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Ladies and gentlemen, welcome to MHP First Half 2018 Financial Results Conference Call. I now hand over to your host, Anastasiya Sobotyuk, Director of IR. Madame, please go ahead.
Thank you very much. Good afternoon, and good morning. Thank you for joining us today for MHP's conference call, which is dedicated to MHP's financial results for the second quarter and 6 months of 2018. I need to tell you in advance that we will discuss many things today and some of them are forward-looking statements. So please take it into consideration. And of course, I encourage you to use today's press release, together with financial statements, for the detailed information. I will lead you through the presentation today, and Victoriya will provide you -- our CFO, will provide you with detailed information by segments. And of course, altogether, we will have the question and session -- and answer session at the end of the presentation. So I hope that everybody is ready, and we can start our call and presentation now.So we are moving on Slide #4 of the presentation. First of all, let's look at some macro fundamentals. Macro conditions in Ukraine are improving, as you can see from this chart. And according to the NBU's estimates, real GDP growth this year is expected to accelerate to 3.4%. Currency is quite stable, real wages are growing and inflation decelerated to around 12% in the second quarter of the year, driven mainly by utilities and food prices. Ukraine is expecting to get very good harvest this year, harvest of spring crops, definitely better than last year, which is approximately, in total, 65 million tonnes. And of course, it is mainly driven this year by favorable weather conditions. Now what about meat consumption? Driven by still quite low but growing income per capita in Ukraine, we are expecting meat consumption per capita to slightly increase, driven by an increase in consumption, mainly of chicken meat, because, of course, of affordability. We expect this trend will continue in the medium-term future. Let's go and see the company's results, and so we altogether go to Slide #6. Here, we have key financials. As you can see from the table, in the first half of the year, MHP demonstrated strong financial performance driven by an increase in poultry production, better harvest of crops, poultry export volumes and price increase, MHP generated revenue of USD 694 million, which is 16% higher year-on-year. Exports revenue was of USD 385 million, which is 10% higher year-on-year and constituted 5 -- 55% of total revenue. EBITDA constituted USD 263 million, quite stable year-on-year with EBITDA margin of 38%. Net profit was USD 190 million compared to USD 210 million, which was in the first half of 2017, and the decrease mainly happened -- mainly it is due to the reduction of the government grants income and due to the one-off transaction costs related to new eurobond issued in April this year, but that was partly offset by noncash foreign exchange translation gain.And now I pass the word to Victoriya. She will comment our financial results for the period in greater detail and, of course, by segment.
Thank you, Anastasiya. Good afternoon, everyone. Let's discuss our financial results for the H1 2018 in more detail. Slide #7 shows our financial results by segment. Our key segment, poultry operations, is usually, during this first half of year generates the majority of total revenue, about 89%, and more than half of company EBITDA, around 60%. Grain segment generate only 2% of total revenue but has significant impact on company's EBITDA in the first half of this year. It was about 40%, around 40% of total EBITDA. This is higher compared to the last year due to the good harvest of winter crops as well as due to the good condition of spring crops also. In the first half of year, EBITDA of grain segment arrived mostly through 41 standard effect. Our sales in this [ smaller ] segment of the agriculture operations generates about 9% of revenue and contributed 4% of total EBITDA. Main components of this segment are meat processing and convenience food production. Our export operation during this first half were higher than last year at about 10%. It is totally driven by growth of chicken meat export sale and higher export chicken meat prices. Revenue generated in hard currency is $396 million. It's about 57% of total revenue, by 14% higher compared to the same period last year. We will discuss the development of our segment more deeply on this next slide. Please go to the next slide, #8, poultry segment performance. During the first half of year, we increased our production volume by 7% due to the higher average weight per head and due to the [ sum ] optimization of our processing schedule. Vinnytsia Phase 2 slaughterhouse and 2 premises to growing chickens is already successfully launched in July, and we are [ doing great directly ] increased production Phase 2 during the next 3 years. Production volume in the second half expected to be at minimum 14% higher compared to the same period last year. In this first half of year, poultry revenue overall increased by 19%. It belongs to our export strategy, which is focused on our market targeting. We are working on continued optimization of our strategy to propose a right product to every targeted market, at the same time directing each product to its variable market. And this strategy gives us 9% growth of export volume and around 20% in the increase in export price, especially on European Union and MENA region. In this first half of year, we increased completely with our budget -- no, sorry, not completely, quarterly. In the first half of year, we increased our average sales price by 21% on Ukrainian and export market, including an effect of export sale growth by 7%. Completely according to our budget, our average poultry production, of course, expected to increase by around 18% in dollar term year-on-year, reflecting higher price of -- for the components, including protein, as well as higher overall [ buyer cost ].Adjusted EBITDA before 41 standard effect per 1 kilo in the first couple of years is slightly higher than last year. It is $0.56 compared to the $0.55, which was last year. Absolutely [ more ] value of poultry EBITDA in the first half decreased compared to the same period last year by 9% reflected mostly change in government grants. Last year, we received $22 million compared to the zeroing this year. If complete without government grant effect to have a comparable basis, EBITDA of poultry segment would hold positive trend this year, which increased about 5% year-to-year.Let's move to the next slide, #9. As [ certain NIM ] operating [indiscernible] generated by sales of top grain harvested in 2017, this is lower than the same period last year, more than twice based on lower stocks for sales from being not bright harvest 2017. In 2018 harvesting year, we see positive trends. And despite sometimes challenging weather conditions, we gathered good harvest of winter growth. If you can see from our slide, our yield of wheat this year, at 6.3, and it's higher than last year. And rape, 3.8, the same, higher than last year. And additionally, we see that good -- we expect to have good harvest of spring crops as well. In total, about 367,000 hectares to be harvested in 2018. Market price for grain is well demonstrating positive dynamics. We increased approximately by 10% for quarter than wheat. Grain segment EBITDA in first half is higher by 15% compared to the last year. And based on positive forecast regarding the spring crop harvest, we expect significant growth of grain segment EBITDA in the full year up to 50%. Our current expectation that we will generate approximately $400 per hectare this year compared last year we will generate around $216 per hectare.Let's go to the next slide, #10. The majority of other agricultural segment belong to the meat processing and [indiscernible] product. In the first half, revenue of this segment increased by 18% due to the price growth by 30%. Segment's EBITDA grew by 10%. EBITDA margin almost at the same level, the same level. In the end of this year, we expect to launch the new production line for chicken frankfurts that will allow us to increase sales volume, utilizing raw materials from Vinnytsia Phase 2 and supports our leading position in meat processing industry with demand for products at affordable price.Let's go on to the Slide #11. If you heard about our cash flow and liquidity position, in the first half, net cash generated from operating activities before working capital are worth $136 million, which is about 5% lower compared to the same period last year. In [ Western in ] working capital was $56 million and mostly related to the crops in field, the same as every year. Total CapEx was $125 million, significantly higher compared in 2017 and almost totally dedicated to Vinnytsia second phase project investment. This, as a period, the company total debt was $1.3 billion, and net debt, approximately $1.2 billion. Currently, our short-term debt account less than 5% of total debt only. About 90% of total long-term debt are eurobonds. Our average weight interest rate currently around 7%. In terms of liquidity as the end of the H1, we had about $110 million in account [ mostly ] in dollars. Net debt-to-EBITDA ratio was 2.59 versus eurobond covenant ratio of 3. Our currency balance remains strongly positive, and we generated around 57% total revenue in hard currency. This helps native hedge -- natural hedge. And now I give the floor to Anastasiya to give you our guided business update and outlook.
Thank you, Victoriya. To conclude this presentation, let me provide you with the business outlook for the rest of 2018. By the way, the company is satisfied with the results of -- for the first half of the year, and the outlook for the full year is following. We all know now that we've recently launched Phase 2 of the Vinnytsia project. So we launched 2 brigades, one in May, another 1 in June, and we are going to launch additional 2 brigades by the end 2018. That all will result in an increase of poultry production volumes, mainly in the second half of the year, to meet growing demand in -- on export markets and also on the domestic market. Taking into account favorable weather conditions during summertime, this year, we are expecting a good harvest of spring crops and in corn, sunflower and soya. That will definitely positively affect the overall financial result of MHP in 2018. We continue to invest into innovation, and our biogas station with 12-megawatt capacity is planned to be launch in preparation gradually since the end of 2018. We definitely see positive trends in Ukraine with GDP growth and currency stabilization. All this can drive to the stability and -- in the near future increase in income per capita -- through the increased income per capita in Ukraine and can signal the growth in protein consumption. We are confident that we will continue to deliver strong financial results, and they will be supported by significant and growing share of hard currency revenues from export of chicken, oils and grains.Thank you very much for the presentation. Thank you for your time. Now we open our question-and-answer session. [Operator Instructions] Thank you for your cooperation. Ayan?
[Operator Instructions] Our first question comes from [ Mariusz Halomes ] from [ Baring ].
Just a couple of questions. The first one is, could you please talk about your ambitions for expansions outside of Ukraine, particularly with regards to each question of export market in EU and MENA? And also, you did mention you're launching 2 brigades in -- to a 4, in 2018 just so we can get what did you expect an increase in production in H2, poultry production that is.
Thank you for your question. Yes, I will start from the question number two. Yes, by July, we've launched the second station with Vinnytsia, and this is why in the second half of the year, we will produce approximately by 12%, [ 15% ] higher volume of chicken meat compared to the same period last year. It is approximately 30,000 tonnes compared year-to-year. And then [indiscernible] about our expansion in EU and MENA region, yes, but in the first couple of year, we increased our export to Europe. Yes, at the same time, we increased our export to MENA, especially in Saudi Arabia significantly, and we see huge potential for growth of this market. Yes, but first of all, we understand that we need to sell for this market the special -- the different products. For European Union, we sell mostly [ CUF ]. So MENA region, small chicks.
Right, okay. So how are you attacking these markets? Are you looking to acquire meat processing plants there? Or how are you attacking those markets?
Yes. First of all, we understand how we can increase our export for this market because of the results from Ukraine increase our exports. But additional [indiscernible], you are completely right. We considering -- now we considering possibility to buy some poultry producer on -- poultry producers in Europe and in MENA region. But to be honest, during the last, minimum, 4 year, we, in this process consider a different possibility. But until today, we cannot provide this transaction yet, yes. But anyway, it is really interesting for the company to have abroad, yes, and to buy the right targets in Europe or in MENA region.
[Operator Instructions] We have no further questions at this time. [Operator Instructions] We have a question from Maryia Berasneva from Morgan Stanley.
My first question is with regards to your targets for full year as of '19. I believe that, previously, you've discussed EBITDA of around USD 470 million for 2018. Is this still something that you are targeting? And my second question is with regards to the poultry pricing trends and grain pricing trends that you see. How do you see them evolving over the next 6 to 12 months, both in Ukraine and in other markets outside of the Ukraine where you're present?
I think if our operation -- I regard them as our EBITDA, our forecast for full 2018. We, also are very comfortable with our previous forecast. We see EBITDA $470 million. We understand that our -- maybe our EBITDA in poultry segment will be slightly lower than previous forecast, but in grain segment, we understand how we can generate higher EBITDA compared with previous projection. Regards on pricing for grain, we see that current price of corn and wheat, just 2 crops, which we -- today is by approximately by 10% is minimum, by 10% higher compared to the same period last year and to report in our forecast for this year these figures, this price. Regards the price of chicken meat in Ukrainian market, since January, we increased our price very insignificantly, but -- increased price, but just in the third quarter only, not during this first half of the year and increased very insignificant by 2%. But at the same time, we see very interesting price in the MENA region, especially in Saudi Arabia, price year-to-year increased significantly, it seems to me, by 25% around this. And regarding price of quarter is the price very similar than last year. Price of European filet is slightly higher than last year. We put always here -- we try always to be conservative, and we put in our projection for full year this year the price in the current level even slightly lower price of U.S. and European market because it is seasonality trend, always price in the summer higher than price in the winter.
[Operator Instructions] You have a question from [ Yana Ametina ] from BCP Securities.
Unfortunately, joined slightly later and may have missed the beginning. Could you please tell us the main reasons for notable uptick of EBITDA versus the previous quarter?
[ Yana ], I just wanted to clarify, you mean quarter-on-quarter or year-on-year?
No, quarter-on-quarter versus first quarter, it's like almost doubled. And just like what's the main reason for that? Because prices move not so -- not much.
No, no, no. It's the result of grain segment and mostly related to, yes, effect 41 standard because, yes, in the first quarter, usually, we don't have any effect of 41 standard in the second quarter here because, yes -- because it is during the harvesting campaign, you're not just doing. We finished our harvesting campaign for winter, for winter crops, and we really understand the situation with spring crops. And this is why we can estimate.
[Operator Instructions] Our next question comes from Andrzej Rembelski PKO BP Securities.
I have a question on government grants. There's any chance that you will receive any subsidies still in 2018, and what's your outlook on 2019?
Regarding government grants for this year, we don't expect any government grants this report, which we can include in our P&L and EBITDA for this year. Just importantly, feed budget, we can get some compensation government grants, which we would compensation of our expenditure for construction. It's very difficult this year to predict this amount. Yes, just I can tell that until today, we received approximately $6 million as compensation of our construction of Vinnytsia second. And regarding 2009 (sic) [ 2019 ], yes, we don't expect, and it's minimum, yet we don't put in our forecast any government grants because it is completely [ a different issue ].
[Operator Instructions] We have no further questions. Dear speakers, back to you for the conclusion.
Thank you very much for all participants. Thank you for your questions. In case you have your further questions, please contact to us either by the telephone call or by email. Thank you, and have a nice day. Bye.
This concludes today's conference call. Thank you, all for your participation. You may now disconnect.