MHP SE

Ladies and gentlemen, thank you for standing by. We would like to welcome you to MHP's financial results for the second quarter of 2021 and the first half of 2021. At this time, all participants' lines are listen-only mode. The format of today's presentation will be a presentation by the MHP management team, followed by a question and answer session. Before we start, I would like to draw your attention to the fact that some of the information during this call contains projections or other forward-looking statements regarding future events or the future financial performance of MHP. You can identify forward-looking statements by terms such as expect, believe, anticipate, estimate, intend, will, could, may, or might, the negative health, such terms or similar expressions. Today's MHP financial results for the second quarter and six months of 2021 will be presented by Victoria Kapelushina, who is the CFO of MHP, and myself, Director of Investor Relations. I think we are ready to start our conference call. Thank you very much for joining us today again for our call. As I said, my name is Anastasia Sobotyuk, and I'm Director of Investor Relations. And on the call today, we will discuss MHP's financial results. Today's call is based on data and information released earlier today. So our second quarter and the first six months of 2021 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. I think we can go directly on slide number four of your presentation. So let's look at macroenvironment first. Ukraine's GDP in the second quarter of 2021 went up by more than 5%. In the first half of 2021, it grew by around 2% compared to the first half of 2020. That was reported by Ukrainian Ministry of Economy. The main factors that contributed to GDP's growth included the resumption of activity in almost all types of economic activity, the intensification of construction aimed to the launch of a mortgage lending program, the growing implementation of great construction projects, and the favorable situation on foreign commodity markets. It is now expected that annual increase of GDP to be between 3.5% and 4% this year. Year-on-year, Ukrainian currency appreciated by around 2%. Annual inflation reached 9%. The National Bank of Ukraine in July downgraded the inflation forecast for 2021 from 8% to around 10%. With regard to COVID-19, as of today, there are over 2.3 million cases of COVID in Ukraine. Unfortunately, the vaccination does not progress very fast. And as of today, there is only circa 14% of population fully with two shots vaccinated. Let's get back to the company's results. We go on slide number six. The key financials for the period. Let me first of all start with operational highlights for the first half of 2021. Paltry sales increased by 2% and reached around 336,000 tons. Paltry exports increased by 12% and reached circa 191,000 tons, driven by increased sales volumes both to MENA region and to the countries of the European Union. Total share of exports out of total poultry sales volumes increased to 57% from 52%. When we look at the financial results for the first half of 2021, they look as follows. Revenue increased by 14% and reached almost $1 billion, with export revenue representing 51% of total revenue, mainly driven by an increase in exports of poultry meat. Adjusted EBITDA increased by 55% and reached $334 million, driven mainly by excellent results in grain growing operations. As a result of EBITDA improvements, net debt to LTM EBITDA ratio constituted 2.82. Before we continue, I would like to draw your attention that starting from the next slide of the presentation, we disclose information based on quarterly results and year-on-year comparison. For more information on six months of 2021 results, please use our press release. And now we go together on slide number seven of the presentation. Key financials for the second quarter of 2021. As you can see from the graph, MHP's revenue increased by 28% in the period and reached around 542 million US dollars, with export revenue represented 53%. Adjusted EBITDA margin increased by 120% year-on-year to $277 million with EBITDA margin of 51% as a result of positive results both in poultry and grain growing operations. Let's move on to slide number eight of your presentation. Slide eight shows us financial results by segment. As you can see from the table, the vast majority of revenue in the first half of 2021 arrived from poultry and related operations and European operating segment . At the same time, grain growing and poultry operations contributed the most to the company's EBITDA . The biggest contributor to export revenue was from poultry operations, constituting $502 million in total. Let us have a closer look at each business segment and results on our next slide. And here, I pass my word to Victoria.

Thank you, Anastasia. Good afternoon, everyone. Let me give you more color on our poultry segment performance slide number nine. It is important to highlight that during the first six months of this year, all MHP's poultry production facilities in Ukraine have been operated at full capacity. As you can see, MHP delivered exceptional strong results in Q2 this year compared to the same period last year that was absolutely challenging for the whole world. total revenue poultry segment increase by 30 percent year-on-year driven mostly by increase in sales volume mainly for export driven by Maynard Jones sales and increase of total poultry price mainly driven by export price everywhere price of growth for chicken fillet in the UK water internationally and also in many regions, including increased price in Ukraine. The total price growth was gradually compensating a substantial increase in production costs, which has increased since Q4 2020 due to a significant increase in the commodity price of grain. At the same time, a per kilo of chicken meat reached the same level of profitability, $0.5, as it was before COVID-19, in the second quarter of 2019. Let's move to the next slide, number 10. EBITDA of grain segments in H1 of this year constitutes $160 million, compared to the $65 million last year, mainly attributed to 41 standard gains. Due to the stronger yield of winter crops, it is 20% higher year to year, and expect significantly higher yield in spring crops over the 50% year on year. Current price of wheat and red seeds are around 30% higher year-on-year. Let's go to the slide number 11. Meat processing business performed well and showed growth following a strategy to transform to culinary company. We expect to change volume dynamics to more positive further in 2021 following the wide range of new product introduction to the market. Let's go to the slide 12. Several words about Perutnina ptui. Growth in capacity in Serbia and Croatia resulted in 26% increase in poultry sales year on year, which resulted in ABDA growth of 36% year on year. Moreover, the significant ABDA growth is due to higher operational efficiency, which allowed to offset growing cost of raw material, positive impact from appreciation of euro against dollar, and one-off effect related to insurance and some change in accounting treatment from the past. These two years of cooperation between MHP and Perutnina showed our stakeholders and us What is the high level of financial operational result can be achieved and we continue to invest into develop 13 of two operations, raising its operation efficiency and growth. Slide number 13, a key words about our cash flow and liquidity position. Cash from operation increased mainly in line with the increase in immediate. An additional impact was due to the change in fair value of biological assets and agriculture produced, which represented non-cash adjustment. Use of funds in working capital during the Q2 and H1 was mostly stable and mostly related to seasonal work in progress in grain growing division, as usual for our company. Total CAPEX in Q2 Amounts 21 million mainly are related to modernization projects, new product development, maintenance, and the routine up to a project facility for the development. Total capex for this year is expected around $150 million. Regarding debt, due to significant improvement in EBDA, net debt to EBITDA ratio reach by the end of Q2 2.8 versus 3.7 by the end of Q1 this year. We expect further growth in LTMA BDA in the second half of 2020. And we expect that our net debt to EBITDA will be lower than current levels. Of the end of the period, the total company EBITDA $1.5 billion, 99% is the long term. All our average interest rate today, average is 6.7%. In terms of liquidity by the end of the H1, we had around $162 million in cash. No, in cash, mostly in dollars. And now I give the floor to Anastasia for outlook.

Thank you, Victoria. We all see that the company's performance both in the second quarter and for the first six months of the year was exceptionally strong. After difficult fourth quarter of 2020 and first quarter of 2021, during which increased cost of poultry production driven by higher grain cost, could only possibly be recovered by increased poultry prices, external trends impacted much more favorably on our business in the second quarter, resulting in a record financial result for the first half. This powerful combination of positive trends has continued into the second half of the year, with poultry prices increasing in both export and domestic markets. The whole Ukraine has been enjoying excellent weather conditions, generating strong crop yields. At MHP, we expect this year harvest to be one of the strongest in our history. High global grain prices added a significant value to our results. As a result, with a successful hedging program to lock in a high proportion of grain prices, we have raised our expectations for the full year with EBITDA now expected to reach a record of close to 600 million US dollars. The net debt to EBITDA ratio, which already improved significantly as at 30th June, is expected to improve further to around two by year end. Thank you very much. We are ready for questions. To ensure that all participants on today's call have equal opportunities, Please follow the rule. One participant, three questions. Thank you for cooperation in advance.

So if you have a question, please press star two on your telephone keypad, or you can also ask a question via the web by typing in the box or requesting to ask a question there. Thank you. We'll just wait a moment for questions. Thank you. So our first question comes from Dimitri Ivanov from Jefferies. Caller, please go ahead. Your line is open. Please bear with us for a moment. Apologies all, please bear with us one moment. We're just having a technical difficulty. We'll update you in one moment. Apologies again, we do have some questions. If you just bear with us a couple of moments, We'll start with the questions very shortly. Thank you for your patience. Apologies again, ladies and gentlemen, please just bear with us a few more minutes. apologies again ladies and gentlemen if you've just joined we're just experiencing some technical difficulties so please just bear with us a couple more minutes thank you Apologies, ladies and gentlemen. We'll provide an update shortly. Please continue to be patient with us. Thank you.

This is Anastasia speaking. As we can see, we are experiencing the technical problems with the platform. And that is why, unfortunately, we cannot hear you. We even cannot open the line. I hope you hear me well. So the proposal from the company is following. We can either receive your questions via email and answer them directly, we can set a conference call or conference calls with you on your request on the day which is convenient for you. So please feel free to contact us, to contact me, and of course we will be flexible in order to arrange all the calls and answer all the questions in the nearest time. Thank you very much for understanding. Thank you. Goodbye.