MHP EBITDA slides 13% yoy in 1H16
17 August 2016
Ukraine’s largest poultry producer MHP (MHPSA, MHPC LI) reported EBITDA of USD 235 mln in 1H16, a 13% yoy slide, according to its financials published on Aug. 17. The results were weighed down by its biggest segment, poultry, whose EBITDA fell 33% yoy to USD 139 mln. Farming EBITDA surged 45% yoy to USD 90 mln, including USD 76 mln (up 145% yoy) of net change in the fair value of its biological assets.
MHP managed to double yoy its net cash flows from its operating activities to USD 128 mln in 1H16, to a large extent due to a working capital release of USD 42 mln (compared to a large working capital investment last year of USD 100 mln). USD 44 mln was recorded as CapEx in 1H16, so free cash flow of USD 83 mln enabled the company to pay USD 80 mln in dividends.
The company refinanced USD 122 mln in debt that was due in 1H16. Therefore, its total debt stood almost unchanged at USD 1.3 bln as of June 2016 compared to March 2016 and December 2015. Total debt-to-LTM EBITDA was 3.04x in June 2016, somewhat below the effective incurrence covenant of 3.3x (an increase from 2.8x in December 2015).
Roman Topolyuk: MHP’s EBITDA decreased due to hryvnia depreciation, as local currency weakness wasn’t fully compensated by an increase in hryvnia-denominated prices. An increase in production costs also impacted the financial result. Should the hryvnia stay at its current level or devalue somewhat to UAH/USD 26-27 by the year’s end, MHP is on track to report EBITDA of USD 400 mln in 2016 (a 13% yoy decrease), thus being within the covenant of 3.3x. Any larger hryvnia devaluation presents a downside risk for MHP. The large and increasing amount of EBITDA from biological assets revaluation is a sign of concern to us.
We see that next year, the company will have to reduce its dividend outlays in half. We don’t see signs of any turnaround in MHP’s earnings, expecting the financial result to come in flat in the best case in 2017. Funding dividend repayments via a working capital release – for a second year in a row – won’t be sustainable. Our view on the name is neutral.
