MHP SE

Good afternoon and welcome to MHP second quarter 2022 results conference call. We are joined by Anastasia and Victoria. I will now hand over to Anastasia to begin the presentation.

Hello, thank you very much, Tim. DS3 Holder is Good afternoon and good morning. Thank you for joining us today at MHP's conference call. I'm Anastasia Sobatyuk, Director of Investor Relations and International Communications. Together with Victoria Kapelushna, CFO of MHP, we will discuss MHP's financial and operational results for the second quarter and six months of 2022, as well as current operational environment and expectations for 2022, taking into account that war in Ukraine continues. Today's call is based on information released earlier today. However, during our call, we will discuss our projections and plans based on our assumptions, domestic and international trends. Please take it into account. We are now moving to the slide number three of the presentation. I hope you received the presentation all right. Let me start from the general overview of the first, second quarter of 2022. The war situation in Ukraine has stabilized to some extent, although the situation remains highly fluid, and they are both subject to extraordinary uncertainty. The macroeconomic situation is completely in red zone with negative trends across all spheres. Another significant drop of around 37% year-on-year in the second quarter after a drop in the first quarter of the year. CPI accelerated to 24% year-on-year in August, and foreign exchange rate continued to devalue, showing 34% devaluation since January 2022. There are a few positive changes, though. Due to the arrangement signed on 22nd July by Ukraine, the Russian Federation, Turkey and the United Nations to resume grain exports, agricultural companies are now able to export from Ukraine and more than 100 ships have delivered animal feed grain and vegetable oils to a number of MENA and EU countries. MHP is planning to use this route to export grains later this year. The Ukrainian army is pushing Russian terrorist forces out of Ukraine slowly but surely, which means that Ukraine still requires international support not to spread the disease across the continent. Although MHP continues to face complex challenges and disruptions in operations, sales and logistics, the company has now been able to restore pulse production in its Ukrainian facilities to almost 100% of the capacity. Let me now proceed with the company's results for the second quarter of the year. We move to this slide number five. Sorry, my computer is a little bit slow. So I'm moving the slides now. So we're here now. Good. Let me start with operational highlights for the first half of 2022. During the decrease in capacity utilization in Ukraine, poultry sales decreased by 12% and reached around 300,000 tons of chicken meat. Facing significant challenges in logistics, Paltry exports from Ukraine decreased by 17% to around 158,000 tons, with significant share of transshipment made through the territory of the EU to the MENA and African countries. Total share of exports out of total paltry sales volume decreased to 53% from 57% in the first half of 2022. financial results for the first half of 2022 are following. Group's revenue increased by 16% and reached almost 1.1 billion U.S. dollars, with export revenue representing 56% of the total revenue, which was 51% in the first half of 2001, mainly driven by high export prices for poultry meat, partially upset by lower volumes. Adjustability decreased by 54% to US$154 million as a result of war disruptions in operations, which led to lower volumes in production and sales, as well as significant increase in logistic costs and challenging logistics in general. NABDA to LTM EBITDA ratio constituted 2.75 times. Please take into account that the first time in MHP's history we report on war expenses, which were at around 50 million US dollars in the first half of 2022, mainly related to community support donations like food and goods, Sheets of operations at metro testing facility in Donetsk since March. Rattles of inventories, loss of produce in the coal storage in March, and biological assets, as well as salaries to the mobilized employees of MHP, who we will continue to support until the victory of Ukraine in this heretic war. Let's go to slide number six of your presentation. Group's revenue increased by 10%, as you can see from the slide, and reached around 595 million U.S. dollars. With export revenue representing 56%, adjusted EBITDA decreased by 60% year-on-year to around 111 million U.S. dollars, with a EBITDA margin of 19%. which is significantly down year-on-year because of the war disruptions in operations. We now go to slide number seven of the presentation, which shows our financial results by segment for the first six months of the year. And we start from paltry operations. Paltry operations, as you know and see now, we made our key segment As usual, and during the first half of the year, the group generated the majority of total revenue, 70%, and around 65% of the companies EBITDA. Grain segment generated 5% of total revenue, and about 22% of companies EBITDA. As you know, majority of grain produced, we use internally to produce feed mill for chicken. Meat processing and other agricultural operations generated about 5% of consolidated revenue, with zero contribution to EBITDA. Victoria will comment on main drivers of this segment later during the presentation. The European operations segment generated approximately 20% of the total revenue and 23% of the company's EBITDA. Let's have a close look at each business segment, and I want to pass my word to Victoria to continue.

Thank you, Anastasia. Good afternoon, everyone. Before I start presentation, I would like to highlight that I will talk and walk you through the second quarter results of this year and compare them with the second quarter last year mainly. So you can see how the current environment and war in Ukraine have impact of MHP operational and financial results. Let's go to the slide number eight. Let's start from the results in poultry division. During the second quarter, poultry production volume slightly decreased as MHP has been working at around 85% capacity utilization. Overall revenue of division increased by 10% year-on-year. Manly revenue in poultry remained relatively stable year-on-year, whereas revenue from vegetable oils increased substantially. driven overall increase of results year-on-year. During the second quarter, MHP average export sales price for poultry meat increased by more than 65% in dollar store, mainly driven by products mix optimization, as well as substantial international price increase across all markets, Chile price in Europe, and MENA, smaller price in MENA region. But at the same time, export volume decreased by more than 35% due to the challenging and disruptive logistics because of the war. Price on domestic market in the second quarter decreased by 7% year-on-year in grievance term, mainly driven by low shares in sales of chilled meat, as well as product meat structure change. At the same time, volumes remained relatively stable. Poultry production costs in the second quarter remained almost at the same level in the first quarter, but significantly increased compared to the year-to-year, more than 30%. Gross profit in Q2 substantially decreased by 21% mainly due to the problem with logistics and much lower sales volume in exports than expected, ongoing growth, while in the first half of 2022, gross profit increased by 3% due to the exceptional low results in the first quarter of 2021. Adjusted EBITDA before the IFRS 41 effect per one kilo in Q2 was 16% lower year on year as a result of war-related expenses mentioned earlier by Anastasia. Let's move to the slide number nine. This year, harvest is expected to be good for all agricultural producers. Despite difficult sowing campaign in spring and challenging agricultural operation in summer, taking into account good weather conditions in Ukraine for rapeseed and soil, the company has good yield for these crops this year. Yield for wheat, corn, and sunflower are lower than expected and low compared to the last year. At the same time, low grain price in 2022 season in Ukraine compared to the same period last year, it was affected by disruptive and expensive logistics of grain in Ukraine, from Ukraine, despite of high international prices, as well as higher production costs resulted. Resulted to significant decrease in EBDA in H1 by 80% lower in 2022 compared to the same period last year. Slide number 10, meat processing and other agricultural operations segment. Just a reminder, at the beginning of April, MHP has decided to temporarily suspend the operation of Ukrainian bacon, partially relocate equipment to other MHP production facilities. As today, MHP continues to produce meat processing products, mainly operating with subcontractors. Production volume decreased substantially, so the sales volume decreased by 70% year to year. to around 2,000 ton in Q2. As a result of segments, EBDA in Q2 decreased to nil from 70 million. Many due to effect of war and significant disruption in demand for horticulture segments. Please let's go to the slide 11. Following the strategy of poultry production growth and increased several facility capacity utilization in Serbia, in Croatia. Poultry production volume of European operating segment in the second quarter increased by 6% year-on-year. Average poultry price increased by more than 30%. Average price for meat processing products increased more than 10%. There are trends absolutely in line with international poultry prices. At the same time, revenue higher year-on-year by 15%, and EBITDA remain approximately at the same level, 22 million. Let's go to the slide number 12. It is crucial to draw your attention to cash flow of companies in challenging times for Ukraine. Net cash used in operation activity amount 8 million, this year in H1 compared to the almost $50 million the same period last year, mainly due to significant investment in working capital. In the first half of the year, we invest in working capital $144 million more compared to the same period last year. It is mostly related to, first of all, increase in trade receivables for export sunflower oil and poultry meat due to the longer logistics. Secondly, higher amount of chicken meat in stock due to disruptive logistics, the same problem. Third, the change in condition in trade account payable. increase in VAT receivable balance. General total capex in H1 amount 36 million. Mainly related some maintenance capex and some improvement production facility. Some our projects regarding the new product development. Some words about MHP debt. and our liquidity position. As you know, around 90% of MHP total debt are Eurobonds. At the end of June, MHP liquidity position was 220 million in cash, mostly in dollars. Because of the war in Ukraine, MHP is facing significant challenges to attract new credit line. At the same time, the minimum liquidity position the company see appropriated to continue its business as usual is a minimum 120 130 million dollars weight of current situation despite certain restrictions set by a national bank of ukrainians and general uncertainty in ukraine because the war mhp expects to pay its forthcoming semi-annual bonds coupon in full and on time. And now I give the floor to Anastasia to provide you the outlook.