MHP reports financials for Y2015

10 March 2016

Despite some problems in operations in last year (decline of poultry realization at main export destinations (CIS countries), fall of USD-nominated average poultry price in a view of sharp UAH devaluation, some problems with late crops yields), the company demonstrated another bunch of quite decent financial results.

According to report, in Y2015 total proceeds made close to USD 1 183M, by 14% lower vs. corresponding period of previous year. Export revenues decreased by 10% to USD 524M (44% of total), poultry export dynamics was below expectations in 2H 2015, because of fall of sales into CIS countries. MHP tried to offset lost volumes by export to other countries and regions mainly EU and MENA, but volumes were still negatively influenced in Q3 poultry export realization in natural terms decreased by 22%, in Q4 by 19%. To further stimulate export operations the company plans to establish its physical presence on key target markets by creating new entities in EU and UAE. Also MHP obtained permission for starting export to new important market Saudi Arabia. In Y2015 export of sunflower oil has been rather stable (amount of revenues in Y2015 USD 234M).

MHP reported increase of domestic poultry realization in Y2015 by 5%, which compensated export decline. As MHP takes more than 40% of total domestic poultry consumption and market is stagnating, further share increase can be reached only with dumping, using good market brand and vertical integration. Along with it, significant part of other market players can be ready for such situation and has margin of safety to withstand such kind of market wars. Against such background management of the company decided to postpone realization of its Vinnitsa Project second stage (until export operations at new destinations will be established, as volumes produced on new facilities are to be mainly exported).

As for farming direction operations, in case yield for earlier crops was approximately on the level of previous year (for wheat at strong 6.0 tons per 1 ha), for late crops, because of unfavorable weather conditions, situation has been worse corn yield to made just 6.7 tons per ha, at the lowest level for the last 6 years (corn accounted for 37% of total sown area in last season), which negatively influences profitability of MHP operations in general (loss on EBITDA level because of lower than expected harvest not less than USD 40M).

In general, profitability of MHP operations further decreased EBITDA margin made just 26% in Q4 (vs. 33% in previous quarter and 40% in Y2015). To offset this decline, in Y2016 the company plans to increase its UAH-denominated poultry prices by 25% vs. Y2015 (on average), which though can put pressure on domestic realization volumes (also depending on actions of competitors). Total MHP EBITDA in Y2015 made USD 459M (vs. USD 555M in previous year).

Balance sheet structure of the company worsened as a result of UAH devaluation, so that at the moment Debt (USD 1.26bln) is main source of assets financing. On positive side is the fact that the company has no problems with extension of debt maturities and average Debt/EBITDA ratio of 2.7x. Vertical integration is main supporting factor, which provides margin of safety for future operations. As for future investments, further realization of Vinnitsa Project is postponed, in current year investments will be realized mainly into land bank expansion, imported eggs substitution and increase of some existing poultry producing facilities capacity. MHP is to pay USD 80M dividends in Y2015.

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