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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and I'd like to welcome you to MHP's First Quarter 2023 Financial Results Call. [Operator Instructions] The format of the call today will be a presentation by MHP's management and IR team, followed by a Q&A. So without further ado, I would now like to pass the line to MHP's team. Anastasiya, the floor is yours.
Thank you very much, Tim. Dear stakeholders, good afternoon and good morning. Thank you for joining us today for MHP's conference call. I'm Anastasiya Sobotyuk, Director of Investor Relations and International Communications. On the call today together with Viktoria Kapelyushnaya, CFO of MHP, we will discuss MHP's financial and operational results for the first quarter of 2023, as well as current operational environment and expectations for 2023, taking into account that war in Ukraine continues.
Today's call is based on information released earlier today publicly. However, during our call, we will discuss our projections and plans based on our assumptions, domestic and international trends, please take it into consideration. Let me proceed with the presentation, and we all go to Page #3, with macro fundamentals. Let me start from how we live and operate. I would like to know that -- from October 2022 and up to now, Russia has been launching a number of missile and drone attacks against energy and civil infrastructure of Ukraine, targeting Kyiv massively, during the last 2 weeks. The terrorist attacks seriously and adversely affected energy distribution across Ukraine. In the first quarter of 2023, Ukrainian citizens and companies including MHP faced complex challenges related to providing energy to their homes and production facilities.
The impact of the war in Ukraine remains unclear and can change seriously, quickly and without any notice. When we look at macro environment in the first quarter of 2023, it was as follows: Ukrainian economy has been adjusting to the war environment, heavily supported by international dollars. Likely, Grain deal has been prolongated just yesterday by another 2 months. However, we understand that operational routines remain challenging due to delays in ship checks in the [indiscernible] from the Russian authorities. So for traders in Ukraine, it is absolutely difficult, if not impossible, to plan any logistics property. National Bank of Ukraine forecast GDP growth of 2000 -- sorry, of 2% in 2023. And annual inflation of 15% with around 27% inflation in 2022 for your record only. Only if there is no further deterioration of the hostility -- the currency ratio remains more or less stable.
Let me proceed with the company's results, and we go to Page #5 of the presentation. So we are on Slide #5, key financials. MHP is reporting good operational and financial results for the first quarter of 2023, thanks to strong demand, positive price movements and minimal disruption to operations as a result of the enormous amount of break undertaking by the MHP team, since the beginning of the call. It should be noted that operational and financial results in the first quarter 2022 last year were more seriously affected by the disruptions in the early stages of the war. Results for the next period of this year were again adversely affected by war-related challenges. But of course, they are not under MHP's control. When comparing the first quarter of 2023 results generated by businesses in Ukraine, please keep in mind that operational environment in March last year, that was the first 2 months of the war was absolutely different to March 2023. And therefore, operational and financial results of MHP in the first quarter last year were significantly and negatively affected by war-related challenges Ukraine has been facing since then.
Therefore, I would suggest to focus on the comparison of the first quarter 2023, with the fourth quarter last year. It is more relevant. In detail, the results for the first quarter 2023, were probably revenue increased by 35% year-on-year and constituted USD 746 million and was down 3% quarter-on-quarter. War-related expenses decreased substantially by 77% to $6 million, and that was $26 million in the first quarter, last year. Export revenue increased by 69% and to USD 520 million, which is 70% of total revenue and increased 6% by 6% quarter-on-quarter. Adjusted EBITDA net of IFRS 16 increased year-on-year to USD 117 million from USD 43 million last year same period, and was 7% higher quarter-on-quarter. Adjusted EBITDA margin increased to 16% from 8% in the first quarter last year and from 14% in the fourth quarter 2022.
Let's proceed to Page #6, where we can see the financial results by segment. As you can see from the table, the vast majority of revenue as well as EBITDA in the first quarter 2023 was generated in poultry and related operations, which included the results from the crushing and vegetable oil and by the European operating segment. Traditional due to seasonality effects and partially because of disruptive Grain deal operations, contribution to the revenue from Grain Growing segment was low 4% only. Let's have a closer look at each business segment and results on our next slide. And here, I pass my word to Victoria. Victoria. It seems like we -- you're on mute.
Thank you, Anastasiya. Good afternoon, everybody. Let's have a precise look at poultry segment performance on Page number 7. All good results in Q1 were possible because our team was able to maintain sales volume and average net price across all markets, at the same level as in Q4 2022. In Q4 2022 as well as Q1 2023, we had an additional positive effect of the cost, cost of the cake and further for poultry production due to the favorable ratio of price between sunflower and sunflower oil. Currently, we see that price ratio between sunflower and oil restabilized and therefore, we don't expect so positive effect on production cost to continue to be in place going forward unless the situation changes. Export price from the beginning of September 2022, due to the change in the economic environment in the EU and UK as well as increased competition in the MENA region started to decline which result in 5% decrease in prior quarter-to-quarter. As of now current price in EU and MENA region have stabilized.
At the same time, putting it right in Ukraine, despite substantial decrease in population and disposable income increased by 8% in Q1 compared to the Q4 but this is still lower than in Q1 2022 by 10% in dollar store, driven mainly by depreciation and the Ukrainian agreement. MHP's regular exposure to commodity price risk to mitigate this risk, we continue to focus more and more on noncommodity products ready to eat and ready to cook. However, penetration and increase of our share in this market require a lot of effort and expenses as to date and in the near future. Let's move on Slide number 8. Grain Growing operation. It is important to highlight that despite of a quite high price of grain on international market export price for grain from Ukraine is significantly lower compared to the international price. [indiscernible] port, a substantial increase as a result of the war in Ukraine and challenge unstable logistics and [indiscernible] in grain view. Obviously, this operational environmental negatively affects the profitability of MHP as well as all agri producers in Ukraine.
Revenue in Grain segment in Q1 increased to EUR 69 million from EUR 35 million last year, mainly due to the higher export of group as a result of special restoration of logistic rules compared to the operational environmental and the beginning of full-scale Russian innovation in Q1 2022. EBITDA on Grain segment, net IFRS 16 will consist of EUR 3 million, almost an exchange compared to the last year. All winter crops are currently in good condition. This year, MHP is going to harvest around 350,000 hectares. MHP's spring sowing campaign is almost finalized.
Let's proceed to the Slide number 9. Wheat project business financial performance remained almost an exchange due to the positive impact of increasing price and optimization of product mix with higher focus on higher-margin products would offset but expansion of Ukrainian Bacon operation in the Donetsk region in April 2022. As today, we produced around 1,000 tonnes of meat producing products by month before -- but before 2022, we produced around 3,000 tons per month, using both companies and rented facilities. Let's go to the Slide #10. Several words about pricing uptick, growth in capacity in Serbia and Croatia resulted in 8% increase in poultry sales year-on-year. EBITDA has increased 30% year-on-year due to the fall of energy and grain prices in EU, as well as higher price for meat and meat processing products in Q1 compared to the same period last year. Compared to the Q4, price have remained almost at the same level and we don't expect significant price changes first in the future.
Slide #11. A few words about our cash flow and liquidity position. Cash flow operations before changes in working capital amount around $100 million. This amount includes payment in February part of deferred interest payment agreed with creditor at the end of Q1 2022. Investment in working capital was insignificant, mostly due to the fact that investment in grain farming business was offset by low stock of meat and grain at the end of Q1. High investment in working capital during the 2022 was caused mainly by [indiscernible] a realized working capital, while the war in Ukraine is in place. We also see an additional risk of non-reimbursement of VAT 2023, driven by a challenging economic environment in Ukraine. Total corporate in Q1 amounted around $40 million and mainly related to purchase and digital generators to mitigate the impact of possible power outages, maintenance and new product development and improvement of Perutnina Ptuj production facilities.
Regarding the debt, by the end of the period, the company net debt was EUR 1.2 billion. The company paid all deferred coupon on time, MHP remain in the responsible partners. And have also paid spring coupon. At the same time, we received the approval for prolongation and commitment line from old banks till August, December 2023, second time, since the beginning of the war. The operational environmental remains volatile, extremely challenging and unpredictable including the NBU restriction regarding capital movements outside of Ukraine for the Ukrainian legal entities and individuals. The liquidity position at the end of the quarter over $350 million in cash, mostly in dollars and hold mainly outside Ukraine. Given the current operational environment and significant risk associated with war. We estimate that our minimum sales cash balance at around $250 million. Thank you, Anastasiya.
Thank you very much, Viktoria. Thank you. So let me provide you with the current outlook, for 2023 at least this is how we see this year going forward, MHP is expected to operate at close to full capacity subject to any possible direct or collateral disruption or damage to MHP operations-oriented storages. MHP has been adapting to the war environment. And at the same time, experiencing new logistic challenges. I'm talking about recent temporary restrictions bands for exports of agricultural produce set by a few EU countries, which we had to pay starting from the beginning of the second quarter of the year. This challenge has not been completely resolved yet. With regard to agricultural commodities prices, we see them stabilized. Now both for grain, vegetable oils and poultry meat. However, we remain conservative to any positive trends in prices as of today.
In general, there is a high level of uncertainty regarding how our next quarter's operations will look like and what kind of financial results this uncertainty will bring to the company. But MHP is united as never before to support Ukraine, Ukrainian population. And of course, the whole world to provide food security to the extent possible. MHP team continues to undertake all possible efforts to manage all difficulties and overcome obstacles. We are now ready to start our Q&A session. Tim?
[Operator Instructions] So our first question comes from Christodoulos from Blackbeard assets. [Operator Instructions] Let's move to the next one. So our next question is from Anton from Knighthead Capital.
Just a couple of clarifying things for me. Number one, I think Victoria you said, most of the cash is offshore. Can you give us the splits and also tell us how much is Perutnina?
It's approximately EUR 50 million, EUR 50 million to EUR 60 million in Perutnina.
And of the non-Perutnina cash is substantially everything offshore? How much is inside Ukraine?
No, I would say it, in Ukraine around 10%.
Got it. Okay. And then on the call about a month ago, when we talked about 4Q results, I believe you threw out us $200 million, as your minimum cash balance. Now we obviously had a positive cash generation quarter despite paying an extra $19 million or so, in deferred coupons in February. So I'm curious, why I think you've changed your view from a $200 minimum to $250 million minimum. I'm curious what informs that change?
Thank you for your question. Because I told you, I remember that you were $200 million, $250 million yet between the figures and what is very important because some uncertainly what I would like to say because we've had some incidents with our -- not our storage, near our storage due to the [ muscle]. -- [ Muscle ] I talked. Yes, we had some incident with 1 site at all. And as a very important point because we have some problem with export to Europe, and that is why I think that we need to have -- yes, because, yes, we are -- unfortunately, we are continuing to lease and to operate in the war. And we cannot predict and potentially to more yes, unfortunately, it would be, yes, a very terrible case. Because, yes -- and that is why we estimate that you must have this amount. Because you know that we have 26 employees in our company. And we are responsible not just for these employees and for your families. And that is why, we view the responsible and not just enter responsible, not just the families of our employees and we rent our land from 100 -- approximately from more than 100,000 people we rent land. And that is why, we understand that [indiscernible] happen with our facilities because, yes, this is the biggest service for us. We need to provide and we need to guarantee our people some level of income.
No, that all makes sense. And then, just a couple more things. Still thinking $150 million, $170 million of CapEx for the year?
Yes. approximately this amount yes.
And what's the latest on VAT reimbursement?
What? Sorry..
VAT reimbursement. I believe there's $150 million at stake.
Yes. Yes. Accordingly, our budget this year, accordingly just budget, we need the thing that we should -- it is a lot of concern about that, but we should receive around EUR 120 million VAT.
So it is at EUR 120 million. Right?
EUR 120 million, EUR 140 million. But one, as I talked in during the presentation, I had some concern that because in the first quarter, we received around only $10 million. Yes.
Got it. And then final question. What's the latest with -- and though with respect to currency controls are they working with you.
No, nothing changes, no, completely the same restriction for legal entities and individuals -- is completely prohibit to pay both.
Understood. Okay. Nice job this quarter and good luck with everything.
Yes. Thank you, Anton.
The next question comes from Pelosi from Higher ground. He asks, how is the readiness to pay the bond maturing in 2024. Sorry, you like the question repeated?
Yes, yes. Please repeat your question.
Yes, how is the readiness to pay the bond maturing in 2024.
It's very good question. Yes. I understand. It's a very, very good question. Yes, we understand that approximately in 12 months, yes, its maturity our bond. And we will attend on raising this issue. No, yes, we have -- we understand that it's very important for us this very important deal. And we will intend on raising this issue appropriately in due course.
Our next question comes from Konstantin from Adamant Capital.
Hello. Do you hear me??
Yes.
Okay. Perfect. So my first question is on the pricing environment, sort of internationally, we're seeing that pricing for poultry is softening. So maybe you could comment on what you're seeing across the markets of your exposure. Do you see sort of pricing environment stabilizing, softening? Like what's the trend there? That's my first question.
Question regarding pricing environment, as I told in the fourth quarter last year price decreased significantly, compared to the Q2, Q3 2022. And the first quarter price remains the same level. Yes, I talked about the price of fuel in Europe and guys of whole chicken in MENA region. And on expectation and we put in our budget completely the same level of the price. But yes, current price. We think that we don't see any -- to be honest, we don't see any signal and any reason for increased price. Yes, because you know the price of grain during the just last month is decreasing, price of gas in utility decrease. And that is why we don't expect any increase in price.
Got it -- and in terms of...
But now is a summer region with summer period is the hot season, and our expectation in the second half of the year is in the lower season price will decrease, yes.
Got it. And on the volume side, what are you seeing?
Regarding the volume side. I think that we will continue to work at 100% capacity utilization, and we will sell the same quantity of the sale volume that we saw it in the first quarter in Ukraine and in export.
Got it. Got it. And then historically, second quarter is a high working capital consumption quarter. And obviously, we are in the second half of the second quarter. What are you seeing this year? Should we expect a substantial working capital outflow in the second quarter? And maybe related to that, if you could comment on where the cash position is right now? That would be helpful to get a sense of what's happening to working capital.
Yes. We expect that investment in working capital in the second quarter, not so big amount, but it depends on, as I told previously, it depends on the issue in [indiscernible] VAT, yes, it is one of the reasons. And the second is that we invest in so -- invest money in sowing campaign is the so many reason, why we invest in working capital. Regarding our current position today have in account approximately EUR 340 million, EUR 330 million to EUR 340 million. $14 million is cash.
EUR 340 million of cash. Got it. And then just on VAT point VAT reimbursement point. So you collected out of EUR 120 million this year, you collected [ EUR 20 million ], right?
Last year on the..
So you expect to collect total EUR 120 million for VAT reimbursement for the full year and so far this year -- so far this year, how much you collected?
Yes, this year we received just around EUR 10 million.
Around $10 million. And so when should we expect for you to collect the rest of EUR 120 million. So [indiscernible]
But is there any point in the year? So is it December or it's September? Or when do you think it's going to happen? And what is it conditional on?
No. traditional, yes, we -- yes, I think that we need to receive this money every month, different part of yes, part of this amount. Yes. But anyway, we -- yes, until today, we received a very small amount. Now we expect that in the second quarter, we expect to receive additional maybe EUR 15 million EUR 20 million.
And then finally, just on the sowing campaign. So the spring sowing campaign is almost over, I would guess. Any outlook for the harvest, what do you expect? Is that better than the last year?
Yes, very good issue, but unfortunately too older. Until today, winter growth looks good, but now only [indiscernible].
Yes. Got it. And sorry, just one last point. So we saw that the facility in the -- and that's the reason was affected by the recent strike. What's the situation out there? So I think you mentioned that $10 million of working capital was -- of inventory was affected. Like any additional color you could give would be helpful.
Regarding, I will explain it. We keep the approximately 3,000 -- 3,500 tonnes. And now we try to estimate because what -- what happened there? Because our product partially was different partially. And now we provide very, very deep investigation of portion of this. And after that, we will understand what is the amount of what volume it would be -- we need to utilize. Now I cannot say exactly the figures. But at the same time, I understand the sound volume, unfortunately, will be utilized, but I cannot say.
Our next question comes from Ludovic Walter from Sona Asset Management. He asks, how should we think about your working capital, cash consumption this year?
Regarding our investment and working capital [indiscernible] this amount. No, to be honest. It's very difficult to predict regarding -- I would like to repeat again. It is a big issue with the VAT endorsement yes. Total our expectation, not just expectation based of our budget, I think that -- and we should get $120 million. But anyway, we cannot guarantee that we will receive this amount. And that is why as is one of the investment in working capital. But its good, VAT endorsement, our estimation, it is approximately $20 million to $30 million.
Our next question comes from Dimitry Ivanov from Jefferies.
I guess, it's a bit difficult question, but I mean, like you mentioned that in your budget, you assume prices at the same level as in Q2, which kind of like if you look at the sunflower prices, I think like sunflower prices like dropped by 25%, 30%, if I remember correctly, our discussion. I'm just trying to understand like in your kind of base case scenario, like status go scenario, do you expect like a lower EBITDA levels for the group for the rest of the for the rest of the year. Just if you can give us a bit more color on like EBITDA generation like side of the business. Like a new base case scenario that will be helpful. My first question.
Now thank you for your question about our best scenario, our EBITDA, yes.
Correct, yes. So just assuming..
You remember or I would like to just mention before the -- our EBITDA in 2023, it was [ 700 around 700 ] -- this is why our EBITDA that depends on a lot of different reasons. But, if you base of current situation, without results, if you complete the current situation, I think that we generate our EBITDA. EBITDA will be very close to the last year EBITDA, maybe slightly higher, but not so significant. Last year, we generated EUR 180 million, which is why, but what I would like to emphasize is very difficult to predict with current situation would potentially can potentially happen. But if situation will be completely the same, I think that yes, And would you not reprice of grain very low, yes? And yes, that is why our expectation about EBITDA in Grain segment not very high. And as I mentioned in -- during the presentation and presentations that now crushing business and correlation between price of sunflower oil and sunflower seed is not very attractive.
Understood. So basically, you expect..
You need to understand the meat price of export meat increased by 10% or 20% yet we will generate high. But as I told before, I don't see any reason, any signal that price of export meat will increase.
That is clear. So basically, assuming current poultry and sunflower prices, you expect similar level of EBITDA generation similar to the previous level -- year EBITDA Okay. Second question on this upcoming like short-term bank loans. As you mentioned, you extended some of the credit facilities to August, December. What's your kind of strategy when it comes to like if lenders love,, just to repay like -- like we expect just to reinitiate a new extension? Or are you ready just to pay them in cash. Just any color would be helpful on this EUR 150 million short-term debt facilities.
No, we have very good banks. I think that banks is very good to our partners, and I'm sure that we will ask again about prolongation. I think that, we can achieve some well that result, we satisfied most of us.
Okay. Okay. Sorry. Yes...
But anyway, it is under discussion, you understand. We clearly understand that we prolongate until August in December. And after that, we will have, as before, this deadline, we will have the new round of negotiation.
And last question for me is about this ban on crops and products originating in Ukraine from certain European countries from like segment perspective, which segments kind of might be affected by this ban? Are we talking about Grain segment? Or like other segments will also be affected because, for example, sunflower oil wasn't -- or not listed as a bank product. So I'm trying to understand which of your segments might be affected by this temporary trade ban from European countries?
Yes, poultry segment because during the week, we could not export in Europe during around the weeks and our logistic cost now increase when we export to Europe.
And poultry segment will be affected. I'm just like.
Because logistics was increased.
Okay. So for poultry is a product that was also like a temporary bank for..
Yes. and not transit is also allowed, right? So there is no way just to transit. So you have just to use other alternative ways just to bypass these countries to export.
Our next question comes from Federico from Perella Weinberg Partners. He asks how much debt is sitting in the EOS segment? How much are the unencumbered assets in the EOS segment? Relation ?
Can you please repeat the question how much debt in EU segment. Sorry, no, no. In EU segment, yes, 100..
Yes, it is a European. Yes, yes, around EUR 130 million debt..
And he also asked how much are the unencumbered assets in the US segment and values.
And how much assets? Value assets, yes. I cannot -- it is balance sheet I don't remember yes. We will provide you something here. I don't remember exact figures. I know the debt, but approximately maybe. No, I cannot say.
Our next question comes from [ Kalim from Lord Abbett ].
Can you please comment further on the effects on MHP of various grain import bans and tariffs imposed by European countries. Is it possible to quantify the effects?
Current logistic cost increased or MHP to Europe and Greece approximately by 15%. As you calculate, I cannot right now calculate -- but I don't know, no I cannot calculate approximately maybe 5.
[Operator Instructions] So we have a follow-up from Ludovic from Sona Asset Management. He's asking, have you drawn on the EBRD facility or is the $340 million to $350 million current cash balance you mentioned earlier, excluding any drawing on the EBRD facility?
EUR 40 million. So we track EBRD EUR 40 million, and this amount included in our liquidity position.
Just wait a moment or two to see if any more questions will come in.
Tim, this is Anastasiya. I think we had a nice call today. And [indiscernible] we answered many questions. I would like to thank investors for the questions raised. And of course, if you have any outstanding questions, please e-mail or give me a call, and we can discuss them in detail. And for now, we would like to thank you and wish you a nice day.
Thank you. That concludes the call for today. Thank you, everyone, and have a nice day.
Thank you. Thank you, bye.