MHP reports 17% fall in EBITDA in 2015, offers 60% higher dividends

Ukraine’s leading poultry producer MHP (MHPC LI, MHPSA) reported a 14% yoy decrease in net revenue (to USD 1,183 mln) and 17% yoy decrease in EBITDA (to USD 459 mln) in 2015, according to its March 10 filing. VAT refunds helped the company generate USD 75 mln (-15% yoy), or 16% of its EBITDA. The company’s operating cash flow before working capital changes decreased 16% yoy to USD 434 mln, and net cash flow from operations decreased 57% yoy to USD 110 mln in 2015.

Its net loss for the period amounted to USD 126 mln (vs. a USD 412 mln loss in 2014). Its bottom line before foreign currency losses amounted to positive USD 293 mln (-20% yoy). The company’s directors recommended paying annual dividends in the total amount of USD 80 mln, or USD 0.7529 per share (up from USD 0.47/share a year before). The proposed payout implies an 8.9% dividend yield, based on yesterday’s closing stock price. The final decision on dividends is conditional on the completion of due diligence required by Luxembourg law, which is expected by March 16.

The company’s net debt stood at USD 1,220 mln as of end-2015 (+10% yoy) and its net debt-to-LTM EBITDA ratio was 2.66x, up from 2.27x a year ago, and still distant from the Eurobond covenant of 3.0x.

In its core segment, poultry meat, the company generated USD 285 mln in net revenue, or a 17% yoy decline. It caused by a decrease in the average dollar price of poultry (-25% yoy to USD 1.27/kg), even though prices in the local currency increased 39% yoy in the year (to UAH 27.77/kg). Sales of poultry increased 2% yoy to 537.3 kt in 2015. The segment’s EBITDA decreased 28% yoy to USD 354 mln. Among its key cost drivers, MHP noted the need to increase imports of hatchery eggs after it lost a factory in occupied Donbas. Meanwhile, with the commissioning of a new hatchery facility in mid-2015, MHP halved its imports of hatchery eggs during the year to 16% of its needs by December.

In its farming segment, MHP reported net revenue of USD 117 mln (+52% yoy) and EBITDA of USD 276 mln (-3% yoy). The decline was mostly attributed to smaller IAS 41 gains (USD -2 mln in 2015, compared to USD 29 mln a year before).

Roman Topolyuk: MHP’s EBITDA turned out to be smaller than we expected (USD 496 mln for the year), as we counted on a better result in farming. Clearly, the stock market will reward the generous dividends that the company is willing to pay.

In 2016, we expect MHP will stabilize the decline in its EBITDA via better cost control and poultry price increases on local market to partially compensate devaluation of the hryvnia. At the same time, we do not expect the company will be able to boost its EBITDA this year, primarily due to decreased state support in the form of a VAT subsidy. Recall, as of 2016, poultry producers and crop farmers are eligible to retain only 50% and 15% of their VAT payable, respectively.