15 March 2017
Despite challenging environment on the global poultry market and decrease of state support, due to growing export operations and good current season crops harvest, MHP demonstrated good operating and financial results in Y2016. Balance sheet structure remains average with good liquidity position on positive side.
Q4 2016 financial results
EBITDA margin, %
Due to growing export total MHP revenues in Q4 (USD 313M) increased by 24% y-o-y, export sales made 58% of total and made USD 180M (USD 118M in Q4 2015).
Break-downs of realization by segment during last quarters looked as follows:
Main part of grains and vegetable oil sales to 3rd parties is export. As for poultry segment, in last reporting quarter export accounted for 34% of total poultry realization in natural terms, we also estimate that export share in money terms was close to 37-40%.
On positive side we note increase of average poultry realization price in UAH terms by 11% vs. Q4 2015 (in USD price have been relatively stable) and by 9% vs. previous quarter (+7% in USD). Taking into account y-o-y growth of sales in natural terms by 10% (at account of export, domestic sales decreased by 4%), MHP revenues from poultry realization increased vs. Q4 2015 by 8% and made USD 176M.
In addition we note that despite 16% decline y-o-y, at the moment average export price (we estimate it at about USD 1.4-1.45/kg) is by about 15-20% higher vs. average domestic realization price, probably, partially because of different product mix.
MHP reports combined poultry&oils EBITDA as one figure, in Q4 2016 it made USD 46M (with 18% margin) vs. USD 67M a year ago (28% margin). Such dynamics can be attributable to decrease of export selling price, to changes in Ukrainian VAT system (decrease of VAT refund) and to USD 12M loss from biological assets revaluation (decrease in fair value of parent stock due to lower global market prices for hatchery eggs).
Revenues of the company from grains sales in Q4 2016 were close to USD 40M, which is significantly higher y-o-y (USD 15M) due to much better crops and yields vs. previous season. According to report wheat yield in current season made 6.5t/ha (6.0t/ha in MY2015/16), corn yield – 8.6t/ha (6.6t/ha), sunflower seeds – 3.2t/ha (3.1t/ha), MHP yields for the last years can be found here. We additionally note that total grains stock of the company as of 31.12.16 (847k tons) has been higher vs. previous year (757k tons), though book value per 1 ton is higher (USD 137 vs. USD 106), which means MHP accounted higher share of profits related to its unrealized crops in current period, which positively influenced EBITDA for Y2016.
Reported by MHP EBITDA per 1 ha for current season is USD 423, which is higher than was expected by us (USD 360/ha).
EBITDA margin, %
Total MHP proceeds in Y2016 made close to USD 1 135M, by 7% higher vs. previous year, with main contributing segments as follows (we note that in its report MHP excluded from continuing operations results of its Crimean enterprises, which have been sold to 3rd party in Q1 2017; taking into account results of Crimean assets, in Y2015 amount of proceeds have been at USD 1 183M):
Poultry realization in money terms increased y-o-y by 5.3%, as decline of average realization price in USD terms by 6% (mainly due to y-o-y export price decrease by 16%) was offset by growth of export (in tons) by 47% (while domestic realization in natural terms declined by 6%). Main objective of MHP at the moment is to develop export operations. Taking into account dominant positions of the company on domestic market, we have little concerns regarding MHP ability to take back its domestic market share.
Oils segment showed robust results with 25% increase of sales in money terms (despite average realization price decreased as well), on the other side decline in grains sales resulted from low stock of grains as of Y2016 beginning due to weak harvest in Y2015 - in H1 2016 revenues from grains sales made just USD 3M (vs. USD 52M a year ago). We noted above much better than a year ago grains sales in Q4, which is related to better current season yields of main crops.
Total MHP EBITDA in Y2016 made USD 415M vs. USD 436M a year ago (disregarding Crimean operations), main factor of decline – decrease of VAT refund by about USD 40M (due to changes in Ukrainian VAT system). As for decrease of selling prices, it was offset partially by growth of realization in natural terms and some inputs prices decrease. EBITDA margin in Y2016 made 36.5% vs. 41% a year ago.
As for EBITDA breakdowns by business directions, in poultry&oils segment in Y2016 it made USD 270M (vs. USD 343M a year ago), in Grains growing - USD 150M (USD 90M).
On positive side we note the fact that in a view of lower loss from assets revaluation due to UAH devaluation in Y2016 MHP showed net profit of USD 59.2M (vs. net loss of USD 125.7M in Y2015), and, what is more important good operating cash flow dynamics: in Y2016 net operating cash flow made USD 349.5M vs. just USD 110M a year ago. Partially it was related to lower fodder stock (decrease by USD 77M vs. 31.12.15), and it allowed the company to improve its cash position as of 31.12.16 up to USD 154.6M (vs. USD 63M a year ago).
Balance Sheet structure
As for general balance sheet structure of the company, following UAH devaluation (and still large domestic sales share in total revenues) it remains average (Debt/Equity is close to 1.8x, Equity/Fixed Assets – 0.55x), though main portion of debt is long-term, providing for good liquidity position – Current Ratio is 2.1x, so that in short-term period prospects of MHP are quite good.
Important to note is that as of 31.12.16 the group classified its Crimean assets (in total book value of USD 88.4M) as held for sale (have been actually sold for cash consideration of USD 77.5M in February 2017). As a result of sale group’s poultry production capacities decreased by 6.5%, meat processing capacities – by 12.6%.
In Y2017 MHP is to launch construction of Phase 2 (Line 1) of its Vinnitsa complex (along with biogas plant) with the aim to increase total poultry production to about 730k tons (vs. 573k tons in Y2016) till Y2020. In sales focus of the company will remain on export operations (plan for export in Y2017 – 220k tons vs. almost 190k tons in Y2016). At the moment processing enterprise in Netherlands is working with 100% capacity utilization (1.5k tons per month), MHP considers launching of similar enterprise in Slovakia.
In current year MHP is to pay USD 80M of dividends (on the level of previous year).