© 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.
Anastasiya, please go ahead.
All right. Thank you very much, Michael. Good afternoon, and good morning. Welcome to the call. Thank you for joining us today for MHP's conference call dedicated to MHP's financial results for the fourth quarter and 12 months of 2019. I think and I hope that, taking into account challenging time because of the COVID-19, you are having this call from your home. Please take into consideration that some of the things we discuss today are forward-looking statements. And of course, I encourage you to use today's press release with our financial statements and the annual report for the detailed information. Please also take a look at the Risk Management section of the annual report, which will help you to understand how and to what extent MHP manages general and current risks, including COVID-19. Let's start our presentation now. So on today's call, we have CFO of MHP, Viktoria Kapelyushnaya. She will present financial results of the company in general and by segment; and myself, Anastasiya Sobotyuk, who is the Director of Investor Relations. I will lead you through the presentation and provide you with the company outlook for 2020. After the presentation, we will be glad to answer your questions. And I hope that everybody is ready, so we can start the call now. Let's go on Slide #6 -- 4, sorry, 4 of your presentation. And as usual, we start from macro environment. Some details: in 2019, real GDP growth accelerated to 3.2% year-on-year. What -- this is what you can see on this slide, on the graph in the middle. Retail sales growth slowed down to 10.5% year-on-year on the back of real wages growth, 11%. UAH and USD exchange rate revaluated to by about 5% year-on-year in 2019. However, taking into account current economic environment, Ukraine's government budget assumes FX will be at around UAH 29.5, UAH 30 per $1 in 2020. Annual inflation by the end of 2019 accelerated to 4% roughly, driven by import items. Increased fiscal deficit will likely accelerate inflation to low double digits in 2020. Some operational data. Ukraine received very good harvest in 2019. We've gathered 75 million tonnes of crops with around 52 million tonnes expected for exports, partially exported, of course, at the end of 2019. We also had a growth in consumption, in poultry consumption specifically. So per capita meat consumption, overall, increased from 52 kilogram to 54 kilogram. Some words about land reform in Ukraine. At the end of March, the Parliament approved the bill. The law provides that from July 2021 to January 1, 2024, the land market will work only for individuals. Legal entities will only be able to buy land in ownership since 2024, and they can do so up to 10,000 hectares of land. Foreigners -- or law firms, the founders, beneficiaries of which are foreigners, will be able to have ownership of land only if this is approved by referendum. And this referendum is expected to be in 2024. In addition, the government of Ukraine is currently discussing with the IMF a new support program for Ukraine, around USD 8 billion to USD 10 billion. But this is subject to bank bill approval by the Parliament of Ukraine, expected to be rolled out at the end of April, the beginning of May. Coming back to the company's results. Let's go on Slide #6 of your presentation. So the results -- the financial results in 2019 reflects an increase in production volumes, both due to the expansion of the Vinnytsia poultry complex and additional volumes from Perutnina Ptuj as well as Perutnina Ptuj's increase in efficiency since acquisition. However, the results are adversely impacted by larger-than-expected export volumes due to the banned exports to KSA since September 2019 and lower export prices in the EU year-on-year; weaker commodity prices, we are talking about grains and oils; and strengthening of local currency that mainly happened in the fourth quarter of 2019. The results are following them: revenue of over USD 2 billion increased by 32% year-on-year; export revenue of 1 million -- sorry, USD 1.186 billion, comprising 58% of total revenue, which is actually 28% higher year-on-year; adjusted EBITDA margin, which is net of IFRS 16, declined correspondingly from 29% to 18%, with adjusted EBITDA net of IFRS 16 of USD 376 million, lower by 16% year-on-year. These are general financial overview. And of course, now I pass my word to Viktoria. She will comment our financial results for 2019 in greater details and, of course, by segment.
Thank you, Anastasiya. Good afternoon, everyone. Let's discuss our financial results for full year of 2019 in more details. Slide #7 shows our financial results by segment. Poultry operations remain our key segment, as usual, and during the last year, generated the majority of total revenue, about 67%, and 75% of company's EBITDA. Grain segment performed not so good last year and generated 13% of total revenue on third party and about 16% of company EBITDA. As you know, majority of the grain produced we use internally for feeding our chicken. Also in the small segment, meat processing and other agricultural operations generated around 7% of consolidated revenue and contributed 5% to consolidated EBITDA. Main components of this segment are meat processing and convenient food production. Following the acquisition of operation in Europe, Perutnina Ptuj, the new European operating segment generated approximately 16 -- wait, 13% of total revenue and more than 11% of company EBITDA since the moment of our acquisition. All export operation continued to develop impressively in 2019 and generated around 60% of total revenue, 1 point -- approximately $1.2 million, 28% higher compared to the previous year, mostly due to the higher volume of exported chicken meat. We will discuss the development of our segment more deeply on the next slides. Please go to the next, Slide #8, poultry segment performance. During the last year, we increased our production volume by 18% due to the launch of additional 3 rearing sites, brigades of Vinnytsia poultry complex Phase 2. Currently, 6 new brigades for growing chicken operating in Vinnytsia, and we put into operation additional 1 brigade in Q1 2020 to be more flexible in production in these challenging times. Revenue, overall, in poultry increased by 10% year-on-year, driven by chicken meat and vegetable oil sales volume growth. Growth in revenue was mostly achieved, thanks to our export growth strategy, which is focused on marketing targeting. We continue to concentrate and route each product to its most favorable market, and this gives us the 25% growth of export volumes. Domestic sales remained relatively stable year-on-year. In general, during the last year, our average sales price decreased by 5% if calculated in local currency. Poultry export price decreased by 6% in U.S. dollars. And price of domestic market were up on average by 2% year-on-year in dollars. Export price decreased significantly in Q4 last year as a result of absent sales to Saudi Arabia and negative price dynamic on our export sales in EU as well. Average poultry production costs last year expectably increased by around 12% in hryvnia year-on-year, a respective higher cost of mix for the protein components as well as higher payroll costs experienced since the mid-2018 and due to the trends of the Ukrainian hryvnia in last quarter 2019.Gross profit of poultry segment decreased by 9%. EBITDA also decreased by 10% year-on-year, mostly due to the lower export price and higher cost last year compared to the 2018. Adjusted EBITDA before the 41 standard effect per 1Q last year was $0.41, which is 23% lower compared to the average of 2018. Let's move to the next slide, #9. External grain segment revenue last year amounted $268 million. The increase compared to the last year level was mainly attributable to impressive high harvest in 2018 that led to high amount of growth in stock designed for sales as of the 31 December 2018. Adjusted EBITDA net IFRS 16 for 2019 constitutes $60 million, by 60% lower compared to the last year, mainly due to the decline in grain price as well as lower yield of corn and other crops compared to the 2018. An additional quite significant negative effect was due to depreciation of hryvnia against dollar in the fourth quarter, EBIT -- appreciation, sorry, appreciation. EBITDA for 1 year term before the 16 standard last year decreased to $167. Let's go to the Slide #10. Meat processing and other agricultural operations historically generates the smallest part of our financial results. The key business of segment are meat processing and convenience food production. The segment generated revenue around $150 million by 15% higher compared to the previous year, mostly as a result of higher volume and slightly price of meat processing product. EBITDA, $20 million by 25% higher compared to the 2018, mainly due to the higher results of meat processing and milk operations. Slide #11. During the first year of operation Perutnina Ptuj as the part of MHP Group, our European operating segment generated $271 million revenue and $44 million of EBITDA. Year-on-year, EBITDA is 30% higher compared to the 2018. This is the best proof of our ability to manage business successfully not only in Ukraine, but also demonstrate clearly how we can improve performance of European poultry producer using our experience and findings. Increased sales volume of Perutnina by approximately 7% year-on-year and provided huge optimization and efficiency improvement across all business operations, including [indiscernible] with farmers, fleet optimization, hatching, slaughtering and processing operation, upgrade using the best MHP practice. We are going to continue develop this segment further and sees a huge potential and synergy exchange of experience between our Ukraine and the European teams here. Slide #12. A few words about our cash flow and liquidity position. Despite the decline in EBITDA, net cash generated from operating activity remained relatively stable. It is $310 million in 2019 compared to the $300 million in 2018. Positive cash flow affected from change in working capital during the last year mostly reflected the reduction in inventory as unusually high stock of sunflower and soya crops for -- which we had in 31 December 2018, which we utilized and sold during the first half of 2018. Additional effect arise due to increase in the amount payable for seed and plant protection product to be paid in 2020 as well as reimbursement of VAT receivables for previous periods. Total CapEx last year is amount $127 million, mainly related to the launch of production site Phase 2 Vinnytsia poultry complex, biogas plant and maintenance CapEx. Regarding our debt. At the end of period, the company total debt was almost $1.5 billion and net debt about $1.140 billion. 98% of total our debt is long-term debt and about 94% of which is eurobonds. Due to adopting IFRS 16 starting from the January 1, 2019, the group recognized write-off of used assets and lease liabilities in considerate statement of financial position. However, for purposes for target of covenant calculation, debt and EBITDA was presented net IFRS 16 adjustment. Our average weight interest rate currently is about 7%. All our debt is denominated in foreign currency, mostly in dollars. Foreign risks, in our case, are naturally hedged by significant share for export revenue, having almost 60% of revenue or $1.200 billion revenue, mainly dollar-denominated export revenue. During the last year, we fully covered all our debt service expenses and other payments in foreign currency. Our currency balance remains strongly positive. In terms of liquidity, at the end of the year, we had around $340 million in cash, mostly in dollars. Net debt to LTM adjusted EBITDA ratio was 3.01. This is higher than limit 3.0 defined by Eurobond agreement. Also exceeding the ratio 3.0 does not constitute the breach of any covenant under the indebtedness agreement. This leads to introduction of additional control measure by MHP. In particular, MHP has to supervise an asset incurrence of additional indebtedness, restricted payment, largely of the third party outside of the group and granting or financing of any kind to third party. According to the indebtedness agreement, such restriction becomes effective on the date of obligation of our audit consolidated financial statement for the year 2019, actually from today. And now I give the floor to Anastasiya to give you our current business update and outlook.
Thank you, Viktoria. To conclude presentation, let me provide you with the business outlook for the rest of the year. With the recent rapid developments of the COVID-19 outbreak, the world economy entered a period of unprecedented health care crisis that has already caused considerable global disruption in business activities and everyday life. Many countries have adopted extraordinary and economically cost containment measures. Certain countries have required companies to limit or even suspend normal business operations. Governments, including Ukraine, have implemented restrictions on traveling as well as strict quarantine measures. A number of challenges have combined to create an unusual degree of uncertainty in early 2020. In particular, the combination of the COVID-19 pandemic and now the break of avian influenza in the Vinnytsia region of Ukraine in the first quarter of 2020, which caused the temporary cessation of exports from Ukraine to the European Union to Saudi Arabia and other MENA markets as well as, actually, CIS countries and it is expected to adversely affect MHP's financial results for the year. Against this backdrop, we're now back again to normal and which we continue to work at full capacity now. MENA and EU markets have been reopened in February and March, respectively. So we continue to export to different parts of the world, following our strategy of geographic diversification and market targeting. Our main driver of growth in 2020 are expected to be, first of all, an increase in production by approximately 30,000 to 35,000 tonnes year-on-year, mainly driven by an increase in production volumes at Perutnina Ptuj; an increase in efficiency of grain-growing operations, following optimization of production costs and efficient rotation of crops. And our main or strategic priorities in 2020 will be people and financial health of the company, which we will gain through investment into the occupation, health and safety and personal development of our people; business transformation; Perutnina Ptuj's growth and further development; investment into commercial kitchen project, supported, of course, by production of quality growth, including implementation of antibiotic-free program; and of course, further introduction of sustainable development projects at the company's facilities. With our vertically integrated business model and efficient cost base, we believe that MHP is well placed to manage its way through the expected disruptions over the next few months and remain confident that the group will deliver a strong financial result in 2020. We now open a question session. [Operator Instructions] Michael, I need your assistance, please.
[Operator Instructions] Our first question comes from Mr. Alexandre Ayoub from Waha Capital.
Three quick questions, a bit short. So the first one in relation to regulatory issues. Can you tell us a bit more about your relationship with the government and what are the risks on that front, in particular? Like I think last year, there were a discussion about the fact that maybe the prices, you had like monopolistic kind of prices, or recently that you may have to sell more in Ukraine as opposed to exports. That's the first one. The second one, on the key cost from revenue to EBITDA. Can you tell us very roughly, I think a big chunk of it, if not like more than half of it, is related to raw material costs. Can you tell us roughly what are these? And are they kind of related to dollars? Would they be decreasing as chicken price decrease? Or can you give us a bit more color about your cost -- your main cost? And how could this increase or decrease in this current environment? And lastly, just want to have maybe a quick recap about concentration risk with this influenza flu? Like how many plants do you have? If you have one case in one plant, what's the largest concentration you have there?
Thank you for your questions. I will try to answer question by question. The first question, if I understood you correctly, about price in domestic market and regulation from antitrust authorities -- yes, from joint antitrust. First of all, yes, Ukrainian market is very, very important for us. And we see the big potential for growth for Ukrainian market, not only its raw material is chicken and we see there is a big potential for growing different value-added products. And at the same time, we don't feel any big barriers when our cost of production increase, and we can explain and improve the situation. In this case, we understand that we can increase our price according to the inflation in Ukrainian market. Yes. The second question about -- yes, sorry?
So just on this one. How -- maybe just on this one because like you have new government in Ukraine. You have a bit of instability on the political front. How is your relationship with the government? Do you have like constant dialogue or lobby? Or can you just explain a little bit more about how is your relationship with the government?
No, no, nothing special here. It's a very interesting question. Yes, we don't have any special relationship with government. Because to be honest, during all our history, we lived during the maybe 15 different governments that we always demonstrate very good profitability and growth and sustainability and fulfill our promises. That is why we don't have any -- specific relationship with government. Yes, because we always -- since more than 10 and 12 years, we're a very transparent company. And we feel very confident on the premium market. Regarding your second question about the share of, if I understood you correctly, about dollar expenditure in our cost of production. We see our cost of production approximately 15% -- maybe 12%, 15%. This is regarding some small chicks for our breeding farm, some nongrade components of fodder [indiscernible]. It is, of course, of around [Audio Gap] And regarding the third question...
That was -- the third question, or maybe you have additional questions.
Yes?
No. Sorry, just on the cost. What are your 2 or 3 main costs then, between revenue and EBITDA? The third question was in relation to concentration risk.
The biggest here of components is the grain, but mostly grain we produce internally and protein -- grain protein, salary and utilities. It is the main component of our cost of production of chicken.
And the grain is in dollars?
Regarding this -- but grain, mostly, we produce internally. And that is why I did not -- we used grain which we gathered last year. Protein, yes -- protein is -- yes, but protein is not direct correlation because it is sunflower seed and sunflower oil is correlate -- not correlate in dollars -- almost in dollars. But it is the cost of protein different with higher dollars, if not the higher independent of situation and correlation between price of oil and sales on domestic market. And to your question about...
About your question regarding the concentration, and that was in relation to what exactly?
In relation to if there is another case of flu, which happens in one of your plant and you may have to shut it down, would that represent maybe 50% of your production? Are you quite diversified? You have many plants across Ukraine, and then it wouldn't be more than like 15%, let's say.
Okay. I got your question. First of all, we have 3 poultry complexes in Ukraine. Two of them produce roughly 80% to 85% of total poultry production of -- at MHP, right? And they are located quite far from each other, I would say, more than 350 kilometers from each other, right? So if you're asking about the bird flu outbreak, I would say that we've invested a lot from the very beginning from the construction of chicken brigades. We've invested a lot into the biosecurity. And all our production sites, I'm talking about growing facilities where we rear chickens, right, they're fenced, right? We have strict controls of shower in and shower out. We provide people with special clothes, so they do not bring their clothes to work, right? And vehicles never cross the brigades -- the gate of the brigade, right? So we use a special vehicle in the brigade, and we use special vehicles transport like food, for example, manipulator to deliver food to the gate, right, et cetera. So we have lots of different biosecurity measures implemented from the very beginning. And also, I would like to add that our chicken-rearing sites are located at least 1 kilometer from each other.
The next question comes from Mr. Dilawer Farazi from Loomis Sayles.
Just a couple of questions from me. Can you just reconfirm your CapEx guidance for the year? Second question is, the Ukrainian government was -- I saw a headline, they were asking MHP to curb exports to focus on sales in Ukraine because they're worried about shortages. Can you just talk a little bit about that? And the third question is just really -- I know it's a difficult question, but just your price expectations, I guess, for this year. That's it.
Yes. Thank you for your question. Regarding CapEx for this year, we see the CapEx for this year around $100 million. It is -- CapEx includes mostly maintenance CapEx and CapEx which is related to Perutnina Ptuj and our R&D projects. Regarding situation with our exports. Yes, you're completely right that Antimonopoly asked us not decrease, but utilize our capacity. We don't have any appetite to decrease or utilize our capacity. And we're ready to sell more on domestic markets. And even during the 2 weeks in March, only 2 weeks, we significantly because it is very peak of our sales because there was some panic in the Ukrainian shops and supermarkets and the open market. And we sell -- sold averagely during the 2 weeks by 100% more than our usual selling, our average here. This is why we don't see any problem. We're ready to sell more on Ukrainian market. And at the same time, now we have enough big stock in our big volume of frozen chicken in our storage. And we don't see any problems with this issue. Regarding the price, in general, it's very interesting operation, especially in current situation if you speak about the export price. Anyway, price in Europe now is low. Anyway, we expect that in season, summer is the high season. And we have some expectation that price may be slightly increased, but anyway, it's the issue. But regarding our MENA price, in especially Saudi Arabia price, price of small chick is good. Regarding price on domestic market, it is very difficult to predict. But at the same time, we understand if currency ratio will increase and our cost of production will increase. We have to -- for compensation, our increasing cost of production, increased price on domestic market.
Our next question comes from Mr. Ahmad Zuaiter from Jadara Capital. We will come back to that question in a moment. The next question comes from Ms. Kiti Pantskhava.
I would like to ask you about your potential land acquisition. Though it seems like with the language of the farmland law was passed, it doesn't seem like you will be buying land anytime soon. Is that right? Or just can you explain the way we should think about potential expenditure on land acquisition?
Okay. Just please hold on the line. We will just be reconnecting to the speakers. [Technical Difficulty]
Yes. Sorry, there is some problem on the line.
Connection, yes, some problem.
Thank you for your question about land reform in Ukraine. Accordingly law, which our Parliament was adopted 1 week ago, approximately 10 days.
Yes, 10 days.
Yes. 10 days ago. Only citizens of Ukraine can buy land and very insignificant area, not more than 100 hectares. And this law will be implemented just since the 1st of July 2021. This is why we will see about this possibility an opportunity for us, but I think it will not be ready with liberalization of land market.
So as I said previously, actually, this is subject to the referendum, which the parliament proposed to have in 2024. So only until -- since last time and if we get -- I mean if we got the majority in favor on the -- since that time, legal entities will be -- it will be possible for legal entities to buy land.
And just a follow-up question. I couldn't quite hear well whether you commented on your 2020 CapEx.
Yes. A comment -- total CapEx that we have on for this year of approximately $100 million, included maintenance CapEx of [ $30 million ].
Our next question comes from Ms. Yulia Di Mambro from Federated.
I have a couple of follow-up questions, please. First question is related to Dilawer's question pricing expectations. Can you give us some guidance on working capital for this year? Given that pricing -- sounds like pricing is going to be fairly weak, would you expect another [ influx ]? That's my first question. My second question is on dividends. So you are restricted in terms of paying dividends this year, I guess, with a carve-out of $30 million. So do you expect to just pay that? Or is it going to stay at that level for the foreseeable future?
No. Yes, you're completely right. This year, we will pay only $30 million dividend because -- why? Because we have our leverage net and covenant net debt-to-EBITDA, our leverage by the end of the year 3.01. And in this case, we have some restriction, and we have just some special basket, which allow to pay our company dividend with amount $30 million. So that is why it is what we pay.But accordingly, our plan for next year and our budget for 2020, we expect that our net debt-to-EBITDA leverage will be 2.7, around this area. In this case, I hope that next year, we will continue to pay dividends with higher amount. Regarding the first, your question about working capital -- our investment in working capital, this year, in 2020, we expect we will invest in working capital, approximately $100 million because we would like to have by the end of this year, the higher stock of sunflower seed, soya and corn higher compared to the beginning of this year. It's the main reason of why we have investments in working capital.
Our next question comes from Mr. Javier Pinedo from Torreal.
Could you give us some color, maybe in terms of EBITDA of what do you mean in your guidance, in your outlook? What do you mean with a strong financial result for 2020? Can you give us any color on EBITDA to be expected for 2020, please?
Based on our budget and based on current situation, we understand that we can achieve in 2020, our EBITDA approximately $400 million, $420 million -- $400 million, $420 million based on current situation. And this EBITDA will allow to us to have leverage by the end of this year 2.7 and our modest -- and lower our CapEx for this year.
Our next question comes from Mr. Mark from BlueBay Asset Management.
Could you just briefly explain if there's been any significant or impact there has been from the virus, both on the supply side and the demand side?
It's a very good question. Thank you very much. Regarding situation with coronavirus and influence of our business here, in Ukraine, we have stable demand. Regarding our export, as I told previously, we have completely different situation. Regarding the European Union, demand of late is low. But at the same time, we have good demand in MENA region. Regarding our supply and material, we don't see any big problems because we have enough storage for different packaging...
Stocks.
Stocks, yes. Sorry, stocks for different packaging, for different raw material. I think that is why everything's under control, based of current situation. Nobody knows maybe something changes in near future. But based of our current situation, we have very good stocks in raw material, which we need for our products.
And actually, I would like to add that it will be great if you take a look at the Risk Management section of our annual report because we quite widely and extensively disclosed the impact and the extent of impact of COVID on MHP's operations. You can find this information there.
We have recorded a question earlier from Mr. Ahmad Zuaiter from Jadara Capital.
Two questions for me. You mentioned that the introduction and expectation that inflation would tick up from single digits to low double digits. Can you talk a bit about the implications on the wages in Ukraine? And how much of a factor does the weaker hryvnia -- expected weaker hryvnia have relative to higher inflation? And second, can you talk a bit about the 2 sustainability strategies that you're -- that you mentioned in your release, specifically the plan to have 80-plus percent of your poultry production antibiotic-free by 2023, and then the other sustainability strategy of carbon sequestration? So specifically, what impact will both have on your sort of competitive positioning globally, particularly vis-Ã -vis exports? And then as a result, what implication will that have on yields and your cost per unit?
Thank you for your question. Regarding the situation about level and increasing -- potential increase of wage, now it's very difficult to say about what we will see in situation with wage in Ukraine. But at the same time, we see that a lot of our Ukrainians came back to Ukraine from Poland, from Hungary, from Germany. And to be honest, I think that we have enough potential worker now on the Ukrainian market. That is why I don't think it's very difficult to predict, but I think that now it's very difficult to say what is the market salary.But what we had previously, and I'm sure today that salary and wage of our enterprises everywhere in Ukraine was the highest than in other enterprises in that region. This is why I think that this situation will allow to us not increase salary. Because at the same time, there are not a lot of factory and enterprises is working -- are working today. No. But in a way, we will assess the situation. Regarding the second question...
The second question was about the sustainability. Thank you very much, Ahmad. It's a very good question. Frankly, the company has been dedicating lots of efforts and have been implementing different projects into action during 2019 and going forward, right? And of course, our #1 priority is people, as you understand. And now we all understand that people is our key resource. This is our #1 priority, per se, right? And we take care about people's health, people's safety. We invest a lot in time and efforts and investment, I mean, funds into their safety and health conditions, right? It is very important for us. And going forward, of course, we are going to monitor the situation. We run internal audits, frankly, semi-annually, right? And it allows us to perform better and better and provide more and more services and comfort to our employees.Second, our priority is communities. Because we all understand that currently, MHP employs over 30,000 people, not only in Ukraine because now we are more and more -- we are actually already kind of becoming a global company, right, because we also have people working at MHP, a big group not only in Ukraine but also in the Balkans. And we are talking about 4 countries: Slovenia, Bosnia-Herzegovina, Croatia and Serbia. We are talking about UAE because we have a distribution office there. We are talking about the Netherlands, right? So we all understand that we have to not only communicate with our employees and take care about people and their well-being but also we understand that all these people, families and communities we work with have to feel impact of MHP, right? And so we invest into the facilities -- I mean, infrastructure. We are talking about roads, water supply, gas, electricity, different social shops, right, providing people with, for example, poultry meat with discounts, right, et cetera.And I would say number three priority is, of course, to promote the sustainable development of the business in terms of our impact on the environment in general, right? So MHP is committed to reducing greenhouse gas emissions, with a long-term goal of being carbon-neutral for every kilogram of poultry meat produced. And as you may know, the company has already 2 biogas complexes operational. So in total, we already produce 17 megawatts of biogas. And since this year, let's see, maybe we will postpone it a little bit maybe since next year, we will launch into the -- and we will start the construction of the third biogas project, which will add additional 12 megawatts of the biogas.So we are working heavily, frankly. Of course, we are improving our corporate governance. But this is actually even more things to talk about, of course, here.
Great. Could I squeeze in one more question?
Oh, go ahead.
The -- I understand that the logic behind cutting the dividend from $85 million to $30 million because of the headroom in the debt covenants. Do the debt covenants also restrict you from stock buybacks? And is that something that you'd consider in the next couple of years? And then the second question on the regulatory side. I'm curious why the government would focus on exports when Ukraine continues to be a meaningful importer of poultry meat into the country. Why are they not focusing on potentially restricting imports for the country?
Thank you for your question. Regarding stock buyback, you're correct. You're completely right. When our leverage is higher than 3.0, we cannot provide restricted payments.Regarding the second question about import, yes, Ukraine is continuing to import chicken meat, but it is not real meat, it's the MDM. It is not meant to serve the supermarket, not to consumers, to meat processing. To meat processing for production, sausages is priced $1, which is slightly different product.
Our next question comes from Mr. Konstantin Fastovets from Adamant Capital.
I have a couple of questions. One, with regard to the cost. So when I look at your data for -- in the fourth quarter, I see that your cost per kilo increased pretty significantly quarter-on-quarter. And I was wondering if you could talk about that a bit because from what I see, it's about a 13% increase. And the revenue strengthened by about just 4% over that period. And at the same time, at your European segment, I think there was a drop in costs. Could you also talk why that happened?
Thank you very much for so detailed question. I understand your deep -- deep research of our financial report. You're completely right. In the fourth quarter, our cost of production in Ukraine decreased because of 2 main reasons. One of them you mentioned because you see the cost in dollars and our -- yes, and it was, you remember that it was a revaluation of dollars. It is one of the -- hryvnia revaluation. And the second -- or usually in the fourth quarter, we pay bonus and it's one of the reason why we include in our cost of production the amount of salary which we paid.Regarding our European, to be honest, cost of production in our European Union, there it depends on mix of product. It is not -- because mix is very -- yes. But -- and I know that in the fourth quarter, Perutnina did not sell some expensive product to breeder. And that is why maybe it is one of the reasons as why cost of production is low.
Okay. Yes, that's interesting. And another question that I had is that -- so this year, you did not -- so at the end of 2019, you had a working capital release, right? So you didn't acquire large stocks and -- of oilseeds. And back in 2018, you did that, and I think you said that you're planning to also acquire larger oilseed stocks at the end of 2020. So what happened in 2019? Why did that strategy differ?
In 2019, yes, by the end of the year, we had very low stock in sunflower seeds. In our history, we have never had so low stock in sunflower seed. It is the...
Why is that?
Yes, yes, yes. Because -- no, first of all is our situation with leverage, one of the reasons why we changed our strategy.
Okay. Okay. That's clear. That's clear. And also, I just wanted to specify the EBITDA guidance that you were giving for the tentative guidance for this year. That is excluding IFRS 16, right, $400 million to $420 million? That's without IFRS 16, right?
Yes. When we talk about EBITDA, we always told about without implementation of the 16 standard, yes.
Okay. And then finally -- yes, I was confused about that the last time you answered about. Anyway, and the last question with regard to the prices -- price guidance for this year. You talked a bit about that, but -- and I understand there are different sort of trends that you see in the MENA region and in the European Union. But overall, would you say that for this year, do you see prices being most likely flat or down? So just to be clear on that.
We put in our budget now -- we put in our budget, the price is very similar levels that we had last year.
In dollars?
Yes. In dollars.
We have a follow-up question from Alexandre Ayoub from Waha Capital.
Actually, 3 quick follow-up questions. One is also a follow-up on this EBITDA of $400 million. I was wondering, can you just split it about how much comes from poultry and how much comes from farming? And there associated to this question is like we're seeing emerging market currencies taking a big hit because of this coronavirus. And with other commodities going down, I would have expected poultry prices to go down because of a lot of emerging -- a lot of production comes from emerging markets. So do you think this could happen?Also oil prices being lower have massive impact on vegetable oils. So I was wondering maybe you expect lower poultry but more farming. Could you just clarify these points on the outlook for 2020 EBITDA? Next question quickly on the FX sensitivity, do you have any mentions like 10% hryvnia depreciation, how much impact does it have on your EBITDA? Is it like $10 million or $50 million? And finally, last one on your leases with your -- for your land, what's the average tenure of your lease? Is it like 5 years, 2 years, 9 years?
First of all, thank you for your question. I will start from third question. Our average age of lease contract land, approximately 8, 9 years. Regarding the first question about our EBITDA for this year because, as you understand, we had the 4 segments. Our expectation about poultry, approximately $250 million; regarding grain, around $100 million -- $90 million, $100 million; meat processing and other agriculture total around $20 million -- or $15 million, $20 million; and around $50 million, it is EBITDA of Perutnina Ptuj, around $46 million, $50 million is the total calculation, around $400 million. Regarding the situation with hryvnia depreciation, our export revenue -- regarding our export revenue, we export our -- export revenue, 60% of total our revenue from Ukraine. And that is why depreciation of hryvnia will bring to us benefit and approximately depreciation by UAH 1 bring to us additional approximately $8 million, $10 million EBITDA.
Fantastic. And sorry, just to come back to the first question on the pricing. Wouldn't you expect chicken prices and commodity prices to go down because, one, emerging market currencies are weakening; and two, lower oil price also has an impact on grain prices? And we've seen it now with like ethanol prices. A lot of vegetable oil prices are going down. You wouldn't expect that?
Yes. I understand your question, but anyway, price of meat today is very -- the lowest in all history, and especially if you look at the price of chicken, especially if you live in Europe. Nobody have not seen the same level of price during the last 10 years. Maybe it is possible, but not for a long period of time because I'm sure that a lot of our competitors in European market will disappear because current price is very -- is similar to cost of production of these companies. That is why maybe in the some short period, maybe yes, but I'm sure that prices will recover.
I got it. Sorry, just last twist of this question. So your EBITDA margin was around 30%. Now it's around like 20%. This $400 million guidance for 2020, do you expect an EBITDA margin of like 20%, a bit less or a bit more or more like close to 30%?
No, no, no. I don't have -- with year-on-year, it will be around 20% -- 20%, 21%.
Our next question comes from Mr. Egor Fedorov, ING Bank.
Regarding this covenant threshold, I understand that you -- currently, it's not very comfortable level for you. Is there any chance that we could expect any consent solicitation regarding more flexible level of your net debt to EBITDA? Or you will just stick to your previous targets and not disturb the market? This will be my first question. And the second question, just to clarify my understanding, is that bird influenza outbreak, which happened in the beginning of -- in the mid of January, that is a situation completed at all and you renegotiated and you have European markets opened? Or it's still at some stage of the opening, still in the process?
Thank you for your question. The first question is very interesting. But you're completely right, just -- it is not a very comfortable level of net debt of this leverage. But no, we don't think about -- I think that is -- for us, it's not necessary to take any consent because we understand how we can improve our profitability -- how we improve our financial results. And the second, we -- this is why we have so modest CapEx for 2020 because we would like to improve our leverage. That is why no, it is not interesting.Regarding the second question, yes, you're completely right before coronavirus in Ukraine, Ukraine had...
An outbreak.
Outbreak, yes. And in the first quarter, MHP could not provide export in European countries and MENA regions. But we exported all countries because on March -- since March -- since beginning of March, we started export to Europe. And even since by the end -- since February, we started to export to Saudi Arabia and the current situation with export is resolved.
Your next question comes from Ms. Natalia Shpygotska from Dragon Capital.
If you please, I would like to follow up on the segment breakdown of the 2020 EBITDA outlook. Please just repeat the segment's contribution for this year.
Sorry, Natalia. Please repeat your question. Segment contribution, EBITDA contribution this year, you would like?
Yes, yes, yes. Yes, please.
Yes. Grain operation, $60 million; the agriculture and meat processing $20 million; $44 million it is Perutnina Ptuj; and the rest from $367 million is the poultry.
Yes. I will tell you.
And approximately $250 million from poultry.
And for 2020?
And from 2020, we expect around $90 million, $95 million from grain; around the same $20 million from agriculture; around $48 million, $50 million from Ptuj; and approximately -- 1 minute, I will calculate; and approximately $250 million from poultry.
And for poultry, I guess that already includes unallocated corporate expenses, about $30 million, right?
Yes, right. Yes, it's completely right. If we calculate with unallocated, you're completely right.
[Operator Instructions] We have a few questions, Anastasiya, from the online chat that people have asked, so I'm going to read it out over to you.The first one is from Mr. Matt Bundschuh from Oaktree. This is a clarification. Does the 58% of revenue from export exclude PP sales in euros?
Yes. Yes, it is right.
All right.
Yes. Correct.
And the next question is coming from Mr. [ Daniel Dabrowski ]. How the holding will export the production to the EU in the existing situation?
Yes. Maybe we did not catch this issue. We exported every month now. Since the beginning of March, we exported to EU. And maybe everybody as -- and we received and Ukraine as a country received a higher quarter by the end of last year. Every month, we exported approximately 4,000 tonnes.
We have a follow-up question from Mr. Konstantin Fastovets from Adamant Capital.
Just a quick follow-up on the CapEx. So for CapEx for 2020, you said that's $100 million. I just -- I was just wondering, so the second line of your Phase 2 expansion, is that completed already? Or do you have -- or are you moving that back? Could you sort of update us on that?
Okay. Thank you. The first half of the second line, we complete last year. And we have known this, it seems to me in August last year -- in September last year, December before we issued Eurobond. We announced that we wanted to postpone the second half of second line. That is why now we are not in process construction in this second half of second line.
Okay. And do you -- any sort of outlook on whether you plan to resume that at any point going forward? Anything you can say on that?
So we will come back to this issue. We will be -- we will provide construction, but we will come back to this issue maybe by the end of this year on considering when we will start.
Okay. And the CapEx amount for that? If you were to resume, how much do you need to invest to finish the project?
Yes. Approximately $170 million, $200 million. But it's not CapEx for 1 year. It is not CapEx for 1 year.
We have a follow-up question from Mr. Egor Fedorov from ING.
One more quite strategic question. Do you see some changes in the consumer behavior in terms of buying your products regarding poultry or [ sunflower seeds ] following COVID-19 outbreak? So for example, in EU, there might be some increase in demand of some changes in case, I don't know, might be of utilities. And also regarding COVID-19, of course, and I understand that you can't answer it. But just in case of your own logistics, are there any issues from that side? For example, are there any issues in terms of logistics to the end customer following COVID-19 outbreak?
Maybe fortunately for us that we don't have any problem with logistics and any issues with logistics in Ukraine.
We have some, actually, right after the introduction of the quarantine in Ukraine because the government decided to decrease the number of cross-border points, right, with the EU, but that was a temporary...
Yes. It was just a few days.
Yes. Just a few days.
Yes, it was just...
So that is solved. There is no problem there. And with regard to the...
And regarding preference of consumers, what we see is that now we increased our sales in packaging products. What we see -- because they recently were prepared to buy some packaging products.
Yes. I was just asking just by myself, just working from home, and you start to consume more food if you have something near you. It's just -- it's quite fundamental, I think, changes in consumer behavior.
Given we have no further questions, I'll pass the call back to Anastasiya to conclude the call. Please go ahead.
Thank you, Michael. Thank you very much, everybody. That was a very good call. We received lots of questions, very good questions, frankly. But in case you still have your questions and you want to get them answered, please let's keep in touch. And you know our telephone numbers, you know our e-mail address. So please forward your questions, and we will be glad to answer them. Thank you. Keep safe. Bye-bye.
Thank you, Michael.
Thank you.