MHP SE

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

Thank you, Tim. Thank you. Good afternoon and good morning. Thank you for joining us today for MHP's conference call. My name is Anastasia Sabatyuk, Director of Investor Relations, and on the call today, we will discuss MHP's financial results for the fourth quarter and 12th month of 2022. Today's call is based on data and information released earlier today, Q4 and 12-month 2020 press release, and annual reports accordingly. However, during our call, we will discuss our projections and plans based on our assumptions and strategy. Please take it into consideration. Together with... Victoria Kapelushna, chief of MHP. We will present you the financial and operational results of the company in general and by segment. And after the presentation, we will be glad to answer your questions. So I think we are ready to start. Let's move on slide number four of your presentation. So first of all, let us look at the macroenvironment. we all know that the environment was very challenging during 2020. And I have to say that MHP successfully managed to go through all challenges of 2020 and contrary to industry fears in the world during and due to COVID-19 pandemic, we didn't stop our production. And apart from a two-month period in the first quarter when some export markets were closed due to avian influenza, continue to operate at full capacity as a result of a strong employee's commitment to the company and professional management team. When we look at the macro environment or environment in Ukraine, we can see the real GDP in 2020 fell by 4% after four years of growth. The government predicts the growth of the Ukrainian economy by 4.6% in 2021, taking into account positive trends in GDP since the second half of 2020. Meanwhile, Ukraine's annual inflation in Q4 2020 accelerated to 3.8% year-on-year, being at very low levels actually during 2020, as you can see on the diagram on this slide. This decrease was mainly driven by COVID-19 crisis as consumer demand for different products decreased significantly, and remained quite weak. During 2020, Ukrainian hryvnia devalued by around 16% year on year as a result of economic instability due to COVID-19 in the world. Let's get back to the company's results, and we go on slide number six of your presentation, key financials for the reporting period. So 2020 dealt us the perfect storm, a global pandemic, several outbreaks of avian influenza in Ukraine with adverse consequences, exit bans for MHP, and adverse weather conditions all sat against the backdrop of unprecedented global uncertainty. However, MHP took this as a right for opportunities. We continued with the culinary transformation of the company and focused on integration of Perotin Aptui into the group and group's efficiency. A number of strategic cost optimization initiatives were implemented and significant modernization investments made focusing on increasing capacity at PPE, improving working conditions at PPE, and improving animal welfare and wastewater treatment standards in Slovenia, Bosnia, and Herzegovina. Despite the challenges mentioned above, our annual financial performance was robust, with MHPs revenue decrease by only 7% year-on-year, constituting around 1.9 billion US dollars, mainly due to the lower results in grain growing segment driven by almost 30% decrease in harvest year-on-year. Export revenue was around 1 billion US dollars, 14% lower year-on-year, and mainly adversely affected by significantly deteriorated situation in export markets. Share of export revenue decreased from 58% to 53%. Adjusted EBITDA decreased by only 10% year-on-year to $340 million, driven mainly by a decrease in the paltry and related operation segment, and partly positively upset by an increase in the grain growing segment and the European operating segment. Adjustability margin remains stable year-on-year at around 18% and due to the resilience of our business model and the successful execution of our strategy. Let's look at MHP's financial results in greater details and by segment. Next slide, number seven. Thank you, Anastasia. No, no, no. Victoria, can I continue, please? Yeah. As you can see from slide number seven, and you can see that from the table here, contribution to MHP's revenue, voluntary and related operations input was almost 70%. And from the European operating segment, almost 20%. At the same time, poultry and grain growing operations contributed the most to the company's EBITDA, 57% and 28% respectively. Meat processing operations and other agri-segment contributions still remain the lowest, both to the revenue and EBITDA of MHP. However, with the prospects to increase, taking into account current transformation of the company and the culinary strategy implementation. The successful integration of Perutinab 2E continued in 2020, with PP contributing around $335 million to group's revenue in 2020. Adjusted EBITDA increased by 26% to $53 million. And despite the challenging situation in 2020, PP demonstrated strong resilience with an EBITDA margin of 16%. one of the highest margins among industry peers, demonstrating the success of our management team at integrating, managing, and improving efficiency of processes of a business outside Ukraine. So now I think we are ready to have a closer look at each business segment, and you can see that on our next three slides. Here I pass my word to Victoria. Thank you, Victoria.

Thank you, Anastasia. Good afternoon, everyone. Let me give you more color onto our poultry segment performance, slide number eight. Production volume of chicken meat remained stable year on year, and despite all the challenges, again, we never stopped production during the pandemic, even for a single day. Since the second quarter of 2020, all MHP's poultry production facilities in Ukraine have been operating at full capacity again, after a temporary production decrease in Q1 2020. Despite the difficulties of COVID-19, sales volume both on domestic and export markets grew by about 5% compared to the previous year. An increase in export sales was driven by a significant increase of sales to MENA region due to higher profitability per one kilo and more favorable market environment compared to the other region. This growth was partly offset by decrease in EU sales. Total revenue and poultry segment decreased by 5% year-on-year, driven mostly by decreased price of chicken meat, partly offset by increase in sales volume. Export price decreased by 6% in average, while the biggest decrease in price was on fillet in Europe and worldwide quarter prices. However, price in MENA region are higher and very attractive. Mid-price on domestic market decreased by 8% in hryvnias term and by 14% in dollars year-on-year, mainly affected by global COVID-19 pandemic and even influenza in Ukraine in Q1 last year. Since the beginning of Q2, 2020 price in Ukraine began to recover and reach in Q4 the level of Q4 2018 in hryvnias terms. In last quarter Q4 we faced additional challenges of increasing by 25% Portuguese cost in dollars, as a result of unexpected significant growth of grain protein price after bad harvest in Ukraine and the U.S. New harvest price of corn, maybe as you know, more than 60% compared to the last harvest. Consequently, market price of chicken in Ukraine began to increase starting from December 2020. As of today, the increase of chicken price compared to December 2020 around to 13-15%. We expect further growth of price of all types of meat to compensate cost increasing in Q2 this year as well. Financial result in poultry segment in Q4 is MHP's historical anti-record. substantially increased poultry production costs, while prices have only slightly started to recover before year-end. Gross profit of the segment in 2020 decreased by 30%, adjusted EBITDA before 41 standard effect per 1 kilo was 0.3%, Dollars reached by 25% low compared to the average of 2018, mainly due to decrease of chicken meat price and increase in cost in the fourth quarter. Let's move to the next slide, number nine. Unusual hot and dry weather conditions in the final weeks of growing season last year, particularly in the central region of Ukraine, Cherkassy and Vinnytsia, have led to significant lower yields across most of crops compared to the 2019 yields. At the same time, due to the diversification of MHP cropped land across Ukraine, MHP's average yield remained above the average in Ukraine. Corn yield was affected the most, being the lowest in our history, especially in Cherkasy region, with terrible figures, 3.3 tons per hectare, while in Sumy region, for example, yield remained relatively good, higher than 2.6. At the same time, well, sorry, 8.6, yeah. At the same time, in 2020, we had even better than usual yield in the west region of Ukraine. Negative impact from lower yield of crops was upset by significant increase in grain prices, those corn price increase more than 60% year-on-year. External grain segment revenue last year amounted to $134 million. The decrease in revenue was mainly due to the lower volumes of crop sold last year as a result of weaker harvest. EBDA net effect of IFRS 16 was $97 million, by 62 higher compared to the previous year as a result of higher prices. EBDA per hectare reached $272. Let's process to the slide number 10. Meat processing and other agriculture business performance was relatively stable. Volume of convenient food production grew slightly by 3% during the year, supported by continuing new product development program. Meat processing product volume decreased by 8% last year, mainly in traditional store segments. We expect to change volume dynamic to positive sign this year following the wider range of new product introduction to the market. Segment revenue in 2020 remained materially unchanged and amounts $144 million Adjusted EBDA amount 20 million remained at the same level compared to the previous year, supported by good result in milk business. Let's go to the slide number 11. The advantages of strong brand of Perutnino, as well as increased focus on meat processing product, have made it possible to increase sales volume of European segment despite coronavirus challenges. Following the strategy and increasing product sales of the European operating segment, last year increased by 5% and 9%, respectively, compared to the previous year. Average poultry price decreased by 6%. mainly due to decreased price in Bosnia, average price for meat processing product last year were relatively stable. European operating segment generates 335 million revenue and 53 million EBITDA last year, Adjusted EBDA increased by 20% year-on-year, mainly due to increased capacity and increased production cost efficiency. The management is very satisfied with the results that Perutnina shows. We have improved EBDA over the last two years almost by 60%. Please go to the slide number 12. A few words about our cash flow and liquidity position. Cash from operation decreased mainly in line with decrease in EBITDA and additional impact was due to the change in fair value biological assets in agricultural produce which represented non-cash adjustment. Net cash from operating activity amounted $71 million in 2020 compared to $502 million previous year, mainly due to the change in working capital. Use of funds in working capital during the last year was more related to higher income. December 2020, some areas referred to something mainly due to the increase of grain price, as well as due to the decrease in grain price in the last year. But, you know, it's not like 8.4, but the organization of the new product developed and routine up to the development. 2021 is around $120 million. Regarding debt, by the end of the period, company total debt was $1.5 billion and net debt around $1.2 billion. 99% of total debt is long-term debt, about 94% which Euro bonds. Our average weighted interest rate currently is below 7. In terms of liquidity, at the end of December, we had about $218 million cash, mostly in dollars. Due to the challenging in 2020 resulted in decrease in EBITDA, net debt to EBITDA ratio reached 3.6 versus Eurobond Covenant limit of 3.0 terms. Having 53% of revenue, more than $1 billion, mainly in dollar-dominated export revenue last year, We fully covered 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 for update and outlook.