Financial Results for the Q1 2021

Segment Performance

Poultry and related operations

¹⁾ pps - percentage points

Chicken meat

Aggregated volume of chicken meat sold to third parties slightly decreased by 2% in Q1 2021 to 154,370 tonnes (Q1 2020: 157,729 tonnes) mainly as a result of a decreased share of frozen chicken sales in Ukraine (as a result of changes in product mix for the domestic market and for export). In Q1 2021, export sales amounted to 82,260 tonnes, remaining stable compared to Q1 2020. Sales to MENA region increased from 31% to 54% of total export sales year-on-year (mainly driven by increased sales to KSA).

Poultry export prices decreased by 5% year-on-year, mainly driven by changes in product mix and destination of export sales (increased sales of small chicken to MENA and decreased sales of chicken fillet to EU, because of the ban).

As a result of significant increase in grain and protein products prices, the market price of chicken in Ukraine began to increase from December 2020. In Q1 2021 poultry prices on the domestic market in US$ increased by 15% year-on-year; prices have continued to increase in Q2 2021.

Vegetable oil

In Q1 2021, sunflower oil sales amounted to 55,958 tonnes, which is 31% lower year-on-year mainly as a result of reduced production of oil due to a decrease in the share of sunflower cake in fodder (following a change in recipe) which was partially offset by change in delivery terms. In Q1 2021 MHP's sales of soybean oil increased by 4% compared to Q1 2020 to 11,146 tonnes mainly due to the increased share of soya cake in the fodder recipe.

¹⁾ pps - percentage points

Revenue increased by 3% in Q1 2021 compared to Q1 2020 as a result of the increase in prices on the domestic market which was partly offset by lower sales volumes of chicken meat and vegetable oil.

IAS 41 standard gain in Q1 2021 amounted to US$ 1 million mainly as a result of the increase in chicken meat price which was offset by the increase in poultry costs.

Gross profit of the poultry and related operations segment for Q1 2021 decreased by 51% compared to Q1 2021 to US$ 33 million. The decline was driven by increased poultry production costs due to a significant increase in grain prices harvested in 2020, which was only partially compensated by a gradual increase in meat prices.

In Q1 2021, adjusted EBITDA has decreased by 53%, in line with the decrease in gross profit.

Grain growing operations      

Grain growing segment's revenue for Q1 2021 amounted to US$ 9 million compared to US$ 25 million in
Q1 2020. The decrease was mainly attributable to the lower amount of crops in stock designated for sale as of 31 December 2020, compared to stock for sale as of 31 December 2019, mainly as a result of lower yields in 2020.

IAS 41 standard loss for Q1 2021 amounted to US$ 22 million compared with US$ 8 million in Q1 2020. The loss represents the net change in 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 as a result of the harvest cycle and seasonality.

Meat processing and other agricultural operations

Sales volume of meat processing products decreased by 3% year-on-year to 7,607 tonnes in Q1 2021. The average processed meat price increased by 10% year-on-year to UAH  75.59  per kg in Q1 2021, mainly in line with poultry price increase.

Sales volumes of convenience food in Q1 2021 remained relatively stable at 4,180 tonnes. The average price in Q1 2021 increased by 7% to UAH 40.29 per kg (excluding VAT).

¹⁾ pps - percentage points;

²⁾ includes milk, cattle and feed grains.

Segment revenue in Q1 2021 increased by 6% compared to Q1 2020 to US$ 36 million mainly due to increase in price of meat processing products. The segment's adjusted EBITDA decreased to US$ 4 million mainly as a result of lower returns earned from meat processing products due to higher poultry costs which was only partially compensated by increase in prices.

European operating segment (PP)

In Q1 2021, poultry sales of the European operating segment increased by 6% to 16,042 tonnes. This was facilitated by increased production of chicken meat following expansion of facilities in Croatia and Serbia. The average price decreased by 3% in Q1 2021 to EUR 2.48 (Q1 2020: EUR 2.56).

¹⁾ includes sausages and convenience foods

In Q1 2021, meat processing products sales of the European operating segment were 9,148 tonnes, with an average price of EUR  2.71, broadly stable year-on-year.

¹⁾ pps - percentage points.

European operating segment's revenue in Q1 2021 increased by 12% to US$ 87 million (Q1 2020: US$ 78 million), mainly as a result of the increase in poultry sales volume.

Adjusted EBITDA (net of IFRS 16) amounted to US$ 12 million for Q1 2021 and US$ 11 million for Q1 2020. Adjusted EBITDA margin (net of IFRS 16) remains on the same level of 14%.

Current Group cash flow

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 Cash used in financing activities

Cash flow from operations before changes in working capital for Q1 2021 amounted to US$ 65 million (Q1 2020: US$ 77 million).

Use of funds in working capital is mostly related to:

·      investments in inventory (corn, sunflower and soya) designated for internal consumption until the next harvest in 2021 as well as higher grain prices in Q1 2021 compared to Q1 2020;

·      investment in inventories, related primarily to grain growing entities in respect of the forthcoming spring sowing campaign (seeds, fertilizers, plant protection products, etc.);

·      increase in VAT receivable, which is expected to be reimbursed in Q2.

In Q1 2021 total CAPEX amounted to US$ 23 million mainly related to modernization projects, new products development and the maintenance and improvement of Perutnina Ptuj production facilities.

Debt Structure and Liquidity

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 31 March 2021, the share of long-term debt in the total outstanding debt remained unchanged at 90% of total debt. The weighted average interest rate is around 7%.

As of 31 March 2021, MHP's cash and cash equivalents amounted to US$ 140 million. Net debt increased to US$ 1,315 million, compared to US$ 1,244 million as at 31 December 2020.

The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 4.28 as of 31 March 2021, 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 (e.g. dividend distribution, investments in third parties), mergers with third parties outside of the Group, and granting of financing of any kind to third parties.

These measures became effective from the date of publication of the audited consolidated financial statements for the year ended 31 December 2019 (14 April 2020) until publication of the financial statements the first quarter ended 31 March 2020 (19 May 2021).

As a hedge for currency risks, revenue from exports 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 Q1 2021 amounted to US$ 217 million or 49% of total revenue (US$ 237 million or 53% of total sales in Q1 2020).

SUBSEQUENT EVENTS

On 19 April 2021 merger of MHP SE with its subsidiaries, namely Raftan Holding ltd, Hemiak Holding ltd and Eledem Investments ltd, took place. All assets and liabilities of merging companies have been transferred to the succeeding company MHP SE.  Subsidiary companies were dissolved.   

Outlook

Following a difficult first quarter in which sharply increased costs of poultry production, which were adversely affected (as expected) by higher grain and fodder prices, could only partly be recovered by increased poultry prices, we expect visibly improving trends to impact more favorably on our business over the next several months.  In poultry, production costs are expected to moderate while in the second quarter prices have continued to increase in both domestic and international markets and are expected to remain strong for the balance of the year.  Grain prices, although unusually volatile recently, have been increasing substantially since the second half of 2020 and this strengthening trend is currently expected to continue.  Growing conditions thus far have been encouraging so that, in the absence of a repeat of the adverse weather conditions seen in summer 2020, crop yields could return at least to historical norms.  On balance, while it is too early to predict an improved outlook for the full year and how it will be realized by the end of the year, we are currently optimistic that MHP will at least meet current expectations in 2021. 

Notes to Editors:

About MHP

MHP is the leading producer of poultry products not only in Ukraine, but also in the Balkans (Perutnina Ptuj Group).

Ukraine: MHP has the greatest market share (over 30% of poultry consumption) and highest 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). Complete vertical integration practically eliminates MHP's exposure to raw material price fluctuations since its grain production exceeds internal consumption requirements, allowing the Company to be an important participant in the international commodity trade.  In addition to cost efficiency, vertical integration also enables MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products all the way to the point of sale. To support its sales, MHP maintains a distribution network consisting of nine distribution and logistical centers within major Ukrainian cities. MHP uses its own truck fleet to distribute its products, reducing overall transportation costs and delivery times.

MHP also has a leading grain cultivation business growing corn, soya and sunflower 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 (PP) is a leading poultry and meat-processing producer in the Balkans, with production sites in four Balkan countries: Slovenia, Croatia, Serbia, Bosnia and Herzegovina. PP owns distribution companies in Austria, Macedonia and Romania and supplies products to fifteen countries in Europe. PP is vertically integrated across all states of chicken meat production - feed, hatching eggs production and hatching, breeding, slaughtering, sausage production and further poultry processing.

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

Forward-Looking Statements

This press release might 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 considerably differ from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.

                                                                MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

                                                                As of and for the three-month period ended 31 March 2021