MHP EBITDA falls 9% in 1H20

EBITDA of Ukraine’s top poultry producer MHP (MHPSA, MHPC
LI) declined 8.9% yoy to USD 226 mln in 1H20, according to its Sept. 4 filing.
The company’s poultry segment EBITDA dropped 24.2% yoy to USD 122 mln, while
its grain growing segment generated USD 73 mln, or 1.4% less yoy in 1H20. Its
meat processing EBITDA was flat yoy (USD 9 mln) in 1H20. The company’s EU-based
facilities generated USD 28 mln in EBITDA, or a 75.0% surge yoy in 1H20.

MHP’s net revenue slid 8.3% yoy to USD 867 mln in 1H20.
Its bottom line turned to negative USD 62 mln (vs. positive USD 171 mln a year
ago), which was the result of USD 129 mln in ForEx losses in 1H20 (vs. a USD 73
mln gain in 1H19).

The company’s CapEx decreased 33.9% yoy to USD 41 mln
in 1H20, largely spent on maintenance and modernizing EU-based facilities. The
company’s working capital outflow was USD 123 mln in 1H20 vs. USD 86 mln inflow
a year ago, and its net cash flow from operating activities turned negative USD
24 mln in 1H20 vs. positive USD 224 mln a year ago.

Its net debt-to-LTM-EBITDA ratio was 3.72x as of
end-June, compared to 2.92x a year ago and 3.01x six months ago.

In 2Q20, MHP’s EBITDA dropped 21.8% yoy (up 34.4% qoq)
to USD 129 mln, as poultry segment EBITDA fell 39.3% yoy (20.6% less qoq) to
USD 54 mln. The company’s meat processing EBITDA decreased 40.0% yoy (and 50.0%
qoq) to USD 3 mln in 2Q20, while EU-base facilities EBITDA jumped 33.3% yoy
(and 33% qoq) to USD 16 mln in 2Q20.

MHP’s Sept. 4 filing also included the results of its
winter crop harvest. Its winter wheat yield dropped 20.3% yoy to 5.1 t/ha (or
24.4% higher than the average Ukrainian yield this season) and rapeseed yield
fell 10.0% yoy to 2.7 t/ha (or 17.4% higher than Ukrainian average).

Andriy Perederey: The COVID-19
pandemic and quarantine measures worldwide resulted in lower demand for poultry
and it impacted  the company’s poultry sales volumes and prices,
as well as its EBITDA. On the other hand, the company’s facilities are
operating normally and poultry production volumes remain stable which allows us
to expect the company will boost its poultry sales later this year.

We expect that MHP’s adjusted EBITDA will fall to USD
400-415 mln this year vs. USD 427 mln in 2019. With such results, the company
will not be able to restore its leverage to a value below 3.0x, implying that
next year MHP will not be able to pay any dividends.