Ukraine Markets Daily (November 17, 2016)

Market news

  • MHP reported USD 86 mn net profit in 9M2016

Market comment

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MHP reported USD 86 mn net profit in 9M2016

On November 16, 2016, Myronivsky Hliboproduct (MHP) disclosed its Unaudited Financial Results for the Third Quarter and Nine Months Ended 30 September 2016. The company’s revenue remained nearly unchanged at USD 899 mn in January-September of 2016, with the expansion of poultry sales (+6.6% y/y) and other operations (+13.3% y/y) matching the downfall of revenue from grain operations (-55.8% y/y). Exports revenue represented 51% of total revenue in 9M2016, and amounted to USD 455 mn, thanks to market expansion towards the EU and the MENA region, the company says. MHP reported a profit before taxes in the amount of USD 85 mn in 9M2016, rebounding from a loss of USD 58 mn for the corresponding period of the previous year, and ending in a net profit of USD 86 mn in 9M2016, compared with a loss of USD 37 mn for the corresponding period of the previous year. The company recorded a net loss on foreign exchange translation in the amount of USD 88 mn (-70% y/y). MHP reported an EBITDA volume of USD 340 mn as of September 30, 2016, declining by 12% y/y, and reducing the EBITDA margin by 5 pps y/y to 38%. Net debt decreased to USD 1.16 bn, compared to USD 1.22 bn as at December 31, 2015, driving the Net Debt / LTM EBITDA ratio to 2.82 as of September 30, 2016, well within the Eurobond covenant limit of 3.0, according to the statement. Operating cash flow before working capital change amounted to USD 250 mn in 9M2016, declining by -24.2% y/y on unrealized foreign exchange loss above all, leaving a net cash flow from operating activities in the volume of USD 240 mn (+44% y/y). The company used USD 73 mn (-31% y/y) in investing activities, spending 81 mn on capital investment thanks to an additional USD 8 mn non-cash financing. Financing activities resulted in a net cash outflow of USD 148 mn (+270% y/y), generated above all by repayments on bank borrowings (USD 221 mn) and payment of dividends (USD 80 mn). MHP’s total assets increased by 3.3% ytd to USD 2.1 bn in 9M2016 mostly on revaluation of property, plant and equipment. Additionally, the company’s total assets gained from expansion of biological assets related to winter crops field and agricultural produce coming from good 2016 harvest. Meanwhile, the company reported a notable increase of 32% ytd in the balance of cash and cash equivalent, standing at USD 78 mn as of September 30, 2016. MHP’s total liabilities fell by 2.1% ytd to USD 1.4 bn in 9M2016, mostly thanks to reduction of bank borrowing to USD 229 mn (-17.6% ytd) and accrued interests to USD 3 mn (-87.5% ytd). Total equity increased by 14.6% ytd to USD 771 mn mostly on revaluation of reserve (+USD 56 mn ytd) and increase in retained earnings (+USD 74 mn ytd).

Our view:

The statement is POSITIVE, showing the company to have pursued a balanced diversification strategy, which allowed confidently surfing the difficult domestic and global operating environment. The company could benefit from expansion of exports, efficient production, and redistribution of the production matrix from crop to poultry and other operations. Notwithstanding the positive result, however, we note the substantial tightening of the company’s EBITDA and profit margins, generating further risks for the company with consideration to severing regulatory environment for agricultural companies in Ukraine and uncertain global agricultural price outlook.