Mhp Se

LSE:MHPC

Earnings Call Transcript 2021-Q2

[Anastasiya Sobotyuk]

Ladies and gentlemen, thank you for standing by. We would like to welcome you to MHP's Financial Results for the Second Quarter of 2021 and the First Half of 2021. [Operator Instructions] The format of today's presentation will be a presentation by the MHP management team, followed by a question-and-answer session. Before we start, I would like to draw your attention to the fact that some of the information during this call contains projections or other forward-looking statements regarding future events or the future financial performance of MHP. You can identify forward-looking statements by terms such as expect, belief, anticipate, estimate, intend, will, could, may or might, the negative health such terms or similar expressions. Today's MHP financial results for the second quarter and 6 months of 2021 will be presented by Viktoria Kapelyushnaya, who is the CFO of MHP; and myself, Director of Investor Relations. I think we are ready to start our conference call. Thank you very much for joining us today again for our call. As I said, my name is Anastasiya Sobotyuk, and I'm Director of Investor Relations. And on the call today, we will discuss MHP's financial results. Today's call is based on data and information released earlier today. So our second quarter and the first 6 months of 2021 press release and financial statements. However, during our call, we can discuss our projections and plans based on our assumptions and models. Please take it into consideration. I think we can go directly on Slide #4 of your presentation. So let's look at macro environment first. Ukraine GDP in the second quarter of 2021 went up by more than 5%. In the first half of 2021, it grew by around 2% compared to the first half of 2020. That was reported by Ukrainian Ministry of Economy. The main factors that contributed to GDP's growth included the resumption of activity in almost all types of economic activity, the intensification of construction amid to the launch of a mortgage lending program, the growing implementation of great construction projects and the favorable situation on foreign commodity markets. It is now expected that annual increase of GDP to be between 3.5% and 4% this year. Year-on-year, Ukrainian currency appreciated by around 2%, annual inflation reached 9%. The National Bank of Ukraine in July downgraded the inflation forecast for 2021 from 8% to around of 10%. With regard to COVID-19, as of today, there were over 2.3 million cases of COVID in Ukraine. Unfortunately, the vaccination does not progress very fast. And as of today, there is only circa 14% of population fully with 2 shots vaccinated. Let's get back to the company's results. We go on Slide #6. The key financials for the period. Let me, first of all, start with operational highlights for the first half of 2021. Poultry sales increased by 2% and reached around 336,000 tonnes. Poultry exports increased by 12% and reached circa 191,000 tonnes, driven by increased sales volumes, both to MENA region and to the countries of the European Union. Total share of exports out of total poultry sales volumes increased to 57% from 52%. When we look at the financial results for the first half of 2021, we will look as follows: revenue increased by 14% and reached almost USD 1 billion with export revenue representing 51% of total revenue, mainly driven by an increase in exports of pork permit. Adjusted EBITDA increased by 55% and reached USD 334 million, driven mainly by excellent results in grain growing operations. As a result of EBITDA improvement, net debt to LTM EBITDA ratio constituted 2.82. Before we continue, I would like to draw your attention that starting from the next slide of the presentation, we disclose information based on quarterly results and year-on-year comparison. For more information on 6 months of 2021 results, please use our press release. And now we go together on Slide #7 of the presentation. Key financials for the second quarter of 2021. As you can see from the top, MHP's revenue increased by 28% in the period and reached around USD 542 million, with export revenue represented 53%. Adjusted EBITDA margin increased by 120% year-on-year to $277 million, with EBITDA margin of 51% as a result of positive results, both in poultry and grain growing operations. Let's move on Slide #8 of your presentation. Slide 8 shows our financial results by segment. As you can see from the table, the vast majority of revenue in the first half of 2021, right from poultry and related operations, 72%, and European operating segment around 19%. At the same time, grain growing and poultry operations contributed the most to the company's EBITDA, 48% and 42%, respectively. The biggest contributor to export revenue was from poultry operations, constituting $502 million in total. Let us have a closer look at each business segment and results on our next slide. And here, I pass my word to Viktoria.

[Viktoria B. Kapelyushnaya, CFO & Executive Director]

Thank you, Anastasiya. Good afternoon, everyone. Let me give you more color on our poultry segment performance, Slide #9. It is important to highlight that during the 6 months of this year, all MHP's old ship production facility in Ukraine have been operated at full capacity. As you can see, MHP delivered exceptional strong results in Q2 this year compared to the same period last year, that was absolutely challenging for the whole world. Total revenue in poultry segment increased by 30% year-on-year, driven mostly by increase in sales volume mainly for export, driven by MENA region sales. An increase of total poultry price mainly driven by export price everywhere, price of growth for chicken filler in a [indiscernible] internationally and also in MENA region and including increased price in Ukraine. The total price growth was gradually compensating and substantial increase in production costs, which has increased since Q4 2020 due to increased -- significant increase, commodity price of grain. At the same time, in the [indiscernible] of chicken meat reached the same level of profitability, $0.5, as it was before COVID-19 in the second quarter 2018. Let's move to the next Slide #10. EBITDA of grain segment in H1 of this year constitute $160 million compared to the $65 million last year, mainly attributed to 41 standard gain. Due to the strong yield of winter crops, it is 20% higher year-to-year and expect significantly high yields in spring crops over the 50% year-on-year. Current price of wheat and [indiscernible] seeds are around 30% higher year-on-year. Let's go to the Slide #11. Meat Processing business performed well and showed growth following a strategy to transform to culinary company. We expect to change volume dynamics to move positive further in 2021, following the wide range of new product introduction to the market. Let's go to the Slide 12. Several words about Perutnina Ptuj, growth capacity in Serbian Croatia resulted in 23% increase in poultry sales year-on-year, which resulted in EBITDA growth of 33% year-on-year. Moreover, the significant EBITDA growth is due to higher operational efficiency, which allow us to offset growing cost of raw material, positive impact from appreciation of euro against dollars and one-off effect related to insurance and some change in accounting treatment from the past year. These 2 years of cooperation between MHP and Perutnina showed our stakeholders and us, what is the high level of financial operational results can be achieved, and we continue to invest in to develop Perutnina Ptuj operation, raising its operation efficiency and growth. Slide #13, a few words about our cash flow and liquidity position. Cash from operations increased mainly in line with the increase in EBITDA, an additional impact was due to the change in fair value of the logical assets and agriculture produce, which represented noncash adjustments. Use of fund in working capital during the Q2 and H1 was not as stable and mostly related to seasonal woken progress in grain growing the division as usual for our company. Total CapEx in Q2 amounts [ $21 million ], mainly related to modernization projects, new product development, maintenance and Perutnina Ptuj project facility further development. Total CapEx for this year is expected around $150 million. Regarding the debt, due to significant improvement in EBITDA, net debt-to-EBITDA ratio reached by the end of Q2 2.8 versus 3.7 by the end of Q1 this year. We expect further growth in LTM EBITDA in the second half of 2020. And we expect that our net debt to EBITDA will be lower than current levels. Of this [indiscernible] period, the total company EBITDA $1.5 billion, 99% is a long term. All our average interest rate today -- average is 6.7%. In terms of the liquidity by the end of the H1, we had around $162 million in cash -- in cash more than dollars. And now I give the floor to Anastasiya for outlook.

[Anastasiya Sobotyuk]

Thank you, Viktoria. We all see that the company's performance, both in the second quarter and for the first 6 months of the year, was exceptionally strong. After difficult fourth quarter of 2020 and first quarter of 2021, during which we -- which increased cost of poultry production driven by higher grain cost could only partly be recovered by increased poultry prices. External trends impacted much more favorably on our business in the second quarter, resulting in a record financial results for the first half. This powerful combination of positive trends has continued into the second half of the year, with poultry prices increasing in both export and domestic markets. The whole Ukraine has been enjoying excellent weather conditions, generating strong crop yields. At MHP, we expect this year harvest to be one of the strongest in our history. High global grain prices added a significant value to our results. As a result, with the successful hedging program to look in a high proportion of grain prices, we have raised our expectations for the full year with EBITDA now expected to reach a record of close to USD 600 million. The net debt-to-EBITDA ratio, which already improved significantly as at 30th June, is expected to improve further to around 2 by year-end. Thank you very much. We are ready for questions. To ensure that all participants on today's call have equal opportunities, please follow the rule, one participant 3 questions. Thank you for cooperation in advance.

[Operator]

[Operator Instructions] Our first question comes from Dmitry Ivanov from Jefferies. [Technical Difficulty][Operator Instructions]

[Anastasiya Sobotyuk]

This is Anastasiya. As we can see, we are experiencing the technical problems with the platform. And that is why, unfortunately, we cannot hear you. We even cannot open the line. I hope you hear me well. So the proposal from the company is following. We can either receive your questions to e-mail and answer them directly or we can set a conference call or conference calls with you on your request on the day, which is convenience -- convenient for you. So please feel free to contact us, to contact me. And of course, we will be flexible in order to arrange all the calls and answer all the questions in the nearest time. Thank you very much for understanding. Thank you, and goodbye.

[Viktoria B. Kapelyushnaya, CFO & Executive Director]

Thank you.