23 May 2023

MHP, one of the largest European chicken producers, has published its financial report for the first quarter of 2023.

$ mln	1êâ 2023	1êâ 2022
Poultry sales, kmt	188	159
Average poultry price, $/kg	1.86	1.84
Revenues	746	553
EBITDA	117	43
Operating cash flow	96	54

The total volume of chicken output by the company in Ukraine in the reporting quarter was almost unchanged compared to the same period of the last year and amounted to 177.6 thousand tons. At the same time, due to a significant increase in exports (+26% compared to last year), the volume of chicken sales increased y-o-y by 19% and amounted to 188.5 thousand tons.

The increase in exports happened due to a relatively low base as in the first months after the start of the full-scale Russian invasion, exports slumped to 13-14 thousand tons per month, while starting from June - more than 30 thousand tons.

The share of exports in the total sales volume of poultry meat in the first quarter of 2023 was 60%, the average export price was $2.12 per 1 kg, while the average sale price on the domestic market was $1.44 per 1 kg.

Due to a relatively quick reorientation to new export routes, since the beginning of the invasion, MHP has significantly increased its share among sunflower oil exporters. In the new season, after the partial opening of Ukrainian ports for agricultural products, this share decreased, but, according to our estimates, MHP remains the number two exporter of sunflower oil from Ukraine (after Kernel).

Unlike sunflower processors, for whom this activity is the main one, for MHP oil processing is an auxiliary segment to cover the needs of poultry production in feed (the component of which is sunflower and soybean meal). Therefore, to ensure the main business of the company, unlike the competitors , there was simply no other way out than to find new logistical opportunities for oil exports as soon as possible.

In the reporting quarter, total sales of sunflower oil amounted to 77.2 thousand tons, compared with 96 thousand tons in the previous quarter and 33 thousand tons in the first quarter of 2022. The company's approximate share among oil exporters was 6% (since the beginning of the current season - about 7.5%).

Considering still quite good margins of oilseeds crush in Ukraine in the first quarter of 2023, as well as the relative stabilization of export prices for poultry meat after a decrease during the fourth quarter of 2022, the financial performance of this segment was good. EBITDA made $97 million, up 13% quarter-on-quarter and three times higher year-over-year, partly due to lower war-related expenses, from $21 million in the first quarter of 2022 to $4 million in the reporting quarter.

In the grain growing segment, MHP's revenue in the reporting quarter increased significantly compared to last year ($69 million and $35 million, respectively, a year ago grain exports stopped at the end of February after the start of the invasion), but the operating profit remained at a level close to zero.

As of the end of 2022, the volume of grain and oilseed crops in the company's balance sheet amounted to 1,050,000 tons with an average net cost of $213 per 1 tons . This value, in general, corresponds to the expected weighted average sale price of grain and oilseeds, so the expected financial result of the company from the sale of the remaining grain stocks is also close to zero.

We would like to remind that due to the low corn yields in Vinnytsia region (main region of MHP grains growing operations), the company's average corn yield in the current season has significantly decreased compared to the previous one (from 10 t/ha to 7.2 t/ha), which negatively affected the general financial performance of the direction.

On the positive side, as of now, MHP has almost completed the spring sowing campaign, the group's total sowing area in the new season amounts to more than 350,000 ha.

Fairly good financial results in the reporting quarter were demonstrated by the European segment of MHP - Slovenian asset Perutnina Ptuj. The volume of poultry meat sales by the Slovenian company amounted to 19.1 thousand tons (at the level of the previous quarter and by 1.4 thousand tons more than in the first quarter of 2022), the average sales price also increased compared to last year and amounted to 3.43 euros per 1 kg .

Perutnina Ptuj's revenue in the reporting period increased by 24% compared to the same period last year and amounted to $125 million, EBITDA was $19 million.

Due to the profits of the poultry meat production division and the seasonal sale of grain, in the reporting quarter the operating cash flow of the company (before interest payments) amounted to $157 million and was mainly directed to the payment of interest on loans and bonds ($59 million, including deferred interest from the first half of 2022) and investment activity ($38 million, we remind you that the group has quite ambitious plans for investments in 2023).

The amount of cash on the balance sheet of MHP as of the reporting date increased compared to December 2022 and amounted to $351 million. This allows the group to have a solid margin of safety in case of negative events.

On the other hand, the main financial risk for the company remains unchanged - a significant level of debt burden, which is about $1.5 billion. At the moment, there is uncertainty about the company's willingness and ability to repay bonds worth $500 million in 2024. Other bond issues mature in 2027 and 2029.