MHP SE

Good afternoon, ladies and gentlemen, and welcome to MHP's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this call is being recorded. Following the presentation, there will be a question and answer session. I will now hand over to Anastasia to begin the presentation.

Thank you very much. Dear stakeholders, good afternoon and good morning. Thank you for joining us today at MHP's conference call. which is dedicated to the third quarter and nine-month results. I'm Anastasia Sobatyuk, Director of Investor Relations. Together with CFO of MHP, Victoria Kapelushnaya, we will discuss MHP's financial and operational, as well as the current operational environment and expectations for 2023 and going forward, taking into account that the war in Ukraine continues. Today's call is based on a press release and financial statements 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. I hope you follow our presentation, and we are on page number three, slide number three. So a few words about macroenvironment. First of all, an update about the war. The war in Ukraine was intensive fighting in the south and east of the country and irregular but frequent rocket and drone attacks against civilian infrastructure across Ukraine continue. The bombing campaign aimed at undermining the country's economic capability shows no sign of abating, unfortunately. We expect missiles attacks on the energy infrastructure specifically to intensify in the near days and weeks as winter is approaching rapidly. Macroeconomic situation. Taking into account that many businesses have been adjusting to a new operational environment which remains unpredictably volatile, together with the insignificant level of support provided by international partners, we, Ukrainians, are grateful for and in Q3 2023 GDP growth was at around 8%, following a rise of more than 19% in the second quarter. Forecasted GDP growth in 2023 is expected to be around 5%. CPI slowed down to approximately 1.5% and expected to be around 6% annually. Regarding foreign exchange, NBU implemented foreign exchange flexibility just recently, which resulted in insignificant appreciation of the local currency. With regard to harvest in 2023, Ukraine has good and other strong results, one of the record harvests, given that the weather conditions were favorable, and therefore yields are expected to be strong. Harvest is expected to be over 75 million tons, of which 50 million tons potentially can be exported with significant logistic challenges. At the same time, please take into account that international grain prices continue to decrease, while logistic costs for exports continue to grow. Moreover, Polish strikes at the border do not facilitate exports in general. Let me now proceed with the company's results for the third quarter of the year. We go to slide number 5 of our presentation. Let me start with operational highlights for the nine months of 2023. First of all, it should be noted that operational and financial results in nine months 2022 were severely impacted by the onset of the war, making year-on-year comparison difficult. Powder sales increased by 13% in nine months 2023, driven mainly by exports, which increased around 21% year-on-year. despite different logistic challenges either driven by the war or by the restrictions set by neighbor countries. Total share exports out of total poultry sales volume increased to 58% from 54%. Financial results for the nine months of 2023 were following. Group's revenue increased by 22% and reached over 2.2 billion US dollars, which Export revenue representing 60% of total revenue. Adjusted EBITDA increased by 20% to 329 million US dollars, mainly driven by high export volumes of poultry, meat, and vegetable oils, as well as lower wall-related expenses. And net debt to EBITDA ratio constituted 2.51. Let's go on slide number six with key financials for the third quarter of 2023. Group's revenue, as you can see, remained relatively stable and reached 739 million US dollars. At the same time, the results of the poultry and grain segments in Q3 2023 are lower compared to Q2 2023, mainly caused by decrease in price for poultry meat and grain on international market, and this negative trend continues in Q4 2023. Adjusted EBITDA decreased by 8% year-on-year to $111 million with EBITDA margin of 15%, down as a result of significant lower low profitability in grain segments as a result of depressed grain prices. We now move on to slide number 7 of the presentation, where we can see the financial results by segments. Before presenting the results, let me draw your attention to the change of the presentation of segment information. In order to accurately reflect the diverse nature of the group's business operations and improve the granularity of reporting, from this report MHP has implemented changes to its presentation of business segmentation information. These changes include introduction of new vegetable oil operations segment, which represents production and sales of vegetable oil and related products. Consolidation of all meat production operations under the poultry and processed meat and related operations segment. combining grain operation and milled cattle farming in the agriculture operational segment. And of course, comparative results for the nine-month period ended 30 September 2022 have been restated. As you can see now from this slide, poultry and processed meat operations remained our key segment. The group generated the majority of total revenue, about 55%, and 79% of the company's EBITDA. Vegetable oil operations generated 21% of the revenue and contributed around 22% to the EBITDA. The European operating segment generated approximately 18% of total revenue and 20% of the company EBITDA. Grain segment this year generated 6% of total revenue and has negative contribution to the company's EBITDA. and Victoria will provide you with more colors on the drivers. Let us have a closer look at each business segment now. Here I pass my word to Victoria.

Thank you, Anastasia. Good afternoon, everyone. Let's have a precise look at poultry and processed meat and related operation segment performance. Slide number eight. As Anastasia mentioned, this segment includes poultry meat and processed meat products ready to cook and ready to eat. Despite a number of difficulties due to the war in Ukraine, MHP delivered a quite good result in Q3 thanks to combination of market environment and enormous amount of work undertaken by MHP team. Poultry export price in Q3 decreased by 2% Q2Q, mainly in EU and UK market. Based on assumption that international poultry price correlates with price trend grains, we don't see poultry price opportunity for increase. Poultry meat price in Ukraine increased by 4% in Q3 compared to the Q2, driven mainly by increase in sales volume of high margin product, namely filet. MHP is commonly exposed 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. and follow MHP culinary transformation strategy. However, penetration and increasing our share of this market requires a lot of efforts and expenses as today and in the near future. In Q3, we continue to increase sales volume of processed meat with focus on the most marginal product. Our strong result for nine months we made possible by the fact that our team was able to exceed their forecast expectation for average meat price across all market in comparison to the price in nine months 2022. Let's move to the slide number nine, vegetable oil operation segment. Sales of vegetable oil increased significantly, mainly driven by increase in production of flour cake due to the both additional crushing capacity and change in a receipt as well as partially restoration of logistic rules compared to the 2022. In nine months, we had additional positive effect on vegetable oil operation result due to deferable ratio of price both for sunflower seed and oil. Currently, we see a negative trend in sunflower oil prices, which may lead to decrease of oil crushing margin. Let's move to the slide number 10, agricultural operations segment. Increase three, international grain price continue to decrease. It is important to highlight the due to continuous rocket strikes on Ukrainian port infrastructure and termination of grain deal by Russia, export price for grain from Ukraine is significantly low compared to the international price. Obviously, these circumstances negatively affect the profitability of MHP grain results as well as all agri-producers in Ukraine. So today MHP harvesting campaign is complete on around more than 300,000 hectares of land. Corn harvested is more than 82% complete. Sunflower, soya, wheat, and rapeseed are 100% completed. Yield across all crops are significantly better than last year. It is one of the record harvest of history MHP. Despite of record yield, EBD8 of agricultural operation segment, net yield IFRS 16, in H1 was negative and resulted minus 32 million compared to the positive result, 55 million last year. This result was mainly driven by significant decrease in international growth prices, which continue to decline in Q3, as well as increased logisticals due to the low expected That is why we expect that our profitability in grain segment in 2023 harvest to be close to zero. Let's proceed to the slide number 11, several words about our European operation segment. APDA with European operation segment in nine months increased to 67 million, mainly due to increase in sales volume and also price for poultry meat and poultry product. This was driven by increase in horticulture sales channel as well as due to increase in sales of sausages. Slide 12. few words about our cash flow and liquidity position. First flow from operation before changes in working capital amount to 315 million compared to the 379 last year. This amount includes payment on February 23, part of deferred interest payment agreed with creditors in March 2022. A release of working capital amount to $80 million in nine months this year, mostly due to, first, return of stock of chicken meat and vegetable oil to normal levels from unusual high amounts in 2022, caused by disrupted logistics due to the war actives, that has partially recovered afterwards due to the grain deal and diversification of delivery roads by the group. Secondly, low investment in raw material during the nine months 2023, energy supplies, fertilizer, plant protection materials, animal feed components comparing to the same period last year to relative stabilization of situation in Ukrainian economy and low risk of disruption in supply. Stable amount of trade account receivable compared to significant growth in sunflower oil and chicken meat receivable during the nine months last year. However, it should be noted that investment in working capital with substantial increase in Q4 resulting in substantial cash outflow due to the future requirement purchasing of sunflower seeds, fertilizer and plant protection materials. Total CAPEX in nine months amounted to approximately 160 million, and mainly related to purchase of diesel generators at the beginning of this year to mitigate the impact of possible power outages. High investment in cost optimization and culinary strategy projects. maintains a new product development and improving an expansion of Perutninab to production facilities. Regarding debt, by the end of the period, the company total debt was nearly $1.5 billion and net about $1.1 billion. Last week, the group completed tender offer and purchased tender notes for amount $151 million. for 128 million using disbursement funds from IFI facility and own cash. The liquidity position at the end of Q3 was 446 million in cash, only 50% of which was hold by group subsidiary outside in Ukraine, It is important to note that according to the rule instituted by the National Bank of Ukraine, the foreign currency proceeds of exports from Ukraine must be repatriated to Ukraine, which in principle limits our ability to utilize the offshore cash for debt repayment. In November 2023, The National Bank of Ukraine decreased the maximum settlement period from 6 to 3 months for repatriated cash from the export of agricultural products. And as a reminder, there is still a restriction on capital movement from Ukraine, therefore debt servicing and principal repayment are prohibited. Given 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.