 . 8 8 2 . 1 9 7 . 9
NIBT 2 6 . 9 2 9 . 8 4 3 . 0 4 7 . 6 6 5 . 8
Taxes ( 0 . 9 ) ( 0 . 0 ) ( 0 . 8 ) ( 0 . 9 ) ( 1 . 3 )
Net Income ( Loss) 2 6 . 0 2 9 . 7 4 2 . 2 4 6 . 7 6 4 . 5
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 2 4 8 . 5 3 6 0 . 0 5 6 6 . 6 6 0 0 . 1 6 5 6 . 0
Fi xed Asset s 1 4 3 . 0 1 7 1 . 5 2 7 2 . 5 2 7 4 . 3 2 7 6 . 0
PPE 1 3 4 . 3 1 6 9 . 9 2 5 6 . 5 2 5 8 . 3 2 6 0 . 0
Current Asset s 1 0 5 . 5 1 8 8 . 6 2 9 4 . 1 3 2 5 . 8 3 8 0 . 0
Invent ori es 5 2 . 3 8 8 . 4 1 3 8 . 7 1 6 4 . 4 1 9 9 . 8
Account s Recei vabl e 4 2 . 7 9 8 . 0 1 0 7 . 2 1 2 4 . 4 1 5 0 . 3
Cash & Cash Equi val ent s 1 0 . 5 2 . 1 4 8 . 2 3 7 . 0 3 0 . 0
S/ T Debt 6 4 . 4 9 5 . 5 1 5 2 . 2 1 5 2 . 2 1 5 2 . 2
L/ T Debt 1 0 2 . 9 1 4 4 . 1 2 4 2 . 6 2 2 2 . 6 2 0 2 . 6
Equi t y 5 0 . 3 7 9 . 6 1 0 9 . 6 1 5 6 . 2 2 2 0 . 7
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) 1 1 % 1 9 % 4 3 % 1 6 % 2 1 %
EBIT Growt h ( y-o-y) 1 1 9 % 2 3 % 4 0 % 1 0 % 1 7 %
Net Income Growt h ( y-o-y) nm 1 4 % 4 2 % 1 1 % 3 8 %
EBITDA Margi n 2 2 . 6 % 2 3 . 3 % 2 2 . 9 % 2 1 . 7 % 2 1 . 0 %
Net Margi n 1 1 . 7 % 1 1 . 2 % 1 1 . 2 % 1 0 . 6 % 1 2 . 2 %
Net Debt / Equi t y 3 1 2 % 2 9 8 % 3 1 6 % 2 1 6 % 1 4 7 %
ROE 5 1 . 7 % 3 7 . 4 % 3 8 . 5 % 2 9 . 9 % 2 9 . 2 %

November 2012


IMC: Aiming for a Place Among Top
Ukrainian Agribusinesses

Upside (%) 53%
Highlights

Profile
IMC is an integrated agricultural producer operating in northern and central
Ukraine. The companys core business is grain farming (more than 80% of
2012E revenues), particularly corn, sunflower seed and wheat growing, as well
as crop storage and processing. In addition, IMC is involved in cattle breeding
and milk production, being one of Ukraines top-10 industrial milk producers.
IMC currently operates a land bank of 82,700 ha and storage capacities of 223 kt.
Valuation implies 53% upside and a Buy recommendation
The average of our DCF and comparative valuations yield a 12-month price
target (PT) of $6.80/ share implying a 53% upside to the stocks current
market price. We recommend IMC as a Buy.
Strong operating results
We expect IMCs increased land bank under cultivation (+117% y-o-y for the
2012 harvest) to underpin a strong increase in grain and oilseed production this
year (est. +82% y-o-y to 313 kt), even though we conservatively downgraded
our 2012 yield estimate by 19% y-o-y to 4.0 t/ ha in view of adverse weather
impact.
underpin expected tripling of 2012 revenue
IMCs crop mix makes the company well-placed to benefit from favorable
domestic and global demand in 2012 underpinned by concerns about possible
supply shortages due to unfavorable weather. Given IMCs large 2012 opening
grain stocks and solid harvest outlook for the year, we forecast its 2012
revenues to increase threefold (+227% y-o-y), to $95.2m, driven mostly by grain
revenues (+341% y-o-y to $82.1m). We estimate 2012 EBITDA at $39.0m (+61%
y-o-y) and EBITDA margin at 34.3% (-11.2pp y-o-y due to weather impact on
yields), in line with the domestic sector average.
Further land bank expansion is a key medium-term target
IMCs strategic plan calls for land bank expansion to 120,000 ha by end-2012
and 285,000 ha by 2020. The company plans to remain predominantly a crop
producer, while maintaining a livestock breeding division to provide smooth
cash flows throughout the year. Driven mostly by the farming segment, IMCs
total sales are expected to grow at a 123% CAGR in 2012-13, to $144m in 2013,
proceeding at a CAGR of 12% to reach $317m in 2020 ($360m of total revenues
accounting for an IAS 41 effect of $44m).
Risks: weather, land reform and export restrictions
Weather represents the main risk to our operating and financial assumptions
for IMC.
Sell Hold Buy

Company Data
Market Cap ( $ m) 1 3 9 .0
Free Fl oat ( %) 2 3 .9 %
Nomi nal Val ue ( EUR) 0 .0 0 1 8
Bl oomberg Code IMC PW
DR Rat i o -



1 2 -mont h Perf ormance ( $ )
7 7 %
1 2 -mont h Rel . Perf orm. ( KP-Dragon)
1 1 8 %
1 2 -mont h Low/ Hi gh ( $ / share)
2 .1 0 / 5 .4 8
Al l -t i me Low/ Hi gh ( $ / share)
2 .1 0 / 5 .4 8
1 2 -mont h Tradi ng Vol ume ( $ m)
1 0 .0

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
2 0 .2 3 4 .8 2 9 .1 9 5 .2 1 4 4 .1
EBITDA ( $ m)
7 .1 1 8 .0 2 4 .3 3 9 .0 6 1 .4
Net Income ( $ m)
1 .6 1 4 .8 1 7 .3 2 5 .7 4 0 .0
P/ E
6 8 .4 7 .5 8 .0 5 .4 3 .5

EV/ EBITDA
1 9 .2 6 .7 6 .4 5 .0 2 .9

EV/ Sal es
6 .7 5 3 .4 6 5 .3 8 2 .0 7 1 .2 4

P/ Book
2 .5 1 1 .5 8 1 .3 0 1 .0 5 0 .8 0

Agroval l ey Li mi t ed - 6 8 . 1 9 %
Management - 7 . 9 2 %
Free Fl oat - 2 3 . 9 %
1 .0
3 .0
5 .0
7 .0
Nov-1 1 Feb-1 2 May-1 2 Jul -1 2 Oct -1 2
IMC
KP-Dragon Index ( rel .)
Corn
5 8 %
Wheat
7 %
Sunf l ower
Seeds
1 7 %
Pot at o
3 %
Mi l k
9 %
Ot her
6 %

November 2012


IMC is an integrated agricultural company operating in northern and central regions of
Ukraine (Chernihiv, Poltava and Sumy). The company operates a land bank of 82,690
ha and storage capacities of 223 kt, planning to bring its total farmland and storage to
120,000 ha and 551 kt respectively by end-2012, thus firmly positioning itself among the
top Ukrainian agricultural producers. The companys core business focuses on grain
farming, particularly corn, wheat, sunflower, and potatoes, as well as crop storage and
processing. In addition, IMC is involved in cattle breeding and milk production, being
among Ukraines top-10 industrial milk producers. IMC is fully self-sufficient in storage
facilities, which are located close to the companys arable land and fodder facilities.
Vertical integration (self-sufficiency in feed for milk production) reduces the companys
dependence on third-party suppliers.
IMC is a diversified
agricultural producer

IMC Land Bank in Ukraine
Note: *land bank in thousands of hectares; **storage capacities in kt. Source: Company
IMC Revenue Structure (value terms; 2012E)

Pursuing an aggressive expansion strategy after going public in April 2011, IMC
has since more than doubled its land bank to 83,000 ha from the 38,000 ha it
possessed pre-IPO. The company plans to increase its acreage to 120,000 ha by end-
2012 and to 285,000 ha by 2019 via acquisition of existing farms and organic growth
of existing land holdings (acquiring lease rights from neighboring landowners).
with 83,000 ha of land
For the 2012 harvest, IMC planted 7,800 ha of winter crops, particularly wheat (6,000 ha
or 7% of cropland) and rye (1,800 ha; 2%), and 73,000 ha of spring crops (+137% y-o-y),
including 40,500 ha (50% of total planted area) under corn (+170% y-o-y as corn
occupied most of the new land), 18,100 ha (22%) under sunflower (+262%) and 5,300 ha
(6%) under soybean (+8%). Potatoes were planted on 700 ha (2% of total).
...with corn plantings
accounting for 50% of 2012
cropland

IMC Land Bank (000 ha; 2007-13F)
Note: *year-end. Source: Company
IMC Cropland Breakdown (2012E)
Source: Company
Li vest ock
Breedi ng
9 . 2 %
St orage &
Processi ng
1 . 9 %
Farmi ng
8 8 . 8 %
3 4
3 6 3 6
3 8
6 0
1 2 0
1 3 0
3 4
3 6
3 5
3 8
8 3
1 2 0
0
3 0
6 0
9 0
1 2 0
1 5 0
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
E
2
0
1
3
F
Tot al * Cul t i vat ed
Corn
4 9 %
Sunf l ower
2 2 %
Wi nt er wheat
7 %
Soybean
6 %
Pot at oes
1 %
Fodder crops
7 %
Ot her crops
3 %
Fal l ow l and
5 %
26.8*
(118**) 24.6
(34)
31.3
(87)
November 2012


Modern farming practices
ensure above-average crop
yields
Employing modern farming practices (fertilizer mix, crop protection and high
quality seeds) and optimum crop rotation, IMC routinely outperforms average
domestic yields. In 2011, IMCs reported corn yield of 8.0 t/ ha was 25% above the
Ukrainian average of 6.4 t/ ha, while its wheat (4.2 t/ ha) and sunflower (2.6 t/ ha)
yields were 27% and 47% above the respective country averages. Moreover, thanks
to superior potato cultivation technology (in 2011 the company utilized a Fieldlook
system of satellite monitoring for its potato fields in partnership with the IFC) and
favorable weather, IMC also outperformed the average domestic potato yield by
48% last year (24.9 t/ ha vs. 16.8 t/ ha).
with costs per hectare 20%
below Ukrainian average
The company also demonstrated remarkable efficiency over 2009-11, reporting
costs per tonne of harvest produced that were on average 20% below the respective
domestic averages. This supports the argument about the company pursuing
effective agricultural technologies and optimum crop rotation practices rather than
overspending to achieve superior yields.

IMC Crop Yields vs. Ukrainian Averages (t/ ha; 2011)
IMC Production Costs vs. Ukrainian Averages ($/ t; 2011)
Yields are expected to decline
in 2012 due to unfavorable
weather
Due to less favorable weather in 2012 (particularly dry and cold winter and a very hot
summer), we anticipate IMCs 2012 average crop yield will decline by 19% y-o-y to 4.0
t/ ha, or 6.0 t/ ha for corn (-25% y-o-y and 20% below IMCs initial expectation), 2.0
t/ ha for sunflower (-26% and -20%, respectively), 4.0 t/ ha for wheat (-6%; based on
actual bunker-weight yield of 4.43 t/ ha reported by the company), 24.9 t/ ha for
potatoes (flat y-o-y as weather did not damage the crop).
but the harvest volume (net
of feed crops) is still anticipated
at a strong 330 kt (+77% y-o-y)
Despite the projected decrease in yields, we estimate that IMCs increased cropland
(+117% y-o-y) will underpin a strong increase in this years grain and oilseed harvest of
82% y-o-y to 313 kt (vs. 172 kt in 2011). We forecast its potato harvest will rise by 13% y-
o-y to 17 kt thanks to 13% cropland growth and expected flat yields as weather in the
Chernihiv region (where IMC grows potatoes) was favorable for the crop. Meanwhile,
IMC recently completed winter crop harvesting collecting 26.5 kt of wheat (5,981 ha)
and 5.2 kt of rye (1,730 ha), with respective yields of 4.43 t/ ha and 3.03 t/ ha (both in
bunker weight and in line with our expectations).
We forecast 2012 sales will
surge by 227% y-o-y to $95.2m
We forecast the company will boost 2012 revenues by 227% y-o-y to $95.2m, with the
positive impact of increased acreage and end-2011 grain stock disposal being
complemented by favorable prices (albeit offset by lower yields). Farming is thus
expected to contribute 89% of total revenues (+21pp y-o-y). Corn, sunflower and wheat
are expected to be the largest crop contributors to 2012 revenues with estimated shares
of 58.1%, 16.5% and 7.5%, respectively. Dairy and service revenues are expected at
$8.8m (+15% y-o-y; 9.2% of total revenues) and $1.8m (+15% and 1.9% of total),
respectively.

8 . 0
4 . 2
2 . 6
3 . 0
2 4 . 9
6 . 4
3 . 4
1 . 8
2 . 1
1 6 . 8 .
0 .0
5 .0
1 0 .0
1 5 .0
Corn Wi nt er wheat Sunf l ower seed Rye Pot at o
IMC avg. yi el ds ( t / ha)
Ukrai ni an avg. yi el ds ( t / ha)
8 8
1 1 0
1 7 5
1 0 2
9 3
1 1 7
2 0 9
1 5 4
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
Corn Wi nt er Wheat Sunf l ower seed Pot at o
IMC ( $ / t onne)
Ukrai ni an average ( $ / t onne)

November 2012


We expect IMC to report an $18.7m net gain from changes in the fair value of
biological assets and agricultural products in 2012 (compared to $24.2m in 2011),
implying gross revenues of $113.9m. We forecast 2012 EBITDA of $39.0m (+61% y-o-
y), implying an EBITDA margin of 34.3% (-11.2pp y-o-y due to lower yields hit by
unfavorable weather). The estimated EBITDA margin is slightly above the domestic
sector average of 31.7% in the top percentile with Mriya and MHP, the domestic market
leaders in terms of efficiency. IMCs 2012E net margin of 22.6% is also broadly in line
with the market average.
estimating EBITDA margin
at 34.3%

IMC Revenue Breakdown (2012E)
IMC Net Sales and Profitability Margins (2007-12E)
Source: Company

Supporting our full-year forecast, IMC reported strong 1H12 financial results
posting revenues of $32.1m (+193% y-o-y), income from change in fair value of
biological assets (IAS 41) of $33.9m (+51% y-o-y), normalized EBITDA (net of non-
recurring items) of $29.3m (+42%) and net income of $24.2m (+43%), implying
strong normalized EBITDA and net margins of 44.4% and 36.6%. The bulk of first-
half revenues came from grain sales: corn accounted for 54% of total revenues or
$17.4m (+242% y-o-y), sold at an average price of $237/ tonne; sunflower
contributed 17% or $5.5m (vs. $0.1m in 1H11), at $427/ t on average; and wheat
brought in 3% or $1.0m (+344%), at $189/ t. Sales of milk contributed 10% of 1H12
revenues, or $3.3m (+20% y-o-y). Export sales (grain) accounted for 55% of total
revenues over the period.
1H12 revenue surged by
193% y-o-y
We forecast IMC will boost 2013 revenues by 51% y-o-y to $144m on the back of
land bank expansion (+44%) and higher yields (+28% on average), though lower
expected crop prices (-10% on average from 2012 highs). Meanwhile, along with
increased efficiency and lower costs per hectare, the companys 2013 operating
profitability should also be positively affected by projected hryvnia depreciation (to
UAH 8.8:USD on average in 2013) as more than 80% of IMCs revenues and only
40% of costs are foreign currency-linked. We thus forecast IMCs 2013 EBITDA will
reach $61.4m (+57% y-o-y) and net income total $40.0m (+56%), implying hefty
EBITDA and net margins of 36.7% and 23.9%.
We forecast crop sales will
drive IMC revenues up by 51%
in 2013

Li vest ock
Breedi ng
9 . 2 %
St orage &
Processi ng
1 . 9 %
Corn
5 8 . 1 %
Sunf l ower
Seeds
1 6 . 5 %
Wheat
7 . 5 %
Pot at o
2 . 6 %
Ot her
4 . 1 %
Farmi ng
8 8 . 8 %
2 0 .2
3 4 .8
2 9 .1
9 5 .2
7 .6
1 0 .2
2 4 .2
1 8 .7
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
0
2 5
5 0
7 5
1 0 0
1 2 5
2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Net sal es ( $ m; l hs) IAS 4 1
EBITDA margi n ( %, y-o-y; rhs) Net margi n ( %, y-o-y; rhs)
November 2012


Valuation
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
IMC 4 . 4 4 USD 1 3 9 5 . 0 2 . 9 5 . 4 3 . 5
Premi um/ ( di scount ) t o Ukrai ni an peers ( 6 5 %) 9 % ( 2 8 %) ( 7 %) ( 3 3 %)
Premi um/ ( di scount ) t o Russi an peers ( 4 5 %) ( 1 0 %) ( 4 8 %) 4 0 % ( 2 4 %)
Ukrai ni an Peers
MHP 1 4 . 4 0 USD 1 , 5 6 2 4 . 8 3 . 9 6 . 5 5 . 4
Agrot on 3 . 4 1 USD 7 4 4 . 1 2 . 6 6 . 4 2 . 9
Ukrai ni an Peers Medi an 3 9 2 4 . 6 4 . 0 5 . 8 5 . 2
Russi an Peers
Rusgrai n 1 4 . 5 RUB 2 0 2 . 0 2 . 0 0 . 5 -
Razgul i ay 1 2 . 3 6 RUB 6 2 5 . 6 5 . 6 2 . 3 1 . 4
Tri gon Agri 5 . 7 0 SEK 1 1 0 7 . 5 7 . 8 9 0 . 0 4 . 3
Ros Agro 7 . 0 0 SEK 8 3 5 4 . 3 4 . 5 5 . 4 4 . 9
Russi an Peers Medi an 2 5 1 5 . 6 5 . 6 3 . 9 4 . 6

HISTORI CAL PRI CE TARGETS

IMC (IMC PW)

1 .0
2 .0
3 .0
4 .0
5 .0
6 .0
7 .0
8 .0
May-1 1 Jul -1 1 Sep-1 1 Nov-1 1 Jan-1 2 Mar-1 2 Jun-1 2 Aug-1 2 Oct -1 2
Market Pri ce 1 2 M PT

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Land Cul t i vat ed ( 0 0 0 ha; e-o-p) 3 6 3 6 3 8 8 3 1 1 9
Growt h ( %, y-o-y) - ( 0 %) 7 % 1 1 7 % 4 4 %
Grai n and Oi l seeds Product i on ( 0 0 0 t ) 1 5 4 1 1 7 1 7 2 3 1 3 5 9 0
Growt h ( %, y-o-y) 2 1 % ( 2 4 %) 4 7 % 8 2 % 8 9 %
Pot at oes Out put ( 0 0 0 t ) 4 6 1 5 1 7 1 8
Growt h ( %, y-o-y) 9 8 % 5 4 % 1 6 5 % 1 3 % 1 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 2 0 . 2 3 4 . 8 2 9 . 1 9 5 . 2 1 4 4 . 1
EBITDA 7 . 1 1 8 . 0 2 4 . 3 3 9 . 0 6 1 . 4
Depreci at i on ( 2 . 2 ) ( 3 . 5 ) ( 5 . 1 ) ( 7 . 5 ) ( 8 . 6 )
EBIT 4 . 9 1 4 . 5 1 9 . 2 3 1 . 5 5 2 . 8
Net Fi nanci al Income ( Loss) ( 3 . 1 ) ( 1 . 9 ) ( 1 . 8 ) ( 5 . 8 ) ( 7 . 5 )
NIBT 1 . 8 1 2 . 6 1 7 . 4 2 5 . 7 4 0 . 0
Income Tax Benef i t ( Expense) ( 0 . 2 ) 2 . 1 ( 0 . 1 ) 0 . 0 0 . 0
Net Income ( Loss) 1 . 6 1 4 . 8 1 7 . 3 2 5 . 7 4 0 . 0
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 8 6 . 5 8 7 . 4 1 3 8 . 7 2 0 8 . 0 2 4 2 . 2
Fi xed Asset s 5 6 . 3 5 9 . 4 7 4 . 9 1 2 9 . 0 1 3 4 . 9
Current Asset s 3 0 . 2 2 8 . 0 6 3 . 8 7 9 . 0 1 0 7 . 2
Invent ori es 1 4 . 2 1 3 . 0 4 0 . 6 5 2 . 6 6 6 . 9
Current Bi ol ogi cal Asset s 3 . 8 6 . 1 1 1 . 1 1 0 . 8 1 1 . 8
Account s Recei vabl es 1 . 3 3 . 8 1 . 4 5 . 2 7 . 5
Cash & Cash Equi val ent s 0 . 0 2 . 0 4 . 6 2 . 6 1 0 . 4
Tot al Li abi l i t i es & Equi t y 8 6 . 5 8 7 . 4 1 3 8 . 7 2 0 8 . 0 2 4 2 . 2
Tot al Li abi l i t i es 3 8 . 5 2 0 . 2 2 9 . 7 7 3 . 3 6 7 . 4
S/ T Debt 2 0 . 5 3 . 5 8 . 0 7 . 9 2 2 . 9
L/ T Debt 5 . 7 8 . 7 1 4 . 1 5 2 . 7 2 7 . 7
Equi t y 4 3 . 9 6 9 . 8 1 0 7 . 0 1 3 2 . 7 1 7 2 . 8
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 1 9 %) 7 2 % ( 1 6 %) 2 2 7 % 5 1 %
EBITDA Growt h ( y-o-y) ( 6 9 %) 1 5 4 % 3 5 % 6 1 % 5 7 %
Net Income Growt h ( y-o-y) ( 8 8 %) 8 1 8 % 1 7 % 4 8 % 5 6 %
EBITDA Margi n 4 6 . 9 % 4 3 . 3 % 4 8 . 2 % 3 4 . 3 % 3 6 . 7 %
Net Margi n 5 . 8 % 3 2 . 8 % 3 2 . 6 % 2 2 . 6 % 2 3 . 9 %
Net Debt / Equi t y 5 9 . 7 % 1 4 . 6 % 1 6 . 3 % 4 3 . 7 % 2 3 . 3 %
ROE 4 . 0 % 2 5 . 6 % 1 9 . 7 % 2 1 . 1 % 2 5 . 9 %
EBITDA coverage

2 . 2 8 9 . 6 6 1 3 . 7 6 6 . 7 5 8 . 1 9
Net Debt / EBITDA

3 . 6 9 0 . 5 7 0 . 7 2 1 . 4 8 0 . 6 5

November 2012


Kernel Holding: Expanding into
Russia
Upside (%)
8%
Highlights

Valuation upgraded on strong 1Q13FY and announced acquisition plan
Our 12-month price target (PT) for Kernel Holding, factoring in announced
details of acquisitions in Russia and Ukraine as well as strong 1Q13FY
operating results, yields $21.90/ share suggesting 5% upside to the current
market price, or a Hold.
Strong 1Q13FY operating results
Kernel reported strong 1Q13FY (July-September 2012) operating results. The
company boosted bulk sunflower oil sales by 89% y-o-y to 199.0 kt while
increasing sunflower seed crushing volumes by 60% y-o-y to 458.1 kt, implying
that it used carried-forward sunflower seed and oil inventories from 4Q12FY
(April-June). In the grain export segment, Kernel reported an 89% y-o-y surge
in port terminal throughput volumes, to 740.1 kt, and 509.5 kt of own grain
exports (+22% y-o-y) shipped via the companys terminal in Illichivsk (about
50% of total) and other Black Sea ports. Stronger grain exports from Ukraine
underpinned the reported 89% y-o-y surge in terminal throughput. The
company executed its first grain export contract in Russia in July 2012 following
acquisition of the Taman Black Sea port (via a 50/ 50 JV with a Russian
subsidiary of Glencore),
Acquisition pipeline for 2013FY-16FY
Kernels Russian CAPEX for 2013-16FY includes investments of $100-120m to
build a greenfield crushing plant; $100m to build or acquire silos; and $30-40m
to boost Taman ports grain handling capacity to 5-6 Mt p.a. vs. nameplate 3 Mt
p.a. and current actual throughput of about 1.5 Mt p.a. In Ukraine over the
same period, Kernel plans to spend $300-350m to acquire a crushing plant (500
kt p.a.) and an additional 120,000 ha of land (vs. current 330,000 ha). We believe
Kernels CAPEX will be financed with own cash flows and, partially, new debt,
with the companys end-2012FY Net Debt/ EBITDA of 1.9x outperforming the
Ukrainian sector average of 2.5x.
Solid 2014FY outlook; 2013FY management guidance weaker than expected
Kernel recently announced quite conservative 2013FY guidance with revenues
projected at $2.4bn (+11% y-o-y), EBITDA at $350m (+8%) and net income at
$215m (+8%) all weaker than expected. Our 2013FY and 2014FY revenue
forecasts for Kernel of $2.4-2.5bn reflect higher than expected grain export
volumes (Ukrainian and Russian operations combined already in 2014FY). We
thus increased our 2014FY export estimates from 2.1 Mt to 2.5 Mt (+20% y-o-y).
Our 2013FY EBITDA forecast is $351m while 2014FY projection is $408m (+16%
y-o-y). Kernel estimates its Russian operations will contribute $120m to
EBITDA as early as 2016FY, when planned acquisitions have been completed.
Risks
Weather and price volatility on soft commodities markets as well as potential
government-imposed export curbs are the key risks for Kernel Holding.

Sell Hold Buy

Company Data
Market Pri ce ( $ ) 1 9 .7 1
Market Cap ( $ m) 1 ,5 7 0 .5
Ent erpri se Val ue ( 1 3 FYE; $ m) 2 ,1 6 9 .9
Free Fl oat ( %) 6 1 .7 7 %
Free Fl oat ( $ m) 9 7 0 .1
Nomi nal Val ue ( EUR) -
Bl oomberg Code KER PW
DR Rat i o -
Number of Empl oyees 1 6 ,0 0 0



1 2 -mont h Perf ormance ( $ ) ( 5 %)

Valuation Summary 2012FY Revenues ($m)
Year 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FYE 2 0 1 4 FYF

Net Sal es ( $ m) 1 ,0 2 0 .5 1 ,8 9 9 .1 2 ,1 6 9 .2 2 ,3 9 9 .2 2 ,5 0 2 .9
EBITDA ( $ m) 1 9 0 .0 3 0 9 .6 3 2 4 .6 3 5 1 .4 4 0 8 .2
Net Income ( $ m) 1 5 1 .7 2 2 6 .0 1 9 8 .6 2 1 1 .4 2 2 8 .1
P/ E 9 .5 6 .9 7 .9 7 .4 6 .9
EV/ EBITDA 9 .1 6 .0 6 .7 6 .4 5 .4
EV/ Sal es 1 .6 9 0 .9 9 1 .0 0 0 .9 4 0 .8 8
P/ Book 2 .3 8 1 .5 7 1 .2 8 1 .1 2 0 .9 7
Namsen Lt d. - 3 8 . 2 3 %
Free f l oat - 6 1 . 7 7 %
1 0
1 5
2 0
2 5
3 0
Kernel Hol di ng KP-Dragon ( rel . )
Bul k
Sunoi l
5 7 . 9 %
Bot t l ed
Sunoi l
9 . 8 %
Grai n
2 9 . 1 %
Si l o
Servi ces
1 . 5 %
Farmi ng
1 . 3 %
Grai n
Termi nal
0 . 3 %

November 2012


Kernel Holding is Ukraines largest sunflower oil producer (operating 36% of the
countrys total sunflower seed crushing capacity), largest sunflower oil exporter (with a
25% share of total in 2011/ 2012), and is also the countrys largest bottled sunflower oil
seller (with a 32% share over the period).
The largest sunflower oil
producer and exporter in
Ukraine

Sales of Bottled Sunflower Oil in Ukraine (% share; 2012FY)
Source: Company
Sunflower Seed Crushing Capacity in Ukraine (% share; 2012FY)
Source: Company

Kernel crushed 2.5 Mt of sunflower seeds in 2012FY (+25% y-o-y; July 2011-June 2012)
and produced and sold 828.4 kt of bulk oil (+1% y-o-y) and 131.9 kt of bottled oil (+12%
y-o-y). Sunflower oil (bulk and bottled) contributed 67.7% to total revenues and 80.7%
to EBIT in 2012FY, with the bulk oil operating margin remaining stable at 14% thanks to
availability of sunflower seeds following a record high sunflower seed harvest in
Ukraine that reached 8.8 Mt last year (+20% y-o-y).
Sunflower oil contributed 68%
to revenues and 81% to EBIT in
2012FY

Kernel Holding Revenue Breakdown (value terms; 2012FY)*
Note: *net of inter-segment revenues. Source: Company
Kernel Holding EBI T Breakdown (value terms; 2012FY)*
Note: *net of inter-segment revenues. Source: Company

Kernel accounted for almost 10% of Ukraines total grain exports (-4.5pp y-o-y) in
2011/ 12 MY (July-June). The company exported 2.1 Mt of grain in 2012FY (+17% y-o-y;
below the companys original guidance of 2.5-3.0 Mt), with shipments through its
terminal in Illichivsk reaching 1.8 Mt (-15% y-o-y). Overall grain export volumes from
Ukraine suffered from export tariffs in July-October 2011 and severe winter which kept
Black Sea ports frozen in January-February 2012. Thus, the share of grain trading in
Kernels 2012FY revenues declined to 29.1% (-2.0pp y-o-y), and the segments EBIT
contribution dropped to 10.6% (-14pp y-o-y). The grain trading segments EBIT margin
was down by 7.1pp y-o-y (to 4.3%) in 2012FY, suffering in 2H12FY when local farmers
became reluctant to sell their harvests in anticipation of an increase in prices fueled by
expectations of a lower harvest in 2012 that forced traders to offer farmers higher prices
and thus settle for lower profit margins. On top of this, the abolition of VAT refunds
(which took effect from the beginning of 2012FY) also pressured margins.
Grain trading segment
disappointed last year

Kernel
3 2 . 0 %
Bunge
2 2 . 0 %
Korol i vsky smak
7 . 0 %
Ot hers
3 9 . 0 %
Kernel
3 6 . 0 %
Cargi l l
1 4 . 0 %
Bunge
6 . 0 %
Ot hers
4 4 . 0 %
Bul k Sunf l ower
Oi l
5 7 . 9 %
Bot t l ed Sun Oi l
9 . 8 %
Grai n Export s
2 9 . 1 %
Si l o Servi ces
1 . 5 %
Farmi ng
1 . 3 %
Grai n Termi nal
Transshi pment
0 . 3 %
Bul k Sunf l ower
Oi l
6 7 . 5 %
Bot t l ed
Sunf l ower Oi l
1 3 . 2 %
Grai n Export s
1 0 . 6 %
Farmi ng
4 . 2 %
Si l o Servi ces
3 . 3 %
Grai n Termi nal
Transshi pment
1 . 2 %
November 2012


Largest Ukrainian Grain Exporters (2011/ 2012)
Source: Companies, Dragon Capital estimates
Kernel Holding EBI T Margins by Segment (%; 2012FY)
Kernel added 0.9 Mt of new
crushing capacities through
acquisitions in 2012FY...
Kernel currently owns seven crushing plants in Ukraine and Russia with total
sunflower seed crushing capacity of 3.0 Mt. The company increased its crushing
capacities by 0.9Mt in 2012FY thanks to acquisition of new capacities in Russia in
September 2011 (400 kt crushing capacity; Russian Oils) and in Ukraine in July 2011
(500 kt; Black Sea Industries, a plant in the port of Illichivsk located next to the
companys grain terminal). Kernel had previously rented 50% of the latter plants
capacities.
...and expanded its land bank to
330,000 ha
Kernel boasts the largest land bank among listed Ukrainian agricultural companies. The
company had 330,000 ha of cropland ready for the 2012 harvesting season (July-
October), having acquired sugar producer Ukrros (with 100,000 ha of land) in March
2011 and several farms with a combined 119,200 ha in April 2012, paying $909/ ha on
average (incl. lease rights, infrastructure and stocks). An expanding land bank is
expected to support growth of in-house grain production, thereby benefiting Kernels
farming segment in 2013FY.

Kernel Holding Crushing Capacities (kt p.a.)
Source: Company

Kernel Holding Land Bank (000 ha; 2008-2013FYE)
Source: Company

Kernel acquired a Russian grain
terminal in September...
Kernel, jointly with global grain trader Glencore (50/ 50 joint venture), acquired a 100%
interest in a deep water grain export terminal in Taman port (Russia) from EFKO
Group in September 2012. Taman is strategically located in close proximity to southern
Russias main grain producing region. The grain export terminal has installed
throughput capacity of 3 Mt p.a. and will serve as a hub for Kernels Russian grain
export business. The enterprise value was $265m, implying $88/ tonne of throughput
capacity. These estimates suggest a substantial premium compared to Kernels
purchase of Ukrainian Illichivsk port, which was acquired for $95m with 4.5 Mt of
throughput capacity, implying $21/ tonne of throughput capacity in June 2008. We
believe the company paid such a premium on this occasion as Russia has limited port
infrastructure on the Black Sea coast and the Taman terminals capacities can be
upgraded (doubled) with comparably minor funding (est. up to $50m).

Ni bul on
1 5 . 6 %
Khl i bInvest Bud
1 3 . 3 %
Kernel Hol di ng
9 . 8 %
Loui s Dreyf us
7 . 0 %
Al f red C. Toepf er
4 . 5 %
Cargi l l
3 . 9 %
Ot hers
4 6 . 0 %
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
Oi l ( bot t l ed) Oi l ( bul k) Export
Termi nal s
Farmi ng Grai n Si l o Servi ces
2 0 1 1 FY 2 0 1 2 FY
2 6 0 2 6 0
4 3 0 4 3 0 4 3 0
5 1 0 5 1 0 5 1 0
4 3 0 4 3 0 4 3 0
2 5 0 2 5 0
5 0 0
4 0 0
0
5 0 0
1 ,0 0 0
1 ,5 0 0
2 ,0 0 0
2 ,5 0 0
3 ,0 0 0
3 ,5 0 0
2 0 0 8 FY 2 0 0 9 FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY
Russi an Oi l
Bl ack Sea Indust ri es ( Il l i chi vsk) - l eased
Mykol ayi v - Al l seeds
Ki rovohrad Pl ant - Al l seeds
Bandurka ( l aunched May 2 0 1 0 )
Vol chansk
Prykol ot ne
Pol t ava
2 9
7 9
8 5
1 8 0
2 1 0
3 3 0
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
2 0 0 8 FY 2 0 0 9 FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FY

November 2012


Kernel is targeting further expansion into the Russian market. The company plans
to invest about $0.5bn in the next two to three years into acquisitions and
greenfield construction, including the Taman port purchase. Kernel plans to
allocate $120m to build a greenfield sunseed crushing plant with annual crushing
capacity of 600-650 kt, with construction work due to begin in the beginning of
2013 and take less than two years to complete.
...and plans to start
construction of a greenfield
crushing plant in Russia in
2013

Kernel reported 2012FY revenues of $2.2bn (+14% y-o-y), EBITDA of $324.6m (+5%)
and net income of $198.6m (-12%). Kernels Chairman commented that the company
experienced a number of external headwinds adversely impacting its operations in
2012FY including unprecedented volatility of weather conditions, regulatory initiatives
in Ukraine, and global macroeconomic uncertainty.
Weak 2012FY results...

Kernel expects to crush 2.6 Mt of sunflower seeds in 2013FY (in line with our estimates)
and export about 2.1 Mt (flat y-o-y) of grain through its Ukrainian and Russian
terminal facilities. Kernel expects that higher international prices for sunflower oil and
protein meal will keep its dollar margin in the bulk oil segment in absolute terms at
levels comparable to 2012FY. In the farming division, the company expects 2012 crop
yields to decline by 20% y-o-y on average due to challenging weather conditions (in
line with our projections). In the sugar segment, Kernel anticipates oversupply on the
market and has decided to reduce its 2013FY sugar production to an est. 60 kt (-50% y-
o-y). Silo storage and the grain terminal in Illichivsk are the only segments enjoying a
strong outlook for 2013FY and should outperform 2012FY volume figures as a result of
Kernels continued progress in expanding grain storage capacities.
...combined with
managements cautious
guidance...
Accounting for flat y-o-y grain exports and more modest dollar margins in the
sunflower oil segment as projected by Kernel management, we expect the company to
generate 2013FY revenues of $2.4bn (+11% y-o-y and in line with management
guidance), EBITDA of $351m (+8% y-o-y and matching management guidance of
$350m), for an EBITDA margin of 14.6% (-0.4pp y-o-y), and net income of $211.4m
(+6% y-o-y, in line with $215m forecast by the company). In October 2012, the
company issued financial guidance for 2013FY (July-June), projecting net sales of
$2.4bn, EBITDA of $350m and net income of $215m.
...lead to a conservative 2013FY
outlook

Kernel Holding Net Sales and EBI TDA ($m; 2008-2013FYE)
Source: Company, Bloomberg, Dragon Capital estimates for 2013FY
Kernel plans to divest its sugar business due to local currency risk exposure and
longer working capital turnover compared to the companys other core businesses.
The recently acquired Ukrros sugar and agricultural company was bought mainly
for the sake of farming assets (about 100,000 ha of land) and strengthening Kernels
grain export business arm.
Sugar business divestment
plans
0
4 0 0
8 0 0
1 ,2 0 0
1 ,6 0 0
2 ,0 0 0
2 ,4 0 0
2 ,8 0 0
2 0 0 8 FY 2 0 0 9 FY 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FYE
Net sal es ( $ m; l hs)
EBITDA ( $ m; l hs)
Bl oomberg Consensus on Sal es ( $ m)
Bl oomberg Consensus on EBITDA ( $ m)
November 2012


Kernel Holding is a defensive
stock as far as hryvnia
depreciation is concerned
Kernel generates over 90% of revenues (bulk sunflower oil and grain sales) in USD. Its
silo services and bottled oil sales (9% of 2013F revenues) are UAH-based. However,
over 95% of costs are USD-linked as the sunflower seed purchase price offered to local
sunseed growers by processors is based on international benchmarks. Unlike other
foreign-listed Ukrainian companies, Kernel uses USD as both its measurement and
presentation currency, analyzing all its operational risks in USD terms (which implies
the company will not incur any losses on revaluation of USD-denominated debt). Thus,
hryvnia depreciation should have only a minor effect on Kernels financials and ratios.

Valuation
Company Pri ce* Currency MC EV/ EBITDA P/ E
$ m 2 0 1 2 FYE 2 0 1 3 FYF 2 0 1 4 FY 2 0 1 2 FYE 2 0 1 3 FYF 2 0 1 4 FY
Kernel Hol di ng 1 9 . 7 1 USD 1 , 5 7 0 6 . 7 6 . 4 5 . 4 7 . 9 7 . 4 6 . 9
Premi um ( di scount ) t o Russi an peers ( 9 %) 1 1 1 % ( 5 %) 1 2 % 5 3 % 4 5 % 4 8 %
Premi um ( di scount ) t o DM peers ( 7 9 %) 1 1 % ( 3 %) ( 1 0 %) ( 4 0 %) ( 3 5 %) ( 4 6 %)
Premi um ( di scount ) t o GEM peers ( 5 2 %) ( 3 6 %) ( 3 3 %) ( 3 7 %) ( 3 5 %) ( 4 5 %) ( 4 7 %)
Russi an Peers

Novorrossi ysk Trade Port ( RU)
6 . 6 9 USD 1 , 7 1 8 3 . 2 6 . 8 4 . 8 5 . 2 5 . 1 4 . 7

Grai ncorp ( AU) 1 2 . 2 AUD 2 , 8 8 5 7 . 5 8 . 2 8 . 0 1 3 . 2 1 5 . 7 1 8 . 2
Vi t t era ( CA) 1 5 . 8 CAD 5 , 8 4 9 9 . 0 8 . 7 8 . 0 1 8 . 6 1 7 . 6 1 6 . 0
Andersons ( US) 4 0 . 9 USD 7 6 0 6 . 0 4 . 4 4 . 4 9 . 4 1 0 . 0 -
Bunge ( US) 7 1 . 6 USD 1 0 , 4 6 6 5 . 9 6 . 0 5 . 9 1 0 . 9 8 . 9 8 . 2
Archer-Dani el s-Mi dl and ( US) 2 5 . 6 USD 1 6 , 8 7 1 5 . 8 6 . 6 6 . 0 1 3 . 8 1 1 . 4 9 . 4
DM Peer Medi an - -
7 , 3 6 6 6 . 0 6 . 6 6 . 0 1 3 . 2 1 1 . 4 1 2 . 7

Chi na Agri -Indust ri es 4 . 6 HKD 2 , 4 1 2 1 1 . 3 9 . 8 8 . 7 1 1 . 0 8 . 3 7 . 4
IOI Corporat i on 5 . 0 MYR 1 0 , 5 5 3 1 3 . 6 1 1 . 9 1 1 . 0 1 8 . 2 1 5 . 8 1 4 . 7
Chi na Foods ( HK) 7 . 7 HKD 2 , 7 7 8 9 . 2 9 . 0 7 . 3 2 3 . 7 1 9 . 0 1 5 . 5
Thai Veget abl e Oi l 2 4 . 9 THB 6 5 7 9 . 7 9 . 3 8 . 6 1 0 . 7 1 1 . 5 1 1 . 1
EM Peer Medi an - -
3 , 3 0 1 1 0 . 5 9 . 6 8 . 6 1 2 . 2 1 3 . 6 1 2 . 9
Note: *prices as of Nov. 9, 2012. Sources: Dragon Capital, Bloomberg, Companies


Kernel Holding (KER PW)

0 .0
1 0 .0
2 0 .0
3 0 .0
4 0 .0
5 0 .0
Nov-0 7 Jul -0 8 Feb-0 9 Sep-0 9 Apr-1 0 Dec-1 0 Jul -1 1 Feb-1 2 Sep-1 2
Market Pri ce ( $ ) PT/ FV* ( $ )

November 2012


Operating Summary
Peri od 2 0 1 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 1 3 FYE 2 0 1 4 FY
Bul k Crude Sunf l ower Oi l ( 0 0 0 t ) 4 1 1 8 2 1 8 2 8 1 , 0 4 9 1 , 0 7 6
Growt h ( %, y-o-y) 1 0 6 % 1 0 0 % 1 % 2 7 % 3 %
Bot t l ed Oi l ( 0 0 0 t ) 1 1 2 1 1 8 1 3 2 1 3 0 1 3 0
Growt h ( %, y-o-y) 2 2 % 5 % 1 2 % ( 1 %) 0 %
Grai n Trade ( 0 0 0 t ) 2 , 2 2 5 1 , 8 1 0 2 , 1 2 3 2 , 1 0 0 2 , 5 2 0
Growt h ( %, y-o-y) ( 2 %) ( 1 9 %) 1 7 % ( 1 %) 2 0 %
Profit & Loss Statement (IFRS; $m)*
Net Sal es 1 , 0 2 0 . 5 1 , 8 9 9 . 1 2 , 1 6 9 . 2 2 , 3 9 9 . 2 2 , 5 0 2 . 9
EBITDA 1 9 0 . 0 3 0 9 . 6 3 2 4 . 6 3 5 1 . 4 4 0 8 . 2
Depreci at i on ( 2 2 . 5 ) ( 3 2 . 4 ) ( 6 8 . 8 ) ( 7 2 . 2 ) ( 1 0 6 . 2 )
EBIT 1 6 7 . 5 2 7 7 . 3 2 5 5 . 8 2 7 9 . 2 3 0 2 . 0
NIBT 1 5 1 . 6 2 0 8 . 4 1 9 4 . 4 2 0 9 . 3 2 2 5 . 9
Taxes ( 0 . 1 ) ( 1 7 . 6 ) ( 4 . 2 ) ( 2 . 1 ) ( 2 . 3 )
Net Income ( Loss) 1 5 1 . 7 2 2 6 . 0 1 9 8 . 6 2 1 1 . 4 2 2 8 . 1
Balance Sheet (IFRS; $m)*
Tot al Asset s 1 , 1 2 4 . 8 1 , 5 6 1 . 9 2 , 1 0 0 . 5 2 , 3 9 1 . 5 2 , 5 7 4 . 7
Fi xed Asset s 5 2 6 . 1 7 5 2 . 2 9 5 8 . 2 1 , 3 2 2 . 1 1 , 5 0 4 . 5
PPE 1 1 0 . 9 1 1 1 . 8 1 1 2 . 6 1 1 3 . 5 1 1 4 . 4
Current Asset s 5 9 8 . 7 8 0 9 . 7 1 , 1 4 2 . 3 1 , 0 6 9 . 4 1 , 0 7 0 . 2
Invent ori es 1 4 7 . 8 1 8 3 . 7 4 0 5 . 0 2 6 7 . 1 2 7 7 . 8
Account s Recei vabl e 6 5 . 5 1 1 1 . 6 1 4 3 . 5 1 5 8 . 7 1 6 5 . 5
Cash & Cash Equi val ent s 5 9 . 5 1 1 5 . 9 8 2 . 5 9 6 . 8 8 8 . 1
Tot al Li abi l i t i es & Equi t y 1 , 1 2 4 . 8 1 , 5 6 1 . 9 2 , 1 0 0 . 5 2 , 3 9 1 . 5 2 , 5 7 4 . 7
S/ T Debt 2 0 9 . 9 2 6 5 . 9 2 6 7 . 8 4 1 2 . 0 4 2 5 . 4
L/ T Debt 1 2 7 . 5 1 5 2 . 7 4 1 4 . 2 3 3 1 . 4 2 6 5 . 1
Equi t y 6 0 4 . 9 9 9 7 . 3 1 , 2 2 5 . 7 1 , 4 3 7 . 1 1 , 6 6 5 . 2
Financial Ratios
Sal es Growt h ( y-o-y) ( 3 %) 8 6 % 1 4 % 1 1 % 4 %
EBIT Growt h ( y-o-y) ( 0 %) 6 3 % 5 % 8 % 1 6 %
Net Income Growt h ( y-o-y) 1 5 % 4 9 % ( 1 2 %) 6 % 8 %
EBITDA Margi n 1 8 . 6 % 1 6 . 3 % 1 5 . 0 % 1 4 . 6 % 1 6 . 3 %
Net Margi n 1 4 . 9 % 1 1 . 9 % 9 . 2 % 8 . 8 % 9 . 1 %
Net Debt / Equi t y 4 6 % 3 0 % 4 9 % 4 5 % 3 6 %
ROE 2 5 . 1 % 2 2 . 7 % 1 6 . 2 % 1 4 . 7 % 1 3 . 7 %
Note: *Kernels fiscal year starts in J uly and ends in J une
November 2012


MHP: Major Capacity Expansion
Underway
Upside (%)
52%

Highlights
Profile
MHP is the largest poultry producer in Ukraine with a 50% share of industrially
produced chicken meat in 2011. Sales of chicken meat and related products account
for about 75% of the companys annual revenues. MHP also cultivates corn and
sunflower in support of its poultry operations, and other grains (wheat, barley,
rapeseed) for sale to third parties, operating 280,000 ha of land.
Our DCF and comparative valuation models yield a price target of $21.86/ share,
which suggests a 52% upside to the stocks current market price and warrants a Buy
recommendation.
Strong outlook for 2012
In 2012, MHP expects to continue operating at full capacity. Accounting for the test-
launch of a new poultry farm in the Vinnytsia region that will add an est. 10 kt of
output, we project MHPs 2012 poultry production will total 395 kt (+3% y-o-y).
MHP reported average chicken meat price growth of 20% y-o-y to UAH 17.3/ kg in
9M12, while we project a 15% y-o-y increase for full-year 2012, to UAH 17.3/ kg. We
estimate MHP is 135% self-sufficient in corn for fodder in 2012 and thus will sell
surplus corn again this year, benefiting from rising prices. We expect a strong
contribution from the grain segment in 2H12, enjoying over 50% EBITDA margin.
Thus, we forecast MHPs 2012 sales at $1.3bn (+7% y-o-y) and EBITDA at $462.4m
(+15% as poultry price grew 20% y-o-y while costs rose only 3% in 9M12, and the
grain segment also enjoyed faster sales growth compared to costs. This implies an
EBITDA margin of 35.3% (+2.6pp y-o-y).
Capacity expansion underway
increasing the companys total poultry capacity to 580 kt (+220 kt) by 2016 from 360
kt in 2012. Two more lines with combined capacity of 220 kt p.a. may potentially be
built over 2016-18 conditional on market demand. Thus, when fully completed, the
Ladyzhyn poultry farm will add 440 kt of chicken meat production capacity,
bringing the companys total to 800 kt p.a. MHP reported Vinnytsia project-related
CAPEX at $750m, to be invested over 2010-15, and has already spent $545m (73% of
total). The company estimates its 2012 CAPEX at $350-370m, out of which $300m is
earmarked for the Vinnytsia poultry complex, $25m is maintenance CAPEX and
$20m is to be spent on a biogas project.
Solid outlook for 2013 thanks to new capacities
MHP launched the first production line (110 kt p.a.) at its Ladyzhyn site in test mode
in November and plans to bring it to full capacity by 2014. We expect MHP to
increase 2013 revenues by 9% y-o-y to $1.5bn and post EBITDA of $511m (+10%).
Risks
Weather risk for MHPs grain business is key, as well as any kind of governmental
restrictions on grain exports or the poultry market.
Sell Hold Buy

Company Data
Market Pri ce ( $ ) 1 4 .4 0
Market Cap ( $ m) 1 ,5 6 1 .5
Ent erpri se Val ue ( 1 2 E; $ m) 2 ,2 2 9 .0
Free Fl oat ( %) 2 6 .8 6 %
Free Fl oat ( $ m) 4 1 9 .4
Shares Out st andi ng 1 0 4 ,3 7 4 ,8 5 6 *
Bl oomberg Code MHPC LI
DR Rat i o 1 :1
Number of Empl oyees 1 9 ,0 0 0
Note: *MHP holds 6,395,144 treasury shares



1 2 -mont h Perf ormance ( $ ) 3 6 %

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 FE 2 0 1 3 F

Net Sal es ( $ m)
7 1 1 .0 9 4 4 .2 1 ,2 2 9 .1 1 ,3 2 2 .0 1 ,4 4 5 .5
EBITDA ( $ m)
2 7 1 .0 3 2 4 .7 4 0 1 .1 4 6 4 .2 5 1 1 .1
Net Income ( $ m)
1 6 0 .0 2 1 5 .4 2 5 9 .4 2 2 9 .5 2 7 8 .5
P/ E
1 0 .0 7 .2 6 .0 6 .5 5 .4
EV/ EBITDA
7 .7 7 .2 5 .9 4 .8 3 .9
EV/ Sal es
2 .9 3 2 .4 8 1 .9 2 1 .6 9 1 .3 9
P/ Book
3 .2 3 2 .3 3 1 .6 9 1 .3 0 1 .0 5
WTI Tradi ng - 6 7 .3 6 %
Treasury shares - 5 .7 8 %
Free f l oat - 2 6 . 8 6 %
5
1 0
1 5
2 0
MHP KP-Dragon ( rel . )
Poul t ry
meat
5 3 %
Sunoi l
1 6 %
Ot her agro
operat i ons
9 %
Grai n
1 4 %
Poul t ry
product s
6 %
Ot her
2 %

November 2012


Domestic demand for chicken meat remained high throughout 2012 as consumers
continued to substitute poultry for other types of meat. MHP thus sold close to 100% of
its output in 9M12, keeping its market share of industrially produced chicken at 50%
(+1.0pp y-o-y) over the period.
Market leader in industrial
poultry production
MHP, which had the largest domestic market share (34%) in volume terms in 2011,
is expected to retain its leading position in 2012. All of MHPs poultry production
units continued to operate at close to 100% capacity in 2011 and 9M12 with the
company selling 371 kt (+12% y-o-y) and 275 kt (-3% y-o-y) of chicken meat,
respectively.
and poultry sales in Ukraine

Breakdown of Ukrainian Poultry Sales (volume; 2011)

Industrial Producers of Poultry in Ukraine (volume; 2011)
Source: MHP
MHP harvested 250,200 ha of land in 2012 (total land bank reached 280,000 ha as of
end-2011), harvesting an estimated 1.6 Mt of grain (-7% y-o-y due to weather
impact on yields). Despite concerns over unfavorable weather worldwide and
weak early crop output in Ukraine, MHPs early crop yields were 49-86% above the
respective Ukrainian averages and better than we expected. MHPs 2012 reported
corn yield of 8.0 t/ ha came in 86% higher than the Ukrainian average, the
companys wheat yield of 5.4 t/ ha was 86% above the national average, while
sunflower (3.0 t/ ha) and rapeseed (3.4 t/ ha) yields outperformed the domestic
averages by 76% and 48%, respectively.
Crop yields were 48-86% above
Ukrainian averages in 2012

Crop Yields: MHP vs. Ukrainian Averages (t/ ha; 2012)

Early Crop Yields: MHP vs. Ukrainian Averages (t/ ha; 2011)
MHP is also a leader in the Ukrainian meat processing market. The company produced
37 kt of processed meat products in 2011 (+12% y-o-y), thereby gaining around 10%
output share over the period. In 9M12, MHPs output of processed meat products stood
at 26.6 kt, declining by 6% y-o-y to due to continuous product mix optimization, while
the company retained its market share of 10%.
Market leader in meat
processing
MHP
3 4 %
Agromars
1 0 %
Dni provsky
5 %
Ot her Indust ri al
Producers
1 7 %
Househol ds
2 0 %
Import s
1 4 %
MHP
5 0 . 0 %
Agromars
1 5 . 0 %
Dni provski
8 . 0 %
Agro Oven
6 . 0 %
Ot hers
2 1 . 0 %
8 . 0
5 . 4
3 . 0
3 . 4
4 . 3
2 . 9
1 . 7
2 . 3
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
Corn Wheat Sunf l ower Rapeseed
MHP ( t / ha)
Ukrai ne Average ( t / ha)
9 . 5
5 . 1
2 . 7 2 . 8
6 . 4
3 . 4
1 . 9
1 . 7
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
Corn Wheat Sunf l ower Rapeseed
MHP ( t / ha)
Ukrai ne Average ( t / ha)
November 2012


MHPs Meat Processing Volumes (kt; 2008-12)
Source: Company

Major Ukrainian Meat Processors (2011)
Source: Company

Vinnytsia region expansion
project to add 220 kt of capacity
by 2016
increasing the companys total poultry meat capacity to 580 kt (+220 kt) by 2016 from
360 kt in 2012. Two more lines with combined capacity of 220 kt may potentially be
built over 2016-18 conditional on market demand. Thus, when fully completed, the
Ladyzhyn poultry farm will add 440 kt of chicken meat production capacity, bringing
the companys total to 800 kt p.a. The project is proceeding on schedule, with
production trials starting in June this year. MHP plans to launch industrial production
at the Ladyzhyn facility in early 2013 and bring its first operating line to full capacity
(110 kt p.a.) in early 2014.
with total CAPEX estimated
at $750m, including $350-370m
to be spent this year
MHP reported Ladyzhyn project-related CAPEX at $750m, to be invested over 2010-15
and with over 50% of the total investment to be provided in the first two to three years
to make the new plants first production line fully operational in 2013. MHP has already
invested $545m (73% of total CAPEX) over 2010-1H12. The company estimates its 2012
CAPEX at $350-370m, out of which $300m is earmarked for the new poultry complex
(1H12 CAPEX of $217m was mainly consumed by the new facility), $25m is
maintenance CAPEX and $20m will be spent on a biogas project.

MHP Poultry Production Capacity and Utilization (2006-18F)
Source: Company

MHP CAPEX: Actual Data and Forecast ($m; 2006-15F)*
Note: *annual CAPEX includes maintenance expenses.

Strong 1H12 results MHP reported 1H12 revenues of $654.5m (+24% y-o-y), EBITDA of $230.6m (+46%)
and net income of $170.2m (+97%). The poultry segment boosted its EBITDA by 60% y-
o-y to $193m on revenues of $523m (+17% y-o-y and 80% of total sales) over the period,
recording an EBITDA margin of 37% (+10pp y-o-y). MHP also sold 94.7 kt of sunflower
oil in 1H12 (+12% y-o-y) at an average price of $1,109/ t, which implies $105m of F/ X
revenues and fully covers the companys annual F/ X debt service needs.

1 6 .0
2 4 .7
3 2 .9
3 7 .0
1 7 .3
1 6 .5
0
1 0
2 0
3 0
4 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 1 H1 1 1 H1 2
MHP
1 0 . 0 %
Favori t
9 . 0 %
Gl obi nski y
6 . 0 %
Yat ran
6 . 0 %
Gorl i vski y
6 . 0 %
Luhanski y
5 . 0 %
Ot her
5 8 . 0 %
1 3 3
1 7 3
2 2 5
2 8 5
3 6 0
4 1 0
5 2 0
5 8 0
8 0 0
0
1 5 0
3 0 0
4 5 0
6 0 0
7 5 0
9 0 0
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
-
2
0
1
2
E
2
0
1
3
F
2
0
1
4
F
2
0
1
5
F
2
0
1
7
-
1
8
F
Exi st i ng Capaci t y ( ' 0 0 0 t / year) Myroni vka ( ' 0 0 0 t / year)
Vi nnyt si a, Phase 1 ( ' 0 0 0 t / year) Vi nnyt si a, Phase 2 ( ' 0 0 0 t / year)
2 8 4
1 8 2
7 7
1 6 2
1 8 5
3 4 4 3 5 0
1 8 0
8 0 8 0
0
1 0 0
2 0 0
3 0 0
4 0 0
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
E
2
0
1
3
F
2
0
1
4
F
2
0
1
5
F
5 4 %
3 4 %
1 2 %

November 2012


We estimate MHP is 135% self-sufficient in corn for fodder in 2012 and will thus again
be able to sell surplus corn this year, benefiting from expected price growth in 2H12.
MHP had about 400 kt of surplus corn left over from the 2011 harvest, out of which it
sold about 150 kt in 2011 and planned to sell 250 kt in 2012 before the new harvest
arrived in October. The company sold 200 kt of corn in 1H12 at $230/ t, or an 11%
premium to the average market price over the period of $207/ t. Market prices for corn
averaged $219/ t in 3Q12, peaking at $244/ t in mid-September.
MHP is self-sufficient in corn
and is expected to benefit from
rising prices in 2H12
We forecast MHPs 2012 revenues at $1.3bn (+8% y-o-y) and EBITDA at $464.2m
(+16%), implying an EBITDA margin of 35.1% (+2.5pp y-o-y). First-half sales growth
was mainly driven by a much stronger average chicken meat price (+28% y-o-y to UAH
17.14/ kg, on average), with sharp y-o-y price growth explained by a low comparison
base. We expect this effect to disappear in 2H12, providing for almost flat y-o-y sales in
the second half, thus bringing full-year revenue growth to 10-12% y-o-y (still slightly
above our current forecast of 9% y-o-y). MHPs 1H12 EBITDA margin of 35.2% fell
largely in line with our full-year forecast of 35.1%. We note that the companys 2H
performance on the EBITDA level is usually stronger thanks to higher contribution
from the grain segment (with over 50% EBITDA margin). We note an upside risk
stemming from potentially higher than expected grain segment contribution in 2H12
thanks to rising global grain prices.
supporting our positive
outlook for 2012

MHP Net Sales and Profitability (2007-12E)
MHP launched the first production line (110 kt p.a.) at its Ladyzhyn site in test mode in
November and plans to bring it to full capacity by 2014. We expect MHP to increase
2013 revenues by 9% y-o-y to $1.5bn and post EBITDA of $511m (+10%).
Solid outlook for 2013 thanks
to new capacities
MHP generates an estimated 70% of total revenues in UAH, including sales of poultry
and processed meat. The company exports sunflower oil and husk, grain, and chicken
meat receiving dollar-denominated revenues (30% of total). Dollar-linked costs account
for about 10% of total feed costs for chicken breeding (as MHP uses own corn for in-
house feed production), and about 50% of grain production costs (fertilizers, crop
protection, fuel). UAH-denominated costs primarily refer to salaries, utilities and land
lease. We estimate MHPs USD-linked costs amount to 22-25% of total. Thus, we expect
the decline in MHPs revenues in dollar terms due to hryvnia depreciation will be
matched by reduced costs (due to a large share of UAH-linked costs), thus leaving
operating margins roughly unchanged.
Operating margins expected to
be little-changed if hryvnia
depreciates
With a 2011 EBITDA margin of 33%, MHP was the most profitable poultry producer in
Ukraine. The company also outperformed international peers such as Russian
Cherkizovo Group (EBITDA margin of 17% in 2011) and Brazilian BRF (13%). MHP
was also the best performer on the EBITDA margin level over 2008-2011 with an
average of 36% over the period compared to 17% for Cherkizovo and 9% for BRF.
MHP is the most profitable
producer of chicken meat in
Ukraine and compares
favorably with international
peers

4 7 4
8 0 3
7 1 1
9 4 4
1 , 2 2 9
1 , 3 2 2 1 , 4 4 5
5 2 7
6 5 5
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
0
2 5 0
5 0 0
7 5 0
1 ,0 0 0
1 ,2 5 0
1 ,5 0 0
1 ,7 5 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 1 H1 1 1 H1 2
Net sal es ( $ m; l hs) EBITDA margi n ( %; rhs)
November 2012


EBITDA Margins (%; 2008-2011)*
Note: *Dragon Capital estimates for 2011 EBITDA margin of BRF and J BS. Source: Company, Dragon Capital estimates

Valuation
Company Pri ce* Currency MC EV/ EBITDA P/ E
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
MHP 1 4 . 4 0 USD
1 , 5 6 2 4 . 8 3 . 9 6 . 5 5 . 4
Premi um/ ( di scount ) Cherki zovo Group ( RU) 9 5 % ( 4 %) ( 3 1 %) 6 3 % 2 9 %
Premi um/ ( di scount ) t o DM peer medi an ( 1 1 %) ( 2 3 %) ( 3 7 %) ( 5 2 %) ( 4 5 %)
Premi um/ ( di scount ) t o GEM peer medi an ( 7 7 %) ( 6 3 %) ( 7 3 %) ( 5 6 %) ( 6 1 %)
Russi an Peers
Cherki zovo Group ( RU) 1 2 . 1 2
USD 7 9 9 5 . 0 5 . 7 4 . 0 4 . 2
At ri a Group ( FI)
6 . 5 8
EUR 2 3 6 7 . 1 6 . 9 1 8 . 2 9 . 4
HKSCAN ( FI)
3 . 8 5
EUR 2 6 9 6 . 0 5 . 6 2 3 . 6 9 . 4
Bel l Hol di ng ( CH)
1 9 4 3 . 0 0
CHF 8 1 9 5 . 4 4 . 7 1 0 . 3 9 . 8
L. D. C. ( FR)
5 . 6 2
EUR 7 3 0 6 . 3 6 . 2 1 3 . 8 1 1 . 7
Sanderson Farms ( US)
7 6 . 0 1
EUR 7 8 8 2 . 8 2 . 9 1 0 . 1 9 . 8
Tyson Foods ( US)
4 5 . 4 5
USD 1 , 0 4 4 8 . 7 7 . 7 2 1 . 4 2 9 . 3
Hormel Foods ( US)
1 6 . 5 9
USD 6 , 0 0 8 4 . 4 4 . 2 9 . 0 1 0 . 6
DM Peer Medi an - - 1 , 7 4 8 6 . 3 6 . 2 1 3 . 8 9 . 8
Perdi gao ( BZ)
3 6 . 5 9
BRL 1 5 , 5 6 3 1 4 . 1 1 4 . 5 3 6 . 7 1 7 . 7
Charoen Pokphand Foods ( TH)
3 6 . 0 0
THB 9 , 0 9 7 1 2 . 9 1 4 . 7 1 6 . 9 1 4 . 2
Ast ral Foods ( SA)
1 0 2 4 5 . 0 0
ZAr 4 9 5 6 . 7 7 . 3 1 3 . 0 1 3 . 7
EM Peer Medi an - - 6 , 6 7 1 1 2 . 9 1 4 . 5 1 5 . 0 1 3 . 9
Note: *prices as of Nov. 9, 2012. Sources: Dragon Capital, Bloomberg, Companies

HISTORI CAL PRI CE TARGETS/ FAIR VALUES*

MHP (MHPC LI)

3 9
1 3
9
3
1 3
5
3 8
1 8
4 4
5
8
3 4
1 8
1 0
4
9
1 3
3 3
1 7
1 3
5
4
3
0
1 0
2 0
3 0
4 0
5 0
MHP Cherki zovo BRF JBS Campof ri o Bachoco
2 0 0 8 2 0 0 9
2 0 1 0 2 0 1 1
0 .0
5 .0
1 0 .0
1 5 .0
2 0 .0
2 5 .0
3 0 .0
May-0 8 Dec-0 8 Aug-0 9 Apr-1 0 Dec-1 0 Jul -1 1 Mar-1 2 Oct -1 2
Market Pri ce ( $ ) PT/ FV ( $ / share)

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Chi cken Meat ( 0 0 0 t ) 2 8 2 . 2 3 6 0 . 0 3 8 4 . 0 3 9 5 . 2 4 7 9 . 4
Growt h ( %, y-o-y) 2 5 % 2 8 % 7 % 3 % 2 1 %
Sunf l ower Oi l ( 0 0 0 t ) 1 4 0 . 4 1 9 5 . 8 1 7 3 . 6 1 9 2 . 7 2 3 1 . 2
Growt h ( %, y-o-y) 5 0 % 3 9 % ( 1 1 %) 1 1 % 2 0 %
Grai n Crops ( 0 0 0 t ) 9 6 0 . 5 9 1 3 . 1 1 , 7 1 2 . 1 1 , 5 8 9 . 4 1 , 6 8 3 . 0
Growt h ( %, y-o-y) 3 1 % ( 5 %) 8 8 % ( 7 %) 6 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 7 1 1 . 0 9 4 4 . 2 1 , 2 2 9 . 1 1 , 3 2 2 . 0 1 , 4 4 5 . 5
EBITDA 2 7 1 . 0 3 2 4 . 7 4 0 1 . 1 4 6 4 . 2 5 1 1 . 1
Depreci at i on ( 5 1 . 7 ) ( 6 7 . 9 ) ( 8 0 . 3 ) ( 1 0 0 . 9 ) ( 1 1 4 . 1 )
EBIT 2 1 8 . 0 2 5 6 . 8 3 2 0 . 7 3 6 3 . 3 3 9 7 . 0
Ot her Non-operat i ng Income ( Loss) ( 2 3 . 6 ) 1 1 . 0 2 . 3 ( 4 4 . 9 ) ( 3 8 . 1 )
NIBT 1 5 3 . 5 2 1 7 . 3 2 6 2 . 1 2 3 2 . 0 2 8 1 . 6
Taxes 6 . 5 ( 1 . 9 ) ( 2 . 8 ) ( 2 . 6 ) ( 3 . 1 )
Net Income ( Loss) 1 6 0 . 0 2 1 5 . 4 2 5 9 . 4 2 2 9 . 5 2 7 8 . 5
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 1 , 1 3 7 . 9 1 , 5 7 4 . 0 1 , 9 4 4 . 4 2 , 1 2 1 . 6 2 , 3 2 5 . 0
Fi xed Asset s 7 1 0 . 9 8 5 4 . 9 1 , 1 3 5 . 6 1 , 3 1 9 . 8 1 , 3 2 8 . 3
PPE 6 2 7 . 7 7 4 5 . 0 1 , 0 0 8 . 9 1 , 2 0 1 . 4 1 , 2 0 9 . 6
Current Asset s 4 2 7 . 0 7 1 9 . 1 8 0 8 . 7 8 0 1 . 7 9 9 6 . 8
Invent ori es 2 0 5 . 2 2 4 8 . 9 3 1 8 . 2 3 6 2 . 2 3 9 6 . 9
Short -t erm Bank Deposi t s

7 . 6 1 3 4 . 5 1 . 8 1 . 3 1 . 4
Cash & Cash Equi val ent s 2 2 . 2 3 9 . 3 9 4 . 8 4 0 . 7 1 8 4 . 3
Tot al Li abi l i t i es & Equi t y 1 , 1 3 7 . 9 1 , 5 7 4 . 0 1 , 9 4 4 . 4 2 , 1 2 1 . 6 2 , 3 2 5 . 0
Tot al Li abi l i t i es 6 4 3 . 5 9 0 3 . 6 1 , 0 1 8 . 6 9 6 6 . 3 8 9 1 . 2
Account s Payabl e 7 8 . 7 1 9 . 0 5 2 . 7 1 3 9 . 4 1 5 2 . 8
S/ T Debt 1 6 4 . 2 1 6 3 . 9 1 8 9 . 6 1 0 8 . 9 5 7 . 8
L/ T Debt 3 4 8 . 6 6 5 8 . 7 7 0 8 . 7 6 5 7 . 9 6 2 5 . 6
Equi t y 4 9 4 . 4 6 7 0 . 4 9 2 5 . 8 1 , 1 5 5 . 3 1 , 4 3 3 . 8
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 1 1 %) 3 3 % 3 0 % 8 % 9 %
EBIT Growt h ( y-o-y) ( 1 3 %) 2 0 % 2 4 % 1 6 % 1 0 %
Net Income Growt h ( y-o-y) 2 9 8 1 % 3 5 % 2 0 % ( 1 2 %) 2 1 %
EBITDA Margi n 3 8 . 1 % 3 4 . 4 % 3 2 . 6 % 3 5 . 1 % 3 5 . 4 %
Net Margi n 2 2 . 5 % 2 2 . 8 % 2 1 . 1 % 1 7 . 4 % 1 9 . 3 %
Net Debt / Equi t y 9 8 % 9 7 % 8 7 % 6 3 % 3 5 %
ROE 3 8 . 1 % 3 7 . 0 % 3 2 . 5 % 2 2 . 1 % 2 1 . 5 %
EBITDA coverage

5 . 8 5 6 . 4 4 6 . 5 8 5 . 3 8 6 . 6 2
Net Debt / EBITDA

1 . 8 1 2 . 4 1 2 . 0 0 1 . 5 6 0 . 9 8

November 2012


Milkiland: New Capacities in Poland
and Rising Self-Sufficiency in Milk
Price Target ($)
7.05
Upside (%) 48%
Highlights
Profile
Milkiland is a diversified dairy producer operating in Ukraine, Russia and Poland.
The company operates 10 dairy plants in Ukraine with total raw milk processing
capacity of 935 kt p.a., the Ostankino dairy plant in Russia (175 kt), and the Ostrowia
cheese-making plant in Poland (150-175 kt). Milkiland is the fourth largest dairy
producer in the CIS in terms of capacity and revenues after Danone-Unimilk, WBD
and Vamin. In Ukraine, Milkiland is #2 for cheese and butter production, and is the
largest cheese exporter, with a 31% share in 2011.
Our DCF and comparative valuation models produce a 12-month price target of
$8.81/ share, which suggests 85% upside potential and justifies a Buy
recommendation.
Polish cheese-maker acquired in July
Milkiland acquired Polish cheese producer Ostrowia with cheese-making capacity
of 15 kt p.a. (vs. 40.8 kt for Milkiland) in July 2012. The plant was bought for EUR
12m and EUR 8m is planned to be invested by end-2012. According to Milkiland,
Ostrowia is expected to contribute 15% to the groups revenue and EBITDA after
target output volumes are achieved in 2013-2014, implying an up to $60m addition
to the top line and $7-9m on the EBITDA level.
Construction of dairy farms to increase self-sufficiency in raw milk
Milkiland invested EUR 13m in 1H12 into construction of modern dairy farms with
capacity for 8,000 milking cows, with completion of the project expected in the
beginning of 2013. The company expects its dairy farms combined annual raw milk
supply to reach 60 kt (about 12% of current annual demand) by 2014-2015.
Milkilands goal is to achieve 20-25% self-sufficiency in raw milk by 2020.
2012 performance to be affected by Russian cheese import ban
Milkilands 1H12 results were negatively affected by a Russian import ban on
selected Ukrainian cheese producers (including a Milkiland subsidiary) which was
in effect in February-May. Management estimated net revenue losses due to the ban
at around EUR 16m and EBITDA losses at EUR 3m in 1H12. We expect Milkilands
2012 revenues to reach $372m (-4% y-o-y) and forecast EBITDA at $40.2m (-16% y-o-
y), expecting Milkiland to benefit from increased sales of comparatively higher
value-added cheese in 2H12 (at the expense of butter and dry milk products) and
projected flat y-o-y raw milk purchase prices.
Milkiland to benefit from Ostrowias launch in 2013
Assuming no new Russian cheese import restrictions in 2013, we expect Milkiland to
benefit from the launch of its Polish Ostrowia plant, which should provide 8 kt of
cheese sales or $51m in revenue terms for the full year. We forecast Milkiland will
generate 2013 revenues of $468.2m (+26% y-o-y) and EBITDA of $65.1m (+62%), for
an EBITDA margin of 13.9% (+3.1pp, partially thanks to hryvnia depreciation
impact as Milkiland is an export-oriented company).
Sell Hold Buy

Company Data
Market Cap ( $ m) 1 4 8 .7
Free Fl oat ( %) 2 2 .2 %
Bl oomberg Code MLK PW
DR Rat i o -



1 2 -mont h Rel . Perf orm. ( KP-Dragon) 1 %
Valuation Summary
2012E Revenues ($m)
Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
2 7 9 .0 3 4 0 .1 3 8 9 .3 3 7 2 .0 4 6 8 .2
EBITDA ( $ m)
4 1 .7 5 9 .2 4 8 .1 4 0 .2 6 5 .1
Net Income ( $ m)
1 1 .4 2 9 .2 2 0 .5 1 5 .5 3 4 .7
P/ E
1 3 .1 5 .1 7 .2 9 .6 4 .3
EV/ EBITDA
6 .5 3 .5 4 .2 6 .4 3 .9
EV/ Sal es
0 .9 8 0 .6 0 0 .5 2 0 .6 9 0 .5 4
P/ Book
2 .0 7 0 .9 0 0 .6 9 0 .6 5 0 .5 6
1 Inc Cooperat i ef U.A. - 7 3 .0 %
Management - 4 . 8 %
Free f l oat - 2 2 . 2 %
2
3
4
5
6
7
8
Mi l ki l and KP-Dragon ( rel . )
Cheese &
But t er
5 2 %
Whol e
mi l k
product s
3 8 %
Ski mmed
mi l k
powder
1 0 %

November 2012


Milkiland: Investment Highlights
Milkiland is a diversified dairy producer operating in Ukraine, Russia and Poland.
The company operates 10 dairy plants in Ukraine with total raw milk processing
capacity of 935 kt p.a., the Ostankino dairy plant in Russia (175 kt), and the
Ostrowia cheese-making plant in Poland (150-175 kt). Milkiland is the fourth
largest dairy producer in the CIS in terms of capacity and revenue after Danone-
Unimilk, WBD and Vamin. In Ukraine, Milkiland is #2 for cheese and butter
production, holding 12.3% and 5.5% domestic output shares in these segments,
respectively, and is the largest cheese exporter with a 31% share in 2011.
The fourth largest dairy
producer in the CIS in terms of
capacity and revenue and #2 in
Ukraine

Leading Ukrainian Cheese Producers(volume terms; 2011)
Sources: Astarta-Tanit, UkrAgroconsult, Dragon Capital estimates
Leading Ukrainian Cheese Exporters (value terms; 2011)
On Aug. 1, Milkiland announced acquisition of Polish cheese producer Ostrowia
with annual cheese production capacity of 15 kt (vs. Milkilands existing capacities
of 40.8 kt). Milkiland acquired the plant for EUR 12m and plans to invest an
additional EUR 8m by end-2012. According to the company, Ostrowia is expected
to contribute 15% to the groups revenue and EBITDA after target output volumes
are achieved in 2013-2014, implying an up to $60m addition to the top line and $7-
9m on the EBITDA level.
acquired a Polish cheese
maker in July
Milkiland produces whole milk products in Russia and sells cheese produced in
Ukraine both on the local market and in Russia. It thus derives 65% of its revenues
from Russia, 32% from Ukraine and 3% from other markets.
Milkiland derives 65% of total
revenue from Russia

Milkiland Revenue Breakdown (value terms; 1H12)*
Note: *ingredients include skimmed milk powder, whole milk powder, dry
whey, and agricultural products from Milkiland farms sold to third parties.
Sources: Company

Milkiland Revenue Breakdown by Market (1H12)
Source: Company

1 7 . 9 %
1 2 . 3 %
1 0 . 1 %
5 . 6 %
3 . 7 %
3 . 6 %
3 . 6 %
2 . 6 %
2 . 4 %
2 . 0 %
0 % 1 0 % 2 0 % 3 0 %
Mol ochny Al l i ance
Mi l ki l and
Al mi ra
ZMG/ Gal ychyna
Mol i s
Terra-Food
Bel Shost ka Ukrai ne
Cl ub Syra
Khmel nyt sky Cheese Pl ant
Zveni gora-Bongrai n
3 1 %
2 5 %
1 8 %
1 0 %
2 9 %
2 6 %
1 6 %
1 0 %
0 %
1 0 %
2 0 %
3 0 %
4 0 %
M
i
l
k
i
l
a
n
d
M
o
l
o
c
h
n
y

A
l
l
i
a
n
c
e
Z
M
G
-
G
a
l
y
c
h
y
n
a
A
l
m
i
r
a
M
i
l
k
i
l
a
n
d
M
o
l
o
c
h
n
y

A
l
l
i
a
n
c
e
Z
M
G
-
G
a
l
y
c
h
y
n
a
A
l
m
i
r
a
Cheese &
But t er
5 1 %
WMP
4 1 %
Ingredi ent s
8 %
Russi a
6 5 %
Ukrai ne
3 2 %
Ot her
3 %
Val ue Terms Vol ume Terms
November 2012


Raw milk is the largest single
expense, contributing over 60%
to COGS
Raw inputs accounted for 81% of Milkilands COGS, with raw milk accounting for
the lions share of raw materials costs, or 60-70% of total COGS. The raw milk
supply market in Russia is more consolidated than in Ukraine, with 44% of raw
milk in Russia being produced by farms and the remainder by individual
households. In Ukraine, farms produce only about 20%, which often adversely
affects the quality of milk supplied to dairy producers.

Raw Milk Supply Structure (%; 2011)*
Note: *Milkilands in-house raw milk production disregarded.
Sources: Company, UkrAgroConsult, Infagro, Rosstat, Dragon Capital estimates
Milkiland COGS Structure (2011)
Note: *includes gas and electricity costs. Source: Company

but Milkiland has marginally
increased self-sufficiency in
raw milk, doubling in-house
output y-o-y in 1H12...
Milkiland-owned farms produced 11 kt of raw milk in 2011, supplying a mere 2% of the
companys annual raw milk needs (estimated at 486 kt in 2011, with 389 kt sourced in
Ukraine and 97 kt in Russia). Still, focusing on boosting in-house raw milk production,
the company doubled both its cattle headcount (to 2,900 head as of end-2011) and raw
milk production volumes last year (from 4.2 kt in 2010). The remainder was purchased
from households (53%) and more than 500 farms (47%) using the companys own milk
collection and delivery infrastructure. In 1H12, Milkiland doubled in-house raw milk
output in y-o-y terms, to 8.5 kt.
by focusing on milk
cooperatives
Milkiland also forms so-called milk cooperatives with raw milk suppliers, providing
them with prepayments to cover their working capital needs, thus securing timely milk
supplies. The company assisted in the creation of 16 milk cooperatives (with a total of
21,000 milking cows) in 2011. The cooperatives supplied 6% of Milkilands raw milk
needs in Ukraine last year, with this share expected to increase to 20% in 2012.
and investing EUR 13m in
own dairy farms
Milkiland invested EUR 13m in the construction of modern farms with capacity for
8,000 milking cows in 1H12, with completion of the project expected in the beginning of
2013. The company expects the dairy farms combined annual raw milk supply to reach
60 kt (about 12% of its current annual demand) by 2014-2015. The producers ultimate
goal is to achieve 20-25% self-sufficiency in raw milk by 2020.
We expect Milkilands raw milk
prices to remain flat y-o-y in
2012
In 2011, Milkilands raw milk purchase price increased by an est. 30% but is
expected to remain flat y-o-y in 2012. The average raw milk price in Ukraine
declined by 9% y-o-y in 9M12 due to partial reinstatement of state subsidies to the
dairy sector and the Russian import ban that depressed demand from local dairy
processors, thereby creating over-supply and exerting downward pressure on raw
milk prices. We expect the raw milk price drop in 9M12 to be reversed by currently
rising grain prices. This in turn is expected to boost feed costs and decrease raw
milk supply, and potentially fuel raw milk price growth in 4Q12. Also, the
government has set (as of end-August) a minimum price for raw milk purchased
from households of UAH 2.2/ liter for the rest of 2012, which may also put upwards
pressure on raw milk prices.

4 5 %
2 0 %
5 3 %
4 7 %
5 5 %
8 0 %
4 7 %
5 3 %
0 %
2 0 %
4 0 %
6 0 %
8 0 %
1 0 0 %
Russi a Tot al Ukrai ne Tot al Ukrai ne Dai ry
Processors
Mi l ki l and
Farms Indi vi dual s
Raw mi l k and
ot her raw
mat eri al s
8 1 %
Sal ary
4 %
Depreci at i on
4 %
Transport at i on
4 %
Ot her*
7 %
Tot al suppl y: 3 1 . 8 Mt 1 1 . 2 Mt 4 . 7 Mt 0 . 5 Mt

November 2012


Milkilands 1H12 performance was negatively affected by the Russian ban on
cheese imports from one of the companys subsidiaries, Mena Cheese Plant. The
ban was in effect over February-May and management estimates net revenue
losses due to the ban at around EUR 16m and EBITDA losses at EUR 3m in 1H12.
Milkiland reported 1H12 revenues of $173.9m (-3% y-o-y; +5% y-o-y in EUR
terms), EBITDA of $21.0m (-20% y-o-y; -13% in EUR), for an EBITDA margin of
12.1% (-2.6pp y-o-y).
Russian cheese export ban
negatively affected 1H12
results
Reported 1H12 results came in slightly better than we expected, especially on the
profitability side, suggesting upside risk. However, we remain conservative and
considering that Milkiland management does not rule out that implications from
the Russian cheese import ban will continue until end-2012 (the ban was lifted in
May), we keep our 2012 forecasts unchanged. We expect Milkiland to post 2012 net
sales of $372m (-4% y-o-y), EBITDA of $40m (-16%) and net income of $16m (-25%).
and is expected to put
pressure on full-2012
performance
Assuming no new Russian cheese import restrictions in 2013, we expect Milkiland
to benefit from the launch of a new cheese-making plant (Ostrowia). The company
plans to bring Ostrowias production process into compliance with Russian and
Ukrainian standards so as to receive licenses to export to these countries,
expectedly in spring 2013. We expect 8 kt of Ostrowia-produced cheese to be sold
by Milkiland in 2013, bringing around $51m of revenues. We forecast the company
will generate 2013 revenues of $468.2m (+26% y-o-y) and EBITDA of $65.1m
(+62%), for an EBITDA margin of 13.9% (+3.1pp, thanks to assumed hryvnia
depreciation and Russian ruble remaining stable in 2013).
but 2013 outlook is
optimistic, supported by the
expected launch of a new
cheese-making plant in Poland

Milkiland Net Sales and Profitability (2007-13F)
Milkiland attracted a $100m loan facility in December 2011 and has already drawn
$70m as of end-1H12, with the remaining $30m likely to be taken out by end-
September, before the facility expires. Milkiland used the funding to refinance $35m
worth of local bank loans, with another $40m to be used for working capital
replenishment in 2012. Milkilands cash balances stood at $40.8m and net debt reached
$67.5m, while Net Debt/ EBITDA was estimated at 1.6x as of end-1H12.
Debt position
Milkiland generates 30% of total revenues in UAH, including from sales of cheese and
other dairy products, 65% in RUB, and 5% in other currencies. Costs, the lions share
being raw milk purchases (60-70% of total COGS), are mainly denominated in hryvnia
since 10 out of Milkilands 12 dairy plants are located in Ukraine. We estimate the share
of UAH-linked costs at approx. 60% of total in 2013, with the remainder attributed to
F/ X-linked costs of the companys Russian Ostankino plant and recently acquired
Polish cheese maker Ostrowia (the latter is expected to be launched in 2013). Thus,
about 70% of Milkilands overall revenues and 40% of COGS F/ X-linked. This implies
that should the hryvnia depreciate, Milkilands revenues in F/ X terms will decline less
than its F/ X-based COGS, thus positively affecting profitability. We currently assume
hryvnia depreciation to UAH 8.8:USD in 2013 from UAH 8.2:USD in 2012.
Hryvnia depreciation would
positively affect Milkilands
operating margin
2 2 7
3 9 9
2 7 9
3 4 0
3 8 9
3 7 2
4 6 8
1 7 9 1 7 4
( 1 0 %)
( 5 %)
0 %
5 %
1 0 %
1 5 %
2 0 %
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 1 H1 1 1 H1 2
Net sal es ( $ m; l hs) EBITDA margi n ( %; rhs)
November 2012


Valuation
Company Pri ce Currency MC EV/ EBITDA ( x) P/ E ( x)
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Mi l ki l and 4 . 7 6 USD 1 4 9 6 . 4 3 . 9 9 . 6 4 . 3
Premi um ( Di scount ) t o Peers ( 9 0 %) 1 % ( 3 4 %) ( 3 2 %) ( 6 7 %)
Dai ry Crest Group ( UK) 3 4 9 . 1 GBp 7 5 7 2 . 8 4 . 7 neg. 1 0 . 0
Bongrai n ( FR) 4 6 . 0 EUR 9 0 2 4 . 3 3 . 9 9 . 9 8 . 7
Gl anbi a ( IE) 8 . 0 EUR 3 , 0 0 1 1 1 . 7 1 1 . 2 1 7 . 2 1 4 . 7
Emmi ( CH) 2 3 7 . 8 CHF 1 , 3 4 1 6 . 3 5 . 9 1 3 . 1 1 2 . 9
Dean Foods ( US) 1 6 . 6 USD 3 , 0 7 9 7 . 8 6 . 9 1 3 . 8 1 3 . 1
Groupe Danone ( FR) 4 9 . 7 EUR 4 0 , 6 6 2 1 0 . 7 1 0 . 3 1 7 . 5 1 6 . 4
Mori naga Mi l k Indust ry ( JP) 2 6 2 . 0 JPY 8 3 7 1 . 8 1 . 8 1 4 . 3 9 . 3
Devel oped Market Peer Medi an* 1 , 5 0 1 6 . 3 5 . 9 1 4 . 1 1 2 . 9
Note: *average for market capitalization; prices as of Nov. 9, 2012. Sources: Bloomberg, Company, Dragon Capital estimates


Milkiland (MLK PW)

0 .0
5 .0
1 0 .0
1 5 .0
2 0 .0
2 5 .0
Dec-1 0 Apr-1 1 Sep-1 1 Jan-1 2 Jun-1 2 Oct -1 2
Market Pri ce ( $ / DR)
PT/ FV ( $ / DR)

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
WMP ( kt ) 1 4 4 . 5 1 1 9 . 1 1 2 0 . 0 1 2 1 . 2 1 2 7 . 3
Growt h ( %) ( 1 8 %) ( 1 8 %) 1 % 1 % 5 %
Cheese ( kt ) 3 0 . 3 3 0 . 4 3 1 . 5 2 6 . 8 4 0 . 9
Growt h ( %) 2 7 % 0 % 4 % ( 1 5 %) 5 2 %
But t er Out put ( kt ) 5 . 3 4 . 2 4 . 7 5 . 2 4 . 8
Growt h ( %) ( 4 6 %) ( 2 0 %) 1 1 % 1 0 % ( 7 %)
SMP ( kt ) 1 5 . 0 1 5 . 7 1 7 . 5 1 9 . 3 1 8 . 2
Growt h ( %) ( 3 2 %) 5 % 1 1 % 1 0 % ( 5 %)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 2 7 9 . 0 3 4 0 . 1 3 8 9 . 3 3 7 2 . 0 4 6 8 . 2
EBITDA 4 1 . 7 5 9 . 2 4 8 . 1 4 0 . 2 6 5 . 1
Depreci at i on 1 0 . 7 1 2 . 8 1 3 . 7 1 3 . 1 1 4 . 8
EBIT 3 1 . 0 4 6 . 2 2 9 . 3 2 7 . 1 5 0 . 3
Net Fi nanci al Income ( Loss) ( 1 8 . 6 ) ( 1 5 . 3 ) ( 7 . 6 ) ( 7 . 7 ) ( 7 . 1 )
NIBT 1 1 . 0 2 9 . 0 2 2 . 3 1 9 . 4 4 3 . 2
Taxes 0 . 3 0 . 2 ( 1 . 8 ) ( 4 . 0 ) ( 8 . 5 )
Net Income ( Loss) 1 1 . 4 2 9 . 2 2 0 . 5 1 5 . 5 3 4 . 7
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 2 6 3 . 9 3 5 8 . 1 4 2 4 . 0 4 5 3 . 4 4 7 1 . 2
Fi xed Asset s 1 8 3 . 1 2 1 2 . 3 2 3 4 . 8 2 7 5 . 4 2 8 6 . 7
PPE 1 7 1 . 8 1 6 7 . 9 2 0 1 . 4 2 3 5 . 3 2 4 0 . 9
Current Asset s 8 0 . 8 1 4 4 . 9 1 8 5 . 8 1 7 8 . 0 1 8 4 . 5
Invent ori es 2 7 . 1 3 6 . 3 4 4 . 9 5 7 . 1 6 5 . 4
Cash & Cash Equi val ent s 9 . 6 5 0 . 5 6 9 . 1 3 3 . 2 1 9 . 9
S/ T Debt 4 4 . 4 5 8 . 5 8 6 . 9 5 1 . 7 4 6 . 6
L/ T Debt 8 8 . 8 4 8 . 2 3 6 . 4 8 9 . 6 7 6 . 2
Equi t y 7 2 . 0 1 6 4 . 4 2 1 4 . 5 2 3 0 . 0 2 6 4 . 7
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 3 0 %) 2 2 % 1 4 % ( 4 %) 2 6 %
EBITDA Growt h ( y-o-y) 4 % 4 2 % ( 1 9 %) ( 1 6 %) 6 2 %
Net Income Growt h ( y-o-y) nm 1 5 7 % ( 3 0 %) ( 2 5 %) 1 2 4 %
EBITDA Margi n 1 4 . 9 % 1 7 . 4 % 1 2 . 4 % 1 0 . 8 % 1 3 . 9 %
Net Margi n 4 . 1 % 8 . 6 % 5 . 3 % 4 . 2 % 7 . 4 %
Net Debt / Equi t y 1 7 2 % 3 4 % 2 5 % 4 7 % 3 9 %
ROE 2 0 . 1 % 2 4 . 7 % 1 0 . 8 % 7 . 0 % 1 4 . 0 %

November 2012


Mriya Agro Holding: Increased
Grain Prices to Offset Sugar Fall
Price Target (/ DR) 6.74
Price Target ($/ DR)
8.57
Upside (%)
37%
Highlights
Profile
Mriya Agro Holding is a group of agricultural companies established in 1992.
Mriyas current land bank of 298,000 ha spreads across five regions of western
Ukraine: Ternopil, Khmelnytskiy, Chernivtsi, Lviv and Ivano-Frankivsk. The
company diversifies its crop mix, planting wheat and coarse grains on almost equal
areas, so as to overcome the risk of low yields due to unfavorable weather
conditions. Mriya also cultivates potatoes and sugar beets.
Our valuation yields a 12-month price target of $8.57/ DR, suggesting a 37% upside
to the stocks current market price and justifying a Buy recommendation.
Strong operating outlook for 2012
Mriya reported strong expected 2012 crop yields with wheat yield forecast at 5.0
t/ ha (+31% y-o-y), rapeseed at 2.5 t/ ha (+25% y-o-y) and corn at 7-8 t/ ha (vs. 6.9
t/ ha in 2011), which came above our expectations. We expect Mriya to produce a
combined 922 kt of grains and oilseeds in 2012 (+27% y-o-y), while Ukraines total
harvest is estimated at 43 Mt (-24% y-o-y). This year, Mriya intends to sell all of its
harvested crops, leaving only a small portion for seeding in 2013, as the company
believes soft commodities prices may start to fall as early as February when the first
realistic forecasts of next years global grain balances are made.
Mriya to benefit from surging grain prices in 2H12, but decline seen in 2013
Mriya reported 1H12 sales of $209.2m (+16% y-o-y) and EBITDA of $165.9m (+18%),
in line with expectations. We foresee grain price growth in 2H12 positively affecting
Mriyas results. Global grain prices have been rising due to negative weather impact
on expected harvests in the U.S. and Australia as well as some European countries
and the Black Sea region. Conversely, domestic sugar prices have been retreating
and we expect the commodity to account for only 13% of Mriyas projected 2012
revenues. We estimate Mriyas total revenues at $352m (+31% y-o-y) thanks to
increased prices and a 4% y-o-y increase in acreage. Our 2012 EBITDA estimate
yields $215m (+14%), implying EBITDA margin of 43.0% (-1.2pp y-o-y due to a
decrease in sugar segment margin). In 2013, revenues are projected to decline 21%
due to a decrease in prices and low 2012E leftover stocks.
Storage capacity to increase by 60 kt in 2012
To support future growth in crop production, the company is building two new
storage facilities with total storage capacity of 200 kt (100 kt each) to add to 670 kt of
existing silos. Mriya expects to complete construction of 60 kt of storage in 2012,
with the remaining 140 kt to be launched in 2013. Mriya projects its 2012 CAPEX at
$170m and expects 2013 investments to be unchanged y-o-y.
Risks
Weather and export market curbs are major concerns for Mriya Agro Holding.
Sell Hold Buy

Company Data
Market Pri ce ( EUR/ DR) 4 .9 0
Market Pri ce ( $ / DR) 6 .2 3
Market Cap ( $ m) 6 6 2 .3
Free Fl oat ( %) 2 0 .0 %
Free Fl oat ( $ m) 1 3 2 .5
Bl oomberg Code MAYA GR
DR Rat i o 2 5 :1
Number of Empl oyees 3 3 9


3
6
9
1 2
1 5
No v-1 1 Fe b-1 2 Ma y-1 2 Ju l -1 2 Oct -12
Mri ya Ag ro Ho l di ng
KP-Dr ag on (r el . )

1 2 -mont h Low/ Hi gh ( $ / DR) 5 .0 6 / 7 .6 5
Al l -t i me Low/ Hi gh ( $ / DR) 1 .5 4 / 1 1 .1 8
1 2 -mont h Tradi ng Vol ume ( $ m) OTC

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
1 4 8 .3 1 6 1 .5 2 6 8 .3 3 5 1 .9 2 7 9 .6

EBITDA ( $ m)
9 2 .9 1 5 8 .5 1 8 8 .3 2 1 5 .3 2 0 9 .6

Net Income ( $ m)
8 2 .3 1 4 4 .3 1 5 0 .0 1 4 1 .2 1 2 8 .5

P/ E
8 .0 4 .6 4 .4 4 .7 5 .2

EV/ EBITDA
6 .6 4 .3 4 .4 4 .4 4 .1

EV/ Sal es
4 .1 1 4 .2 0 3 .0 9 2 .7 0 3 .1 0

P/ Book
2 .9 8 1 .5 6 1 .1 1 0 .9 0 0 .7 7

Management - 8 0 . 0 %
Free f l oat - 2 0 . 0 %
Wi nt .
wheat
4 4 %
Sugar beet
1 3 %
Wi nt .
rapeseed
1 7 %
Corn
1 3 %
Pot at oes
9 %
Ot her
4 %

November 2012


Mriya Agro Holding: Investment Highlights
Mriya Agro Holding is a group of agricultural companies established in 1992. Mriyas
current land bank of 298,000 ha covers five regions of western Ukraine: Ternopil,
Khmelnytskiy, Chernivtsi, Lviv and Ivano-Frankivsk. Mriya is a vertically integrated
agro-holding company cultivating land, processing agricultural products, operating
grain storage facilities and selling agricultural produce. The company cultivates grain,
oilseeds, potatoes and sugar beets.
One of the largest vertically
integrated agribusinesses in
Ukraine

Mriya Land Bank Locations (2012)
Source: Company

Mriya increased its land bank by 22% y-o-y to 295,000 ha in 2011, planting 240,000 ha
(81% of total) with crops. The company added 3,000 ha of land in 1H12, bringing its
total to 298,000 ha as of the date of this report. Mriyas land leases are typically based
on five to 10-year agreements.
Harvested crops on 240,000 ha
in 2011
For the 2011/ 12 season (July-June; crop harvesting in 2011), Mriya seeded the largest
share of its land (65%) with winter wheat and winter rapeseed, and allocated 14% to
sugar beet. The company has consistently diversified its crop mix, planting wheat and
coarse grains (corn, barley, buckwheat and peas) on almost equal areas, which enables
it to overcome the risk of low yields due to unfavorable weather conditions.
Winter wheat, winter rapeseed
and sugar beet accounted for
most of 2011/12 crop mix

Mriya Land Bank (e-o-p; 2005-11)
Source: Company

Mriya Planted Area Breakdown (2011)
Source: Company

2 9 5
1 0
1 6
7 1
1 5 0
2 0 1
2 2 9
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Fal l ow l and ( ' 0 0 0 ha)
Seeded l and ( ' 0 0 0 ha)
Wi nt er wheat
5 0 %
Wi nt er
rapeseed
1 5 %
Sugar beet
1 4 %
Corn
7 %
Spri ng wheat
5 %
Barl ey
2 %
Pot at oes
2 %
Spri ng
rapeseed
1 %
Peas
1 %
Soybean
1 %
Buckwheat
1 %
Ot her
1 %
November 2012


while the company wisely
boosted acreage under corn for
the 2012 harvest, and reduced
sugar beet acreage
For the 2012 harvest, the company planted 248,000 ha of land, including 138,900 ha
under winter wheat (+16% y-o-y and 56% of total acreage), 39,700 ha under winter
rapeseed (+10% y-o-y and 16% of total) and 27,300 ha under sugar beet (-19% y-o-y
and 11% of total). We believe lower sugar beet plantings will positively affect
Mriyas profitability given currently low domestic sugar prices following
oversupply in the 2011 production season that is continuing to exert downward
pressure on prices. At the same time, Mriya wisely boosted its acreage under corn
to 29,800 ha (+77% y-o-y and 12% of total), which will allow the company to
capitalize on rising corn prices. Mriya plans to plant a minimum of 260,000 ha of
land for the 2013 harvest (+12,000 ha compared to 2012 acreage), including 180,000
ha with winter crops (flat y-o-y and in line with our expectations).

Source: Company

Source: Company
Mriya has enough machinery
to cultivate 300,000 ha of land
Mriya operates modern Western equipment including specialized DAF grain
trucks to haul crops from fields to grain elevators, John Deere tractors to seed and
cultivate crops, and John Deere and Claas combines to harvest crops. The
companys agricultural machinery amounts to more than 1,600 units. Mriya
believes that it currently has enough machinery to cultivate 300,000 ha of land.
Most of Mriyas high-capacity agricultural equipment and machinery is equipped
with GPS devices used during the cultivation period. Precise seeding and
harvesting allows the company to reduce fuel consumption and seed use. Mriya
also employs a satellite monitoring system providing company management with
a complete picture of machinery movements.
The company reported above-
average crop yields in 2011
Mriyas 2011 harvesting results confirm its ability to achieve superior yields
compared to those reported on average in Ukraine across most crop categories.
The companys winter wheat yield stood at 3.8 t/ ha, above the domestic average of
3.6 t/ ha. The company reported average corn and winter rapeseed yields of 6.9
t/ ha and 2.0 t/ ha, 8% and 16% above respective averages for Ukraine. Mriyas
potato fields yielded 28.0 t/ ha, or a substantial 65% above the national average of
17 t/ ha. Potatoes have been an important crop for Mriya, which for 10 years has
been successfully producing its own potato seeds. Mriyas sugar beet yield (44
t/ ha) also significantly outperformed the domestic average of 36 t/ ha last year.
producing 700 kt of grain
and oilseeds, 134 kt of potatoes
and 1.5 Mt of sugar beet
In 2011, Mriya harvested around 700 kt of grain and oilseeds (up from 500 kt in 2010),
including 455 kt of winter wheat (up from 248 kt in 2010), 116 kt of corn (-11% y-o-y
due to a 54% decrease in acreage), 72 kt of winter rapeseed (+84% y-o-y) and 46 kt of
spring wheat (+57% y-o-y). The company boosted potato output by 53% y-o-y to 134 kt
thanks to increased acreage (+54% y-o-y), while sugar beet production fell 13% y-o-y
(due to a 28% y-o-y decrease in acreage but helped by 22% yield growth).

=
Wi nt er wheat
5 0 %
Wi nt er
rapeseed
1 5 %
Sugar beet
1 4 %
Corn
7 %
Spri ng wheat
5 %
Barl ey
2 %
Pot at oes
2 %
Spri ng
rapeseed
1 % Peas
1 %
Soybean
1 %
Ot her
1 %
Buckwheat
1 %
Wi nt er wheat
5 6 %
Wi nt er
rapeseed
1 6 %
Corn
1 2 %
Sugar beet
1 1 %
Ot her grai n and
oi l seeds
3 %
Pot at oes
2 %

November 2012


Crop Yields: Mriya vs. Respective Ukrainian Averages (2011)

Mriya Crop Production (2010-11)

In September Mriya reported strong expected 2012 crop yields, with wheat yield
estimated at 5.0 t/ ha (+31% y-o-y and above our projection of 4.3 t/ ha); rapeseed
at 2.5 t/ ha (+25% y-o-y and in line with our projection); and corn at 7-8 t/ ha
(compared to 6.9 t/ ha last year and above our forecast of 6.5 t/ ha, though the
reported preliminary yield was announced in the very beginning of the harvesting
campaign). We expect the companys 2012 grain harvest to come in at 923 kt (+27%
y-o-y), while Ukraines total harvest is estimated at 43 Mt (-24% y-o-y). Mriyas
potato yield is expected to remain almost flat y-o-y at 28 t/ ha in 2012 with output
projected at 136 kt (+2% y-o-y). Considering almost flat y-o-y yield for sugar beet
at 44 t/ ha but decreased acreage (-21% y-o-y), we forecast Mriyas sugar beet
harvest at 1.2 Mt (-21% y-o-y) in 2012. This year, Mriya intends to sell all harvested
crops, leaving only a small portion for seeding in 2013, as the company believes
soft commodities prices may start to fall as early as February when the first
accurate forecasts of next years global grain balances can be made.
Crop production outlook for
2012
Mriya is self-sufficient in storage capacity. The company currently owns 670 kt of
storage capacity for grain and oilseeds and 96 kt for potatoes. Mriyas Derenivka silo
(Ternopil region) with 100 kt of storage capacity (10x10,000 tonne silos) was completed
in 2011 (construction started in 2008 and the first phase was launched in 2009). The silo
boasts all necessary infrastructure, including loading (90-100 t/ hour) and unloading
(68 t/ hr for railcars and 80 t/ hr for trucks) equipment, two driers (200 t/ hr each,
cleaning (250 t/ hr) and a private rail terminal with two loading lines.
Mriya can currently store
670 kt of grain and 96 kt of
potatoes simultaneously

Mriya Crop Production and Yields (2012E)

Mriya Grain Storage Capacity vs. Output (2010-11)

6 . 9
3 . 8
2 . 0
2 8
4 4
6 . 4
3 . 6
1 . 7
1 7
3 6
0 .0
5 .0
1 0 .0
1 5 .0
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t
Mri ya ( t / ha) Ukrai ni an average ( t / ha)
4 5 5
1 3 4
1 1 6
7 2
4 6
1 5
6
5 5 2
2 4 8
8 8
1 3 0
3 9
2 9 2 6
4
6 6
1 1
0
5 0
1 0 0
1 5 0
2 0 0
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a
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2 0 1 1 ( kt ) 2 0 1 0 ( kt )
1 , 1 7 2
6 0 4
1 9 5
1 3 6
1 0 0
1 1
5 2
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
Sugar beet Wi nt er
wheat
Corn Pot at oes Wi nt er
rapeseed
Barl ey Spri ng
wheat
Soybeans
Product i on ( kt ; l hs)
3 0 2
6 7 0
4 9 9
7 2 7
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
2 0 1 0 2 0 1 1
St orage ( kt / year)
Product i on ( kt / year)
November 2012


Grain and oilseeds accounted
for the largest share of Mriyas
2011 net sales
Grains and oilseeds accounted for 46% of Mriyas 2011 net sales, while sugar beet
contributed 40%. The companys best-known product, potatoes, accounted for an est.
13% of total revenues. As we expected, the much higher share of grain and oilseeds
(+19pp y-o-y) in Mriyas 2011 sales breakdown was due to increased acreage (+19% y-
o-y), higher average yields, and low comparison base (grain and oilseeds share of
Mriyas 2010 revenues declined by 20pp y-o-y as the company had high grain
inventories which it accumulated as a result of export restrictions).
and are expected to
contribute 78% to 2012
revenues
For the 2012 harvest, the company increased plantings of winter wheat (+16% y-o-y),
corn (+77% y-o-y) and winter rapeseed (+10% y-o-y). With favorable pricing conditions
for the crops in domestic and global grain markets, we expect Mriya to see the revenue
share of grain and oilseeds to expand by 32pp y-o-y to 78% this year. We estimate
sugar beets share will decline by 27pp y-o-y to 13% of 2012 revenues.

Mriya Sales Breakdown (2011)

Mriya Sales Breakdown (2012E)

COGS structure The largest expenses for Mriya are direct material costs, which account for around
80% of COGS. Fertilizers contribute the largest share (40%) to direct costs, followed
by crop protection (22%), seeds (14%) and fuel (10%).

Fert i l i zers
4 0 %
Crop prot ect i on
2 2 %
Seeds
1 4 %
Sal ari es
5 %
Fuel and gas
1 0 %
Land l ease
8 %
Ot her
1 %

Mriya Direct Costs (2011)
Sel l i ng expenses
1 4 %
Bank charges
3 %
Ot her* *
1 0 %
Prof essi onal f ees
1 5 %
Mat eri al cost s*
1 8 %
St af f cost s
4 0 %

Mriya SG&A Cost Breakdown (2011)
Note: *including rental and fuel expenses, communication services, insurance
and maintenance expenses; **including auditors remuneration, depreciation
and other costs. Source: Company, Dragon Capital estimates

1H12 results in line with
expectations
Mriya reported 1H12 net sales of $54.5m (+20% y-o-y; net of IFRS 41 gains), total
revenues of $209.2m (+16% y-o-y), EBITDA of $165.9m (+18% y-o-y), with LTM
EBITDA at $213.0m (+21% y-o-y) and LTM cash EBITDA at $191.0m. We believe Mriya
sold almost all of its 2011 harvest inventories, including 130-140 kt of wheat (26-28% of
the 2011 harvest), 80 kt of corn (70%) and 30 kt of potatoes (22%).

Sugar beet
4 0 . 4 %
Wi nt er wheat
2 3 . 2 %
Pot at oes
1 3 . 1 %
Corn
1 0 . 1 %
Wi nt er
rapeseed
7 . 1 %
Ot her
6 . 1 %
Wi nt er wheat
4 3 .5 %
Wi nt er
rapeseed
1 6 .9 %
Corn
1 3 .4 %
Sugar beet
1 2 .9 %
Pot at oes
9 .5 %
Ot her
3 .8 %

November 2012


Mriya Production Cost Comparison (2011)
Sources: Company
Total Revenues to Recurring EBI TDA Bridge ($m; 1H12)*
Note: *EBITDA includes gains from revaluation in fair value of crops. Source: Company

Global grain prices have been rising due to negative weather impact on expected
harvests in the U.S. and Australia as well as some European countries and the Black Sea
region. Ukrainian grain export prices currently follow CBOT dynamics since there are
no current export curbs and none are planned by the government for 2012/ 13 MY.
Local grain producer prices also tend to follow export prices, but with a 1-2 week delay.
Expected grain prices in 2H12 should positively affect Mriyas full-2012 financials.
Conversely, sugar prices are falling and we expect the commodity to account for only
13% of Mriyas projected 2012 revenues.
The company should benefit
from rising grain prices in 2012
We estimate Mriyas 2012 sales at $352m (+31% y-o-y), thanks to increased prices and a
4% y-o-y increase in acreage. Our 2012 EBITDA estimate yields $215m (+14%),
implying an EBITDA margin of 43.0% (-1.2pp y-o-y due to substantial decrease in sugar
segment margin). 2013 revenues are projected to decline by 21% y-o-y to $280m due to
a decrease in prices and low leftover stocks expected from the 2012 harvest.
Financial outlook for 2012-13
Mriyas current storage capacity for 670 kt of grain and oilseeds makes the company
self-sufficient. However, in order to support future growth in crop production, the
company is building two new storage facilities with 100 kt capacity each in the Ternopil
region. On the first site, the 40 kt first phase was scheduled for completion in
September-October, in time for the corn harvest. The remaining 60 kt will be launched
next spring. The facility will have all necessary infrastructure, including handling,
drying and cleaning equipment and a private rail terminal. The other silo will have 20
kt of capacity ready for the 2012 harvest and the remaining 80 kt will be added in 2013.
Mriya is also preparing construction documentation for four other silos, each with 100
kt storage capacity, planning to start construction in 2012-13. Mriya estimates greenfield
silo CAPEX at $250-300 per tonne of storage capacity.
Mriya expects to add 60 kt of
new storage capacities in 2012
The company projected its 2012 CAPEX at $170m (in line with our forecast) and expects
2013 investments to be unchanged y-o-y. This years CAPEX includes $6m for land
bank expansion, $72m already spent on completed silos and over $80m for construction
in progress (funds have been allocated but the capacities will be launched in 2013).
CAPEX projected at $170m in
2012
In March 2011, Mriya placed a $250m five-year Eurobond paying a coupon of 10.95%.
The companys more recent debt raising includes a $60m loan from the IFC and a $25m
loan from the EBRD. Its end-1H12 total debt stood at $417.9m, including $153.0m of
short-term loans (37% of total), while cash balances totaled $78.8m. End-1H12 Net Debt
to EBITDA ratio of 1.6x was below the Eurobond covenant of 3.1x.
to be financed with
Eurobond proceeds and IFC
and EBRD loans

5 7
2 4
6 0
9 1
2 2 7
6 2
1 4 3
1 4 8
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
Pot at oes Sugar beet Corn Wheat
Mri ya ( $ / t onne) Ukrai ni an average ( $ / t onne)
5 4 . 5
1 5 4 . 7 2 0 9 . 2
( 1 4 . 0 ) ( 2 . 7 )
1 . 6 1 4 2 . 3
2 3 . 6 1 6 5 . 9
( 1 6 . 5 )
( 3 5 . 2 )
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November 2012


Mriyas Debt Repayment Schedule ($m; 2012-2017)

Hryvnia depreciation implies
minor impact for Mriya
Mriya generates about 75% of total revenues either in foreign currency or in domestic
currency at prices fixed in USD (grain sales). The remaining 25% include UAH-based
domestic sales of potatoes (10% in 2013F) and sugar and sugar beet (15%). At the same
time, Mriya incurs about 25% of total costs in UAH (mainly salaries, land lease and
SG&A), while the remaining 75% (represented by fertilizers, plant protection, fuel, and
partially seeds) are dollar-linked. This implies that should the hryvnia depreciate,
Mriya hryvnia revenues will decline in line with COGS in dollar terms, producing a
minor effect on operating profitability.

4 9 . 4
8 5 . 9
7 4 . 0
1 2 . 6
2 5 0 . 0
2 . 8
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7
Bank l oans Leasi ng

November 2012


Valuation
Company
Pri ce Currency
MC EV/ EBITDA P/ E
$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Premi um ( Di scount ) t o Ast art a Hol di ng

4 1 % ( 9 %) ( 8 %) ( 9 %) ( 1 %)
Premi um ( Di scount ) t o Russi an Peers

1 6 4 % ( 2 1 %) ( 2 6 %) 2 2 % 1 2 %
Premi um ( Di scount ) t o DM Peers

( 9 0 %) ( 2 7 %) ( 3 8 %) ( 6 6 %) ( 5 5 %)
Russi an Peers

Rusgrai n 1 4 . 5 RUB 2 0 2 . 0 2 . 0 0 . 5 -
Razgul ay 1 2 . 3 6 RUB 6 2 5 . 6 5 . 6 2 . 3 1 . 4
Tri gon Agri 5 . 7 0 SEK 1 1 0 7 . 5 7 . 8 9 0 . 0 4 . 3
Ros Agro 7 . 0 0 SEK 8 3 5 4 . 3 4 . 5 5 . 4 4 . 9
Russi an Peer Medi an*

2 5 1 5 . 6 5 . 6 3 . 9 4 . 6

KWS Saat ( GE) 2 2 8 . 0 0 EUR 1 , 9 1 3 8 . 1 8 . 7 1 5 . 6 1 7 . 8
Archer-Dani el s-Mi dl and ( US) 2 5 . 6 2 USD 1 6 , 8 7 2 5 . 8 6 . 6 1 3 . 8 1 1 . 4
Vi t erra ( CA) 1 5 . 7 5 CAD 5 , 8 4 9 9 . 0 8 . 7 1 8 . 6 1 7 . 6
Andersons ( US) 4 0 . 9 8 USD 7 6 2 6 . 0 4 . 4 9 . 4 1 0 . 0
DM Peer Medi an* - - 6 , 3 4 9 6 . 0 6 . 6 1 3 . 8 1 1 . 4


Mriya Agro Holding (MAYA GR)

Notes: *fair values were calculated between Feb. 2, 2009 and J an. 23, 2011;
**coverage was suspended between J an. 1, 2010 and J ul. 1, 2010
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
1 2 .0
1 4 .0
1 6 .0
Jul -0 8 Jan-0 9 Aug-0 9 Feb-1 0 Sep-1 0 Mar-1 1 Sep-1 1 Apr-1 2 Oct -1 2
PT/ FV ( $ / share)
November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Land Leased ( 0 0 0 ha; e-o-p) 2 0 1 . 0 2 4 1 . 0 2 9 5 . 0 3 2 5 . 0 3 5 5 . 0
Growt h ( %, y-o-y) 3 4 % 2 0 % 2 2 % 1 0 % 9 %
Land Cul t i vat ed ( 0 0 0 ha; e-o-p) 1 5 0 . 0 2 2 9 . 0 2 3 9 . 8 2 5 0 . 0 2 6 0 . 0
Growt h ( %, y-o-y) 7 2 % 5 3 % 5 % 4 % 4 %
Grai n and Oi l seeds Product i on ( 0 0 0 t ) 4 7 0 . 2 4 9 9 . 1 7 2 6 . 6 9 2 2 . 3 9 7 5 . 1
Growt h ( %, y-o-y) 5 0 % 6 % 4 6 % 2 7 % 6 %
Pot at oes Out put ( 0 0 0 t ) 7 7 . 9 8 7 . 6 1 3 4 . 1 1 3 5 . 9 2 0 2 . 5
Growt h ( %, y-o-y) 6 7 % 1 3 % 5 3 % 1 % 4 9 %
Sugar Beet Product i on ( 0 0 0 t ) 1 , 2 7 9 . 3 1 , 7 0 0 . 0 1 , 4 8 0 . 7 1 , 1 7 1 . 9 1 , 1 5 5 . 6
Growt h ( %, y-o-y) 1 3 2 % 3 3 % ( 1 3 %) ( 2 1 %) ( 1 %)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 1 4 8 . 3 1 6 1 . 5 2 6 8 . 3 3 5 1 . 9 2 7 9 . 6
EBITDA 9 2 . 9 1 5 8 . 5 1 8 8 . 3 2 1 5 . 3 2 0 9 . 6
Depreci at i on ( 2 . 2 ) ( 5 . 5 ) ( 1 7 . 4 ) ( 1 7 . 0 ) ( 2 3 . 3 )
EBIT 9 0 . 6 1 5 2 . 9 1 7 0 . 8 1 9 8 . 3 1 8 6 . 3
Net Fi nanci al Income ( Loss) ( 8 . 2 ) ( 8 . 3 ) ( 2 0 . 3 ) ( 5 6 . 6 ) ( 5 7 . 3 )
NIBT 8 2 . 4 1 4 4 . 7 1 5 0 . 6 1 4 1 . 8 1 2 9 . 0
Taxes ( 0 . 1 ) ( 0 . 3 ) ( 0 . 6 ) ( 0 . 6 ) ( 0 . 5 )
Net Income ( Loss) 8 2 . 3 1 4 4 . 3 1 5 0 . 0 1 4 1 . 2 1 2 8 . 5
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 3 0 8 . 5 5 9 1 . 3 1 , 0 5 2 . 9 1 , 2 6 3 . 2 1 , 3 7 5 . 2
Fi xed Asset s 6 9 . 8 2 0 7 . 3 5 0 5 . 3 6 6 0 . 2 7 6 6 . 5
PPE 6 7 . 9 2 0 6 . 5 5 0 2 . 3 6 5 7 . 2 7 6 3 . 5
Current Asset s 2 3 6 . 3 3 7 8 . 4 5 1 9 . 2 5 7 4 . 7 5 8 0 . 4
Invent ori es 2 6 . 6 5 7 . 6 8 7 . 8 1 2 5 . 3 9 9 . 6
Account s Recei vabl e 5 1 . 4 9 9 . 5 1 0 8 . 3 2 1 6 . 9 1 7 2 . 4
Cash & Cash Equi val ent s 1 . 9 2 . 9 4 4 . 4 1 . 8 1 . 4
Short -t erm Bank Deposi t s 1 0 3 . 0 9 2 . 3 1 3 9 . 9 1 0 9 . 9 1 9 4 . 3
Tot al Li abi l i t i es & Equi t y 3 0 8 . 5 5 9 1 . 3 1 , 0 5 2 . 9 1 , 2 6 3 . 2 1 , 3 7 5 . 2
Tot al Li abi l i t i es 8 4 . 7 1 6 2 . 2 4 5 3 . 2 5 2 2 . 3 5 0 5 . 8
Bank Debt 5 2 . 7 1 1 0 . 8 3 5 1 . 0 4 0 1 . 0 4 0 1 . 0
Equi t y 2 2 2 . 3 4 2 4 . 3 5 9 5 . 4 7 3 6 . 6 8 6 5 . 2
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) 6 4 % 9 % 6 6 % 3 1 % ( 2 1 %)
EBIT Growt h ( y-o-y) 3 4 % 7 1 % 1 9 % 1 4 % ( 3 %)
Net Income Growt h ( y-o-y) 1 0 % 7 5 % 4 % ( 6 %) ( 9 %)
EBITDA Margi n 4 8 . 4 % 5 3 . 3 % 4 4 . 2 % 4 3 . 0 % 4 7 . 5 %
Net Margi n 4 2 . 9 % 4 8 . 5 % 3 5 . 2 % 2 8 . 2 % 2 9 . 1 %
Net Debt / Equi t y ( 2 4 %) 4 % 2 8 % 3 9 % 2 4 %
ROE 3 7 . 0 % 3 4 . 0 % 2 5 . 2 % 1 9 . 2 % 1 4 . 9 %
EBITDA coverage

6 . 1 6 6 . 1 2 3 . 7 1 5 . 7 3 5 . 2 3
Net Debt / EBITDA

( 0 . 5 6 ) 0 . 1 0 0 . 8 9 1 . 3 4 0 . 9 8

November 2012



November 2012


Ovostar Union: Focus on Capacity
Expansion
Price Target ($)
31.13
Upside (%)
7%
Highlights

Profile
Ovostar Union is a leading industrial shell egg producer in Ukraine (with 5.7%
output share in 2011) and accounts for 40% of local egg product sales. The company
produced 623 million shell eggs last year (+14% y-o-y).
Valuation yields 7% upside, implying a Hold
The average of our DCF and comparative valuation models yield a 12-month price
target of $31.13/ share, which implies 7% upside potential and suggests a Hold
recommendation.
Sunflower seed processing plant launched at end-2011
Ovostar launched a sunseed processing plant with daily processing capacity of 80
tonnes (about 30 kt p.a.) in September 2011. The company sells sunflower oil to third
parties, used sunflower meal (by-product) for chicken feed and consumes fuel
pellets produced from sunflower husk as fuel. Ovostar plans to produce and sell
about 7 kt of sunflower oil in 2012 (vs. 1.4 kt in 2011), which implies about 35% self-
sufficiency in sunflower meal for feed.
Capacity expansion announced at IPO was completed by end-September...
Ovostar completed its $46.5m 2011-12 CAPEX program (announced at IPO) at end-
September 2012. It boosted Ovostars shell egg production capacity by 86% to 3.9
million laying hen places, providing for a 93% increase in shell egg production to
1,054 million eggs p.a.
...and approval of a new investment program for 2H12-2013...
Management has approved a new $35.4m investment program for 2H12-2013 aimed
at further production expansion, to be financed with retained earnings. Investment
will go towards increasing the number of laying hen places by 1.5 million to 5.4
million in 2014 and to 6.1 million in 2015 when the program is scheduled for
completion. The program targets total shell egg production growth to 1,250 million
eggs p.a. in 2014 and 1,450 million eggs p.a. in 2015, and expansion of egg product
output capacity to 12.7 kt p.a.
...support our strong 2012 outlook
Ovostar plans to increase 2012 shell egg output by 35% y-o-y to 840 million pieces
thanks to capacity expansion. We expect Ovostars 2012 average egg price to
increase by 8% y-o-y to UAH 0.70/ egg, conservatively assuming no premium to the
market, which serves as an upside risk. We expect Ovostar to increase 2012 revenues
by 45% y-o-y to $73.3m and EBITDA by 47% to $32.7m, for an EBITDA margin of
44.6% (+0.6pp y-o-y).
Solid 2013 sales outlook on capacity expansion
We expect Ovostar to increase 2013 revenues by 29% y-o-y to $94.3m on 31% y-o-y
output growth. We estimate its 2013 EBITDA at $38.6m (+18% y-o-y), implying an
EBITDA margin of 40.9% (-3.7pp y-o-y due to hryvnia depreciation and higher feed
prices as Ovostar will use 2012-harvested grain).
Risks
Weather affecting feed grain prices could be a major risk to Ovostar.

Sell Hold Buy

Company Data
Market Pri ce ( $ ) 2 9 .2 1
Market Cap ( $ m) 1 7 5 .3
Free Fl oat ( %) 2 5 .0 0 %
Nomi nal Val ue ( EUR) 0 .0 2 1
Bl oomberg Code OVO PW
DR Rat i o -


12-month Performance ($)
0
1 0
2 0
3 0
4 0
5 0
No v-1 1 Ja n-1 2 Ma r-1 2 Ma y-1 2 Ju l -1 2 Oct -12
Ovo st ar Un i on KP-Dr ag on (r el . )

1 2 -mont h Perf ormance 5 5 %
Al l -t i me Low/ Hi gh ( $ / share) 1 4 .6 8 / 4 1 .5 3

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m)
3 2 .3 3 7 .0 5 0 .6 7 3 .3 9 4 .3
EBITDA ( $ m)
5 .7 1 1 .6 2 2 .3 3 2 .7 3 8 .6
Net Income ( $ m)
2 .5 9 .2 2 0 .1 3 0 .7 3 6 .0
P/ E
6 9 .1 1 9 .1 8 .7 5 .7 4 .9
EV/ EBITDA
3 2 .1 1 5 .6 7 .1 5 .1 4 .3
EV/ Sal es
5 .6 5 4 .8 7 3 .1 1 2 .3 0 1 .7 6
P/ Book
5 .8 4 5 .5 8 2 .1 3 1 .5 5 1 .1 8
Pri me One Capi t al Lt d - 7 5 .0 %
Free Fl oat - 2 5 .0 %
Shel l Eggs
6 6 %
Egg
Product s
2 2 %
Sunoi l
9 %
Ot her
3 %

November 2012


Ovostar Union: Investment Highlights
Ovostar Union is a leading industrial shell egg producer in Ukraine with a 5.7% market
share in volume terms in 2011 (+0.3pp y-o-y). The company also produces dry and
liquid egg products, accounting for 40% of the Ukrainian egg product market last year.
The companys production facilities are located in the Kyiv and Cherkasy regions.
Ovostar Union enjoys a high degree of vertical integration, operating a closed
production cycle. Being self-sufficient in hatching eggs, the company also totally
satisfies internal needs for feed mix. Ovostar also processes sunflower seed, selling
sunflower oil to third parties and using by-products such as sunflower meal for chicken
feed and fuel briquettes produced from sunflower husk as fuel.
One of the largest Ukrainian
egg producers with a 5.7%
share of the local egg market

Major Egg Producers in Ukraine (volume terms; 2011)
Source: Avangard, Ovostar, Pro-consulting
Ovostars Share of Ukrainian Egg Product Market (volume; 2011)
Source: Ovostar

Ovostar produced 623 million shell eggs last year (+14% y-o-y), with the increase
attributed to both growth in laying hen flock and the switch to a more efficient hen
breed (Hy-Line). Of last years shell egg output, 439 million eggs (+25% y-o-y; incl.
exports) were sold and 216 million processed into egg products. The company
produced 324 million eggs (+12% y-o-y) in 1H12 and plans to increase its shell egg
output by 35% y-o-y to 840 million pieces for full-year 2012 thanks to capacity
expansion, which was announced pre-IPO and was completed in September 2012.
Ovostar expects to produce 840
million eggs in 2012
(+35% y-o-y)

Ovostar Shell Egg Production (million pieces; 2008-12E)
Source: Company

Ovostars Share of Industrial Shell Egg Production in Ukraine (%)
Source: Company

Avangard
5 0 . 7 %
Int er-
Zapori zhya
9 . 6 %
Ovost ar Group
5 . 7 %
Agrof i rma
Berezanskaya
5 . 1 %
Landgut
Ukrai ne
2 . 8 %
Ot her
2 6 . 1 %
Ovost ar Uni on
4 0 . 0 %
Ot her
6 0 . 0 %
5 2 8 5 4 0
5 4 6
6 2 3
8 4 0
0
2 5 0
5 0 0
7 5 0
1 ,0 0 0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
6 . 3 %
5 . 9 %
5 . 4 %
5 . 7 %
0 % 2 % 3 % 5 % 6 %
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
November 2012


Ovostars major egg
distribution channel is retail
chains, accounting for half of
sales
Ovostar was the first Ukrainian shell egg producer to launch sales of packed shell eggs
through supermarket chains. Retail chains remain the companys major sales channel,
accounting for 54% of total shell egg sales in 1H12. The companys current customers
are ATB, Silpo, Rewe/ Billa, Furshet, Velyka Kyshenya, Auchan, Novus and Metro. The
company also sells shell eggs to large retail chains under private label contracts.

Ovostar Shell Egg Distribution Channels (value; 1H12)*
Note: *POS points of sales. Source: Company
Ovostar Revenue Breakdown (value; 1H12)
Source: Company

Average egg prices to rise by
8% y-o-y in 2012
Ovostars 2011 egg price averaged UAH 0.65/ egg (+14% y-o-y), outperforming the
market average by 21%. This was largely attributable to the large share of branded eggs
in Ovostars portfolio. In 1H12, average prices for shell eggs sold by Ovostar increased
by an est. 6% y-o-y to UAH 0.66/ egg, and we expect the companys 2012 average egg
price to increase by 8% y-o-y to UAH 0.70/ egg, applying a conservative forecast that
assumes almost no premium to the market price and leaves room for upside.

Ovostars Average Annual Egg Price vs. Ukrainian Average
(EXW, net of VAT; UAH/ 10 eggs)
Sources: UkrAgroConsult, Company, Dragon Capital estimates

Sales of egg products contribute
20-30% to total revenues
Ovostar operates a modern egg processing plant, Ovostar EPP, with processing
capacity of 2.0 million shell eggs per day. All of Ovostars egg products are
distributed under the OVOSTAR brand. The company held a 40% share (+2pp y-
o-y) of the Ukrainian egg product market in 2011 and a 100% share of the liquid egg
yolk and liquid egg white markets in Ukraine. Ovostar processed 99 million shell
eggs into egg products in 1H12, producing 0.39 kt (+41% y-o-y) of dry egg products
and 2.13 kt (+28% y-o-y) of liquid egg products, which jointly contributed 23% to
the companys total revenues over the period (vs. 27% in 2011). We expect egg
products to account for 21% of the companys 2012E revenues, generally in line
with the 1H12 trend.

Ret ai l Chai ns
5 4 . 0 %
Branded POS
3 0 . 0 %
Export
8 . 0 %
B2 B
4 . 0 %
Whol esal e
4 . 0 %
Shel l Eggs
7 0 . 0 %
Egg Product s
2 3 . 0 %
Sunf l ower Oi l
7 . 0 %
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
1 2 .0
2 0 1 0 Ukrai ne avg. 2 0 1 1 Ukrai ne avg. 2 0 1 2 Ukrai ne' s Avg
2 0 1 1 Ovost ar avg. 2 0 1 2 E Ovost ar avg.

November 2012


Ovostar Egg Product Output (kt; 2008-12E)

Average Prices of Dry Egg Products in Ukraine (2007-12E)
Sources: SSC, Pro-Consulting

Ovostar launched a sunflower seed crushing plant with daily processing capacity
of 80 tonnes (about 30 kt p.a.) in September 2011. The launch of sunflower
processing brings Ovostar both additional revenues (7% of total in 1H12) and
savings on hen feed (as sunflower meal, which is a vitamin-rich byproduct of
sunflower seed crushing, is used in hen feed production). Another by-product is
seed husk that is used in production of fuel briquettes. In 1H12, Ovostar processed
6.4 kt of sunflower seeds and produced 2.1 kt of sunflower oil, selling 2.0 kt at
$1,004/ t. The company plans to produce and sell about 7 kt of sunflower oil in
2012 (up from 1.4 kt in 2011), which implies about 35% self-sufficiency in
sunflower meal for feed.
Sunflower oil production
began in 4Q11, bringing
additional revenues and cost
savings
Feed accounted for 74% of Ovostars egg production costs in 2011 with raw
materials (mainly feed) contributing 66% to the companys 2011 total COGS,
followed by salaries with a 15% share. Ovostar buys feed grain from the market
and mixes it into fodder at its own mills. Packaging costs accounted for over 9% of
Ovostars overall 2011 COGS.
Fodder accounts for 74% of
total egg production costs and
for over 65% of COGS

Ovostar Egg Production Cost Breakdown (2011)
Source: Company
Ovostar COGS Breakdown (2011)
Source: Company
Ovostar showed healthy performance in 1H12, boosting revenues by 26% y-o-y to
$27.8m, increasing EBITDA by 43% to $13.2m (for an EBITDA margin of 47.3%;
+5.7pp y-o-y) and improving net income by 42% to $12.2m. Shell eggs accounted
for 70% of Ovostars 1H12 revenues (-4pp y-o-y), egg products contributed 23% (-
3pp y-o-y) and sunflower oil added 7%.
Ovostars strong 1H12 results...

3 . 2
3 . 5
1 . 2 1 . 4 1 . 4
3 . 2
3 . 5
3 . 4
3 . 8
4 . 6
0 .0
1 .5
3 .0
4 .5
6 .0
7 .5
9 .0
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Dry Egg Product s ( kt ) Li qui d Egg Product s ( kt )
0
3 0
6 0
9 0
1 2 0
1 5 0
2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E
Dry Egg Powder ( UAH/ kg)
Dry Egg Yol k ( UAH/ kg)
Dry Al bumen ( UAH/ kg)
Fodder
7 4 . 0 %
Poul t ry
Amort i zat i on
1 1 . 0 %
Sal ari es
5 . 0 %
Energy
3 . 0 %
Ot her
7 . 0 %
Raw mat eri al s
6 6 . 0 %
Sal ari es
1 4 . 7 %
Packagi ng
9 . 1 %
Amort i zat i on
3 . 9 %
Ot her
6 . 3 %
November 2012


along with completion of the
investment program announced
at IPO
At end-September 2012, Ovostar reported completion of its 2011-12 CAPEX
program worth $46.5m, which it announced at IPO (June 2011) and partially
financed with IPO proceeds ($31m). The full impact is expected to be felt as soon as
next year. The investments:
boosted Ovostar egg production capacity by 86% to 3.9 million laying hen
places (six hen houses were built) providing for a 93% increase in shell egg
production to 1,054 million eggs p.a.
increased egg processing capacity by 67%, to 2.0 million eggs per day
enabled an 80% increase in annual egg product output, to 9.7 kt (dependent on
liquid/ dry product mix).
...and a new expansion plan... The company announced a new $35.4m investment program for 2H12-2013 aimed
at further production expansion, to be financed with retained earnings. The
investments will go towards:
increasing the number of laying hen places by 1.5 million to 5.4 million in 2014
by building four new hen houses with 309,000 capacity each and one house for
280,000 laying hens further increasing the number of laying hen places to 6.1
million in 2015 when the program is scheduled for completion
boosting total shell egg production to 1,250 million eggs p.a. in 2014 and 1,450
million eggs p.a. in 2015
expanding egg product output capacity to 12.7 kt p.a.

Shell Egg Production Forecast (billions of pieces; 2010-15F)
Source: Company

Egg Product Capacity Expansion (2010-15F)
pave the way for a solid 2012
outlook
We expect Ovostar to increase 2012 revenues by 45% y-o-y to $73.3m and EBITDA
by 47% to $32.7m, for an EBITDA margin of 44.6% (+0.6pp y-o-y). The pace of 1H12
revenue growth was expectedly slower than our full-year forecast due to ongoing
modernization of the companys egg processing plant and reconstruction of egg
production facilities (laying hen houses). However, as the investment program was
completed in September, adding new production capacities, we expect the
company to meet our revenue projection. In terms of profitability, Ovostar
outperformed our full-year EBITDA and net margin forecasts in 1H12. However,
we keep our 2012 projections unchanged due to expected downward pressure on
profitability due to higher grain prices in 2H12.
Solid 2013 sales outlook on
capacity expansion
We expect Ovostar to increase 2013 revenues by 29% y-o-y to $94.3m, mainly
thanks to 31% y-o-y output growth. We estimate its 2013 EBITDA at $38.6m (+18%
y-o-y), implying an EBITDA margin of 40.9% (-3.7pp y-o-y due to projected hryvnia
depreciation and higher feed prices as Ovostar will use 2012-harvested grain).

0 . 5 5
0 . 6 2
0 . 8 4
1 . 1 0
1 . 2 5
1 . 4 5
0 .0
0 .2
0 .4
0 .6
0 .8
1 .0
1 .2
1 .4
1 .6
2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 2 0 1 4 F 2 0 1 5 F
5 . 5 5 . 5
1 0 . 5 1 0 . 5
1 2 . 7
1 2 . 7
0 .0
2 .0
4 .0
6 .0
8 .0
1 0 .0
1 2 .0
1 4 .0
2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F 2 0 1 4 F 2 0 1 5 F

November 2012


Ovostar sells produced eggs and egg products (81% of 2013F revenues) mainly on the
domestic market. The remainder (19%) is equally split between exports of eggs and egg
products and USD-linked sales of sunflower oil sales. Fodder costs (45% of annual
COGS) and packaging costs (9%) are mainly F/ X-denominated. Thus, about 55% of
Ovostars total annual COGS are USD-linked. This implies that potential hryvnia
depreciation would result in revenues in hryvnia terms decreasing more sharply than
USD-based COGS, thus adversely affecting profitability and multiples. We currently
assume hryvnia depreciation to UAH 8.8:USD in 2013 from UAH 8.2:USD in 2012.
Ovostar is a strong local player
but exposed to national currency
depreciation risk

November 2012


Valuation
Company
Pri ce* Currency
MC EV/ EBITDA P/ E

$ m 2 0 1 2 E 2 0 1 3 F 2 0 1 2 E 2 0 1 3 F
Ovost ar Uni on
2 9 . 2 1 USD
1 7 5 5 . 1 4 . 3 5 . 7 4 . 9
Premi um/ ( Di scount ) t o Avangard ( UA) ( 7 3 %) 5 3 % 3 9 % 7 9 % 5 3 %
Premi um/ ( Di scount ) t o MHP ( UA) ( 8 9 %) 7 % 1 0 % ( 1 3 %) ( 1 0 %)
Premi um/ ( Di scount ) t o Cherki zovo Group ( RU) ( 7 8 %) 3 % ( 2 4 %) 4 2 % 1 6 %
Premi um/ ( Di scount ) t o Cal -Mai ne ( US) ( 8 3 %) ( 3 1 %) ( 3 1 %) ( 4 9 %) ( 6 3 %)
Premi um/ ( Di scount ) t o DM Peer Medi an ( 9 0 %) ( 1 8 %) ( 3 1 %) ( 5 9 %) ( 5 0 %)
Cl osest Market Peers

Avangard ( UA)
1 0 . 2 0 USD
6 5 1 3 . 4 3 . 1 3 . 2 3 . 2
MHP ( UA)
1 4 . 4 0 USD
1 , 5 6 2 4 . 8 3 . 9 6 . 5 5 . 4
Cherki zovo Group ( RU)
1 2 . 1 2
USD 7 9 9 5 . 0 5 . 7 4 . 0 4 . 2
Cal -Mai ne ( US)
4 2 . 3 6
USD 1 , 0 1 3 7 . 5 6 . 2 1 1 . 3 1 3 . 2
At ri a Group ( FI)
6 . 5 8
EUR 2 3 6 7 . 1 6 . 9 1 8 . 2 9 . 4
Hkscan OYJ ( FI)
3 . 8 5
EUR 2 6 9 6 . 0 5 . 6 2 3 . 6 9 . 4
Bel l Hol di ng AG-REG ( CH)
1 9 4 3 . 0 0
CHF 8 1 9 5 . 4 4 . 7 1 0 . 3 9 . 8
Campof ri o Al i ment aci on ( SA)
5 . 6 2
EUR 7 3 0 6 . 3 6 . 2 1 3 . 8 1 1 . 7
L. D. C. SA ( FR)
7 6 . 0 1
EUR 7 8 8 2 . 8 2 . 9 1 0 . 1 9 . 8
Sanderson Farms ( US)
4 5 . 4 5
USD 1 , 0 4 4 8 . 7 7 . 7 2 1 . 4 2 9 . 3
Tyson Foods ( US)
1 6 . 5 9
USD 6 , 0 0 8 4 . 4 4 . 2 9 . 0 1 0 . 6
Hormel Foods ( US)
2 9 . 7 5
USD 7 , 8 2 1 8 . 7 8 . 1 1 5 . 6 1 5 . 0
DM Peers Medi an 1 , 7 4 8 6 . 3 6 . 2 1 3 . 8 9 . 8

HISTORI CAL PRI CE TARGETS

OVOSTAR UNION (OVO PW)

0 .0
1 0 .0
2 0 .0
3 0 .0
4 0 .0
5 0 .0
Jun-1 1 Sep-1 1 Dec-1 1 Apr-1 2 Jul -1 2 Oct -1 2
PT ( $ / share)

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Shel l Eggs ( bi l l i on pi eces) 0 . 5 4 0 . 5 5 0 . 6 2 0 . 8 4 1 . 1 0
Growt h ( %, y-o-y) 2 % 1 % 1 4 % 3 6 % 3 1 %
Egg Powder ( 0 0 0 t ) 3 . 5 1 . 2 1 . 4 1 . 6 2 . 4
Growt h ( %, y-o-y) 1 0 % ( 6 5 %) 1 0 % 2 0 % 4 5 %
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 3 2 . 3 3 7 . 0 5 0 . 6 7 3 . 3 9 4 . 3
EBITDA 5 . 7 1 1 . 6 2 2 . 3 3 2 . 7 3 8 . 6
Depreci at i on ( 2 . 1 ) ( 2 . 1 ) ( 1 . 5 ) ( 2 . 4 ) ( 3 . 4 )
EBIT 3 . 6 9 . 5 2 0 . 8 3 0 . 3 3 5 . 1
Net Fi nanci al Income ( Loss) ( 1 . 2 ) ( 0 . 3 ) ( 0 . 7 ) 0 . 5 1 . 0
NIBT 2 . 4 9 . 3 2 0 . 1 3 0 . 8 3 6 . 1
Taxes 0 . 1 ( 0 . 1 ) 0 . 0 ( 0 . 1 ) ( 0 . 1 )
Net Income ( Loss) 2 . 5 9 . 2 2 0 . 1 3 0 . 7 3 6 . 0
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 4 1 . 8 4 0 . 8 9 1 . 3 1 2 3 . 3 1 6 1 . 3
Fi xed Asset s 1 8 . 5 1 8 . 9 4 5 . 9 7 9 . 6 1 0 5 . 6
PPE 1 2 . 2 1 1 . 6 2 4 . 0 5 7 . 5 8 3 . 2
Current Asset s 2 3 . 3 2 1 . 9 4 5 . 4 4 3 . 7 5 5 . 7
Invent ori es 1 1 . 5 1 4 . 0 1 2 . 6 1 8 . 2 2 3 . 4
Account s Recei vabl e 9 . 3 7 . 2 1 0 . 7 1 5 . 1 1 9 . 4
Short -t erm Bank Deposi t s 1 . 4 0 . 0 0 . 0 0 . 0 0 . 0
Cash & Cash Equi val ent s 0 . 6 0 . 4 2 1 . 5 9 . 8 1 2 . 4
Tot al Li abi l i t i es & Equi t y 4 1 . 8 4 0 . 8 9 1 . 3 1 2 3 . 3 1 6 1 . 3
Tot al Li abi l i t i es 1 1 . 8 9 . 4 8 . 9 1 0 . 1 1 2 . 2
S/ T Debt 5 . 9 4 . 3 1 . 2 1 . 2 1 . 2
L/ T Debt 2 . 2 1 . 2 2 . 6 1 . 8 1 . 8
Equi t y 3 0 . 0 3 1 . 4 8 2 . 4 1 1 3 . 1 1 4 9 . 1
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 1 2 %) 1 4 % 3 7 % 4 5 % 2 9 %
EBITDA Growt h ( y-o-y) ( 6 2 %) 1 0 3 % 9 2 % 4 7 % 1 8 %
Net Income Growt h ( y-o-y) ( 5 2 %) 2 6 1 % 1 2 0 % 5 3 % 1 7 %
EBITDA Margi n 1 7 . 6 % 3 1 . 3 % 4 4 . 0 % 4 4 . 6 % 4 0 . 9 %
Net Margi n 7 . 8 % 2 4 . 7 % 3 9 . 8 % 4 1 . 9 % 3 8 . 1 %
Net Debt / Equi t y 2 0 % 1 6 % ( 2 2 %) ( 6 %) ( 6 %)
ROE 8 . 7 % 2 9 . 8 % 3 5 . 4 % 3 1 . 4 % 2 7 . 4 %

November 2012


Sintal Agriculture: Reducing
Planted Area for 2013?
Price Target ($) -
Upside (%)
-

Highlights
Company Data
Profile
Sintal Agriculture, founded in 1992, leases about 150,000 ha of land,
including 118,800 ha in Kherson and 28,000 ha in Kharkiv. Sintal has 19,300
ha under irrigation in Kherson region using a system which was built in the
Soviet era but the company has invested heavily in its modernization. Sintal
grows wheat, corn, barley, rapeseed, peas, soybeans, sunflower and sugar
beet.
Land bank expanded by 46,000 ha in 2011
Sintal increased its land bank by 46,000 ha in 2011 through acquisition of
Agrika agricultural company, which was owned by Icon Private Equity.
The land is located in the Kherson region in proximity to the companys
existing land holdings. The deal was in the form of a share exchange
agreement, according to which Icon transferred 100% of Agrikas shares to
Sintal in exchange for a 6% stake in Sintal. Additionally, the fund provided
Sintal with an $8m convertible loan, which may potentially increase Icons
stake to 10.8%.
Sintal produced 203.5 kt of grains and oilseeds in 2011
Sintal decided to change its crop rotation plan, increasing the share of land
under sunflower, rapeseed, soybean and corn in 2011. Sintals total grain
and oilseed production reached 203.5 kt (-3% y-o-y) and 19 kt of sugar beet
(-52% y-o-y) last year, with winter wheat, winter rapeseed and corn jointly
contributing 65% to total. Sintal registered an overall increase in crop yields
of 23% y-o-y in 2011.
2012 winter crops suffered from very low temperatures in 2M12
Sintal planted winter crops on 60,575 ha of land (+36% y-o-y) for the 2012
harvest, as newly acquired assets from Agrika were promptly integrated
with Sintals operations. However, due to very low temperatures this
winter, Sintals winter crops were severely damaged with about 40,000 ha of
plantings (67% of total) killed and the remaining 20,000 ha registering an
average yield of only 0.5-0.6 t/ ha.
2011 results and outlook for 2012
According to company data as of September 2012, Sintal generated
revenues of $42m (+32% y-o-y) and EBITDA of $18m (+41% y-o-y) in 2011,
for an EBITDA margin of 42.9% (+2.7pp y-o-y). Sintal sold its grain
inventory from the 2011 harvest in 1Q12 and, due to expected substantial
corn yield improvement, the company plans to sell its 2012 harvest by year-
end. Sintal does not plan to grow winter crops for the 2013 harvest but will
possibly plant sunflower on 50,000 ha in the Kherson region next spring.
Sintal also does not rule out disposing of some of its land in the Kherson
region in order to focus on more productive land plots.
Market Pri ce ( EUR/ DR) 0 .2 6
Market Pri ce ( $ / DR) 0 .3 4
Ent erpri se Val ue ( 1 0 ; $ m) 1 6 .7
Free Fl oat ( %) 3 6 .3 %
Free Fl oat ( $ m) 4 .0
Shares Out st andi ng 4 7 ,0 5 9
Bl oomberg Code SNPS GR
DR Rat i o 7 0 0 :1


12-month Performance ($/DR)

1 2 -mont h Rel . Perf orm. ( KP-Dragon) ( 7 9 %)
1 2 -mont h Low/ Hi gh ( $ / DR) 0 .0 7 / 2 .5 7
Al l -t i me Low/ Hi gh ( $ / DR) 0 .0 7 / 8 .6 2
1 2 -mont h Tradi ng Vol ume ( $ m) 0 .7

Valuation Summary
Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 3 0 .4 3 1 .8 - - -
EBITDA ( $ m) 1 1 .8 1 2 .8 - - -
Net Income ( $ m) 8 .0 1 0 .0 - - -
P/ E 1 . 4 1 . 1 - - -
EV/ EBITDA 0 . 7 1 . 3 - - -
EV/ Sal es 0 . 2 8 0 . 5 2 - - -
P/ Book 0 . 1 8 0 . 1 6 - - -

Management - 5 7 .7 %
Icon PE - 6 .0 %
Free Fl oat - 3 6 .3 %
0 .0
0 .5
1 .0
1 .5
2 .0
2 .5
3 .0
Nov-1 1 Jan-1 2 Apr-1 2 Jul -1 2 Oct -1 2
Si nt al
KP-Dragon ( rel .)

November 2012


Sintal Agriculture: Investment Highlights
Sintal Agriculture, founded in 1992, leases about 150,000 ha of land, including
118,800 ha in Kherson and 28,000 ha in Kharkiv regions. The layer of humus in
Sintals soil is 15-20% thicker than on average across Ukraine. Quality black soils
(chernozem) make up 80-85% of the companys land. Hot and dry weather
prevailing in southern Ukraine in the summer makes irrigation crucial to achieving
superior crop yields. Sintal currently has 19,300 ha under irrigation (this system
was built in the Soviet era but the company has invested heavily in its
modernization). Sintal owns an irrigation pipe network located 120 meters from
the Dnipro river, Ukraines major waterway, but the channels through which
water is pumped from the river and which span the companys land bank are
leased from the state. Sintal uses its own irrigation equipment to pump water to its
fields. The company produces wheat, corn, barley, rapeseed, peas, soybeans,
sunflower seeds and sugar beet and uses mini-till and no-till farming technologies.
Sintal boasts a partly irrigated
land bank

Sintal Land Bank (2012)
Source: Company

Sintal increased its land bank by 46,000 ha in 2011 through acquisition of Agrika,
an agricultural company owned by Icon Private Equity. The land is located in
Kherson region in proximity to the companys existing land holdings. Sintal
commented that the newly acquired land has no irrigation system (which is
needed for grain growing in this low-precipitation region of Ukraine) and thus the
company plans to invest in irrigation. The deal was in the form of a share exchange
agreement, according to which Icon transferred 100% of Agrikas shares to Sintal in
exchange for a 6% stake in Sintal. Additionally, the fund provided Sintal with an
$8m convertible loan, which may potentially increase Icons stake to 10.8%.
The company expanded its
land bank by 46,000 ha in 2011
Sintal previously announced plans to expand its irrigated land area to 80,000 ha in
2013 to cover 65-70% of its Kherson region land bank. The companys long-term
strategy envisages building 50 kt of storage capacity per every 25,000 ha of
harvested land. Sintal is currently building a 100 kt silo in Kharkiv region, with the
first 50 kt phase completed in 2011. More importantly, irrigation could potentially
allow Sintal to collect two harvests a year.
Targeting collection of two
harvests a year from southern
Ukrainian fields

Lviv
Uzhgorod
Ternopil
Rivne
Lutsk
Zhytomyr
Kyiv
Vinnytsia
Chernihiv
Sumy
Poltava
Cherkasy
Kirovohrad
Mykolayiv
Odesa
Kherson
Simferopol

Zaporizhya
Kharkiv

Luhansk

Donetsk

Chernivtsi
Dnipropetrovsk
k
Ivano-Frankivsk
November 2012


Sintal harvested 82,700 ha of
land in 2011...
The company took a strategic decision to change its crop rotation plan, increasing
the share of sunflower, rapeseed, soybean and corn for the 2011 harvest. As a
result, the area under sunflower rose by 38% y-o-y to 20,700 ha (25% of total),
winter rapeseed area spiked by 202% to 16,300 ha, soybean area inched up 7% to
9,000 ha, and corn area increased by 39% to 7,500 ha. The companys total winter
wheat acreage fell 42% y-o-y to 28,300 ha, with negligible volumes of other crops
also sown.
producing 203.5 kt of grain
and oilseeds
Sintal produced 203.5 kt (-3% y-o-y) of grain and oilseeds and 19 kt of sugar beet (-
52% y-o-y) in 2011. Winter wheat, winter rapeseed and corn jointly contributed
65% to the total 2011 harvest. Last year, the company boosted output of rapeseed
(+432% y-o-y to 43.1 kt), corn (+68% y-o-y to 38.0 kt), winter barley (+43% y-o-y to
23.7 kt) and sunflower seeds (+41% y-o-y to 35.9 kt), while its production of winter
wheat declined 51% y-o-y to 58.9 kt on a 51% y-o-y decline in winter wheat planted
acreage. Soybean output was down 2% y-o-y to 15.6 kt.

Sintal Acreage Breakdown by Crop (2011)
Source: Company

Sintal Grain and Oilseed Harvest Breakdown by Crop (2011)
Source: Company

...and improving yields by 23%
y-o-y on average
Sintal registered an overall increase in crop yields of 23% y-o-y in 2011, in
particular its rapeseed yield averaged 2.6 t/ ha (+73% y-o-y) exceeding the
Ukrainian average by 50%. Barley yield rose to 2.7 t/ ha (+50% y-o-y), 8% above the
national average over the period. Sunflower yield improved by 6% y-o-y to 1.7
t/ ha while soybean yield declined 11% y-o-y, to 1.7 t/ ha. The companys reported
corn yield of 5.0 t/ ha increased by 19% y-o-y, but still stood 22% below the
national average due to the low level of precipitation in the Kherson region, which
created unfavorable weather conditions for this crop.

Sintal Crop Yields vs. Ukrainian Averages (t/ ha; 2011)

Sintal Winter Crop Acreage Breakdown (2012)
Source: Company

Sunf l ower
Seed
2 4 .7 %
Wheat
2 3 .2 %
Rapeseed
1 9 .5 %
Soybeans
1 0 .8 %
Barl ey
1 0 .7 %
Corn
9 .0 %
Sugar Beet
1 .0 %
Ot her
1 .1 %
Wi nt er wheat
2 6 .5 %
Wi nt er
rapeseed
1 9 .6 %
Corn
1 7 .6 %
Sunf l ower
1 6 .7 %
Wi nt er barl ey
1 0 .8 %
Soybeans
6 .9 %
Sugar beet
1 .0 %
Ot her
1 .0 %
1 . 5 1 . 6
1 . 8
1 . 9
3 . 0
4 . 2
2 . 6
1 . 7
2 . 7
1 . 7
3 . 0
5 . 0
1 . 7
1 . 9
2 . 5
2 . 0
3 . 4
6 . 4
0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
6 .0
7 .0
R
a
p
e
s
e
e
d
S
u
n
f
l
o
w
e
r

S
e
e
d
B
a
r
l
e
y
S
o
y
b
e
a
n
s
W
h
e
a
t
C
o
r
n
2 0 1 0 Si nt al 2 0 1 1 Si nt al 2 0 1 1 Ukrai ne Avg.
Wheat
5 4 . 5 %
Barl ey
2 9 . 0 %
Rapeseed
1 6 . 0 %
Ot her
0 . 5 %

November 2012


Sintal has planted winter crops on 60,575 ha of land (+36% y-o-y) for the 2012
harvest, as newly acquired assets from Agrika were promptly integrated with
Sintals operations. To balance its crop mix, the company slashed rapeseed
sowings in favor of wheat and barley (54% and 29% of land bank under these
crops, respectively). The share of winter rapeseed in total winter sowings dropped
from 36% in 2010 to 16% in 2011. However, due to very low temperatures this
winter, Sintals winter crops were severely damaged with about 40,000 ha of
plantings (67% of total) killed and the remaining 20,000 ha registering an average
yield of only 0.5-0.6 t/ ha.
2012 winter crops
According to company data as of September 2012, Sintal generated revenues of
$42m (+32% y-o-y) and EBITDA of $18m (+41% y-o-y) in 2011, for an EBITDA
margin of 42.9% (+2.7pp y-o-y). The company sold its grain inventory from the
2011 harvest in 1Q12 and, expecting substantial corn yield improvement, the
company plans to sell its 2012 harvest also this year. Sintal does not plan to sow
winter crops for the 2013 harvest, and will possibly plant sunflower on 50,000 ha in
spring in Kherson region depending on weather conditions and soil tests the
company plans to perform. Sintal also does not rule our disposing of some of its
land in the Kherson region in order to concentrate on more productive land plots.
2011 results and outlook
As of September 2012, Sintals total debt stood at $25m, including an $8m
convertible loan provided by Icon Private Equity. The company is scheduled to
repay $4m of loans by end-2012 with the remaining $21m maturing in 2013 (but
planned to be prolonged). Sintal is also currently negotiating a $10-12m loan that
will be pledged by shareholder equity, for spending on working capital, debt
repayments and possibly purchase of lease rights for 22,000 ha of land in Kyiv
region with a further 15,000 ha of land available for purchase in close proximity.
Debt

November 2012



Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Grai n Crops ( 0 0 0 t ) 3 2 8 . 8 2 0 9 . 5 2 0 3 . 5 - -
Growt h ( %, y-o-y) 3 6 % ( 3 6 %) ( 3 %) - -
Sugar Beet ( 0 0 0 t ) 1 7 . 8 3 9 . 7 1 9 . 0 - -
Growt h ( %, y-o-y) ( 6 0 %) 1 2 4 % ( 5 2 %) - -
Profit & Loss Statement ($m)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 3 0 . 4 3 1 . 8 - - -
EBITDA 1 1 . 8 1 2 . 8 - - -
Depreci at i on ( 1 . 8 ) ( 1 . 3 ) - - -
EBIT 1 0 . 0 1 1 . 5 - - -
Net Fi nanci al Income ( Loss) ( 1 . 6 ) ( 1 . 3 ) - - -
NIBT 8 . 0 1 0 . 2 - - -
Taxes 0 . 7 ( 0 . 6 ) - - -
Net Income ( Loss) 8 . 0 1 0 . 0 - - -
Balance Sheet ($m)
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 5 9 . 5 7 2 . 2 - - -
Fi xed Asset s 1 4 . 8 1 7 . 4 - - -
PPE 1 4 . 7 1 7 . 2 - - -
Current Asset s 4 4 . 6 5 4 . 8 - - -
Invent ori es 1 7 . 8 2 8 . 0 - - -
Account s Recei vabl e 1 . 0 3 . 8 - - -
Cash & Cash Equi val ent s 7 . 6 0 . 0 - - -
Tot al Li abi l i t i es & Equi t y 5 9 . 5 7 2 . 2 - - -
Tot al Li abi l i t i es 1 2 . 4 1 5 . 1 - - -
Account s Payabl e 7 . 2 9 . 5 - - -
Bank Debt 5 . 2 5 . 6 - - -
Equi t y 6 1 . 1 7 1 . 3 - - -
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) ( 1 9 %) 4 % - - -
EBITDA Growt h ( y-o-y) ( 4 %) 9 % - - -
Net Income Growt h ( y-o-y) 4 2 3 % 2 4 % - - -
EBITDA Margi n 3 8 . 7 % 4 0 . 2 % - - -
Net Margi n 2 6 . 4 % 3 1 . 4 % - - -
Net Debt / Equi t y ( 4 %) 8 % - - -
ROE 1 3 . 1 % 1 4 . 0 % - - -

November 2012



November 2012


Alpcot Agro: Strong Operating
Results, But Still Loss Making
Price Target ($) -
Upside (%)
-

Highlights
Company Data
Profile
Alpcot Agro is a Swedish company that was incorporated in 2006 and invests in
farmland and associated agricultural operations in Russia and Ukraine. Since
October 2009 Alpcot Agro shares have been listed on the NASDAQ OMX First
North in Stockholm. The company currently operates 186,200 ha of land in
Russia (64% of total) and 101,800 ha in Ukraine (36% of total). The company
expanded its operations in Ukraine through acquisition of Landkom
International in late 2011. Alpcot Agro also had 6,973 head of cattle as of end-
1H12.
Strong operating results in 2011 but weak financials
Alpcot Agro produced 279.8 kt (+155% y-o-y) of grain and oilseeds in 2011,
harvested from 91,400 ha of land (+29% y-o-y). The companys harvest reached
215.6 kt in Russia (+118% y-o-y thanks to strong yields) and 64.2 kt in Ukraine
(+489% y-o-y thanks to doubled acreage following acquisition of Landkom).
Alpcot Agro reported a 30% y-o-y increase in 2011 revenues, to $39.0m, but
remained loss-making.
1H12 profitability growth attributed to gains on acquisition of Landkom
Alpcot Agro revenues reached $25.8m in 1H12 (+134% y-o-y) driven mainly by
sales of grain inventories from the 2011 harvest, with crop sales (77% of total
revenues) tripling y-o-y in value terms. Reported 1H12 EBIT growth to $8.8m
(+868% y-o-y) was attributable to a $14.3m one-off gain related to the Landkom
acquisition. However, disregarding the acquisition gain, Alpcot Agro reported
an operating loss of $5.5m.
2012 yields for winter crops in Ukraine above national average
The company planted 133,400 ha of land for the 2012 harvest, including 66,500
ha with winter crops (mainly winter wheat and rapeseed) and 66,900 ha with
spring crops. Reported 2012 winter wheat yield of 3.7 t/ ha and winter barley
yield of 3.2 t/ ha exceeded the respective Ukrainian averages by 27% and 56%,
respectively, while the winter rapeseed yield (2.4 t/ ha) was in line with the
national average. In Russia, the companys yields for winter wheat improved
by 31% y-o-y in Kaliningrad, to 4.2 t/ ha, and were mostly unchanged y-o-y in
central Russia, reaching 2.6 t/ ha (-4% y-o-y). Alpcot Agro plans to increase its
cultivated land bank for the 2013 harvest, planning winter crop plantings in
excess of 65,000 ha.
Long-term strategy
Alpcot Agro plans to divest its non-core land assets in central Ukraine and
Russia, and to consolidate its land bank in western Ukraine. The company aims
to cultivate around 150,000 ha of land in Russia and 100,000 ha in western
Ukraine by 2015, though it does not foresee any large M&A until 2014. The
company also plans to develop dairy operations, targeting annual revenues of
$20m and EBITDA margin of 40% by 2015.
Market Pri ce ( SEK) 6 .6 0
Market Cap ( $ m) 1 3 7 .8
Ent erpri se Val ue ( 1 1 ; $ m) 1 5 4 .2
Free Fl oat ( %) 1 0 0 %
Free Fl oat ( $ m) 1 3 7 .8
Shares Out st andi ng 1 3 9 ,0 0 8 ,6 5 8
Nomi nal Val ue ( SEK) -
Bl oomberg Code ALPA SS
DR Rat i o -



1 2 -mont h Rel . Perf orm. ( KP-Dragon) ( 7 %)
Al l -t i me Low/ Hi gh ( $ / share) 0 .8 7 / 2 .6 0

Valuation Summary 2011 Revenues ($m)
Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 2 3 .4 3 0 .0 3 9 .0 - -
EBITDA ( $ m) ( 1 8 .7 ) ( 1 5 .5 ) ( 0 .3 ) - -
Net Income ( $ m) ( 3 6 .4 ) ( 3 4 .6 ) ( 2 2 .9 ) - -
P/ E neg. neg. neg. - -
EV/ EBITDA neg. neg. neg. - -
EV/ Sal es 6 .4 4 5 .4 6 4 .2 7 - -
P/ Book neg. 3 .9 1 1 .9 9 - -
Free Fl oat - 1 0 0 %
0 .5 0
1 .0 0
1 .5 0
2 .0 0
Al pcot Agro
KP-Dragon ( rel .)
Crops
8 0 %
Mi l k and
meat
1 6 %
Ot her
4 %

November 2012


Alpcot Agro: Investment Highlights
Alpcot Agro is a Swedish company that was incorporated in 2006 and invests in
farmland and associated agricultural operations in Russia and Ukraine. The company
commenced operations in Russia in 2007 and in Ukraine in 2008. Alpcot Agro operates
186,200 ha of land in Russia (64% of total) and 101,800 ha in Ukraine (36%). In order to
optimize crop production, Alpcot Agros land is organized in large clusters of about
30,000 ha. All large clusters are equipped with full infrastructure: logistics, storage and
machinery. Regions of operations in Russia are organized into four mega-clusters,
while in Ukraine (due to recent land bank expansion) land reorganization is in
progress. In order to improve yields, Alpcot Agro started to implement no-till
technology, which secures soil humidity, conserves nutrients and prevents soil erosion
and demands less usage of fossil fuels. Land operated by Alpcot Agro in Russia is
possessed through direct and indirect ownership and lease. Given the moratorium on
agricultural land sales, all operated land in Ukraine is leased. Alpcot Agros business
structure also includes five livestock units in Russia with 6,973 head of cattle as of end-
1H12.
Alpcot Agro is an agricultural
producer cultivating 288,000 ha
of land in Russia and Ukraine

Alpcot Agro Ukrainian Land Bank
Source: Company

Alpcot Agro Land Bank Breakdown (2012)
Source: Company

Alpcot Agro acquired AIM-listed Landkom International, with 79,230 ha of land in
western Ukraine, in January 2012 after Landkom shareholders approved the
acquisition. Under the terms of the acquisition, one newly issued share of Alpcot Agro
was exchanged for 22.16 Landkom shares. As a result, former Landkom shareholders
came to own 16.43% of issued share capital of the enlarged group (excluding the
placing shares). Landkom agreed to the takeover due to needing to refinance a
significant part of its working capital facilities in order to operate effectively and keep
up production levels.
Acquisition of Landkom

Alpcot Agro Harvested Area in Ukraine (000 ha)
Source: Company

Alpcot Agro Harvested Area in Russia (000 ha)
Source: Company

Regi st ered
l and, Russi a
3 1 . 2 %
Indi rect l y
owned l and,
Russi a
4 . 4 %
Leased l and,
Russi a
2 8 . 2 %
Leased l and,
Ukrai ne
3 6 . 2 %
1 . 3
0 . 4
0
0 . 7
0
5 . 5
3 . 3
2 . 5
1 . 5
0 . 9
0
1
2
3
4
5
6
Wi nt er wheat Corn Soybean Buckwheat Rape
2 0 1 0 2 0 1 1
3 3 . 3
1 3 . 7
4 . 2
3 . 0
1 3 . 3
3 6 . 0
1 6 . 1
5 . 5 5 . 6
1 2 . 5
0
1 0
2 0
3 0
4 0
Wi nt er wheat Sunf l ower Spri ng wheat Spri ng rape Ot her
2 0 1 0 2 0 1 1
November 2012


Alpcot Agro produced 279.8 kt
(+155% y-o-y) of grains and
oilseeds from 91,400 ha in 2011
Alpcot Agro produced 279.8 kt (+155% y-o-y) of grains and oilseeds in 2011, harvested
from 91,400 ha of land (+29% y-o-y). The companys harvest reached 215.6 kt (+118% y-
o-y) in Russia and 64.2 kt in Ukraine (+489% y-o-y), thanks to outstanding crop yields
in Russia and doubled acreage in Ukraine following acquisition of Landkom. The major
crops included winter wheat (119.0 kt), corn (est. 43.7 kt) and sunflower (est. 36.6 kt),
which jointly accounted for 71% of Alpcot Agros 2011 harvest.

Ukraine: Alpcot Agros Harvest Breakdown (volume; 2011)
Source: Company

Russia: Alpcot Agros Harvest Breakdown (volume; 2011)*
Note: *Other include soybean, beans, buckwheat, winter rapeseed
Source: Company
2011 yields above average

Alpcot Agro reported an average crop yield of 3.1 t/ ha in 2011 compared to 1.6 t/ ha in
2010. The companys Ukrainian crop yields were higher overall. Winter wheat and corn
jointly accounted for 87% of the 2011 harvest in Ukraine, recording yields of 4.5 t/ ha for
winter wheat (+73% y-o-y) and 9.4 t/ ha for corn (+16% y-o-y), which exceeded the
respective domestic averages by 32% and 47%. Though Alpcot Agros Russian yields
for winter wheat (3.0 t/ ha; 44% of total 2011 harvest in Russia) underperformed the
national average by 13%, yields for other major crops, including sunflower (2.3 t/ ha;
17% of total), barley (2.6t/ ha, 6%) and corn (6.4 t/ ha; 6%), exceeded national averages
by 18-72%.

Ukraine: Alpcot Agro Crop Yields vs. Average (t/ ha; 2011)
Source: Company, SSS
Russia: Alpcot Agro Crop Yields vs. Average (t/ ha; 2011)
Source: Company, State Statistics of Russia, Dragon Capital estimates
2012 planted area up 40% y-o-y

The company planted 133,400 ha of land for the 2012 harvest, including 127,400 ha
(+40% y-o-y) with commercial crops and 6,000 ha with feed crops for in-house use (the
companys dairy segment). Alpcot Agro planted 66,500 ha with winter crops (50% of
total area), mainly with winter wheat (about 66% of total area under winter crops) and
rapeseed (30%). Spring crops were planted on 66,900 ha (50% of total area for the 2012
harvest), including sunflower (17,300 ha or 26% of total area under spring crops), corn
(14,100 ha; 21%), barley (8,500 ha; 13%), soybean (6,900 ha; 10%) and spring rapeseed
(4,200 ha; 6%).
Corn
4 8 . 1 %
Wi nt er wheat
3 8 . 8 %
Soybean
6 . 5 %
Buckwheat
2 . 8 %
Rapeseed
3 . 7 %
Wi nt er wheat
4 3 . 6 %
Sunf l ower
1 7 . 0 %
Sugar beet
1 3 . 0 %
Barl ey
6 . 2 %
Corn
5 . 9 %
Spri ng Wheat
4 . 4 %
Spri ng
rapeseed
3 . 7 %
Ot her
6 . 2 %
6 . 4
3 . 4
1 . 7
2 . 0
1 . 0
9 . 4
4 . 5
2 . 7
1 . 7
1 . 2
0
2
4
6
8
1 0
Corn Wi nt er wheat Rapeseed Soybean Buckwheat
Ukrai ne Avg.
Al pcot Agro Ukrai ne
4 . 3
3 . 0
2 . 2
1 . 3
1 . 6
1 . 1
6 . 4
2 . 6 2 . 6
2 . 3
1 . 7
1 . 4
0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
6 .0
7 .0
Corn Wi nt er wheat Barl ey Sunf l ower Spri ng wheat Spri ng rape
Russi a Avg.
Al pcot Agro Russi a

November 2012


Alpcot Agro Planted Areas under Winter Crops (ha; 2012)
Source: Company

Alpcot Agro Planted Areas under Spring Crops (ha; 2012)
Source: Company
Despite low temperatures in 2M12 and lack of snow cover, which affected winter
wheat and barley, average yields for Alpcot Agros winter crops were in line with the
companys 2011 results and higher than Ukrainian averages. As of Aug. 31, 2012,
Alpcot Agro reported a winter wheat yield of 3.7 t/ ha and a winter barley yield of 3.2
t/ ha, which exceeded Ukrainian averages by 27% and 56%, respectively. Alpcot Agros
winter rapeseed yield of 2.4 t/ ha was in line with the national average. In Russia, the
companys yields for winter wheat improved 31% y-o-y in Kaliningrad to 4.2 t/ ha, and
were largely unchanged y-o-y in central Russia reaching 2.6 t/ ha (-4% y-o-y).
Reported 2012 winter crop
yields in Ukraine above
national averages
Alpcot Agro intends to increase the share of its land bank under cultivation for the
2013 harvest. The company plans winter plantings in excess of 65,000 ha with over
30,000 ha in Russia (mainly winter wheat) and around 35,000 ha in Ukraine (rapeseed,
winter wheat and winter barley).
Alpcot Agro targets over 65,000
ha of land under winter crops
for 2013 harvest

Ukraine: Alpcot Agro Winter Crop Yields vs. Average (t/ ha; 2012)*
Note: *Ukrainian average yields as of Sep. 3, 2012. Source: Company, SSS

Russia: Alpcot Agro Winter Wheat Yields (t/ ha; 2011-2012)
Source: Company

Alpcot Agro operates five large livestock units in Russia, located centrally in each of the
companys different crop production clusters, in order to benefit from the synergies
between crop and livestock production. The main purpose of livestock operations is
milk production, while Alpcot Agro also operates meat production on a smaller scale.
As of end-2011 the companys livestock operations encompassed 7,588 head of cattle
(+25% y-o-y), including 2,990 milking cows, 3,365 heifers and 1,233 bulls and calves.
The company produced 12.1 kt of milk in 2011 (+20% y-o-y), recording an average cow
milk yield of 5,101 l/ year, 8% higher than the Russian average. Alpcot Agro had 6,973
head of cattle as of end-1H12, including 3,204 milking cows (+14% y-o-y) that produced
an est. 8.6 kt of milk (+44% y-o-y) and contributed 20% to total sales in the first half of
the year.
Milk and meat production
contribute around 20% to
companys total revenue
Wi nt er wheat
6 6 . 3 %
Wi nt er
rapeseed
2 9 . 8 %
Wi nt er barl ey
3 . 9 %
Sunf l ower
2 5 . 8 %
Corn
2 1 . 1 %
Barl ey
1 2 . 7 %
Soybean
1 0 . 3 %
Forage crops
9 . 0 %
Spri ng
Rapeseed
6 . 3 %
Ot her
1 4 . 8 %
2 . 9
2 . 1
2 . 4
3 . 7
3 . 2
2 . 4
0
1
2
3
4
Wi nt er wheat Wi nt er barl ey Wi nt er rapeseed
Ukrai ne Avg. Al pcot Agro Ukrai ne
2 . 7
3 . 2
2 . 6
4 . 2
0
1
2
3
4
5
Cent ral Russi a Kal i ni ngrad
2 0 1 1 2 0 1 2
November 2012


Alpcot Agro Milk Production (1Q11-2Q12)
Source: Company

Alpcot Agro Livestock (heads; 1H11-1H12)
Source: Company

Strong operating results but
weak financials
Alpcot Agro reported 2011 revenues of $39.0m (+30% y-o-y) supported by increased
volume sales of grain (+47% y-o-y; grain accounting for 80% of total 2011 revenues) but
partially offset by a decline in the average grain price (-25% y-o-y in Russia; -24% in
Ukraine). However, Alpcot Agro remained loss-making in 2011, reporting negative
EBITDA of $0.3m (vs. negative $15.5m in 2010) and a net loss of $22.9m (vs. $34.6m loss
in 2010).
1H12 EBIT growth driven by an
one-off gain on Landkoms
acquisition

The companys revenues reached $25.8m (+134% y-o-y) in 1H12 driven mainly by sales
of grain inventories from 2011 the harvest while crop sales (77% of total revenues)
tripled y-o-y in value terms. Reported 1H12 EBIT of $8.8m (+868% y-o-y) was attributed
to a $14.3m one-off gain (negative goodwill on business combination) related to
acquisition of Landkom. However, disregarding the acquisition gain, Alpcot Agro had
an operating loss of $5.5m in 1H12.
Alpcot Agro has 290 kt of
storage capacities

Alpcot Agro increased its total storage capacity to 290.1 kt (+38% y-o-y) in 2011, and
purchased 20 kt of additional grain storage capacity that is yet to be put into operation.
Storage facilities in Russia reached 191.0 kt last year, mainly comprised of granaries
(76% of total). The companys Ukrainian storage capacity amount to 99.1 kt, accounting
for Landkoms facilities, represented by silos (55% of total Ukrainian capacities) and
granaries (45%).
Long-term strategy In the long term, Alpcot Agro plans to divest its non-core land assets in central Ukraine
and Russia, consolidate its land bank in western Ukraine and obtain ownership of
indirectly-owned land in Russia. The company aims to cultivate around 150,000 ha of
land in Russia and 100,000 ha in western Ukraine by 2015, though it does not foresee
any large-scale M&A until 2014. The company also plans to develop its dairy segment,
planning to double daily milk output to 100 t (vs. 48 t in 1H12), increase average cow
milk yield to 8,000 l/ year (vs. 5,101 l/ year in 2011), generate annual revenues of $20m
and achieve a 40% EBITDA margin in the segment by 2015.

2 . 8
3 . 2
3 . 3 2 . 9
3 . 8
4 . 8
1 , 1 6 1
1 , 3 5 7 1 , 3 9 9
1 , 1 9 0
1 , 6 2 6
1 , 7 3 7
0
5 0 0
1 0 0 0
1 5 0 0
2 0 0 0
0 .0
1 .0
2 .0
3 .0
4 .0
5 .0
Q1 2 0 1 1 Q2 2 0 1 1 Q3 2 0 1 1 Q4 2 0 1 1 Q1 2 0 1 2 Q2 2 0 1 2
Mi l k Product i on ( kt ; l hs)
Average mi l k product i on per cow ( l i t ers; rhs)
7 7 3
2 , 5 3 0
2 , 8 0 1
8 1 8
2 , 9 5 1
3 , 2 0 4
0
1 ,0 0 0
2 ,0 0 0
3 ,0 0 0
4 ,0 0 0
Bul l s and cal ves Hei f ers Dai ry cows
1 H1 1 1 H1 2

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Grai n Crops Out put i n Ukrai ne ( 0 0 0 t ) 1 1 . 7 1 0 . 9 6 4 . 2 - -
Growt h ( % y-o-y) - ( 7 %) 4 8 9 % - -
Grai n Crops Out put i n Russi a ( 0 0 0 t ) 1 6 9 . 3 9 8 . 9 2 1 5 . 6 - -
Growt h ( % y-o-y) - ( 4 2 %) 1 1 8 % - -
Tot al Grai n Crops Produced ( 0 0 0 t ) 1 8 1 . 0 1 0 9 . 8 2 7 9 . 8 - -
Growt h ( % y-o-y) - ( 3 9 %) 1 5 5 % - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 2 3 . 4 3 0 . 0 3 9 . 0 - -
EBITDA ( 1 8 . 7 ) ( 1 5 . 5 ) ( 0 . 3 ) - -
Depreci at i on ( 6 . 0 ) ( 8 . 9 ) ( 1 1 . 9 ) - -
EBIT ( 2 4 . 7 ) ( 2 4 . 4 ) ( 1 2 . 2 ) - -
Net Fi nanci al Income ( Loss) 0 . 2 ( 1 3 . 6 ) ( 2 . 7 ) - -
NIBT ( 2 4 . 5 ) ( 2 3 . 8 ) ( 1 4 . 9 ) - -
Taxes 1 . 7 0 . 3 ( 0 . 1 ) - -
Net Income ( Loss) ( 3 6 . 4 ) ( 3 4 . 6 ) ( 2 2 . 9 ) - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 1 6 2 . 2 1 8 8 . 9 1 9 6 . 1 - -
Fi xed Asset s 9 7 . 7 1 2 2 . 1 1 1 2 . 6 - -
PPE 5 8 . 9 9 5 . 0 9 0 . 9 - -
Current Asset s 4 9 . 0 5 6 . 6 7 6 . 7 - -
Invent ori es 1 6 . 3 1 4 . 6 2 5 . 9 - -
Account s Recei vabl e 1 7 . 4 1 4 . 5 1 5 . 9 - -
Cash & Cash Equi val ent s 4 . 7 9 . 8 9 . 3 - -
Tot al Li abi l i t i es & Equi t y 1 6 2 . 2 1 8 8 . 9 1 9 6 . 1 - -
Tot al Li abi l i t i es 1 8 . 1 3 8 . 9 3 6 . 1 - -
Account s Payabl e 1 0 . 8 1 4 . 1 1 0 . 1 - -
S/ T Debt - - - - -
L/ T Debt 7 . 0 2 4 . 6 2 5 . 7 - -
Equi t y ( 1 9 . 8 ) 3 6 . 7 7 2 . 0 - -
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) - 2 8 % 3 0 % - -
EBIT Growt h ( y-o-y) - nm nm - -
Net Income Growt h ( y-o-y) - nm nm - -
EBITDA Margi n ( 8 0 . 1 %) ( 5 1 . 7 %) ( 0 . 7 %) - -
Net Margi n ( 1 5 5 . 6 %) ( 1 1 5 . 1 %) ( 5 8 . 8 %) - -
Net Debt / Equi t y ( 1 2 %) 4 3 % 2 6 % - -
ROE nm ( 9 4 . 2 %) ( 3 1 . 8 %) - -

November 2012


KSG Agro: Hit by Unfavorable
Weather
Price Target ($) -
Upside (%)
-

Highlights

Profile
KSG Agro is a Ukrainian agricultural producer with a land bank of 92,000 ha
(primarily in the Dnipropetrovsk region). KSG Agro specializes in crop
growing, focusing on sunflower, wheat, barley, rapeseed and soya. The
company is also actively developing fruit and vegetable farming. KSG Agro
controls over 2,000 ha of land with irrigation infrastructure inherited from the
Soviet era. The company also breeds pigs and produces fuel pellets for use as
a renewable energy source.
Severely hit by unfavorable weather
In 2012, KSG planted 65,300 ha of land (-18% vs. initially planned 84,000 ha
due to delayed land acquisitions), including sunflower (41% of total area),
wheat (28%), corn (12%), barley (12%) and other crops (7%). However,
extremely hot summer temperatures in the Dnipropetrovsk region adversely
affected yields, with average 2012E yield declining by 21% y-o-y (to 1.9 t/ ha).
As a result, the company cut its 2012 harvest projections almost in half to
122.6kt (+15% y-o-y) from the 232.3 kt expected initially (+118% y-o-y).
the company cut its 2012 EBITDA estimate in half
KSG downgraded its full-year financial guidance due to the severe decline in
harvest expectations caused by unfavorable weather. The company is thus
currently expecting 2012 net sales of $53.8m (+55% y-o-y but 19% below its
previous estimate), EBITDA of $25.0m (-19% y-o-y and -41%) and net income
of $14.2m (-49% y-o-y and -55%), implying EBITDA and net margins
(factoring in estimated $24.5m full-year change in fair value of biological
assets and agricultural produce) of 32.0% and 18.1%, respectively.
Revenue diversification is a medium-term target
In addition to land bank expansion (to 200,000 ha by 2015), KSG Agros
strategy also focuses on revenue diversification and increasing vertical
integration to smooth cash flows throughout the year which are now greatly
affected by seasonality of farming production and the volatility of
agricultural commodity prices. Thus, in 2012 the company started
reconstruction of a pig farm in Dnipropetrovsk region aimed at creation of a
pig breeding complex with annual capacity of 19 kt of pork (targeted by
2016). The company also plans to intensify production of fuel pellets (60 kt
annually by 2015). The combined share of the two segments is expected to
reach 30% of the companys revenues by 2015.
Risks: weather, land reform and export restrictions
Similar to other grain producers, weather conditions are the biggest risk for
KSG Agros operating and financial performance. Regulatory changes also
represent a key risk as the agricultural industry in Ukraine is subject to
governmental regulation and export curbs (quotas or tariffs).

Company Data
Market Pri ce ( PLN/ share) 1 1 .6 2
Market Pri ce ( $ / share) 3 .5 7
Market Cap ( $ m) 5 3
Ent erpri se Val ue ( 1 2 E; $ m) 7 5
Free Fl oat ( %) 3 4 .4 %
Nomi nal Val ue ( $ ) 0 .0 1
Bl oomberg Code KSG PW
DR Rat i o -



1 2 -mont h Perf ormance ( $ )
( 4 1 %)
1 2 -mont h Rel . Perf orm. ( KP-Dragon)
( 3 0 %)
1 2 -mont h Low/ Hi gh ( $ / share)
3 .5 5 -7 .6 9
Al l -t i me Low/ Hi gh ( $ / share)
3 .5 5 -1 0 .1 5
1 2 -mont h Tradi ng Vol ume ( $ m)
1 3 .6

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 1 3 . 8 1 5 . 6 3 4 . 7 - -
EBITDA ( $ m) 5 . 8 1 2 . 2 3 0 . 8 - -
Net Income ( $ m) 2 . 5 1 0 . 0 2 8 . 2 - -
P/ E 2 1 . 1 5 . 3 1 . 9 - -
EV/ EBITDA 1 1 . 1 5 . 0 2 . 5 - -
EV/ Sal es 4 . 7 0 3 . 9 1 2 . 1 7 - -
P/ Book 1 2 . 3 2 5 . 1 7 0 . 7 4 - -
ICD Invest ment s - 6 5 . 6 5 %
Free f l oat - 3 4 . 3 5 %
2 .0
4 .0
6 .0
8 .0
Nov-1 1 Feb-1 2 May-1 2 Jul -1 2 Oct -1 2
KSG Agro
KP-Dragon Index ( rel .)
Farmi ng
6 8 %
Food
product i on
2 4 %
Pi g
breedi ng
3 %
Veget abl es
2 %
Ot her 3 %

November 2012


KSG Agro: Investment Highlights
KSG Agro is an integrated agricultural company operating in central Ukraine
(primarily Dnipropetrovsk region) with 92,000 ha of land under management (up from
61,000 ha as of end-2011). The company specializes in crop growing and is also actively
developing fruit and vegetable farming. KSG Agro controls over 2,000 ha of land with
irrigation infrastructure inherited from the Soviet era. The company also breeds pigs,
beginning active development of the segment in 2011 due to its high profitability and
benefits arising from vertical integration (e.g. fodder production). In addition, KSG
Agro produces fuel pellets for use as a renewable energy source.
KSG is an integrated
agricultural company
In May 2011 KSG Agro went public on the Warsaw Stock Exchange, placing 33% of its
shares for $39.6m.
trading on the WSE

KSG Agro Land Bank (end-2011)
Note: *land bank in thousands of hectares; Source: Company
KSG Agro Revenue Structure (value terms; 2012E)
Source: Company

Crop growing is the companys core business with a combined 70% share of 2011
revenues, including grain farming (68% of total revenues) and fruit and vegetable
(2%) growing. KSG Agro focuses on growing sunflower, wheat, barley, rapeseed
and soya. The company has also been involved in fruit and vegetable planting,
particularly producing cherries, apples, pears, and apricots in gardens occupying
some 100 ha as well as growing potatoes, carrots, onions, beets, and cabbage. KSG
Agro possesses own grain storage facilities of 120 kt (as of end-9M12) and also
owns facilities to store fruit and vegetables with a capacity of 4,000 tonnes.
KSG Agros core business is
farming
As of end-2011, KSG Agros land bank under management comprised 61,000 ha,
located primarily in Dnipropetrovsk region (54,100 ha) and neighboring Kharkiv
(3,400 ha), and Kherson (1,600 ha) regions as well as in Khmelnytskiy (1,500 ha)
region with the former two being defined as strategic regions (target region) for
further land expansion. Since the beginning of 2012 the company has acquired an
additional 23,000 ha of land in its target region, bringing current land bank to
84,000 ha (+149% since IPO in 2011) and targeting to increase its acreage to 100,000
ha by end-2012 and to 200,000 ha by 2015.
operating 84,000 ha of land

Farmi ng,
2 3 . 6 0 0 ,
6 8 . 0 %
Food
product i on,
8 . 2 0 0 , 2 3 . 6 %
Pi g breedi ng,
1 . 1 0 0 , 3 . 2 %
Veget abl es,
0 . 7 0 0 , 2 . 0 %
Ot her, 1 . 1 0 0 ,
3 . 2 %
3.8*
54.1
1.6
1.5
November 2012


KSG Agro Land Bank (000 ha; 2009-12E)
Note: *year-end. Source: Company
KSG Agro Cropland Breakdown (2012)
Source: Company

Suffered severely from adverse
weather in 2012
For the 2012 harvest, KSG Agro originally planned to plant 80,000 ha (+78% y-o-y).
However due to delays in land acquisitions, the company decreased its cropland to
65,300 ha (18% less than initially planned), which was planted with sunflower
(26,800 ha; or 41% of total), wheat (18,500 ha; 28%), corn (7,800; 12%), barley (7,700
ha; 12%) and other crops (4,500; 7%).
Expected 2012 harvest cut in
half
Moreover, unfavorable weather adversely affected yields, with average 2012E
yield declining by 21% y-o-y to 1.9 t/ ha, including 1.8 t/ ha for sunflower (-22% y-o-
y and 20% below KSG Agros initial expectation), 2.3 t/ ha for wheat (-25% and -
34%, respectively), 1.4 t/ ha for barley (-29% and -52%) and to 2.5 for corn (-43%
and -46%). As a result, the company cut its 2012 harvest projections almost in half
to 122.6kt (+15% y-o-y) from the 232.3 kt expected initially (+118% y-o-y),
projecting 2012E crop farming revenues at $38.8m (+64% y-o-y on the back of
favorable grain and oilseed prices).

KSG Agro Harvest (2011-12R)
Note: 2012E expected harvest, 2012R revised harvest. Source: Company
KSG Agro Crop Yields (t/ ha)

Food processing accounted for
24% of revenues in 2011
Food processing is KSG Agros second largest business segment, accounting for
24% ($8.2m) of total revenues in 2011, providing benefits of vertical integration and
smoothing the companys cash flows throughout the year. The company produces
wheat flour (packaged and raw), buckwheat (packaged and raw), sunflower oil
(bottled), pasta (packaged), vegetables and fruits, selling through domestic retail
chains. The company anticipates 2012E revenues from the segment of $8.8m (+7%
y-o-y).

2 7
3 4
6 1
1 0 0
2 7
3 4
4 6
8 0
0
3 0
6 0
9 0
1 2 0
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
E
Tot al * Cul t i vat ed
Sunf l ower
4 7 %
Wheat
2 2 %
Barl ey
7 %
Corn
6 % Ot her
1 %
Land
Dest ruct ed by
Drought
1 7 %
5 1 .4
6 2 .7
4 6 .9
3 5 .8
9 7 .5
4 2 .4
1 0 .4
3 1 .7
1 0 .5
2 9 .9
1 9 .4
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
2 0 1 1 2 0 1 2 E* 2 0 1 2 R*
Ot her
Corn
Barl ey
Wheat
Sunf l ower
1 . 8
3 . 4
2 . 5
6 . 4
2 . 2
3 . 1
1 . 9
4 . 3
2 . 2
3 . 5
2 . 9
4 . 7
1 . 8
2 . 3
1 . 4
2 . 5
0 . 0
1 . 0
2 .0
3 . 0
4 . 0
5 . 0
6 . 0
7 . 0
Sunf l ower Wheat Barl ey Corn
Ukrai ni an avg. yi el ds ( t / ha; 2 0 1 1 ) KSG Agro yi el ds ( t / ha; 2 0 1 1 )
KSG Agro yi el ds ( t / ha; 2 0 1 2 E) KSG Agro yi el ds ( t / ha; 2 0 1 2 R)

November 2012


In 2011, KSG Agro focused on pig breeding (although the company had been
involved in the business since 2008) seeing benefits from the segments growth
potential, high profitability and integration gains. In line with this strategy, last
year the company increased its pig herd eight-fold to 8,000 head. As a result, the
segments sales are expected to triple y-o-y in 2012, to $3.3m (or 4.5% of total
projected sales, +1.3pp y-o-y). Pork output is currently sold domestically.
Pig breeding
In an attempt to deepen vertical integration, KSG Agro also started processing
farming by-products to produce pellets which are used as fuel for the companys
internal consumption as well as for export to Poland as a renewable energy source.
The company signed a strategic agreement with Polish Energy Partners S.A.,
stipulating mutual cooperation on the construction of a pellet production plant
with annual capacity of 60,000 tonnes and envisaging annual supplies to Poland of
at least 50,000 tonnes of pellets (during seven years after construction). Currently
KSE Agro has two production lines with combined capacity of 7,000 tonnes. In
2012E, the company expects pellet production to contribute 5.0% to total revenues,
while a strategic plan seeks to increase this figure to 15% by 2015 when the plant is
completed.
and fuel pellet production to
account for a joint 9.5% of
2012E revenues

KSG Agro Revenue Structure (value terms; 2012E)
Source: Company
KSG Agro Net Sales and Profitability Margins (2009-12)
Source: Company

In 2011, KSG Agro increased its revenues by 122% y-o-y to $34.7m (including
$14.8m of IFRS 41 Agriculture gains) and posted EBITDA of $30.8m (+152% y-o-y)
and net income of $28.2m (+180%), implying solid EBITDA and net margins of
62.2% and 56.9%.
2011 revenues rose
122% y-o-y
KSG Agro reported 9M12 revenues of $37.1m (+18% y-o-y), including revenues of
$18.6m (+56% y-o-y) and income from change in fair value of biological assets
(under IAS 41) of $18.5m (-5% y-o-y due to weaker harvest expectations caused by
unfavorable weather). The company reported EBITDA of $19.6m (just -1% thanks
to a 6.7x y-o-y increase in depreciation, to $5.3m), EBIT of $14.3m (-25% y-o-y) and
net income of $10.5m (-48% due to an 86% increase in financial expenses, to $3.6m),
implying EBITDA and net margins of 52.9% and 28.2%, respectively. The company
attracted additional debt in 9M12, mostly aimed at expansion into pig breeding
and fuel-pellet segments, bringing outstanding debt to $42.1m (vs. $23.0m as of
end-2011) and increasing its Net Debt/ EBITDA ratio (annualized) to 1.54x as of
end-9M12 from 0.72x as of end-2011.
however bad weather hit
9M12 financials

Crop Farmi ng
7 2 . 1 %
Food Product i on
1 6 . 4 %
Agro Pel l et s
5 . 0 %
Pi g Breedi ng
4 . 5 %
Veget abl es
1 . 5 %
Ot her
0 . 6 %
1 3 . 8 1 5 . 6
3 4 . 7
5 3 . 8
4 . 3
1 6 . 9
1 4 . 8
2 4 . 4
0 %
2 0 %
4 0 %
6 0 %
8 0 %
0
2 5
5 0
7 5
1 0 0
2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 R
Net sal es ( $ m; l hs) IAS 4 1
EBITDA margi n ( %, y-o-y; rhs) Net margi n ( %, y-o-y; rhs)
November 2012


and put full-year results at
risk
KSG downgraded its full-year financial guidance due to a severe decline in harvest
expectations caused by unfavorable weather. The company is currently expecting
2012 net sales of $53.8m (+55% y-o-y but 19% below its previous estimate), EBITDA
of $25.0m (-19% y-o-y and -41%) and net income of $14.2m (-49% y-o-y and -55%),
implying EBITDA and net margins (factoring in estimated $24.5m full-year change
in fair value of biological assets and agricultural produce) of 32.0% and 18.1%,
respectively (-30.2pp y-o-y and -38.7pp).
Medium-term strategy calls for
revenue diversification
In addition to land bank expansion (to 200,000 ha by 2015), KSG Agros medium-
term strategy also focuses on revenue diversification and increasing vertical
integration to smooth company cash flows (which are currently greatly affected by
the seasonality of farming production and the volatility of agricultural commodity
prices). Thus, in 2012 the company started reconstruction of a pig farm in
Dnipropetrovsk region aimed at creation of a pig breeding complex with annual
capacity of 19,000 tonnes of pork (targeted by 2016). The company has already
agreed with French I-TEK to buy EUR 17.6m worth of equipment (to be financed
with bank debt) planning to complete the first stage of the reconstruction by end-
2012 to be followed by acquisition of 4,400 sows. KSG Agro also plans to intensify
production of fuel pellets, targeting at least 60,000 tonnes of output p.a. by 2015. In
general, the company expects pork and fuel pellets to account for a combined 30%
of total revenues by 2015.

November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Land Leased ( 0 0 0 ha; e-o-p) 2 7 2 7 6 1 - -
Growt h ( %, y-o-y) 0 % 0 % 1 2 9 % - -
Land Cul t i vat ed ( 0 0 0 ha; e-o-p) 2 6 2 5 4 6 - -
Growt h ( %, y-o-y) 8 % ( 1 %) 7 9 % - -
Grai n and Oi l seeds Product i on ( 0 0 0 t ) 7 0 5 5 1 0 7 - -
Growt h ( %, y-o-y) 2 4 % ( 2 1 %) 9 5 % - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 1 3 . 8 1 5 . 6 3 4 . 7 - -
EBITDA 5 . 8 1 2 . 2 3 0 . 8 - -
Depreci at i on ( 0 . 6 ) ( 0 . 6 ) ( 1 . 5 ) - -
EBIT 5 . 2 1 1 . 6 2 9 . 2 - -
Net Fi nanci al Income ( Loss) ( 2 . 7 ) ( 1 . 6 ) ( 1 . 1 ) - -
NIBT 2 . 5 1 0 . 0 2 8 . 1 - -
Income Tax Benef i t ( Expense) ( 0 . 0 ) ( 0 . 0 ) 0 . 1 - -
Net Income ( Loss) 2 . 5 1 0 . 0 2 8 . 2 - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 2 6 . 1 2 6 . 3 1 2 2 . 7 - -
Fi xed Asset s 1 0 . 6 1 0 . 8 7 3 . 5 - -
Current Asset s 1 5 . 5 1 5 . 5 4 9 . 2 - -
Invent ori es 4 . 6 5 . 1 1 4 . 8 - -
Current Bi ol ogi cal Asset s 2 . 7 7 . 6 1 3 . 4 - -
Account s Recei vabl es 4 . 0 1 . 7 1 4 . 1 - -
Cash & Cash Equi val ent s 2 . 6 0 . 0 1 . 1 - -
Tot al Li abi l i t i es & Equi t y 2 6 . 1 2 6 . 3 1 2 2 . 7 - -
Account s Payabl e 7 . 0 6 . 7 7 . 9 - -
S/ T Debt 1 1 . 2 5 . 6 1 7 . 5 - -
L/ T Debt 2 . 9 2 . 4 5 . 8 - -
Equi t y 4 . 3 1 0 . 3 7 2 . 4 - -
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) 1 0 1 % 1 3 % 1 2 2 % - -
EBITDA Growt h ( y-o-y) 8 0 % 1 1 0 % 1 5 2 % - -
Net Income Growt h ( y-o-y) ( 3 7 6 %) 2 9 8 % 1 8 0 % - -
EBITDA Margi n 3 2 . 2 % 3 7 . 5 % 6 2 . 2 % - -
Net Margi n 1 4 . 0 % 3 0 . 9 % 5 6 . 9 % - -
Net Debt / Equi t y 2 6 7 . 0 % 7 7 . 1 % 3 0 . 6 % - -
ROE 7 2 . 0 % 1 2 0 . 6 % 5 5 . 0 % - -

November 2012


AgroGeneration: Improving
Financial Performance
Price Target ($) -
Upside (%)
-

Highlights
Company Data
Profile
AgroGeneration is a Paris-listed producer of agricultural commodities,
founded by French investors in 2007. Its activity is concentrated in Ukraine
where it operated about 51,000 ha of land as of end-2011. The company
produces wheat, rapeseed, corn, barley and other crops.
Strong 2011 operating performance...
AgroGeneration produced 163.9 kt of grain and oilseeds in 2011 (+38% y-o-y),
harvested from 47,110 ha of land (+19% y-o-y). Corn and wheat accounted for
38% and 30% of total 2011 harvest, respectively. The company produced 61.6 kt
of corn (+47% y-o-y), 49.8 kt of wheat (+20%), 22.4 kt of barley (+78%) and 13.5
kt of rapeseed (+7%). AgroGeneration managed to substantially improve its
2011 corn yield to 6.5 t/ ha (+30% y-o-y), bringing it in line with the Ukrainian
average of 6.4 t/ ha.
...paved the way for solid results
In value terms, AgroGenerations crop output rose by 67% y-o-y to $44.4m as of
end-2011. However, 2011 revenues totaled only $30.1m (+20% y-o-y) as the
company sold only 96.2 kt (-19% y-o-y) of grain and oilseeds (59% of total
harvest), while the remainder 67.6 kt was left for sale on more favorable terms
in 1H12. The company almost doubled its 2011 EBITDA, to $6.3m (vs. $3.6m in
2010), implying an EBITDA margin of 21.0% (+6.4pp y-o-y), and increased net
income to $3.0m (+144% y-o-y), with a net margin of 10.0% (+5.1pp).
2012 early crop yields substantially outperformed national averages
AgroGenerations 2012 reported yields increased by 1-48% y-o-y as of Sep. 12.
At the same time, due to unfavorable weather, namely low temperatures in
winter and a hot summer, average national yields dropped y-o-y.
AgroGenerations reported yields for wheat (4.3t/ ha: +1% y-o-y), barley (3.7
t/ ha: +22% y-o-y) and rapeseed (2.6 t/ ha; +48% y-o-y) outperformed the
respective national averages by 48%, 68% and 13%, respectively.
Targeting 150,00 ha land bank in five years
AgroGeneration plans to increase its Ukrainian land bank to 100,000 ha as early
as 2Q13-4Q13. The company is also expanding its operations in Argentina
through a joint venture with a strategic partner aiming to put 50,000 ha under
cultivation within the next five years, including 14,000 ha in 2012/ 13 MY.
Market Pri ce ( EUR) 1 .8 1
Ent erpri se Val ue ( 1 1 ; $ m) 9 3 .4
Free Fl oat ( %) 3 7 .0 %
Bl oomberg Code ALAGR FP
DR Rat i o -



Al l -t i me Low/ Hi gh ( $ / share) 1 .9 0 / 3 .5 8

Year 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F

Net Sal es ( $ m) 6 .7 2 5 .0 3 0 .1 - -
EBITDA ( $ m) ( 6 .0 ) 3 .6 6 .3 - -
Net Income ( $ m) ( 7 .4 ) 1 .2 3 .0 - -
P/ E neg. 6 1 .9 2 1 .4 - -
EV/ EBITDA neg. 2 3 .2 1 1 .8 - -
EV/ Sal es 1 0 .6 3 .4 2 .5 - -
P/ Book 2 .9 1 .7 1 .2 - -
Green Al l i ance - 1 8 %
Gravi t at i on - 1 2 %
Al oe PE -1 5 %
Champagne Cereal es - 8 %
A Pl us Fi nance - 6 %
L. E. S. S. Agro - 2 %
SCASEAS - 1 %
Management - 2 %
Free f l oat - 3 7 %
1 .0 0
2 .0 0
3 .0 0
4 .0 0
5 .0 0
AgroGenerat i on
KP-Dragon ( rel .)
Crops
9 8 %
Ot her
2 %

November 2012


AgroGeneration: Investment Highlights
AgroGeneration is a Paris-listed producer of agricultural commodities, founded by
French investors in 2007. Its activity is concentrated in Ukraine where it operated 51,422
ha of land bank as of end-2011, operating in Lviv, Ternopil, Zhytomyr and Sumy
regions. The company produces wheat, rapeseed, corn, barley and other crops.
AgroGnerations business in Ukraine is conducted through two subsidiaries, Agrofuel
(41% of total area operated) and Vinal (59%). The company also operated 850 ha of land
in Argentina as of end-2011.
AgroGeneration is a French
diversified crop producer
operating in Ukraine

AgroGeneration Business Locations
Source: Company

In 2010/ 11 MY (July-June), AgroGeneration harvested 47,110 ha of land (+19% y-o-y).
The company seeded the largest share of its land with wheat (26%) and corn (20%),
followed by rapeseed (16%) and barley (16%). For the 2012 harvest, AgroGeneration
increased its planted area by 7% y-o-y to 50,535 ha. Winter crops were planted on
23,417 ha (+13% y-o-y; 46% of total, with winter wheat accounting for 55% of area) and
spring crops on 27,118 ha (+3% y-o-y; 54% of total).
Wheat and corn accounted for
the largest shares of 2010/11
crop mix
AgroGeneration produced 163.9 kt of grain and oilseeds in 2011 (+38% y-o-y), with
corn and wheat accounting for 38% and 30% of the total harvest, respectively. The
company produced 61.6 kt of corn (+47% y-o-y), 49.8 kt of wheat (+20%), 22.4 kt of
barley (+78%) and 13.5 kt of rapeseed (+7%).
AgroGeneration produced
164 kt of grain and oilseeds in
2011...

AgroGeneration Planted Area Breakdown (2011)
Source: Company

AgroGeneration Crop Production Breakdown (volume; 2011)
Source: Company
Wheat
2 6 . 3 %
Corn
2 0 . 1 %
Rapeseed
1 6 . 3 %
Barl ey
1 5 . 9 %
Ot her
2 1 . 5 %
Corn
3 7 .6 %
Wheat
3 0 .4 %
Barl ey
1 3 .6 %
Rapeseed
8 .3 %
Ot her
1 0 .1 %
Lviv
Uzhgorod
Ternopil
Rivne
Lutsk
Zhytomyr
Kyiv
Vinnytsia
Chernihiv
Sumy
Poltava
Cherkasy
Kirovohrad
Mykolayiv
Odesa
Kherson
Crimea
Zaporizhya
Kharkiv
Luhansk
Donetsk
Chernivtsi
Dnipropetrovsk
Ivano-Frankivsk
Khmelnytskiy
Cropping area (000 of ha)
Storage capacity (000 of tons)
Railway connection
5
1 5
1 3
1 7
7
6
5
8
1 7
1 2
2 1
8
1 7
November 2012


...reporting yields in line with
Ukrainian averages...
AgroGenerations 2011 average crop yields were generally in line with or slightly above
respective Ukrainian averages. However, the company managed to substantially
improve its corn yield, one of the major crops for the producer, which increased by 30%
y-o-y to 6.5 t/ ha, being in line with the Ukrainian average of 6.4 t/ ha.
...but 2012 early crop yields
substantially outperformed
national averages
The company reported harvesting 60% of its planted area as of Sep. 12. Grain and
oilseed production reached 112.3 kt (+28% y-o-y and 68% of 2011 harvest) over the
period, with 19,635 ha remaining to be harvested (51% planted with corn).
AgroGeneration reported 1-48% y-o-y yield growth across crops. At the same time, due
to unfavorable weather conditions, namely low temperatures in winter and a hot
summer, average national yields dropped y-o-y. AgroGenerations reported yields for
wheat (4.3t/ ha: +1% y-o-y), barley (3.7 t/ ha: +22% y-o-y) and rapeseed (2.6 t/ ha; +48%
y-o-y) outperformed the respective national averages by 48%, 68% and 13%,
respectively.

AgroGeneration Crop Yields vs. Ukrainian Average (t/ ha; 2011)

AgroGeneration Early Crop Yields vs. Ukrainian Average (t/ ha;
2012)
The company can currently
store up to 76 kt of grains and
oilseeds simultaneously
AgroGeneration increased its total storage capacity by 6 kt to 76 kt p.a. in 2011, further
strengthening its bargaining power vis--vis buyers. The companys storage facilities
are distributed evenly throughout operated land and most of t hem are located in close
proximity to railways, thus helping to minimize logistics costs.

AgroGeneration Revenue Breakdown by Region (2011)
Sources: Company

AgroGeneration Grain Storage Capacity vs. Production (2011)
Sources: Company

5 . 0
3 . 7
2 . 5
1 . 8
6 . 5
4 . 0
3 . 0
1 . 8
6 . 4
3 . 4
2 . 5
1 . 9
0
1
2
3
4
5
6
7
8
Corn Wheat Barl ey Rapeseed
2 0 1 0 AgroGenerat i on
Ukrai ne Avg.
4 . 2
3 . 1
1 . 8
4 . 3
3 . 7
2 . 6
2 . 9
2 . 2 2 . 3
0
1
2
3
4
5
6
7
8
Wheat Barl ey Rapeseed
Ukrai ne Avg.
Ukrai ne
7 3 %
France
2 6 %
Argent i na
1 %
7 0
7 6
1 1 8
1 6 4
0
5 0
1 0 0
1 5 0
2 0 0
2 0 1 0 2 0 1 1
St orage ( kt / year)
Product i on ( kt / year)

November 2012


AgroGenerations crop output in value terms rose by 67% y-o-y to $44.4m as of end-
2011 thanks to a 38% increase in the tonnage produced, average yield growth (+17% y-
o-y to 3.5t/ ha) and average selling price growth of 23% y-o-y to $271/ t. However, the
producers 2011 revenues totaled only $30.1m (+20% y-o-y) as it sold only 96.2 kt of
grain and oilseeds last year (-19% y-o-y and 59% of total harvest), with the remaining
67.6 kt stored for sale on more favorable pricing conditions in 1H12. The bulk of
AgroGenerations 2011 revenues (72% of total) originated in Ukraine, followed by
France (26%) and Argentina (2%). The companys French revenues represent its new
sales channel exports from Ukraine to the EU including mainly rapeseed and
corn.
Solid 2011 results with
revenues driven by exports a
new sales channel for the
company...
AgroGeneration almost doubled its 2011 EBITDA, to $6.3m (vs. $3.6m in 2010),
implying an EBITDA margin of 21.0% (+6.4pp y-o-y), and increased net income to
$3.0m (+144% y-o-y), for a net margin of 10.0% (+5.1pp y-o-y).
...and EBITDA almost
doubled y-o-y

AgroGeneration Net Sales and Profitability (2010-11)
AgroGeneration plans to expand its Ukrainian land bank to 100,000 ha as early as 2Q13-
4Q13. The company is also expanding its operations in Argentina through a joint
venture with a strategic partner aimed at putting 50,000 ha under cultivation within the
next five years, including 14,000 ha in 2012/ 13 MY.
AgroGeneration targets land
bank of 150,000 ha in the next
five years
AgroGeneration signed a partnership agreement with the EBRD in November 2011
which provided the company with a $10m 7-year loan while the EBRD also received an
option to invest $3.5m of equity capital (representing a stake of 3.2%). The company also
issued a bond in July 2012 raising EUR 9.4m in gross proceeds. The bond pays 8% p.a.
and matures in 2018, with proceeds used to restructure existing loans and replenish
working capital. AgroGenerations total debt stood at $22.9m and cash balance reached
$11.6 as of end-2011, implying Net Debt/ EBITDA of 1.8x.
Debt position

2 5 .0
3 0 .1
1 4 .6 %
2 1 .0 %
4 .9 %
1 0 .0 %
0 %
5 %
1 0 %
1 5 %
2 0 %
2 5 %
0
1 0
2 0
3 0
4 0
5 0
2 0 1 0 2 0 1 1
Net Sal es ( $ m; l hs) EBITDA margi n ( %; rhs)
November 2012


Operating Summary
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Wheat ( 0 0 0 t ) 1 8 . 3 4 1 . 4 4 9 . 8 - -
Growt h ( %, y-o-y) na 1 2 6 % 2 0 % - -
Corn ( 0 0 0 t ) 1 5 . 6 4 1 . 9 6 1 . 6 - -
Growt h ( %, y-o-y) na 1 6 7 % 4 7 % - -
Tot al Grai n Out put ( 0 0 0 t ) 5 5 . 0 1 1 8 . 5 1 6 3 . 9 - -
Growt h ( %, y-o-y) 1 9 7 % 1 1 5 % 3 8 % - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Net Sal es 6 . 7 2 5 . 0 3 0 . 1 - -
EBITDA ( 6 . 0 ) 3 . 6 6 . 3 - -
Depreci at i on ( 1 . 7 ) ( 2 . 7 ) ( 4 . 6 ) - -
EBIT ( 7 . 7 ) 1 . 0 1 . 8 - -
Net Fi nanci al Income ( Loss) 0 . 1 0 . 0 1 . 0 - -
NIBT ( 7 . 6 ) 1 . 0 2 . 8 - -
Taxes 0 . 2 0 . 2 0 . 2 - -
Net Income ( Loss) ( 7 . 4 ) 1 . 2 3 . 0 - -
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Tot al Asset s 2 4 . 5 5 6 . 5 9 3 . 1 - -
Fi xed Asset s 1 2 . 6 3 2 . 4 3 1 . 0 - -
PPE 7 . 9 1 4 . 4 1 4 . 0 - -
Current Asset s 1 1 . 9 2 4 . 1 6 2 . 1 - -
Invent ori es 2 . 5 3 . 8 2 4 . 3 - -
Account s Recei vabl e 4 . 1 3 . 5 9 . 3 - -
Cash & Cash Equi val ent s 3 . 1 5 . 0 1 1 . 6 - -
Tot al Li abi l i t i es & Equi t y 2 4 . 5 5 6 . 5 9 3 . 1 - -
Account s Payabl e 9 . 4 1 1 . 7 1 9 . 3 - -
S/ T Debt - - - - -
L/ T Debt 5 . 6 1 2 . 6 2 2 . 9 - -
Equi t y 9 . 4 3 2 . 3 5 0 . 8

- -
Financial Ratios
Peri od 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 F
Sal es Growt h ( y-o-y) - 2 7 2 % 2 0 % - -
EBITDA Growt h ( y-o-y) - nm 7 4 % - -
Net Income Growt h ( y-o-y) - nm 1 4 4 % - -
EBITDA Margi n ( 8 8 . 5 %) 1 4 . 6 % 2 1 . 0 % - -
Net Margi n ( 1 1 0 . 1 %) 4 . 9 % 1 0 . 0 % - -
Net Debt / Equi t y 1 0 % 1 9 % 2 0 % - -
ROE ( 3 0 . 7 %) 3 . 0 % 5 . 3 % - -

November 2012


DRAGON CAPI TAL EQUITY RESEARCH COVERAGE POLI CY

I nvestment Recommendations
Dragon Capital employs three basic recommendations to rate stocks under coverage: Buy, Hold and Sell. The recommendations
are assigned according to the table below.

Target Pri ce Upsi de t o Current Market Pri ce Recommendat i on
> 3 0 % Buy
0 % 3 0 % Hol d
< 0 % Sel l

In addition, we may rate a stock as a Strong Buy in case its valuation upside exceeds 50%, there are no material risks that could
jeopardize our valuation and we see a high probability for the stock to outperform the market in the short-term perspective
based on available information and our fundamental valuation. Stocks that are either suspended from trading or do not have a
recommendation assigned by Dragon analysts are designated as Not Rated.

We put a stock Under Review if its price target and/ or recommendation are subject to change based on latest financial results,
newly arisen risk factors or other important events. We make all reasonable effort to reinstate recommendations and price
targets on stocks being reviewed in the shortest possible time. Finally, we suspend a traded company from coverage in case
Dragon Capital signs an investment banking services mandate with such company. Coverage is reinstated after the relevant
investment banking transaction is closed.

Current Distribution of I nvestment Recommendations
Compani es
Recommendat i on
Buy Hol d Sel l Under Revi ew Not Rat ed Suspended
1 3 3 1 9 5 0 5 1 0 4 0
% of Tot al 1 4 % 4 % 0 % 4 % 7 8 % 0 %

Dragon Capital market strategy reports, particularly the strategy weeklies, contain a different set of recommendations
positive and negative sentiment ideas in addition to the fundamental recommendations described above. These essentially
represent our recommendations for the coming trading week and are based on a number of factors such as anticipated global
and local events, fundamental analysis, technical analysis and others. Positive sentiment designates stocks that we think are
likely to achieve positive returns in the coming week. Conversely, equities in the negative sentiment category are expected to
drop in price over the period, thus shorting these stocks could potentially generate positive returns for the week.

November 2012


36D Saksahanskoho
01 033 Kyiv, Ukraine
Tel.: (+380 44) 490 7120
Fax: (+380 44) 490 7121
www.dragon-capital.ua

Chief Executive Officer
Tom Fiala
fiala@dragon-capital.com

SALES AND TRADING RESEARCH

EQUITIES FIXED INCOME Managing Director, Research
Andriy Bespyatov, PhD, CFA
Managing Director, Director, Fixed Income Trading bespyatov@dragon-capital.com
Equities Sales and Trading Ivo Suchy
Dmytro Tarabakin suchy@dragon-capital.com Strategy Electricity, Oil & Gas
tarabakin@dragon-capital.com Andriy Bespyatov, PhD, CFA Dennis Sakva, CFA
Fixed Income Trading bespyatov@dragon-capital.com sakva@dragon-capital.com
Managing Director, Oleksandr Ublinskykh
International Equity Sales ublinskykh@dragon-capital.com Economics Manufacturing, Real Estate,
Peter Bobrinsky Fyodor Bagnenko Olena Bilan Telecommunications
bobrinsky@dragon-capital.com bagnenko@dragon-capital.com bilan@dragon-capital.com Taisiya Shepetko, CFA
shepetko@dragon-capital.com
Managing Director, Equity Fixed Income Sales Politics
Sales & Retail Business Kostyantyn Kucherenko Viktor Luhovyk Fixed Income
Development kucherenko@dragon-capital.com luhovyk@dragon-capital.com Olena Bilan
Andriy Dmytrenko, CFA Svitlana Rusakova bilan@dragon-capital.com
dmytrenko@dragon-capital.com rusakova@dragon-capital.com Banking & Insurance Anastasia Tuyukova, CFA
Sergiy Fursa Anastasia Tuyukova, CFA tuyukova@dragon-capital.com
Director, fursa@dragon-capital.com tuyukova@dragon-capital.com
Trading and Domestic Sales Olga Slyvynska Editing
Denis Matsuyev slyvynska@dragon-capital.com Metals & Mining Viktor Luhovyk
matsuyev@dragon-capital.com Andriy Bespyatov, PhD, CFA luhovyk@dragon-capital.com
bespyatov@dragon-capital.com Conal Campbell
Derivatives, Sales and Trading Dennis Sakva, CFA campbell@dragon-capital.com
Sergiy Gayda sakva@dragon-capital.com
gayda@dragon-capital.com J unior Analysts
Food & Agriculture, FMCG Volodymyr Skepskiy
Tamara Levchenko skepskiy@dragon-capital.com
levchenko@dragon-capital.com Nadiya Syhydyuk
Taisiya Shepetko, CFA syhydyuk@dragon-capital.com
shepetko@dragon-capital.com
Natalia Shpygotska
shpygotska@dragon-capital.com

DISCLAIMER: This report has been prepared by Dragon Capital for information purposes only and is not an offer or solicitation to deal in any security.
The opinions, forecasts and estimates in this report reflect our good-faith judgment as of the date of publication, and may change without notice.
Although the information in this report comes from sources we believe to be reliable, and although we have made every effort to ensure its accuracy at
the time of publication, we make no warranty, express or implied, of this report's usefulness in predicting the future performance, or in estimating the
current or future value, of any security. Nor should this report be regarded as a complete description of the securities or markets referred to herein. Any
opinions expressed herein may differ from opinions on the same subject expressed by other business departments of Dragon Capital as a result of
employing different assumptions or methodology. Any investment decision made on the basis of this report shall be made at the investor's sole
discretion, and under no circumstances shall Dragon Capital or any of its employees or related parties be liable in any way for any action, or failure to act,
by any party, on the basis of this report. Nor shall Dragon Capital or any of its employees or related parties be liable in any way for any loss or damages
arising from such action or failure to act.
Dragon Capital does and seeks to do business with companies covered in its research reports. Investors should therefore be aware of a potential conflict
of interest.
Additional information on securities or companies discussed in this report is available upon request. This report, or any part of it, may not be reproduced
without the prior written permission of Dragon Capital; when quoting, reference to Dragon Capital as the source of the quote is required.

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November 2012

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