MHP reports 2% slide in 2018 EBITDA

Ukraine’s leading poultry producer MHP (MHPC LI,
MHPSA) reported a 20.8% yoy jump in revenue to USD 1,556 mln and a 2.0% yoy
slide in EBITDA to USD 450 mln in 2018, according to its March 20 financial
report. The company’s net income plunged 44.4% to USD 128.1 mln in 2018.

MHP’s operating cash flow before working capital
changes decreased 4.9% yoy to USD 413 mln, but cash flow from operations
(before profit tax and interest) rose 17.0% yoy to USD 368 mln due to smaller
cash outflow for working capital. The company’s total debt advanced 30.2% yoy to
USD 1,343 mln as of end-2018 and its net-debt-to-EBITDA ratio worsened to 2.51x
(vs. 2.25 a year ago).

MHP’s poultry meat segment generated USD 1,241 mln in
revenue, or a 18.1% yoy increase. The segment’s EBITDA declined 15.3% yoy to
USD 311 mln, while EBITDA per kg of poultry meat dropped 17.2% yoy to USD 0.53
in 2018. The company’s farming segment generated USD 151 mln in total EBITDA
(58.9% yoy growth), while its meat-processing segment’s EBITDA decreased 15.8%
yoy to USD 16 mln in 2018.

The company offered new information on the capacity of
its newly acquired Slovenia-based producer Perutnina Ptuj, which it reported to
be about 55 kt of poultry meat and 35 kt of value-added meat per year. MHP also
reported making a prepayment of EUR 20 mln (USD 23.8 mln) before the year end
of 2018. The deal was financed by cash from operations and a bank loan in the
amount of EUR 100 mln. MHP plans to use the new asset to develop positions in
the EU market and is going to increase its capacity over next 3-5 years.

Andriy Perederey: MHP’s
EBITDA was lower than our expectations of USD 480 mln while the company’s
poultry segment EBITDA was close to our expectation of USD 320
mln. The company’s EBITDA declined due to reduced
government grants and higher SG&A expenses. Most government grants received
by the company were related to CapEx, not operations, and didn’t affect 2018
EBITDA.

MHP received USD 34.4 mln of grants in 2018, according
to its compensation program for the construction and reconstruction of
livestock farms, while the company received USD 52.6 mln in state support in
2017. Without grants, the company’s EBITDA was USD 449 mln in 2018 vs. USD 406
mln in 2017 (or 10.4% yoy higher).

We see the company’s key growth drivers will be
higher poultry production volumes and focus on export sales. We remain bullish
on MHP stock and neutral on its Eurobonds.