Mhp Reg S Regulatory News (MHPC)

18 Feb 2009 07:00



PRESS RELEASE

February 18, 2009, Kyiv, Ukraine 

MHP S.A.Pre-close trading update for the year ended 31 December 2008

MHP S.A. (LSE: MHPC) ("MHP" or "The Company"), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, is pleased to announce today its pre-close trading update in advance of its annual results for the year ended 31 December 2008. Financial results for Q4 2008 and full year 2008 willl be announced in April 2009.

Overall, despite tough market conditions the fourth quarter showed a continuation of the positive trends that we saw during the first three quarters of the year with consumer demand for chicken meat in Ukraine remaining high.

Poultry and Poultry Related Operations

During the fourth quarter of 2008, the volume of chicken meat sales was 53,100 tonnes, the same level as the fourth quarter of 2007, while full year volumes increased by 26% to 215,000 tonnes. The volume growth was primarily due to the launch of the first phase of the Myronivka chicken farm complex in the middle of 2008, which reached its full production capacity in October 2008. During the fourth quarter of 2008, consumer demand for chicken remained high and all the Company's existing poultry production facilities continued to operate to their full production capacity. 

Average chicken meat prices through the fourth quarter of 2008 increased by 24% to 11.60 UAH per kg. of adjusted weight (excluding VAT) when compared to the fourth quarter of 2007. For the full year 2008, it increased by 44% to 12.03 UAH per kg. when compared to the full year of 2007. For reference, food pricing in the fourth quarter is traditionally slightly lower than that of the middle quarters in the year.  

MHP's production costs per 1 kg. of poultry meat during the fourth quarter of 2008 decreased by 12% compared to the first nine months due to the Company's vertical integration, in particular the cost benefits from the use of self produced sunflower protein in chicken fodder.

Grain Cultivation and Storage 

The Company currently has approximately 180,000 hectares of land under control. 

The Company harvested its corn crop successfully in 2008 with 318,000 tonnes harvested from 46,000 hectares. Corn yield averaged 7.0 tonnes per hectare, which is 50% higher than Ukraine's average yield of 4.7 tonnes per hectare. The Company will use 100% of its corn yield to produce chicken fodder. 

At the time of harvesting corn prices were at a record low, which will lead to profit redistribution from the grain cultivation segment to the poultry segment. Some profits will also be distributed from the 2008 year end results to the 2009 year end results, as most of the 2008 corn harvest will be consumed by the Company's poultry segment during 2009. (IFRS requires valuation of yields in the Company's balance sheet on the average market prices at the harvesting time).

In the fourth quarter 2008 the Company planted 64,000 hectares of winter crops compared to 50,000 hectares in 2007.  This increase was primarily due to an increase of barley planting.

Other Agricultural Operations

For the full year 2008, sausage and cooked meat production volumes increased by 113% to 16,000 tonnes compared to 7,200 tonnes during year 2007. More than 60% of this growth was due to the acquisition of the new meat processing facilities of "Ukrainian Bacon" in July 2008. Q4 2008 sausage and cooked meat production volumes increased by 133% to 5,300 tonnes compared to 2,300 tonnes during Q4 2007.

Average sausage and cooked meat prices during full year 2008 increased by 14% to 18.23 UAH per kg excluding VAT (FY 2007: 16.06 UAH per kg.). Due to the fact that "Ukrainian Bacon" produces sausages and cooked meat products in the mass segment the average prices in Q4 2008 were stable at 17.16 UAH per kg. excluding VAT (Q4 2007: 16.95 UAH per kg.). 

Non Core Assets

Following the review of the Company's non-core assets to increase its effectiveness, the Company agreed to the sale of its stake in LLC "Agrofirma Kyivska" ("Agrofirma Kyivska") in December 2008. This is in accordance with its stated strategy of focusing on chicken meat production and strengthening MHP's vertical integration. Agrofirma Kyivska's principal activity (the cultivation of potatoes) is non-core, its operations generated losses and its further development would require significant investment with little chance of economic returns.

Debt and Liquidity

As at December 31, 2008 the Company's total debt was about US $510 million, with most of this debt being denominated in US dollars. US $250 million of the debt is in Eurobonds, which are not redeemable until November 2011. In January 2009, the Company successfully refinanced US $20 million thereby prolonging the redemption deadlines to Q1 2010. 

On December 31, 2008 the Company's cash reserves were US $79 million, approximately $60 million of which is in US dollars. As a hedge for currency risks the Company uses sales revenue from sunflower oil exports, this fully covers debt service expenses and the majority of other currency expenses. 

Due to the significant depreciation of the Hryvna, the Company has non cash currency losses of about US$ 175 million, mainly due to the debt balance sheet position revaluation. This non-cash, accounting translation will be reported in the full year P&L statements. 

Commenting on the trading update, Yuriy Kosyuk, Chief Executive Officer, of MHP, said:

"We are satisfied with the strong business performance in 2008. Despite a tough macro economic environment we expect that trading for the year will be in line with expectations. Our poultry division has significant potential for further growth as poultry meat remains the cheapest source of animal protein at approximately half the price of beef and pork."

MHP's full year 2008 financial results will be published in April 2009. The exact publication date and dialing instructions for the call will be published in due course.

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Notes to Editors:

About MHP

MHP was admitted to the Official List of the London Stock Exchange in May 2008. It is the leading producer of poultry products in Ukraine, with a 2007 market share for industrially produced chicken meat of approximately 36%, according to the State Committee on Statistics of Ukraine. It's "Nasha Ryaba" brand is the market leader, whilst MHP also has several other national and regional brands for processed meat products.

MHP is fully vertically integrated owning and operating 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 bio-security and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale.

MHP also has an important and expanding grain operation, producing and selling sunflower oil as a by-product of its fodder production. MHP also produces and sells beef, sausages, cooked meats convenience food products, goose meat, foie gras and fruit.

Information on Ukraine

Independent since 1991, Ukraine represents a large consumer market with 46 million people and a growing economy fuelled by the rising affluence of domestic consumers and external demand for Ukrainian products. In 2007, per capita GDP amounted to US $2,965 and the current pace of household income growth is expected to be sustained in 2008 owing to increasing salaries and enlarged social payments. Ukraine became a member of the WTO in June 2008.