Mhp Se

LSE:MHPC

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by. And I would like to welcome you to MHP's Fourth Quarter and 12 Months 2024 Results Conference Call on the 28th of April 2025. [Operator Instructions]

So without further ado, I would like to pass the line to Anastasiya Sobotyuk. Please go ahead, ma'am.

[Anastasiya Sobotyuk, executive]

Thank you very much. Dear stakeholders, good afternoon, and good morning. Thank you for joining us today at MHP's conference call dedicated to the fourth quarter and 2024 full year results.

I'm Anastasiya Sobotyuk, Director of Investor Relations, ESG Compliance and Reporting; together with CFO of MHP, Viktoria Kapelyushnaya, who will discuss MHP's financial and operational results as well as current operation environment and expectations in 2025, taking into account that the war in Ukraine continues.

Today's call is based on the press release and financial statements released earlier today. However, during our call, we will discuss our projections and plans based on our assumptions in domestic and international trends and projections, please take it into account.

We go on to Slide #4 -- sorry, #3 of the presentation. A few words about macro environment. First of all, an update about war as well, the war in Ukraine was intensifying in the south and east of the country and irregular, but frequent, severe and devastating rockets and drone attacks against civilian infrastructure across Ukraine continue. The bombing campaign shows no sign of abating, unfortunately. I'm sure we all follow the same news regarding ceasefire talks which have intensified since January 2025. However, as of today, Ukraine and Ukrainians are still waiting for ceasefire and peace as soon as possible and hope it will be with last soon.

Macroeconomic situation. Taken into account that many businesses have adjusted to the war operation environment which remains unpredictably volatile. In 2024, GDP growth was at around 3%. Forecasted GDP growth in 2025 is expected to be around 4%. CPI in 2024, Ukraine experienced a significant rise in inflation with the annual consumer price index, CPI reaching 12% by December, up from 11% in November 2024. This marked a notable increase from 5% in 2023 and almost 27% in 2022. The main drivers of inflation were food and energy costs.

Looking ahead, the NBU project inflation to decrease to 8% by the end of 2025 and return to the 5% target in 2026, contingent on improved agricultural yields, energy sector stabilization and continued international financial support. 2023, the National Bank has been implementing managed exchange rate flexibility and it's rate is highly volatile.

Let me now proceed with the company results, and we go on Slide #4 of the presentation. Q4 2024 results in revenue, as you can see from this table, were stronger year-on-year, mainly driven by strong performance of poultry, agricultural operations and operations of Perutnina Ptuj.

Revenue increased by 8% year-on-year and reached around USD 785 million. Q4 2024 adjusted EBITDA increased by 11% to USD 129 million with stable EBITDA margin at 16%. 2024 revenue remained stable year-on-year since decrease in vegetable oil was offset by improved performance in Agriculture and European operations and resulted in over USD 3 billion. Adjusted EBITDA increased by 27% to USD 566 million with EBITDA margin increased to 19% from 15% in 2023.

Let's move to the Slide #5. Financial results by segment. As you can see from the slide and from the table, the biggest contributor to the company's revenue in 2024 was Poultry and related operations segment, 54%, while the biggest contributor to EBITDA in 2024 was Agricultural segment as a result of significant increase in grain prices in Ukraine and their alignment with international prices.

As you can see from the diagram on the right, adjusted EBITDA in 2024 was by 27% higher, which is actually around USD 120 million higher than in 2023, driven by a number of positive drivers such as grain prices that was a significant impact, poultry meat price increase, export market predominantly, and increased sales volumes at Perutnina Ptuj following its growth strategy.

At the same time, there was a number of adverse impacts, which negatively affected 2024 financial results, amongst which were increased production costs for poultry meat, lower sales volumes in Ukraine and for exports, higher payroll and war-related expenses.

Let us have a closer look at each business segment. Here, I pass my word to Viktoria.

[Viktoria Kapelyushnaya, executive]

Thank you, Anastasiya. Good afternoon, everyone. I also have a precise look at Poultry & Related Operations segment performance, Slide #6. Despite challenging of the war in Ukraine, MHP performed good result in Q4 last year, which are lower than Q3, mainly due to the stable poultry price and increase in cost. Poultry cost in Q4 increased compared to the Q3 last year, mainly due to the significantly higher corn price and gas. We see the further upward trend in cost in the first half 2025. However, increase in corn prices gave a positive effect on our Agriculture segment results. Poultry prices in Q4, both on export and domestic markets remain almost at the same level as in Q3.

Commodity price risk is a common challenge for MHP. To mitigate this, MHP is focusing on production and sales of non-commodity products. This requires significant effort from our teams and investments to launch new products and grow our market share. We managed to increase in 2024, our volume of non-commodity product by 10% in Ukraine and by 45% on export markets.

Total share of non-commodity product in our poultry sales is 20% in volume and 30% in EBITDA. We will continue to concentrate on selling non-commodity products with a focus on most marginal.

A few words about our Vegetable Oil segment, Slide #7. In Q4 last year, our EBITDA for the Vegetable Oil operation decreased compared to the Q3 as well as compared to the 2023. The decline in Vegetable Oil result compared to the last year was primarily due to the higher sunflower and soybean prices [indiscernible] Last year, oil prices experienced a downward trend, while sunflower price increased resulting in reducing oil crushing margin. This was caused by lower yield and increased crushing production capacity in Ukraine. We assume that the margin of the segment this year will decline further.

Let's move to Slide #8, Agricultural Operations. In 2024, MHP harvest around 345,000 hectares of land in Ukraine and there's a return around 2.1 million tonne of crops, lower than 2023, mainly driven by low corn and soy yields and lower use of crops was due to unfavorable weather conditions.

However, starting from September last year, there has been significant increase in grain prices, which has increased our profit per 1 hectare. Grain price increased by 25% winter crops and around 50% spring crops. Segment revenue last year amount $381 million compared to the $227 million. The increase was mainly attributable to increase in both sales volume and price grains sold to external customers.

EBITDA of Agricultural Operations segment, net IFRS 16 in 2024 was $264 million compared to $6 million previous year. This result was primarily driven by significant higher grain and overseas prices, partially offset by lower yields.

Let's proceed to the Slide #9, several words about European Operating segment. Last year, poultry meat sales of European Operating segment increased by 11% to 60,000 tonnes. Processed meat product sales were up by 4% to 49,000 tonnes. EBITDA of European Operating segment last year remained almost at the same level. EBITDA declined in fourth quarter was driven mainly by one-off expenses related to previous quarters.

Slide #10, a few words about our cash flow and liquidity position. Cash from operations before changes in working capital decreased to $343 million compared to the $377 million in 2023. Investment in working capital amount almost $100 million last year. This was mainly due to purchasing of corn supply and soybean from third party for both internal consumption and trading purposes.

Secondly, increase in advance to supply for energy resources and also high investment in breeder and broilers due to the rising cost of production and also a growth in recoverable VAT.

Total CapEx last year amounted to EUR 190 million, making a significant increase compared to 2023. This rise primarily driven by extensive maintenance and modernization of existing facilities. Construction of new bioenergy production facilities, investment in cost optimization and culinary strategy project, inspection and improvement of Perutnina production facilities.

During the 2024 company made several acquisitions and investments in amount $29 million. They are related mainly to acquired grain storage facilities in Croatia and also meat processing plant in Ukraine. In line with our expectation strategy in EU market, during the March, April this year, the group entered into a share purchase agreement with shareholders representing around 92% of the shares capital of Spanish Group, UVESA.

Representing equity value of approximately $270 million, enterprise value will be disclosed close to the deal closing date. The completion of this transaction is subject to obtain regulatory approvals, including merger control and foreign subsidies clearance by European Commission.

UVESA Group is one of the leader in food industry in Spain, thanks to its poultry, pet and feed manufacturing areas. One of the largest producer of chicken in Spain with 15% market share in volume. The company chicken production is about 150,000 tonnes and pork 70,000 tonnes annually.

Revenue is approximately EUR 600 million per year. MHP currently expect to finance substantial part of transaction by acquisition financing from commercial banks and with its own funds.

Regarding the debt, as at the end of the period, the company total debt was nearly $1.7 billion and net debt about $1.2 billion. The liquidity position at the end of Q4 was $350 million in cash, around 70% of which was held by group subsidiaries outside Ukraine.

As of 31st December of 2024, the group's leverage ratio decreased to 2.08 below defined limit of 3 compared to the 2.5 by the end of 2023. With regard to 2026 bonds, this is our crucial items on our agenda, and we understand importance for investors. Ukrainian capital control and regulatory that are out by the National Bank of Ukraine dictate that foreign currency proceeds generated from exports, but originated in Ukraine must be brought back to Ukraine with specific time frames, 120, 180 days, which in principle limits our ability to utilize the offshore cash for debt repayment.

MHP is capable of servicing of existing loan portfolio and bond from Ukraine. Repayment of principal remain prohibited by National Bank of Ukraine. We would also like to highlight, however, the uncertainties and difficulties in the operating environment that MHP continue to face amid the ongoing war.

We are mindful of the fact that the notes are maturing in approximately 12 months from now and we will intent of fund raising the maturity appropriated in due courses. Once again, we are very grateful for all the support extended to us by investors since 24th of February 2022 and are keen to continue our fruitful cooperation going forward.

And now I give the floor to Anastasiya for update and outlook.

[Yuriy Kosyuk, executive]

Thank you very much, Viktoria. Let me actually conclude the presentation because you've provided our stakeholders with a lot of interesting and detailed information. I think we are ready for discussion and of course, questions. Thank you very much for cooperation in advance. We are ready for your questions.

[Operator]

[Operator Instructions] We see our first voice question from Zaczkiewicz from Barclays.

[Daniel Zaczkiewicz, analyst]

I was wondering if I could ask a couple of areas. The first was on the Spain acquisition. Could you just talk a little bit more about why you think this acquisition interesting, what your plans would be for that business? It would be great to get the EBITDA for that business if you had in addition to the revenue? And then on the financing. And so of course, you said the volume will be disclosed towards closing. Do you have an idea at this stage about how much debt you would be looking to raise, how much you would be contributing out of on funds? That would be great. That's my first question, please.

[Viktoria Kapelyushnaya, executive]

Why is so interesting to provide this acquisition in Europe? Because we have very good trade record, because just 5 years ago, we bought Perutnina, is a leader in Balkans region. And only 3 years -- only 5 years ago when we bought Perutnina, Perutnina was a company with approximately EUR 350 million revenue and around less than EUR 40 million EBITDA.

And today, we have the company and Perutnina today is a company which increased almost regarding today almost in 3 time. Today, Perutnina generated -- last year generated more than around EUR 95 million EBITDA. And we understand that -- we understand how to improve and how to provide growth in Europe, not just in Ukraine.

The question regarding why is interesting to buy. Regarding financing this transaction, as I told during the presentation, we now we attract to acquisition finance from European banks, and we try and we will finance this transaction mostly. Yes, the biggest part financing from acquisition financing our enterprise value, and we will disclose all information about this company when we will close our deal, because now we're in process, we are continuing to wait some provisions from antitrust and with the European Commission. Thank you.

[Daniel Zaczkiewicz, analyst]

And if I could also just ask on the current business as well. Could you talk a little bit just about the financial cash flow outlook for next year, you obviously mentioned that the Oil segment is going to be a bit weaker. What's your expectation in the Grain segment and also for poultry in Ukraine that would be great. And do you have a number in mind for CapEx at this stage as well, please?

[Viktoria Kapelyushnaya, executive]

Thank you for the question. You know that we always try to be very conservative at the beginning of the year and completely the same we did during all our history. Last year, I remember that we told that our -- last year, the same period of last year, we talked about our EBITDA for 2024. It seems to me, we told that our EBITDA maybe would be $450 million. But as you see from our presentation from our financial report, last year, we generated more than $550 million. Now based of our budget, based of current trade, our expectation for next year around EUR 300 million -- $300 million sorry, dollars. But anyway, we try always to be very conservative. Our CapEx for next year is approximately $220 million to $240 million, because it's the range mostly consist of maintenance CapEx. And you had the positive cash flow.

[Daniel Zaczkiewicz, analyst]

So you say it's $300 million for EBITDA? 300?

[Viktoria Kapelyushnaya, executive]

No, no, no. $500 million. $500 million. Around $500 million.

[Operator]

So we'll be now moving to the next voice question from [ Britty Vera ] from Goldman Sachs.

[Unknown Analyst]

I just wanted to ask a little bit more about the UVESA acquisition. Where this asset will lie? And will it be part of the bond coverage? If not, then is there plans to use money from the Ukrainian entity to sort of fund this acquisition?

[Viktoria Kapelyushnaya, executive]

As I told previously, when we closed the deal we will present more detail. We will present more information about UVESA, but now we in process -- and yes, I told you this company is one of the biggest player of the chicken in Spanish market. So it is revenue is around EUR 600 million. And yes, we will finance this transaction from -- from acquisition financing, not from Ukraine, because, as you know that we have some prohibited and we cannot pay -- how to say, any dividends from Ukraine, and we have the various capital control. And yes, that is why, yes, we will attract the special financing.

[Unknown Analyst]

And maybe just one more question on the Poultry business. I saw that the margins in terms of like the cash EBITDA, which is excluding the effect of the IAF adjustment, but excluding that, it seems like margins have declined for Poultry business, 2025, do you see any impact of the data for ongoing? Will that have like a positive or a negative impact for poultry in Europe?

[Viktoria Kapelyushnaya, executive]

Your question about the EBITDA margin in poultry in European segments and you asked the European segment, yes?

[Unknown Analyst]

European segment, yes. European segment as well as like the export that happens from Ukraine.

[Viktoria Kapelyushnaya, executive]

European segment, it is not -- it is our businesses in Balkan region in the Perutnina businesses. And our expectations that EBITDA margin will be remained, yes, I told that in fourth quarter, we have the one-off expenses. And generally, we expect that EBITDA margin in European segment will remain at the same level as the fall of 2024. Regarding export, yes, from Ukraine, which is included -- business included in our segment Poultry & Related Operations, our quantity, we expect that EBITDA margin will remain at the same level, yes.

[Operator]

We are now moving to the next question from Dmitry Ivanov from JFS International.

[Dmitry Ivanov, analyst]

Can you hear me?

[Viktoria Kapelyushnaya, executive]

Yes, yes. Yes.

[Dmitry Ivanov, analyst]

I have a few questions, if I may. Maybe the first question on your leverage. And you already like shared like guidance on EBITDA with us like $ 500 million. So basically, there will be some decrease in EBITDA. So like -- I'm trying to understand like your current leverage is 2.1. And given like you expect to acquire like UVESA, which also will add some leverage. So I'm just trying to understand how do you see your net leverage developing in 2025, given like reduction in EBITDA from the existing business and the additional debt, which will be acquired through this acquisition of UVESA. So should we expect net leverage to go like to 3, 3.5. So like any color on your leverage in 2025 would be much appreciated. So like my first question, basically.

[Viktoria Kapelyushnaya, executive]

Based on our current forecast about EBITDA for next year -- for 2025, around $500 million and together with acquisition, we expect that our leverage will be around 2.08 -- 2.07, 2.08.

[Dmitry Ivanov, analyst]

2.07, 2.08, okay. And in terms of the timeline, so you mentioned like you are waiting certainly like approvals to go ahead with acquisition. And should we expect like Q3, Q4? What's the kind of timeline are you expecting for this transaction -- that completion on the transaction?

[Viktoria Kapelyushnaya, executive]

Yes, it's a very good question. But anyway, our expectation would be mainly in the second half of the year. Maybe we expect that maybe it would happen in the Q3, but we kind of going to maybe in Q4.

[Dmitry Ivanov, analyst]

So, this number is 2.07...

[Viktoria Kapelyushnaya, executive]

Difficult to predict. Together, is the pro forma. Together with this acquisition -- in this acquisition happened in the second half of the year.

[Dmitry Ivanov, analyst]

That's very helpful. That's very helpful. So this is pro forma 2.07, 2.08. My second question, basically on working capital dynamic, and you already provided some color on the kind of factors behind some increase in working capital in 2024. Should we -- how should we look at the working capital in 2025? Is it like should we kind of expect the working capital neutral position, some release buildup working capital? So any kind of guidance would be much appreciated on working capital.

[Viktoria Kapelyushnaya, executive]

Yes, exactly. Lastly, unfortunately, we have investment in working capital, and I explained why it was happened. For this year, we don't expect any investment in working capital. And maybe we will provide some action, and maybe we will have some relief on working capital.

[Dmitry Ivanov, analyst]

So neutral or potentially...

[Viktoria Kapelyushnaya, executive]

Neutral or positive. Yes or maybe neutral. Yes. As a conservative approach? Yes, neutral. Yes, we have some reserves. Yes, inventory risk.

[Dmitry Ivanov, analyst]

Understood. Understood. And if possible, like could you please remind us about your available credit facilities that are still undrawn? and you have -- you can use it. I guess, we have mainly trade facilities, right, available. Can you just give a color on that?

[Viktoria Kapelyushnaya, executive]

Yes. okay. For now, it is around $200 million.

[Dmitry Ivanov, analyst]

And this is mainly for working capital like items. So basically, this is not like for CapEx, it's mainly for like to finance.

[Viktoria Kapelyushnaya, executive]

Some of them -- some of them are working capital, some of them are CapEx.

[Dmitry Ivanov, analyst]

Understood. And if possible, can you share like the latest cash balance after December like the current cash balance?

[Viktoria Kapelyushnaya, executive]

Current cash balance almost at the same levels that we had at the beginning of the year, around EUR 350 million.

[Operator]

Moving to the next voice question from [ Erica Ive from MetLife. ]

[Erica Ive, analyst]

Can I ask you, I don't know if you've already said it, but if so, I haven't really understood what is the EBITDA that UVESA generates?

[Viktoria Kapelyushnaya, executive]

Yes. As I told previously, we will discover, how to say, open this information -- yes, disclose this information on closing the date. Yes, because it would happen...

[Erica Ive, analyst]

Yes. Sorry, yes. But could you provide at least a range in terms of EBITDA margin?

[Viktoria Kapelyushnaya, executive]

EBITDA margin is European companies. Usually, European company, the EBITDA margin around through 5% until 15% [indiscernible] and UVESA. Yes, in this framework.

[Erica Ive, analyst]

Okay. You said between 5% and 15%?

[Viktoria Kapelyushnaya, executive]

Yes.

[Erica Ive, analyst]

Okay. And in terms of debt, the net debt that UVESA is carrying on, do you -- could you disclose that or give a sense of it?

[Viktoria Kapelyushnaya, executive]

Yes. I don't -- after closing of this transaction, when it will happen, we will open all information. We disclose all information about this company. But now we're in the process and transaction, unfortunately, has not finished. After that, we will organize maybe even this special conference call to introduce everybody with our new acquisition.

[Operator]

[Operator Instructions] Our next question is a text question from [ Anna Cutini ]. Does your CapEx guidance of $220 million, $240 million include cash component of acquisition purchase price for UVESA?

[Viktoria Kapelyushnaya, executive]

No, no, no. This is all CapEx, which includes mostly maintenance CapEx and CapEx slightly for expansion in Perutnina, no, it is not without any cash components.

[Operator]

Okay. I see Anna also wants to ask a voice question.

[Unknown Analyst]

I just want to ask about SALIC strategic investment in MHP. If what has been -- what progress have been done in Saudi Arabia and maybe you can shed light on some of the priorities or things you are planning to do with SALIC or in Saudi Arabia or if there is any potential injection or strategic suggestions coming from SALIC Corporation in Saudi Arabia?

[Viktoria Kapelyushnaya, executive]

Yes. SALIC now is one of our shareholders today, but we don't -- right now, we don't see any project with SALIC. No, we don't consider any project in years since SALIC, yes. SALIC is number one shareholders.

[Operator]

We have next question -- a text question from [ Vicki Chen ] from Iowa Capital Partners. Could you please disclose the cash at European PP level for the undrawn facilities? What are the maturities?

[Viktoria Kapelyushnaya, executive]

To your question, yes, what amount of cash we have in Perutnina? Today it is around $50 million in cash in Perutnina.

[Operator]

Okay. So at this point, we are seeing no further questions. So I would like to pass the line back to MHP team for their closing remarks.

[Anastasiya Sobotyuk, executive]

Thank you very much, Rafal. Thank you, dear stakeholders for all your questions. And please take into account that we remain at your disposal in case you have any further questions or would like to clarify something. Thank you very much, and have a lovely day. Bye-bye.

[Viktoria Kapelyushnaya, executive]

Thank you.