Q2 and H1 2020 Financial Results

Segment Performance

Poultry and related operations

		Q2 2020	Q2 2019	% change	H1 2020	H1 2019	% change
Poultry
Sales volume, third parties tonnes		170,912	181,273	-6%	328,385	345,278	-5%
Domestic sales volume, tonnes		82,407	83,834	-2%	157,832	154,794	2%
Export sales volume, tonnes		88,505	97,439	-9%	170,553	190,484	-10%
Average price per 1 kg net of VAT, USD		1.27	1.51	-16%	1.32	1.45	-9%
Average price per 1 kg net of VAT, UAH (Ukraine)		31.82	37.66	-16%	32.14	37.08	-13%
Average price per 1 kg net of VAT, USD (export)		1.35	1.59	-15%	1.40	1.53	-8%
Sunflower oil
Sales volume, third parties tonnes		82,646	86,661	-5%	163,356	186,487	-12%
Soybeans oil
Sales volume, third parties tonnes		10,841	9,097	19%	21,609	24,249	-11%

Poultry

The total volume of chicken meat sold to third parties in H1 2020 decreased by 5% to 328,385 tonnes (H1 2019: 345,278 tonnes) as a result of lower exports. In Q2 2020, export sales amounted to 88,505 tonnes, down 9% compared to 97,439 tonnes in Q2 2019.  In H1 2020, poultry exports decreased by 10% to 170,553 tonnes (H1 2019: 190,484 tonnes). The decrease was due to the temporary closure of export markets following the first-quarter outbreak of H5N1 avian influenza in Ukraine as well as the impact of the COVID-19 pandemic.

Poultry export prices decreased by 8% year-on-year, mainly driven by the product mix change and weaker prices on breast fillet in EU as many global competitors  experienced reduced demand and resulting excess stock. Prices on the domestic market decreased by 13% year-on-year, mainly for the same reasons as export prices as well as a higher proportion of lower-priced frozen chicken sales in Ukraine.

Vegetable oil

In Q2 2020, sunflower oil sales volume amounted to 82,646 tonnes, down 5% year-on-year. In H1 2020, MHP's sales of sunflower oil decreased by 12% compared to H1 2019 to 163,356 tonnes, mainly due to lower production of oil as a result of a decreased share of sunflower cake in fodder.

Sales of soybean oil were 10,841 tonnes in Q2 2020, 19% higher year-on-year, and 21,609 tonnes in H1 2020, 11% lower year-on-year, mainly as a result of a production decrease (decreased share of soybean cake in fodder and 3^rd party sales).

(in mln. US$, unless indicated otherwise)		Q2 2020	Q2 2019	% change1)	H1 2020	H1 2019	% change1)
Revenue		302	360	-16%	608	688	-12%
- Poultry and other		238	296	-20%	476	549	-13%
- Vegetable oil		64	64	0%	132	139	-5%
IAS 41 standard gains/(losses)		(5)	6	-183%	6	17	-65%
Gross profit		51	89	-43%	118	158	-25%
Gross margin		17%	25%	-8 pps	19%	23%	-4 pps

 

 

Adjusted EBITDA		54	90	-40%	122	161	-24%
Adjusted EBITDA margin		18%	25%	-7 pps	20%	23%	-3 pps
Adjusted EBITDA per 1 kg (net of IAS 41)		0.35	0.46	-24%	0.35	0.42	-17%

¹⁾ pps - percentage points

As a result of the decrease in sales volumes and prices of chicken meat, revenue of the poultry and related operations segment decreased by 12% in H1 2020 compared to H1 2019.

IAS 41 standard loss in Q2 2020 amounted to US$ 5 million (compared with a US$ 6 million gain in Q2 2019) mainly as a result of the lower chicken meat prices.

Gross profit for Q2 2020 decreased by 43% compared to Q2 2019 to US$ 51 million, mainly due to the lower sales volumes and prices. Poultry production costs in Q2 2020 remained almost at the same level as in Q1 2020.

Adjusted EBITDA in H1 2020 decreased by 24%, in line with the decrease in gross profit.

Grain growing operations 

In 2020 the Company expects to harvest around 360,000 hectares of land, similar to the area harvested in 2019.

This year, exceptionally unfavorable weather conditions in the central regions of Ukraine have led to significantly lower-than-expected yields across all crops, and especially corn, in these regions. As of the date of this report, the Company's harvesting campaign of rapeseeds and wheat is complete, so that winter crops current (bunker) yields are as follows:

	2020			2019
	MHP's average	Ukraine's average		MHP's average	Ukraine's average
	tonnes per hectare			tonnes per hectare
Wheat	5.1	4.1		6.4	4.3
Rapeseed	2.7	2.3		3.0	2.6

 

 

(in mln. US$, unless indicated otherwise)		H1 2020		H1 2019		% change
Revenue		35		83		-58%
				51
IAS 41 standard gains		38		26		46%
Gross profit		49		61		-20%
Adjusted EBITDA		73		74		-1%
Adjusted EBITDA (net of IFRS 16)		65		74		-12%

The Grain growing segment's revenue for H1 2020 amounted to US$ 35 million compared to US$ 83 million in H1 2019. The decrease was mainly attributable to the lower amount of crops in stock designated for sale as of 31 December 2019 compared to stock for sale as of 31 December 2018, mainly as a result of higher yields in 2018.

IAS 41 standard gain for H1 2020 amounted to US$ 38 million compared with US$ 26 million in H1 2019 mainly as a result a more substantial decrease in grain stock in H1 2019 compared to H1 2020. The gain mainly represents the result of the revaluation of crops in fields (biological assets) at the reporting date, partly offset by the net change in the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) as a result of a decrease of grain in stock due to internal consumption.
 

Meat processing and other agricultural operations segment

Meat processing products		Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
Sales volume, third parties tonnes		8,607	9,094	-5%		16,522	16,666	-1%
Price per 1 kg net VAT, UAH		70.77	66.75	6%		69.99	66.29	6%

Sales volume of meat processing products remained broadly unchanged year-on-year and amounted to 16,522 tonnes in H1 2020. The average processed meat price increased by 6% year-on-year to UAH 69.99 per kg in H1 2020, driven mainly by price management strategy and an increased share of higher-priced products in the portfolio.

Convenience food		Q2 2020	Q2 2019	% change		H1 2020	H1 2019	% change
Sales volume, third parties tonnes		4,361	4,400	-1%		8,537	8,467	1%
Price per 1 kg net VAT, UAH		38.63	40.61	-5%		39.91	40.67	-2%

Sales volumes of convenience food in H1 2020 remained broadly stable and amounted to 8,537 tonnes. The average price in H1 2020 decreased by 2% to UAH 39.91 per kg (excluding VAT), mainly due to the product mix change affected by the "freeze" in HoReCa (e.g. KFC, local fast food services etc.) operations due to the COVID-19 pandemic.

(in mln. US$, except margin data)		Q2 2020	Q2 2019	% change1)		H1 2020	H1 2019	% change1)
Revenue		34	37	-8%		67	67	0%
- Meat processing		26	28	-7%		53	52	2%
- Other2)		8	9	-11%		14	15	-7%
IAS 41 standard gains/(losses)		1	-	100%		-	(1)	-100%
Gross profit		3	4	-25%		8	6	33%
Gross margin		9%	11%	-2 pps		12%	9%	3 pps
Adjusted EBITDA		3	6	-50%		9	9	0%
Adjusted EBITDA margin		9%	16%	-7 pps		13%	13%	0 pps

¹⁾pps - percentage points

²⁾includes milk, cattle, and feed grains.

Segment revenue and adjusted EBITDA in H1 2020 were unchanged year-on-year at US$ 67 million and US$ 9 million respectively.

European operating segment

Poultry		Q2 2020	Q2 2019		H1 2020	H1 20191)
Sales volume, third parties tonnes		15,855	15,835		31,038	21,014
Price per 1 kg net VAT, EUR		2.50	2.67		2.53	2.65

¹⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: H1 2019 poultry sales (if calculated since 01 January 2019) were at 29,777 tonnes

Poultry sales of the European operating segment remained stable at 15,855 tonnes in Q2 2020 (Q2 2020: 15,835 tonnes). Average prices decreased by 6% from EUR 2.67 in Q2 2019 to EUR 2.50 in Q2 2020.

 

 

Meat processing products1)		Q2 2020	Q2 2019		H1 2020	H1 20192)
Sales volume, third parties tonnes		9,429	8,430		18,635	11,092
Price per 1 kg net VAT, EUR		2.69	2.70		2.72	2.70

¹⁾ includes sausages and convenience foods

²⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: H1 2019 meat processing products sales (if calculated since 01 January 2019) were at 16,301 tonnes

Meat processing product sales of the European operating segment were up 12% year-on-year and amounted to 9,429 tonnes in Q2 2020 (Q2 2019: 8,430 tonnes). Average prices were relatively stable at EUR 2.69 in Q2 2020 and EUR 2.72 in H1 2020.

(in mln. US$, except margin data)		Q2 2020	Q2 2019		H1 2020	H1 20191)
Revenue		79	82		157	107
IAS 41 standard gains		2	(1)		2	(1)
Gross profit		24	21		44	27
Gross margin		30%	26%		28%	25%
Adjusted EBITDA		16	12		28	16
Adjusted EBITDA margin		20%	15%		18%	15%
Adjusted EBITDA (net of IFRS 16)		15	12		26	16
Adjusted EBITDA margin (net of IFRS 16)		19%	15%		17%	15%

¹⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: H1 2019 EBITDA net of IFRS 16 effect (if calculated since 01 January 2019) was US$ 19 million

The European operating segment's revenue in Q2 2020 amounted to US$ 79 million, and US$ 157 million in H1 2020. Adjusted EBITDA (net of IFRS 16) reached US$ 15 million (up 19% year-on-year) and US$ 26 million (up 17% year-on-year) for Q2 2020 and H1 2020 respectively. The increase of Adjusted EBITDA in Q2 2020 compared to Q2 2019 was mainly attributable to the higher sales of more profitable meat processing products in 2020.

Current Group cash flow   

(in mln. US$)		Q2 2020		Q2 2019			H1 2020		H1 2019
Cash from operations		22		58			99		138
Change in working capital		(7)		24			(123)		86
Net Cash from operating activities		15		82			(24)		224
Cash used in investing activities		(23)		(76)			(77)		(265)
Including:
Net cash outflow on acquisition of subsidiaries		-		-			-		(206)
CAPEX1)		(20)		(33)			(41)		(62)
Cash from financing activities		(41)		(50)			(13)		63
Dividends		(30)		(80)			(30)		(80)
Total financial activities		(71)		(130)			(43)		(17)
Total change in cash2)		(79)		(124)			(144)		(58)

¹⁾Calculated as cash used for Purchases of property, plant and equipment plus cash used for purchases of other non-current assets ²⁾Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities

Cash flow from operations before changes in working capital for H1 2020 amounted to US$ 99 million (H1 2019: US$ 138 million).

Use of funds in working capital during H1 2020 was mostly related to investments in crops in fields to be harvested in H2 2020.  The difference compared to H1 2019 was mainly attributable to higher investments in inventory during H1 2020 (sunflower and soya) designated for internal consumption, mostly due to lower stock of crops as of 31 December 2019 compared to 31 December 2018.

In H1 2020, total CAPEX amounted to US$ 41 million mainly on maintenance and modernizing Perutnina Ptuj production facilities.

Debt Structure and Liquidity

(in US$, millions)		30 June 2020		31 December 2019		30 June 2019
Total Debt 1)		1,473		1,480		1,498
LT Debt 1)		1,442		1,448		1,163
ST Debt 1)		31		32		335
Trade credit facilities2)		(6)		-		-
Cash and bank deposits		(185)		(341)		(157)
Net Debt1)		1,282		1,139		1,341
LTM EBITDA 1)		345		379		460
Net Debt / LTM EBITDA1)		3.72		3.01		2.92

¹⁾  Net of IFRS 16 adjustments: as if any lease that would have been treated as an operating lease under IAS 17 as was in effect before the 1 January 2019, is treated as an operating lease for purposes of this calculation. In accordance with covenants in MHP's bond and loan agreements, these data exclude the effects of IFRS 16 on accounting for operating leases.

²⁾ Indebtedness under trade credit facilities that is required to be repaid within 12 months of drawdown should be excluded for purposes of this calculation.

As of 30 June 2020, MHP's cash and cash equivalents amounted to US$ 185 million. Net debt increased to US$ 1,282 million, compared to US$ 1,139 million as at 31 December 2019.  The share of long-term debt in the total outstanding debt remained unchanged at 98%. The weighted average interest rate is around 7%.

The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 3.72 as of 30 June 2020, higher than the limit of 3.0 specified in the Eurobond agreement.  Although exceeding the ratio of 3.0 does not constitute a breach of covenants under the indebtedness agreement, this requires the Company to introduce additional control measures. In particular, MHP is then required to supervise and assess any incurrence of additional indebtedness, restricted payments (e.g. dividends or investments in third parties), mergers with third parties outside of the Group, and granting of any financing to third parties.  Such restrictions became effective on the date of publication of the audited consolidated financial statements for the year ended 31 December 2019 on 14 April 2020.

As a hedge for currency risks, revenues from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat, which are denominated in US Dollars and Euros, are more than sufficient to cover debt service expenses. Export revenue for H1 2020 amounted to US$ 453 million or 52% of total revenue (US$ 552 million or 58% of total sales in H1 2019).

 

 

 

 

 

Outlook

Globally, the poultry industry has gone through an extremely challenging time in the first half of this year with disruption due to the COVID-19 pandemic, significantly lower prices for poultry meat globally, over-supply in many markets, ongoing Brexit uncertainty in the UK and volatile currency markets.  In spite of these challenges, the Company has managed to produce a good set of results and is rightly proud of this achievement.

The Company sees opportunities both in export markets and in Ukraine as a key driver for the remainder of 2020.

In addition, the acquisition of Perutnina Ptuj in 2019 has generated a strong result with better than expected financial results due to cost optimization and their strength in branded higher value-added products.

When we released the results for the first quarter of 2020, we reported on better than expected results in the grain growing division. Unfortunately, parts of Ukraine have been hit with extremely hot and arid weather conditions that have had a significantly negative impact on the final weeks of the growing season, especially in corn. Therefore, we expect lower results in corn.

In spite of the unusual combination of headwinds the Company has faced this year to date, we currently expect to deliver a financial result for the full year similar to 2019.

 

Notes to Editors:

 

About MHP

MHP is the leading producer of poultry products in Ukraine and the Balkans (Perutnina Ptuj Group).

Ukraine: MHP has the highest share of the poultry market (around 57% of industrial production) and strongest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale.

MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.

 

The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer in the Balkans, with production assets in four Balkan countries: Slovenia, Croatia, Serbia, Bosnia and Herzegovina. It also owns distribution companies in Austria, Macedonia and Romania and supplies products to 15 countries in Europe. Perutnina Ptuj is vertically integrated across all stages of chicken meat production, including feed, hatching eggs, breeding, slaughtering and further poultry processing.

MHP trades on the London Stock Exchange under the symbol MHPC.

 

Forward-Looking Statements

 

This press release may contain forward-looking statements that refer to future events or forecast financial indicators for MHP SE. Such statements do not guarantee that these are actions to be taken by MHP SE in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can differ considerably from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.