MHP SE

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

Thank you very much, Tim. District Holders, good afternoon and good morning. Thank you for joining us today for MHP's conference call. As Tim said, I'm Anastasia, Director of Investor Relations and International Communications. On the call today, together with Victoria Kapelushna, CFO of MHP, We will discuss MHP's financial and operational results for the third quarter and nine months of 2022, as well as current operational environment and expectations until the end of 2022 and going forward, taking into account the war in Ukraine, its current consequences for the country, challenges it brought to the operational environment in Ukraine and in the world. 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 now move on page number three of our presentation and we'll have a look at macro environment in Ukraine. But first of all, let me start from general overview, how the macro environment looks today and expectations and expected to look like next year based on the forecast provided by the NBU, the Ministry of Finance in Ukraine and number of research run in Ukraine during the last quarter. As you see from the public domain, the war situation in Ukraine has escalated since October when the Kremlin started to conduct targeted massive missile strikes on the territory of Ukraine, fiercely attacking the country's energy infrastructure. This has led to the complete destruction of over 50% of Ukraine's energy infrastructure. Although the recent recovery of Kherson has been encouraging, the overall situation remains highly fluid and the outlook is subject to extraordinary uncertainty. MHP faced complex challenges and disruptions to operations in the middle of October, when a number of the country's electricity generation stations and power lines were hit by missile attacks. operations at some MHP facilities had to shut down for a short period of time after these missile hits. As of today, MHP is again operating close to full capacity using a combination of state grid, electricity generated at MHP's biogas stations and diesel generators. However, events have shown that the situation can deteriorate seriously, quickly and without any notice. Macroeconomic situation looks very challenging though. GDP in 2022 is expected to decrease by around 32%, while next year, taking into account that active hostilities finish by the end of this year, the economy will begin to recover. Fingers crossed. Inflation ratio is expected to exceed 30% in 2022 and to be over 20% in 2023, including food inflation expected to reach same levels as the overall inflation. The unemployment level reached 28% in 2022 and will remain almost at the same level in 2023. Interesting findings from the research I would like to share with you, and they are following. Around 13 million people left the country since the invasion, of which 50% came back to Ukraine and around 20% will come back next year. Around 60% of the population are in a difficult financial situation because of the war. Over 50% of population has got financial resource for less than a month. Over 50% of employees' salaries have been decreased and almost a quarter of the population lost their jobs and are unemployed now. The currency ratio, as you can see from the presentation, is expected to reach 42 Ukrainian hryvnia per one US dollar. Let me now proceed with the company's results for nine months of the year, slide number five of the presentation. So let me first of all start with operational highlights for the nine months of 2022. Driven by decrease in capacity utilization because of the war in Ukraine, poultry sales decreased by 9% and reached around 477,000 tons Facing significant challenges in logistics during the first three months since the beginning of the war, poultry exports from Ukraine decreased by 14% to around 257,000 tons, with a significant share of transshipments made through the territory of the European Union to MENA and African countries. Total share of exports out of total poultry sales volumes decreased to 54% from 58% in the same period last year. Financial results for nine months of 2022 are following. Group's revenue increased by 14% and reached almost $2 billion, with export revenue representing 59% of total revenue, mainly driven by high export prices for poultry meat, but partially offset by lower volumes and higher volumes of vegetable oil sales. Adjusted EBITDA decreased by 47% to $275 million as a result of war disruptions in operations, which led to lower volumes in production sales as well as due to a significant increase in logistic cost and challenging logistics in general. Let's go on to the next slide, number six, where we can see the key financials for the third quarter of 2022. The results are following. Group's revenue increased by 10% and reached $727 million, with export revenue representing 65%. Adjusted EBITDA decreased by 35% year-on-year and reached $121 million, with EBITDA margin of 17%, significantly down year-on-year because of the war disruption in operations let's move on on slide number seven of the presentation where we can see the financial results by segment for the nine months of the year multi-operations remained our key segment the group generated the majority of total revenue which is around 72 percent and 67 percent of the companies will be done grain segment generated five percent of total revenue and about 18% of companies EBITDA, net of affairs 16, of course. As you know, the majority of grain produced by MHP and usually used internally to produce seed meal for chicken. Meat processing and other agricultural operations generated only 5% of consolidated revenue. The European operating segment generated approximately 18% of total revenue and 20% of the companies EBITDA. progressing in line with their strategy and development plans. I would propose to have a closer look at each business segment of MHP, and here I pass my word to Victoria. Thank you, Nathalia.

Good afternoon, everyone. Let me give you more color on our poultry segment performance, slide number eight. It is important to highlight that during the last seven months of the year, MHP has been facing complex challenges and disruptions in operations, sales, and logistics as a result of war in Ukraine. Only during the third quarter of the year, MHP managed to reach full capacity in poultry production after having decreased to around 80-85% in March 2022. However, taking in account an increased number of attacks on energy infrastructure of Ukraine, we foresee the MHP can potentially decrease its poultry capacity again. The impact of the war in Ukraine remains unclear at this time and can change seriously, quickly, and without notice. Despite a number of difficulties due to the war in Ukraine, MHP delivered relatively strong results in Q3 compared to the same period last year. However, we already see that the company's financial results in Q4 are going down. I will talk about this further. The main driver of our strong results in Q3 is substantial export price increase across all markets. by 40% year-on-year that was particularly negatively upset by increased logistic costs due to the war. Thanks to the effective action of the company and the establishing alternative roads, our export volume decreased only by 10% quarter to quarter. At the same time, sales in poultry meat in Ukraine despite a substantial decrease in population, migration more than 7 million, and disposable income. Anastasia was talking about the trends earlier, remain stable in Q3 this year, and even increase compared to the second quarter. At the same time, poultry price decreased substantially by 25% in dollar store, driven mainly by depreciation of Ukrainian grievance and mix of the product. Let me explain you what has happened now in Q4 on export market. As a result, it changed economical environment in EU and UK and increased competition in MENA region, especially Saudi Arabia. Export price trends have changed to negative. Paltry price across all export markets, MENA, EU, since from September started to go down sharply, with current price being substantially lower than in Q3 this year. Moreover, MHP has been facing a triple increase in logisticals year on year, I mentioned before, which make it much more difficult for MHP to compete with our competitors from worldwide. Let's move to the next slide, number 10, grain growing operations. It is important to highlight that despite the high price for grain on international market, export price for grain from Ukraine and in Ukraine are significantly lower to international price due to the logistic cost increase because of the war in Ukraine. All this negatively affect the profitability of MHP as well as all agri-company, agri-producer in Ukraine, negative effect for profitability. Moreover, this year, weather negatively affect to our corn yield in Veneta and Cherkasy region, which we expect to be lower budget, nine ton per hectare yield. EBITDA of the grain segment in nine months constitute 50 million compared to the 260 last year, mainly due to low expected results for spring crops and mainly because low yield of corn and price. We expect total EBITDA in grain segment this year to be around 60 million. This is the lowest result in MHP history. Let's go to the slide 11. Mid-processing business financial performance deteriorated significantly due to suspension of Ukrainian back-on operation in the Donetsk region in April this year. Partial equipment has been relocated to other regions in Ukraine. Additional negative impact was due to significant decrease in demand demand for horeca segments. Yesterday, MHP produced around 1,000 tons of meat products per month, versus 3,000 per month last year, using both companies and rented facilities. Let's go to slide 12. Several words about . Growth in capacity in Serbia, in Croatia, resulted in increased 10% in poultry sales year-on-year, which resulted in EBDA growth 11% year-on-year, driven both an increase in production volume and price. Despite strong price trend during the last month, we expect poultry price in Balkan and Perusnina export market, the EU, to go down in the first quarter 2022. Let's go to the slide number 13. It was about our cash flow and liquidity position. Cash from operations before change in working capital amounts $378 million higher compared to the EBITDA due to non-cash adjustments mainly related to 41 standards. But at the same time, Cash from operating activity was mainly investment during the nine months in working capital. This investment in working capital was more than $245 million and mostly related to high amount of chicken meat by the end of nine months designed for sales. Secondly, increase in investment in biological assets during the crop sowing campaign due to the higher cost per hectare compared to the previous year. Third, increase in trade account receivables for sunflower oil due to the longer settlement period as a result of increasing delivery period. Fourth, an increase in VAT receivables. And last, a fall in trade account payables for plant protection products and seeds, and increase in advance made for fuel to be used in far and first-coming harvesting and sowing campaigns. I also want to highlight the MHP made low investment in sunflower seeds as the start of September compared to the same period last year. This will result in more substantial investment requirements in sunflower seeds in Q4. In Q4, we expect additional investment in working capital, about 100 million. We expect that our cash and cash equivalents by the end of the year will be amounted around 200, 250 million dollars. For us, it's very important to understand the minimum hour position. Minimum safety cash balance for MHP now is $100 million, $150 million, given to current situation and significance uncertainly. And now I give it to Flo to answer here.