Mhp Reg S Regulatory News (MHPC)

22 May 2018, Kyiv, Ukraine

MHP SE

Financial Results for the First Quarter Ended 31 March 2018

MHP SE (LSE: MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, focusing primarily on the production of poultry and cultivation of grain, as well as other agricultural operations (meat processing and meat products ready for consumption) today announces its results for the first quarter ended 31 March 2018. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

OPERATIONAL HIGHLIGHTS

· Poultry production volumes reached 152,167 tonnes, increased by 7% (Q1 2017: 141,874 tonnes)

· The average chicken meat price increased by 23% year-on-year to UAH 38.78 per kg (Q1 2017: UAH 31.52 per kg) (excluding VAT). In USD terms, the average MHP's poultry prices in 1Q 2018 increased by 22% year-on-year

· Chicken meat exports increased by 28% to 63,144 tonnes (Q1 2017: 49,151 tonnes) as a result of increased exports to the countries of the MENA and the EU

FINANCIAL HIGHLIGHTS

· Revenue of US$ 306 million, increased by 10% year-on-year (Q1 2017: US$ 279 million)

· Export revenue amounted to US$ 162 million, 53% of total revenue (Q1 2017: US$ 164 million, 59% of total revenue)

· Operating profit of US$ 62 million decreased by 16%; overall adjusted operating profit margin was 20%

· Adjusted EBITDA decreased by 4% to US$ 89 million (Q1 2017: US$ 93 million); adjusted EBITDA margin declined to 29% (Q1 2017: 33%)

FINANCIAL OVERVIEW

* pps - percentage points

Average official FX rate for Q1 2018 UAH/US$27.3203 and for Q1 2017 UAH/US$27.0611

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

Title: Financial results for Q1 2018

International/UK Dial in: +44 2071943759

USA free call: +1 6467224916

Conference ID EV00072997

Participant PIN code 19785356#

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

http://event.onlineseminarsolutions.com/r.htm?e=1664674&s=1&k=DE197AC01BE49A58F9E6D3FA0625272D

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 2018 increased by 9%. Domestic sales decreased by 4% to 72,163 tonnes (Q1 2017: 74,780 tonnes).

Export sales of Q1 2018 increased by 28% to 63,144 tonnes (Q1 2017: 49,151 tonnes). During the reporting period, following its export diversification strategy, the Company has been developing its exports mainly in the countries of the MENA and the EU. Export sales represented around 47% of total poultry sales volume in Q1 2018.

Through Q1 2018 the aggregate average chicken meat price was UAH 38.78, 23% higher in Hryvnia terms than the corresponding price for Q1 2017, mainly as a result of MHP's export product mix change and increased sales to more profitable markets in line with its market targeting strategy. The average chicken meat price on the domestic market increased by 23% during Q1 2018 compared to Q1 2017. At the same time the US$ denominated export price for chicken meat increased by 17% during Q1 2018 compared to Q1 2017.

During Q1 2018 MHP's sunflower oil sales decreased by 42% compared to Q1 2017 to 47,506 tonnes, due to changes in delivery terms from DAP to FOB that led to a temporary increase in stock. Soybean oil sales increased by 135% to 18,255 tonnes (including 6,000 tonnes of oil pushed back in Q4 2017).

* pps - percentage points

Revenue from Poultry and related operations segment for Q1 2018 increased by 14% year-on-year as a result of an increase in price and sales of chicken meat, partly offset by decreased sales volume of sunflower oil.

IAS 41 standard gain reflects net change in fair value of biological assets and agricultural produce. IAS 41 standard gain for Q1 2018 decreased by 91% compared to Q1 2017 to US$ 2 million mainly due to poultry prices, which remained almost at the same level as in Q4 2017, instead of growth in 1Q 2017 compared to 4Q 2016.

Gross profit of Poultry and related operations segment for Q1 2018 decreased by 6% to US$ 73 million, as a result of a decrease in IAS 41 gain which was partly offset by an increase in revenue, resulting from the higher sales volume and higher price of poultry meat.

Adjusted EBITDA has decreased by 9%, mostly in line with change in gross profit. An additional negative impact was attributable to a decrease in government grants income due to the Government not allocating the budget for subsidies for 2018.

Grain growing segment

Grain growing segment's revenue for Q1 2018 amounted to US$ 7 million compared to US$ 18 million inQ1 2017. The decrease was mainly attributable to the lower amount of crops in stock designated for sale as of 31 December 2017, compared to stock for sale as of 31 December 2016 mainly as a result of lower yields in 2017.

IAS 41 standard loss for Q1 2018 amounted to US$ 11 million. The loss represents the net change in effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) as a result of decrease of grain in stock due to internal consumption as a result of the harvest cycle and seasonality.

MHP has around 87,000 ha under winter crops, of which 56% is sown with winter wheat, 35% with winter rapeseeds and 6% with winter barley. The rest is triticale and rye. Total land bank of MHP's grain growing segment constituted 370,000 hectares as of which around 363,000 hectares are going to be harvested in 2018.

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

Other agricultural operations

Sales volumes of meat processing products have remained relatively stable compared to Q1 2017 and reached 8,162 tonnes in Q1 2018.

The average processed meat price increased by 32% year-over-year to UAH 58.66 per kg in Q1 2018 mostly in line with poultry price increase.

* pps - percentage points

** includes convenience food products, milk, cattle, goose meat, foie gras and feed grains .

Segment revenue of Q1 2018 increased by 24% year-on-year to US$ 31 million, mainly as a result of an increase in price of meat processing as well as price and sales volume of convenience food products.

The segment's Adjusted EBITDA increased to US$ 8 million in 1Q 2018 compared to US$ 5 million in 1Q 2017, mainly due to higher returns earned from meat processing, convenience food and milk operations.

Current Group financial position and cash flow

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

** 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.

Cash flow from operations before changes in working capital for Q1 2018 amounted to US$ 69 million (Q1 2017: US$ 39 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 2018 is mainly attributable to higher investment in inventories, related primarily to grain growing entities in respect of forthcoming spring sowing campaign (seeds, fertilizers, plant protection products, etc.), partly offset by an decreased stock of crops (corn, sunflower and soya) as a result of internal consumption.

In Q1 2018 total CAPEX amounted to US$ 52 million, mainly related to preparation of construction related to Phase 2 of the Vinnytsia poultry complex.

Debt Structure and Liquidity

As at 31 March 2018, the Company's debt structure remained relatively unchanged compared to31 December 2017: the share of long-term debt in the total outstanding debt is about 92%. The weighted average interest rate is around 7.4%.

At the end of Q1 2018, MHP's cash and cash equivalents amounted to US$ 136 million. Net debt decreased to US$ 1,058 million, compared to US$ 1,063 million as at 31 March 2017.

The Net Debt / LTM Adjusted EBITDA ratio was 2.33 as at 31 March 2018, 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, covering debt service expenses in full. Export revenue for Q1 2018 amounted to US$ 162 million or 53% of total revenue (US$ 164 million or 59% of total sales in Q1 2017).

Subsequent Events

In April 2018, the Group issued US$ 550,000 thousand of 6.95% Senior Notes due in 2026. As part of the transaction, US$ 416,183 thousand of existing 8.25% Senior Notes due in 2020 were redeemed and exchanged with the new issued Notes.

Dividends

On 6 March 2018, the Board of Directors of MHP SE approved payment of an interim dividend of USD 0.7492 per share, equivalent to approximately US$ 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. 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 SE 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 01 November 2018), with no interest accrued on the amount of dividend paid later.

Outlook

Winter crops are experiencing good conditions that provide the Company with a positive outlook for its 2018 harvest of winter wheat and winter rapeseeds. Spring sowing campaign has been completed on time.

The main drivers for profitable growth in 2018 are expected to be:

- An increase in production volume of chicken meat by around 40,000 tonnes as a result of capital investments in the expansion of the Vinnytsia poultry complex (Phase 2);

- An increase in exports of chicken meat across all regions to an expected 260,000-270,000 tonnes; and

- Construction of Phase 1 of an alternative-energy biogas project of 12MW capacity at the Vinnytsia poultry complex.

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. 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 centers, within major Ukrainian cities. MHP mainly 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 (around 370,000 ha) 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 SE. Such statements do not guarantee that these are actions to be taken by MHP SE 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 SE does not intend to change these statements to reflect actual results.

MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

As of and for the three-month period ended 31 March 2018

CONTENT

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

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

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018

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. Basis of preparation and accounting policies..................................................................................... 11

3. Segment information....................................................................................................................... 13

4. Profit for the period.......................................................................................................................... 14

5. Government grants income.............................................................................................................. 14

6. Property, plant and equipment.......................................................................................................... 14

7. Inventories and agricultural produce.................................................................................................. 15

8. Bank borrowings............................................................................................................................. 15

9. Bonds issued................................................................................................................................. 16

10. Related party balances and transactions........................................................................................ 18

11. Contingencies and contractual commitments.................................................................................. 18

12. Fair value of financial instruments................................................................................................... 20

13. Risk management policy............................................................................................................... 21

14. Dividends..................................................................................................................................... 21

15. Subsequent events....................................................................................................................... 22

16. 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.

21 May 2018

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 2018 consolidated revenue increased by 10% and amounted to USD 305,576 thousand, compared to USD 278,795 thousand for the three-month period ended 31 March 2017. Export sales for the three-month period ended 31 March 2018 constituted 53% of total revenue and amounted to USD 162,338 thousand, compared to USD 163,946 thousand, 59% of total revenue for the three-month period ended 31 March 2017. Overall increase in revenue is mainly attributable to the increased price and exports volume of chicken meat partly offset by a decrease in sales of sunflower oil.

Gross profit has decreased by 6% and amounted to USD 81,039 thousand for the three-month period ended 31 March 2018 compared to USD 86,257 thousand for the three-month period ended 31 March 2017.

In line with the decrease in gross profit, operating profit decreased by 16% to USD 61,954 thousand for the three-month period ended 31 March 2018 compared to USD 73,629 thousand for the three-month period ended 31 March 2017. An additional negative impact was attributable to a decrease in government grants income (Note 5).

Profit for the period from continuing operations for three-month period ended 31 March 2018 amounted to USD 89,784 thousand, including foreign exchange gain of USD 54,633 thousand, compared to USD 56,839 thousand, including foreign exchange gain of USD 6,903 thousand, for the three-month period ended 31 March 2017. 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 2018.

Dividends

On 6 March 2018, the Board of Directors of MHP SE approved a payment of the interim dividend of USD 0.7492 per share, equivalent to approximately USD 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. 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 SE 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, 2018), with no interest accrued on the amount of dividend paid later (Note 10).

Subsequent events

In April 2018, the Group issued USD 550,000 thousand of 6.95% Senior Notes due in 2026. As part of the transaction, USD 416,183 thousand of existing 8,25% Senior Notes due in 2020 were redeemed and exchanged with the new issued notes.

21 May 2018

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 2018

(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 2018

(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 2018

(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 CASH FLOW STATEMENT

for the three-month period ended 31 March 2018

(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 2018

(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 2018

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. MHP SE serves as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The controlling shareholder of MHP SE 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 SE.

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 2018 the Group employed about 27,649 people (31 December 2017: 27,589 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 March 2018 and 31 December 2017 were as follows:

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the three-month period ended 31 March 2018 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been condensed or omitted. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of the Group management, necessary to fairly state the results of interim periods. Interim results are not necessarily indicative of the results to be expected for the full year.

The 31 December 2017 statement of financial position was derived from the audited consolidated financial statements.

Adoption of new and revised International Financial Reporting Standards

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make adjustments as a result of adopting the following standards:

· IFRS 9 Financial Instruments, and

· IFRS 15 Revenue from Contracts with Customers

In accordance with the transitional provisions, IFRS 9 was generally adopted without restating comparative information. The adjustments arising from the new requirements of recognition and measurement of financial liabilities are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.

The adoption of these standards and the new accounting policies did not have any material effect on the financial position or performance of the Group. The other standards did not result in any changes to the Group's accounting policies and the amounts reported in the three-month period ended 31 March 2018 or prior periods.

For the Standards and Interpretations, as well as amendments to the Standards that were in issue but not yet effective management anticipates that their adoption will not have a material effect on the consolidated financial statements of the Group in future periods, except those disclosed in the Group's annual financial statements for the year ended 31 December 2017. The Management are currently assessing it's potential impact. It is not practicable to provide a reasonable financial estimate of the effect until the such detailed analysis will be completed.

Functional and presentation currencies

The functional currency of Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus companies of the Group is US Dollars ("USD"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognized in the consolidated statement of comprehensive income for the period.

These consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.

The results and financial position of the Group are translated into the presentation currency using the following procedures:

· Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that statement of financial position;

· Income and expenses for each consolidated statement of comprehensive income are translated at exchange rates at the dates of the transactions;

· All resulting exchange differences are recognized as a separate component of equity;

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currency (continued)

· All equity items, except for the revaluation reserve, are translated at the historical exchange rate. The revaluation reserve is translated at the closing rate as of the date of the statement of financial position.

For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average exchange rates, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.

The following exchange rates were used: