MHP revenue gains 24%, EBITDA rises 9% in 1H17

Net revenue at Ukraine’s leading poultry meat producer
and farmer MHP rose 24% yoy to USD 600 mln in 1H17, according to its Aug. 17
report. Its revenue from sales of poultry meat increased 28% yoy to USD 382 mln
on increased volumes (14% yoy) and prices (12% in USD terms).

The company’s EBITDA increased
9.5% yoy to USD 266 mln, with state subsidies contributing USD 24 mln to that
result (a 116% yoy increase). Net of state subsidies, EBITDA growth was 4% yoy.
Its net profit advanced 89% yoy to USD 210 mln, mostly because it reported USD
43 mln in foreign exchange gains in 1H17 (vs. a USD 40 mln loss a year before).

MHP’s operating cash flow before working capital
changes increased 43% yoy to USD 196 mln, while net cash flow from operations
halved yoy to USD 64 mln in 1H17 – mostly due to a high comparison base (and
faster decrease of inventories in 1H16).

MHP’s CapEx was USD 44 mln (-6% yoy) and was mostly
invested to continue buildng the second phase of the Vinnytsia poultry factory.
The company is going to commission a new facility at the factory in 2Q18 to
increase its poultry production capacity by 130 kt p.a. (or about 22%) and
secure additional poultry output of 40 kt in 2018.

The company’s total debt and net debt slightly
decreased YTD to USD 1,203 mln and USD 1,073 mln as of end-June 2017,
respectively. Its net debt-to-LTM EBITDA ratio was 2.44x in 1H17, compared to
2.95x a year ago and 2.60x half a year ago.

MHP also reported on the results of its winter crop
harvest, which reached about the same crop yields as a year ago, including 3.7
t/ha for rapeseeds (vs. 3.6 t/ha in 2016), 6.0 t/ha for barley (6.0) and 6.1
t/ha for wheat (6.6).

Alexander Paraschiy: The results
are slightly better than we exected, so now we see  it will be able to
generate USD 440-450 mln in EBITDA for 2017 (up from USD 415 mln in 2016, and
up from our previous forecasted range of USD
430-440 mln). We maintain our neutral view on
MHP Eurobonds and see some upside potential in MHP stock, which trades now at
EV/EBITDA of 4.8x.

The effect of state subsidies – which have risen from
USD 23.7 mln in 1H15 when MHP fully benefited from a special VAT regime – is
perhaps the most interesting finding from the report. Recall that in 2016,
Ukraine’s parliament reduced its 100% of VAT retention for agricultural
companies to 15% (for grain producers) to 50% (for poultry producers). In 2017,
it fully cancelled any VAT preferences but instead introduced a direct subsidy
for meat, fruit and vegetable producers. It looks like the 2017 subsidy regime
is better for MHP than the partial VAT retention regime that worked in 2016.