MHP SE

Ladies and gentlemen, thank you for standing by, and I would welcome you to MHP's Q1 2020 results conference call. At this time, all participant lines are in listen-only mode. The format of the call will be a presentation by our management team, followed by a question and answer session. You will find a link to the WebEx presentation in your email invitation. The presentation flow is managed in real time and will be reflected on your screen automatically. If you have not received the documents, they are also available on our investor relations website. So without further ado, I would now like to pass the line to Ms. Anastasia Sobotnyuk. Please go ahead.

Thank you, Michael. Good afternoon and good morning. Thank you for joining us today for MHP's conference call dedicated to MHP's financial results for the first quarter of 2020. Just a quick reminder, MHP's financial results include the results of PPE from 21st February I have to tell you in advance that some of the things we discussed today are forward-looking statements. Please take it into consideration. And, of course, I encourage you to use today's press release with our financial statement for the detailed information. On today's call, we have CFO of MHP, Victoria Kapelushna. She will present financial results in general and by segments. and myself, Anastasia Sobotyuk, Director of Investor Relations. I will lead you through the presentation. After the presentation, we will be glad to answer all your questions, and I hope that everybody is ready, so we can start our call now. Let's go on slide number four of your presentation. First of all, let me start from challenges both Ukraine and the company faced since the beginning of 2020. An influence in January in Ukraine caused a temporary cessation of exports from Ukraine to the EU, Saudi Arabia, and other minimarkets, and the majority of CIS countries. Exports to the EU reopened at the beginning of March, Saudi Arabia and minimarkets reopened in February and then March, while the majority of CIS countries recommenced in May 2020. In order to mitigate the adverse impact of NMHP's operations and profitability, management decided to decrease capacity utilization of poultry production complexes by approximately 10% from February until the end of March 2020. Since the beginning of April, all of the company's poultry production facilities have been operating at full capacity again. So we all live in the period when we can see the impact of COVID-19 and of course the impact of the pandemic on the company in the first quarter was not material and the company largely continued to operate normally. As of the date of this report, the level of absenteeism of employees at MHPS group enterprises is at the same level as last year. Management implemented a range of measures for preventing sickness and spread of infection within the company. Of course, we worked remotely. We had additional medical screenings, corporate transfers, and use of protective masks, etc. The company's production facilities work was organized in shifts of smaller numbers of people to limit contact and minimize the potential spread of infection and in addition a wait list of potential workers was accumulated in case replacement of infected persons and those on quarantine would be required so if we look at the micro fundamentals then we can see that in the first quarter of 2020 A real GDP decrease by approximately 2%, a little bit less than 2% year-on-year. And in 2020, government expects negative economic growth in Ukraine at around 5%, minus, of course, 5%, with subsequent recovery to 2.4% during 2021. Consensus forecast was revised to the downside with expected around 7% real GDP decline in 2020. And of course, we all understand that that is an effect of pandemic. Retail sales growth decelerated around 11% year-on-year in Q1, driven by growth in real wages and affects revaluation. Hryvnia appreciated by approximately 8% on average year-on-year in the first quarter, and the government assumes that the budget assumes that the affects in 2020 will be at around 29.5 Ukrainian hryvnia per $1. Annual inflation decelerated to around 3% year-on-year, driven by utilities and imported durable goods. And the soaking rains of May are prompting to boost Ukraine's harvest in 2020, which is expected to be near last year's record harvest, around 98 million tons. And frankly, on our side, MHP expects good harvest this year. Let's go and see the results of the first quarter. Let's come back to them. So let's go on slide number six. of your presentation, key financials. So despite challenging start of the year, our financial results in the first quarter reflect efficiency of MHP team and substantial growth in revenue at Perugin-Abturil. So we can see that consolidated revenue constituted 443 million US dollars, which is 2% higher year-on-year. of which export revenue was over 54%, however, over by 12% year-on-year due to the avian influenza restrictions on exports since January and partially the effect of COVID. And EBITDA constituted $90 million, 8% higher year-on-year, with EBITDA margins at around 20%. So I now pass the words to Victoria. She will continue with the comments about the financial results for the first quarter of the year in greater detail.

Thank you, Anastasia. Good afternoon, everyone. Let's discuss our financial results for the first quarter in more detail. Slide number seven shows our financial results by segments. Post-reoperations remain our key segment as usual and during the first quarter generate the majority of total revenue, about 70% and 77% of company MDA. Grain segment generates only 6% of total revenue on third party and about 11% of company MDA. As you know, majority of the grain produced we use internally to feed our chickens. Our third segment, meat processing and other agricultural operations, generated about 8% of consolidated revenue and contributed 6% to consolidated VDA. Main components of this segment are meat processing and convenient food production. Following the acquisition of operations in Europe, The new European operating segment generates approximately 17% of total revenue and 12% of company EBITDA. In the first quarter, our export operations generate about 54% of total revenue, $237 million, 12% low the low volume and price of export chicken meat as a result of export restrictions caused by avian flu case in the Venetian region. We will discuss the development of all our segments more deeply on the next slide. Please go to the next slide, number eight, quality segment performance. During the third quarter, we increased our production volume by 4% year-to-year due to the offering new rearing site launch into operating during 2019, as well as due to the increased share of heavy chicken produced. Revenue overall in poultry decreased by 7% year-on-year, driven by lower export chicken meat sales volume and chicken meat price decreased. Decrease in revenue was mostly due to the ban export market as a result on outbreak of an influenza in the Venetian region of Ukraine. During the first three months, our average chicken meat sales price decreased by 3%, poultry export price decreased by 2%, and price on domestic market were down on average by 3% year-on-year in dollar store. Average poultry production costs in Q1, in accordance with our budget, decreased compared to the same period last year by 7%, reflecting low cost of mixed fodder as well as low utility costs due to the warm winter and cheaper natural gas prices. Gross profit of poultry and related operations segments for Q1 remained relatively stable Decline in revenue was mostly offset by reduction of production costs. Adjusted BDA before the 31 effect per one kilo in Q1 is $0.36 per kilo, which is almost the same year-on-year, slightly lower just by 3%. Let's move to the next slide, number nine. External grain segment revenue in Q1 amount $25 million. The decrease compared to the last year level was mainly attributable to the low amount of crops in stock designed for sales at the beginning of this year compared to the stock for sales at the beginning of last year, 2018. It was a result of record yield of crops in 2018. EPDA net effect of FRS standard 16 constitute 10 million, by 9% lower compared to the last year, mainly due to decrease in . MHP expect good harvest, especially of winter crops in 2020. Let's go to the slide number two. and other agriculture operations segments historically generate the smallest part of our financial results. The key business of segment are meat processing and convenient food production. The segment generated revenue $34 million by 16% higher compared to the last year, mostly as a result of higher prices and sales volume of meat processing products. EBITDA of the segment was $5 million. Manly is higher compared to the last year. Manly reduces the better return earnings from wheat processing products and milk operations. Slide number 11. European operating segment generates $78 million of revenue and $11 million of our EBDA. Injected EBDA margin constitutes 14%. almost unchanged compared to the Q1 2018. Our European operation continued to perform well in line with our expectations, demonstrating 9% growth in poultry meat sales volume and 16% growth in poultry products year-on-year with stable prices. In our financial statement, we include peritoneal financial results since the date of our acquisition, the first of March, last year in 2018. Increased sales volume of processing products provided optimization and efficiency improvement across all business operations using the best MHP practice, demonstrating clearly how we can improve performance of European poultry producers using our experience and findings. We are going to continue to develop this segment further and see huge potential and synergy in exchange of experience between Ukraine and European teams there. Slide number 12. A few words about our cash flow and liquidity position. Despite the increase in EBITDA, net cash from operation activity decreased to 39 million in Q1 compared to 142 million in Q1 2019 due to negative slow in working capital in the first three months this year compared to the last year, which was mostly related to high investment in poultry business during the first quarter. Due to the low stock of crops, sunflower and soya, designed for internal consumption in the beginning of this year compared to the beginning of 2018. Investment inventories related to grain growing entities in respect of forthcoming spring sowing campaigns, and also increased NET receivables, which is expected to be reimbursement in April and May this year. Total capital was amounted to 21 million, mainly related to investment in maintenance and production facilities. Regarding debt, the group has adopted IFRS 16 starting from this January 2019. Applying IFRS 16, the group recognized right of use assets and lease liabilities in consolidated statement of financial position However, for purposes of common non-calculation, debt was present net FRS 16 adjustment. If any lease that would have been treated as operating lease under FRS as an effect for the 1st January 2018 is treated as operating lease. Accordingly, this approach, at the end of the 1st quarter, the company total debt was 1.5 billion dollars. and net debt about $2.5 million, $1.2 billion. 98% of total our debt is long-term debt, about 93% of which are Eurobon. Our average weighted interest rate currently is around 7%. In terms of liquidity at the end of the March, we had about $250 million in cash mostly in dollars. Net debt to EBITDA ratio, net of FRS-16 effect at the first quarter end was 3.17 versus Eurobond Covenant 3.0. Also exceeding the ratio 3.0 does not constitute the breach of any covenant on the indebtedness agreement. This leads to introduction to additional control measure by MHP regarding insurance of additional indebtedness. Restricted payment, which included dividend distribution, merges with parties outside of group and granting on financing of any kind to 30 parties. Such restrictions become effective on the date of publication of our Audit Consolidated Financial Statement of 2019 and continue now. Almost all our debt is denominated in foreign currency, mostly in dollars. Foreign exchange risk, in our case, is naturally hedged by significant share of export sales. Having 54% of revenue, around $233 million dominated export revenue during the last quarter, will full cover all our debt service expenses and other payment in foreign currency. Our currency balance remains strongly positive. And now I give the floor to Anastasia to give you our current business update. Thank you, Victoria.