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RNS
MHP SE   -  MHPC   

Q1 2018 Financial results

Released 07:05 22-May-2018

RNS Number : 8338O
MHP SE
22 May 2018
 

 

 

 

 

 

 

 

22 May 2018, Kyiv, Ukraine

MHP SE

Financial Results for the First Quarter Ended 31 March 2018

MHP SE (LSE: MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, focusing primarily on the production of poultry and cultivation of grain, as well as other agricultural operations (meat processing and meat products ready for consumption) today announces its results for the first quarter ended 31 March 2018. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

OPERATIONAL HIGHLIGHTS

·      Poultry production volumes reached 152,167 tonnes, increased by 7% (Q1 2017: 141,874 tonnes)

·      The average chicken meat price increased by 23% year-on-year to UAH 38.78 per kg (Q1 2017: UAH 31.52 per kg) (excluding VAT). In USD terms, the average MHP's poultry prices in 1Q 2018 increased by 22% year-on-year

·      Chicken meat exports increased by 28% to 63,144 tonnes (Q1 2017: 49,151 tonnes) as a result of increased exports to the countries of the MENA and the EU

FINANCIAL HIGHLIGHTS

·      Revenue of US$ 306 million, increased by 10% year-on-year (Q1 2017: US$ 279 million)

·      Export revenue amounted to US$ 162 million, 53% of total revenue (Q1 2017: US$ 164 million,  59% of total revenue)

·      Operating profit of US$ 62 million decreased by 16%; overall adjusted operating profit margin was 20%

·      Adjusted EBITDA decreased by 4% to US$ 89 million (Q1 2017: US$ 93 million); adjusted EBITDA margin declined to 29% (Q1 2017: 33%)

FINANCIAL OVERVIEW

(in mln. US$, unless indicated otherwise)


Q1 2018


Q1 2017


% change*








Revenue


 306


 279


10%

IAS 41 standard (loss)/gain


(5)


 10


-150%








Gross profit


 81


 86


-6%

Gross profit margin


26%


31%


-5pps








Operating profit


 62


 74


-16%

Operating profit margin


20%


27%


-7 pps








Adjusted EBITDA


 89


 93


-4%

Adjusted EBITDA margin


29%


33%


-4 pps








Net profit before foreign exchange differences


 35


 50


-30%

Net profit margin before forex gain


11%


18%


-7 pps

Foreign exchange gain


 55


 7


686%








Net profit


 90


 57


58%

Net profit margin


29%


20%


9 pps

* pps - percentage points

Average official FX rate for Q1 2018 UAH/US$27.3203 and for Q1 2017 UAH/US$27.0611

 

 

MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results.

 

The dial-in details are:

 

Time:                                        09.00 New York / 14.00 London / 16.00 Kyiv

 

Title:                                        Financial results for Q1 2018

 

International/UK Dial in:             +44 2071943759

 

USA free call:                           +1 6467224916

 

Conference ID                             EV00072997

 

Participant PIN code                 19785356#

 

In order to follow the presentation together with the management, please register using the following link:

http://event.onlineseminarsolutions.com/r.htm?e=1664674&s=1&k=DE197AC01BE49A58F9E6D3FA0625272D

 

 

For Investor Relations enquiries, please contact:

Anastasia Sobotiuk (Kyiv)                      +38 044 207 99 58        a.sobotyuk@mhp.com.ua

For Analysts enquiries, please contact:

Iryna Bublyk (Kyiv)                                +38 044 207 00 04        i.bublik@mhp.com.ua



Segment Performance

Poultry and related operations



Q1 2018


Q1 2017


% change











Poultry







Sales volume, third parties tonnes


135,307


123,931


9%

Incl. Export sales volume, tonnes


63,144


49,151


28%

Price per 1 kg net of VAT, UAH


38.78


31.52


23%








Sunflower oil







Sales volume, third parties tonnes


47,506


82,133


-42%








Soybeans oil







Sales volume, third parties tonnes


18,255  


7,780


135%

Aggregate volume of chicken meat sold to third parties in Q1 2018 increased by 9%. Domestic sales decreased by 4% to 72,163 tonnes (Q1 2017: 74,780 tonnes).

Export sales of Q1 2018 increased by 28% to 63,144 tonnes (Q1 2017: 49,151 tonnes). During the reporting period, following its export diversification strategy, the Company has been developing its exports mainly in the countries of the MENA and the EU. Export sales represented around 47% of total poultry sales volume in Q1 2018.

Through Q1 2018 the aggregate average chicken meat price was UAH 38.78, 23% higher in Hryvnia terms than the corresponding price for Q1 2017, mainly as a result of MHP's export product mix change and increased sales to more profitable markets in line with its market targeting strategy. The average chicken meat price on the domestic market increased by 23% during Q1 2018 compared to Q1 2017. At the same time the US$ denominated export price for chicken meat increased by 17% during Q1 2018 compared to Q1 2017.

During Q1 2018 MHP's sunflower oil sales decreased by 42% compared to Q1 2017 to 47,506 tonnes, due to changes in delivery terms from DAP to FOB that led to a temporary increase in stock. Soybean oil sales increased by 135% to 18,255 tonnes (including 6,000 tonnes of oil pushed back in Q4 2017).

(in mln. US$, unless indicated otherwise)


Q1 2018


Q1 2017


% change*











Revenue


 268


 236


14%

- Poultry and other


 217


 168


29%

- Vegetable oil


 51


 68


-25%








IAS 41 standard gains


 2


 22


-91%








Gross profit


 73


 78


-6%

Gross margin


27%


33%


-6 pps








Adjusted EBITDA


 77


85


-9%

Adjusted EBITDA margin


29%


36%


-7 pps

Adjusted EBITDA per 1 kg (net of IAS 41)


0.55


0.51


8%

* pps - percentage points

Revenue from Poultry and related operations segment for Q1 2018 increased by 14% year-on-year as a result of an increase in price and sales of chicken meat, partly offset by decreased sales volume of sunflower oil.

IAS 41 standard gain reflects net change in fair value of biological assets and agricultural produce. IAS 41 standard gain for Q1 2018 decreased by 91% compared to Q1 2017 to US$ 2 million mainly due to poultry prices, which remained almost at the same level as in Q4 2017, instead of growth in 1Q 2017 compared to 4Q 2016.

Gross profit of Poultry and related operations segment for Q1 2018 decreased by 6% to US$ 73 million, as a result of a decrease in IAS 41 gain which was partly offset by an increase in revenue, resulting from the higher sales volume and higher price of poultry meat.

Adjusted EBITDA has decreased by 9%, mostly in line with change in gross profit. An additional negative impact was attributable to a decrease in government grants income due to the Government not allocating the budget for subsidies for 2018.

Grain growing segment

(in mln. US$)


Q1 2018


Q1 2017








Revenue


 7


18






IAS 41 standard loss


(11)


 (14)






Gross profit


 1


 2

 

 





Adjusted EBITDA


 6


6

Grain growing segment's revenue for Q1 2018 amounted to US$ 7 million compared to US$ 18 million in
Q1 2017.  The decrease was mainly attributable to the lower amount of crops in stock designated for sale as of 31 December 2017, compared to stock for sale as of 31 December 2016 mainly as a result of lower yields in 2017.

IAS 41 standard loss for Q1 2018 amounted to US$ 11 million. The loss represents the net change in effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) as a result of decrease of grain in stock due to internal consumption as a result of the harvest cycle and seasonality.

MHP has around 87,000 ha under winter crops, of which 56% is sown with winter wheat, 35% with winter rapeseeds and 6% with winter barley. The rest is triticale and rye. Total land bank of MHP's grain growing segment constituted 370,000 hectares as of which around 363,000 hectares are going to be harvested in 2018.

Spring sowing campaign is finished with no significant changes in the crops structure.

Other agricultural operations

Meat processing products


Q1 2018


Q1 2017


% change











Sales volume, third parties tonnes


 8,162


8,136


0%

Price per 1 kg net VAT, UAH


58.66


44.38


32%

Sales volumes of meat processing products have remained relatively stable compared to Q1 2017 and reached 8,162 tonnes in Q1 2018.

The average processed meat price increased by 32% year-over-year to UAH 58.66 per kg in Q1 2018 mostly in line with poultry price increase.

(in mln. US$, except margin data) 


Q1 2018


Q1 2017


% change*











Revenue


31


25


24%

- Meat processing


             17


             13


28%

- Other**


             14


             12


19%








IAS 41 standard gains


 4


 2


100%




 

Gross profit


7


6


17%

Gross margin


23%


24%


-1 pps








Adjusted EBITDA


8


5


60%

Adjusted EBITDA margin


26%


20%


6 pps

* pps - percentage points

** includes convenience food products, milk, cattle, goose meat, foie gras and feed grains .

Segment revenue of Q1 2018 increased by 24% year-on-year to US$ 31 million, mainly as a result of an increase in price of meat processing as well as price and sales volume of convenience food products.

The segment's Adjusted EBITDA increased to US$ 8 million in 1Q 2018 compared to US$ 5 million in 1Q 2017, mainly due to higher returns earned from meat processing, convenience food and milk operations.

Current Group financial position and cash flow        

(in mln. US$)


Q1 2018


Q1 2017






Cash from operations


 69


 39**

Change in working capital


(40)


(25)

Net Cash from operating activities


 29


 14






CAPEX


(52)


(17)

Net cash inflow on disposal of subsidiaries


-


 76

Net cash used in investing activities


(52)


 59






Cash from financing activities


 35


(45)

Dividends


 -


(53)

Total financial activities


 35


(98)






Total change in cash*


 12


(25)

*Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities

** Cash from operations for 1Q 2017 includes an upfront payment of interest on Senior Notes in amount of US$ 31 million that is normally due in Q2, however as a result of non-banking days on 1-2 April 2017 payment was settled in Q1.

Cash flow from operations before changes in working capital for Q1 2018 amounted to US$ 69 million (Q1 2017: US$ 39 million). Excluding an upfront payment of interest on Senior Notes, cash from operations before working capital changes for Q1 2017 amounted to US$ 70 million.

Use of funds in working capital during Q1 2018 is mainly attributable to higher investment in inventories, related primarily to grain growing entities in respect of forthcoming spring sowing campaign (seeds, fertilizers, plant protection products, etc.), partly offset by an decreased stock of crops (corn, sunflower and soya) as a result of internal consumption.

In Q1 2018 total CAPEX amounted to US$ 52 million, mainly related to preparation of construction related to Phase 2 of the Vinnytsia poultry complex.

Debt Structure and Liquidity

(in mln. US$)


31 March 2018


31 December 2017


31 March 2017








Total Debt


 1,194


         1,157


 1,195

LT Debt


 1,094


         1,115


 924

ST Debt


 100


              42


 271

Cash  and bank deposits


(136)


          (126)


(132)

Net Debt


 1,058


         1,031


 1,063








LTM Adjusted EBITDA


 455


 459


 417

Net Debt / LTM Adjusted EBITDA


 2.33


 2.25


 2.55

As at 31 March 2018, the Company's debt structure remained relatively unchanged compared to
31 December 2017: the share of long-term debt in the total outstanding debt is about 92%. The weighted average interest rate is around 7.4%.

At the end of Q1 2018, MHP's cash and cash equivalents amounted to US$ 136 million. Net debt decreased to US$ 1,058 million, compared to US$ 1,063 million as at 31 March 2017.

The Net Debt / LTM Adjusted EBITDA ratio was 2.33 as at 31 March 2018, well within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenues from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in US Dollars, covering debt service expenses in full. Export revenue for Q1 2018 amounted to US$ 162 million or 53% of total revenue (US$ 164 million or 59% of total sales in Q1 2017).

Subsequent Events

In April 2018, the Group issued US$ 550,000 thousand of 6.95% Senior Notes due in 2026. As part of the transaction, US$ 416,183 thousand of existing 8.25% Senior Notes due in 2020 were redeemed and exchanged with the new issued Notes.

Dividends

On 6 March 2018, the Board of Directors of MHP SE approved payment of an interim dividend of USD 0.7492 per share, equivalent to approximately US$ 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than 01 November 2018), with no interest accrued on the amount of dividend paid later.

Outlook

Winter crops are experiencing good conditions that provide the Company with a positive outlook for its 2018 harvest of winter wheat and winter rapeseeds. Spring sowing campaign has been completed on time.

The main drivers for profitable growth in 2018 are expected to be:

-     An increase in production volume of chicken meat by around 40,000 tonnes as a result of capital investments in the expansion of the Vinnytsia poultry complex (Phase 2);

-     An increase in exports of chicken meat across all regions to an expected 260,000-270,000 tonnes; and

-     Construction of Phase 1 of an alternative-energy biogas project of 12MW capacity at the Vinnytsia poultry complex.

We are confident that, with our vertically integrated business model, we will continue to deliver strong financial results, supported by a significant and growing share of hard currency revenues from exports of chicken, oils and grain.

Notes to Editors:

About MHP

MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales. Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centers, within major Ukrainian cities. MHP mainly uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times.

MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land (around 370,000 ha) located primarily in the highly fertile black soil regions of Ukraine.

Since May 15, 2008, MHP has traded on the London Stock Exchange under the ticker symbol MHPC.

 

 

 

Forward-Looking Statements

This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP SE. Such statements do not guarantee that these are actions to be taken by MHP SE in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                     MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

 

                                                                     As of and for the three-month period ended 31 March 2018


 

 

 

 

 

 

 

 

CONTENT

 

MANAGEMENT STATEMENT................................................................................................................ (a)

MANAGEMENT REPORT...................................................................................................................... (b)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2018

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................. 4

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 5

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 6

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT......................................................... 8

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................... 10

1. Corporate information...................................................................................................................... 10

2. Basis of preparation and accounting policies..................................................................................... 11

3. Segment information....................................................................................................................... 13

4. Profit for the period.......................................................................................................................... 14

5. Government grants income.............................................................................................................. 14

6. Property, plant and equipment.......................................................................................................... 14

7. Inventories and agricultural produce.................................................................................................. 15

8. Bank borrowings............................................................................................................................. 15

9. Bonds issued................................................................................................................................. 16

10.  Related party balances and transactions........................................................................................ 18

11.  Contingencies and contractual commitments.................................................................................. 18

12.  Fair value of financial instruments................................................................................................... 20

13.  Risk management policy............................................................................................................... 21

14.  Dividends..................................................................................................................................... 21

15.  Subsequent events....................................................................................................................... 22

16.  Authorization of the interim condensed consolidated financial statements.......................................... 22

 


MANAGEMENT STATEMENT

 

To the best of our knowledge, the unaudited interim condensed consolidated financial statements prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

21 May 2018

On behalf of the Board: 

Chief Executive Officer                                                                                                         Yuriy Kosyuk

Chief Financial Officer                                                                                            Viktoria Kapelyushnaya


MANAGEMENT REPORT

 

Key financial highlights

During the three-month period ended 31 March 2018 consolidated revenue increased by 10% and amounted to USD 305,576 thousand, compared to USD 278,795 thousand for the three-month period ended 31 March 2017. Export sales for the three-month period ended 31 March 2018 constituted 53% of total revenue and amounted to USD 162,338 thousand, compared to USD 163,946 thousand, 59% of total revenue for the three-month period ended 31 March 2017. Overall increase in revenue is mainly attributable to the increased price and exports volume of chicken meat partly offset by a decrease in sales of sunflower oil.

Gross profit has decreased by 6% and amounted to USD 81,039 thousand for the three-month period ended 31 March 2018 compared to USD 86,257 thousand for the three-month period ended 31 March 2017.

In line with the decrease in gross profit, operating profit decreased by 16% to USD 61,954 thousand for the three-month period ended 31 March 2018 compared to USD 73,629 thousand for the three-month period ended 31 March 2017. An additional negative impact was attributable to a decrease in government grants income (Note 5).

Profit for the period from continuing operations for three-month period ended 31 March 2018 amounted to USD 89,784 thousand, including foreign exchange gain of USD 54,633 thousand, compared to USD 56,839 thousand, including foreign exchange gain of USD 6,903 thousand, for the three-month period ended 31 March 2017. Unrealized foreign exchange gain is mainly related to bank borrowings and bonds issued in foreign currency as a result of UAH appreciation against USD and EUR during the three-month period ended 31 March 2018.

 

Dividends

On 6 March 2018, the Board of Directors of MHP SE approved a payment of the interim dividend of USD 0.7492 per share, equivalent to approximately USD 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than November 1, 2018), with no interest accrued on the amount of dividend paid later (Note 10).

 

Subsequent events

In April 2018, the Group issued USD 550,000 thousand of 6.95% Senior Notes due in 2026. As part of the transaction, USD 416,183 thousand of existing 8,25% Senior Notes due in 2020 were redeemed and exchanged with the new issued notes.

 

 

 

 

21 May 2018

 

On behalf of the Board: 

Chief Executive Officer                                                                                                    Yuriy Kosyuk

 

Chief Financial Officer                                                                                    Viktoria Kapelyushnaya




INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

 

 Continuing operations

Notes

Three-month period ended 31 March 2018


Three-month period ended 31 March 2017






Revenue

3

 305,576


 278,795

Net change in fair value of biological assets and agricultural produce

3, 4

 

(5,385)


 

 10,002

Cost of sales


(219,152)


(202,540)

Gross profit


 81,039


 86,257






Selling, general and administrative expenses


(19,026)


(16,271)

Government grants income

5

 -


 4,145

Other operating expenses, net


(59)


(502)

Operating profit


 61,954


 73,629






Finance income


 516


 483

Finance costs


(23,740)


(24,140)

Foreign exchange gain, net

13

 54,633


 6,903

Other expenses, net


(4,030)


(523)

Other expenses, net


 27,379


(17,277)

Profit before tax


 89,333


 56,352

Income tax benefit


 451


 487

Profit for the period from continuing operations

4

 89,784


 56,839






Discontinued operations





Loss for the period from discontinued operations


 -


(19,824)

Profit for the period


 89,784


 37,015

Other comprehensive income















Items that may be reclassified to profit or loss:





Cumulative translation difference


 59,571


 3,352

Other comprehensive income for the period


 59,571


 3,352

Total comprehensive income for the period


 149,355


 40,367






Profit/(Loss) attributable to:





Equity holders of the Parent


 89,777


 37,100

Non-controlling interests


 7


(85)



 89,784


 37,015

Total comprehensive income/(loss) attributable to:





Equity holders of the Parent


 146,981


 40,624

Non-controlling interests


 2,374


(257)



 149,355


 40,367






Earnings per share from continuing and discontinued operations





Basic and diluted earnings per share (USD per share)


  0.84


  0.35

 

Earnings per share from  continuing operations





Basic and diluted earnings per share (USD per share)


  0.84


0.53

 

On behalf of the Board: 

 

Chief Executive Officer                                                                                                                                                               Yuriy Kosyuk

 

Chief Financial Officer                                                                                                                                 Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

 


Notes

31 March 2018


31 December 2017

ASSETS





 

Non-current assets





 

Property, plant and equipment

6

 1,477,968


 1,383,102  

 

Land lease rights


 50,626


 45,410  

 

Deferred tax assets


 128


 121  

 

Non-current biological assets


 25,924


 20,405  

 

Long-term bank deposits


 3,643


 2,524  

 

Other non-current assets


 28,699


 24,817  

 



 1,586,988


 1,476,379  

 

Current assets





 

Inventories

7

 302,723


 226,368  

 

Biological assets


 168,458


 141,028  

 

Agricultural produce

7

 152,449


 183,407  

 

Other current assets, net


 30,991


 25,327  

 

Taxes recoverable and prepaid, net


 61,548


 37,767  

 

Trade accounts receivable, net


 66,087


 62,305  

 

Cash and cash equivalents


 136,242


 125,554  

 



 918,498


 801,756  

 

TOTAL ASSETS


 2,505,486


 2,278,135  

 






 

EQUITY AND LIABILITIES





 

Equity





 

Share capital


 284,505


 284,505  

 

Treasury shares


(48,503)


 (48,503) 

 

Additional paid-in capital


 175,291


 175,291  

 

Revaluation reserve


 680,945


 661,454  

 

Retained earnings


 924,916


 925,978  

 

Translation reserve


(972,955)


 (1,030,159

 

Equity attributable to equity holders of the Parent


 1,044,199


 968,566  

 

Non-controlling interests


 19,515


 17,141  

 

Total equity


 1,063,714


 985,707  

 






 

Non-current liabilities





 

Bank borrowings

8

 123,777


 138,817  

 

Bonds issued

9

 963,598


 970,088  

 

Finance lease obligations


 6,889


 7,410  

 

Deferred tax liabilities


 24,507


 23,730  

 



 1,118,771


 1,140,045  

 

Current liabilities





 

Trade accounts payable


 52,159


 43,175  

 

Other current liabilities


 155,011


 50,296  

 

Bank borrowings

8

 96,135


 36,917  

 

Accrued interest

8,9

 16,083


 17,955  

 

Finance lease obligations


 3,613


 4,040  

 



 323,001


 152,383  

 

TOTAL LIABILITIES


 1,441,772


 1,292,428  

 

TOTAL EQUITY AND LIABILITIES


 2,505,486


 2,278,135  

 






 

 

 

On behalf of the Board:

Chief Executive Officer                                                                                                                                                  Yuriy Kosyuk

Chief Financial Officer                                                                                                                                 Viktoria Kapelyushnaya

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

 

 


Attributable to equity holders of the Parent








Share

capital


Treasury shares


Additional paid-in capital


Revaluation reserve


Retained earnings


Translation reserve


Total


Non-controlling interests


Total equity



















Balance as of 1 January 2018

 284,505


 (48,503)


175,291


661,454


934,630


 (1,030,159)


977,218


17,141


994,359



















Profit for the period

 -


 -


 -


 -


89,777


 -


89,777


 7


89,784

Other comprehensive income

 -


 -


 -


 -


 -


 57,204


 57,204


 2,367


 59,571

Total comprehensive income for the period

 -


 -


 -


 -


 89,777


 57,204


 146,981


 2,374


 149,355

Transfer from revaluation reserve to retained earnings

 -


 -


 -


 (17,954)


 17,954


 -


 -


 -


 -

Dividends declared by the Parent (Note 14)

 -


 -


 -


 -


 (80,000)


 -


(80,000)


 -


(80,000)

Translation differences on revaluation reserve

 -


 -


 -


 37,445


 (37,445)


 -


 -


 -


 -



















Balance as of 31 March 2018

 284,505


 (48,503)


 175,291


 680,945


 924,916


 (972,955)


 1,044,199


 19,515


 1,063,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On behalf of the Board:

Chief Executive Officer                                                                                                                                                                                                                 Yuriy Kosyuk

Chief Financial Officer                                                                                                                                                                                                                   Viktoria Kapelyushnaya

 

 

 

 

 

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2017

(in thousands of US dollars, unless otherwise indicated)

 

 


Attributable to equity holders of the Parent








Share

capital


Treasury shares


Additional paid-in capital


Revaluation reserve


Retained earnings


Translation reserve


Total


Non-controlling interests


Total equity



















Balance as of 1 January 2017

 284,505


 (48,503)


175,291


570,649


719,340


 (1,024,916)


676,366


16,698


693,064



















Profit for the period

 -


 -


 -


 -


37,100


 -


37,100


(85)


37,015

Other comprehensive income

 -


 -


 -


 -


 -


 3,524


 3,524


 (172)


 3,352

Total comprehensive income for the period

 -


 -


 -


 -


 37,100


 3,524


 40,624


(257)


 40,367

Transfer from revaluation reserve to retained earnings

 -


 -


 -


 (16,078)


 16,078


 -


 -


 -


 -

Dividends declared by the Parent









 (80,001)




 (80,001)




 (80,001)

Derecognition of interests in subsidiaries

-


-


-


 (24,841)


 24,841


 17,800


17,800


 (2,489)


 15,311

Translation differences on revaluation reserve

 -


 -


 -


 5,781


 (5,781)


 -


 -


 -


 -



















Balance as of 31 March 2017

 284,505


 (48,503)


 175,291


 535,511


 711,577


 (1,003,592)


 654,789


 13,952


 668,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On behalf of the Board:

Chief Executive Officer                                                                                                                                                                                                                 Yuriy Kosyuk

Chief Financial Officer                                                                                                                                                                                                                   Viktoria Kapelyushnaya

 

 

 

 

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)                        


Notes

Three-month period ended 31 March 2018


Three-month period ended 31 March 2017

Operating activities





Profit before tax


 89,333


 36,528

Non-cash adjustments to reconcile profit before tax to net cash flows





Depreciation and amortization expense

3

 27,285


 19,464

Loss on disposal of subsidiaries


 -


 19,823

Net change in fair value of biological assets and agricultural produce

3, 4

 5,385


 (10,002)

Change in allowance for irrecoverable amounts and direct

write-offs


 (31)


 263

Gain on disposal of property, plant and equipment and other non-current assets


 (85)


 (284)

Finance income


 (516)


 (483)

Finance costs


 23,740


 24,140

Withholding tax related to interest and payment of dividends


 3,086


-

Non-operating foreign exchange gain, net


 (54,633)


 (6,903)

Operating cash flows before movements in working capital


 93,564


 82,546

Working capital adjustments





Change in inventories

7

 (58,639)


 (8,762)

Change in biological assets


 (17,796)


 (19,569)

Change in agricultural produce

7

 37,001  


 19,588 

Change in other current assets


 (4,677)


 (5,922)

Change in taxes recoverable and prepaid


 (20,985)


 (18,232)

Change in trade accounts receivable


 (1,717)


 3,716 

Change in other liabilities


 23,495


 9,402

Change in trade accounts payable


 3,648  


 (4,829)

Cash generated by operations


 53,894


 57,938

Interest received


 479


 450

Interest paid


(25,088)


(43,699)

Income taxes paid


(112)


(63)

Net cash flows from operating activities


 29,173


 14,626

Investing activities





Purchases of property, plant and equipment

6

(42,568)


(11,504)

Purchases of other non-current assets


(3,956)


(3,681)

Purchase of land lease rights


(4,133)


(1,369)

Proceeds from disposals of property, plant and equipment


 145


 142

Purchases of non-current biological assets


(800)


(373)

Net cash inflow on disposal of subsidiaries


 -


 75,558

Investments in short-term deposits


(1,053)


(158)

Withdrawals of short-term deposits


 -


 85

Loans provided to employees, net


(149)


(42)

Loans provided to related parties, net


(26)


-

Net cash flows used in investing activities


(52,540)


 58,658

Financing activities





Proceeds from bank borrowings


 98,335


 40,404

Repayment of bank borrowings


(57,842)


(83,343)

Repayment of finance lease obligations


(1,287)


(2,732)

Dividends paid


 -


(52,556)

Transaction costs related to bank loans received


(835)


(255)

Withholding tax related to dividends paid


(3,086)


-

Net cash flows from financing activities


 35,285


(98,482)

Net increase/(decrease) in cash and cash equivalents


 11,918


(25,198)

Net foreign exchange difference


(1,230)


 4,266

Cash and cash equivalents attributable to disposal group classified as held for sale


  -


 2,099

Cash and cash equivalents at 1 January


 125,554


 150,982

Cash and cash equivalents at 31 March


 136,242


 132,149

 

 

 

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT (continued)

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

 


Notes

Three-month period ended 31 March 2018


Three-month period ended 31 March 2017

Non-cash transactions





Additions of property, plant and equipment financed through direct bank-lender payments to the vendor

6

 3,287


 -

Additions of property, plant and equipment under finance leases

6

 195


 677

 

 

 

On behalf of the Board:

Chief Executive Officer                                                                                                                                                  Yuriy Kosyuk

Chief Financial Officer                                                                                                                                 Viktoria Kapelyushnaya

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes on the pages 10 to 22 form an integral part of these interim condensed consolidated financial statements


NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

1.    Corporate information

MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. MHP SE serves as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP SE.

The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing and meat products ready for consumption). The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk, goose meat, foie gras and feed grains. During the three-month period ended 31 March 2018 the Group employed about 27,649 people (31 December 2017:  27,589 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 March 2018 and 31 December 2017 were as follows:

 

Name

Country of registration

Year established
acquired

Principal activities

31 March 2018

31 December 2017







Raftan Holding Limited

Cyprus

2006

Sub-holding Company

99.9%

99.9%

Larontas Limited

Cyprus

2015

Sub-holding Company

100.0%

100.0%

MHP

Ukraine

1998

Management, marketing and sales

99.9%

99.9%

Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv

Ukraine

1998

Fodder and vegetable

 oil production

88.5%

88.5%

Vinnytska Ptahofabryka

Ukraine

2011

Chicken farm

99.9%

99.9%

Peremoga Nova

Ukraine

1999

Breeder farm

99.9%

99.9%

Oril-Leader

Ukraine

2003

Chicken farm

99.9%

99.9%

Myronivska Ptahofabryka

Ukraine

2004

Chicken farm

99.9%

99.9%

Starynska Ptahofabryka

Ukraine

2003

Breeder farm

100.0%

100.0%

Ptahofabryka Snyatynska Nova

Ukraine

2005

Geese breeder farm

99.9%

99.9%

Zernoproduct

Ukraine

2005

Grain cultivation

99.9%

99.9%

Katerynopilsky Elevator

Ukraine

2005

Fodder production and grain storage, vegetable oil production

99.9%

99.9%

NPF Urozhay

Ukraine

2006

Grain cultivation

99.9%

99.9%

Agrofort

Ukraine

2006

Grain cultivation

86.1%

86.1%

Urozhayna Krayina

Ukraine

2010

Grain cultivation

99.9%

99.9%

Ukrainian Bacon

Ukraine

2008

Meat processing

79.9%

79.9%

AgroKryazh

Ukraine

2013

Grain cultivation

99.9%

99.9%

Zernovyi kray

Ukraine

2013

Grain cultivation

51.0%

51.0%

Zakhid-Agro MHP

Ukraine

2015

Grain cultivation

100.0%

100.0%

Scylla Capital Limited

British Virgin Islands

2014

Trading in sunflower oil and poultry meat

100.0%

100.0%

 

The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Sumy and Khmelnitsk regions.

 


Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

2.    Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the three-month period ended 31 March 2018 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been condensed or omitted. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of the Group management, necessary to fairly state the results of interim periods. Interim results are not necessarily indicative of the results to be expected for the full year.

The 31 December 2017 statement of financial position was derived from the audited consolidated financial statements.

Adoption of new and revised International Financial Reporting Standards

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make adjustments as a result of adopting the following standards:

·      IFRS 9 Financial Instruments, and

·      IFRS 15 Revenue from Contracts with Customers

 

In accordance with the transitional provisions, IFRS 9 was generally adopted without restating comparative information. The adjustments arising from the new requirements of recognition and measurement of financial liabilities are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018.

 

The adoption of these standards and the new accounting policies did not have any material effect on the financial position or performance of the Group. The other standards did not result in any changes to the Group's accounting policies and the amounts reported in the three-month period ended 31 March 2018 or prior periods.

 

For the Standards and Interpretations, as well as amendments to the Standards that were in issue but not yet effective management anticipates that their adoption will not have a material effect on the consolidated financial statements of the Group in future periods, except those disclosed in the Group's annual financial statements for the year ended 31 December 2017. The Management are currently assessing it's potential impact. It is not practicable to provide a reasonable financial estimate of the effect until the such detailed analysis will be completed.

Functional and presentation currencies

The functional currency of Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus companies of the Group is US Dollars ("USD"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognized in the consolidated statement of comprehensive income for the period.

These consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.

The results and financial position of the Group are translated into the presentation currency using the following procedures:

·      Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that statement of financial position;

·      Income and expenses for each consolidated statement of comprehensive income are translated at exchange rates at the dates of the transactions;

·      All resulting exchange differences are recognized as a separate component of equity;

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currency (continued)

 

·      All equity items, except for the revaluation reserve, are translated at the historical exchange rate. The revaluation reserve is translated at the closing rate as of the date of the statement of financial position.

For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average exchange rates, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.

The following exchange rates were used:

Currency

Closing rate as of 31 March 2018

Average for three months ended     31 March 2018

Closing rate as of 31 December 2017

Average for three  months ended    31 March 2017

UAH/USD

26.5435

27.3203

 28.0672  

27.0611

UAH/EUR

32.7042

33.5633

 33.4954  

28.8089

 

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2017, except those adopted starting from 1 January 2018 as described above in this note.

 Seasonality of operations

Poultry and related operations as well as other agricultural operations are not significantly exposed to seasonal fluctuations.

Grain growing segment, due to seasonality and implications of IAS 41, in the first half of the year mainly reflects sales of carried forward agricultural produce and the effect of biological assets revaluation, while during the second half of the year it reflects sales of crops and the effect of revaluation of agricultural produce harvested during the year. Also, grain growing segment has seasonal requirements for working capital increase during November  to May, due to the sowing campaign.


Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

3.    Segment information

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 31 March 2018:

 


Poultry

and related operations

Grain growing

Other agricultural operations

Eliminations

Consolidated













External sales

 267,547

 7,461

 30,568

 -

 305,576

Sales between business segments

 10,039

 46,032

 53

 (56,124)

 -

Total revenue

 277,586

 53,493

 30,621

 (56,124)

 305,576

Segment results

 56,503

 1,225

 6,727

 -

 64,455

Unallocated corporate expenses





 (2,501)

Other expenses, net 1)





 27,379

Profit before tax





 89,333  

Other information:






Depreciation and amortization expense 2)

 20,409

 5,070

 1,305

 -

 26,784







Net change in fair value of biological assets and agricultural produce (Note 4)

 2,301

 (11,110)

 3,424

 -

 (5,385)

1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the three-month period ended 31 March 2018 does not include unallocated depreciation and amortization in the amount of USD 501 thousand.

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 31 March 2017:

 


Poultry

and related operations

Grain growing

Other agricultural operations

Eliminations

Consolidated













External sales

 235,619

 18,455

 24,721

 -

 278,795

Sales between business segments

 5,943

 42,140

 64

 (48,147)

 -

Total revenue

 241,562

 60,595

 24,785

 (48,147)

 278,795

Segment results

 70,744

 2,117

 4,633

 -

 77,494

Unallocated corporate expenses





 (3,865)

Other expenses, net 1)





 (17,277)

Profit before tax





 56,352  

Other information:






Depreciation and amortization expense 2)

 13,556

 3,787

 795

 -

 18,138







Net change in fair value of biological assets and agricultural produce (Note 4)

 21,768

 (13,886)

 2,120

 -

 10,002

1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the three-month period ended 31 March 2017 does not include unallocated depreciation and amortization in the amount of USD 1,326 thousand.

 

 

 

 

 

 

 

 

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

4.    Profit for the period

The Group's gross profit for the three-month period ended 31 March 2018 decreased compared to the three-month period ended 31 March 2017 and amounted to USD 81,039 thousand and USD 86,257 thousand, respectively. The decrease was primarily as a result of lower net change in fair value of poultry and related operations segment due to poultry prices remained almost at the same level as at 31 December 2017.

Net change in fair value reflects IAS 41 adjustment relating to revaluation of poultry and breeder stock and other biological assets balances to the fair value as of 31 March 2018 as well as revaluation of agricultural produce to the fair value at the date of harvest.

The Group's operating profit decreased at a higher rate compared to decrease in gross profit mainly due to reduction in government grants income (Note 5).

The Group's profit for the period from continuing operations for the three-month period ended                    31 March 2018 increased compared to the three-month period ended 31 March 2017 from USD 56,839 thousand to USD 89,784 thousand, respectively. An increase is mainly attributed to unrealized foreign exchange gain amounted to USD 54,633 thousand for the three-month period ended 31 March 2018 compared to USD 6,903 thousand for the three-month period ended 31 March 2017. Unrealized foreign exchange gain mostly attributable to bonds and bank borrowings denominated in foreign currencies due to UAH appreciation against USD and EUR. 

5.    Government grants income

On 30 December 2016, the President of Ukraine signed the Law No. 1791 "On Amendments to the Tax Code of Ukraine Regarding the Balancing of Budget Revenues in 2017" (the "Law No. 1791"). The Law No. 1791 introduced changes to VAT administration for agricultural companies which previously enjoyed a special VAT regime. In order to continue state support for agricultural companies, the Law No. 1791 introduced budget subsidies for agricultural companies. From 2017 onwards, budget subsidy will be provided for five consecutive years until 1 January 2022. The agricultural producers eligible for the subsidies include those involved in poultry production and animal farming, as well as fruit and vegetable farmers. For each agricultural producer, the amount of the subsidy is not to exceed the amount of VAT tax paid by the producers, and is distributed on a monthly basis.

As of the date of the authorization of these interim condensed consolidated financial statements, the Government has not allocated the specific amount for the state subsidies for qualifying agricultural companies in 2018. Therefore, during the three-month period ended 31 March 2018 the Group was not able to receive state subsidies from the budget.

6.    Property, plant and equipment

During the three-month period ended 31 March 2018, the Group's additions to property, plant and equipment amounted to USD 46,050 thousand (three-month period ended 31 March 2017: USD 12,181 thousand).

There were no significant disposals of property, plant and equipment during the three-month period ended 31 March 2018.

 

 

 

 

 

 

 

 

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

7.    Inventories and agricultural produce

An increase in inventory balance as of 31 March 2018 compared to 31 December 2017 is mainly attributable to costs incurred by grain growing entities in respect of forthcoming spring sowing campaign, partly offset by internal consumption of sunflower for chicken feed.

A decrease of agricultural produce for three-month period ended 31 March 2018 was mainly as a result of internal consumption of corn, sunflower and soya.

8.    Bank borrowings

The following table summarizes bank borrowings and credit lines outstanding as of 31 March 2018 and 31 December 2017:





31 March 2018


31 December 2017


Bank


Currency


WAIR 1)

USD' 000


WAIR 1)

USD' 000












Non-current










Foreign banks


USD


7.79%

86,232


7.72%

 121,576  


Foreign banks


EUR


2.23%

37,545


2.57%

 17,241  







123,777



 138,817  












Current










Ukrainian banks

UAH


-

-


13.00%

 9,620  


Ukrainian banks

EUR


2.83%

 24,470


-

-


Ukrainian banks

USD


4.30%

12,800


-

 -












Current portion of long-term bank borrowings





58,865



27,297  





96,135



36,917  


Total bank borrowings



219,912



175,734  


1) WAIR represents the weighted average interest rate on outstanding borrowings.

The Group's borrowings are drawn from various banks as term loans, credit line facilities and overdrafts. Repayment terms of principal amounts of bank borrowings vary from monthly repayment to repayment on maturity depending on the agreement reached with each bank. The interest on the borrowings drawn with the Ukrainian banks is payable on a monthly or quarterly basis. Interest on borrowings drawn with foreign banks is payable semi-annually.

As of 31 March 2018 and 31 December 2017, all of the Group's bank term loans and credit lines bear floating and fixed interest rates.

Bank borrowings and credit lines outstanding as of 31 March 2018 and 31 December 2017 were repayable as follows:


31 March 2018


31 December 2017





Within one year

96,135


 36,917  

In the second year

79,802


 72,950  

In the third to fifth year inclusive

33,143


  58,719  

After five years

10,832


  7,148  


219,912


   175,734  

 

 

 



 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

8. Bank borrowings (continued)

As of 31 March 2018, the Group had available undrawn facilities of USD 209,619 thousand (31 December 2017: USD 264,895 thousand). These undrawn facilities expire during the period from October 2018 until August 2020.

The Group, as well as particular subsidiaries of the Group have to comply with certain covenants imposed by the banks providing the loans. The main covenants which are to be complied with by the Group are liability to equity; net debt to EBITDA ratio; EBITDA to interest expenses ratio; and current ratio. The Group subsidiaries are also required to obtain approval from lenders regarding property to be used as collateral.

As of 31 March 2018 and 31 December 2017, the Group has complied with all covenants imposed by banks granted the loans.

As of 31 March 2018, the Group had borrowings of USD 6,628 that were secured. These borrowings were secured by inventories with a carrying amount of USD 8,286 thousand.

As of 31 March 2018, the deposit with carrying amount of USD 3,643 thousand (31 December 2017: USD 2,524 thousand) was restricted as collateral to secure bank borrowings.

As of 31 March 2018 and 31 December 2017, accrued interest on bank borrowings was USD 1,302 thousand and USD 2,578 thousand, respectively.

9.    Bonds issued

Bonds issued and outstanding as of 31 March 2017 and 31 December 2016 were as follows:


31 March 2018


31 December 2017





8.25% Senior Notes due in 2020

 495,600


 495,600  

7.75% Senior Notes due in 2024

 500,000


 500,000  

Unamortized debt issue cost and modification gain

 (32,002)


 (25,512) 

Total long-term portion of bonds issued

 963,598


 970,088  

As of 31 March 2018 and 31 December 2017 amount of accrued interest on bonds issued was USD 14,781 thousand and USD 15,377 thousand, respectively.

7.75% Senior Notes

On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in 2024 at par value. Out of the total issue amount USD 245,200 thousand were designated for redemption and exchange of existing 8.25% Senior Notes due in 2020.

Early redemption of 8.25% Senior Notes due in 2020 out of issue of 7.75% Senior Notes due in 2024, which were placed with the same holders and where the change in the net present value of the future cash flows discounted using the original effective interest rate was less than 10% was accounted as an exchange and thus, all the related expenses, including part of consent fees, were capitalized and will be amortized over the maturity period of the 7.75% Senior Notes due in 2024 in the amount of USD 9,830 thousand. Other related expenses, including part of consent fees, in the amount of USD 4,599 thousand were expensed as incurred. 

The carrying amount of the Senior Notes was adjusted on transition to IFRS 9. Under IFRS 9, as a result of a non-substantial modification, the difference between the present value of the cash flows under the original and modified terms discounted at the original effective interest rate should be recognized as a gain at the date of modification. The difference between the carrying amount of the Senior Notes under IAS 39 and IFRS 9 was recognized in opening retained earnings in the amount of USD 5,548 thousand.

The Senior Notes are jointly and severally guaranteed on a senior basis by MHP, Ptahofabryka Peremoga Nova, Oril-Leader, Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv, Zernoproduct, Myronivska Ptahofabryka, Starynska Ptahofabryka, Katerynopilsky Elevator, Agrofort, NPF Urozhay, Vinnytska Ptahofabryka, Scylla Capital Limited, Raftan Holding Limited.

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates.

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

9. Bonds issued (continued)

7.75% Senior Notes (continued)

If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. If a change of control occurs, the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

8.25% Senior Notes

On 8 April 2013, MHP SE issued USD 750,000 thousand 8.25% Senior Notes due in 2020 at an issue price of 100% of the principal amount. USD 350,000 thousand out of issued USD 750,000 thousand 8.25% Senior Notes were used to early redemption and exchange of its existed 10.25% Senior Notes due in 2015.

Early redemption of 10.25% Senior Notes due in 2015 out of issue of 8.25% Senior Notes due in 2020, which were placed with the same holders and where the change in the net present value of the future cash flows discounted using the original effective interest rate was less than 10% was accounted as an exchange and thus all the related expenses, including consent fees, were capitalized and will be amortized over the maturity period of the 8.25% Senior Notes due in 2020 in the amount of USD 28,293 thousand.

Other related expenses, including consent fees, in the amount of USD 16,515 thousand were expensed as incurred. 

The carrying amount of the Senior Notes was adjusted on transition to IFRS 9. Under IFRS 9, as a result of a non-substantial modification, the difference between the present value of the cash flows under the original and modified terms discounted at the original effective interest rate should be recognized as a gain at the date of modification. The difference between the carrying amount of the Senior Notes under IAS 39 and IFRS 9 was recognized in opening retained earnings in the amount of USD 3,104 thousand.

The Senior Notes are jointly and severally guaranteed on a senior basis by MHP, Ptahofabryka Peremoga Nova, Oril-Leader, Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv, Zernoproduct, Myronivska Ptahofabryka, Starynska Ptahofabryka, Snyatynska Ptahofabryka, Katerynopilsky Elevator, Agrofort, NPF Urozhay, Vinnytska Ptahofabryka, Scylla Capital Limited, Raftan Holding Limited, Merique Holding Limited.

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indebtedness agreement, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately.  If a change of control occurs the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

Consent solicitation

On 7 March 2016, the Group received consent from the Holders of the outstanding USD 750,000 thousand 8.25% Senior Notes for certain proposed amendments to the Indenture and the Notes. Amendments were obtained before the Consent Expiration Date (7 March 2016). The Amendments were implemented by way of execution of the Supplemental Indenture on 8 March 2016, and became effective from the Consent Settlement Date (9 March 2016).

In relation to the Notes, the Company has, on the Consent Settlement Date, paid to those Holders from whom valid Consents were delivered and not revoked on or prior to the Consent Expiration Date and which Consents are accepted by the Company the Consent Payment of USD 12.50 for each USD 1 thousand in principal amount of the Notes that were subject of the relevant Electronic Instructions.

 

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

9. Bonds issued (continued)

During the reporting periods ended 31 March 2018 and 31 December 2017 the Group has complied with all covenants defined by indebtedness agreement.

The weighted average effective interest rate on the Senior Notes is 9.35% per annum and 9.25% per annum for the nine-months ended 31 March 2018 and 31 December 2017, respectively.

10.  Related party balances and transactions

For the purposes of these financial statements, parties are considered to be related if one party controls, is controlled by, or is under common control with the other party, or exercises significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.

Transactions with related parties under common control

The Group enters into transactions with related parties that are under common control of the Principal Shareholder of the Group (Note 1) in the ordinary course of business for the purchase and sale of goods and services.

Terms and conditions of sales to related parties are determined based on arrangements specific to each contract or transaction. Management believes that amounts receivable due from related parties do not require an allowance for irrecoverable amounts and that the amounts payable to related parties will be settled at cost. 

Transactions with related parties during the three-month periods ended 31 March 2018 and 2017 were as follows:


2018


2017





Loans provided to key management personnel

185


259

Purchases from related parties

13  


 9

The balances owed to and due from related parties were as follows as of 31 March 2018 and 31 December 2017:


31 March  2018


31 December 2017





Payables for dividends declared, included in Other current liabilities

 47,853


-

Advances and finance aid receivable

3,395


 3,188  

Loans to key management personnel

745


 956  

Trade accounts receivable

116


 109  

Payables due to related parties

18


 17  

Compensation of key management personnel

Total compensation of the Group's key management personnel (including compensation to Mr. Yuriy Kosyuk), which consists of contractual salary and performance bonuses amounted to USD 2,848 thousand and USD 1,591 thousand for the three-month periods ended 31 March 2018 and 2017, respectively.

11.  Contingencies and contractual commitments

Operating environment

In the recent years, Ukraine has been in a political and economic turmoil.  Crimea, an autonomous republic of Ukraine, was effectively annexed by the Russian Federation.  In 2017-2018, an armed conflict with separatists continued in certain parts of Luhansk and Donetsk regions. 

For the three-month periods ended 31 March 2018 average inflation amounted to 3.5% comparing to 3.9% for the three-month periods ended 31 March 2017. The Ukrainian economy proceeded recovery from the economic and political crisis of previous years that resulted in real GDP smooth growth of around 2.2% year on year for the three-month periods ended 31 March 2018 and stabilization of national currency. 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

11.  Contingencies and contractual commitments (continued)

Operating environment (continued)

From trading perspective, the economy was demonstrating refocusing on the European Union ("EU") market, which was a result of the signed Association Agreement with the EU in January 2016 that established the Deep and Comprehensive Free Trade Area ("DCFTA").  Under this agreement, Ukraine has committed to harmonize its national trade-related rules, norms, and standards with those of the EU, progressively reduce import customs duties for the goods originating from the EU member states, and abolish export customs duties during a 10-year transitional period.  Implementation of DCFTA began on 1 January 2017.  As a result, the Russian Federation implemented a trade embargo or import duties on key Ukrainian export products.  In response, Ukraine implemented similar measures against Russian products.

In terms of currency regulations, the National Bank of Ukraine ("NBU") decreased the required share of mandatory sale of foreign currency proceeds from 65% to 50% from April 2017, increased settlement period for export-import transactions in foreign currency from 120 to 180 days from May 2017, and allowed companies to pay the 2013 (and earlier) dividends with a limit of USD 2 million per month from November 2017 (from June 2016, companies were allowed to pay dividends for 2014-2016 to non-residents with a limit of USD 5 million per month).

In March 2015, Ukraine signed four-year Extended Fund Facility ("EFF") with the International Monetary Fund ("IMF") that will last until March 2019.  The total program amounted to USD 17.5 billion, while Ukraine has so far received only USD 8.7 billion from the entire amount.  In September 2017, Ukraine successfully issued USD 3 billion of Eurobonds, of which USD 1.3 billion is new financing, with the remaining amount aimed to refinance the bonds due in 2019.  The NBU expects that Ukraine will receive another USD 3.5 billion from the IMF in 2018.  To receive next tranches, the government of Ukraine has to implement certain key reforms, including in such areas as pension system, anti-corruption regulations, and privatization.

Further stabilization of the economic and political situation depends, to a large extent, upon success of the Ukrainian government's efforts, yet further economic and political developments are currently difficult to predict.

The management of the Group believes that the negative impact of the political and economic turmoil at the Group's entities is reasonably limited due to the Group's significant portion of export sales, its access to the international financial markets and the significant distance of its main production sites from any conflict zones.

Taxation and legal issues

Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. The local and national tax environment is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and fines. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and fines, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.

Facing current economic and political issues, the Government has implemented certain reforms in the tax system of Ukraine by adopting the Law of Ukraine 'On Amending the Tax Code of Ukraine and Certain Laws of Ukraine', which is effective from 1 January 2015, except for certain provisions which will take effect at a later date.

Management believes that the Group has been in compliance with all requirements of effective tax legislation and currently is assessing the possible impact of the introduced amendments.

The Group exports vegetable oil, chicken meat and related products, and performs intercompany transactions, which may potentially be in the scope of the Ukrainian transfer pricing ("TP") regulations. The Group has submitted the controlled transaction report for the year ended 31 December 2016 within the required deadline, and has prepared all necessary documentation on controlled transactions for the year ended 31 December 2017 as required by legislation and plans to submit report.

 

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

11.  Contingencies and contractual commitments (continued)

Taxation and legal issues (continued)

As of 31 March 2018, the Group's management assessed its possible exposure to tax risks for a total amount of USD 4,644 thousand related to corporate income tax (31 December 2017: USD 4,392 thousand). No provision was charged of such possible tax exposure.

As of 31 March 2018, companies of the Group were engaged in ongoing litigation with tax authorities for the amount of USD 2,263 (31 December 2017: USD 2,273 thousand), including USD 1,622  thousand (31 December 2017: USD 1,534 thousand) of litigations with the tax authorities related to disallowance of certain amounts of VAT refunds and deductible expenses claimed by the Group. Out of this amount, USD 1,412 thousand as of 31 March 2018 (31 December 2017: USD 1,457 thousand) relates to cases where court hearings have taken place and where the court in either the first or second instance has already ruled in favour of the Group.

Manage-ment believes that based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and no respective provision is required in the Group's financial statements as of the reporting date.

Contractual commitments on purchase of property, plant and equipment

During the three-month period ended 31 March 2018, the companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property, plant and equipment for development of agricultural operations. As of 31 March 2018, purchase commitments on such contracts were primarily related to expansion of the Vinnytsya poultry complex and amounted to USD 27,627 thousand (31 December 2017: USD 17,412 thousand).

12.  Fair value of financial instruments

Fair value disclosures in respect of financial instruments are made in accordance with the requirements of IFRS 7 "Financial Instruments: Disclosure" and IFRS 13 "Fair value measurement". Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group's financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the instrument. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a market exchange from the sale of its full holdings of a particular instrument.

The fair value is estimated to be the same as the carrying value for cash and cash equivalents, short-term bank deposits, trade accounts receivables, and trade accounts payable due to the short-term nature of the financial instruments.

Set out below is the comparison by category of carrying amounts and fair values of all the Group's financial instruments, excluding those discussed above, that are carried in the consolidated statement of financial position:


Carrying amount


Fair value


   31 March 2018

31 December 2017


   31 March 2018

31 December 2017

 







 

Financial liabilities





 






 

Bank borrowings (Note 8)

221,214


208,474

 168,627  

 

Senior Notes due in 2020, 2024 (Note 9)

978,379


1,071,298

 1,085,693  

 

Finance lease obligations

10,502


10,754

 11,691  

 

The carrying amount of Bank borrowings and Senior Notes issued includes interest accrued at each of the respective dates.

The fair value of bank borrowings and finance lease obligations was estimated by discounting the expected future cash outflows by a market rate of interest for bank borrowings: market rate of interest for bank borrowings 7.8% (31 December 2017: 7.7%) and for finance lease obligations 9.4% (31 December 2017: 9.3%), and is within Level 2 of the fair value hierarchy.

The fair value of Senior Notes was estimated based on market quotations and is within Level 1 of the fair value hierarchy.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

13.  Risk management policy

During the three-month period ended 31 March 2018 there were no changes to objectives, policies and processes for credit risk, capital risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk and commodity price and procurement risk managing.

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group undertakes certain transactions denominated in foreign currencies.

The Group does not use any derivatives to manage foreign currency risk exposure, Group management sets limits on the level of exposure to foreign currency fluctuations.

The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 March 2018 and 31 December 2017 were as follows:


31 March 2018


31 December 2017


USD

EUR


USD

EUR







Total assets

 144,009

 12,584


 133,197  

 10,504  

Total liabilities

 1,214,997

 82,514


 1,132,935  

 44,411  

The table below details the Group's sensitivity to strengthening of the Ukrainian Hryvnia against USD and EUR. This sensitivity range represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for possible change in foreign currency rates.


Change in foreign currency exchange rates


Effect on profit

before tax

2018








Increase in USD exchange rate

10%


(107,099)

Increase in EUR exchange rate

10%


(6,993)





Decrease in USD exchange rate

5%


 53,549

Decrease in EUR exchange rate

5%


 3,497





2017








Increase in USD exchange rate

10%


 (99,974)  

Increase in EUR exchange rate

10%


 (3,391)  




 

Decrease in USD exchange rate

5%


 49,987    

Decrease in EUR exchange rate

5%


 1,695    





The effect of foreign currency sensitivity on shareholders' equity is equal to that reported in the interim condensed consolidated statement of comprehensive income.

During the three-month period ended 31 March 2018, the Ukrainian Hryvnia appreciated against the EUR and USD by 2.4% and 5.7% respectively (three-month period ended 31 March 2017: depreciated against the EUR by 1.9% and appreciated by 0.8% against the USD). As a result, during the three-month period ended 31 March 2018 the Group recognized net foreign exchange gain in the amount of USD 54,633 thousand (three-month period ended 31 March 2017: foreign exchange gain in the amount of USD 6,903 thousand) in the consolidated statement of comprehensive income.

14.  Dividends

On 6 March 2018, the Board of Directors of MHP SE approved a payment of the interim dividend of USD 0.7492 per share, equivalent to approximately USD 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than November 1, 2018), with no interest accrued on the amount of dividend paid later (Note 10).

 

 

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

15.  Subsequent events

In April 2018, the Group issued USD 550,000 thousand of 6.95% Senior Notes due in 2026. As part of the transaction, USD 416,183 thousand of existing 8,25% Senior Notes due in 2020 were redeemed and exchanged with the new issued notes.

16.  Authorization of the interim condensed consolidated financial statements

These interim condensed consolidated financial statements were authorized for issue by the Board of Directors of MHP SE on 21 May 2018.


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Q1 2018 Financial results - RNS