MHP reports financials for 9m 2015 cautious optimism

Despite generally not much favorable environment, related to geopolitical and economic crisis in Ukraine, which negatively affected MHP activity, the company still demonstrates sound financial results, keeping its dominant share of domestic poultry production market and focusing on re-development of poultry products export operations and further expansion.

According to report, in 9m 2015 total proceeds made close to USD 900M, by 13% lower vs. corresponding period of previous year. Export revenues remain relatively stable vs. 9m2014 at close to USD 406M (45% of total) with poultry and sunflower oil figure slightly lower than for 9m2014, while export of grains increased. Poultry export realization is under pressure because of fall of sales into CIS countries, so that MHP tries to offset lost volumes by export to other countries and regions mainly EU and MENA. Still poultry export realization in natural terms decreased by 22% in Q3 2015 (partially because of relatively high base of Q32014), for 9m 2015 figure is relatively flat. Export into EU grew by 80% (close to 20k tons exported), more premium and marginal products are exported into EU (vs. other destinations). Facing decrease in export of poultry, while expanding production capacities, in Q3 the group increased supplies on domestic market by 15% vs. Q32014. The company explains it by growing domestic demand for cheaper poultry meat (as substitute of more expensive pork and beef), while it can be the case that, having large market share, and therefore influence on the market, the company just decided to support its realization volumes by decrease of prices (EBITDA margin of MHP made just 33% in Q32015 vs. 49% in 1H2015, but exact reasons are to be additionally investigated).

As for other (than poultry) production realization, in 9m2015 sunflower oil sales made USD 171.0M (-5% to 9m 2014 because of average market price decline), grains realization to 3rd parties comprised USD 102M (vs. USD 48M in corresponding period of previous year, realization of wheat and corn stock as of beginning of Y2015). Along with it, prospects of new seasons harvest realization are more bleak: 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, prospects are far worse expected corn yield to make just 6.8 tons per ha, at the lowest level for the last 6 years (corn accounted for 37% of total sown area in last season).

EBITDA of MHP in 9m2015 made close to USD 386.0M (vs. USD 453.0M in 9m 2014), with decrease mainly occurring in Q3, when margin made just 33%. There are several reasons of such performance: effect of UAH devaluation in Q32014 (leading to high base of comparison), less profitability of farming operations, and another potential reason (not confirmed) focus on realization volume on domestic market at account of margin.

Balance sheet structure of the company worsened as a result of UAH devaluation, so that at the moment Debt (USD 1.2bln) is main source of assets financing. On positive side is the fact that the company has no problems with extension of debt maturities and solid Debt/LTM EBITDA ratio of 2.3x. Vertical integration is main supporting factor, which provides margin of safety for future operations. As for future investments, the company plans to keep increasing its poultry production capacities (by further development of Vinnitsa complex), land bank growth (at least +50k ha in Y2016) and also looking for purchase of some assets in EU (to facilitate realization of poultry production in this region). Expected volume of investments in Y2016 up to USD 250M.

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