MHP SE (MHPC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Now I'd like to welcome you to MHP's First Quarter 2025 Results Conference Call on the 21st of May 2025. [Operator Instructions] So without further ado, I'd like to pass the line to Anastasiya Sobotyuk, Director, Investor Relations. Please go ahead.

Thank you very much, Louis. Dear stakeholders, good day, and thank you for joining us for MHP's conference call dedicated to our first quarter results. My name is Anastasiya, Director of Investor Relations and ESG compliance and reporting. I am joined today by Viktoriia Kapeliushna, Chief Financial Officer of MHP. Together, we will present and discuss the company's financial and operational performance for the reporting period. Please note that today's discussion is based on the press release and financial statements issued earlier today. In addition, during our discussion, we will share our outlook and strategic plans, which reflect current assumptions as well as prevailing domestic and international market trends. We kindly ask you to take this context into account during our call. We go to Slide #3 of our presentation. A few words about macro environment, despite the challenging environment, including ongoing missile attacks on critical infrastructure. Ukraine's economy demonstrated notable resilience in 2024. According to official data, real GDP grew by almost 3% compared to the previous year. Looking ahead, the National Bank of Ukraine projects further recovery with GDP expected to expand by 3.6% this year 2025. Inflation trends have also shown some moderation. The consumer price index for the first quarter of 2025 rose by 3.5%, which is down, by the way, from 5.2% in the fourth quarter of 2024. The Central Bank current forecast anticipates inflation for the full year to reach 8.4%. On the currency front, since October 2023, the National Bank has adopted a managed exchange rate regime, introducing more flexibility into foreign exchange market. Exchange rate remains highly sensitive to global geopolitical developments, including shifts in international trade and tariff policies. In the agricultural sector, projections from the Ministry of Agriculture indicate continued strong performance. The total area allocated for agricultural crops is expected to exceed 23 million hectares this year. Of this, around 11 million hectares, which is approximately 50% of the total will be dedicated to grain cultivation, underscoring the sector's strategic importance to the national economy. These indicators collectively highlight both the resilience and the potential of Ukraine's economy as it continues to navigate a complex and evolving environment. Let's move to Slide #4 of the presentation. We are turning to our financial performance for the first quarter of 2025. Compared to the first quarter last year, revenue increased across all operating segments, reflecting a strong overall sales performance. However, gross profit experienced a slight decline, primarily due to weaker margins in the poultry and vegetable oil segments. These were partially offset by improved results in the agricultural segment. Operating profit and EBITDA decreased year-on-year. This was largely driven by the decline in gross profit, higher payroll-related expenses across selling, general and administrative functions as well as additional war-related costs recognized under the other operating expenses. When comparing Q1 2025 to the fourth quarter of 2024, we observed a moderation in gross profit growth. This was mainly attributable to a softer performance in the agriculture segment, although this was partially offset by improved profitability in the poultry segment. Operating profit and EBITDA declined quarter-on-quarter in line with the gross profit dynamics. However, net profit increased during the quarter, and this improvement was primarily due to the relative stabilization of the Ukrainian Hryvnia against both the U.S. dollar and the euro, which resulted in a foreign exchange gain in the first quarter 2025, contrasting with the foreign exchange loss recorded in the previous quarter. Let's move to Slide #5 of our presentation. This slide shows the financial results by segment. And in the first quarter of 2025, as you can see, the poultry and related operations segment remained the largest contributor to the poultry to the company's performance, accounting for 54% of total revenue and 72% of total EBITDA. This was primarily driven by an increase in poultry prices, particularly in export markets, which continued to show strong demand. Adjusted EBITDA for the first quarter amounted to $119 million (sic) [ $111 million ], representing a 7% year-on-year decrease. This decline was mainly the result of weaker financial performance in the poultry and vegetable oil segment, driven by higher production costs. These challenges were partially offset by positive results in agriculture segment and a stable financial contribution from our European operating segment. Let us now take a closer look at the performance of each business segment, and I will now hand over to Viktoriia for the details.

Thank you, Anastasiya. Good afternoon, everyone. Let's have a precise look at poultry and related operations segment performance. Slide #6. MHP results in Q1 are higher than in Q1 2024, supported by a gradual recovery in poultry prices, which helped offset the sharp cost increases experienced in Q4 last year. The growth compared to the previous quarter was mainly due to the revaluation effect under IFRS 41 standard, which was caused by increase in the prices of hatching eggs and increase in chicken meat stocks. Poultry costs in Q4 last year increased significantly, mainly due to the higher corn and gas prices. While poultry costs in Q1 this year remained relatively stable compared to the previous quarter, we anticipate the further increases driven by rising in prices and inflationary pressure on production inputs in Ukraine. Poultry price in the Q1 increased by 5% compared to the Q4 last year, mainly on export market. This was caused by an increase in costs by the end of last year. Commodity price volatility remains a key challenge for MHP. To reduce exposure, we are strategically shifting towards higher margin and value-added products, producing more noncommodity products. We will continue to prioritize the sales of non-commodity products with a focus on those delivering the highest profitability. A few words about our vegetable oil segment, Slide #7. In Q1 2021, our EBITDA for the vegetable oil operation decreased compared to the Q4 as well as compared in Q1 last year. The decline in vegetable oil result compared to the last year was primarily due to the high sunflower and soybean prices and low oil prices. Oil prices experienced a downward trend, while sunflower prices increased, resulting in reduced oil crushing margin. This was caused by lower yield in 2022 and increased crushing production capacity in Ukraine. As a result, we expect this segment to deliver low profitability in 2025. Let's move to Slide #8, agricultural operations. The winter sowing campaign was successfully completed, covering approximately 82,000 hectares, 65% under winter wheat and 35% under winter rapeseed. Spring sowing is progressing well with corn and sunflower fully planted and soybean 90% completed. During the first quarter, grain price continued to rise However, this is not certainly regarding the final price level by the end of the year. Segment revenue in Q1 amount $92 million compared to the $69 million in Q1 last year. The increase was mainly due to the higher sales volume of grains, particularly wheat and soybeans to external customers. EBITDA of agriculture operations segment in Q1 was $35 million compared to the $17 million last year. This result was primarily driven by higher grain prices, especially for corn and flour seed, sold to poultry and vegetable oil segment, respectively. Looking ahead, MHP will keep working to improve crop yields and take advantages of strong market price while carefully managing rising costs and market risk. Let's proceed to Slide #9, several words about European operating segment. In Q1, revenue from European operating segment rose 8% year-on-year to $147 million, driven by higher sales volume of both poultry and processed meat products. Poultry meat volume growth was supported by increased sales in Slovenia, Italia, Macedonia with average sales price showing a slightly year-over-year increase. Processed meat volume also grew modestly, mainly due to rising demand for convenience food accompanied by increase in average sales prices. EBITDA of European operating segment in Q1 remained almost at the same level as Q1 last year. MHP is focused on growing its European presence and enhancing its product mix to boost profitability. Slide #10. A few words about our cash flow and liquidity position. Cash flow from operations before change in working capital in Q1 increased to $101 million compared to the $90 million in Q1 2024. Investment in working capital amount to $52 million. This was mainly due to temporary rise in trade receivables, particularly from poultry and vegetable oil sales. This expect to normalize in Q2 2025. Inventory and crop field investment remained high due to the sowing campaign, but this impact was largely offset by the use of harvesting crops from 2024 and growth in recoverable VAT. Total CapEx in Q1 amount to $60 million and remained generally stable compared to the last year. This investment focused on maintenance and modernization of existing facilities, investment in cost optimization and culinary strategy project, expansion and improvement of Perutnina Ptuj production facility. As you already know, in line with the EU expansion strategy, MHP signed SPA in March, April this year to acquire 92% of Spain's UVESA Group, valuing equity at approximately $270 million. Completion is subject to regulatory approvals. The deal will be financed through a mix of acquisition financing and internal funds. Regarding the debt, by the end of the period, the company total debt was nearly $1.7 billion and net debt about $1.2 billion. Liquidity position at the end of Q1 was $359 million in cash, stable compared to the 1st January compared to the beginning of this year, 60% of which was held by group subsidiary outside in Ukraine. By the end of the first quarter, the group's level (sic) [ leverage ] ratio was 2.13x, significantly below the defined limit of 3.2x. We recognize the importance of 2026 notes and remain committed to addressing the maturity in timely and responsible manner. Due to Ukrainian capital control, export proceeds generated in Ukraine must be repatriated with 120, 180 days, limiting our ability to use offshore cash for Eurobond repayment. While MHP can service its domestic loan obligations and view restrictions currently prevent principal repayment and limit foreign currency payment to nonresident entities on legacy intergroup loans. We continue to operate under a highly challenging environment due to the ongoing war, and we appreciate the continued support from our investors since February 2022. We are committed to maintain open communication and constructive engagement and are keen to continue our fruitful cooperation going forward. And now I give the floor to Anastasiya.

Thank you very much, Viktoriia. Thank you for the presentation. I think this concludes the presentation from our side. Louis, please assist us with the Q&A. Thank you.

[Operator Instructions] Our first question is from [ Augusto Neve ] from Macquarie Asset Management.

Can you give us some more color on the refinancing options that you're seeing for the 2026 bond? Any conversation with banks or other alternatives that you're going to have in order to refi that would be helpful for us to understand. And the second one has to do with the working capital usage, especially in account receivables. You mentioned that you've seen that normalizing in the second quarter is something that you've seen in the month of April and most of May now.

Yes. Thank you for your question. I will start from the second question. Yes, now with the trade receivables is more stabilized and we have investment in capital significantly lower around $7 million to $8 million in trade receivables. What is regarding our Eurobond 2026, as I noticed during the presentation, is a very, very important issue for us. And we understand and we continue to work around this issue. But at the same time, I would like to emphasize that, unfortunately, we have a National Bank and view restriction, which unfortunately don't allow to us to pay principal payment. But at the same time, yes, we understand how important this issue is the main issue for MHP for 2025.

Our next question comes from Stella Cridge from Barclays.

And I wondered if you could ask on the poultry prices. It looks like they strengthened a little quarter-on-quarter. And I was wondering if you could just talk through what the trends are in both the local market and export market, that would be great. And secondly, in the last few weeks since you had the last results call, has there been any developments on the Spain acquisition. Could you just run through again this $270 million equity that you referred to and the overall kind of size of funding do you expect to be needed with the acquisition, that would be great.

Regarding your question regarding the price. Price, yes, as I told during the presentation that our cost of production increased significantly in the first quarter last year due to the increased significantly corn and prices and this is why, yes, in the first quarter, we increased our price compared to the last year it was increasing our average price more than 10% compared to the first quarter around 5%, mostly due to the European price. And we gradually increased price on domestic -- is increasing price on domestic market because last year, yes, we did not increase price. Cost increased more than 13%, and we gradually increased on domestic -- on local market, but very, very gradually. Regarding the second question -- yes. Regarding second question, unfortunately, yes, as I told you in our previous conference call, we need to -- for us, it's very important to receive a lot of permission from different antitrust from 7 countries. Until today, we received 4 permission from 4 countries. And plus, we need to receive permission for EU commission. Yes, now we're in process. And other -- and regarding -- and I told you during the presentation that we understand that we will close this transaction, attract acquisition finance and internal funds.

That's super. Many thanks for all that detail and -- but what is exactly this $270 million? What does that refer to?

Yes. Yes, you're right. We paid for the equity $270 million. Yes, you're right.

Okay. For the equity component.

Our next question is from Dmitry Ivanov from Jefferies.

Hello. Can you hear me?

Yes, we can hear you.

Yes, yes.

Very helpful. May I ask you about like the UVESA acquisitions once more and apologies for many questions. This -- and can you update us on this acquisition financing status? Because like as you mentioned just now, you use a mix of cash on hand and the acquisition funding. Have you received any commitments from banks already? And how is this progressing like in terms of the numbers and et cetera. Just if you could update us on the status of their funding with any commitments received, that would be much appreciated. And maybe one sub question here. Do you have any condition precedent like in this agreement and SPA that the closure of the deal is subject to -- subject to getting this financing done by the specific date, for example, by September, October this year. So this is like my first question.

Yes. Thank you for your question. Maybe I did not catch your last question, but I understand your question, and I understand you're interesting about acquisition finance. Yes, now we're in process with negotiation with bank. But unfortunately, I cannot disclose for you this information, yes. And we expect this minimum 70% of total debt to attract the special financing, yes. Regarding -- please repeat the second question.

Are there any kind of specific deadline for you to get this financing in this SPA agreement? So for example, are there any deadlines termination dates in the SPA by which you have to obtain this financing basically? Or otherwise, it will be like this agreement will be terminated?

Yes. No, no, no. We understand, yes, because we need to receive -- as I told previously, we need to receive all permission, regulatory permission. And after that, during some few days and weeks, we need to repay. And we understand that, yes, we will achieve and we will get our financing until this day.

Understood. Understood. And my second question would be, there were some headlines about European countries potentially imposing prework orders on Ukrainian products, including poultry. Can you maybe share any color? Do you think it might impact your export volumes to Europe this year. So if you could like share if it's like a risk a concern for you, like reposition of pre-war trade quotas that we saw like in the headlines.

Yes, you're completely right. Yes, until today, we don't have yet clear information. But in a way, we understand that the European Union will implement a quota regime. And unfortunately, not just regarding the MHP and regarding all poultry companies in Ukraine and the company who produce sugar and other agriculture produce. Yes, unfortunately, for Ukraine, it would be implemented some quarters and some limitations. -- not -- in general, it's not so good for country and Ukrainian producer. What is regarding MHP, Yes, we understand that this year in 2025, we will export to European Union less than previous. But at the same time, we understand and we always -- during all our history, we always have the gold rules for our export diversification, geography diversification. And that is why we have as a market for export our product. Yes, it is Canada, British, MENA region, okay? In Europe, yes. Yes. So we will unfortunately export less.

Can you remind us what was -- how much was exported to Europe last year? So for us, just to understand like as exposure.

Yes. Last year, it was approximately 1,030, approximately 1,025, 1,030.

Last year?

Last year. Yes.

[Operator Instructions]

I can see that we do not have any further questions. Am I right?

Yes, that is -- we have tax questions. Do you see that?

I think we can actually take those questions online. I mean I can answer those questions later and directly to the person who raised those questions to the people who raised those questions, if you don't mind.

Sounds great. Perfect. I'll let you conclude the call.

Yes. Thank you very much. In this case, thank you very much for the meeting. And of course, we remain at your disposal in case you have any further questions. Have a nice day. Bye-bye.

Thank you.

This concludes the call. Thank you, and have a nice day.