Financial Results for the Q3 and 9M 2020

DIAL-IN DETAILS

MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results  

 

The dial-in details are:

 

Time:                                        14.00 London / 16.00 Kyiv / 09.00 New York

 

Title:                                        Financial results for Q3 and 9M 2020

 

UK:                                           +44 203 984 9844

 

Ukraine:                                    +380 89 324 0624

 

USA:                                        +1 718 866 4614

 

PIN code                                   645982

 

 

In order to follow the presentation together with the management, please register using the following link:

https://mm.closir.com/slides?id=645982

 

 

 

 

 

For Investor Relations enquiries, please contact:

Anastasia Sobotiuk (Kyiv)                    +38 044 207 99 58        [email protected]

 

 

Segment Performance

Poultry and related operations

		Q3 2020	Q3 2019	% change	9M 2020	9M 2019	% change
Poultry
Sales volume, third parties tonnes		195,119	165,963	18%	523,759	511,241	2%
Domestic sales volume, tonnes		86,647	86,774	0%	244,735	241,569	1%
Export sales volume, tonnes		108,472	79,189	37%	279,025	269,672	3%
Average price per 1 kg net of VAT, US$		1.36	1.53	-11%	1.34	1.48	-9%
Average price per 1 kg net of VAT, UAH (Ukraine)		37.56	38.58	-3%	35.45	39.19	-10%
Average price per 1 kg net of VAT, US$ (export)		1.41	1.53	-8%	1.40	1.54	-9%
Sunflower oil
Sales volume, third parties tonnes		84,877	83,975	1%	248,233	271,462	-9%
Soybeans oil
Sales volume, third parties tonnes		11,511	15,758	-27%	33,121	40,007	-17%

Chicken meat prices

The total volume of chicken meat sold to third parties in 9M 2020 increased by 2% to 523,759 tonnes (9M 2019: 511,241 tonnes) mainly as a result of an increase in exports in Q3 2020. In Q3 2020 export sales amounted to 108,472 tonnes, up 37% compared to Q3 2019 export sales volume of 79,189 tonnes. In 9M 2020  poultry exports increased by 3% to 279,025 tonnes (9M 2019: 269,672 tonnes). The increase was mainly due to due to increased sales to MENA as well as to Africa and CIS.

Poultry export prices decreased by 9% year-on-year, mainly driven by a change in product mix during 9M 2020 (with a significant decrease in sales of fillet to the EU and increased sales to MENA) and weaker prices on breast fillet in EU as many global competitors experienced reduced demand, which resulted in excess stocks. Prices on the domestic market decreased by 10% 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 Q3 2020, sunflower oil sales volume amounted to 84,877 tonnes, almost at the same level as in Q3 2019. In 9M 2020. Sunflower oil sales decreased by 9% compared to 248,233 tonnes in 9M 2019, mainly due to reduced share of sunflower cake being used in fodder.

Sales of soybean oil were 11,511 tonnes in Q3 2020, 27% lower year-on-year, and 33,121 tonnes in 9M 2020 , 17% lower year-on-year, mainly as a result of a decreased share of soybean cake in fodder and lower third party sales.

 

 

(in mln. US$, unless indicated otherwise)		Q3 2020	Q3 2019	% change1)	9M 2020	9M 2019	% change1)
Revenue		362	343	6%	970	1,031	-6%
- Poultry and other		291	274	6%	767	823	-7%
- Vegetable oil		71	69	3%	203	208	-2%
IAS 41 standard gains/(losses)		(17)	(5)	240%	(11)	12	-192%
Gross profit		58	69	-16%	176	227	-22%
Gross margin		16%	20%	-4 pps	18%	22%	-4 pps
Adjusted EBITDA		58	77	-25%	180	238	-24%
Adjusted EBITDA margin		16%	22%	-6 pps	19%	23%	-4 pps
Adjusted EBITDA per 1 kg (net of IAS 41)		0.38	0.49	-22%	0.36	0.44	-18%

¹⁾ pps - percentage points

As a result of the decrease in prices of chicken meat, revenue decreased by 6% in 9M 2020 compared to 9M 2019.

IAS 41 standard loss in 9M 2020 amounted to US$ 11 million (compared with a US$ 12 million gain in 9M 2019) mainly as a result of lower prices of chicken meat as well as a decrease in poultry meat stocks.

Gross profit of the poultry and related operations segment for Q3 2020 decreased by 16% compared to Q3 2019 to US$ 58 million. This was mainly due to the decrease of chicken meat prices. Poultry production costs in Q3 2020 remained almost at the same level as in Q1 2020.

Adjusted EBITDA in 9M 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.

This year, unusually hot and arid weather conditions in the final weeks of the growing season, particularly in the central regions of Ukraine, have led to significantly lower yields across most crops compared to 2019, although these are still well above Ukraine's average. As of the date of this report, MHP's harvesting campaign of sunflower is almost complete with expected yield of 2.86 t/ha, around 77% of corn is harvested with expected yield of 5.2 t/ha and around 78% of soya is harvested with expected yield of 2.8 t/ha (yields are in net weight).

	2020**			2019
	Production volume	Cropped land		Production volume	Cropped land
	in tonnes	in hectares		in tonnes	in hectares
Corn	833,797	155,122		1,312,416	140,221
Wheat	207,949	40,827		300,396	46,797
Sunflower	269,521	93,920		237,755	65,447
Rapeseed	80,450	30,813		122,597	41,233
Soya	47,289	19,423		102,418	38,197
Other*	260,412	16,282		332,007	27,581
Total	1,699,418	356,387		2,407,589	359,476

*   Including barley, rye, sugar beet, sorghum and other and excluding land left fallow as part of crop rotation

**  MHP's forecast

 

 

	2020**			2019
	MHP's average *	Ukraine's average *		MHP's average *	Ukraine's average *
	tonnes per hectare			tonnes per hectare
Corn	5.7	5.0		9.4	7.1
Wheat	5.1	3.8		6.4	4.3
Sunflower	2.9	2.0		3.6	2.6
Rapeseed	2.6	2.3		3.0	2.6
Soya	2.4	2.0		2.7	2.3

* - MHP yields are net weight, Ukraine - bunker weight;

** - MHP's forecast

(in mln. US$, unless indicated otherwise)		9M 2020		9M 2019		% change
Revenue		90		174		-48%
IAS 41 standard gains		39		8		388%
Gross profit		61		53		15%
Adjusted EBITDA		106		95		12%
Adjusted EBITDA (net of IFRS 16)		78		71		10%

Revenue for the grain growing segment for 9M 2020  amounted to US$ 90 million compared to US$ 174 million in 9M 2019. The decrease was mainly attributable to the higher amount of crops in stock designated for sale as of 31 December 2018, compared to stock for sale as of 31 December 2019, mainly as a result of higher yields in 2018.

IAS 41 standard gain for 9M 2020  amounted to US$ 39 million compared with US$ 8 million in 9M 2019 mainly due to a more substantial decrease in grain stock in 9M 2019 compared to 9M 2020. The gain mainly represents the result of the revaluation of crops in fields (biological assets) at the reporting date, escalated by net change in effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) after the harvesting of grain.

Adjusted EBITDA (net of IFRS 16) of the grain growing segment for 9M 2020 increased by 10% compared to 9M 2019. This was mainly as a result of the significant increase in grain prices partly offset by lower yields of crops in 2020 compared to 2019.

Meat processing and other agricultural operations segment

Meat processing products		Q3 2020	Q3 2019	% change		9M 2020	9M 2019	% change
Sales volume, third parties tonnes		8,870	10,152	-13%		25,392	26,775	-5%
Price per 1 kg net VAT, UAH		72.14	67.33	7%		70.74	66.81	6%

Sales volume of meat processing products in 9M 2020 decreased by 5% year-on-year to 25,392 tonnes, mainly driven by a 13% decrease in sales volume in Q3 2020 year-on-year as a result of the challenging environment in HoReCa and open market trade as well as more rational consumers' shopping behavior. The average processed meat price increased by 6% year-on-year to UAH 70.74 per kg in 9M 2020.

Convenience food		Q3 2020	Q3 2019	% change		9M 2020	9M 2019	% change
Sales volume, third parties tonnes		6,054	5,605	8%		14,591	14,072	4%
Price per 1 kg net VAT, UAH		40.81	38.59	6%		40.28	40.62	-1%

Sales volumes of convenience food in 9M 2020 increased by 4% to 14,591 tonnes. The average price in 9M 2020  remained stable at  UAH 40.28 per kg (excluding VAT).

 

(in mln. US$, except margin data)		Q3 2020	Q3 2019	% change1)		9M 2020	9M 2019	% change1)
Revenue		39	40	-3%		106	107	-1%
- Meat processing		29	34	-15%		82	86	-5%
- Other2)		10	6	67%		24	21	14%
IAS 41 standard gains/(losses)		(1)	-	-100%		-	(1)	-100%
Gross profit		6	4	50%		14	10	40%
Gross margin		15%	10%	5 pps		13%	9%	4 pps
Adjusted EBITDA		6	3	100%		15	12	25%
Adjusted EBITDA margin		15%	8%	7 pps		14%	11%	3 pps

¹⁾pps - percentage points.

²⁾includes milk, cattle, and feed grains.

Segment revenue remained materially unchanged and at US$ 106 million. The segment's adjusted EBITDA increased to US$ 15 million in 9M 2020 versus US$ 12 million in 9M 2019, an increase by 25% year-on-year, driven mostly by higher returns earned from milk operations.

European operating segment

Poultry		Q3 2020	Q3 2019		9M 2020	9M 20191)
Sales volume, third parties tonnes		16,804	15,920		47,842	36,928
Price per 1 kg net VAT, EUR		2.48	2.63		2.52	2.64

¹⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: 9M 2019 poultry sales (if calculated since 01 January 2019) were at 45,710 tonnes.

Poultry sales of the European operating segment increased by 6% to 16,804 tonnes in Q3 2020 (Q3 2019:  15,920 tonnes). Average prices decreased by 6% from EUR 2.63 in Q3 2019 to EUR 2.48 in Q3 2020.

Meat processing products1)		Q3 2020	Q3 2019		9M 2020	9M 20192)
Sales volume, third parties tonnes		10,218	9,918		28,853	21,040
Price per 1 kg net VAT, EUR		2.69	2.69		2.71	2.70

¹⁾ includes sausages and convenience foods

²⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: 9M 2019 meat processing products sales (if calculated since 01 January 2019) were at 26,268 tonnes.

Meat processing product sales of the European operating segment were up 3% year-on-year and  10,218 tonnes in Q3 2020 (Q3 2019:  9,918 tonnes). Average prices were relatively stable at EUR 2.69 in Q3 2020 and EUR 2.71 in 9M 2020.

(in mln. US$, except margin data)		Q3 2020	Q3 2019		9M 2020	9M 20191)
Revenue		91	86		248	193
IAS 41 standard gains		(1)	1		1	-
Gross profit		27	29		71	56
Gross margin		30%	33%		29%	29%
Adjusted EBITDA		12	13		40	29
Adjusted EBITDA margin		13%	15%		16%	15%
Adjusted EBITDA (net of IFRS 16)		12	11		38	27
Adjusted EBITDA margin (net of IFRS 16)		13%	13%		15%	14%

¹⁾ results of PP from 21 February 2019 when the acquisition was completed. NOTE: 9M 2019 EBITDA net of IFRS 16 effect (if calculated since 01 January 2019) was US$ 30 million.

European operating segment's revenue in Q3 2020 amounted to US$ 91 million, and US$ 248 million in 9M 2020. Adjusted EBITDA (net of IFRS 16) reached US$ 12 million and US$ 38 million for Q3 2020 and 9M 2020  respectively. The increase of Adjusted EBITDA in Q3 2020 compared to Q3 2019 was mainly attributable to the higher sales of more profitable meat processing products in 2020.

Current Group cash flow        

(in mln. US$)		Q3 2020		Q3 2019			9M 2020		9M 2019
Cash from operations		97		102			196		240
Change in working capital		65		(6)			(58)		80
Net Cash from operating activities		162		96			138		320
Cash used in investing activities		(17)		(40)			(94)		(305)
Including:
Net cash outflow on acquisition of subsidiaries		-		-			-		(206)
CAPEX1)		(17)		(34)			(58)		(96)
Cash from financing activities		(20)		73			(33)		136
Dividends		-		-			(30)		(80)
Total financial activities		(20)		73			(63)		56
Total change in cash2)		125		129			(19)		71

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 9M 2020  amounted to US$ 196 million (9M 2019: US$ 240 million).

Use of funds in working capital during 9M 2020 was mostly related to investments in crops in fields to be harvested in Q4 2020.  The difference compared to 9M 2019 was mainly attributable to higher investments in inventory during 9M 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 9M 2020  total CAPEX amounted to US$ 58 million mainly related to modernization projects and new products development, maintenance and Perutnina Ptuj production facilities.

Debt Structure and Liquidity

(in US$, millions)		30 SEP 2020		31 DEC 2019		30 SEP 2019
Total Debt 1)		1,473		1,480		1,581
LT Debt 1)		1,443		1,448		1,469
ST Debt 1)		30		32		112
Trade credit facilities2)		(12)		-		-
Cash and bank deposits		(305)		(341)		(288)
Net Debt1)		1,156		1,139		1,293
LTM EBITDA 1)		347		379		436
Net Debt / LTM EBITDA1)		3.33		3.01		2.96

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 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 September 30, 2020, the share of long-term debt in the total outstanding debt remained unchanged at 98%. The weighted average interest rate is around 7%.

As of 30 September 2020, MHP's cash and cash equivalents amounted to US$ 305  million. Net debt increased to US$ 1,156 million, compared to US$ 1,139 million as at 31 December 2019, but was US$ 137 million lower than as at 30 September 2019.

The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 3.33 as of 30 September 2020, higher than the limit of 3.0 defined in the Eurobond agreement. Although exceeding the ratio of 3.0 does not constitute the breach of any covenant under the indebtedness agreement, this leads to the introduction of additional control measures by MHP. In particular, MHP has to supervise and assess incurrence of additional indebtedness, restricted payments (such as dividend distributions and 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 April 2020.

As a hedge for currency risks, revenue 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 9M 2020  amounted to US$ 761 million or 54% of total revenue (US$ 869 million or 58% of total sales in 9M 2019).

 

 

Outlook

Despite at least 3 challenges the Company has faced since the beginning of the year -AI outbreak, COVID-19, bad weather/low harvest - we expect to receive good financial result in 2020.

We continue to transform the Company from industrial into culinary through:

-  Cooperation with different sales channels: franchising (meatmarket, Doner market, Chief's Secret studio, rebranding), retail (marinated products, portfolio development), HoReCa (Dark Kitchen, Street/Fast food concept development);

-  Product development: antibiotic free (Nasha Ryaba), RtC, RtE, more packed chicken meat, positioning.

Geographic diversification again proved its efficiency -  MHP's production is flexible and adjustable to serve different markets on demand and depend on opportunities/challenges

Despite challenging market environment, we continue to work at 100% capacity

Right financial policy - as a result MHP currently has got only LT debt

At the moment, we are facing a new challenge - poultry cost increased with a new harvest and significantly higher prices. However, we might be at the beginning of a new cycle - when new and high grain prices will drive all proteins prices up with some leg in time (up to 6 months). As a result, MHP can potentially (an on top) benefit from culinary strategy, producing more and more poultry products with added value.

 

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.