MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's 4Q 2022 financial results call on the 11th of April, 2023. At this time, all participant lines are in listen-only mode. The format of the call today will be presentation by MHP management and IR team, followed by a question and answer session. So without further ado, I would now like to pass the line to the MHP team. Anastasia, the floor is yours.

Thank you very much, Michael. Dear stakeholders, good morning, good afternoon. Thank you for joining us today for MHPC's conference call. I'm Anastasia Stavatiuk, Director of Investor Relations and International Communications of MHPC. Together with Victoria Kapelushina, CFO of the company, we are glad to present you MHPC's financials and, of course, operational results for the fourth quarter and full year of 2022. 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 consideration. Now we move to page three of our presentation. Let me start from a general overview. 2022 was extremely challenging for Ukraine and for all businesses in the country. The war started at the end of February with no understanding how it could progress and to what extent. We immediately set out our priorities at the time to care for our people, to maintain food security, and to support Ukraine. Operational challenges for MHP were very significant. The mobilization of employees, the disruption of supply chains, a temporary decrease in the supply of some goods, including vitamins and minerals to produce feed, and plant production goods, including pesticides, the physical disruption of energy and transport infrastructure, and the temporary occupation of some territories. The war in Ukraine continues. It is more localized now, mainly in the east and in the south of the country. However, there is a significant level of uncertainty how the war will develop and when it will finish. Moreover, it is highly unlikely that MHP, as well as any other business in Ukraine, can foresee a size of adverse impact on its operations, which can potentially occur at any time. Macroeconomic situation continued to look very challenging in 2022, GDP in 2022 decreased by around 29%, while next year, taking into account that active hostilities finish by the end of this year, the economy will begin to recover. We all keep our fingers crossed. Inflation ratio was at 27% in 2022, and it is expected to be at around 19% in 2023, still extremely high. The unemployment level is still very high, reaching 26% in 2022. It is expected to remain almost at the same level in 2023. There is still a significant amount of people staying outside of Ukraine, up to 8 million as of today, for obvious reasons. The currency ratio is expected to continue to devalue and will be at around 42 UAH per one U.S. dollars in 2023. Let me now proceed with the company's results for the year, and we go to slide number five of the presentation. I will start with operational highlights for the year. Driven by decrease in capacity utilization, poultry sales decreased by 5% and reached around 666,000 tons. Following the operational plans and taking into account manageable situation with export sales, MHP managed to reach almost 100% capacity utilization by the end of 2022. Facing significant challenges in logistics, during the first three months since the beginning of the war, poultry exports from Ukraine decreased by 8% to around 368,000 tons, with a significant share of transshipments made through the territory of the European Union to the MENA and African countries. Total share of exports out of total poultry sales volumes decreased from 52%. 2022 financial results are following. Group's revenue increased by 11% and reached over US$2.6 billion, with export revenue representing 61% of total revenue, mainly driven by high export prices for poultry meat, partially offset by lower volumes and higher volumes of vegetable oil sales. Adjusted EBITDA decreased by 41% to US$384 million, That was a real and direct impact of the war on our business when MHP team was working 24-7 to offset war impact. The decrease in EBITDA is mainly driven by substantially weaker results in grain growing operations segment, though as a result of significant increase in production cost. Prices of fertilizers and plant protection materials, for example, increased by over 40%. lower grain prices in Ukraine because of the logistic challenges, for example, ports are partially operational even now, and increased logistic costs, as well as lower yields compared to 2021 harvest. As a result of the war, MHP had over $69 million of war-related expenses, mainly as a result of insolvency of MHP partners in Ukraine, who, because of the war, lost their assets or ability to operate, support to communities, written off inventories and biological assets. So I think we can now proceed to the key financials for the fourth quarter of 2022. And we go on slide number six of the presentation. Despite extremely challenging operational environment in the fourth quarter of 2022, the group's revenue increased by 6% and reached $766 million, with export revenue representing 64%. Due to the launch of the additional sunflower crushing facility in October 2022, MHP managed to increase production and exports of sunflower oil by 21% year-on-year. Adjusted EBITDA decreased by 16% year-on-year to 109 million US dollars, with EBITDA margin of 14%, significantly down year-on-year because of the world disruptions. Let's go on slide number seven of the presentation, which shows our financial results by segment. And this information is for the total 2022. Paltry operations remains Our key segment, the group generated the majority of total revenue, around 71%, and 70% of the groups EBITDA. Grain segment generated 6% of total revenue and 24% of companies EBITDA. Meat processing and other agricultural operations generated just 5% of consolidated revenue with around 2% contribution to EBITDA. Please take into account that in April, 2022, MHP closed its meat processing facility in the Donetsk region, which resulted in significant decrease in meat processing operations of MHP Ukraine. The European operating segment generated 18% of total revenue and actually around the same amount contribution to the company's EBITDA. Let's have a closer look at each business segment. And I would like Victoria to continue the presentation.

Thank you, Natalia. Good afternoon, everyone. Let's have a precise look at poultry segments, performance slide number eight. Needless to say that during 2022, MHP has been facing complex challenges and disruption in operations. in sales and logistics as a result of war in Ukraine. Since the beginning of the war, MHP had to cut production by around 15%, and then only at the end of first quarter this year, MHP managed to reach full capacity in poultry production again. Taking into account the enormous number of attacks on the energy infrastructure of Ukraine during the first quarter, and the first quarter 2023, which can continue in the future, there is always a risk of potential decrease in policy capacity again. The impact of the war in Ukraine remains unclear at this time and can change seriously, quickly, and without notice, as you understand. Despite a number of difficulties due to the war in Ukraine, MHP delivered a quite good result in 2022. However, we already see some challenges ahead. I will talk about these trends further in presentation. The main driver of our strong result in 2022 is the 40% of annual export price increase across all the markets that was particularly negatively offset by increased logistic cost due to the war and low export volume. An additional positive effect on the cost of cake and feed for poultry production was due to the favorable ratio of price for sunflower seeds and oil. Export price increased significantly during the second quarter and third quarter of the last year. However, due to the change, However, due to the change in the economic environment in the EU and UK and increased competition in the MENA region, from September 2022, poultry price across almost all export markets started to decrease, which resulted in more than 11% decrease in price in Q4 2022. At current price in EU and MENA region, lower than in Q4 last year, lower by 10%. At the same time, sales of poultry meat in Ukraine, despite of substantial decrease in population, migration, and disposable income, high unemployment rate, with a weak labor market, market mentioned by Anastasia Oleh, remains stable in Q4, year-to-year and quarter-to-quarter. Average policy price in U.S. dollars, however, decreased substantially by 22% year-to-year, driven mainly by depreciation of Ukrainian greenery. MHP is regularly exposed to commodity price risk. To mitigate this risk, we continue to focus more and more on non-commodity products, ready-to-eat, ready to cook. However, penetrating and increasing of our share of this market requires a lot of effort and expenses as today and in the near future. Let's move to the slide nine, grain growing operations. It is important to highlight that despite high prices for grain of international market, export price for grain from Ukraine is significantly lower compared to the international price, due to logistical substantial increase as a result of the war in Ukraine, and challenging unstable logistics and regulations. Obviously, this is negatively affected by profitability of MSP, as well as all agri-producers in Ukraine. Moreover, bad weather conditions in regions where our lands are located, especially in Vinnytsia and Circassia of 2022, negatively affected our harvesting campaign. This is the result in low corn and sunflower yield compared to one in 2021 year. Corn minus 28%, sunflower seed minus 22%. EBDA of grain segment, net IFRS 16, last year constitutes $93 million compared to the $340 million previously in 2021, mainly due to the lower yield and grain prices. I would like to know the path of EBDA in 2022. was attributable to positive impact of hryvnia functional currency on the group farming companies where hryvnia denominated expenses declined due to the currency devaluation against the US dollar. Let's proceed to the slide 10. Meat processing business financial performance deteriorated significantly due to suspension of Ukrainian bacon operations in the next region in April 2022. Partially, the equipment has been relocated to other regions in Ukraine. Additional negative impact was due to significant decrease in demand for hurricane segments during the last year. As of today, MHP produced around 1,000 tons of meat processing products per month. Before the war, we produced and we sell almost 3,000 tons per month. Let's proceed to the slide 11, several words about the routine up to it. Growth in capacity in Serbia and Croatia resulted in 16% increase in poultry sales year on year, while EBDA was stable year on year since the increase in sales volume and price was set by higher cost of production and selling general and administrative expenses. The devaluation of euro against the dollar had additional negative impact on the Pyrethina's financial results. Slide number 12. A few words about our cash flow and liquidity position in 2022. Cash flow from operation before changes in working capital amounted to $480 million, higher compared to the EBITDA due to non-cash adjustment mainly related to FRS-41 standard. Cash from operating activities was mainly investment in working capital. Mostly related. First of all, an increase in trade account receivables and stock of sunflower oil due to longer settlement period as a result of increased delivery period as well as due to increased production sunflower oil. This investment around $150 million in 2022. Secondly, higher volumes of raw materials were accumulated to ensure confidence in smooth operation of our factories. as well as the need of sewing campaigns. The main investments were direct-to-the-purchase non-grain, veterinary components, packaging materials, gas and fuel reserves, fertilizer, plant and protection products, and seeds. Total amount of this around $550 million total. This high investment in working capital was caused mainly by war. We don't expect that realize the working capital while the war in Ukraine continues. Total COPEX last year was 160 million, mainly related to, first, competition of projects that we started in 2021, such as oil crushing plant, and others. Secondly, some logistic projects, we bought baggage and railway wagons. So generators, I'm sure that everybody understands that we need to buy generators to ensure the smooth operation of our factories. And we will continue to purchase generators at the beginning of this year. Fourth, maintenance and new equipment. Regarding debt, at the end of the period, the company total debt was nearly $1.5 billion, net debt about $1.2 million. Using the opportunity, I would like to thank all our Eurobonds holders and banks Our tight cooperation, support and partnership during the difficult times of Ukraine allowed to MHP to receive our consent for 270 days interest payment extension, which the company met in full and on time at the end of 2022, at the beginning of this year. At the same time, we have now received the approvals for prolongation of uncommitted lines from all banks till August and December 2023, second time since the beginning of the war. We remain a responsible partner and we have paid print coupons to the date. The operating environment remains volatile, extremely challenging and unpredictable, including the NBU restrictions regarding capital movements outside of Ukraine for the all Ukrainian legal entities and individuals. The liquidity position at the end of the year was $300 million in cash, mostly in dollars. Given the current operation environment and significant uncertainty, we estimate our minimum safe cash balance at $200 million. And now I give the floor to Anastasia for update and outlook.