MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's 3Q 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 questions via voice or the text feature. So without further ado, I would now like to pass the line to MHP. Anastasia, the floor is yours.

Thank you very much, Michael. Good afternoon and good morning. Thank you for joining us today at MHP's conference call. My name is Anastasia. I'm a director of investor relations and in the call today we will discuss MHP financial results for the third quarter and nine months of 2020. Today's call is based on data and information released earlier today through the third quarter and nine months 2020 press release and financial statements accordingly. However, during our call, we will discuss our projections and plans based on our assumptions and strategy. Please take it into consideration. So together with CFO of MHP, Victoria Kapelushnaya, we will present you financial results of the company in general. and best segments. And after the presentation, we will be glad to answer all your questions. Let's start slide number four of your presentation. So we will start, as always, from macroenvironment. And according to the results of the first nine months of 2020, the reduction of the composite production index, CPI, slowed down and amounted to around 6%. 6.5% in January-August and 6% in the third quarter of 2020. Accordingly, the Economy Ministry of Ukraine estimates the decrease in the volume of GDP during nine months of 2020 at around 5.5%. Accordingly to the survey, the Ministry left unchanged the forecast for a fall in GDP in 2020 at around 5% year-on-year. However, In the event of a prolonged lockdown in Ukraine and in the world because of COVID-19, the fall in GDP in 2020 in Ukraine will amount to 5.6% year over year. Meanwhile, Ukraine's annual inflation rate rose to 2.5% year on year in line with market expectations. Output pressure came from housing, water, electricity, gas and other fuels, restaurants and hotels. food and non-alcoholic beverages and miscellaneous goods and services. During 9 March of 2020, Ukrainian hryvnia developed by around 8% year-on-year as a result of economic instability due to COVID-19 in the world. I think we are ready to get back to the company's results and together with you, we will go on slide number six of our presentation. So here we have the financial results for the third quarter and nine months of 2020, which reflect the challenges MHP had been facing during the first half of the year and the third quarter of the year. The effects of a first quarter outbreak of avian influenza in Ukraine, the challenges posed by the global COVID-19 pandemic in the second quarter, and the gradual stabilization of economic situation and market environment in the third quarter of 2020. MHP's revenues in Q3 2020 remained broadly stable with 2% decrease only year-on-year and constituted around 547 million US dollars. MHP's revenue in nine months 2020 decreased by 6% year-on-year to $1,414,000,000, mainly adversely affected by low sales of grains in the third quarter of 2020 compared to the third quarter of 2019. And, of course, lower results in poultry segment, partially offset by strong results at Pirutnino-Ptui. Export revenue in nine months of 2020 was around $761 million, 14% down year-on-year. Many were affected by lower export of grain compared to nine months of 2019 and low paltry export prices. Adjusted to bidow margin in nine months of 2020 remained relatively stable and constituted 22% compared to 21%. percent in nine months of 2019, with adjusted EBITDA down from $302 million to $331 million as a result of challenging environment and its impact on MHP's financial results in the first half of 2020. As you can see from the report and here on the slide, EBITDA in the third quarter of 2020 remained broadly stable year-on-year. Let's look at MHP's financial results in greater details and by segment. Let's go on slide number seven of your presentation. As you can see from the table, contribution from MHP's revenue, sorry, contribution to MHP's revenue from poultry and relation operations was almost 70%, and from European operating segment, almost 20%. At the same time, poultry and grain growing operations contributed the most to the company's EBITDA, 60 and 26% respectively. Meat processing operations and other agricultural segment contributions still remains the lowest both to the revenue and to EBITDA of MHP. However, with this prospects to increase, taking into account current transformation of the company, and culinary strategy implementation. Let's have a closer look at each business segment on our next three slides. And here I pass my vote to Victoria. Thank you, Anastasia.

Good afternoon, everyone. Let me give you a more closer to our poultry segment performance, slide number eight. As you know, since the beginning of second quarter, all our company's poultry production facilities in Ukraine have been operating at full capacity again. MHP continues to develop its exports to MENA market, increasing the share of small whole chicken production. As a result, the total number of heads in Q3 increased by 9% year-on-year, but overall poultry production tonnage decreased by 3%. The switch in production and sales was driven by higher profitability, per kilo and more favorable market environment in Meno compared to the other export regions. Overall revenue in poultry segments decreased by 6% year on year, driven by decrease in price of chicken meat. Decrease in revenue was mostly due to the avian influenza outbreak in Ukraine in the first quarter this year, which caused a temporary ban of exports from Ukraine to EU, as well as impact of COVID pandemic since March 2020. Despite the challenges, MHP delivered satisfactory results in Q3. Volume of chicken meat in Q3 significantly increased compared to the second quarter. as well as year-on-year. This was mainly due to increased export sales, including to MENA, EU, and Africa region. The increase in exports last quarter led to decrease in poultry meat stock accumulated in the first half of the year, as well as overall increase in sales volume for nine months this year. During the nine months, our average export sales price decreased by nine percent year-on-year in U.S. dollars, mainly driven the product mix change, usually increasing the share of small whole chickens, and also a weaker price on fillet in you, as many global competitors were suffering from reducing demand and excess capacity. Poultry price in Myanmar market especially in the third quarter, are more favorable and stable. Price on domestic market decreased by 10% year-on-year, mainly affected by global COVID pandemic and alien influence in Ukraine. This increasing was in June 2020. Since the third quarter, and started beginning from May, poultry price in Ukraine begun to recovery and by today reach the level of last year. Poultry production costs in Q3 remained almost the same as in the third quarter this year due to increased price of corn. a new harvest by 40% higher price of corn year to year, we already see an increasing in poultry production costs starting from October. This factor may affect the increase in meat price in next year. We think that we can increase price in the Q4 in Ukraine and going forward. Gross profit of the segment in nine months decreased by 22%. Adjusted ABDA before 41 standards for one kilo in nine months was $0.36 per kilo, which approximately by 18% low compared to the average ABDA per kilo during the nine months last year, mainly due to decrease of chicken meat prices. Let's move to the next slide, number nine, about our grain segment. This year, unusually bad weather conditions in the central region of Ukraine have led to significantly lower yields across most crops compared to the 2018, especially corn. At the same time, our yield of corn in the western and the eastern region of Ukraine was around 9 tons per hectare. But in the central region, our main hard peak area, our corn yield was less than 5 tons per hectare. It is our anti-record during all our history of MHP. However, negative impact on grain results caused by low yields of crops was upset by significant increase in grain prices. Approximately 40% corn price increase year to year. External grain segments revenue in 9 months 2020 amounts to 90 million. The decrease compared to the last year level was mainly due to low volumes of crops available at the beginning for external sales in the first half of the year. EBDA of this segment, net effect of IFRS 16 is $78 million, by approximately 10% higher compared to the same period last year, mainly due to the higher price for grain, especially corn and sunflower seeds, partially offset by low yields, of crops this year compared to the last year. And our expectation about the BDA per hectare this year around $220. Let's go to the next slide, slide number 10. The key business of segments, as you know, is the meat processing and convenient food production. Volume of convenient food are growing, plus 8% in Q3. and close four percent during the nine months compared to the same period last year supported by a new product development program started by the end of 2019. mid processing program product volume decreased by around five percent in nine months mainly in traditional store segments we expect to change volume dynamics to positive site following the wide range of new product introduction to the market in the fourth quarter this year. Segment revenue in nine months remain on exchange. They amount to around $106 million. Interested EBDA is around $15 million, 25% higher compared to the last year. driven mostly by higher returns of earnings from our milk operation. Let's go to the slide number 11. Following the strategy of poultry production growth and the slide number 11, European operating. Following the strategy of poultry production growth and increasing facility capacity utilization in Slovenia, Poultry production volumes of European operating segments in Q3 increased by 14% compared to the same period last year. Poultry and meat processing product sales increased in nine months compared to the same period last year by 10%. Average poultry price decreased by 6%. mainly to decrease our price only in one region, in Balkan, only in Bosnia. Average price for the meat processing products were related stable year to year. European operating segment generates around 250 million dollars of revenue and around 38 million of EBITDA in nine months This is by 20% higher compared to the same period last year, mainly to increase our sales and especially increase the share of meat processing in our sales. And additionally, we increase our production efficiency. Slide number 12. A few words about our cash flow. and liquidity position. Net cash from operating activity amounted $140 million compared to the net cash generated from operating activity $332 million in H1 2018 mainly due to the change in working capital. Use of funds in working capital during the nine months was mostly related to investment in crops in fields to be harvested in Q4. The difference compared to the same period last year was mainly attitude to higher investment in inventory during the nine months this year, sunflower and soya, designed by internal consumption, mostly due to the low stock of crops at the beginning of this year. compared to the stock, which we have sunflower soil at the beginning of last year. Total capex for nine months, it is around $60 million, mainly related to modernization products, launch capex related to launch new product development, maintenance capex, and peritoneum of two years. development facilities. Regarding debt, at the end of the period, by the end of nine months, total hour debt was approximately $1.5 billion, and net debt about $1.2 billion. As you know, more than 98% of total hour debt is long-term debt. And our average weight interest rate today is below seven. In terms of liquidity, at the end of October, we had approximately $300 million, mostly cash, mostly in dollars. We have a very good liquidity position. Due to the challenges in 2020 that led to decrease in our EBITDA And net debt-to-BD ratio by the end of the period, 3.3. But at the same time, having 55% of our revenue, more than $650 million nominated export revenue during this year, we fully covered all our debt service and all our expenses in dollars. and other payments in foreign currency. And company currency balance remains strongly positive. And now I give the floor to Anastasia.