Mhp Reg S Regulatory News (MHPC)

PRESS RELEASE

17 August 2017, Kyiv, Ukraine

MHP SE

Unaudited Financial Results for the Second Quarter and Six Months Ended 30 June 2017

MHP SE (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 six month and second quarter ended 30 June 2017.

OPERATIONAL HIGHLIGHTS

Q2 2017 highlights

· Poultry production volumes reached 145,820 tonnes, up 2% (Q2 2016: 142,591 tonnes)

· The average chicken meat price increased by 20% year-on-year to UAH 32.92 per kg (Q2 2016: UAH 27.37 per kg) (excluding VAT)

· Chicken meat exports increased by 31% to 71,332 tonnes (Q2 2016: 54,451 tonnes) as a result of increased exports mainly to countries in the EU and Africa as well as to UAE and Saudi Arabia

H1 2017 highlights

· The Company's poultry production facilities continued to operate at full capacity during the period and poultry production volumes remained relatively stable at 287,694 tonnes (H1 2016: 286,342 tonnes)

· The average chicken meat price increased by 18% year-on-year to UAH 32.35 per kg (H1 2016: UAH 27.42 per kg) (excluding VAT)

· Chicken meat exports increased by 44% to 123,042 tonnes (H1 2016: 85,263 tonnes) as a result of increased exports mainly to countries in the EU and Africa as well as to UAE and Saudi Arabia

· The Company established processing plant in Slovakia as part of its export strategy

FINANCIAL HIGHLIGHTS

Q2 2017 highlights

· Revenue of US$ 321 million, increased by 22% year-on-year (Q2 2016: US$ 263 million)

· Export revenue of US$ 185 million, 58% of total revenue (Q2 2016: US$ 139 million, 53% of total revenue)

· Operating profit of US$ 152 million increased by 15% year-on-year (Q2 2016: US$ 132 million); operating margin decreased to 47% from 53% in Q2 2016

· Adjusted EBITDA increased to US$ 173 million from US$ 152 million in Q2 2016; adjusted EBITDA margin decreased to 54% from 58%

· Profit for the period from continuing operations of US$ 153 million, compared to US$ 167 million for Q2 2016, including US$ 36 million of non-cash foreign exchange translation gains (Q2 2016: US$ 67 million)

H1 2017 highlights

· Revenue of US$ 600 million, increased by 24% year-on-year (H1 2016: US$ 483 million)

· Export revenue of US$ 349 million, 58% of total revenue (H1 2016: US$ 254 million, 53% of total revenue)

· Adjusted operating profit of US$ 226 million increased by 11% year-on-year (H1 2016: US$ 204 million); adjusted operating profit margin decreased to 38% from 42% in H1 2016

· Adjusted EBITDA increased to US$ 266 million from US$ 243 million in H1 2016; adjusted EBITDA margin decreased to 44% from 50%

· Profit for the period from continuing operations of US$ 210 million, compared to US$ 111 million for H1 2016, including US$ 43 million of non-cash foreign exchange translation gain in H1 2017, compared to US$ 40 million of non-cash foreign exchange translation loss in H1 2016.

FINANCIAL OVERVIEW

* pps - percentage points

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

Average official FX rate for Q2: UAH/US$ 26.4627 in 2017 and UAH/US$ 25.2618 in 2016

Average official FX rate for H1: UAH/US$ 26.7602 in 2017 and UAH/US$ 25.4578 in 2016

DIVIDENDS

On 14 March 2017, the Board of Directors of MHP SE approved an interim dividend of US$ 0.7492 per share, equivalent to approximately US$ 80.0 million, to be paid on 29 March 2017, to shareholders on the register as of 26 March 2017. No dividend are 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) for its dividends to be paid later than on the declared dividend payment date (but not later than 1 November 2017), with no interest accrued on the amount of dividend paid later.

During the six-month period ended 30 June 2017, MHP SE paid dividends to shareholders in amount of approximately US$ 77.7 million.

EUROBONDS

In May 2017, MHP successfully completed a Eurobond transaction involving the repurchase of US$ 245.2 million of Eurobonds 2020 and issue of a new US$ 500 million 7-year Eurobond with a coupon of 7.75%. The issue was more than 3 times oversubscribed.

SUBSEQUENT EVENTS: CONVERSION TO MHP SE

According to the extract issued by the Luxembourg Trade and Companies Register on 08 August 2017, the Company has converted from a public limited liability company ("Société Anonyme") into a European company ("Societas Europaea") effective as of 07 August 2017.

This is the first step towards the possible transfer of the Company's registered office to another location within the EU to enable simplification of the group's legal structure.

DIAL-IN 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 Q2 and H1 2017

Ukraine 0800501306

International/UK Dial in: +44 2030432440

USA free call: +1 8778874163

Russia free call +7 4952216523

Conference ID EV00060929

Participant PIN code 81944792#

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

http://event.onlineseminarsolutions.com/r.htm?e=1484085&s=1&k=24C10B011D2DAD2D1F1425006F626F28

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

Chicken meat

As a result of increased exports, the aggregate volume of chicken meat sold to third parties increased by 11% and 14% in Q2 2017 and H1 2017, respectively. Domestic sales decreased slightly to 85,913 tonnes in Q2 2017 (Q2 2016: 86,646 tonnes). Export sales in Q2 2017 increased by 31% to 71,332 tonnes (Q2 2016: 54,451 tonnes) and in the first half of 2017, poultry exports increased by 44% compared to H1 2016 and reached 123,042 tonnes as a result of both geographical diversification and product mix optimization. Total poultry exports in H1 2017 constituted around 43% vs 34% in H1 2016.

MHP's poultry prices on the domestic market in UAH terms increased year-on-year by 15% in Q2 2017 and 14% in H1 2017, mainly driven by price growth started in H2 2016. At the same time, the US$ denominated export price for chicken meat increased year-on-year by 18% in Q2 2017 and by 14% in H1 2017, mainly as a result of MHP's export product mix optimization as well as geographic diversification and slightly upward trends in price on international commodity markets.

Vegetable oil

During H1 2017 MHP's sales of sunflower oil increased by 2% compared to H1 2016 to 167,015 tonnes. Sales of soybean oil remained relatively stable compared to H1 2016 at 14,300 tonnes.

* pps - percentage points

As a result of the increase in sales volume and price of chicken meat, revenue increased by 18% in H1 2017 compared to H1 2016.

IAS 41 standard gain in H1 2017 was US$ 14 million compared with US$ 26 million in H1 2016 mainly as a result of lower poultry meat stock as of 30 June 2017 compared to as of 30 June 2016.

Gross profit of the poultry and related operations segment for Q2 2016 increased by 17% and amounted to US$ 63 million. The increase is mainly attributable to increases in sales volume and meat prices, which was partly offset by increased production costs, reflecting higher prices of grain consumed as well as higher payroll costs.

Adjusted EBITDA for the period has increased mostly in line with the increase in gross profit. Additional positive impact is attributable to the increase in government grants income due to amendments in the Tax Code of Ukraine that became effective from 01 January 2017.

Grain growing operations

In 2017 the Company plans to harvest around 360,000 hectares of land.

As of the date of this report, the Company's harvesting campaign of winter rapeseeds, barley and wheat is complete, so that winter crops current (bunker) yields are as follows: rapeseeds 3.7 t/ha, wheat 6.1 t/ha and barley 6.0 t/ha.

Spring crops (corn, soybean and sunflower) are in good condition.

Grain growing segment's revenue for H1 2017 of US$ 28 million compared to US$ 3 million in H1 2016. The increase is mainly attributable to a higher amount of crops in stock designated for sale as of 31 December 2016, compared to stock held for sale as of 31 December 2015, mainly as a result of higher yields in 2016.

IAS 41 standard gain for H1 2017 amounted to US$ 51 million compared with US$ 76 million in H1 2016 mainly as a result of a more substantial decrease in grain stock in H1 2017 compared to H1 2016.

Other agricultural operations

Sales volume of meat processing products increased by 7% year-on-year to 8,990 tonnes in Q2 2017 and by 12% to 17,250 tonnes in the first half of 2017 compared to 15,380 tonnes in H1 2016, mainly as a result of increased product promotion and advertising, as well as increasing the product range and types of packaging.

The average processed meat price increased by 11% year-over-year to UAH 46.24 per kg in Q2 2017 in line with the poultry price increase.

* pps - percentage points

** in 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 started to evaluate performance of the segments. Comparative information was restated retrospectively.

Segment revenue of H1 2017 increased by 31% year-on-year, in line with the increase of sales volume and price in meat processing to US$ 55 million. Gross profit and adjusted EBITDA increased mostly as a result of higher returns earned from meat processing, livestock and milk operations.

Current Group financial position and cash flow

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

Cash flow from operations before changes in working capital for H1 2017 amounted to US$ 144 million (H1 2016: US$ 86 million).

The decrease in cash from change in working capital during H1 2017 compared to H1 2016 is mostly the result of lower investments in sunflower stocks designated for internal consumption as of 31 December 2016 compared to 31 December 2015, and subsequently more investment required in inventory during H1 2017, as well as increase of VAT receivable as of 30 June 2017 compared to 30 June 2016.

In H1 2017, CAPEX amounted to US$ 44 million mainly related to construction works for Phase 2 of the Vinnytsia poultry project.

Debt Structure and Liquidity

*Short-term debt as of 30 June 2017 consists from current portion of long-term bank borrowings and finance lease obligations

As of 30 June 2017, the share of long-term debt in the total outstanding debt increased to 97% of total debt (80% of total debt as of 31 December 2016) due to repayment of short-term bank loans as of 30 June 2017. The weighted average interest rate is approximately 8%.

As of 30 June 2017, MHP's cash and cash equivalents amounted to US$ 130 million. Net debt slightly decreased to US$ 1,073 million, compared to US$ 1,081 million as at 31 December 2016.

The Net Debt / LTM EBITDA ratio was 2.44 as of 30 June 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 H1 2017 amounted to US$ 349 million or 58% of total revenue (US$ 254 million or 53% of total revenue in H1 2016).

Outlook

Taking into account export sales achieved in H1 2017, MHP expects to successfully fulfil its export sales plan for the full year and to export around 220,000 tonnes of chicken meat.

The construction of Phase 2 (Line 1) of the Vinnytsia Complex proceeds on schedule and on budget. The Company expects to launch the first new rearing sites in May-June 2018, which should add around 40,000 tonnes of poultry in 2018, and 130,000 tonnes in a full year of production.

The Company's outlook for the 2017 harvest is positive, with yields depending on weather conditions in Ukraine.

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 15 May 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 six-month period ended 30 June 2017

CONTENT

STATEMENT OF MANAGEMENT RESPONSIBILITY................................................................................ (a)

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

REVIEW REPORT ON INTERIM FINANCIAL INFORMATION.....................................................................(i)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX-MONTH PERIOD ENDED 30 June 2017

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................. 5

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 6

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 7

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS................................................. 9

1. Corporate information...................................................................................................................... 11

2. Changes in the group structure......................................................................................................... 12

3. Basis of preparation and accounting policies..................................................................................... 13

4. Segment information....................................................................................................................... 16

5. Profit for the period.......................................................................................................................... 17

6. VAT refunds and other government grants income.............................................................................. 17

7. Property, plant and equipment.......................................................................................................... 17

8. Inventories and agricultural produce.................................................................................................. 18

9. Biological assets............................................................................................................................ 18

10. Bank borrowings........................................................................................................................... 18

11. Bonds issued............................................................................................................................... 19

12. Related party balances and transactions........................................................................................ 21

13. Contingencies and contractual commitments.................................................................................. 22

14. Fair value of financial instruments................................................................................................... 23

15. Risk management policy............................................................................................................... 24

16. Dividends..................................................................................................................................... 25

17. Subsequent events....................................................................................................................... 25

18. Authorization of the interim condensed consolidated financial statements.......................................... 25

STATEMENT OF MANAGEMENT RESPOSIBILITY

To the best of our knowledge, the unaudited interim condensed consolidated financial statements ofMHP SE (the "Company") and its subsidiaries (collectively the "Group") as of and for the six month period ended 30 June 2017 prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" give a true and fair view of the consolidated assets, consolidated liabilities, consolidated financial position and consolidated financial performance of the Group taken as a whole, and the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

16 August 2017

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

MANAGEMENT REPORT

Key financial highlights

During the six-month period ended 30 June 2017 consolidated revenue increased by 24% to US$ 599.8 million, compared to US$ 482.8 million for the six-month period ended 30 June 2016. Export sales for the six-month period ended 30 June 2017, at US$ 349.0 million, constituted 58% of total revenue compared to US$ 253.9 million or 53% of total revenue for the six-month period ended 30 June 2016. The overall increase in revenue is mainly attributable to increased exports of chicken meat and grains.

Gross profit increased by 8% to US$ 238.8 million for the six-month period ended 30 June 2017 compared to US$ 220.3 million for the six-month period ended 30 June 2016.

In line with the increase in gross profit, operating profit increased by 12% to US$ 226.1 million for the six-month period ended 30 June 2017 compared to US$ 202.1 million for the six-month period ended 30 June 2016.

Profit for the period from continuing operations for the six-month period ended 30 June 2017 amounted to US$ 210.1 million, including a foreign exchange gain of US$ 42.5 million, compared to profit of US$ 111.3 million for the six-month period ended 30 June 2016, including a foreign exchange loss of USS 40.4 million. The foreign exchange gain is mainly related to bank borrowings and bonds issued in foreign currency and results from UAH appreciation against USD during the six-month period ended 30 June 2017.

Dividends

On 14 March 2017, the Board of Directors approved an interim dividend of USD 0.7492 per share, equivalent to approximately USD 80.0 million, to be paid on 29 March 2017 to shareholders on the register on 26 March 2017. No dividend will be paid on the Company's shares held in treasury.

The Board of Directors acknowledged the consent of WTI Trading Limited (the Company's major shareholder) for its dividends to be paid later than on the declared dividend payment date (but not later than 1 November 2017), with no interest accrued on the amount of dividend paid later (Note 12).

During the six-month period ended 30 June 2017, MHP SE paid dividends to shareholders of approximately US$ 77.7 million.

Internal control and risk management

During the six-month period ended 30 June 2017 there were no changes to objectives, policies and processes for risks inherent to the Group. The summary of key risks faced by the Group and plans to mitigate them are disclosed in the Director's report for the period ended 31 December 2016.

16 August 2017

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

To the Shareholders of

MHP S.A.

5, rue Guillaume Kroll

L-1882 Luxembourg

REVIEW REPORT ON INTERIM FINANCIAL INFORMATION

Introduction

We have reviewed the accompanying interim condensed consolidated statement of financial position of MHP S.A. as of 30 June 2017, and the related interim condensed consolidated statements of comprehensive income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and explanatory notes ("the Interim Financial Information"). The Board of Directors is responsible for the preparation and fair presentation of this Interim Financial Information in accordance with IAS 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this Interim Financial Information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying Interim Financial Information does not give a true and fair view of the interim condensed consolidated statement of financial position of MHP S.A. as at 30 June 2017, and of its interim condensed consolidated statement of comprehensive income and its interim condensed consolidated statement of cash flows for the period then ended in accordance with IAS 34 "Interim Financial Reporting".

For Deloitte Audit, Cabinet de révision agréé

John Psaila, Réviseur d'entreprises agréé

Partner

16 August 2017

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six-month period ended 30 June 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 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 30 June 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 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 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 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 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 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six-month period ended 30 June 2017

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT (continued)

for the six-month period ended 30 June 2017

(in thousands of US dollars, unless otherwise indicated)