MHP’s results hit by coronavirus, avian flu

While the coronavirus pandemic and a nearby avian flu outbreak adversely impacted business for MHP earlier this year, the firm expects its 2020 fiscal results to be line with the previous year.

Phongphan, Bigstockphoto.com
Phongphan, Bigstockphoto.com

Among the key challenges impacting the business of Ukraine-based agri-food group MHP SE this year have been avian influenza and COVID-19.

In the recently published audited results for the second quarter (Q2) and first-half year (H1) results for 2020, MHP reports that it largely continued to operate normally despite the impacts of COVID-19. While the hotel, restaurant and catering (HoReCa) sector came almost to a halt and export demand slumped, MHP offset this reduced demand with increased sales on the domestic market. At its production facilities, many changes were made to reduce the risk of spreading the coronavirus infection.

Even though there were no outbreaks at MHP’s facilities, an outbreak of H5N1 avian influenza in the Vinnytisia region in January of 2020 led to the temporary halt in the company’s exports to some regions. However, this trade was restored to all markets by May.

Lower total revenue in Q2, H1

For Q2 (ended 30 June), MHP reported a 17% reduction in revenue year-on-year at US$425 million. Accounting for just over half of all revenue, exports were 24% lower than in the same period of 2019 at US$215 million. As a result, operating profit was down 29% at US$91 million, and operating margin fell to 21%.

Results for the H1 period show similar but milder impacts on the group’s fiscal results than for Q2. At US$867 million, total revenue was 8% lower year-on-year, and exports were down 18% at US$453 million. Operating profit was reduced 22% at US$138 million, resulting in the fall in operating margin from 19% to 16%.

Compared with a net profit for H1 of 2019 of US$171 million, the group reported a net loss for the same period in 2020 of US$62 million. The group attributes this mainly to US$129 million of non-cash foreign exchange losses during the latest half-year arising from the exchange rate of the Ukrainian hryvnia (UAH) against the U.S. dollar weakening by 11%.

Poultry production 'stable' in Q2

According to MHP, its output of poultry meat for the 3 months of Q2 was relatively stable at almost 181,300 metric tons (mt). In the same period of 2019, production was just over 182,300 mt. Meanwhile, Slovenia-based affiliate Perutnina Ptuj (PP) achieved a 9% increase in volume at around 26,100 mt.

Average chicken meat prices showed a year-on-year decrease — by 16% to US$1.27 per kg for the Ukrainian business and by more than 6% to EUR2.50 per kg for PP.

As a result of the two diseases, the group’s exports of chicken meat experienced a 9% year-on-year reduction to around 88,500 mt.

In H1, third-party sales by the group were down by 5% at almost 328,400 mt. This reduction was attributed to reduced exports, which took a 10% hit for the period to just over 170,500 mt. This arose from the combination of avian flu-related market suspensions, and disruptions linked to COVID-19. The same factors were to blame for a year-on-year decrease of 8% in poultry export prices, according to MHP, while prices on the domestic market were 13% lower.

Also included in MHP’s business unit with poultry are its vegetable operations, covering sunflower oil and soybean oil. At US$132 million, half-year revenue was 5% lower than in the same period of 2019.

In terms of area harvested, MHP’s grain-growing operations are largely unchanged from 2019. However, unfavorable growing conditions in Ukraine during the current season are expected to impact yield adversely.

Meat processing sales 'broadly unchanged'

At more than 16,500 mt, MHP describes the sales volume of its meat processing products as “broadly unchanged.” A 1% reduction in the volume is reported. However, the average price in UAH is 6% higher year-on-year, which is attributed to price management strategy as well as an increased share of higher-priced products in the overall portfolio.

For the convenience food sector, half-year sales were 1% higher in volume at over 8,500 mt. However, COVID-19-related changes in the product mix resulted in a 2% reduction in average price in UAH.

European operating segment results

In Q2, PP achieved a small year-on-year increase in poultry sales at 15,855 mt, while average prices were down by 6%.

For processed meat (sausages and convenience foods), PP achieved an increase of 12% in volume from the same period of 2019 at more than 9,400mt, while average prices were slightly lower.

For 2020, revenue for this segment was US$79 million for Q2, and US$157 million for H1. As a result, profitability (expressed as adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization) was up 19%and 17%, respectively. These changes were driven mainly by higher sales of the firm’s more profitable meat processing products so far this year.

Outlook: increased poultry sales, reduced grain production

Looking ahead for the rest of this year, MHP as a group sees opportunities to further increase sales through exports and domestic sales in Ukraine. It add that the acquisition of PP early in 2019 has delivered better-than-expected results.

However, the firm’s grain production in 2020 is likely to be hit by a prolonged spell of hot and dry weather, which will negatively impact yields.

Overall, MHP forecasts fiscal performance for this year to be in line with 2019.

More on MHP

MHP (formerly Myronivsky Hlibroproduct) is among the Top 10 poultry companies in Europe, according to the WATT Ag Net database.

In February of 2019, MHP completed its acquisition of Slovenia-based Perutnina Ptuj poultry meat company.

For the first quarter of 2020, MHP recorded a 2% increase in revenue, despite a drop in exports resulting from the avian influenza outbreak in the region.

A recent report on the MHP’s non-financial business aspects includes information on the firm’s antibiotic reduction policy in poultry, as well as its choices of genetics and housing systems for broilers.

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