21 November 2022

Basing on the latest MHP financial report its performance in Q3 improved, current financial standing is acceptable.

In Q3 MHP decreased its poultry production in Ukraine y-o-y by 13% to 169k tons (meanwhile increasing output in Slovenia by 11% to 33k tons). Sales dynamics was better – in tons poultry sales decreased by 4% (export declined by 9% to 99k tons due to logistics difficulties, local sales increased by 2% to 78k tons).

We note that despite export sales decline, the share of export in total MHP poultry sales remains at above 50%.

Average poultry export price in Q3 made $2.49 per 1 kg (+41% y-o-y), average domestic price - $1.35/kg. Due to increase of export price MHP revenues from poultry realization grew by 7% y-o-y to $392M.

In the reporting quarter sunflower oil sales made 95k tons (vs. 37k tons in Q3 2021), which led to sunoil revenues growth from $67M up to $149M.

Despite the growth of S&D costs EBITDA margin of MHP poultry segment (which includes sales of poultry and vegetable oils) stays stable y-o-y at 16%. In absolute terms segment’s EBITDA made $84M (vs. $70M in Q3 2021).

In grains growing segment in Y2022 the company increased its yields vs. previous year for wheat (up to 5.5t/ha), sunseeds (2.9t/ha), soybeans and rapeseeds, while corn yields have been decreasing vs. close-to-record last year’s figures (7.6 t/ha vs. 10 t/ha).

As for grains growing segment profitability, in Q3 2022 MHP reported positive operating profit of $16M.

As a result total MHP EBITDA in Q3 made $135M, below last year’s $208M. This decrease is fully due to high base as Y2021 was very successful for the company.

If we consider that in Q3 operating cash flow of MHP was close to EBITDA and made $122M, we note that despite all difficulties financial performance of the company in last reporting quarter can be estimated as quite good.

Unfortunately due to problems with electricity supplies caused by russian missile attacks of Ukrainian energy infrastructure, MHP faces new operating risks related to frequent blackouts, which can negatively impact operating performance of the company in Q4.

Another negative factor is decrease of global poultry prices which happened during last months, which leads to decline in MHP poultry sales prices.

Above-mentioned facts are to negatively impact financial performance of the company in Q4, while recent prolongation of grains corridors out of Ukrainian ports operating should lead to lower logistics costs and higher grains growing segment profitability.

We additionally note improved liquidity position of MHP which is now perceived as key success factor for any Ukrainian company in short-term. Because of good operating cash flow in Q3 cash balance of the company increased from $222M as of June 30 up to $317M at the end of September.

MHP debt burden is quite large as itself ($1.5 bln as of September 30 disregarding land lease obligations), but it is almost fully long-term with main principal payments starting from Y2024.

Finally we report general financial performance figures for the whole 9m 2022 period and their comparison vs. 9m 2021 and 9m 2020 results.

$M	9m 2020	9m 2021	9m 2022
Revenue	1 414	1 647	1 876
EBITDA	332	552	304
Operating cash flow	138	258	130

As one can see despite the war profitability and operating cash flow figures are quite close to those of 9m 2020 period.

Summary. Despite negative impact of the war, partially due to favorable global markets situation, we estimate MHP financial performance during last months as good. At that MHP faces new challenges which can lead to worsening of performance in the future, so on positive side we note quite good liquidity of the company which provides for necessary margin of safety in short- and middle- term period of time.