© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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 would like to welcome you to MHP's 3Q 2020 Results Call. [Operator Instructions] The format of the call today will be a presentation by the MHP management and IR team, followed by a question-and-answer session. [Operator Instructions]So without further ado, I would now like to pass the line to MHP. Anastasiya, the floor is yours.
Thank you very much, Michael. Good afternoon, and good morning. Thank you for joining us today at MHP's conference call. My name is Anastasiya. I'm a Director of Investor Relations. And on the call today, we will discuss MHP's financial results for the third quarter and 9 months of 2020. Today's call is based on data and information released earlier today through the third quarter and 9 months 2020 press release and financial statements accordingly. However, during our call, we will discuss our projections and plans based on our assumptions and strategy. Please take it into consideration. So together with CFO of MHP, Viktoria Kapelyushnaya, we will present to you financial results of the company in general and by segment. And after the presentation, we will be glad to answer all your questions. Let's start Slide #4 of your presentation. So we will start as always from macro environment. And according to the results of the first 9 months of 2020, the reduction of the composite production index, CPI, slowed down and amounted to around 6%. 6.5% in January, August and 6% in the third quarter of 2020 accordingly. The economy in of Ukraine estimate the decrease in the volume of GDP during 9 months of 2020 at around 5.5%. Accordingly to the survey, the ministry left unchanged the forecast for a fall in GDP in 2020 at around 5% year-on-year. However, in the event of a prolonged lockdown in Ukraine and in the world because of COVID-19, the fall in GDP in 2020 in Ukraine will amount to 5.6% year-over-year. Meanwhile, Ukraine's annual inflation rate rose to 2.5% year-on-year, in line with market expectations. Output pressure came from housing, hotel electricity get and other pools restaurants and hotels, food and nonalcoholic beverages and miscellaneous goods and services. During 9 months of 2020, Ukrainian hryvnia developed by around 8% year-on-year as a result of economic instability due to COVID-19 in the world. I think we are ready to get back to the company's results. And together with you, we will go on Slide #6 of our presentation. So here, we have the financial results for the third quarter and 9 months of 2020, which reflect the challenges MHP had been facing during the first half of the year and the third quarter of the year, the apex of a third quarter outbreak of avian influenza in Ukraine, the challenges posed by the global COVID-19 pandemic in the second quarter, and the gradual stabilization of economic situation and market environment in the third quarter of 2020. MHP's revenues in Q3 2020 remained broadly stable with 2% decrease only year-on-year and constituted around USD 547 million. MHP's revenue in 9 months 2020 decreased by 6% year-on-year to USD 1.414 billion, mainly [indiscernible] affected by low sales of grains in the third quarter of 2020 compared to the third quarter of 2019. And of course, lower results in poultry segment, partially offset by strong results at Perutnina Ptuj. Export revenue in 9 months of 2020 was around USD 761 million, 14% down year-on-year mainly [indiscernible] affected by lower export of grain compared to 9 months of 2019 and low poultry export prices. Adjusted EBITDA margin in 9 months of 2020 remains relatively stable, constituted 22% compared to 21% in 9 months of 2019, with adjusted EBITDA down from USD 302 million (sic) [ USD 331 million ] to USD 331 million (sic) [ USD 302 million ] as a result of challenging environment and its impact on MHP's financial results in the first half of 2020. As you can see from the report and here on the slide, EBITDA in the third quarter of 2020 remained broadly stable year-on-year. Let's look at MHP's financial results in greater details and by segment. Let's go on Slide #7 of your presentation. As you can see from the table, contribution from MHP's revenue -- sorry, contribution to MHP's revenue from poultry and relation operations was almost 70% and from European operating segment, almost 20%. At the same time, poultry and grain growing operations contributed the most to the company's EBITDA, 60% and 26%, respectively. Meat processing operations and other agricultural segment contributions still remains the lowest, both to the revenue and to EBITDA of MHP. However, with its prospects to increase taking into account current transformation of the company and culinary strategy implementation.Let's have a closer look at each business segment on our next 3 slides. And here, I pass my vote to Viktoria.
Thank you, Anastasiya. Good afternoon, everyone. Let me give you more color to our poultry segment performance, Slide #8. As you know, since the beginning of second quarter, all our company's poultry production facility in Ukraine have been operating at full capacity again. MHP continued to develop its exports to MENA market, increasing the sales small whole chicken production. As a result, the total number of heads in Q3 increased by 9% year-on-year, but overall poultry production tonnage decreased by 3%. The switch in production and sales was driven by higher profitability per kilo and more favorable market environment in MENA compared to the other export regions. Overall revenue in poultry segment decreased by 6% year-on-year, driven by a decrease in price of chicken meat. Decrease in revenue was mostly due to the avian influenza outbreak in Ukraine in the first quarter this year, which caused a temporary ban of exports from Ukraine to EU as well as impact of COVID pandemic since March 2020. Despite the challenges, MHP delivered the satisfactory results in Q3. Volume of chicken meat in Q3 significantly in volume sales -- sales volume significantly increased compared to the second quarter as well as year-on-year. This was mainly due to increased export sales include MENA, EU and Africa region. The increase in exports last quarter led to decrease in poultry meat sold accumulated in the first half of the year as well as overall increase in sales volume for 9 months this year. During the 9 months, our average export sales price decreased by 9% year-on-year in U.S. dollars mainly driven the product mix change due to increasing the share of small whole chicken and also a weaker price point delay in EU as many global competitors were suffering from reducing demand and excess capacity. Poultry price in MENA markets, especially in the third quarter, are more favorable and stable. Price on domestic market decreased by 10% year-on-year, mainly affected by global COVID pandemic and avian influenza in Ukraine. This increase in converting Q1 2020. Since the last quarter and started beginning from the May, poultry price in Ukraine began to recovery. And by the day, reached the level of last year. Poultry production costs in Q3 remained almost the same as in the third quarter this year due to increased -- due to increase price of corn and new harvest by 40% higher price of corn year to year, we already see an increasing in poultry production cost starting from October. This sector may [indiscernible] the increase in mid-price in next year. So we think that we can increase price in the Q4 in Ukraine and going forward. Gross profit of the segment in 9 months decreased by 22%. Adjusted EBITDA net of IAS 41 stands per 1 kg in 9 months was $0.36 per kilo, which we approximately 18% low compared to the average, our EBITDA per kilo during the 9 months last year mainly due to decrease of chicken meat prices. Let's move to the next slide, #9, about our grain segment. This year, unusually bad weather condition in the center region of Ukraine have led to significantly lower yield across most crops compared to the 2018, especially corn. At the same time, our use of corn in the western and the eastern region of Ukraine was around 9 tonnes per hectare. But in the center region, we -- our main head area, our corn yield was less than 5 tonnes per hectare. It is our [indiscernible] during the -- all our history of MHP. However, negative impact on grain results caused by low yield of growth was offset by significant increase in grain prices, approximately 40% corn price increase year-to-year. External grain segment revenue in 9 months 2020 amount to $90 million. The decrease compared to the last year level was mainly due to lower volumes of growth available at the beginning for external sales in the first half of the year. EBITDA of this segment, net effect of IFRS 16 is $78 million by approximately 10% higher compared to the same period last year, mainly due to the higher price for grain, especially corn and sunflower, partially offset by lower yields of crops this year compared to the last year. And our expectations about EBITDA per hectare this year around $220. Let's go to the next slide, Slide #10. The key business of segments, as you know, is the meat processing and convenience food production. Volume of convenience food growing, plus 8% in Q3 and plus 4% during the 9 months compared to the same period last year, supported by new product development program started by the end 2019. Meat processing -- product volume decreased by around 5% in 9 months, mainly in traditional store segments, we expect to change volume dynamics to positive side following the wide range of new products, introduction to the market in the fourth quarter this year. Segment revenue in 9 months remains on exchange. They amount to around $106 million. Adjusted EBITDA is around $15 million, 25% higher compared to the last year, driven mostly by higher returns for earnings from our milk operation. Let's go to the Slide #11. Over the strategy of poultry production growth on the Slide #11, the European operating. Volume strategy of positive production growth and increasing facility capacity utilization in Slovenia, poultry production volumes of European operating segment in Q3 increased by 14% compared to the same period last year. Poultry and meat processing product sales increased in 9 months compared to the same period last year by 10%. Average poultry price decreased by 6%, mainly to decrease our price only in one region in [indiscernible] only in Bosnia. Average price for the meat processing products were relative stable year-to-year. European operating segment generates around $250 million, sorry, of revenue and around $38 million of EBITDA in 9 months, while this is by 20% higher compared to the same period last year, mainly to increase our sales and especially increased share of meat processing in our sales. And additionally, we increased our production efficiency. Slide #12. Few words about our cash flow and liquidity position. Net cash from operating activity amounted to 140 -- approximately $240 million compared to the net cash generated from operating activities, $332 million in H1 2019, mainly due to the change in working capital. Use of funds in working capital during the 9 months was mostly related to investments in crops in fields to be harvested in Q4. The difference compared to the same period last year was mainly due to higher investment in inventory during the 9 months this year, sunflower and soya designed by internal consumption, mostly due to the lower stock of crops at the beginning of this year compared to the stock, which we have sunflower, soy at the beginning of last year. Total CapEx for 9 months, it is around $60 million, mainly related to modernization products, lower CapEx related to [indiscernible] new product development, maintenance CapEx and Perutnina Ptuj development facilities. Regarding debt, at the end of the period by the end of 9 months, total our debt was approximately $1.5 billion, and net debt about $1.2 billion. 90 -- as you know, that more than 98% of total our debt is long [indiscernible] debt and our average weight interest rate today is below 7%. In terms of liquidity event of October, we had approximately $300 million more cash, mostly in Q4. We have a very good liquidity position. Due to the challenges in 2020 that led to a decrease in our EBITDA and net debt-to-EBITDA ratio by the end of the period, 3.3. But at the same time, having 55% of our revenue, more than $650 million dominated export revenue during the last -- during this year. We fully covered all our debt area and all our expenses in dollars and other payments in foreign currency. And company currency balance remains strongly positive. And now I give the floor to Anastasiya.
Thank you very much, Viktoria. So we all must admit, I think that the first 9 months of 2020 were extremely challenging. And we have faced a few challenges since the beginning of 2020, such as avian influenza in Ukraine, which resulted in the temporary closure of some export markets in the first quarter, the COVID-19 pandemic then and its disruptive affects, which resulted in oversupply and high stock levels in European markets. All over [indiscernible] prices globally, turbulent HoReCa market, crop yields adversely affected by the worst weather conditions in the Central Ukraine for at least 30 years. Significant grain price growth year-on-year, which already resulted in substantial protein production cost increase and the volatile exchange rate in Ukraine. So what do we expect going forward? Definitely, we expect increasing grain prices, MHP will continue to rebalance poultry sales to more profitable export markets to largely offset the effect of lower poultry prices in Europe. Diversification remains our key priority in export geography and sales and one of MHP's competitive advantages is production flexibility. So we can quite easily increase or decrease production of small birds and big birds. We also expect poultry prices in our major markets to adjust gradually in response to increased production costs driven by higher grain prices. The company also expects to drive increasing the benefit from its shift towards and more value-added strategy and the development of antibiotic-free products to be sold initially under our Nasha Ryaba brand. And just to remind you, that since the beginning of 2020, MHP has been gradually transforming from protein or industrial into culinary company, launching on the market, new products supported by product campaigns, introducing new formats of cooperation with our partners like franchisees, retail and HoReCa. And before we start question-and-answer session, I would like to say and I think to summarize our conference call today, that despite all challenges we faced in 2020, MHP is targeted to maintain a status of the most cost-efficient company in a class, and we have all resources for leadership business model, our strategy, strong team and innovations. Thank you very much. And Michael, we are ready for questions.
[Operator Instructions] Our first question comes from Mr. Javier Pinedo from Torreal.
Just a short one. Just to understand now that we are almost in the middle of November, could you give us a sense on how the EBITDA for net of IFRS 16 would look like in a full year basis? And at the same time, what's your forecast for working capital? Because I guess that in the last conference call, you said that you expected basically no inflow, not a major cash outflow in working capital and the cash flow? Could you just confirm that we should expect such a movement also with the visibility you have today? So yes, those 2 questions. EBITDA please for 2020 and working capital outflow for 2020.
A follow-on to your question. The origin EBITDA for this year, we understand that EBITDA of this year will be slightly lower than last year. Yes, because, first of all, yes, our expectation, our budget and our expectation before from grain segment was higher than we understand that we will generate this year. And the second issue, Javier, as I told in presentation, the cost of production of chicken since October increased. At the same time, we understand that price will be increased, but not at the same period of the time. That is why our current expectations for full EBITDA as this year by approximately 5%, 10% lower compared to this last year. Regarding working capital due to the current situation on the Ukrainian market with crops, we understand how important for company to create and to approach sunflower seed and soya in the fourth quarter. And that is why we understand that investment in working capital this year will be approximately around $200 million. I will explain why because as I mentioned in the presentation, at the beginning of this year, we had one of the low stocks in our history. Stocks of -- I will explain, stocks of sunflower and soya. And this year, due to the current situation, we would like to have, in stock, by the end of this year sunflower seed and soya, minimum by 5 months consumption. And price as I told in presentation, current price of sunflower seed compared to the price last year, or year-to-year, current price higher, more than 50%. It is one -- is the second reason why, yes, we will have so huge investment in working capital. But it is one we -- during the first half of the year -- half of this -- during the first half of the year, we consumed this stock. And for production -- for chicken production.
Our next question comes from Ms. Natalia Shpygotska from Dragon Capital.
A couple of questions from my side, please. First of all, could you please update on the company's plans for CapEx for 2021? Should company stick to maintenance CapEx or probably some expansion plans to Europe has arrived?
Thank you. Thank you very much for your question. Yes, we try to be modest in our corporate investments. And for next year, our CapEx will be around $100 million include maintenance CapEx. And also the CapEx for -- provides modernization and why you commitment for production new products to launch new product value-added products as for Ukrainian market and for export markets. And also, we have the down CapEx for providing more digitization of this payback period is less than 2 years. Total CapEx around $100 million.
And provided the total CapEx for the next year is materially below the company's cash balance as of September -- end of September of $300 million, would the company proceed with keeping this cash on balance or company considers any other options to utilize this liquidity?
Natalia, as I told, in the fourth quarter, we will have the investment in working capital because we need to buy a lot of -- and now we're in process of buying a lot of sunflower seed and soya because by the end of the year -- in September to be honest, we did not provide a lot of purchasing because it was harvesting campaign. And this year, harvesting campaign started later compared to this year, and that is why we invest around $200 million for working capital -- in the fourth quarter, around $550 million, yes. By the end of the year, our liquidity position will be around $150 million.
Understood. And one more question from my side, please. According to the last draft of state budgets, a minimum salary in Ukraine is about to increase by about 20%. Do you expect this increase to affect in any way, company's total salary costs for the next year?
I think very good question. But to be honest, yes, even current salary of our workers in different region in Ukraine, higher than minimum salary. And yes, even I can say not significant but enough substantial higher than minimum salary. Yes, we don't expect too big confusion [indiscernible].
We have a question coming by text. Could you please provide more details about FX revaluation? What items lead to do so -- lead to significant losses?
Yes. Because if you look -- yes, because at the beginning of the year, our currency ratio between dollars and hryvnia in Ukraine was lower than -- currency ratio was lower than 24, yes. UAH 24 for $1. And by the end of 9 months, it was around higher than 28. That is why I guess -- and all our debt in hard currency. Revaluating our debt position. Yes, it is very real, as it's huge. It is. But I would like to emphasize, this is the noncash losses. Because at the same time, that 55% of total our revenue in hard currency. And this is why today we generate for full year, more than $1 billion either in dollars and euro.
Okay. Our next question -- a voice question comes from Mr. Konstantin Fastovets from Adamant Capital.
A couple of questions from me. So the first one regarding prices. So you mentioned that on the domestic market, poultry prices in the fourth quarter are looking to be about the same level of last year. Could you talk about what you see for exports for the fourth quarter?
Yes. It is a good question about our price. And what we see in general price of meat in Ukrainian market? I cannot imagine how that is it possible. Yes, I cannot imagine situation if price of meat, includes poultry, pork and beef price does not increase. Because we understand the 60% of the court of different kinds of meat is the grain. Grain increased more than 40%. And I would like to emphasize that poultry has advantages compared to the other kind of meat because you remember that for production 1 kilo poultry, you need to spend, yes, so less, significantly less of grain compared to the pork and beef. That is why we understand that price of meat should be increased in Ukraine. Yes, in October, September, to be honest, we -- price of meat increased but not so significant, low heat, low beat. But at the same time, we expect that price will be -- will increase. Regarding export price, yes, the same situation because it is not just situation with increasing price of grain, just only for Ukraine, it is a bold trend. And we understand that if you look at huge -- price of meat will increase -- have to increase too, but we understand that it will be some in lack in time. Yes? This is why regarding fourth quarter, we don't expect any increase in price of [indiscernible] in Europe. And you don't expect any increase in on price in quarters. In Africa, not in the quarter. But regarding 2021, it will be -- it would be very illogical that price -- meat price or will increase.
So would you say -- so in the fourth quarter, when you say no increase, do you mean no increase relative to the third quarter or to last year for exports.
Ukrainian price?
Exports. Exports.
Compared to the third quarter? No. Compared to the last year, it was low, yes. When I talk about the increase in price, I compare the price fourth quarter compared to the third quarter, yes.
Okay. So $1.4 per kilo, yes, that's roughly...
No, no. Our price, yes, because when we spoke about average prices, average price depends of mix. Yes, it's mix. But yes, mix for fourth quarter will be very similar than third quarter. That is why, yes, at the same price. Yes.
Okay. That's clear. And then regarding cost, so costs are going up, right? And they went off in the third quarter. And also because -- so in the fourth quarter, do you expect prices per kilo to go up significantly for you? And I understand that there's also bonuses that are usually paid in the fourth quarter. So besides the bonus factor, is there further -- do you expect costs to go up because of these higher grain prices for Q -- and if so by how much...
Yes. Yes. The main driver -- yes, the main driver for increasing our cost in fourth quarter is the grain price. Yes, you're completely right. And our expectation approximately by 15%, around 15% is a minimum increase in price, which we see and [indiscernible] of these bonuses, but we will see what amount of bonus we will pay for this year, which is a very big issue.
Okay. So 15% quarter-on-quarter, correct?
Yes. Yes.
And then could you talk about -- so the grain segment right now, right, the harvest is much lower. Are you still self-sufficient in corn, given where your yields are?
No. And now we are buying sunflower seed and soya, and now we are buying corn too. In our history, yes, yes, we have never had, in our history, so low yield of corn. It was the first time in our history. Yes. And now [indiscernible]
What the conversion is, how much for -- how much -- could you mind us what the conversion is, how much corn you would need to be fully self-sufficient? So how much you need to buy to be fully self-sufficient until the next harvest?
Yes. It is not over approximated 200,000, 200,000 to 250,000 tonnes. Yes, we need to buy. But until today, we have bought something. Yes. I don't know exactly figure, but we bought part of them.
Okay. Okay. That's clear. And finally, also, so you gave an EBITDA per hectare estimate for this year, for grain at $220 per hectare. Could you confirm this figure? And also, could you say if this is excluding IFRS 16 or including IFRS 16?
No, no. Excluding. Excluding.
Okay. So $220 per hectare, excluding IFRS 16 for the full year?
Yes, including. Yes. I -- but our expectation because until today, we cannot finalize our [indiscernible] yes. It is not so big, but...
And what do you assume? What do you put in the biological revaluation into this figure? Do you put anything in? Or do you assume it to be around 0 when you say $220?
Around 0, around 0.
[Operator Instructions] So we have a question from Vidhi Vira from Goldman Sachs.
So my question is about the EBITDA margin since costs have increased for greens and you no longer self-sufficient and probably first time that you're buying corn out in the market may not be at the best prices. So do you expect EBITDA margins to worsen from here on for this -- for the fourth quarter and for the next year?
Yes. Thank you for your question. It's a very good question because as I told previously that now, it is no simple time for all meat companies in the world because due to the price of grain, cost of production has increased. And situation with price, yes, it is open. But we think that we can manage price in Ukraine. And especially because we understand how we will launch a new product, not just an [indiscernible] marketing campaigns. At the same time, we have planned regarding the next year and the same situation in the fourth quarter, especially in December. Regarding the export, we will mostly concentrate to sell for the export small chick for MENA region. As I told previously, price on MENA is more attractive for company is more attractive, is more profitable than the price of quarters and year-end. And that is why our expectation is next year, how we -- we can manage our profitability and our expectation that we can keep our margin for next year the same levels that around -- at the same level that we will have this year. Around total, our EBITDA margin will be around 20%. It's our full cost.
Okay. Okay. And just a follow-up. So what is causing these prices to not rise very quickly because MHP is like a leader with majority production coming from MHP. So I'm sure, smaller players in the unorganized sector will be feeling the pinch much more than what you all are feeling. So like what is the possible explanation for prices not rising in tandem with grain price increase?
My big excuse really, but I didn't catch it. The connection is really, really poor. So if you can make your question very short and straightforward, that will be perfect. Thank you.
Okay. Is it better now?
Absolutely, yes, please.
So I was asking what is the reason that the prices are not increasing for poultry as quickly as the grain prices are increasing?
Forgive me. Could you please maybe write your question into the line, okay, because we cannot catch.
The connection is bad.
The connection is really bad.
So we will move to the next question from Mr. Alexander Sychev from NNIP.
So I understand you're accumulating a lot of working capital this year. How should we think about it going forward, say, next year, I understand production is going to be more or less flat. So should we expect it to normalize somehow next year or it will be more dependent on the prices of grain, et cetera. Can you elaborate a bit on this one? And how should we think about your leverage then? Because I understand it's going closer to 4x from something like 3.3 now?
Thank you for your question. Regarding working capital for next year, you understand that working capital will depend on the price of grain. If price of the grain is the same level, we -- anyway, we will -- don't have any investment in working capital because we continue to keep the same level of grain on sunflower seed in all the storage. But if price of the grain goes down. In this case, even with completely the same volume with grain, we will have a reinvestment -- divestment from working capital, yes, because you understand this year, we invest around $220 million, around $200 million in working capital for creating stock. The price yield below, for example, by 30%, our investment -- not investment, our position will be low by 30%. And that is why we will have the investments from working capital. We will have positive, positive position from investment. Yes. But anyway, if any -- any way, we don't have any -- we don't have any plan to invest more in working capital for next year -- in next year. And regarding the second question about leverage. You understand it will depend on our EBITDA. Yes, a level EBITDA. At the same time, we have planned to decrease because current level of leverage, 3.5. It is not comfortable for us. And we try to decrease, but it will be depend of how -- of situation with prices. But anyway, our target to decrease our leverage next year.
A small follow-up on working capital, if I may. So can you explain what went wrong because I understand that a couple of months ago on the September call, you guided for like $50 million accumulation of working capital this year. Now you expect it up to $100 million, so what went wrong? You didn't expect price increase or something, maybe there are some hedging options you can consider in the future something like that, like what's the reason for such change in working capital expectations?
Yes, yes. It is very good question. Yes, it's a very good question. Just maybe we spoke about that on the investment, $50 million. First of all, is the 2 reason why now we have completely other plan for investment of $100 million. First of all, because 3 months ago, nobody knows that price of grain increased by, for example, for corns by 40%, for sunflower seeds by 60%. One of the reasons, increase of price. And the second reason, even 3 months ago, we did not think, and we did not have target to have in our storage, in our storage stock for 5 months. Based on current situation, we decided that we must do it. These are the 2 reasons. Just all reasons why we increased our investment capital regarding our stock by the end of the year, stock of crops of grain.
I would now like to go back to the question of Vidhi Vira from Goldman Sachs. She has typed out her question. Why does the price of poultry not quickly adapt with the growing prices of grain? How are smaller players surviving? Are you seeing smaller players shutting? So why does the price of poultry not quickly adapt with the growing prices of grain? And are you seeing smaller prices surviving -- small players surviving or shutting down?
Yes. You're completely right. Now we -- now we feel that it's not just -- is just more producer, small poultry producer survived and feel not so good. And even the player #2 in the Ukrainian market, [indiscernible], had some problems, yes. And with current situation, we understand that some company will disappear off the market. And that is why we saw that domestic price -- yes, we will increase, yes, because we don't see any other possibility. No just a -- I would like to repeat again, not just regarded poultry meat but regarding all kinds of meat and so on. But unfortunately, it is not possible to make in one second, yes? We need some time. But I don't think that it will be a long time. I suppose that during these 6 months or so, we can compensate growth in our cost. Now I talk not about the poultry, I talk about the price of meat on domestic market.
Our next question comes from Mr. Nick Ivanov, PGIM.
My question has been partially answered, but still, I just want to clarify things. In the second quarter call, you -- your expectation for net leverage was to approach 3x by the end of this year, 3.1 you probably said. Right now, Q3 was 3.3. And you mentioned that probably currently is 3.5. What is your expectation for net leverage by the end of this year?
You're completely right. You're completely right. Three months ago, I talk about by the end of this year, we will try to have our leverage around 3. But at the same time, now we understand that our EBITDA for full year will be lower. And it's the 2 reason. We are one of them from our farming business. The bad condition -- weather condition and variable [indiscernible] our yield in corn. And the second reason is situation in poultry segment, the same situation, it's increased cost of production. And it is one reason why our leverage by the end of the year will be higher at 3.5 approximately and maybe around 3.5, 3.6. And the second reason, which we spoke just 10 minutes ago about previously, we thought that we invest in working capital this year, around $50 million. Now we understand that we must invest around $200 million for creating grain stock in sunflower by the end of this year.
Our next question comes -- it's a follow-up question from Mr. Javier Pinedo from Torreal.
I'm really sorry for coming back to the question. I'm pretty -- I'm not very familiar with the sector and the business you do. So can you explain me -- can you explain me why does an increase in crop prices [Audio Gap] such a high inflow in working capital in the fourth quarter. I mean, just a concept -- conceptually speaking, I mean you see in October that the [Audio Gap] is going to increase so why do you need to invest in working capital? I would assume yes, that [Audio Gap] would be 30% higher than what we would have done because of the price increase, et cetera. But I don't understand the process, the decision process.
Thank you for your question. I will try to explain you. Yes, previously, three months ago, we think -- we thought that in -- by the end of the year, we're keeping our storage sunflower seed only for 2 months. Approximately for 2 months and it's approximately -- I will tell you, approximately 100,000 tonnes. Now based of current situation and with deficit of sunflower seed, we decided that we must keep in our storage, just sunflower seed 200,000 tonnes. You understand it's just initial volume. And 3 months ago, our expectation -- it's not just our expectation, expectations of all players of meat crushing companies in Ukraine and not just Ukraine, in the world. Our expectation was about the price of sunflower seed will be approximately $400, maximum. Today price approximately $750. That is why -- yes, 2 reasons. We will make -- and now we are making stock for more volume of sunflower. The same situation with sunflower seed and soya and -- are the issue about the price because we need to buy. And now we [indiscernible] and revise.
Okay. And just as a follow-up on that. Basically, next year, at the same price, if you decide that live goes more, you decrease the volume you have to [Audio Gap], and you can have a cash inflow in working capital next year at the same price, of corn, right? So even if prices don't move next year, but you decide that you can operate with just 2 months rather than 4 months. Then you decrease your working capital easily at an amount of, let's say, $100 million.
Yes, you're completely -- yes. You're completely right. Yes. If next year, we would like to keep less volume, we will help in -- cash flow from investment -- from working capital.
Our final question today. This is a follow-up from Mr. Konstantin Fastovets.
Just a quick follow-up. I just wanted to clarify. So for the poultry, if you look at poultry for kilo, EBITDA per kilo. So in the third quarter was $0.38 and given that costs are going up and where the prices are, could you say what your estimate is for the fourth quarter for this figure? Will it go down to like $0.2 or something less drastic?
Yes, exactly. In the fourth quarter, we expect that EBITDA per kilo will be low. Yes, but yes, will be low -- yes.
Thank you very much. I'm seeing no further questions. I'll pass the line back to you, Anastasiya and Viktoria, for your concluding remarks.
Thank you very much, Michael. Thank you very much, everybody. Very good conversation, very detailed questions. And of course, if you have your questions more than you managed to ask today, please give us a call or send a message. Thank you very much, and have a lovely evening. Bye-Bye.