OREANDA-NEWS. October 21, 2010. MHP S.A. (LSE: MHPC) (“MHP” or “The Company”), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, is pleased to announce its pre-close trading update for the nine months to 30 September 2010. Financial results for Q3 2010 and the nine months to 30 September 2010 will be announced on November 18, 2010.

Poultry and Poultry Related Operations

 

Q3

Q3

%

9M

9M

%

Poultry

2010

2009

change

2010

2009

change

Sales volume, third parties

 

 

 

 

 

 

tonnes

81,000

76,600

6%

249,500

192,900

29%

Price per 1 kg net VAT, UAH

14,05

12,53

12%

13,43

12,97

4%

During the third quarter of 2010, the volume of chicken meat sales to external consumers increased by 6% to 81,000 tonnes compared to the third quarter of 2009, and by 29% to 249,500 tonnes during the first nine months of 2010. The increase was driven primarily by the launch of production at Myronivka phase two in H2 2009 at full capacity utilization. Demand for chicken meat during the first nine months of 2010 remained high and as a result the Company was able to sell close to 100% of the chicken produced.

The average chicken meat price through the third quarter of 2010 increased by 12% to UAH 14.05 per kg of adjusted weight (excluding VAT) when compared to the third quarter of 2009 due to seasonality, the unusually low poultry price last year and as a consequence of the grain price increase ( majority of the production costs) in Ukraine and worldwide. Through the nine months of 2010 average chicken prices increased slightly by 4% to UAH 13.43 per kg (9M 2009: UAH 12.97 per kg) as prices were almost flat in the first half of 2010.

In line with management expectations and forecasts, MHP’s poultry production costs in the third quarter were slightly higher year-on-year compared to Q3 2009 due to the increase in grain prices and at the same time poultry production cost in Q3 2010 decreased compared to H1 2010 due to the Company reaching complete self-sufficiency in hatchery eggs.

Sunflower oil

Q3 2010

Q3 2009

% change

9M 2010

9M 2009

% change

Sales volume, third parties

tonnes

54,400

 

31,900

 

70%

 

149,600

 

91,300

 

64%

 

Price per 1 tonne net VAT, USD

862

752

15%

841

689

22%

A new sunflower crushing plant in Katerynopilsky launched in September 2009, allowing MHP to increase its sunflower oil production volumes by 70% in Q3 2010 to 54,400 tonnes and by 64% to 149,600 tonnes through the nine months of 2010. With an increase of poultry production capacity last year, the new sunflower crushing plant enabled the Company to reach its full sufficiency in protein required for the production of fodder.

In Q3 2010 sunflower oil was sold to external customers at an average price of USD 862 per tonne (Q3 2009: USD 752 per tonne) while during the first nine months of 2010 the average sunflower oil price increased by 22% to USD 841 per tonne (9M 2009: USD 689 per tonne).

Grain Growing Operations

During the first nine months of 2010 the Company continued to execute it stated strategy of gradually increasing its land bank and at the end of the period it had more than 230,000 hectares of land under control. At the same time, in 2010 the bulk of the Company’s harvest will be generated from land that was under the Company’s control at the beginning of the year (total land bank as on December 31, 2010: 180,000 hectares, including 150,000 hectares in Grain Growing segment).

 

2010* (for land under control as

of 01.01.2010)                                                                  2009

 

 

Production,

Cropped

Production,

Cropped

 

tonnes

hectares*

tonnes

hectares*

Corn

In process

In process

432,603

48,540

Wheat

187,200

39,000

208,002

35,529

Sunflower

In process

In process

79,845

24,002

Rapeseed

8,900

3,000

38,618

14,423

Other**

In process

In process

201,412

24,757

Total:

n/a

n/a

960,480

147,313

* - Actual hectares under crop and excluding land left fallow as part of crop rotation

 

** - Includes soybean, barley and sugar beet

 

 

The Company’s harvest is on track, despite concerns over weather conditions and unfavorable preliminary forecasts across Ukraine and the wider region. In general, yields are significantly higher than Ukraine’s average but lower compared to 2009 yields.

 

2010* (for land under

 

 

 

control as of 01.01.2010) MHP’s              Ukraine’s

2009

 

MHP’s

Ukraine’s

 

average*

average*

average*

average*

Corn

In process

In process

9.0

5.0

Wheat

4.8

2.9

5.8

3.1

Sunflower

In process

In process

3.3

1.5

Rapeseed

3.0

1.7

2.7

1.9

* - Tonnes per hectare

 

 

 

 

The Company has now completed its wheat, rapeseed, and sunflower harvests. From land was under Company’s control as of 01.01.2010 about 39.000 hectares (2009: 35,592 hectares) of land cropped with wheat 187,200 tonnes (2009: 208,002 tonnes) were harvested. Wheat net yields averaged 4.8 tonnes per hectare (2009: 5.8 tonnes per hectare) compared to Ukraine’s average of 2.9 (2009: 3.1 tonnes per hectare) tonnes per hectare (AgroPerspectiva).

From 3,000 hectares (2009: 14,423 hectares) of land cropped with rapeseed, 8,900 tonnes (2009: 14,423 hectares) were harvested. Rapeseed net yields averaged 3.0 tonnes per hectare (2009: 2.7 tonnes per hectare) compared to Ukraine’s average of 1.7 (2009: 1.9 tonnes per hectare) tonnes per hectare (AgroPerspectiva).

As of today the Company has almost completed its sunflower harvest. Sunflower yields averaged 2.6 tonnes per hectare (2009: 3.3 tonnes per hectare) compared to Ukraine’s average of 1.6 tonnes per hectare (AgroPerspectiva). The Company will use its entire sunflower yield to produce protein for fodder and sunflower oil will be exported.

The Company’s corn harvest is ongoing and as of today it is 50% complete. The current net yield is averaging about 8.0 tonnes per hectare (2009: 9.0 tonnes per hectare) compared to Ukraine’s average of 4.0 tonnes per hectare as of October 15, 2010 (AgroPerspectiva).

Other Agricultural Operations

Meat processing products

Q3 2010

Q3 2009

% change

9M 2010

9M 2009

% change

Sales volume, third parties

tonnes

Price per 1 kg net VAT, UAH

9,900 17.57

7,400 17.22

34% 2%

24,100 17.26

18,250 17.36

32% -1%

Through the first nine months of 2010 the Company continued to execute its strategy of growing its local meat processing market share. This growth was mostly attributed to the continuing investments and growing of production volumes at Ukrainian Bacon facility.

During the third quarter of 2010, sausage and cooked meat production volumes increased by 34% to 9,900 tonnes compared to 7,400 tonnes during the third quarter of 2009. During the first nine months of 2010 volumes increased by 32% to 24,100 tonnes (9M 2009: 18,250 tonnes).

Average sausage and cooked meat prices during the third quarter of 2010 increased by 2% to UAH 17.57 per kg. excluding VAT (Q3 2009: UAH 17.22) and through the first nine months of 2010 remained flat at UAH 17.26 per kg. excluding VAT (9M 2009: UAH 17.36 per kg.

Outlook

Management remains confident about the prospects of the business. The current market conditions show how beneficial MHP’s business model of vertical integration is, as it ensures stable profitability despite grain prices fluctuations.

In poultry segment our production costs will be positively affected by self-sufficiency in hatchery eggs as MHP reached full capacity at its Starynska breeding farm. We also expect consumer demand for locally produced chicken will remain high, as among other kinds of meat, poultry will continue to be the most affordable one. Also poultry meat will benefit from the current market conditions, as the conversion rate of poultry compared with pork and beef is significantly lower.

MHP’s Grain Growing segment will also benefit from the growth of grain prices. Despite unpredictably bad weather conditions, currently the Company’s yields for crops are almost twice higher than Ukraine’s average.

In meat processing segment we will continue to drive production volumes and gain local market share.

Management remains confident that company’s strong performance continues through the end of the year and beyond.

The financial results for the nine months of 2010 will be published in November and exact date to be confirmed in a due course.