Mhp Reg S Regulatory News (MHPC)

PRESS RELEASE

November 18, 2014, Kyiv, Ukraine

MHP S.A.

Unaudited Financial Results for the Third Quarter and

Nine Months Ended 30 September 2014

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 third quarter and nine months ended 30 September 2014.

OPERATIONAL HIGHLIGHTS

Q3 2014 highlights

· Production volumes increased by 9% to 133,700 tonnes (Q3 2013: 122,350 tonnes)

· The average chicken price increased by 37% year-on-year to UAH 22.08 per kg (excluding VAT) predominantly due to the Ukrainian Hryvnia depreciation

· Chicken meat export increased by 48% and reached 44,580 tonnes (Q3 2013: 30,000 tonnes)

9M 2014 highlights

· Production volumes increased by 16% to 403,300 tonnes (9M 2013: 346,940 tonnes)

· The average chicken price increased by 15% to UAH 18.61 per kg (excluding VAT) compared to UAH 16.21 in 9M 2013

· Chicken meat export increased by 20% and reached 102,145 tonnes (9M 2013: 84,780 tonnes)

FINANCIAL HIGHLIGHTS

Q3 2014 highlights

· Revenue of US$397 million, a decrease of 6% y-o-y 

· Operating profit of US$154 million, up 71% y-o-y

· EBITDA increased 47% to US$ 181 million, with EBITDA margin of 46%, up from 29% last year

· Net loss for the period is US$32 million, of which US$107 million relates to non-cash foreign exchange translation losses

9M 2014 highlights

· Revenue of US$1,034 million, decrease of 4% y-o-y

· Operating profit1 of US$381 million, up 61% y-o-y

· EBITDA increased 43% to US$ 453 million, with EBITDA margin of 44%, up from 29% last year

· Net loss of US$302 million, including US$561 million of relates to non-cash foreign exchange translation losses

FINANCIAL OVERVIEW

* pps - percentage points

Average official FX rate for Q3: UAH/US$ 12.58 in 2014 and UAH/US$7.99 in 2013

Average official FX rate for 9M: UAH/US$ 11.06 in 2014 and UAH/US$7.99 in 2013

Change in management

On 3 July 2014, the Presidential Administration announced about the appointment of Mr. Yuriy Kosyuk to the post of the First Deputy Head of the Presidential Administration. In view of this announcement, the Board of Directors of MHP S.A. decided to accept Mr. Yuriy Kosyuk's resignation from the position of Chief Executive Officer of MHP for the duration of his political assignment. On 3 July 2014, the Board appointed Mr. Yuriy Melnyk as a CEO of MHP.

Shahtarska breeding farm

Shahtarska breeding farm had to suspend its operations since August due to the active hostilities in the region (zone of ATO, currently controlled by DNR) and still is not in operations. Shahtarska breeding farm provided MHP with appx.30% of hatching eggs needs. Currently MHP is importing hatching eggs from the EU (predominantly Hungary, Germany and the Netherland) and partially Ukraine, so that during the first nine months of 2014 MHP's poultry production facilities (broiler farms) worked at full capacity utilization.

Chief Executive Officer, Yuriy Melnyk, commented:

"In spite of the ongoing political and economic difficulties in Ukraine, MHP has been able to deliver remarkably strong results for the third quarter and the first nine months of this year. Overall production of both poultry and grain has been substantially unaffected, with poultry tonnage increasing by 22% and grain production by 54% for the nine-month period compared with the previous year. This reflects not only our past investments in increasing capacity, but also lower production costs, higher grain yields and, not least, the continuing commitment and support of our employees in these difficult times.

Among the challenges our company has faced this year have been the imposition of an import ban by the Customs Union in February, and temporary suspension of the Shahtarska breeding farm (located in the Donetsk region), which produced 30% of MHP's hatching eggs.

Our successful export diversification strategy has enabled us both to minimize the impact of the Customs Union import ban and to increase export volumes of chicken meat by 22% year-on-year.

The loss of hatching eggs from Shahtarska has been fully offset by importing eggs from reputable breeding farms with only a minor negative impact on costs. We are strongly committed to supporting our Shahtarska employees, for example by offering opportunities for temporary employment and accommodation at other MHP production sites.

These strong results provide further validation of MHP's unique business model of vertical integration, competitive cost structure and intensive investment in state-of-the-art facilities. We believe that these will continue to be strong drivers for the Company's continuing growth and development both in poultry and grain and are confident that we will continue to deliver strong operational and financial performance in 2014 and beyond."

MHP's management today will host a conference call for investors and analysts followed by a Q&A session. The dial-in details are:

Time: 09.00 New York / 14.00 London / 16.00 Kyiv / 17.00 Moscow

Title: FINANCIAL RESULTS FOR Q3 AND 9M 2014

International/UK Dial in:  +44 (0) 1452 541003

USA free call: 1866 2540808

Russia free call 8108 002 408 2044

Conference ID 13784498

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

https://engage.vevent.com/rt/mhp~20141118_1400_gmt

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

The volume of chicken meat sales to third parties (domestic and export) in 9M 2014 and Q3 2014 increased by 22% and 21% year-on-year to 396,780 tonnes and 144,790 tonnes respectively, mainly due to increased production at the Vinnytsia poultry farm. Because of strong domestic demand, sales volumes in Ukraine in 9M and Q3 2014 increased by 23% and 12% year-on-year respectively. During 9M 2014 and Q3 2014, export sales increased by 20% and 49% year-on-year to 102,145 tonnes and 44,580 tonnes respectively, mainly due to increased sales to the Middle East, Northern Africa and some CIS countries. MHP's exports to the Custom Union countries have been banned since February 2014 but have been redirected successfully to other regions. In October 2013, MHP started exporting chicken meat to European Union countries and since June 2014 we have been able to export poultry to the EU with zero import duty and gradually increasing volumes. During 9M 2014, our average chicken meat price was UAH 18.61, 15% higher than in 9M 2013. The two main contributors to the increase were an increased share of export operations to the EU within the preferential - zero import duty - regime as well as due to substantial export share in overall poultry sales of 26%.

During 9M 2014 sunflower oil sales volumes increased by 21%, mostly in line with chicken meat production volume growth. Average sunflower oil prices declined by 22% to US$853 per tonne (9М 2013: US$1,097 per tonne) in line with global trends.

* pps - percentage points

Despite strong growth of chicken meat and sunflower oil sales volumes, segment revenue decreased slightly by 1% to US$889 million in 9M 2014 from US$899 million in 9M 2013 mostly due to Hryvnia devaluation.

The IAS 41 gain for the 9M 2014 amounted to US$31 million, which primarily reflects the effect of improved cash flows from poultry operations as a result of increased sales prices, partly offset, but to a lesser amount, by rising costs of production. The IAS 41 loss for 3Q 2014 amounted to US$6 million mainly as a result of reduction in poultry meat stock.

During 9M 2014 and Q3 2014, poultry segment EBITDA increased by 51% and 49% respectively, to US$384 million (9M 2013: US$254 million) and US$146 million (Q3 2013: US$98 million). EBITDA margin for 9M 2014 increased to 43% compared to 28% in 9M 2013. The increases in EBITDA and EBITDA margin is primarily a reflection of increased in production volumes and lower production costs from consumption of low priced crops harvested in 2013.

Grain growing operations

In 2014, the Company harvested around 290,000 hectares in Ukraine and 40,000 hectares in the Russian Federation. MHP's current net yields of corn (10.0 tonnes per hectare) and wheat (6.0 tonnes per hectare) are one of the highest among historic yields, and continue to be substantially higher than Ukraine's average. As of the date of this report the harvesting campaign of corn is 95% complete.

[1] Only land of grain growing segment, excluding land in the Russian Federation;

 [2] Including barley, rye, sugar beet and other and excluding land left fallow as part of crop rotation;

[3] Preliminary data, harvesting campaign 2014 is ongoing, corn as of the date of this report is 95% complete.

[4]Land under corn

 [1] MHP yields are net weight, Ukraine - bunker weight;

[2] Preliminary data, harvesting campaign 2014 is ongoing, corn as of today is 95% complete.

Segment revenue for 9M 2014 decreased by 19% to US$48 million compared to US$59 million in 9M 2013, mainly as a result of a decrease in prices in line with global trends and change in mix of crops sold during the period.

IAS 41 standard gains for 9M 2014 amounted to US$50 million compared to US$13 million for 9M 2013. The gain is mainly attributable to the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) remaining in stock as of 30 September 2014 as well as revaluation of biological assets, mainly corn to be harvested during October - November 2014. An increase in IAS 41 gains mainly reflects the effect of higher yields and decrease in cost as a result of both costs being partially fixed in UAH and substantial investment made in agricultural inventory as of 31 December 2013, partly offset by a decrease in prices.

Segment EBITDA for 9M 2014 increased by 37% and amounted to US$85 million compared with US$62 million for 9M 2013.

Other agricultural operations

Sausage and cooked meat sales volumes decreased slightly from 25,470 tonnes in 9M 2013 to 23,950 tonnes in 9M 2014, accompanied by 14% price increase year-on-year mainly as a result of Ukrainian Hryvnia devaluation.

* pps - percentage points

The segment's EBITDA decreased to US$13 million in 9M 2014 compared to US$18 million in 9M 2013, a decrease of 28% year-on-year mainly attributable to a reduced apple harvest of apple as a result of unfavorable weather conditions (hail) in the Crimea region.

Current Group financial position and cash flow

Cash flow from operations before changes in working capital increased to US$325 million in 9M 2014 (9M 2013: US$247 million). The lower cash generation compared to EBITDA is mainly attributable to a non-cash IAS 41 gain that will be realized in forthcoming periods.

The total decrease in working capital was US$63 million in 9M 2014, mostly related to crops in fields and significantly higher volumes of sunflower seeds purchased in Q3 2014.

In 9M 2014 total CAPEX was US$103 million which was related to the Vinnytsia complex, to reconstruction of acquired silo and purchases of new agro machinery and equipment.

Debt Structure and Liquidity

As of September 30, 2014, the Company's total debt had declined slightly to US$1,231 million, most of which was denominated in US Dollars. The share of long-term debt in the total debt outstanding was about 74%. In June 2014, MHP signed an agreement with IFC in the amount of US$200 million, to refinance bonds maturing in April 2015; these were included in short-term debt as of 30 September 2014. The weighted average cost of debt remained below 8%.

MHP's cash and cash equivalents amounted to US$151 million. Net debt decreased to US$1,080 million from US$1,149 million at the end of H1 2014.

The Net Debt/ LTM EBITDA ratio was 2.05 as of September 30, 2014, well within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenue from the export of sunflower oil, sunflower husks, and chicken meat are denominated in US Dollars, comfortably covering debt service expenses. Export revenue amounted US$412 million or 40% of total revenue in 9M 2014 (US$395 million or 37% of total sales in 9M 2013).

Subsequent Events

There have been no material events to report subsequent to the end of the reporting period.

Outlook

Taking into account that the Shahtaska breeding farm is no longer in operations, the Company decided to follow its business model and re-equip one of the broiler farms (Peremoga Nova - 35,000 tonnes capacity per annum) to produce hatching eggs and gradually substitute import of those with no adverse effect onto overall poultry production volumes. The facility will be launched closer to the year end.

Even in this challenging time for Ukraine we are confident that due to our sustainable business model, strong management team and the day-to-day contributions of our employees, we will be able to continue to implement our strategy and keep on delivering strong financial results, reinforcing our position as one of the leading agri-industrial companies in Ukraine.

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

For the nine-month period ended 30 September 2014

CONTENT

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

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

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2014

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................. 3

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 4

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 5

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT......................................................... 7

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 9

1. Corporate information........................................................................................................................ 9

2. Loss on impairment of assets in Donetsk region................................................................................ 10

3. Basis of preparation and accounting policies..................................................................................... 10

4. Segment information....................................................................................................................... 12

5. Profit for the period.......................................................................................................................... 13

6. Net change in fair value of biological assets and agricultural produce................................................... 13

7. Income tax benefit........................................................................................................................... 13

8. Property, plant and equipment.......................................................................................................... 14

9. Inventories and agricultural produce.................................................................................................. 14

10. Biological assets.......................................................................................................................... 14

11. Bank borrowings........................................................................................................................... 14

12. Bonds issued............................................................................................................................... 15

13. Trade accounts payable................................................................................................................ 16

14. Related party balances and transactions........................................................................................ 16

15. Contingencies and contractual commitments.................................................................................. 17

16. Other expenses, net..................................................................................................................... 18

17. Dividends..................................................................................................................................... 18

18. Risk management policy............................................................................................................... 19

19. Subsequent events....................................................................................................................... 19

20. Authorization of the interim condensed consolidated financial statements.......................................... 19

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.

17 November 2014

On behalf of the Board:

Chief Executive Officer Yuriy Melnyk

Chief Financial Officer Viktoria Kapelyushnaya

MANAGEMENT REPORT

Key financial highlights

During the nine-month period ended 30 September 2014 consolidated revenue remained relatively stable as a result of UAH depreciation to USD, and constituted USD 1,033,772 thousand, compared to USD 1,078,320 thousand for the nine-month period ended 30 September 2013.

During the nine-month period ended 30 September 2014 operating profit1 amounted to USD 381,391 thousand a 61% increase comparing to USD 236,751 thousand for the nine-month period ended 30 September 2013. Operating profit margin increased from 22% for the nine-month period ended 30 September 2013 to 37% for the nine-month period ended 30 September 2014. This increase is mainly attributable to the higher returns from poultry and related operations as a result of lower production costs from consumption of low priced crops harvested in 2013 as well as higher returns from grain growing segment.

Net loss from operations constituted USD 302,039 thousand for nine-month period ended 30 September 2014 (nine-month period ended 30 September 2013: net income of USD 149,622 thousand). The Group's net result for the nine-month period ended 30 September 2014 decreased compared to the nine-month period ended 30 September 2013 mainly due to unrealized foreign exchange loss on Bank borrowings and Bonds issued as result of depreciation of UAH against USD and EUR.

Segment results

Poultry and related operations

During the nine-month period ended 30 September 2014 the volume of chicken meat sales to external customers constituted 396,780 tonnes which is 22% higher compared to the nine-month period ended 30 September 2013.

Segment result of Poultry and related operations has increased by 70% to USD 325,243 thousand for the nine-month period ended 30 September 2014, from USD 191,020 thousand for the nine-month period ended 30 September 2013 mainly due to increase in quantity produced and lower production costs from consumption of low priced crops harvested in 2013.

Despite decrease in internal production of hatchery eggs (see caption "Loss on impairment of assets in Donetsk region"), during the nine month of 2014 all of the Group's chicken meat production facilities continued to operate at full capacity producing around 50% of total industrially produced chicken meat in Ukraine.

Grain growing

Segment result of Grain growing operations has increased by 54% to USD 78,244 thousand for the nine-month period ended 30 September 2014, from USD 52,549 thousand for the nine-month period ended 30 September 2013 as a result of higher yields and lower costs (due to both: costs being partially fixed in UAH and substantial investment made in agricultural inventory as of 31 December 2013) partly offset by decrease in prices.

In 2014 the Group cultivates around 290,000 hectares of land in Ukraine and 40,000 hectares of land in the Russian Federation in grain growing operations and around 30,000 hectares of land in other agricultural operations. Total land bank constituted 360,000 hectares as of 30 September 2014.

Other agriculture

Segment result of other agricultural operations decreased by 34% amounting to USD 8,233 thousand for the nine-month period ended 30 September 2014 compared to USD12,460 thousand for the nine-month period ended 30 September 2013, mainly due to decrease in harvest of apple as a result ofunfavorable weather conditions (hail) in Crimea region.

During the nine-month period ended 30 September 2014 production volume of sausage and cooked meat constituted 23,950 tonnes comparing to 25,470 tonnes produced during the nine-month period ended 30 September 2013.

MANAGEMENT REPORT (continued)

Loss on impairment of assets in Donetsk region

Due to continuous disruptions in supply of water and mixed fodder as a result of active hostilities at the town of Shahtarsk (Donetsk region), Shahtarska Nova breeding farm had to temporarily suspend its operations as of 1 August 2014.

As a result of suspension of production and existing uncertainties related to the date of recommencement of operations, the Group has recognised losses in amount of USD 49,008 thousand, of which USD 39,073 thousand relate to an impairment loss.

During the period of suspension of operations at Shahtarska Nova poultry farm, internal needs for hatchery eggs will be supplied by import from reputable breeding companies.

17 November 2014

On behalf of the Board:

Chief Executive Officer Yuriy Melnyk

Chief Financial Officer Viktoria Kapelyushnaya

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the nine-month period ended 30 September 2014

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board: 

Chief Executive Officer Yuriy Melnyk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 9 to 19 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 30 September 2014

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Melnyk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 9 to 19 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the nine-month period ended 30 September 2014

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Melnyk

Chief Financial Officer Viktoria Kapelyushnaya 

The accompanying notes on the pages 9 to 19 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the nine-month period ended 30 September 2013

(in thousands of US dollars, unless otherwise indicated)