MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's second half 2020 results call. At this time, all participant lines are in listen-only mode. The format of the call today will be a presentation by the MHP management and IR team, followed by a question and answer session. After the call, you will have the opportunity to ask questions. If you are dialed in via the web, you may also ask the question using voice or the text feature. Without further ado, I would now like to pass the line to MHP. Anastasia, the floor is yours.

Thank you, Michael. Good afternoon and good morning. Thank you for joining us today for MHP's conference call. My name is Anastasia Sabatiuk, Director of Investor Relations. And on the call today, we will discuss MHP's financial results for the six months of 2020. Today's call is based on data and information released earlier today, Q2 and H1 2020 press release and financial statements. However, during our call, we can discuss our projections and plans based on our assumptions and models. Please take it into consideration. Together with CFO of MHP, Victoria Kapelushina, we will present you financial results of the company in general and by segments. After the presentation, we will be glad to answer your questions. Let's start. Slide number four. Macro environment. GDP in Q2 2020 was down by around 11%. Its sharp deterioration last quarter reflected the negative impact of a two-month nationwide lockdown and a drop in foreign demand caused by coronavirus curbs in Ukraine's trade partners. In contrast to many of its European peers, the current time in Ukraine did not affect large industrial enterprises significantly. but included a ban on domestic public transportation which depressed economic output in many small sectors still the sequential decline in ukraine's gdp of nearly 10 percent was smaller than those in the eurozone minus 12 percent and selected ce neighbors such as hungary or romania in q2 currency ratio depreciated by eight percent year-on-year as a result of economic instability due to COVID-19. Annual inflation acceleration to around 2% year-on-year. The National Bank of Ukraine predicts that inflation will enter the target range of 5% by the end of the year due to the gradual recovery of the global economy and the rise in energy prices. Let's get back to the company's results. Slide number six. key financials for the reporting period. The financial results during six months of 2020 reflects the challenges MHP had faced during the first quarter, sorry, first half of the year. The effects of a first quarter outbreak of avian influenza in Ukraine, and then the challenges posed by the global COVID-19 pandemic in Q2. MHP's revenue was $867 million, 8% down year-on-year, mainly adversely affected by lower results in panel three operations, lower exports and prices, and grain growing operations, unexpectedly lower results due to the extremely hot and arid weather conditions in the central regions of Ukraine. At the same time, MHP's mid-processing division result was stable year-on-year, and 13 October generated strong results with better-than-expected financial results due to cost optimization and their strengths in branded higher value-added products. Export revenue was $453 million, 18% down year-on-year. adjusted EBITDA margin remained relatively stable and constituted 25% compared to 26% in the first half of 2019, with adjusted EBITDA down from $248 million to $216 million. Let's look at MHP's financial results in greater detail and by segment. Victoria, the floor is yours. Yeah.

Thank you, Anastasia. Good afternoon, everyone. Let's discuss our financial results for H1 to 2020 in more detail. Slide number seven shows our financial results by segment. Multi-operations remain our key segment. As usual, enduring the first half generates the majority of total revenue, around 70% and 56% of companies' EBITDA. Grain segments generate 4% of total revenue on 30-party and about 30% of companies' EBDA. As you know, majority of grain produced we use internally to feed our chickens. Our stores and the smallest segments, meat processing and other agricultural operations, generate about 8% of consolidated revenue and contributed 4% to consolidated EBDA. Main components of this segment are meat processing and convenient food production. Following the acquisition of operations in Europe, the new Europe operating segment generated approximately 18% of total revenue and 12% of companies' EBDA. In the first half of the year, our export operations generate around 52% of total revenue, $453 million, 18% low compared to the last year, mostly due to the low volume and price of export chicken meat. We will discuss the development of our segment more deeply on the next slide. Please go to the next slide, number eight, poultry segment performance. Despite the challenges posed by global COVID pandemic and avian influence, in Ukraine, our production volume during the H1 remained relatively stable. Since the second quarter, all MHP poultry production facilities continue to operate at full capacity again. Revenue overall in poultry decreased by 12% year-on-year, driven by chicken meat sales price and volume decrease. Fall in revenue was mostly due to the avian influenza outbreak in Ukraine in the first quarter, which caused a temporary ban of exports from Ukraine, as well as impact of COVID pandemic since March 2020. In H1, Poultry export decreased by 10% to 170,000 tons, mainly in EU and MENA region. During the H1, our average export price decreased by 9% year-on-year in U.S. dollar term, mainly driven by product mix change and weaker price on fillet in U.S. in the European Union, as many global competitors are currently experiencing reduced demand and resulting excess capacity. Sales volume on domestic market remains almost unchanged, mainly due to reduced poultry price by 13% year-on-year. At the same time, poultry production costs in H1 decreased by 11 compared to the same period last year, due to the low cost of mixed-fodder protein components. Fortunately, despite the pandemic, the level of absenteeism of employees at MHP Group Enterprise is at the same level as last year. The company did not incur significant incremental expenses related to COVID-19. Gross profit of the poultry and related operation segments decreased by 25%, mainly due to decrease of sales volume and chicken meat prices. Adjusted to BTA before the 41 standard effect, per one kilo in the first half of the year is $0.35 per kilo, which is more than 20% low compared to the average figure the same period last year. Decrease was mainly due to decline chicken meat prices. let's move to the next slide number nine this year were extremely unfavorable weather conditions in the central region of Ukraine since the company mainly cultivates land in the central region of Ukraine this led to a decrease in the use of winter crops and expected the lower use of spring crops compared to the 2018 although also These are still strong and well above Ukrainian average. External grain segment revenue in the first half amounts to $35 million. The decrease compared to the last year level was mainly attributable to the high amount of crops in stock designed for the sales as of 31 December 2018 compared to the stock for the sales as December 2019, mainly as a result higher yield in 2018. EBDA, Net Effect IFRS Standard 16, constitutes 65 million by 12% lower compared to the last year, mainly due to the lower yield of winter crops and expected the lower yield of corn in 2020 compared to the 2018. Let's proceed to the slide number 10. Meat processing and other agricultural operations segments historically generate the smallest part of our financial results. The key business of segments is meat processing and convenience food production. Segment revenue and adjusted BDA in H1 remains unexchanged. and amounts $67 million and $9 million, respectively. Our meat processing decision is actively working on new products with a target to provide a wider range of options to our customers and strength business profitability, delivering convenient and well-demanded ready-to-eat products, such as dry meat slices, sandwiches, and other meat snacks. Let's proceed to the slide number 11. COVID-19 does not have any material impact on business operations of the Europe operating segment as a result of and change in consumer preference in favor of ready-to-eat products, which constitute a significant part of Perutnina production. Following this strategy of poultry production growth and increasing several facility capacity taxation in Serbia and Croatia, poultry production volume of Europe operating segment in H1 increased by 9% compared to the same period last year. Average poultry price decreased by 6% from $2.67 to $1.50, mainly due to oversupply on domestic markets in Bosnia and Herzegovina, where one of our production facilities is located. Average price of meat processing products were relatively stable. Europe operating segment generate $157 million revenue and $26 million of EBDA in H1. Adjusted EBDA margin constitutes 17%, 2% higher compared to the same period last year. The increase in adjusted EBDA was mainly attributable to the higher sales of more profitable meat processing products in H1 2020. Slide number 12, a few words about our cash flow and liquidity position. Net cash used and operating activity amount to 22 million in H1 2020 compared to the net cash generated from operating activity 224 million in H1 2019 mainly due to the change in working capital. Huge working capital investment in H1 2020 are mostly related to seasonal work in progress in grain growing division. as usual for MHP, but in H1 2019 was positive influence of sunflower seeds usage from stock, while at the beginning of this year, sunflower seed stock were low, significantly low than usual. Total CAPEX for H1 2019 is amount 41 million mainly related to maintenance and Perutnina Ptui project facility. Regarding debt, at the end of the period, the company total debt was $1.5 billion and net debt about $1.3 billion. 98% of total our debt is long-term debt, about 95% of which are durable. Our average weighted interest rate Current is less than 7%. In terms of liquidity, at the end of June, we had about $185 million in cash, mostly in dollars. Net debt to EBITDA ratio by the end of the second quarter was 3.7 versus Eurobond Covenant 3.0. Increase in leverage is caused by lower EBITDA in 2020 compared to 2018. No additional debt attracted. Exceeding the ratio of 3-0 does not lead to the breach of any covenant under our indebtedness agreement, but to the introduction of additional control measures. Until we achieve net debt to EBITDA lower than 3.0, MHP has to supervise and assess insurance of additional indemnities, restricted payments, including dividends, external investments, and some others. All our debt is dominated in foreign currency and foreign exchange risk, in our case and natural hedges by significant share of export sales heading more than 50 percent of revenue mainly dollar dominated export revenue during the last year during the the h1 we fully covered all our debt service expenses and other payments and foreign currency our currency balance remains strongly positive. And now I give the floor to Anastasia to give you our current business update and outlook.