MHP SE

Good afternoon. Thank you for standing by. I'd like to welcome you to MHP's second quarter and first half 2023 results conference call. At this time, all participant lines are in listen-only mode. The format of the call today will be a presentation by MHP's management and IR team, followed by a question and answer session. Without further ado, I would now like to pass the line to the MHP team. Anastasia, the floor is yours.

Thank you very much, Tim. Dear stakeholders, good afternoon and good morning. Thank you for joining us today at MHP's conference call dedicated to the second quarter and six-month results. Together with CFO of MHP, Victoria Kapiluchna, we will discuss MHP's financial and operational results, as well as current operational environment and expectations for 2023 in general, taking into account that the war in Ukraine continues. Today's call is based on press release and financial results published 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. I would like to inform everybody in advance that this call will last for an hour and it is dedicated to Q2 and semi-annual results, financial results only. MHP's management call dedicated to tender offer will start at 3 p.m. UK time. We are moving on to slide number three now. And let me start from general overview for the second quarter of 2023. The war in Ukraine with intensive fighting in the south and east of the country and irregular but frequent rockets and drone attacks against civilian infrastructure across Ukraine continues. The bombing campaign aimed at undermining the country's economic capability shows no sign of abating, unfortunately. Market economic situation, taking into account that many businesses have been adjusting to a new operational environment, which remains unpredictably volatile, together with a significant level of support provided by international partners, we Ukrainians are grateful for in In the second quarter of 2023, GDP growth was at around 18% with forecasted growth in 2023 at 2.3% as expected. CPI slowed down to 1.5% compared to the first quarter 2023 that was at 3%. FX remains fixed. With regard to harvest in 2023, Ukraine is expected to have another strong result. given that the weather conditions were favorable and therefore yields are expected to be strong. On this slide, you can see the forecast for 2023 harvest. If the harvest will be at 75 million tons, then 56 million tons can be exported with significant challenges on the way. Everything that cannot be exported due to the novel blockade and the overloaded railways will be stored in warehouses. At the same time, international grain prices continue to decrease, while logistic costs for exports continue to grow. Changes which took place in macro-operational environments were following. On July 18th, 2023, Russia unilaterally decided not to extend the Black Sea Grain Initiative, originally signed by Ukraine. This was significantly restricted the capacity for seaborne grain for Ukrainian agricultural produce, and increased logistic cost. And also, on 2nd of May 2023, the European Commission adopted exceptional and temporary preventive measures on imports of a defined number of products from Ukraine to five member states. The European Commission lifted the restrictions on 15 September, given that Ukraine agreed to tighten control over its agricultural exports. Despite this, Poland, Hungary and Slovakia imposed restrictive nation-wide prohibitions on a unilateral basis on a wider range of agricultural products that were previously restricted by the European Commission. Let me now proceed with the company's results for the first six months of 2023. We are moving on slide number five of the presentation. Let me start with operational highlights. It should be noted that operational and financial results in the first half of 2022 were severely impacted by the onset of the war, making year-on-year comparison difficult. Paltry sales increased by 22% in the first half of 2023, driven mainly by exports, which increased by around 34% year-on-year, despite different logistic challenges either driven by the war or by the restrictions set by naval countries mentioned a little bit earlier. Total share of exports out of total poultry sales volumes increased to 58% from 53% last year. Financial results for the first half of 2023 are following. Group's revenue increased by 35% and reached over 1.5 billion US dollars, with export revenue representing 63% of total revenue. Adjusted EBITDA increased by 42% to US$218 million, mainly driven by high export volumes of poultry meat and vegetable oils, as well as lower war-related expenses. Net debt to LTM EBITDA ratio constituted, as you can see on this slide, 2.31. Let's go on slide number six with key financials for the second quarter of 2023, which were following. Groups revenue increased by 36% and reached over $800 million, with export revenue represented 63%. Adjusted EBITDA decreased by 9% year-on-year to over $100 million, with EBITDA margin of 12%, significantly down as a result of substantially lower profitability in grain segment as a result of depressed grain prices. Let's move on to slide number 7, where we have financial results by segments. This is the result for the six months of 2023. As you can see from this slide, Paltry operations remained our key segment. The group generated the majority of total revenue, around 73%, and almost 100% of the company's EBITDA. The European operating segment generated approximately 17% of total revenue and 17% of the company's EBITDA. Other two segments, such as grain segment and meat processing as agricultural operations, generated around 5% each, and as you can see, grain segment has negative contribution to the company's EBITDA, where Victoria will provide you more color on drivers. Let's have a closer look at each business segment, and here I pass my words to Victoria.

Thank you, Anastasia. Good afternoon, everyone. Let's have a precise look at poultry segment performance, slide number 8. Despite a number of difficulties due to the war in Ukraine, MHP delivered quite strong results in Q2 this year thanks to combination of market environment and enormous amount of work undertaken by MHP team. At the same time, the result for the next period of the of the 2023 can be adversely affected by challenges and risks associated with war and market environment that are not under control MHP's controls. And I will talk about the trend further in our presentation. Our strong results in Q2 2023 were made possible by the fact that our team was able to increase sunflower oil sales volume level and exceed the average mid price for market comparing Q1 this year. In H1, We had an additional positive effect on the cost of cake and feed for poultry production due to the favorable ratio of price for sunflower seed and oil. Currently, we see downward trend in sunflower oil prices, which may lead to decrease of oil crushing margin and as a result to increase in poultry production cost. Export price in Q2 increased by 5% quarter to quarter as a result of increase in price for fillet and breast cup in the EU and UK channels. However, in Q3 2023, export prices started to decline. We expect the international price to continue to fluctuate and show negative trends Based on this option, the international poultry price correlated further with the downward trend in the grain markets. Poultry meat in Ukraine increased by 8% compared to the Q1 2023, driven mainly by increase in sales volume of high-margin product filet, as well as increased share of sales of other relatively expensive ready-to-cook product. In Q3, poultry prices in Ukraine have largely stabilized. MHP is a regular exposure to commodity price risk. To mitigate this risk, we continue to focus more and more on non-commodity products ready to eat and ready to cook. However, penetrating and increasing our share of this market requires a lot of effort. and expenses as of today and in the near future. Let's move to slide number nine, grain growing operations. It is important to highlight the export price for grain from Ukraine is significantly lower compared to the international price due to logistic cost substantial increase as a result of war in Ukraine, additionally challenged by recent termination of the Black Sea grain corridor. Obviously, this negatively affected the profitability of MHP as well as all agri-producer in Ukraine. EPD of grain segment net of IFRS 16 in H1 this year was negative at the level of $27 million, comparing to positive amount $34 million last year. This was mainly due to significant decrease in international grain prices which continue to decline in Q3, as well as increased logistic costs due to the war impact, we expect our grain segment profitability from the 2023 harvest to approach zero. All at the same time, all spring crops are currently in good condition, yield I expect better than in 2020. due to the good weather conditions in Ukraine. Let's process to slide number 10. The financial performance of the meat processing business is mostly stable year-on-year. Sales volume of meat processing products decreased, driven by temporary suspension of production facility Ukrainian bacon in the Donetsk region Q2 2022. We continue to develop our convenience food product. Today our production facility operates at 100%. Let's proceed to slide 11, several words about Pirutnina Ptuj. EBITDA of our European operating segment in H1 slightly increased, mainly due to the growth in capacity of sales volume in Serbia and Croatia. as well as slightly higher price of meat and meat processing product. A few words about our cash flow and liquidity position. Please go to the slide number 12. Cash from operations before change in working capital amounts to $106 million compared to the $254 million last year. This amount included payment in February 2023, part of the deferred interest payment agreed with creditor in March 2022. Release of working capital amount to 70 million in H1, mostly due to reduction in stock of meat, oil, grains, corn, and sunflower at the end of Q2. this year due to recovered logistic and group diversification and optimization action, while it was significantly disrupted due to the war activities last year. However, it should be noted that investment in working capital will substantially increase in H2 2023, resulting in substantial cash outflow due to the future requirements, purchasing of sunflower seeds, fertilizers, seeds for our farming business, as well as termination of the grain deal by Russia that causing significant restriction in the capacity for seaborne trade for Ukrainian agricultural exports. Total CAPEX in H1 amount $92 million and mainly related. Firstly, purchases of diesel generators to mitigate the impact of possible power outages. High investment in CAPEX regarding related to cost optimization and culinary strategy project. Maintenance and new product development. and also improvement of Perutnino-Ptui production facilities. Regarding debt, at the end of the period, the company total debt was nearly $1.5 billion, net debt about $1 billion. By the end of the 30th of June, For the first time in our history, our short-term debt increased up to $725 million. This is because the first 500 million euro bond, which is due for repayment in May 2024, is now classified as short-term. The Group has reached agreement in principle with a number of international and development financial institutions to enter in facilities agreement providing up to $400 million in aggregated. We understand that our lenders expect us to utilize this liquidity in a tender of exercise to buy back as many as possible notes well in advance of the scheduled maturity in May 2024. The operating environment remains volatile, extremely challenging and unpredictable, including the NBU restrictions regarding capital movements outside of Ukraine for the Ukrainian legal entities and individuals. The liquidity position at the end of H1 was $502 million, $277 million of which was held by group subsidiaries outside in Ukraine. It is important to note that accordingly to rule instituted by NBU, the foreign currency proceeds of experts from Ukraine must be repatriated to Ukraine with six months of recognition. which in principle limits our ability to utilize the offshore cash for debt services. Given current operational, environmental, 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.