MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's Q1 2021 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 an opportunity to ask questions. If you are dialed in via the web, you may also ask questions using the voice or text feature. So without further ado, I would now like to pass the line to MHP. Anastasia, the floor is yours.

Hello, everyone. Good afternoon and good morning. Thank you for joining us today for MHP's conference call dedicated to MHP financial results for the first quarter of 2021. As usual, I have to tell you in advance that some of the things we discussed today are forward-looking statements. Please take it into consideration. I encourage you to use today's press release with our financial statements for the detailed information. One thing I would like to draw your attention to is that starting from this quarter report, MHP will also provide comparison of the results to the previous quarter in poultry, meat processing, and European operating segments. Grain growing segment is not included because of seasonality efforts. We believe that this approach in disclosure of our results will bring our stakeholders additional value and convenience, as well as better understanding of trends. On today's call, we have CFO of MHP, Victoria Kapelushina. She will present financial results of the company and best segments. And myself, Anastasia Sabatyuk, Director of Investor Relations. I will lead you through the presentation. After the presentation, we will be glad to answer your questions. I hope that everybody is ready so we can start presentation of the first quarter of 2021 straight away. Slide number four, please. Let me start from general overview of the first quarter of 2021. First of all, I would like to confirm that MHP continues to take proper care about its over 30,000 employees across 11 countries. We take COVID-19 pandemic seriously. We put in place, monitor and revise measures that enable our people and the company to operate safely and responsibly. Therefore, fulfilling our company's central role as a food producer during this challenging period for everyone. Second, since the first outbreak of avian influenza in Ukraine, middle of December 2020, MHP's facilities until now, and taken into account our prudent biosecurity measures in place, have not been and will not be adversely affected. So despite these two big challenges, MHP continued to evolve, advance, and implement its strategy, working at full capacity across all business segments. Let me add a few words about macro conditions in Ukraine. Despite difficult and turbulent Q1 2021, because of the third wave of COVID-19 in Ukraine and the strict lockdown, retail sales decreased by over 7% and GDP decreased by 2% year-on-year. However, the government expects real GDP growth to be around 5% year-on-year. Ukrainian currency is valued by 4%, with a forecast for Ukrainian hryvnia to USD. exchange rate at 29% on average in 2021. Annual inflation accelerated to around 7% year-on-year, driven mainly by food, utilities, transport, and education cost increase. Being one of the biggest grain producers, traders in the world, and taking into account current weather conditions as well as current world grain prices, expectations for 2021 harvesting campaign in Ukraine is strong and positive. Let me finish here and come back to the company's results. Let's go on slide number six of the presentation. That was absolutely challenging start of the year and actually expected result. Taking into account significant increase in gain and fall in prices since Q4 2020, And challenges mentioned previously, MHP, as well as other food producers in Ukraine and worldwide, was trying its best to get a good financial performance. As a result of our effort and strategy implementation, our revenue remained stable year-on-year and constituted $447 million, of which export revenue was 49%, around $217 million. However, lower by 8% year-on-year due to the avian influenza restrictions and exports since December 2020 mainly. EBITDA was around 57 million US dollars, 37% lower year-on-year, and EBITDA margin constituted 13%. Let's go on slide number seven. Slide number seven shows our financial results by segment. As you can see from the table, the mass majority of revenue in Q1 2021 came from poultry and related operations, around 70%, and the European operating segment, around 20%. Traditionally, due to seasonality effects, but also because of the historically low harvest in 2020, contribution to the revenue from grain growing segment in the first quarter was quite low. around 2% only in Q1 2021. At the same time, poultry, grain growing, and the European operating segments contributed to the most to the company's EBITDA, 56%, 23%, and 21% respectively. With rotation operations and other agri-segment contributions still remains the lowest boost to the revenue and EBITDA of MHP. However, with the 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 slide. Here I pass my words to Victoria. Thank you, Anastasia.

Good afternoon, everyone. Let me give you a call to our portrait segment, slide number eight. It is an influence in Ukraine during the first quarter. led to temporary ban of exports from Ukraine to EU. In order to mitigate adverse impact on MHP's operations and profitability, the management of the company decided to increase production of small chickens and export more to MENA market. Sales to MENA region increased from 31% to 54% of total export sales year-on-year, mainly driven by increased sales to Saudi Arabia. All of these poultry production facilities in Ukraine have been operated during the third quarter at full capacity. Despite of difficulties with COVID-19 and avian influenza, expert sales volume remains at the same level year on year. On the domestic market, we increased sales of chills, meat compared to the last year, but this was offset by slightly decreased shares of frozen chicken meat in Ukraine due to the low production and sales MDM. Total revenue in poultry segments increased by 3% year-on-year, driven mostly by an increase in price on domestic markets, which was offset by a decrease in sales volume of chicken meat on vegetable oil. Expert price decreased by 5% in average, mainly driven by product and geographic change in expert sales. Increased sales of smoked chicken to meat and decreased sales of chicken fillet to eel. Because of significant increase in grain and protein product price since the fall quarter 2020, Market price of chicken in Ukraine began to increase starting from December. In Q1, poultry price in domestic market in dollar term increased by 15% year on year, with further increase in price in Q2. Gradually compensating increased production cost. As you may know, since the first quarter 2020, all food products worldwide have been facing a challenging asset associated with increasing grain price because of different international drivers. At MHP, poultry production costs increased approximately by 25% in dollar terms as a result of unexpected significant growth of grain protein price after that harvest in Ukraine. Financial results of poultry segments in Q1 began to recover since a significant fall in Q4 last year. At the same time, the decline of results compared to the same period last year occurred because the increase in poultry costs was only partially compensated by a gradual increase in poultry price. Adjusted a bit down before the 31 standard. Per one kilo was $0.2, which was more than 40% lower compared to the last year, but around 80% higher compared to the worst-hour result in Q4 last year. Let's move to the next slide, slide number nine. External grain segment revenue. amounted $9 million. The decrease in revenue was mainly due to the low volumes of crop sold in 2021 as a result of a weaker harvest of 2020. EBD of grain segment in the first quarter of the year mainly comprises grain sales of poultry segment for internal consumption as many as poultry feed components. Regarding our winter crops, All our winter crops are currently in good condition. This year MHP is going to harvest around 355,000 hectares. MHP 2021 spring sowing campaign has been analyzed. Let's go to the slide number 10. Meat processing and other agricultural business perform relatively stable year on year. Volumes on convenient food production grew slightly by 3%, supported by continuing new product development program. Mid-processing product volume decreased around 3%, mainly in traditional stock segment. We expect to change volume dynamics to positive further in 2021, following the wide range of new product introduction to the market. Segment revenue remains materially unexchanged at amount around $36 million, adjusted EBD amount $4 million, decreased compared to the last year as a result of lower return earnings from meat processing products due to the higher poultry costs, which was only partially compensated by the increase in price. Let's go to the slide number 11. Following this strategy, of poultry production growth and increasing facility capacity. This slide number 11 about pyrotinib, about our pyrotinib 2 results. Following the strategy of poultry production growth and increased facility capacity utilization in Serbia and Croatia, poultry sales of European operation segment in the Q1 increased by 6%. Meat processing product sales remained almost on exchange compared to the same period last year. Average poultry price slightly decreased by 10%. Price of meat processing product was relatively stable. European operating segment generates around $90 million group revenue and $12 million of EBDA in the Q1. Adjusted EBD in Q1 increased by 90 cents year-on-year, mainly due to increased capacity and increased production. And in dollars, EBDA growth is also affected by depreciation euro against dollar year-on-year. The management is very, generally, is very satisfied with the result of the routine of two operations. A few words about our cash flow and liquidity positions, slide number 12. Cash from operation decreased mainly in line with decrease in EBITDA. An additional impact was due to the change in fair value of biological assets and agricultural produce, which represented no cash adjustment. Net cash from operating activity Amount to minus 36 million in Q1 compared to minus 39 million last year mainly due to the changes in working capital, seasonal changes in working capital. Use of funds in working capital during the Q1 was mostly related to, first of all, investment in inventory, corn, sunflower, and soy, designed for internal consumption until the next harvest. as well as higher grain price in Q1 compared to the same period last year. Secondly, investment in inventories related primarily to grain growing entities in respect of forthcoming spring sowing campaigns. Third, increasing VAT receivables, which is expected to be reimbursement in the second quarter. Total COPEX, in Q1 amount around $23 million, mainly related modernization products, new product development, maintenance, and production facility for the development. Total COPEX in this year is expected around $130 million. Regarding debt, And by the end of the period, the company total debt was nearly $1.5 billion, net debt around 1.3. 90% of total debt is long-term debt, 96% of which is Eurobond. Our average rate of interest rate currently is below 7. In terms of liquidity at the end of March, we had around about $140 million in cash, mostly in dollars. Due to the challenges in 2020 and only 2021, which resulted in decrease in EBDA, net death to EBDA ratio reached 4.28 versus Eurobonne COVID-19 3. We expected to increase in long-term EBDA since the second quarter of this year, which accordingly 12% will potentially reduce the ratio to three and even possible below. Having around 50% of our revenue, more than $200 million mostly in dollars dominated, during the third quarter, we fully covered all our debt service expenses and other payments in foreign currencies. Our currency balance, as usual, remains strong positive. And now I give the floor to Anastasia for update and outlook.