MHP SE

Ladies and gentlemen, thank you for standing by. I'd like to welcome you to MHB's first quarter 2025 results conference call on the 21st of May, 2025. At this time, all participant lines are in listen-only mode. The format of the call today is a presentation which will be followed by a question and answer session. So without further ado, I'd like to pass the line to Anastasia Sobotchuk, Director of S Relations. Please go ahead.

Thank you very much, Luis. Dear stakeholders, good day and thank you for joining us for MHP's conference call dedicated to our first quarter results. My name is Anastasia, Director of Investor Relations and ESG Compliance and Reporting. I am joined today by Victoria Kapilushna, Chief Financial Officer of MHP. Together, we will present and discuss the company's financial and operational performance for the reporting period. Please note that today's discussion is based on the press release and financial statements issued earlier today. In addition, during our discussion, we will share our outlook and strategic plans, which reflect current assumptions as well as prevailing domestic and international market trends. We kindly ask you to take this context into account during our call. We go to slide number three of our presentation. A few words about macro environment. Despite the challenging environment, including ongoing missile attacks and critical infrastructure, Ukraine's economy demonstrated notable resilience in 2024. According to official data, real GDP grew by almost 3% compared to the previous year. Looking ahead, the National Bank of Ukraine projects further recovery, with GDP expected to expand by 3.6% this year, 2025. Inflation trends have also shown some moderation. The consumer price index for the first quarter of 2025 rose by 3.5%, which is down, by the way, from 5.2% in the first quarter of 2024. The central bank's current forecast anticipates inflation for the full year to reach 8.4%. On the currency front, since October 2023, the National Bank has adopted a managed exchange rate generally regime introducing more flexibility into foreign exchange markets. Exchange rates remain highly sensitive to global geopolitical developments, including shifts in international trade and tariff policies. In the agricultural sector, projections from the Minister of Agriculture indicate continued strong performance. The total area allocated for agricultural crops is expected to exceed 23 million hectares this year, Of these, around 11 million hectares, which is approximately 50% of the total, will be dedicated to grain cultivation, underscoring the sector's strategic importance to the national economy. These indicators collectively highlight border resilience and the potential of Ukraine's economy as it continues to navigate a complex and evolving environment. Let's move to slide number four of the presentation, we are turning to our financial performance for the first quarter of 2025. Compared to the first quarter last year, revenue increased across all operating segments, reflecting a strong overall sales performance. However, gross profit experienced a slight decline, primarily due to weaker margins in the poultry and vegetable oil segments. These were partially upset by improved results in the agricultural segment. Operating profit at NBDAM decreased year-on-year. This was largely driven by the decline in gross profit, higher payroll-related expenses across sailing, general administrative functions, as well as additional water-related costs recognized under the operating expenses. When comparing Q1 2025 to the post-quote of 2024, we observed a moderation in gross profit growth. This was mainly attributable to a softer performance in the agricultural segment, although this was partially upset by improved profitability in the poultry segment. Operating profit and EBITDA declined quarter on quarter in line with the gross profit dynamics. However, net profit increased during the quarter, and this improvement was primarily due to the relative stabilization of the Ukrainian hryvnia against both the US dollar and the euro, which resulted in a foreign exchange gain in the first quarter 2025, contrasting with the foreign exchange loss recorded in the previous quarter. Let's move to slide number five of our presentation. This slide shows the financial results by segment, and in the first quarter of 2025, As you can see, the poultry and related operations segments remain the largest contributor to the company's performance, accounting for 54% of total revenue and 72% of total EBITDA. This was primarily driven by an increase in poultry prices, particularly in export markets, which continued to show strong demand. Adjusted EBITDA for the first quarter amounted $119 million, representing a 7% year-on-year decrease. This decline was mainly the result of weaker financial performance in the poultry and vegetable oil segments, driven by how production costs. These challenges were partially upset by positive results in agricultural segments and a stable financial contribution from our European operating segment. Let us now take a closer look at the performance of each business segment, and I will now hand over to Victoria to fill the details.

Thank you, Anastasia. Good afternoon, everyone. Let's have a precise look at poultry and related operation segment performance. Slide number six. MHP results in Q1 are higher than in Q1 2024, supported by gradual recovery in poultry prices. which helped offset the sharp cost increases experienced in Q4 last year. The growth compared to the previous quarter was mainly due to the evaluation effect under IFRS 41 standard, which was caused by increase in the prices of hatchling eggs and increase in chicken meat stocks. Poultry costs in Q4 last year increased significantly, mainly due to the higher corn and gas prices. While porticoes in Q1 this year remained relatively stable compared to the previous quarter, we anticipate the further increases driven by rising grain prices and inflationary pressure on production inputs in Ukraine. Quality price in the Q1 increased by 5% compared to the Q4 last year, mainly on export market. This was caused by increase in cost by the end of last year. Commodity price volatility remains a key challenge for MHP. To reduce exposure, we are strategically shifting towards higher margin and value-added products producing more non-commodity products. We will continue prioritizing the sales of non-commodity products with a focus on delivering the highest profitability. A few words about our vegetable oil segment, slide number seven. In Q1 2021, our EBDA for the vegetable oil operation decreased compared to the Q4, as well as compared in Q1 last year. The decline in vegetable oil results compared to the last year was primarily due to the high sunflower and soybean prices and low oil prices. Oil prices experienced a downward trend, while sunflower prices increased resulting in reduced oil crushing margin. This was caused by lower yield in 2022 and increased crushing production capacity in Ukraine. As a result, we expect this segment to deliver low profitability in 2025. Let's move to slide number eight, agricultural operations. The winter sowing campaign was successfully completed, covering approximately 82,000 hectares, 65% under winter wheat and 35% under winter rapeseed. Spring sowing is progressing well, with corn and sunflower fully planted and soybean 90% completed. During the first quarter, Grain price continued to rise, however, this is not certainly regarding the final price level by the end of the year. Segment revenue in Q1 amounted 92 million compared to the 69 million in Q1 last year. The increase was mainly due to the higher sales volume of grains, particularly wheat and soybeans, to external customers. If we give agriculture operation segment, in Q1 was 35 million compared to the 17 million last year. This result was primarily driven by higher grain prices, especially for corn, sunflower seed, salt or poultry, and vegetable oil segment, respectively. Looking ahead, NHP will keep working to improve crop yields, and take advantages of strong market price while carefully managing rising costs and market risk. Let's proceed to slide number nine, several words about European operating segment. In Q1, revenue from European operating segment rose 8% year-on-year to 147 million. driven by higher sales volume of both poultry and processed meat products. Poultry meat volume growth was supported by increased sales in Slovenia, Italy, Macedonia, with average sales price showing a slightly year-over-year increase. Processed meat volume also grew moderately mainly due to rising demand for convenience food accompanied by increase in average sales prices. EVD of European operating segment in Q1 remained almost at the same level as Q1 last year. MHP is focused on growing its European presence and enhancing its product mix to boost profitability. Slide number 10. A few words about our cash flow and liquidity position. Cash flow from operations before change in working capital in Q1 increased to $101 million compared to the $90 million in Q1 2024. Investment in working capital amounted to $52 million. This was mainly due to temporary rise in trade receivables, particularly from poultry and vegetable oil sales, This expected to normalize in Q2 2025. Inventory and crop field investment remained high due to the sowing campaign, but this impact was largely offset by the use of harvesting crops from 2024 and growth in recoverable VAT. Total CAPEX in Q1 amounts 60 million. and remained generally stable compared to the last year. This investment focused on maintenance and modernization of existing facilities, investment in cost optimization and culinary strategy project, expansion and improvement of Pirutni-Naptui production facility. As you already know, in line with the EU expansion strategy, MHP signed SPA in March-April this year to acquire 92% of Spain's Uvesa Group, valuing equity at approximately $270 million. Completion is subject to regulatory approvals. The deal will be financed through a mix of acquisition financing and internal funds. Regarding debt, by the end of the period, the company total debt was nearly $1.7 billion and net debt about $1.2 billion. Liquidity position at the end of Q1 was $359 million in cash, stable compared to the first January, compared to the beginning of this year. 60% of which was held by group subsidiary outside in Ukraine. By the end of the first quarter, the group's level ratio was 2.13, significantly below the defined limit of 3.2. We recognize the importance of 2026 notes and remain committed to addressing the maturity in timely and responsible manner. Due to Ukrainian capital control, export proceeds generated in Ukraine must be repatriated with 120-180 days, limiting our ability to use offshore cash for Eurobond repayment. While MHP can service its domestic loan obligations, NBU restrictions currently prevent principal repayment and limit foreign currency payment to non-resident entities on legacy intergroup loans. We continue to operate under a highly challenging environment due to the ongoing war, and we appreciate the continued support from our investors since February 2022. We are committed to maintain open communication and constructive engagement and are keen to continue our fruitful cooperation going forward. And now I give the floor to Anastasia.

Thank you very much, Victoria. Thank you for the presentation. I think this concludes the presentation from our side. Louise, please assist us with the Q&A session. Thank you.

Thank you very much. We will now be moving to the Q&A part of this call. If you'd like to ask a question, please press star 2 on your phone. That is star 2 on your phone. And if you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We will wait a few moments for the questions to come in. Okay, our first question is from Augusto Nivi from Macquarie Asset Management. Your line is now open. Please go ahead.

Hey, good morning. Thank you for taking my question. Can you give us some more color on the refinancing options that you're seeing for the 2026 bond? Any conversation with banks or other alternatives that you can have in order to refine that would be helpful for us to understand. And the second one has to do with the working capital usage, especially in account receivables. You mentioned that you've seen that normalizing in the second quarter is something that you've seen in the month of April and most of May now. Thank you.

Yeah, thank you for your question. I will start from the second question. Yes, now with the trade receivables is more stabilized, yeah, and we have investment in low capital significantly lower around 7-8 million in trade receivables. What is regarding our Eurobond 2026 as I noticed during the presentation is very, very important issue for us and we understand and we continue to work around this issue but at the same time I would like to I would like to emphasize that unfortunately we have national bank and bill restriction which unfortunately don't allow to us to pay principal payment. But at the same time, yeah, we understand how important this issue, it is the main issue Yeah, for MHP for 2025.

Okay, thank you. Our next question comes from Stella Cridge from Barclays. Your line is now open. Please go ahead.

Hi there. Afternoon both. Many thanks for all of the updates. I wondered if I could ask on the poultry prices. It looks like they strengthened a little quarter on quarter. I was wondering if you could just talk through what the trends are in both the local market and export market. That would be great. And secondly, in the last few weeks since you had the last results call, has there been any developments on the Spain acquisition front? And could you just run through again this $270 million equity that you refer to and the overall kind of size of funding that you expect to be needed for the acquisition? That would be great.

Regarding your question regarding the price, price, yes, as I told during the presentation, that our cost of production increased significantly in the first quarter last year due to the increased significantly corn and gas prices. And that is why, yeah, in the first quarter we increased our price compared to the last year it was increasing our average price more than 10% compared to the first quarter around 5% mostly due to the European price. And we gradually increase price on domestic, is increasing price on domestic market. Because last year, yeah, we did not increase price. Cost increased more than 13%. And we gradually increase on domestic, on local market. But very, very, yeah, gradually. Regarding the second question. Yeah, regarding second question, unfortunately, yes, as I told in our previous conference call, we need to, for us, it's very important to receive a lot of permission, yeah, from different antitrusts from seven countries. Until today, we received four, yes, permission from four countries. And plus, we need to receive permission for EU Commission. Yeah, now we're in process, yeah. And I told you during the presentation that we understand that we will close this transaction, attract acquisition finance and internal funds.

That's superb. Many thanks for all that detail. But what is exactly this $270 million? What does that refer to?

Yes, yes, you're right. Yeah, we paid for the equity $270 million. Yeah, you're right.

Okay, for the equity component. Okay.

Okay, thanks for clarifying that.

Thank you. Our next question is from Dimitri Ivanov from Jefferies. Your lines are open. Please go ahead. Hello, can you see me?

Yes, we can hear you.

Yes, yes.

Thank you very much for the presentation. It was very helpful. May I ask you about this website acquisition once more? Apologies for my equations. Can you update us on this acquisition financing status? Because as you mentioned just now, you use a mix of cash on hand and acquisition funding. Have you received any commitments from banks already and how this progress in terms of the numbers and such? If you could update us on the status of their funding with any commitments received, that would be much appreciated. And maybe one sub-question here. Do you have any condition precedent in this agreement and SPA that the closure of the deal is subject to getting this financing done by the specific date, for example, by September or October this year. So this is my first question.

Thank you for your question. Maybe I did not catch your last question, but I understand your question and I understand you're interested about acquisition finance. Yes, now we're in process. Yeah, the negotiation with the bank, but unfortunately, I cannot disclose for you this information. Yeah, and we expect this is minimum 70% of total debt to attract the special financing. Yeah. Regarding the, yeah, please repeat the second equation.

Are there any kind of specific deadline for you to get the financing in the SPA agreement? So, for example, are there any deadlines, termination dates in the SPA by which you have to obtain this financing, basically, or otherwise it will be like this agreement will be terminated?

Yeah, no, no, no, no. We understand, yeah, because we need to receive, as I told previously, we need to receive all permission, regulatory permission, and after that, during the term, few days into weeks, we need to repay. And we understand that we will achieve and we will get our financing until this day.

Understood, understood. And my second question would be, there were some headlines about European countries potentially imposing pre-work orders on Ukrainian products, including poultry. Can you maybe share any color? Do you think it might impact your export volumes to Europe this year? So if you could like share if it's like a risk or concern for you, like re-imposition of pre-war trade quotas that we saw like on the headlines.

Yeah, you're completely right. Yes, until today we don't have, yes, clear information, but anyway we understand that European, you know, will implement a quota regime. And unfortunately, not just regarding the MHP and regarding all poultry companies in Ukraine and the companies who produce sugar and other agriculture products, Yes, unfortunately for Ukraine it would be implemented some quotas and some limitations. In general it's not so good for country, Ukrainian producer. What is regarding MHP? Yes, we understand that this year in 2025 we will export to European Union less than previous, but at the same time we understand and We always, during all our history, we always have the gold rules for our export, diversification, geography diversification. And that is why we have other market for export our product. Yeah, it is Canada, British, some MENA region. Okay, in Europe, yes, yes, we will, unfortunately, export less.

And thank you very much. And can you remind us what was, how much was exported to Europe last year? So for us just understand the, like, as exposure.

Last year it was approximately 1,030. Approximately 1,025, 1,030. Okay. Last year.

Okay. Yeah. Okay. Got it. Thank you very much. Yeah, that's all for me. Thank you.

Thank you. Just a reminder, if you'd like to ask a question, please press star 2 on your phone. That is star 2 on your phone. And if you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll give a few more moments for any new questions to come in.

I can see that we do not have any further questions. Am I right?

Yes, we have text questions. Do you see that?

I think we can actually take those questions online. I mean, I can answer those questions later and directly to the person who raised those questions to the people to raise those questions if you don't mind.

Sounds great. Perfect. I'll let you conclude the call.

Yes. Thank you very much in this case. Thank you very much for the meeting. And of course, we remain at your disposal in case you have any further questions. Have a nice day. Bye-bye. Thank you so much.

Thank you and have a nice day.