Analysis Chicken & Poultry

Ukrainian chicken giant receives support from banks

May 15, 2024 - Matthijs Bremer

Despite the war in the homeland, the Ukrainian chicken meat giant MHP experienced significant growth in 2022 and 2023. The company states in its annual report that it faced additional costs and uncertainties due to the war. Nevertheless, the company's revenue increased significantly, and the gross profit was in line with expectations. As a result, the company managed to substantially reduce its debts. The strong growth was mainly driven by higher exports. Several Western development banks collectively invested $480 million in the Ukrainian poultry giant.

In their own words, MHP is an 'essential link in global food production.' This statement is not entirely unfounded, as the company is the largest poultry slaughterhouse in Europe and the 7th largest in the world. The company had 28,788 employees at the end of 2023. However, this figure is somewhat inflated as 2,380 employees were called up for the war. Additionally, MHP processes chickens from over five hundred poultry farms in Ukraine, as stated in the annual report. In total, the company produced 718,644 tons of poultry meat, a 3% increase compared to 2024. The previous year saw a production of 697,071 tons.

Since the start of the war, the company has been quite controversial. The European poultry sector and organizations promoting a vegetarian lifestyle accuse the company of unfair competition, citing lower Ukrainian standards for animal welfare and the environment. However, the company is not solely engaged in poultry meat production. 54% of its revenue comes from poultry activities, while 20% is derived from vegetable oil production. Additionally, the company is a relatively small player in wheat.

Improving Business Results
Despite the war in Ukraine, the company's growth has continued unabated. In 2021, the company generated revenue of $2.37 million. Since then, revenue has increased by 27.4%. In 2023, MHP's revenue grew by 14%, from $2.64 billion to $3.02 billion. Even in 2022, the year the war broke out, revenue also increased by 11%.

Not only was the company's revenue strong, but MHP also had reason to be satisfied with the recovery of its EBITDA. In the year following the war, EBITDA decreased from $648 million to $384 million. In 2023, it increased by 16% to $445 million. While this result may seem modest compared to 2021, which had exceptionally strong results, the EBITDA for 2023 aligns with historical expectations. In 2018, the EBITDA of $450 million was in line with the current figure. In 2020, MHP's result was even weaker than in the first year of the war, with a profit of $340 million.

Despite the positive figures, the company, like in 2022, did not pay dividends for 2023. Due to the war, the company aims to maintain liquidity. It chose to use the extra profits to repay debts. In 2022, the company had a debt of $1.24 billion, which decreased to $1.1 billion in 2023.

Increasing Exports
The positive results were partly driven by an increase in exports. Export revenues rose from $1.6 billion to $1.8 billion. However, exports were particularly dominant in 2022. That year, exports increased by 26%, from €1.265 million to €1.6 million. This growth is mainly attributed to the free trade agreement with the European Union since June 2022. Poultry meat exports are particularly significant, accounting for 57% of exports. Additionally, vegetable oil exports hold a dominant share of 33%.

Relatively speaking, the story is more nuanced. The share of exports increased significantly since the war, from 53% in 2021 to 60% in 2023. Due to lower domestic demand, MHP was compelled to focus more on foreign markets. However, this is not new for the company, as it already generated 60% of its revenue from exports in 2018. Interestingly, despite the war, the export share in 2023 decreased by 1%. This is mainly due to the company's stronger position within Ukraine. MHP secured a deal with McDonald's to supply its Ukrainian branches. 

Meanwhile, the company was active abroad as well. In 2023, it began supplying prepared chicken to Tesco in Eastern Europe. In the UK, it opened an R&D facility to strengthen ties in the country. In the MENA region, the company signed a delivery contract with KFC for the production of various products, including chicken nuggets. Like many Western companies, MHP is increasingly focusing on convenience. The company aims to become the Ukrainian market leader in prepared foods, with a strong focus on foreign markets. The export of prepared meat increased by 37%, while sales in Ukraine decreased by 3%.

Investment Banks
Despite the significant growth in recent years, MHP's annual report reveals that the company received substantial funding from various international investment banks. In 2023 and 2024, the company issued $480 million in bonds to organizations such as the U.S. International Development Finance Corporation (DFC), International Finance Corporation (IFC), and the European Bank for Reconstruction and Development (EBRD). These organizations receive an interest rate of 7.75%, as stated by director John Rich in his commentary.

Of the total amount, $400 million is allocated for risk management, a significant sum compared to the costs of the past two years. The company also claims to be less affected by the war. In 2022, the company estimated costs at $69 million, which decreased to $35 million in 2023. These costs include not only additional transportation expenses due to military activities in the Black Sea but also factors like a fivefold increase in training costs for staff, partly attributed to the war as a considerable portion has been called up for military service. Additionally, the company continues to pay their salaries. The company is free to invest $80 million at its discretion.

Matthijs Bremer

Matthijs Bremer is a market specialist in pork, beef, and poultry meat at DCA Market Intelligence. He also monitors the protein transition, keeping an eye on developments in cultured meat and meat substitutes.
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