MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's Q1 2024 results conference call. At this time, all participant lines are on listen-only mode. The format of the call today will be a presentation by the management team, followed by a question and answer session. So without further ado, I would now like to pass the line to Anastasia Sabotniuk. Please go ahead, ma'am, your line is open.

Thank you, Michael. Dear stakeholders, good afternoon. Thank you for joining us today at MHP's conference call dedicated to the first quarter results. I'm Anastasia, Director of Investor Relations and ESG Compliance. Together with Victoria Kapelushna, CFO of MHP, we will discuss MHP's financial and operational results for the period. Today's call is based on the 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 consideration. We now move to slide number three of the presentation. A few words about macro environment. Taking into account that many businesses have been adjusting to a new operational environment, war environment, which remains unpredictably volatile in 2024, In Q1 2024, GDP grew by over 3%, with a forecasted growth in 2023 at the same level, 3%. CPI slowed down to 1% compared to 3% in Q1 2023. 2024 harvest in Ukraine is expected to be strong, pretty much at the same strong level as it was in 2023, which is around 74 million tons. Let me now proceed with the company's results for the first quarter of the year. Let's go together to the slide number five of the presentation. First of all, the war continues and the first quarter of this year's performance reflects the resilience and agility of our business model and the tremendous effort of our workforce. Irregular and frequent drone and rocket attacks against civilian energy and other infrastructure targets continue. MHP would like to inform its stakeholders that due to shelling by the occupied forces on May 17th in Odessa region, a warehouse partly leased by the company to store frozen MHP's chicken meat products was completely destroyed, resulting in the loss of poultry products worth over US$8 million dollars mhp's employees fortunately were not injured moreover the company provided comprehensive medical and psychological assistance to its employees at the date of the publication all our production facilities in ukraine continue to operate at close to full capacity when you look at our financial result for the first quarter you can see the group's revenue decreased by four percent and reach approximately $720 million, with export revenue representing 63% of total revenue. Adjusted EBITDA remained stable and constituted $119 million, with EBITDA margin of 17%. War-related expenses increased by 67% year-on-year and constituted around $10 million. Let's move to slide number six. where you can see the financial results by segment. Main contribution to MHP's financial results in the first quarter of 2021 were paltry and related operations. The group generated the majority of total revenue, about 55%, as you can see, and 72% of the company's EBITDA, and the European operating segment, generating 19% of total revenue and contributing 15% to the company's EBITDA. Let us have a closer look at each business segment, and I would like to pass my word to Victoria here.

Thank you, Anastasia. Good afternoon, everyone. Let's have a precise look at poultry and related operations segment performance. Slide number seven. Despite of numbers of difficulties due to the war in Ukraine, MHP delivered a good result in Q1 thanks to the combination of market environment and enormous amount of work undertaken by MHP team. Paltry price in Q1 both on export and domestic market remain almost at the same level as Q4 2023. We don't expect further growth in poultry prices in this year. Commodity price risk is a common risk for MHP. In order to mitigate this risk, MHP continues to implement a culinary strategy and focus more and more on production and sales of non-commodity products, which are ready to eat and ready to cook. At the same time, it requires substantial effort from our team, investment in CapEx, as well as expenses to launch new products and increase our share on the local market. This trend will continue in the near future. In Q1, we continue to concentrate on selling processed meat with a focus on the most marginal products. Our strong result of Q1 mainly driven by higher sales volume of poultry meat on export market and by positive effect of revolution biological assets and agricultural produce accordingly to IFRS 41 standard. A few words about new segment. Vegetable oil, slide number 8. In vegetable oil operation, in Q1, we had low ABDA compared to the same period last year. This increase in the volume of vegetable oil sold sector did not manage to sufficiently mitigate a decline in vegetable oil prices. In Q4, 2023, and Q1, this year's sunflower oil prices trend was negative, which led to decrease of our oil crushing margin. We assume that the margin of the segments this year will remain at the level in Q1. Let's move to the slide number 9, agricultural operations. Segmentary revenue in Q1 amounts to $69 million compared to the $77 million last year. The decrease was mainly attributable to low volumes of corn sales on domestic market. EBITDA of agricultural operations segment, net of FRS 16, was 17 million compared to the 3 million last year. This result was mainly due to significant negative evaluation of winter crops in fields in Q1 2023. Adversely affected both of 41 standard and EBDA. In Q1 this year, certain stabilization of price had no significant positive impact of total hour EBITDA. Let's proceed to the slide number 10. Several words about European operating segment. EBITDA of operating segment in Q1 amount 18 million dollars and remained almost stable compared to the last year. The increase in revenue was offset by a decrease in 41 standard. Slide 11. A few words about our cash flow and liquidity position. Cash flow from operations before change in working capital this year slightly decreased to $90 million compared to $98 million last year. Release of working capital amount to $12 million, mostly due to the higher trade accounts payable and other liabilities, as a result of procurement of material for spring sowing campaigns, such as energy, fertilizer, plant protection material, animal feed components, and other. Total complex. in Q1 amount almost 60 million, and mainly related to maintenance and modernization project, construction of bioenergy production facility, investment in cost optimization and culinary strategy project, and expansion and improvement of Pirutni-Naptui production facility. Regarding that, At the end of the period, company total debt was $1.5 billion and net debt about $1.1 billion. At the beginning of 2024, MHP completed its second tender for repurchase of bond 2024 in amount $138 million. The last tranche from IFIs in total amount of 180 million were received in May this year. On 10 of May, MHP Eurobonds 2024 was fully repaid. The company completely fulfilled its obligation regarding MHP Eurobonds 2024. The liquidity position at the end of the first quarter was 390 million in cash, 218 million of which was held by group subsidies outside Ukraine, as today we have around 300 million in cash, including only 130 million outside in Ukraine. Given current operational 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.

Thank you, Victoria. MHP is expected to operate at close to full capacity in Ukraine, subject to any possible direct or collateral disruption damage to MHP's operations or lead storage. This is our plan, I would say. 13A continues to develop according to its strategy. MHP has almost adapted to the war environment, at the same time is experiencing many logistic challenges. especially with exports to the EU. This is what you can see from the news. And we remain conservative to any positive price trends for grains, poultry, meat and vegetables as of today. In general, there is a high level of uncertainty, as Victoria mentioned, regarding how operations in next quarters will look like and what kind of financial results this uncertainty will bring to the company. But MHP team is undertaking all necessary steps to the extent possible, of course, to continue its operations at efficient levels to manage all difficulties associated with war and overcome war-related obstacles. We are now ready to start our Q&A session. Thank you very much. Michael, we need your help.

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you are dialed in via the telephone, please press star two. That's star two on your keypad to ask a voice question. If you are dialed in via the web, you may also ask a voice or a text question. Okay, we'll give a moment or so for questions to come. Thank you. Our first question comes from Mr. Anton Anish from Knighthead Capital. Please go ahead, sir.

Good afternoon, guys. Thanks for hosting the call. A couple kind of obvious questions. In years past, you've endeavored to give us a little bit of a high-level guidance for the year, not just in terms of utilization capacity, capacity utilization, but also high-level EBITDA CapEx, ideally broken out between Ukraine and Peru. If you're in a position to share your outlook today, that would be extremely helpful. I know that the situation is extremely fluid still. And then number two, maybe either Anastasiya or Avika, if you could tell us a little bit about the change in cash since the end of March. I would have thought the redemption of the last of the bonds in early May should have been a liquidity neutral event since you drew down on the IFI facilities to clean up the bonds. So maybe the $90 million drop in cash from end of March to early June. If you could bridge that for us, that would be very helpful. Thank you so much.

Thank you for your question. Regarding the first question about our guidelines for full year, yes, our total EBITDA, how we see from today, yeah, you understand it's very difficult to predict, but as of today, we understand that our EBITDA for full year, it would be around $400 million. Yeah, 25% approximately it is contribution from Pirutnina. And total capex approximately 300, 300 plus. And around one-third from Pirutnina. It is a capex of Pirutnina. Yes, our liquidity position decreased since April. Because we repaid Eurobond. Yeah, and you know that we track from IFI only 400 million. And total our Eurobond, it was, we repaid more than 470. Yeah. And coupon. And coupon we paid in April and at the beginning of the May. Coupon for us, Eurobond. Thank you.

That's helpful. Thanks, Vika.

Thank you very much. Next question comes from Ms. Stella Cridge from Barclays. Please go ahead, ma'am. Your line is open.

Hi there. Afternoon, everybody, and many thanks for all of the updates. I wondered if I could ask about some of these changes that were introduced by the National Bank of Ukraine at the beginning of May regarding access to FX for different purposes. I was wondering if you expected those changes to have any kind of positive effect for MHP or just how you view the potential impact of those changes. That would be great.

Thank you so much for your question. Unfortunately, these changes issued by the National Bank at the beginning of May did not bring to us any benefits because based on these changes, Yeah, from Ukraine we cannot repay no coupon, no, from Ukraine, yeah, from Ukraine, no coupon, no loans. Just it is regarding only improved situation regarding dividends. Yeah, but only dividends and limitation which we can repay from these dividends, it would be one million a month. Yeah, that is, yeah. Nothing so huge changes. Nothing given real changes. Thank you.

Are you aware of any subsequent discussions that have happened since these changes were announced with big companies like yourself with regards to future payments that you need to make?

No, okay, we understand that current situation is difficult, and we understand that we have the strict obligation. No, we will discuss, but to be honest, and in the past, we discussed. No, okay, we will see.

Okay, many thanks for the comments this week.

Thank you very much. Reminder, start two for any additional questions. Our next question comes from Ms. Vidi Vera from Goldman Sachs Asset Management. Please go ahead, ma'am.

Hi, congrats on the results. I just had like two questions. One was on the volume trends. So this quarter we saw a decline in volume, meaningful decline in volume in both domestic as well as export markets. So just trying to understand what's driving this. Is it operational constraints or are you finding that the prices are not attractive if you could give a color on how that has progressed. And second one is on the $130 million cash, which is outside of Ukraine. How much of that is at the European facility? And from what I remember, that cannot be used, right, to service the coupons. Thank you.

Yeah, thank you for your question. Regarding situation on domestic market, yeah, we decreased our sales volume on domestic market in Q1, yeah, compared to the last year, and price on domestic market slightly decreased too. Yeah, based on current situation, we understand that maybe on domestic market for full year we sell maybe in slightly low compared to the last year. Regarding export, in the first quarter we increased our volume for export compared to the first quarter of 2023. Compared to the first quarter of 2023, we sold less because at the beginning of 2023 we had high stock and this year we did not have so high stock it is reason why so difference in sales volume you can see regarding cash today we have 130 million dollars cash outside of Ukraine and around 80 million it is Pirutnina it is Balkan essence

Thank you. One more from my side, if I may. On the EBRD maturity profile, when does that start? I believe that there was an amortization plan, right?

Yes. Yes. All our I-5 loans are for maturity five years with amortization semi-annual. Yes.

Thank you.

Thank you very much. Our next question comes from Erica Ive from MetLife. Please go ahead, ma'am. Your line is open.

Good afternoon. Thank you for taking my question. I was just wondering, have you started to think about the refinancing of the 2026 bond? And given that you are amortized and will amortize the IFI facilities that would create some headroom, so possibly would you use the IFI facilities so far to refinance also the 20, sorry, 26 bond?

Thank you for the question. We understand that we have obligation for Eurobond 2026, but only 20 years, 20 days ago we repaid our previous Eurobond, yeah. And to be honest, I think for us it would be very difficult to attract additionally, yeah, 500 or 400 million from IFI. Yeah, no, we understand the obligation, we are thinking, but unfortunately right now I cannot say anything.

And, sorry if I push a little bit more, could you possibly as well... around tender offer, basically similar process to what you've done for the 2024 bond?

Yeah. It seems to me everything possible. Yeah, it seems to me in current situation everything possible, yeah. I cannot say exactly what we will do. I know that just, yes, we had a lot of Euro bonds in the past and we always fulfilled all our obligations and promises, but yeah, how we will... Yeah, how we'll do it? Yeah, we need more time. Yeah, now it's all there to say. Thank you.

Understood. Thank you.

Okay, thank you very much. We'll give another 30 seconds for any additional questions. Okay, we have a question from Mr. Dimitri Ivanov from Jefferies. Please go ahead.

Hello, can you hear me?

Please go ahead. Yes, yes.

Yeah, thank you very much, Anastasia, Victoria, for the presentation. I have three quick questions, if I may. The first one, if it's possible just to give us more color on the available facilities that are available uh for MHP uh to draw down so of course it includes uh 80 million uh capex facility from the DFI but could you kind of give us a number what is uh what is available uh in terms of the financing your working capital needs and etc um as of the latest available date if possible so it's like my first question uh regarding our ongoing facilities yeah we have

The $200 million and include $80 million for financing of I-5. Yeah, you're completely right. Yeah. Could you enter the number, the total number available? The total number around $200.

$200. And what's, is it, like, available, like, for one year, like, for two years? Like, what's, like, availability period for this? Oh, yes, please.

Yeah, approximately, yeah, it's a different period, but approximately one year.

One year, okay. I understand. Second question would be on CapEx. Again, like, you already provided, like, numbers in the CapEx guidance, 300 million plus. I think you also specified it on the last call that it includes your M&A, potential M&A. I would kind of just try to understand this number, like 300 million plus is quite material and significant number for the company if we look at the historical CapEx outflows. So is it fair to assume that this CapEx will go down, for example, next year when these projects that you mentioned are completed? So basically, what kind of more sustainable level of CAPEX for the business once the company completes its projects?

First of all, you need to understand that our maintenance CAPEX for all our facilities in Ukraine and abroad 100 plus is a maintenance regarding all our businesses, poultry, vertical integration. Yeah, you know that we have integration business model. Yes, you're completely right. Previously in 2022 and even 2021, because 2020 it was a very bad year for MHP, we a little bit, how to say, try to spend less for maintenance and we have realized it's not possible because we understand we are continuing to work at 100% capacity utilization and that is why We need to spend money, and we need to have the right shape of our fixed assets. That is why our minimum level is 100 million. At the same time, we have our strategy to produce more non-commodity products. That is why we buy additional equipment. Yeah, we launched additional equipment, yes, because only we increase sales, and not just right now and in the future, non-commodity products. That is why we need to buy additional equipment for this. And, yes, M&A, but we did, but very, not so big amount, yeah, for M&A, including this CapEx, only one company in Ukraine market. Yeah, it's very insignificant amount. And we have the capacity on Puritnina, yeah.

Understood. But looking at all-in CAPEX, including these projects, should we expect some reduction in CAPEX spent next year? Like, should, like, number be below 300 all-in?

No, I think that it will develop our strategy, but when I look right now, our CAPEX approximately 250. Because we have an appetite to increase our volume in the European market, and we would like to sell more and more commodity products.

Understood. Thank you very much. Final question. Apologies, you also mentioned it already, but regarding this new National Bank of Ukraine rules, so basically you mentioned that the new rules uh didn't bring any benefits to the business right so basically just correct my understanding but if we read like official press release i think like the the national bank of ukraine allowed uh ukrainian corporates to service uh interest on the old external uh debt so basically they allowed to use onshore liquidity to service but you mentioned that it didn't bring any benefits to the business. Just wanted to clarify this. If this restriction, sorry, if this new rules by the NBU allowed the company to service coupon and interest on the offshore debt.

Thank you for your question. Yeah. What is the difference and what is the new rule? If company attract new loan after 24th of February. In this case, is it possible to provide servicing? Yeah, we had the debt on 24th of February. It is not just for MHP. It is the same situation all Ukrainian companies which have Eurobond. And nothing changes and we cannot repay coupon from Ukraine for debt, which we had on 24th of February. It is possible to service in new debt.

Okay. It's clear? Okay. Thank you very much. Okay. Thank you. That's all from me.

Thank you. Thank you very much. Next question comes from Mr. Konstantin Chinarov from App Store Capital. Please go ahead.

Hi, guys. Thanks for taking my questions. Firstly, could you please remind us how much debt you have in Peritoneum facility right now, and what is the maturity of that debt?

Yeah, Peritoneum is around $100 million. Got it.

So $130 million of debt and then $80 million of cash on the balance sheet there.

Yeah.

And what's the maturity of that debt? And is it a bank debt or some kind of other facility?

Yeah, it's a bank debt for three years approximately.

For three years from now. Okay. Got it. And then, excuse me, maybe I missed the point, but could you please again clarify You know, CAPEX guidance of 300 to 350 looks very high compared to historicals. And, you know, obviously you mentioned that maintenance CAPEX is 100. So on top of 100, 200 to 250 million, that's expansion CAPEX? And if you could clarify, you know, what you're planning to build and any call on that would be helpful.

Yes, it is for expansion. Yeah, we increased our sales volume and production volume in Tirutnina, and some increase in the capex for increased production volume on non-commodity products. And we have some capex, especially it's very actual right now, for some alternative energy.

Got it, got it. And so when I think about sort of your guidance of 100 million EBITDA, 300 to 350 million CAPEX, historically cash tax was letís say 10 and leases were 15. So that leaves relatively limited cash flow to service indebtedness and cash interest is likely to be 150. So how to think about that in terms of liquidity of the business? you know, you expect release of working capital or if you could sort of explain your thinking about liquidity of the company for the rest of the year. And any call on the working capital would be helpful.

Yeah, yeah. Regarding working capital, we don't expect any huge investment in working capital 2024. Just one uncertain issue about VAT. Reimbursement, no, at maximum it would be maybe 20 million investment, working capital potential, maybe zero. And base of current, yes, and base of current, yes, our forecast for 100, 300, 100, 20, 130, all our debt services. Now we expect that by the end of the year, we will have the very, maybe slightly higher our leverage, but we understand that we will keep in cash approximately $200 million because we cannot have less. In current situation, we cannot have less than the $200 million in account.

Got it, got it. So $200 million, and that's the minimum level to run the business from your perspective.

Yes.

Got it. All right. All the best. Thank you.

Thank you very much. We have a follow-up question from Stella Cridge from Barclays. Please go ahead, ma'am. Your line is open.

Hi there. Many thanks for taking the follow-up. If you don't mind, I also just want to ask on the amortization payments of the IFIs and just what your base case is. Is it that you would plan to pay those out of the Ukrainian cash balances because you have the carve-out? Or is there any option with the IFIs to, say, roll over the final maturity or extend it a little bit? Just want to get a sense of what the base case on your side was.

Yeah, yes, we can pay from Ukrainian cash position. Yes, you're completely right. For IFI, we can pay from Ukrainian cash, from Ukraine, yeah.

Okay, that's great. Thanks for that. Okay, it looks like we have no further questions. I'll pass the line back to the management team of MHP for the concluding remarks.

Thank you very much. Thank you very much, everybody. That was a very good discussion. At the same time, as you know, if you have any further questions, you can reach the company easily. So have a nice day, then. Bye.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.