Mhp Reg S Regulatory News (MHPC)

PRESS RELEASE

23 May 2017, Kyiv, Ukraine

MHP S.A.

Unaudited Financial Results for the First Quarter Ended 31 March 2017

MHP S.A. (LSE:MHPC), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and cultivation of grain, today announces its unaudited results for the first quarter ended 31 March 2017.

Q1 2017 OPERATIONAL HIGHLIGHTS

· Poultry production volumes reached 141,874 tonnes, decreased by 1% (Q1 2016: 143,751 tonnes)

· The average chicken meat price increased by 15% year-on-year to UAH 31.52 per kg (Q1 2016: UAH 27.50 per kg) (excluding VAT). In US$ terms, MHP's average poultry prices in Q1 2017 increased by 8% year-on-year

· Chicken meat exports increased by 60% to 49,151 tonnes (Q1 2016: 30,812 tonnes) as a result of increased exports to the MENA countries, EU and Africa

Q1 2017 FINANCIAL HIGHLIGHTS

· Revenue of US$ 279 million, increased by 27% year-on-year (Q1 2016: 220 million)

· Export revenue amounted to US$ 164 million, 59% of total revenue (Q1 2016: US$ 115 million, 52% of total revenue)

· Operating profit of US$ 74 million, increased by 3%; operating margin was 27% compared with 33% in Q1 2016

· Adjusted EBITDA margin declined to 33% (Q1 2016: 41%) mainly driven by significant IAS 41 effect in Q1 2016 compared to Q1 2017 related to increased stocks of poultry meat in Q1 2016 and higher sales volumes of grains in Q1 2017

FINANCIAL OVERVIEW

* pps - percentage points

** Operating profit before loss on impairment of property, plant and equipment

Average official FX rate for Q1 2017 UAH/US$27.0611 and for Q1 2016 UAH/US$25.6537

CONFERENCE CALL DETAILS

MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results.

The dial-in details are:

Time: 09.00 New York / 14.00 London / 16.00 Kyiv / 16.00 Moscow

Title: Financial results for Q1 2017

International/UK Dial in: +44 2030432440

USA free call: 1 8778874163

Russia free call +7 4952216523

Conference ID EV00056414

Participant PIN code 79162513#

In order to follow the presentation together with the management, please register using the following link:

http://event.onlineseminarsolutions.com/r.htm?e=1418000&s=1&k=93C7F555BDDE73DA27A9D5B5E9C56A6E

For Investor Relations enquiries, please contact:

Anastasia Sobotiuk (Kyiv) +38 044 207 99 58 a.sobotyuk@mhp.com.ua

For Analysts enquiries, please contact:

Iryna Bublyk (Kyiv) +38 044 207 00 04 i.bublik@mhp.com.ua

Segment Performance

Poultry and related operations

Aggregate volume of chicken meat sold to third parties in Q1 2017 increased by 15%. Domestic sales remained relatively flat and constituted 74,780 tonnes (Q1 2016: 76,617 tonnes).

Export sales in Q1 2017 increased by 60% to 49,151 tonnes (Q1 2016: 30,812 tonnes). During the reporting period, following its export diversification strategy, the Company has continued to develop its exports mainly in the countries of: the Middle East - representing over 24%, the EU - around 21%, Northern Africa - over 14% of total poultry exports.

The aggregate average chicken meat price in Q1 2017 was UAH 31.52, 15% higher in Hryvnia terms than the corresponding price for Q1 2016, mainly as a result of MHP's export product mix changing to more profitable markets and market targeting in general. The average chicken meat price on the domestic market increased by 12% during Q1 2017 compared to Q1 2016. At the same time, the US$ denominated export price for chicken meat increased by 11% during Q1 2017 compared to Q1 2016.

During Q1 2017, MHP's sales of sunflower oil have remained relatively stable compared to Q1 2016 and reached 82,133 tonnes. Sales of soybean oil decreased by 5% to 7,780 tonnes.

* pps - percentage points

As a result of the increase in sales of chicken meat, revenue from the poultry and related operations segment for Q1 2017 increased by 19% year-on-year.

IAS 41 standard gain/(loss) reflects the net change in fair value of biological assets and agricultural produce. IAS 41 standard gain in Q1 2017 was US$ 22 million compared with US$ 32 million in Q1 2016 mainly as a result of a more substantial increase in poultry meat stock in Q1 2016 compared to Q1 2017.

Gross profit of the poultry and related operations segment for Q1 2017 increased by 1% to US$ 78 million, with gross margin declining from 39% to 33% as a result of increased production costs, reflecting higher prices of grain consumed as well as higher energy and payroll costs.

Adjusted EBITDA decreased by 1%, with EBITDA margin declining from 43% to 36%, reflecting the change in gross profit and increased selling, general and administrative expenses.

Grain growing operations

Grain growing segment's revenue for Q1 2017 amounted to US$ 18 million compared to US$ 2 million inQ1 2016. The increase is attributable to higher export sales in Q1 2017 compared to Q1 2016 mainly as a result of higher yields during 2016.

IAS 41 standard loss for Q1 2017 amounted to US$ 14 million. The loss represents the net change in the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) as a result of lower levels of grain in stock due to internal consumption as a result of the harvest cycle and seasonality.

MHP has around 94,000 ha under winter crops, of which 56% is sown with winter wheat, 31% with winter rapeseeds and 12% with winter barley. The rest is triticale and rye.

The Spring sowing campaign is finished, with no significant changes in the crops structure.

The total land bank of MHP's grain growing segment comprised 370,000 hectares, of which around 360,000 hectares will be harvested in 2017.

Other agricultural operations

Sales of meat processing products in Q1 2017 increased by 17% year-on-year to 8,136 tonnes mainly as a result of increased product promotion and advertisement activity, as well as increasing the product range and types of  packaging.

The average processed meat price increased by 9% year-on-year to UAH 44.38 per kg in Q1 2017 mostly due to the increase in poultry prices.

* pps - percentage points

** in Q1 2017 the Group decided to include convenience food previously reported in poultry and related operations segment to other agricultural operations in line with how Group's chief operating decision maker evaluates performance of the segments. Comparative information was restated retrospectively.

Segment revenue in Q1 2017 increased by 32% year-on-year to US$ 25 million, in line with the increase in sales volume.

The segment's EBITDA increased to US$ 5 million in Q1 2017 compared to US$ 2 million in Q1 2016, mainly due to higher returns earned from meat processing, livestock and milk operations.

Current Group financial position and cash flow

* Cash from operations for 1Q 2017 includes an upfront payment of interest on Senior Notes in amount of US$ 31 million that is normally due in Q2, however as a result of non-banking days on 1-2 April 2017 payment was settled in Q1.

**Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities

Cash flow from operations before changes in working capital for Q1 2017 amounted to US$ 39 million (Q1 2016: US$ 47 million). Excluding an upfront payment of interest on Senior Notes, cash from operations before working capital changes for Q1 2017 amounted to US$ 70 million.

Use of funds in working capital during Q1 2017 is mainly attributable to higher investment in inventories, related primarily to grain growing entities in respect of the forthcoming spring sowing campaign (seeds, fertilizers, plant protection products, etc.) as well as an increase in taxes recoverable, mostly related to increased VAT receivables, that are expected to be reimbursed in future periods.

In Q1 2017, CAPEX of US$ 17 million mainly related to purchases of agricultural machinery, expansion of rearing sites at the Starynska breeding farm and preparation works related to phase 2 of the Vinnytsia poultry project.

Debt Structure and Liquidity

As of March 31, 2017, the Company's debt structure remained relatively unchanged compared to31 December 2016, with long-term debt representing 77% of total debt. The weighted average interest rate is around 8%.

At the end of Q1 2017, MHP's cash and cash equivalents amounted to US$ 132 million. Net debt decreased to US$ 1,063 million, compared to US$ 1,225 million as at 31 March 2016.

The Net Debt / LTM Adjusted EBITDA ratio was 2.55 as of 31 March 2017, well within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenues from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in US Dollars, more than fully covering debt service expenses. Export revenue for Q1 2017 amounted to US$ 164 million or 59% of total revenue (US$ 115 million or 52% of total revenue in Q1 2016).

In May 2017 MHP successfully completed a new Eurobond issue of US$500 million 7.75% Senior Notes due 2024. US$254 million of the proceeds from the new issue were used to repurchase US$245 million of our 8.25% Senior Notes due 2020. The balance from US$500 million will be used to repay certain other debt, to finance the expansion and diversification of MHP's poultry and grain business and to improve liquidity.

Dividends

On 14 March 2017, the Board of Directors of MHP S.A. approved payment of an interim dividend of US$ 0.7492 per share, equivalent to approximately US$ 80 million, on March 29, 2017 to shareholders on the register as of March 26, 2017. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP S.A. also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than the declared dividend payment date (but not later than November 1, 2017), with no interest accrued on the amount of dividend paid later.

During the three-month period ended 31 March 2017, MHP S.A. paid dividends to shareholders of approximately US$ 52.6 million.

Outlook

With a strong start of export sales of chicken meat in Q1 2017, in 2017 MHP plans to export around 220,000 tonnes of poultry to the countries of the MENA, the EU, Africa and CIS with a market targeting approach.

Several months ago we started the construction of Phase 2 of the Vinnytsia complex - Line 1 of 130,000 tonnes total capacity, which is going to be launched in the middle of 2018. (expected production at around 40,000 tonnes in 2018). In addition, construction of an alternative energy project at the Vinnytsia complex has already started.

Having completed the Company's spring sowing campaign and taking into account weather conditions in general, MHP's outlook for the 2017 harvest of crops is positive.

We are confident that, with our vertically integrated business model, we will continue to deliver strong financial results, supported by a significant and growing share of hard currency revenues from exports of chicken, oils and grain.

Notes to Editors:

About MHP

MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times.

MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.

Since May 15, 2008, MHP has traded on the London Stock Exchange under the ticker symbol MHPC.

Forward-Looking Statements

This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP S.A. does not intend to change these statements to reflect actual results.

MHP S.A. AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

As of and for the three-month period ended 31 March 2017

CONTENT

MANAGEMENT STATEMENT................................................................................................................ (a)

MANAGEMENT REPORT...................................................................................................................... (b)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2017

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................. 4

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 5

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 6

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT......................................................... 8

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................... 10

1. Corporate information...................................................................................................................... 10

2. Changes in the group structure......................................................................................................... 11

3. Basis of preparation and accounting policies..................................................................................... 12

4. Segment information....................................................................................................................... 15

5. Profit for the period.......................................................................................................................... 16

6. VAT refunds and other government grants income.............................................................................. 16

7. Property, plant and equipment.......................................................................................................... 16

8. Inventories and agricultural produce.................................................................................................. 17

9. Biological assets............................................................................................................................ 17

10. Bank borrowings........................................................................................................................... 17

11. Bonds issued............................................................................................................................... 18

12. Related party balances and transactions........................................................................................ 19

13. Contingencies and contractual commitments.................................................................................. 20

14. Risk management policy............................................................................................................... 21

15. Dividends..................................................................................................................................... 22

16. Subsequent events....................................................................................................................... 22

17. Authorization of the interim condensed consolidated financial statements.......................................... 22

MANAGEMENT STATEMENT

To the best of our knowledge, the unaudited interim condensed consolidated financial statements prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

22 May 2017

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

MANAGEMENT REPORT

Key financial highlights

During the three-month period ended 31 March 2017 consolidated revenue increased by 27% and amounted to USD 278,795 thousand, compared to USD 219,879 thousand for the three-month period ended 31 March 2016. Export sales for the three-month period ended 31 March 2017 constituted 59% of total revenue and amounted to USD 163,946 thousand, compared to USD 114,782 thousand, 52% of total revenue for the three-month period ended 31 March 2016. Overall increase in revenue is mainly attributable to the increased exports volume of chicken meat and grains.

Gross profit has increased by 8% and amounted to USD 86,257 thousand for the three-month period ended 31 March 2017 compared to USD 79,714 thousand for the three-month period ended 31 March 2016.

Operating profit increased by 4% to USD 73,629 thousand for the three-month period ended 31 March 2017 compared to USD 70,627 thousand for the three-month period ended 31 March 2016.

Profit for the period from continuing operations for three-month period ended 31 March 2017 amounted to USD 56,839 thousand including foreign exchange gain of USD 6,903 thousand compared to net loss of USD 56,227 thousand including foreign exchange loss of USD 106,519 thousand for the three-month period ended 31 March 2016. Net profit before foreign exchange gain/loss remained stable year-on-year. Unrealized foreign exchange gain is mainly related to bank borrowings and bonds issued in foreign currency as a result of UAH appreciation against USD and EUR during the three-month period ended 31 March 2017.

Dividends

On 14 March 2017, the Board of Directors of MHP S.A. approved a payment of the interim dividend of USD 0.7492 per share, equivalent to approximately USD 80,000 thousand, on March 29, 2017 to shareholders on the register as of March 26, 2017. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP S.A. also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than November 1, 2017), with no interest accrued on the amount of dividend paid later (Note 11).

During the three-month period ended 31 March 2017, MHP S.A. paid dividend to shareholders in amount of approximately USD 52,556 thousand.

22 May 2017

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2016

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT (continued)

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company (société anonyme) registered under the laws of Luxembourg, was formed on 30 May 2006. MHP S.A. to serve as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the "MHP S.A. Group" or the "Group". The registered address of MHP S.A. is 5, rue Guillaume Kroll, L-1882 Luxembourg.

The controlling shareholder of MHP S.A. is Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP S.A.

The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing, and meat products ready for consumption). The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk, goose meat, foie gras and feed grains. During the three-month period ended 31 March 2017 the Group employed about 27,400 people (31 December 2016: 31,000 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 March 2017 and 31 December 2016 were as follows:

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information (continued)

The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Sumy, Khmelnitsk regions.

2. Changes in the group structure

Disposal of subsidiaries

Crimean companies

On 17 February 2017 the Group sold its 100% ownership interest in the Group's companies located in Autonomous Republic of Crimea for cash consideration of USD 77,785 thousand. The consideration consisted only of cash, there were no direct costs related to disposal.

Assets and liabilities of Crimean companies as of the date of disposal were as follows:

The following table presents the net result of the transaction: