MHP EBITDA falls 28% yoy in 1Q16

The first-quarter EBITDA of top Ukrainian poultry producer MHP (MHPSA, MHPC LI) dropped 28% yoy to USD 89 mln, according to the company’s financial statements published on May 19. The key contributor to the decline was its poultry segment, in which its dollar-denominated EBITDA per unit fell 47% yoy to USD 0.43/kg. EBITDA slid 44% yoy to USD 5 mln in 1Q16 in its grain-growing operations segment. Other agricultural operations, represented mainly by meat processing, generated EBITDA of USD 5 mln, or 150% yoy growth.

The company’s CapEx dropped 40% yoy to USD 29 mln in 1Q16. Free cash flow, supported by a working capital release, grew significantly to USD 73.6 mln from USD 11.7 mln a year ago. The bulk of free cash flow (82%) has been paid out as dividends. Net debt stood at USD 1,225 mln as of end-March, almost unchanged from end-December 2015, while net debt-to-EBITDA worsened to 2.90x from 2.66x during the period.

MHP announced its plans to boost poultry production by 40 kt yoy in 2016 (+7% yoy to 577 kt) following the launch of new rearing sites at its two poultry complexes. The company has also established a poultry processing plant in Netherlands, having invested USD 3.5 mln into two cutting production lines, currently operating in trial mode.

Roman Topolyuk: MHP is facing a number of challenges in 2016, the primary one being keeping stable the average poultry sales price and EBITDA per kg in dollar terms, which have been beaten down by hryvnia depreciation. Should that happen, and should poultry production increase as management projects, MHP will be capable of generating EBITDA of USD 400 mln in 2016, which will enable the company to remain in compliance with its net debt-to-EBITDA covenant of 3.3-3.4x. Otherwise, the company will have to limit its abundant dividend payments or further reduce its CapEx. We reiterate our neutral view on MHP’s bonds.