MHP S.A., one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, has announced its unaudited results for the second quarter and six months ended 30 June 2014.

Change in management

As announced on 3 July 2014, Yuriy Kosyuk resigned on that date from the position of CEO of MHP following his appointment by the President of Ukraine to the post of First Deputy Head of the Presidential Administration. The Board appointed Yuriy Melnyk as CEO of MHP.

Operational highlights

Poultry and related operations

During the first half of the year, all the Company’s chicken production facilities (including those in Crimea) continued to operate at full capacity with no changes in operations.

Currently, the Vinnytsia poultry farm operates at full capacity on 10 rearing sites (out of 12); the last two sites will be brought into production during the second half of 2014.

The volume of chicken meat sales to third parties (domestic and export) in the first half (H1) 2014 increased by 23 per cent year-on-year to 251,990 tonnes due to the increased production at the Vinnytsia poultry farm.

Due to strong domestic demand, MHP’s sales volumes in Ukraine in H1 of 2014 increased by around 30 per cent year-on-year.

In H1 2014, poultry exports increased by four per cent year-on-year to 57,560 tonnes, which constituted 23 per cent of total poultry sales, mainly due to an increase to the Middle East, North Africa and some CIS countries. MHP’s exports to Custom Union countries have been banned since February 2014 but have been redirected successfully to other regions.

Since October 2013, MHP has started exporting chicken meat to the European Union countries and since June 2014 we continue exporting poultry with zero import duty and gradually increasing volumes.

In H1 2014, the company's average chicken meat price was UAH16.86, four per cent higher than in H1 2013. The increase is mostly related to the positive effect of Ukrainian hryvnia (UAH) devaluation due to our US dollar-denominated export prices and as exports comprise 23 per cent of total sales of poultry meat.

In H1 2014, as a result of increased production of poultry feed, 137,163 tonnes of sunflower oil were sold at an average price of US$857 per tonne; this was 23 per cent higher in volume and 24 per cent lower in price compared to H1 2013, in line with world market price trends.

Grain growing

In 2014, the Company expects to harvest around 290,000 hectares in Ukraine and 40,000 hectares in the Russian Federation in its grain growing operations, as well as to cultivate around 30,000 hectares in other agricultural operations.

MHP’s current net yields of wheat (5.8 tonnes per hectare) and rapeseed (3.8 tonnes per hectare) continue to be substantially higher than Ukraine’s average.

Harvesting campaigns for sunflower and soybeans have just started.

Other agriculture

Sausage and cooked meat sales volumes decreased slightly from 16,110 tonnes in H1 2013 to 15,172 tonnes in H1 2014 but with a substantial 11 per cent price increase year-on-year.

The Company’s share of Ukraine’s market for sausage and cooked meat products remained stable at around 10 per cent.

Financial highlights

Second quarter (Q2) 2014 highlights

Revenue of US$329 million, a decrease of seven per cent compared to Q2 2013 as a result of 46 per cent devaluation of the Ukrainian Hryvnia against the US Dollar, partly offset by strong growth of chicken meat and sunflower oil sales volumes.

EBITDA of US$166 million, an increase of 38 per cent compared to Q2 2013 due to higher chicken meat sales volumes as well as lower poultry production costs year-on-year as a result of fixed corn price.

Operating margin increased to 45 per cent in Q2 2014 compared with 27 per cent in Q2 2013.

Net income of US$46 million, a decrease of 14 per cent compared to Q2 2013 as a result of US$88 million of non-cash foreign exchange losses mainly attributable to revaluation of foreign currency denominated debt following the devaluation of the Ukrainian Hryvnia.

H1 2014 highlights

Revenue of US$637 million, a decrease of three per cent compared to H1 2013 as a result of the 48 per cent devaluation of the Ukrainian Hryvnia against the US Dollar, partly offset by strong growth of chicken meat and sunflower oil sales volumes.

EBITDA of US$272 million, an increase of 41 per cent compared to H1 2013, predominantly due to higher chicken meat sales volumes as well as lower poultry production cost year-on-year as a result of fixed corn price.

Operating margin increased to 36 per cent in H1 2014 compared with 22 per cent in H1 2013.

Net loss of US$270 million (net income H1 2013: US$90 million) after accounting for US$454 million of non-cash foreign exchange losses, mainly due to revaluation of foreign currency denominated debt following the devaluation of the Ukrainian Hryvnia.

CEO's comments

Commenting on the results, Yuriy Melnyk, Chief Executive Officer of MHP, said: “Having worked as a First Deputy CEO of MHP for the last four years, I am honoured to take up the charge of CEO of the Company in this challenging period for Ukraine and for the Ukrainian people.

“I believe that the skills and the experience I have acquired, together with the determination to further develop our Company in line with its strategy and with the help of a strong team will allow us to deliver solid performances.

“In my first report to shareholders as CEO, I am pleased to report a strong performance by MHP in the first half of 2014. The Company continued to increase its overall production volumes, which resulted in significantly increased sales of poultry – both in Ukraine and for export – and sunflower oil.

“Despite the introduction of an import ban by the Customs Union in February 2014, and following our strategy of export diversification, MHP increased poultry sales across all regions, so that export chicken sales volumes during H1 2014 slightly increased by four per cent year-on-year. The preferential regime of zero import duty by the EU, which came into effect in June 2014, will bring new opportunities for MHP in Europe, which we have already started to develop.

“Notwithstanding the temporary suspension in operations of the Shahtarska poultry farm, which is responsible for the production of hatching eggs, our management has taken all necessary steps to allow MHP’s operations to continue to run smoothly.

“I believe that MHP’s sustainable, vertically integrated business model, highly competitive cost structure and intensive investment in state-of-the-art facilities are strong drivers for the Company’s growth and development both in poultry and grain operations. We are confident that we will continue to deliver strong operational and financial performance in 2014 and beyond,” said Mr Melnyk.