MHP SE

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to MHP's second quarter 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 Sabotik. Please go ahead, ma'am. Your line is open.

Thank you very much. Dear stakeholders, Good day to you. Thank you for joining us today. We are at MHP's conference call dedicated to the second quarter and six months 2024 results. I am Anastasia Sobotyuk, Director of Investor Relations and ESG Compliance, together with Victoria Kapelushno, Chief of MHP. We will discuss MHP's financial and operational results. Today's call is based on a press release and financial statements released earlier today. During our call, we will discuss our productions and plans based on our assumptions, domestic and international trends. Please take it into consideration. So we are now on slide number three of the presentation. So before I provide you with the macro environment developments in Ukraine, let me update you about war impact on MHP. Whilst the ongoing war continues to impact MHP's operations, the company has been able to adapt to the challenges of operating in wartime. As of today, over 3,000 employees have been mobilized to the armed forces of Ukraine. Irregular and frequent drone and rocket attacks against civilian, energy and other infrastructure targets have resulted in a challenging and disruptive operational environment, leading to unforeseen war-related costs. And in six months, 2024, war-related costs and losses amounted to 26 million U.S. dollars. In six months, 2023, they were twice lower. All companies' operational production facilities in Ukraine continue to operate at close to full capacity. And non-out-of-operational facilities of the companies' directly owned oil assets have suffered significant physical damage from the recent Russian bombing tariffs. Unfortunately, as a result of shelling by the occupying forces on May 17, in the Odessa region, a warehouse partly leased by the company to store frozen M.H.P. chicken meat products was completely destroyed, resulting in the loss of co-operative products worth around $7 million. So let me continue with the macroeconomic situation. Taking into account that many businesses have been adjusting to a new operational environment, which remains unpredictably volatile in 2024. GDP grew by over 4% with the forecasted growth in 2024 at 3.7. CPI in Q2 2024 increased by 3%, which doubled CPI growth in Q2 2023. Starting from October 3rd, the National Bank has been implementing managed exchange rate flexibility, resulting in depreciation of Ukrainian hryvnia. And therefore, we have a flexible currency rate. 2024 harvest is expected to be strong at 76 million tons, which is around 8% lower year on year. I'm talking about Ukraine, of course. Triggered by reduced area under crops. Adverse effect on yield due to severe heat in summer. We will touch upon agricultural development at MHP a little bit later during the presentation. Let me now proceed with the company's results for the second quarter of the year and we move on slide number five of the presentation. Let me start first with operational highlights for six months of 2026. As you can see from this slide, poultry sales decreased by 8%, driven mainly by decreased exports. Total share of exports out of total poultry sales volumes constituted 57%. It was a little bit higher last year, 59%. Financial results for six months 2024 were following. Group revenue decreased by 4% and reached around 1.5 billion US dollars. with export revenue representing 64% of total revenue. Adjusted EBITDA increased by 21% to $264 million, mainly due to substantially stronger results in agricultural business, driven by increased grain prices and the strong performance, as well as strong performance at Perodnyi Noctur. However, this was significantly offset by weaker performance in poultry and oil production businesses. We will touch upon these two business segments uh later in the presentation let's go on slide number six with key financials for the second quarter of 2024 which were following group's revenue remains relatively stable but decreased by five percent reaching 770 million us dollars and adjusted to bidda increased substantially year and year and constituted 145 million dollars with a bidda margin of 19 percent mainly driven by strong results in agricultural division and European operating segment. Let's move to slide number seven. Here we have the financial results by segment. And as you can see, the biggest contributor to overall company's results is poultry and processed meat operation segment. The group generated the majority of total revenue, about 53%. and 59% of the companies EBITDA with highest EBITDA margin 20% across all business segments. Second biggest contributor to EBITDA was agricultural division 26% and third one was European Apparency segment with 18%. Let us have a closer look at each business segment and here I pass my word to Victoria.

Thank you Anastasia. Good afternoon everyone. Let's have a precise look at poultry and related operation segment performance. Slide number 8. Despite the challenges of the war in Ukraine, MEC performed well in Q2 this year due to, first of all, teams' hard work and also favorable market conditions. Poultry price in Q2, both on export and domestic market, remained almost at the same level as in Q1 2024. We don't expect further growth in poultry prices in H2. Commodity price risk is a common challenge for MHP. To mitigate it, MHP is focusing on production and sales of ready-to-eat and ready-to-cook non-commodity products as a part of our culinary strategy. They require significant effort from our team and investment to launch new products and grow our market share. The trend will continue in near future. In Q4, we are continuing to concentrate on selling processed meat with focus on the most marginal products. Our results for Q2 decreased compared to the last year mainly as a result of lower sales volume of poultry meat on export markets, first of all due to the higher MHP stock of meat at the beginning of 2023. A few words about our vegetable oil segment, slide number 9. EBITDA for vegetable oil operation last quarter was similar to the Q1 this year. In H1, we had negative trend in sunflower oil prices, which led to decrease oil production margin. Declining vegetable oil margin year-on-year was primarily due to the drop in oil prices internationally year-on-year and also stabilization on vegetable oil production and sale in Ukraine, having adopted the devaluation environmental with no significant disruption in logistics. We expect margin in the H2 to remain low and to continue decrease negative effects by significant low harvest of safflower because of severe heat in summer, which is not expected to be offset by increase of price at this stage. Let's move to the slide number 10, agricultural operations. Segment revenue in H1 amount $180 million, compared with $112 million last year. The increase was mainly attributable to higher volumes of corn sell on the export market last half of the year. BDA of agricultural operations segment net of FRS16 in H1 was $69 million compared to the $26 million losses last year. This result was mainly due to use of the higher current market price for intersegment and external sales compared to the lower prices applied to the previous year harvests. This year, MHP harvest of wheat was a record high with 7.2 tons per hectare, and red seed was one of the strongest in MHP history with 3.7 tons per hectare. Moreover, export of crops proceeds well with no significant disruption of growth in logistic cost. I also want to mention that as today we anticipate lower use of spring crops compared to the last year due to unfavorable weather conditions in the central region. Despite of challenging weather conditions, anyway MHP expects this year financial results in agri-segment to be higher compared to the last year. First of all, due to the current high prices of the grain. Let's proceed to slide number 11. Several words about our European operating segment. EBITDA of European operating segment in Q2 amount 49 million compared to the 20 million last year. This growth was driven by higher poultry and poultry product sales in Slovenia, Bosnia and Serbia due to the strategic focus on this market, as well as in line with our production increase strategy. Slide number 12 is about our cash flow and liquidity position. Cash flows from operations before changes in working capital decrease 167 million compared to the 206 million dollar last year mainly as a result of the low profit before taxes. Investment in working capital amount 24 million compared to the situation last year to release These changes were mainly due to significant release of sunflower seeds and vegetable oil inventories in H1 last year, which had been unusually high at the end of 2022 due to disrupted logistics from the war. Total CAPEX in H1 amounted to $134 million. making a significant increase compared to 2023. This rise is primarily driven by our investment in culinary strategy projects and also cost optimization. Secondly, construction of new bioenergy production facilities. Also, expansion and improvement of the production facilities. extensive maintenance and modernization of existing facilities. Regarding debt, at the end of the period, the company total debt was nearly $1.5 billion, with net debt about $1.1 billion. As you know, on 10 May, MHP Eurobond 2024 was duly and fully repaid. as per the terms and conditions stipulated. The liquidity position at the end of H2 was almost $3 million in cash, $123 million of which was held by the group subsidiary outside 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.