19 May 2016
Financial results in last reporting period have been in line with expectations with stable revenues, decrease of profitability to more sustainable level and rather good liquidity position. In addition, MHP already paid earlier approved dividends of USD 80M to its shareholders.
Total proceeds in Q1 2016 made USD 244.4M, close to the corresponding period of previous year level. Poultry realization comprised 60% of total realization (USD 145M), also practically unchanged vs. Q1 2015 (USD 142M). As was reported before , volumes of poultry sales in natural terms grew by 4%, notably export increased by 23% with significant growth of realization on the target – MENA and EU – markets. In reporting period export made 27% of poultry realization in natural terms (32kmt), at the moment export operations development remains main priority for MHP management. In Q1 2016 the company entered into joint project regarding poultry processing in Netherlands (to facilitate access to EU market). At the moment facilities are working in trial mode.
Regarding poultry realization prices, because of generally not much favorable situation on the world poultry market (for example, Turkish poultry producers have rather hard times), in latest reporting period export prices declined by 13% vs. Q1 2015. So, average (export and domestic) poultry realization price in UAH terms increased by 17% (because of UAH devaluation), but in USD declined by 4%.
As was already noted , in Q1 2016 sunflower and soybean oil realization significantly increased vs. corresponding period of previous year – by close to 35% in both natural and money terms (up to USD 71M, 29% of total). It considerably supported reporting period sales in general, taking into account factual absence of grains realization to 3rd parties (USD 2M vs. USD 28M, due to low harvest in Y2015). Soybeans crushing plant, launched in previous year, now works with 50% capacity utilization (covering internal needs in soybeans meal for fodder production).
MHP profitability in reporting quarter declined: EBITDA margin made 36% vs. 51% in Q1 2015, main reason - significant influence of UAH devaluation on Q1 2015 profitability (by lowering costs), so in last quarters it just returned to more sustainable levels (as an example, EBITDA margin was at 26% in Q4 2015). Negative influence on the margin during last period made already mentioned relatively low yields for main crops in current season (we can expect much better result in new season) and decline in realization prices (though it was offset by costs reduction).
In absolute terms EBITDA in Q1 2016 made USD 89M, by 28% lower than in Q1 2015, which led to EBITDA/Net Debt ratio as of 31.03.16 at 2.9x, still within Eurobond covenant (3.0x), but margin of safety (from covenant fulfillment perspective) is quite low, especially taking into account high base of Q2 2015, when EBITDA made USD 147M. Taking into account current debt burden (Net Debt as of 31.03.16 at USD 1 225M), not to breach covenant EBITDA MHP in Q2 2016 should reach USD 130M, which we see as questionable. Important here to note is that breach of covenant will not lead to technical default, but will only not allow MHP to attract new debt till covenant is fulfilled.
As for general balance sheet structure of the company, following UAH devaluation it remains average (Debt/Equity is close to 2.2x, Equity/Fixed Assets – 0.44x), though main portion of debt is long-term, providing for good liquidity position – Current Ratio is 1.7x, so that in short-term period prospects of MHP are quite acceptable. Principal shareholder has the same view, paying USD 80M of dividends basing on Y2015 results (which we see as more negative factor than positive) despite worsening of balance sheet structure.