www.mhp.com.ua
JSC Myronivsky Hliboproduct
158 Akademica Zabolotnogo Str, Kiev, 03143, Ukraine
For further enquiries: a.sobotyuk@mhp.com.ua
+38 044 207 00 70
Registered offi ce:
5 rue Guillaume Kroll
L-1822 Luxembourg
Registered number: B116838
Myronivsky
Hliboproduct
one of Ukraine’s
leading
agro-industrial
companies
Annual Report
and Accounts 2012
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Who are MHP?
MHP is a Ukrainian vertically integrated company,
operating each stage of the poultry production
process: from cultivation of land to production
and distribution of chicken meat.
MHP is the leading producer of
poultry and poultry products with
around 50% share of the market
for industrially produced chicken.
Our “Nasha Riaba” brand for
chilled chicken is one of the
strongest food brands in Ukraine.
MHP is constructing the biggest
poultry complex “Vinnytsia” in
Europe of 440,000 tonnes of
poultry meat capacity per annum,
the Phase 1 of which was
commissioned at the end of 2012.
MHP cultivates one of the
largest land banks in Ukraine
(around 285,000 hectares in 2012)
annually delivering harvest yields
across all crops almost twice
Ukraine’s average.
MHP’s meat processing
operations volumes fi rmly retain
10% of the highly fragmented
country’s market.
In 2012 MHP employed 27,800
people.
Contents
Who are MHP?
01 Financial highlights
02 Our geographic presence
What are our objectives?
04 Chairman’s statement
06 Market overview
How do we create value?
08 Chief Executive’s Review
10 Business Model and Strategy
12 Grain Review
14 Poultry Review
16 Other Agricultural Operations
How sustainable is our business?
18 MHP’s CSR Strategy, Values and Vision
How do we conduct our business?
22 Corporate governance
24 Risk management
26 Board of Directors
28 Directors’ Report
How have we performed?
29 Financial Review
35 Statement of Board’s responsibilities
36 Independent Auditor’s report
37 Financial accounts
Chicken Icon designed by C Vanderlee, from The Noun Project
Strawberry Icon designed by Alessandro Suraci, from The Noun Project
Microchip Icon designed by Alexandre Lachèze, from The Noun Project
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Financial
highlights
Company results and profitability
Percentage increase
2011–2012
15%
Revenue
20%
17%
EBITDA
65%
Net income from operations
Increased volume of export
(chicken meat)
Poultry
In 2012 MHP increased its poultry
productions volumes by 5% and produced
404,000 tonnes of poultry meat (2011:
384,000 tonnes) owing to the Vinnytsia
complex launch.
As in December 2012, Ukraine was listed
among the countries which are allowed
to export poultry products to the EU, this
will open MHP new opportunities in the
near future.
Annual MHP’s poultry sales volumes to
third parties remained relatively stable and
increased by 1% to 375,300 tonnes (2011:
370,900 tonnes).
MHP’s market share of industrially produced
chicken in Ukraine was around 50% and 34%
of total poultry consumption.
Average chicken price increased by 15% to
UAH 17.19 (net VAT) per kg against UAH 15.00
(net VAT) per kg in 2011.
Sales of sunflower oil increased by 12% to
195,000 tonnes compared to 173,600 tonnes
in 2011 due to the start of operations at the
Vinnytsia Complex.
Export of poultry increased significantly
by more than 65% compared to 2011 and
comprised close to 58,000 tonnes of chicken
meat, which is around 15% of total chicken
sales volumes.
In line with the Company’s strategy of gradual
increase of poultry export, in 2012 the
Company opened 10 new markets both in
Central Asia and in Africa.
Grain Growing
By the end of 2012 the Company operated
on around 285,000 hectares of land (2011:
280,000 hectares) due to the organic land bank
growth in line with the Company’s strategy.
Total harvest constituted 1,607,900 tonnes
of crops.
MHP’s 2012 yields as usual are significantly
higher than Ukraine’s average.
Other Agricultural
Sales volumes of processed meat products,
the main driver in Other Agricultural segment,
decreased by 5% to 35,200 tonnes in 2012
compared to 37,000 tonnes in 2011 mostly
due to the product portfolio optimisation.
Price for meat processed products increased
by 11% y-o-y to UAH 22.20 (net VAT).
MHP is a market leader with close to 10%
market share in meat processing in Ukraine
in 2012.
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Who are MHP?
Our geographic
presence
Enterprises
Poultry
Grain
Fodder
Other Agri
Vinnytsia Poultry Farm
Zernoproduct MHP
Ladyzhinsky Fodder Complex
Myronivska Poultry Farm
Urozhay
Peremoga Nova Poultry Farm
Agrofort
Oril Leader Poultry Farm
Perspective
Druzhba Narodiv Nova
Poultry Farm
Urozhaina Kraina and
other entities
Shakhtarska Nova Poultry Farm
Starynska Poultry Farm
Myronivsky Meat Processing
Plant “Lehko”
Myronivsky Plant for
Manufacturing Groats &
Feeds (MFC)
Katerynopilsky Elevator
Tavriysky Plant for
Manufacturing Feeds
Elevators
Meat processing
Plant Druzhba Narodiv
Ukrainian Bacon
Snyatynska Nova Poultry Farm
(goose)
Crimean Fruit Company
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Product portfolio
Our brands are among the most recognised and trusted
in Ukraine. We continually seek to improve our products,
and regularly introduce new lines of products designed
to appeal to the end buyer.
Our aim is to build and maintain the respect and trust of
our consumers.
Poultry
Key products and brands
Chilled chicken, whole or in portions
Frozen chicken, whole or in portions
Pre-cooked convenience food
Sunflower oil
US$1,083m
Sales in 2012
Nasha Riaba
Under this flagship brand,
which dominates the market,
we sell a wide range of
chilled chicken products
Lehko!
A vast range of innovative
convenience food
Grain
Key products
Total land bank
Corn
Sunflowers
Wheat
Rapeseeds
Soyabeans
Key products
Sausages
Cooked meats
Premium fresh beef
Foie gras
Goose meat
Fruit and milk
US$169m
Sales in 2012
Other agricultural
operations
US$155m
Sales in 2012
03_WhoXareXMHP_v34.indd 3
285,000
hectares by end of 2012
Druzhba Narodiv
Pork and beef sausages,
frankfurters, smoked and
semi-smoked sausages
and ham
Foie Gras
A range of goose and foie
gras products sold chilled
or frozen
Baschinsky
A wide range of products,
from smoked poultry to pate
and from high-quality pork to
stuffed pancakes
Certified Angus
Premium fresh beef from
Aberdeen-Angus cattle
03
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Myronivsky Hliboproduct Report and Accounts 2012 / What are our
objectives?
Chairman’s
statement
Charles E Adriaenssen
Chairman
2012 was a year of considerable
achievement for MHP as the
Company continues to deliver
well-planned, well-managed growth.
Our multi-million dollar investment
project “Vinnytsia” moved into trial
production in summer 2012 and then
since the end of 2012 has been being
launched in operations, ahead of
schedule, but on budget, taking an
important step towards our vision of
becoming a European leader in
chicken meat production. At the
same time, sound operational
performance and strong domestic
chicken meat prices have generated
robust financial results, leaving the
Company in a good shape to exploit
the rich potential that Vinnytsia
Complex will offer.
Robust financial results
Strong growth in revenues and EBITDA
reflect the strength of our unique,
integrated business model and careful
management of costs, operational
cashflows and debt. Revenue rose by
15% to US$1,408 million (2011: US$1,229
million) generating EBITDA of US$468
million, 17% ahead of last year (2011:
US$401 million). Strong, sustained prices
for chicken meat in Ukraine and rising grain
prices internationally contributed to
sustainable margins of 33%, supported by
excellent crop yields, well ahead of Ukraine
averages and high quality, affordable
poultry products.
04
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Myronivsky Hliboproduct / Report and Accounts 2012 A sound platform for growth
The Company continues to forge
ahead building a track record for
steady, well-controlled growth.
We have a clear strategy focused on
increasing our production, extending our
exports and building our brands. Our
vertically integrated business model and
capital intensive projects are our keys to
the successful execution of this strategy,
allowing us to maximise the value of
one of the biggest land banks in Ukraine
and control our costs and quality. Our
benchmarking has demonstrated that we
have one of the lowest costs per kilo of
chicken meat, making us one of the most
efficient producers in the world, delivering
the best quality products at a price that
cannot be beaten.
The strength of the management team
is also critical to our strategic progress.
We have a stable, focused team with
a strong commitment to quality and
achieving the Company’s objectives.
MHP is maturing as an organisation,
building a skilled and dedicated
workforce who have contributed directly
to these results, for which they deserve
our thanks.
Robust corporate governance
The addition of Philippe Lamarche
and Yuriy Melnyk to the Board at
the end of 2011 meant we began
2012 with a stronger, more
diversified leadership team.
As a lawyer and banker, Philippe has
brought international financial and banking
expertise to the Company and Yuriy
Melnyk’s experience as Minister of
Agriculture adds political skills as well as
his practical experience in agriculture. Yuriy
Logush returned to his academic career
during the year, leaving us with a majority
of non-executive directors and we thank
him for his contribution.
We undertook a formal Board review in
2012 and I was pleased with the results. It
confirmed that these recent appointments
contributed to a well-balanced Board
with a good composition of skills and
experience. There is a good collaboration
between the Board and the management,
based on clear communication. This has
been reinforced by an impressive increase
in the quality of documentation produced
for the Board by the management,
contributing to a well-functioning Board.
There were four Board meetings during
the year and we were delighted to visit the
Vinnytsia complex again to see progress
for ourselves. There is no substitute for
seeing first hand how the Company is
operating on the ground.
Outlook
In 2013 we start the next exciting
chapter in MHP’s development as
we commence production in
earnest at Vinnytsia: the first step
towards our goal of doubling
production capacity by 2018.
Alongside this, we will be driving our
exports forward, investing in the expansion
of our distribution networks in key markets
such as the Middle East and CIS as well as
looking to penetrate EU markets on the
back of the new licensing approvals.
We anticipate that high grain and oilseeds
prices will sustain high chicken meat
prices and whilst the threat of a devaluation
of the Hryvnia remains a possibility, the
Board believes that the impact of this will
be short-term and mitigated by the
increasing foreign currency income from
poultry exports and international grain
sales. Ukraine still imports 17% of its
chicken so demand pressures will force
a return to rising prices.
The Company has a strong balance sheet,
with appropriate debt ratios, although we
may take advantage of favourable financial
markets to improve our debt structure. As
our major capital investment programme
comes to fruition, the Company will
become increasingly cash generative
creating a sound platform to continue its
growth strategy.
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Myronivsky Hliboproduct Report and Accounts 2012 / What are our
objectives?
Market
overview
Company benefited from a 15% poultry
price increase compared to 2011.
Import
Despite the fact that Ukraine is an
agricultural country, the share of imports
in the total amount of meat consumption
remained quite significant, mostly due to
the substantial amount of chicken and pork
imported during 2012. Imported poultry
amounted to about 17% of total poultry
consumption in Ukraine. Imported pork
represented 23% of total pork consumption
in Ukraine.
Imported meat is mainly presented by
carcasses and other low-price parts and
consumed mostly by meat processors.
According to SSCU, Ministry of Economic
Development and Trade of Ukraine and
MHP management’s estimation of unofficial
import, during 2012 Ukraine imported
203,000 tonnes of chicken meat, as
compared to 165,000 tonnes in 2011.
These figures include 100,000 tonnes of
illegal imports of chicken products in 2011
and 85,000 tonnes in 2012 that were sold
into the Ukrainian market. Imported
chicken products are typically frozen and
are sold to the meat processing segment.
Domestic meat market production
In 2012 Ukraine supplied to the market
(including import) around 2.7 million tonnes
of meat, which is approximately 10%
more than in 2011 due to the increased
production and import of chicken and pork.
Meat in Ukraine is produced by both
industrial producers and households, with
the latter having accounted for 40% of
all meat produced in Ukraine in 2012 (in
processed weight) according to SSCU*. In
2012, the percentage of poultry industrially
produced in Ukraine (82% of total domestic
poultry output) was significantly higher than
that of beef (25%), pork (42%) or of meat
generally (58%).
Industrial production of poultry in Ukraine
increased by approximately 7% in volume
in 2012 as compared to 2011 and overall
chicken meat production constituted
around 1.1 million tonnes.
The production of pork is less industrialised
than chicken and only 42% of pork in 2012
was produced industrially. In aggregate,
the production resulted in 740,000 tonnes
of pork, which is 5% higher than in 2011,
mostly due to the slight increase in
household production.
The production of beef remains much less
industrialised than pork and constituted
25% in 2012. 400,000 tonnes of beef
were produced in 2012, which is 3%
less than in 2011. For the last 12 years
production and consumption of beef
has been steadily decreasing.
In 2012 MHP produced 404,000 tonnes of
chicken meat, which represents 50% of
industrially produced chicken meat and
around 34% of total poultry consumption in
Ukraine. Due to the strong price dynamics
during the first nine months of 2012, the
06
*
State Statistics Committee of Ukraine.
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Myronivsky Hliboproduct / Report and Accounts 2012 Meat Consumption in 2012
Kg per Capita
120
100
109
80
60
40
20
0
97
77
43
43
Biological norm: 80 kg.
62
62
56*
30
23
25*
18
USA
Brazil
EU-27 Mexico Russia Ukraine
■ Total meat ■ Poultry
Source:
USDA, FAPRI, Committee of Statistics of Ukraine and Broker Research
* Includes unofficial imports, Company estimate
Imported meat
’000 tonnes
17%
18%
14%
16%
500
400
300
200
100
0
2009
2010
2011 2012
■ Other meats ■ Poultry
■
Unofficial import,
Imported as % of total poultry supply
*Ukrainian Poultry Producers Union estimates
poultry*
Pig livestock 2009–2012
Amount (million heads as of 1 July each year)
8.3
8.1
7.9
7.2
10
8
6
4
2
0
2009
2010
2011 2012
Source: SSCU
Cattle livestock 2009–2012
Amount (million heads as of 1 July each year)
5.8
5.6
5.3
5.2
6
5
4
3
2
1
0
2009
2010
2011 2012
Source: SSCU
Export
Ukraine continues to export meat, selling
over 110,000 tonnes in 2012, which is
around 50% higher than in 2011.
In 2012 the Company exported 15% of
aggregated poultry sales, which is 58,000
tonnes of frozen chicken meat.
Consumption
In accordance with a market trends
observed worldwide, the consumption of
meat products in Ukraine has grown in
line with increasing national income levels.
The level of meat consumption in Ukraine
currently remains below the average
consumption level in developing countries
and significantly below the consumption
levels in the European Union countries.
The level of meat consumption in Ukraine
is also below the annual recommended
dietary requirements, which is
approximately 80 kilograms per capita per
annum. According to MHP’s calculations
based on the data of SSCU, Ministry
of Economic Development and Trade
of Ukraine, in 2012, meat consumption
in Ukraine was 56 kilograms of meat
per capita.
Poultry meat consumption continued to
demonstrate significant growth, while
beef consumption was stably declining.
These were a result of poultry affordability
and lower production costs comparable
to beef or pork. Management expects
consumption levels for poultry in Ukraine
to continue to grow in the short to medium
term. The Company believes that this
relatively high level of industrialisation of the
poultry industry enables poultry producers
(including MHP) to more efficiently respond
to increased demand for meat products,
as compared to producers of other types
of meat.
According to MHP’s estimations*, the
aggregate consumption of poultry meat
in Ukraine in 2012 was 1,188,000 tonnes.
The annual per capita consumption of
chicken meat in Ukraine increased by
approximately 7% to 25 kilograms per
capita in 2012 as compared to 24
kilograms per capita in 2011. In line with
a trend also observed in other markets
worldwide, Ukrainian consumers tend
to eat more poultry compared to beef or
pork, as poultry is cheaper than beef or
pork and for health reasons.
Meat processing
Production of processed meat products
in Ukraine remained relatively stable and
constituted around 285,000 tonnes, which
is only 2% higher than in 2011. In a highly
fragmented market, MHP retained its
market share of around 10% and produced
35,200 tonnes of processed meat products
(See “Other agricultural operations” on
page 16 for more details).
Grain market
With its vast area of fertile black soil,
Ukraine produced a harvest of 46.2 million
tonnes, down by almost 20% on the
bumper harvest of 2011 when weather
conditions produced exceptional volumes.
By the end of 2012 Ukraine exported
around 15 million tonnes of grains,
including 7.3 million tonnes of corn,
6.0 million tonnes of wheat and 2.0 million
tonnes of barley according to Ministry
of Agripolitics of Ukraine. In aggregate,
Ukraine is forecasted to export around
23.0 million tonnes of grains from the
2012 harvest.
In line with challenging weather conditions
worldwide, MHP’s harvest was also down
by 6% compared to 2011 at 1.6 million
but its yields remained significantly ahead
of the country averages (see “Grain” on
page 12 for more details). In 2012, MHP
consumed over 70% of grains produced
for internal needs, the rest was sold to
third parties.
Looking forward
With per capita consumption of meat
still below the average biological norm
internationally, poultry production, being
one of the main drivers of overall meat
consumption growth in Ukraine, is
expected to rise as investment by
producers increases capacity. At the
same time, granting of export licences
for the EU will have a positive impact on
exports. The Union of Poultry Farmers
is forecasting these will rise to around
150,000 tonnes in 2013.
MHP is well placed to take advantage
of the continued growth in demand for
chicken meat both domestically and
internationally as the new Vinnytsia plant
comes on stream delivering additional
production capacity, underpinned by our
substantial grain growing operations.
04_WhatXareXourXobjectives_v46.indd 7
* SSCU, Ministry of Economic Development and Trade
of Ukraine and Poultry Producers Union of Ukraine.
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Myronivsky Hliboproduct Report and Accounts 2012 /
How do we
create value?
Chief Executive’s
Review
Our grain growing business continues to
perform robustly, reflecting strong grain
prices worldwide and successful crop
management that has once again delivered
higher yields than Ukrainian averages. This
remains an integral feature of our unique,
self-sufficient business model with poultry
and grain under one roof enabling us
to control costs and quality for both
intermediate and final products.
Yuriy Kosyuk
CEO and founder of MHP
Delivering our strategy
2012 has been a good year in the
Company’s history as we made significant
progress in delivering our strategy objective
to become the leading poultry producer
in Europe, underpinned by strong
financial results.
We commenced trial production at our new
world class Vinnytsia poultry complex
ahead of schedule and are now poised to
accelerate production in 2013. This will add
at least 60,000 tonnes to our capacity in
the first year of industrial run of a massive
expansion programme that will double
our current production capacity of over
400,000 tonnes of poultry gradually
by 2018.
Our exports of chicken meat grew steadily
during the year, reaching roughly 15% of
total poultry sales and the announcement
that Ukraine is now licensed to export
poultry products to the EU provides a
further opportunity for export growth
going forward.
08
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Myronivsky Hliboproduct / Report and Accounts 2012
Business
Once again, we have delivered our
key projects on time and within
the budget. The most significant
of these is our flagship expansion
project “Vinnytsia” where we are
constructing one of the most
advanced chicken processing
facilities in the world.
We were very happy with our progress
on this project, where we were able to
capitalise on our experience in building the
Myronivka Poultry Farm. All production
sites such as a hatchery, a slaughter
house, rearing brigades etc. are now
operational.
Our new Biogas plant has been launched
in trial operations at the end of 2012. We
plan to assess the results to date in 2013 to
establish the full impact of this
development before we make any
decisions on future investment in
alternative energy.
Overall, our poultry and related operations
segment continued to grow steadily, with
revenues rising to US$1,083 million, 11%
ahead of last year’s revenues as a result of
the Vinnytsia complex launch. Due to the
strong prices in H1 2012, chicken prices in
2012 increased by 15% year-on-year.
During 2012 we have been developing our
export trades and exported around 58,000
tonnes of chicken meat, which is over
65% more than we did in 2011.
In 2012 chicken accounted for around
45% of all meat purchased in Ukraine and
remains the most widely available and
affordable meat whilst pork and beef
become increasingly expensive.
Our focus on operational efficiency and
using best practice techniques has
contributed to strong grain yields despite
unfavourable weather conditions during
Ukraine’s 2011/12 growing season. We
gathered a pretty good harvest, however,
it was a bit lower than in 2011, which
partially decreased our financial result in
the grain growing segment and constituted
US$169 million in sales to third parties.
Nevertheless, MHP’s yields as usual are
above the average of that in Ukraine with
EBITDA of US$447 per hectare.
Capitalising on core strengths
This outstanding performance
is driven by our people and our
brands. We have a dedicated,
stable team of professionals
who understand our strategy
and the steps we need to take
to drive the business forward.
27,800
Employees
Future
This has been a key factor in the successful
start-up of the Vinnytsia complex. We have
been able to build the senior management
team from our internal resources which is
testament to the Company’s investment in
its staff over the years, enabling us to
capitalise on the skills and experience we
already have.
Our senior teams are supported by
27,800 employees whose commitment
and hard work ensure we can deliver our
promises to our investors, our customers
and our community. I would like to thank
them for their continued efforts and
positive approach.
We have continued to invest in our
leading brand “Nasha Riaba” which has
built a loyal customer base who trust and
respect the quality of our products. 40%
of our fresh poultry products are sold
through our growing franchise network of
around 2,800 branded stores, which we
have been gradually increasing during
2012 and introduced a new format of a
“family store”.
The key focus for 2013 will be to
extend our production volumes at
the Vinnytsia complex and recent
progress gives us confidence that
we will achieve our target in the
financial year ahead. Combined
with the opportunity to commence
exports to the EU, this is the next
step in transforming MHP from a
leading domestic producer to a
major international player.
Expanding our export portfolio will help
spread our risks and reduce our
dependence on any one market, enabling
us to mitigate any adverse impact of
economic conditions globally and in
Ukraine. We remain well positioned in
our home market, where there is still
potential for growth as consumption of
meat per capita is still much less than
international levels.
As the extensive capital investment
programme for Phase 1 of the Vinnytsia
complex nears completion, we expect
cash flow to become increasingly positive
for the forthcoming years.
Where will MHP be in 10 years? We have
a clear, long-term vision of becoming a
leading poultry producer in Europe in
10 years time and we have the people,
resources and determination to achieve
our long-term goals.
05_HowXdoXweXcreateXvalue_v51.indd 9
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we
create value?
100%
self-sufficiency
in corn
100%
self-sufficiency
Hatching
Grain
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285,000
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self-sufficiency
200,000tns
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Poultry
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5
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farms
Poultry
2
breeder
farms
35,200 tonnes
of processed meats
10
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Myronivsky Hliboproduct / Report and Accounts 2012
Organic
agriculture
and cost
advantage
s
a
g
o
B
i
5MW capacity
plant
4 09
vehicles
Distribution
Q
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t
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100%
delivery
to final
customers
within
24hrs
Business
model
MHP’s unique vertically integrated business model is a
key factor behind our stability and success. It means that
everything we need for successful poultry production
is produced within the Company, from cultivating crops
to producing fodder right through to breeding, rearing,
processing of poultry and distribution of chicken meat
via sales channels.
MHP’s substantial land bank is the foundation for this vertical
integration model (2012: over 285 thousand hectares). We grow
grains (corn, wheat etc.) and oilseeds (sunflower, rapeseeds
etc.) to produce the right fodder for our poultry in-house.
The distinctive feature of our fodder production is that we
use sunflower protein instead of imported soybeans, which
significantly reduces the cost of the final product – poultry.
The first link in the value chain of the poultry division is the
breeding. The parent poultry stock at MHP breeder farms
produces hatching eggs. Second, at our own hatcheries we
receive chicks, which are then grown at our own rearing sites.
Thirdly, in 42–45 days the broiler chickens are dispatched for
processing at our meat processing plants. And finally, chicken
meat is delivered via our own distribution centers to franchise
stores, supermarkets etc. using our own vehicles.
The final step in our vertically integrated process is the
construction of biogas plants fuelled by chicken manure at our
poultry farms. The best world and European technological and
innovative advances have been incorporated into the project.
Their purpose is to make MHP independent and self-sufficient
in heat and electricity, which is a right move towards more
environmentally friendly agriculture and cost advantage.
MHP has now started to work on a fertilizer enrichment plant that
is planned for completion in 2013. The most efficient technology
will be chosen to create organic fertilizers that will meet the
demands of different markets and different crops.
Sales
2,800
Franchised outlets
05_HowXdoXweXcreateXvalue_v51.indd 11
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we
create value?
100%
self-sufficiency
in corn
n
r
o
C
t
a
e
h
W
r
e
w
o
fl
n
u
S
d
e
e
s
e
p
a
R
a
y
o
S
1.6m
tonnes of crops
harvested in 2012
285,000ha
under cultivation
L
a
n
d
b
a
n
k
2,120
agri vehicles
Yields are much above
average of that in
Ukraine
Grain production
By volume %
2012 harvest yields
By tonnes per hectare
EBITDA
Per hectare, US$
C
r
o
p
p
r
o
t
e
c
t
i
o
n
7.6
4.8
5.1
10
8
6
4
2
0
2.8
3.0
3.4
1.7
2.3
1.8
1.7
US$447
Corn
Wheat Sunflower Rapeseed
Soya
MHP’s average*
Ukraine’s average**
* Tonnes per hectare
** Source: SSCU
For more information on our
Grain operations visit www.mhp.com.ua
Corn
Wheat
Sunflower
Soyabeans
Rapeseed
Other
47%
16%
12%
6%
5%
14%
12
05_HowXdoXweXcreateXvalue_v51.indd 12
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Myronivsky Hliboproduct / Report and Accounts 2012
Grain Review
Operating one of the
largest land banks in
Ukraine
MHP’s profit per hectare depends, first of
all, on the professional preparation of the
ground by the specialist from two to three
years ahead, followed by early production
planning in the autumn.
Objectives
Today we are already doing the work
that will deliver results in 2014–2015 by
managing resources, such as chemical
and organic fertilizers, cultivation of break
crops, etc. The profit per hectare today
is the result of two years’ work. Our
specialists visit organisations abroad and
share their practical experience with other
specialists – farmers, scientists and
commercial managers.
Our goal is to remain self-sufficient in the
grains we need for feeds production. Our
vertical integration model allows MHP to
capitalise on the key advantages of having
both poultry rearing and grain growing
within the Company: protection from grain
price fluctuations and quality control of the
whole value chain.
Looking forward, the Company’s land bank
is expected to increase significantly to
approximately 450 thousand hectares in
the near future.
Highly
profitable
arable farms
Land bank
During 2012 there was a marginal increase
in the Company’s land bank mostly due to
organic growth close to our existing farms.
By the end of the year, it covered just over
285 thousand hectares, in line with our
strategy, as no significant land bank growth
was forecasted for 2012. Approximately
255 thousand hectares of the total are
used for grain growing activities and nearly
30 thousand for other agricultural activities.
MHP cultivates one of the biggest land
banks in Ukraine. According to “Forbes”
magazine ratings, MHP’s land bank is
ranked fifth largest in Ukraine. This is the
foundation of the Company’s vertical
business integration and is the key to
resource independence.
2012 harvest
The harvest in 2012 delivered 1.6 million
tonnes of grain crops and oilseeds.
Strong results have been achieved for
winter wheat, winter rapeseeds, soyabeans
and sunflowers.
Despite challenging and dry weather
conditions during the summer of 2012,
over 883 thousand tonnes of corn were
harvested from 116 thousand hectares,
with an average yield of 7.6 tonnes per
hectare. Nevertheless, MHP’s corn yield
is 60% higher than Ukraine’s average.
Most crops that the Company grows,
accounting for 74% of total production
output, are used for feed production for
internal needs. At the same time, crops
that are not used for fodder are grown to
enable us to operate a crop rotation system
and to generate export sales in US
denominated revenues. In 2012 MHP’s
grain export sales resulted in US$139
million from 480 thousand tonnes
compared to US$63 million from 190
thousand tonnes in 2011 due to the
stronger prices in 2012 and sales of crops
of 2011 harvest in the first half of 2012.
Financial and operational performance
This year revenues for the grain growing
segment reached US$169 million (2011:
US$104 million) generating robust EBITDA
of US$112 million (2011: US$121 million).
This reflected challenging weather
conditions for corn, mitigated by a good
harvest of spring crops as well as an
increase in selling prices over 2012.
Together with MHP’s good harvest and
yields, EBITDA per hectare remained high
at US$447, which is 7% lower compared to
US$482 in 2011.
The yield statistics for the crops cultivated
by MHP for our own production of feeds,
are as always much higher than Ukraine’s
averages. MHP applies the latest
technologies and agricultural operating
methods for soil cultivation, planting and
crop protection in the harvesting process.
Maintaining our expertise
A strong management team, supported
by qualified specialists, who constantly
develop their own skills and knowledge,
taking on board both Ukrainian and global
best practices, is the cornerstone
underpinning MHP’s stable, high yields.
All our businesses have access to a wide
pool of candidates for every vacant
position and employees are selected on
their professional qualifications as well as
their experience and achievements. We
only employ people with the appropriate
professional qualifications in senior
positions, because a mistake in grain
growing can’t be corrected once the
process has started.
MHP is one of the few companies in the
agricultural sector that invests a great deal
of human and financial resources in staff
training. We train our agricultural staff,
using leading industry specialists to make
sure they are kept up to date with the latest
issues. Experience is critical for decision-
making so a young specialist needs at least
10 years to gain the necessary knowledge
to become a fully fledged professional.
05_HowXdoXweXcreateXvalue_v51.indd 13
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we
create value?
i
g
n
h
c
t
a
H
311m
hatching
eggs
217
million heads
g
n
i
r
a
e
R
5
broiler farms
Processing
Breeding
2
breeding
farms
e
c
n
e
i
n
e
v
n
o
C
d
o
o
f
Over
14,000
tonnes
404,000tns
of chicken meat
produced per annum
Distribution
100%
delivery to
final customers
R
e
t
a
i
l
Sunflower Oil
200,000tns
per annum
40%
sales of fresh
poultry through
franchised stores
2012 Poultry production, 2009–2012
’000 tonnes, adjusted weight
Ukraine poultry market share
By industrial production %
Production increase schedule
’000 tonnes, adjusted weight
384
404
360
285
500
400
300
200
100
0
2009
2010
2011
2012
Source: SSCU
For more information on our
Poultry operations visit www.mhp.com.ua
14
800
820
520
580
800
600
400
200
0
600
420
360
550
285
450
408
225
173
133
2005-
2006
2007 2008 2009 2010-
2012E
2013E 2014E
2015E 2017E–
2018E
■ Existing
capacity
■ Myronivka
■
Vinnytsia,
Phase #1
■
Vinnytsia,
Phase #2
MHP
Agromars
Dniprovsky
Agrooven
Others
50%
14%
6%
5%
25%
05_HowXdoXweXcreateXvalue_v51.indd 14
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Myronivsky Hliboproduct / Report and Accounts 2012
Leading the
Ukrainian
market
Poultry Review
50% of industrial
production and 34% of
domestic consumption with
one of the strongest food
brands “Nasha Riaba”.
Performance
Poultry production is the main source of
MHP’s revenues contributing almost 80% of
EBITDA. An increase in poultry production
and rising poultry prices in Ukraine led to
a 11% growth in revenue over 2012 to
US$1,083 million. The initiation of pilot
production at the Vinnytsia Poultry Farm
began as planned in H2 2012 and was a key
contributor to poultry production growth,
which resulted in over 20,000 tonnes of
additional produce. This growth was also
driven by the optimisation of operational
processes at four other MHP broiler farms.
In 2012 we produced 404 thousand tonnes
of poultry, 5% higher than last year (2011:
384,000 tonnes). Exports of poultry during
the year increased to 58 thousand tonnes,
up by over 65% compared to the same
period last year and now account for 15%
of total MHP poultry sales.
MHP remains the leading supplier to the
Ukrainian industrially produced poultry
market with a market share of around 50%.
The Vinnytsia complex
In the summer of 2012 test production
commenced successfully at the new
Vinnytsia complex, as planned. Industrial
production began ahead of schedule at
the end of 2012 with all production sites
as well as infrastructure now operational.
During 2013 we will gradually increase the
capacity of the new complex and expect
to add at least 60,000 tonnes to the
current volumes.
By 2015, Phase 1 will become fully
operational, gradually adding 220,000
tonnes to the current 404,000 tonnes
capacity. Phase 2 construction will start at
the beginning of 2015 and it will become
operational during 2017–2018, adding a
further 220 thousand tonnes.
Business model: poultry division in details
The cornerstone of MHP success is our
vertically integrated business model which
contributes to the total control over quality
and production cost – from field to fork.
The Company’s stable development is
underpinned by several factors that enable
us to control production costs. Firstly,
growing our own grains and oilseeds and
produce fodder (please see our Grain
section, pages 12-13). In 2012, our total
storage capacity constituted 1,230
thousand m3. The Company produced
1,212 tonnes of fodder – 100% self-
sufficiency. To have complete control of
the feed for our chickens is critical for our
reputation as a safe producer.
As a part of protein production, we crush
sunflower seeds and produce sunflower
oil. In 2012 MHP sold 195,000 tonnes of
sunflower oil to world traders, which is 12%
more than in 2011, due to increased fodder
production for the Vinnytsia poultry farm.
Production of sunflower protein (instead of
soya bean protein) gives us not only cost
advantage over competitors but also a
useful source of foreign exchange earnings.
Secondly, there are two breeding farms,
which produce hatching eggs (311 million
produced, compared to 297 million in 2011)
and six hatcheries. At these production
stages we also control quality and
biosecurity, as well as our costs. The
Company is self-sufficient in hatching eggs.
Thirdly, currently we operate five broiler
farms. Myronivska, and in the near future,
the Vinnytsia poultry farm will be the biggest
contributors to our poultry production
volumes.
Finally, due to the constant innovation in
all stages of the production process and
constant improvement of individual
processes as well as all the links in the
vertical integration chain, we retain the
leading position in the industry in Ukraine
and are among the most efficient producers
worldwide.
Quality and biosecurity
MHP’s success is dependent on the high
reputation of its production along with
detailed quality and safety controls over all
production processes. The majority of our
businesses are already certified to ISO 9001
and ISO 22000 standards. Today, almost
all MHP businesses have implemented
food safety management systems and
are certified to the requirements of the
international certification scheme FSSC
22000:2010. This system was approved
by the Global Food Safe Initiative “GFSI”
and includes the requirements of ISO
22000:2005 and ISO/TS 22002-1:2011.
Marketing and sales
The high reputation of our main brand
“Nasha Riaba” is a result of the care,
attention and expertise of MHP specialists
at all stages of production.
“Nasha Riaba” is the most well-known
poultry brand in Ukraine and the most
popular brand among consumers
(according to the magazine “Focus”).
Our principal brand offers consumers a
wide range of packaged and unpackaged
poultry. Consumers mostly buy branded
products in supermarkets and branded
franchise stores and these remained the
main sales channels for the “Nasha Riaba”
brand in 2012.
During 2012 we gradually increased our
franchised network and currently have
around 2,800 units operational.
We plan to further maintain these two main
sales channels and drive major increases in
sales with marketing and trade marketing
activities along with increased customer
loyalty and distribution. This acceleration of
activity is needed to prepare for the growth
of poultry production over the next few
years as the Vinnytsia poultry farm moves
into operation.
Exports
The main export markets for our products
in 2012 were CIS, Middle East, Central
Asia and African countries. In line with
the Company’s strategy, with an overall
capacity increase, we plan to gradually
increase our export of poultry.
Next year MHP is expected to export
at least 90,000 tonnes of poultry.
05_HowXdoXweXcreateXvalue_v51.indd 15
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Myronivsky Hliboproduct Report and Accounts 2012 / Geese
630tns
of goose
meat and
foie gras
Fruit
28,750tns
How do we
create value?
Meat processing
products
35,200tns
Milk
38,730tns
Pork
1,460tns
Beef
1,045tns
Meat processing products, 2009–2012
’000 tonnes
Major Ukrainian meat processors
By % of Ukrainian market
Revenue increase
%, 2011-2012
0
0
0
,
7
3
0
0
2
,
5
3
0
0
9
,
2
3
40
30
20
10
0
0
5
6
,
4
2
2009
2010
2011
2012
Source: MHP
For more information on our
Poultry operations visit www.mhp.com.ua
16
6%
MHP
Favoryt
Globynksy
Yatran
Gorlovsky
Other
Source: SSCU
10%
9%
9%
6%
5%
61%
05_HowXdoXweXcreateXvalue_v51.indd 16
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Myronivsky Hliboproduct / Report and Accounts 2012
Meat-processing Review
As a logical step in
vertical integration, 50%
of raw material used for
production is poultry meat.
The leader in the
fragmented market
Results
MHP’s meat processing plants are an
integral part of the Company’s vertical
integration strategy. Chicken produced
at the Company’s poultry farms is the
main ingredient used in meat processing
products, such as cooked and smoked
meats, sausages, convenience foods.
Cattle, pigs and geese are also reared on
MHP’s own farms producing top quality
beef, milk, pork and foie gras accordingly.
During 2012, key financials in this segment
were stable compared with the last year.
Revenue in this segment has increased by
6% in 2012 to US$155 million, representing
11% of the Company’s gross revenues and
2% of EBITDA.
Meat processing products
MHP’s meat products are leaders in the
highly fragmented Ukrainian meat market
with a market share of 10%. 35,200 tonnes
of end products were sold during 2012,
which is a 5% decrease from 37,000
tonnes compared to the previous year
as we optimised the product portfolio,
rationalising the number of products.
Our high value meat products are sold
under three brand names: “Baschinsky”,
“Druzhba Narodiv”, “Europroduct”. We
continue to develop new products in
response to consumer demand in line
with the results of own marketing research.
All our key brands in the meat segment are
produced at “Ukrainian Bacon” (Donetsk
Region) and “Druzhba Narodiv” (Crimea).
Cattle and pigs
In 2012 we reared over 32 thousand
heads of cattle and over 40 thousand
heads of pigs using the latest technologies
and methods.
Fruit
MHP owns the Crimean Fruit Company
that grows apples, strawberries, pears,
grapes, peaches, apricots and other fruit in
the temperate climate of Southern Ukraine.
Approximately 1,500 hectares of land at
Crimean Fruit facility are currently planted
with orchards, with apple trees accounting
for approximately 50% of the planted area.
In 2012 MHP harvested over 28,750 tonnes
of different fruits, which is by over 34%
higher than in 2011.
The majority of the fruit producing trees were
planted in 2007.
The harvest is stored in specially equipped
modern chilling facilities with adjustable
temperatures. The output production has
an excellent reputation and meets ISO
9001:2008 and ISO 220 standards.
Foie Gras and Certified Angus
MHP is the only Ukrainian certified
producer of the exclusive gourmet delicacy
– foie gras and produces the exclusive
Certified Angus brand – a range of top
quality beef cuts from our unique herd
reared on the Druzhba Narodiv farm.
Goose rearing and foie gras production
are carried out on the Snyatynska poultry
farm, situated in Ivano-Frankivsk region
where strict quality controls are followed
to meet international ISO 9001:2008
and 22000:2005 standards. In 2012 the
Company produced over 100 tonnes of foie
gras and over 520 tonnes of geese meat.
Our premium quality steak beef is sold
under the “Certified Angus” trademark
from the unique Aberdeen-Angus breed
certified to the international standards of
product quality and safety ISO 9001:2008
and ISO 22000:2005.
05_HowXdoXweXcreateXvalue_v51.indd 17
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Myronivsky Hliboproduct Report and Accounts 2012 / How sustainable
is our business?
Communities
Building
Building
new roads
Building
of railways
Communication with
stakeholders:
– profile in social network
‘Vkontakte’
– press – conferences
– regular communication
with mass media
– corporate editions
– cooperation with
scientific institutions
S
t
a
k
e
h
o
d
e
r
s
l
Development and
motivation of
staff, programs
for students
Completion of
library funds in
regional schools
Building
of residential
housing and
kindergartens
Responsibility
Providing the
local population
with drinking
water
Organisation and
conducting of holidays
and contests for children
Education
Founding of
an equestrian
school
18
06_HowXsustainableXisXourXbusines_v20.indd 18
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Myronivsky Hliboproduct / Report and Accounts 2012 Values
Professionalism
About 28 thousand qualified workers and
specialists provide the functioning of our
enterprises, which are a total of 25 within
the Company. Having deep professional
knowledge, they take their duties
responsibly and conscientiously,
delivering tasks to the management
effectively and on time.
We encourage production initiatives from
people of any level of responsibility. The
Company strives to achieve best results
by managing people, environmental and
financial resources wisely.
Responsibility
The basis of our business underlies in
understanding of public needs and interests.
Being responsible for our work, observing
corporate rules, using resources wisely, as
well as being environmently friendly, we are
in charge of those who create and secure
the success of our Company.
Pursuit of excellence
All our employees work in conditions that
contribute to the development of their
talents and abilities. Due to the advanced
technologies, we improve both production
and managerial processes. While working
in a successful and dynamic Company,
our employees are full of confidence for
the future. Together we contribute to the
development of Ukraine.
Openness
We create the atmosphere of trust and
effective cooperation by publishing MHP’s
news concerning all the important issues
on a regular basis. Information is available
for all our employees, partners,
shareholders, and all other interested
parties. Our business is built on principles
that are made plain for our workers
and partners.
Vision
We are a dynamic and fast-growing
Ukrainian company, based on the
unique model of vertical integration.
Our employees have unique
knowledge and experience
in the industry.
Our employees have the unique
Our enterprises are built and
knowledge and experience
equipped with cutting edge
technology.
in the industry.
We are leaders of the agrarian
market in the poultry segment and
are constantly increasing poultry
production capacity in Ukraine.
The basis of our success is our
workers, investment, business
model, management skills and
leading technologies.
Stable and sustainable
We fully recognise our social
obligations to the communities in
the regions where MHP businesses
are located.
Our goal is to maintain high standards of
corporate responsibility and best practice
across all areas of our business: to
contribute to our local communities,
to take care of our employees and to
minimise our environmental impact. Our
close cooperation with the European Bank
of Reconstruction and Development
“EBRD” and the International Financial
Corporation “IFC” also helps us to improve
and enhance the level of biosecurity, quality
control and stakeholder engagement.
During 2012 we continued our on-going
social initiatives as well as commencing
new ones. Some examples of recent
initiatives in the different areas we focus
on are set out below.
Communities in the regions
We take our responsibility to improve the
living conditions of local communities in
which we operate deeply, from building the
roads to contributing to the development of
cultural and sports facilities for the local
population.
Site improvements
Each year, we repair roads in the regions
where our sites are located, for example in
2012, we finished building a 10 km road
around Ladyzhyn. An additional 8 km of
railway track was also constructed and the
resulting increase in freight turnover
(through the shipment of products from the
Vinnytsia complex) raised the status of the
“Ladyzhyn” railway station.
06_HowXsustainableXisXourXbusines_v20.indd 19
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Myronivsky Hliboproduct Report and Accounts 2012 / How sustainable
is our business?
5,700 people
visited our facilities in 2012
Our employees
As one of the major employers in
Ukraine, we strive to create a safe
working environment for our
employees, contribute to their
professional development and take
care of their health and welfare. Our
goals are to reduce occupational
injuries and industrial sickness and
constantly develop the workplace
to increase occupational safety by
improving working environments.
180 flats
to house new employees in Ladyzhyn
20
Developing cultural and sports
facilities for the local population.
A new equestrian sports centre was
established in Ladyzhyn, similar to the one
we maintain at our Druzhba Narodiv meat
processing plant in the Crimea. In addition,
last year the Company sponsored childrens
sailing competitions.
Stakeholder communications
During the summer of 2012 visits to
facilities at the Vinnytsia poultry complex
took place for the media, NGOs’
representatives and residents of nearby
towns and villages. In total, almost 5,700
people visited the new complex. During the
visit everyone had the opportunity to talk
to the Company’s representatives about
MHP’s production processes, labour
conditions and future plans in this region.
Sponsorship and social programmes
We support local schools and
kindergartens with our food production,
provide financial support for repair and
refurbishment works and help to buy sport
and technical equipment. We provide
transport for children from remote villages
to their schools. In September 2012 we
provided significant additional resources
for the libraries of five schools in Ladyzhyn
in the Vinnytsia region. We also provided
first-graders with tutorial materials,
including school supplies and informative
wall charts.
As part of International Women’s Day
events, we organised a charity fair to sell
postcards created by Ladyzhyn pupils. The
proceeds of the sales were then donated
to a nominated charity.
In the Vinnytsia region MHP sponsored
the organisation of several events in
2012. Besides the financial support, the
Company provided free entertainment,
theatre performances and sweets for the
local population.
We also assist the employees with
accommodation and with kindergartens for
their children. For example, in Ladyzhyn
where our new Vinnytsia complex is
situated, we bought out and reconstructed
two residential buildings comprising of 45
and 28 apartments. Recently the Company
finished the construction of the new
nine-story residential building for 180
apartments and plans to house employees
and their families in May 2013, alongside
the dormitory for 260 persons.
In addition, all our on-site canteens are
heavily subsidised and transport is
provided for employees to get to work –
and for their children to get to school
or kindergarten.
A special programme aimed at attracting
and promoting the professional
development of young people is in
progress. MHP funds agricultural education
for employees’ children and offers summer
internships to students from the best
Ukrainian agricultural universities.
Furthermore, the Company offers a
subsidised canteen for new employees
at its sites and provides them with
rent-free accommodation.
A safe working environment
All MHP sites have well-developed health
and safety policies, provide regular
inspection of equipment and worksite safety
training. Our Labour Protection department
is responsible for our on-going compliance
with health and safety requirements.
Well-structured remuneration and
benefits
The Company has well-structured
remuneration packages that include
monthly and annual bonuses based on
the efficiency and quality of production
achieved by each separate employee,
based on performance and role. The
Company also provides pensions,
holiday and maternity benefits in
accordance with Ukrainian legislation.
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Myronivsky Hliboproduct / Report and Accounts 2012 Education
Every year we sponsor a number of
education placements for the
children of employees in 13 regions
(out of 25 in Ukraine) where we
operate.
Our livestock
Caring for our livestock is an
essential part of our production and
at the heart of how we operate. We
aim to create comfortable and safe
conditions for rearing as well as
maintaining favourable daily habitat
conditions.
We provide employment to suitably
qualified, recently graduated students from
leading agricultural universities in Ukraine.
Many follow our “mentor-apprentice”
scheme and go on to become managers in
MHP after they have 3-4 years’ experience
in the Company. During the last few months
of 2012, MHP representatives visited six out
of 15 such universities. They met with
students and gave them a detailed briefing
on the Company’s development and its
main operations. They also described
the student intern and new employee
programmes in detail and methods of
work. At these meetings, students could
ask specific questions about potential
employment in MHP and the current
agricultural labour market. The results of
these meetings, contribute to demand
forecasts for young specialists in careers
such as veterinarians, animal husbandry
and mechanics.
In animal husbandry we focus on two main
areas: first of all, we take great care when
raising animals and, secondly, we minimise
negative effects at slaughter.
care for animals at every stage of their
life with the best quality resources:
fodder, health control, protection from
hazardous environments.
To meet the highest standards of
international practice, we cooperate
with authoritative transnational
organisations, such as EBRD and IFC.
Their representatives visit our sites
regularly, giving us recommendations
concerning possible innovations and
improvements, which we follow.
In addition to favourable habitat conditions,
we provide balanced feeding and clean,
fresh water supported by high biosecurity
standards, constant veterinarian control
and treatment as needed.
Safe transportation and the use of calming
measures before slaughtering help minimise
the negative effects at slaughter where we
have implemented scientifically-justified
methods.
In addition, the vertical integration of
MHP’s business allows the Company to
Our environment
MHP is committed to minimising
the impact of its manufacturing and
agricultural operations on the
environment and aims to meet the
highest national and international
standards in this area.
US$15m
investment into Biogas Project
06_HowXsustainableXisXourXbusines_v20.indd 21
Energy efficiency
We are constantly looking for new ways to
reduce our energy consumption. Around
US$15 million has been invested in the new
Biogas plant at Oril-Leader poultry farm.
The plant uses chicken manure and waste
from the poultry farm as a raw material to
generate energy which reduces our carbon
footprint and helps to reduce our cost of
production. The plant became operational
in autumn 2012.
Controlling emissions
MHP regularly monitors and controls all
the chemicals, disinfectants, solid waste
and waste water that its sites discharge in
the process of their operations to avoid any
negative impact on the environment. The
Company pays an annual environmental
tariff to the State to compensate for any
pollution caused by its activity. MHP
has never incurred any environmental
penalties.
Minimal use of chemicals in
production
We do not use genetically modified
materials in our fodder or steroids in our
poultry products. Also, we use crop
rotation to minimise the use of pesticides
and agro-chemicals: any pesticides
that we do use comply with all current
legislation governing their use.
Waste disposal
We meet the stringent requirements of
the latest changes in 2010 to the Law
on Waste with specially designed animal
waste disposal facilities on each meat
processing site.
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we conduct
our business?
Corporate governance
MHP is registered in Luxembourg.
Its shares are listed on the London
Stock Exchange. The Company
complies with the Ten Principles of
Corporate Governance approved by
the Luxembourg Stock Exchange and
voluntary corporate governance regime
stated in the UK Corporate Governance
Code. The Company upholds and
practices the highest standards of
ethics and integrity in its relationships
with its shareholders, directors,
personnel, business community
and other third parties including
government and regulatory agencies.
The main aspects of the Company’s
corporate governance policy are described
in the Corporate Governance Charter
approved by the Board of Directors
in May 2012 and published on the
Company’s corporate website at
http://www.mhp.com.ua.
Board of Directors
The Board is responsible for the overall
conduct of the Company’s business and
has the powers, authorities and duties
vested in it by and pursuant to the relevant
Luxembourg laws and regulations and the
articles of association of the Company.
Members of the Board are elected by a
majority vote of shareholders at the annual
general meeting “AGM”, may be elected for
a six-year period and may be re-elected an
unlimited number of times. Of the Board’s
seven directors, four are independent.
The Board is assisted by two Board
committees: the Audit Committee and
the Nominations and Remuneration
Committee. These committees handle
business within their respective areas and
present recommendations and reports on
which the Board may base its decisions
and actions.
The Board has a Senior Independent
Director. The Senior Independent Director
is available to shareholders if they have any
concerns that they cannot resolve through
the normal channels of contact. The Senior
Independent Director also provides a
sounding board for the Chairman, and is
responsible for the evaluation of the
Chairman and serves as a trusted
intermediary for Non-executive Directors as
and when necessary.
management of PJSC MHP or the relevant
subsidiary.
In 2011, the Board conducted an annual
effectiveness review in order to evaluate
its performance as well as that of its
committees and individual Directors. The
evaluation process was initiated by a
questionnaire and then supplemented by
individual interviews by the Chairman with
each of the Directors. The conclusions
were analysed by the Board to further
strengthen its composition and
performance.
During the year, the Board comprised:
Charles E Adriaenssen,
Independent Non-executive Director,
Chairman
Dr John C Rich, Independent Non-
executive Director
John Grant, Non-executive Director,
Senior Independent Director
Philippe Lamarche, Independent Non-
executive Director
Yuriy Kosyuk, Chief Executive Officer
Yuriy Melnyk, Deputy CEO
Viktoria Kapelyushnaya, Chief Financial
Officer
Yuriy Logush, Executive Director (until 27
April 2012)
On 27 April 2012 Mr Logush signed a
resignation letter, which is subject to
approval by the next AGM.
During 2012 the attendance by Directors
of the Board’s meetings was at the level
of 100%.
The term of office of each member of the
Board of Directors will expire at the annual
general meeting stating on the annual
accounts as of 31 December 2012. Each
Director has signed a letter of appointment
with the Company which applies for as
long as he or she remains a Director. The
letters do not provide for any benefits on
termination of directorship and, in the case
of Mr Adriaenssen, Dr Rich, Mr Grant and
Mr Lamarche provide for payment of
compensation and the reimbursement of
certain expenses. Ms Kapelyushnaya and
Mr Melnyk do not receive compensation for
their service as Directors of MHP S.A. in
addition to their remuneration as executive
The terms and conditions for Mr Kosyuk’s
appointment as Chief Executive Officer
“CEO” were agreed and signed on 21 June
2006. The terms are for the duration of
his office and do not provide for any
benefits on termination of his directorship.
Mr Kosyuk may, however, resign from his
position as CEO only subject to a prior
three-months’ notice.
The terms contain confidentiality
obligations applicable to Mr Kosyuk for a
period of five years after termination of his
office. The amount of remuneration and
benefits paid by the Company to the
persons responsible for the day-to-day
management of the Company is reported
by the Board of Directors to the AGM.
The amount of remuneration and benefits
of all members of the Board of Directors,
including the Chief Executive Officer,
regardless of whether such remuneration
is paid by the Company or by any other
entity within the Group, is established
by the Nominations and Remuneration
Committee. In addition, the amount of
remuneration paid to Non-executive
Directors is approved by the AGM.
Nominations and Remuneration
Committee
Charles E Adriaenssen, Chairman
John Grant
Dr John C Rich
The Committee’s main tasks are:
• To recommend to the Board the
appointment or renewal of Directors,
to review remuneration and monitor
performance of the Board, and to make
recommendations to the Board in
respect of the necessary skills and
experience required to improve the
functioning of the Board.
• To monitor the performance of key
officers of the Company and evaluate
results versus stated objectives, to
monitor training needs and programmes
to improve employee effectiveness,
to ensure the Company develops
successors for all key positions.
22
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Myronivsky Hliboproduct / Report and Accounts 2012 • To oversee the development and
approval by the Board of the Company’s
overall compensation policy including
its long-term incentive plans, to ensure
that top managers are incentivised
to achieve and are compensated for
exceptional performance, to oversee
the maintenance and continuous
improvement of the Company’s
compensation policy with a view to
aligning the interests of employees
with the interests of shareholders.
• To submit for approval to the Board the
compensation packages of the CEO
and of the Executive Management.
• To approve all external hiring of
key officers.
During 2012, the committee held two
meetings, and all of the committee
members attended.
Audit Committee
John Grant, Chairman
Dr John C Rich
Philippe Lamarche
The Committee’s main tasks are:
• To review and monitor the integrity of
the Company’s financial statements,
announcements of results and any
other formal announcement relating
to its financial performance, significant
financial reporting issues and
judgements and to make
recommendations to the Board with
respect to the financial statements.
• To keep under review and report to
the Board on the effectiveness of the
Company’s financial reporting and
internal control policies and procedures
for the identification, management and
reporting of risks.
• To review the Company’s policies
and procedures for the identification,
management and reporting of non-
financial risks, to review reports on the
risk management process and to report
to the Board on the effectiveness of the
risk assurance process.
• To monitor and review the effectiveness
of the Company’s internal audit function
in the context of the Company’s overall
risk management system.
• To approve appointment,
reappointment, compensation and
oversight of the Company’s external
auditors.
• To assist the Board in overseeing
compliance with all legal and regulatory
requirements.
During 2012, the Committee held four
meetings, and the average attendance of
the Committee members was at the level
of 85%.
Remuneration of auditors
Remuneration of auditors amounted to
US$0.7 million, US$0.8 million, US$1.0
million in 2012, 2011 and 2010 respectively.
Auditor’s remuneration is mainly
attributable to the audit services and
services provided in respect to bonds
issued in 2010 but also includes tax
consulting fees of around US$0.1 million
per year.
The Company has rules and processes
in place to ensure independence of the
auditors, including non-audit fees limitation
set by the Board and annual investigations
by the Audit Committee of whether any
services provided are incompatible with
independence of the auditors.
Internal control/risk management
The Board of Directors is ultimately
responsible for the Company’s governance,
risk management, internal control
environment and processes and formally
reviews their effectiveness at least annually.
There is a continuous process for
identifying, evaluating and managing the
significant risks the Company faces and
the Board regularly monitors exposure to
key business risks. The Company has an
independent internal audit function whose
activities are overseen by the Audit
Committee.
Financial reporting process
MHP has in place a comprehensive
financial review cycle, which includes a
detailed annual budgeting process. The
annual budget and the business plan, upon
which the budget is based, is reviewed
and approved by the Board of Directors.
Major commercial and financial risks are
assessed as part of the business planning
process. There is a comprehensive
system of financial reporting, with monthly
performance reports presented to the
Board of Directors.
At the Group level, MHP has in place
common accounting policies and
procedures on financial reporting and
closing. Management monitors the
publication of the new reporting standards
and works closely with the external
auditors in evaluating in advance the
potential impact of these standards.
Compensation of key management
personnel
Total compensation of the Group’s
executive management, which consists
of contractual salary and performance
bonuses, amounted to US$11,686
thousand, US$8,741 thousand and
US$15,514 thousand in 2012, 2011 and
2010, respectively. Total compensation of
the Group’s Non-executive Directors, which
consists of contractual salary, amounted
to US$407 thousand, US$380 thousand
and US$353 thousand in 2012, 2011 and
2010, respectively.
Litigation statement on the directors
and officers
At the date of this annual report, no
member of the Board of Directors or of
MHP’s senior management had, for at
least five years:
1. any convictions relating to fraudulent
offences;
2. been a senior manager or a member of
the administrative or supervisory bodies
of any company at the time of, or
preceding, any bankruptcy, receivership
or liquidation; or
3. been subject to any official public
incrimination and/or sanction by any
statutory or regulatory authority
(including any designated professional
body) nor had ever been disqualified
by a court from acting as a member
of the administrative, management or
supervisory bodies of a company, or
from acting in the management or
conduct of the affairs of a company.
Share options
At the date of this annual report, neither
the Company nor PJSC MHP has a share
option plan and no share options have
been granted to members of the Board
of Directors, members of MHP’s senior
management or employees.
Additional disclosures
At the date of this annual report, there were
no takeover bids made over the Company’s
shares. According to the terms of the
Senior Notes, the Company may be
required to offer to repurchase the Senior
Notes from the holders if a change in
control as a result of a takeover bid occurs.
There are no agreements between the
Company and its Directors or employees
providing for compensation on loss of
office or employment (whether through
resignation, purported redundancy or
otherwise) that would occur because of a
takeover bid.
07_HowXdoXweXconductXourXbusiness_v45.indd 23
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we conduct
our business?
Risk management
Some of the risks the Group faces are
common to all commercial operations,
some are inherent in farming in general
and chicken farming in particular.
The principal risks the Group faces
are macroeconomic, financial and
operational. MHP has effective policies
in place to manage and, where
possible, to avoid these risks.
Operational
risks
Fluctuations in
demand and market
prices.
Avian flu and other
livestock diseases.
Fluctuations in grain
prices.
Increased cost for, or
disruptions in, gas
and fuel supplies.
Weather.
Potential
impact
A drop in demand.
Mitigation
Falls in demand
can generally be
overcome with
modest price
reductions. Per
capita consumption
of meat is still low in
comparison with
other European
countries and we
believe demand for
chicken will continue
to increase. Beef
and pork are mostly
produced by
householders and are
far more expensive
to produce and
purchase than
chicken, kg for kg.
In recent years, avian
flu has affected wild
birds and poultry
flocks in a number of
countries. It was first
discovered in Ukraine
in December 2005
and was still present
in the Crimea and
Sumy regions in
2008.
We operate strict
biosecurity
measures, including
disinfectant washes,
culling wild birds in
the immediate vicinity
of our farms.
World prices could
affect our poultry
production costs.
Inclement weather
could affect crop
yield.
Gas and fuel, used
for production and
distribution, are
imported. Uncertainty
in supply and
fluctuating prices
could affect
production and
costs.
We grow 100% of
the corn we need for
feed and replace
expensive protein
from imported soya
beans with that from
sunflower seeds. We
also grow around
16% of the
sunflowers we need
and buy the rest from
domestic growers.
Chicken always
benefits from this
when compared to
other kinds of meat
such as pork and
beef because of the
lower conversion rate
(amount of grain
required to produce
1kg of meat).
Gas and fuel
represent only about
9% of our overall
costs.
We are increasing our
use of co-generation
and alternative
energy technology.
When we process
sunflower seeds we
are left with a huge
amount of husks;
we burn some to
generate steam heat
for our processing
plant; a proportion
is converted into
briquettes for
generating energy
and these are
exported.
Ukraine’s weather is
generally temperate,
with plenty of
sunshine in summer
and adequate rainfall;
this combines with
extremely fertile earth
to create excellent
growing conditions.
In addition, our
management of our
land and the use of
modern technology
enable us to achieve
a yield which is
significantly higher
than the average for
Ukraine.
24
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Myronivsky Hliboproduct / Report and Accounts 2012 Financial
risks
Credit risk.
Liquidity risk.
Currency exchange
risk.
Interest rate risk.
Potential
impact
Debtors fail to make
scheduled payments.
Lack of funds to
make payments due.
Mitigation
No single customer
represents more than
7% of total sales. The
amount of credit
allowed to one
customer or group of
customers is strictly
controlled. Credit to
major groups of
customers, including
supermarkets and
franchises, is
restricted to between
five and 21 days.
MHP has a detailed
budgeting and cash
forecasting process
to ensure that
adequate funds are
available.
Our target is to
maintain our current
ratio, defined as the
proportion of current
assets to current
liabilities, no less than
1.1–1.2.
Exposure to
fluctuation in
exchange rates.
Inability to repay US
dollar debt.
Changes in interest
rates affecting the
cost of borrowings,
the value of our
financial instruments,
and our profit
and loss and
shareholders’ equity.
While MHP borrows
on both fixed and
variable rates, the
majority of our debt
is at fixed rates.
For variable rate
borrowings, interest
is linked to LIBOR
and EURIBOR and
they are generally at
lower interest rates
than are available in
Ukraine.
We do not use
derivatives, which are
neither available nor
routinely used in
Ukraine, to manage
our exposure.
We earn around 34%
of our total revenue in
US dollars through
the sale of sunflower
oil, sunflower husk,
grain and meat. This
represents a hedge
against exchange risk
and very nearly
services our
dollar-denominated
loans. In addition, our
strategy of growing
the majority of our
own ingredients for
feed, rather than
relying on imports,
helps to reduce our
exposure.
07_HowXdoXweXconductXourXbusiness_v45.indd 25
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we conduct
our business?
Board of Directors
Charles E
Adriaenssen
age 56
Non-Executive
Chairman of the
Board and of the
Nominations and
Remunerations
Committee
Mr Adriaenssen joined the Board as Chairman in 2006. He is founder
and Chairman of CA & Partners SA, a consulting and management
training company, Chairman of Outhere SA, an independent
European classical music publisher, and Chairman of Bastille
Investments, a private investment company. He was between 2000
and 2004 a director of INTERBREW and, since 2000, a director of
Rayvax SA, a holding company of AB-INBEV. Between 1982 and
1995 he was a diplomat in Belgium’s Foreign Service. Mr Adriaenssen
holds a BA in philosophy from the University of Vienna and a law
degree from the University of Antwerp.
Dr John C Rich
age 60
Non-Executive
Director
Dr Rich joined the Board in 2006. He is the regional consulting
senior agribusiness industry specialist for the International Finance
Corporation (Eastern Europe, Russia, Ukraine, Central Asia, Middle
East, North and West Africa) and a director of Australian Agricultural
Nutrition and Consulting Pty Ltd (AANC) In addition, he is a senior
Board consultant for a number of agribusiness companies worldwide
including IFC invested clients. From 1990 to 2003, he was the
founding shareholder and executive director of Austasia Pty Ltd, an
agri-business conglomerate which has operations in Australia, South
East Asia and China, and from 1995 to 2002 was a director of AN-OSI
Pty Ltd, a company that specialised in supply-chain management for
feedlot beef, poultry and dairy operations in Asia and Europe. Dr Rich
holds a BSc and a BVSc from the University of Sydney, is a member
of the Australian College of Veterinary Scientists and a registered
member of the Royal College of Veterinary Scientists with post
graduate experience in the food and finance industry.
John Grant
age 67
Non-Executive
Director
Chairman of the
Audit Committee
Mr Grant is a non-executive director of Melrose plc, Pace plc and
Wolfson Microelectronics plc. He was previously Chairman of
Gas Turbine Efficiency plc , Torotrak plc and a number of private
companies, and a non-executive director of National Grid plc and
Corac Group plc. In his executive career, he was Chief Executive of
Ascot plc from 1997 to 2000, prior to which he was Finance Director
of Lucas Industries plc and Director of Corporate Strategy for
Ford Motor Company. Mr Grant holds a BSc in economics from
Queen’s University, Belfast, and an MBA from Cranfield School
of Management.
Philippe Lamarche
age 48
Non-Executive
Director
Mr Philippe Lamarche joined the Board in 2011. He is Private Banker
of Banque Puilaetco Dewaay, Luxembourg and has been involved in
wealth management and structuring in Luxembourg since 1997. He
previously worked as a solicitor in the shipping business in Belgium
and Luxembourg. He has a degree in Law and Economics from The
Catholic University of Louvain. Philippe Lamarche also holds a
degree of the European Association of Financial Analysts.
26
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Myronivsky Hliboproduct / Report and Accounts 2012 Yuriy Kosyuk
age 44
Chief Executive
Officer
Mr Kosyuk founded MHP in 1998 and is also the CEO of JSC MHP.
In 1995 he founded the Business Centre for the Food Industry “BCFI”
and was President until 1999. BCFI operated in the domestic and
export markets for grain and other agricultural products. Mr Kosyuk
graduated as a processing engineer in meat and milk production
from the Kyiv Food Industry Institute in 1992.
Yuriy Melnyk
age 50
Deputy CEO
In July 2010 Yuriy Melnyk was appointed First Deputy CEO of
Myronivsky Hliboproduct (“MHP”). Prior to joining MHP Yuriy held
the position of Agricultural Minister for Ukraine and Deputy Prime
Minister of Ukraine, as well as serving as an advisor to the Prime
Minister of Ukraine. Yuriy is a Doctor of Agriculture and has been a
correspondent member of National Academy of Sciences of Ukraine
from 2002. In 2004 he was awarded the State Prize of Ukraine in
science and technology. He graduated from the Ukrainian agriculture
academy as a Zooengineer in 1985.
Viktoria
Kapelyushnaya
age 43
Chief Financial
Officer
Ms Kapelyushnaya is a Financial Director of JSC MHP, joined MHP
in 1998 and was elected to the Board in 2006. She was previously
Deputy Chief Accountant, then Chief Accountant, of BCFI. She
holds diplomas in meat processing engineering (1992), and financial
auditing (1998), from the Kyiv Institute of Food Industry.
07_HowXdoXweXconductXourXbusiness_v45.indd 27
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Myronivsky Hliboproduct Report and Accounts 2012 / How do we conduct
our business?
Directors’ report
The directors present their annual
report and audited financial
statements for the year ended
31 December 2012.
Principal activities and review of the
business
MHP is one of the leading Agro-industrial
companies, and the largest producer of
chicken, in Ukraine. The business, run on
a vertically-integrated principle with the
objective of making it self-sufficient, is
structured into three segments: Poultry
and related operations, Grain growing
operations, and Other agricultural
operations.
Poultry segment
This division produces and sells chicken
products, sunflower oil, mixed fodder and
convenience foods. It incorporates five
chicken and two breeder farms, feed mills,
and convenience foods facilities.
Grain segment
This division grows crops for fodder,
and for sale to third parties, on 285,000
hectares of land. It incorporates a number
of arable farms and grain storage facilities.
Other agricultural operations segment
This division produces and sells sausages
and cooked meat, beef, goose and foie
gras, and fruits. It incorporates one mixed
farm, a goose farm and two facilities for
producing prepared meat products. More
information about the operations of the
business is set out in the Chairman’s
Statement on page 04, the Chief Executive
Officer’s review on pages 08-09, and the
Business review on pages 10-17.
Future developments
The group’s strategy is:
• to expand its capacity to produce
chicken and chicken products in a
domestic market which has a 46 million
population and one of the world’s lowest
rates of meat consumption per capita;
• to expand its grain production to around
500,000 hectares by 2015 and to
provide stability in the ingredients for
fodder;
• to increase the efficiency of its grain
production through modernisation
and use of up-to-date technology;
• to reduce costs and improve quality
control by increasing vertical integration;
• to maintain, and improve, its high
biosecurity standards;
• to promote and develop its strong
brands through consumer-driven
innovation;
• to increase its presence in value-added
food products, such as processed
meat and convenience food; and
• to continue to develop its distribution
network and customer base.
The management believes there is ample
opportunities for growth as customers
choose to buy domestically-produced
chicken, which is cheaper and fresher
than imported meat.
Going concern
After reviewing the 2013 budget and
longer-term plans, the Directors are
satisfied that, at the time of the approval of
the financial statements, it was appropriate
to adopt the going concern basis in
preparing the financial statements of
the Group.
Directors during the year
The following served as directors of
the Company during the year ended
31 December 2012:
Charles E Adriaenssen
Independent Non-executive Director,
Chairman of the Board
Yuriy Kosyuk
Chief Executive Officer
Viktoria Kapelyushnaya
Chief Financial Officer
Yuriy Melnyk
Deputy CEO
Yuriy Logush
Director (until 27 April 2012)
Dr John C Rich
Independent Non-executive Director
John Grant
Non-executive Director, Senior
Independent Director
Philippe Lamarche
Independent Non-executive Director
The Directors’ biographies are on pages
26-27 of this report.
Election and re-election of directors
Details of the procedure for election and
re-election of directors is in the Corporate
governance report on page 22 of this
report.
Annual General Meeting “AGM”
The AGM will be held at the Company’s
registered office in Luxembourg at 12 noon
on 29 April 2013.
Disclosure of information to auditors
So far as each director is aware, all
information which is relevant to the audit of
the Group’s financial statements has been
supplied to the Group’s auditors. Each
Director has taken all steps that he/she
ought to have taken in his/her duty as a
Director in order to make himself/herself
aware of any relevant audit information, and
to establish that the Group’s auditors are
aware of that information.
28
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Myronivsky Hliboproduct / Report and Accounts 2012 How have we
performed?
Financial review
MHP is one of Ukraine’s leading agro-
industrial companies, focused on
producing chicken and chicken products,
processed meat products and the
cultivation of grain. As the leading poultry
producer in Ukraine, according to the State
Statistics Committee of Ukraine “SSCU”,
MHP accounted for approximately 50% of
all industrially produced chicken in Ukraine
and 35% of all poultry consumed in 2012.
We also have one of the country’s largest
banks of agricultural land. At the end of
2012 MHP had about 285,000 hectares of
land under its control.
In addition, we produce and sell sunflower
oil as a by-product of producing chicken
feed, as well as sausages, cooked meat,
convenience foods, beef, goose, milk and
other agricultural products.
Operations
Our operations are structured into three
segments: Poultry and related operations,
Grain growing operations and Other
agricultural operations.
Poultry and related operations
This segment produces and sells chicken
and chicken products, sunflower oil,
convenience food, mixed fodder and other
products related to the poultry production
process. In 2012 it accounted for 76.9% of
total sales (2011: 79.6%) and 80.5% of total
EBITDA (2011: 72.4%).
Grain growing operations
This segment produces grain used as
fodder for our own operations; a proportion
is also sold to third parties. In 2012 grain
sold to third parties constituted 12.0% of
MHP’s total revenue (2011: 8.4%) and
23.9% of total EBITDA (2011: 30.1%).
Other agricultural operations segment
Other agricultural operations segment
produces and sells sausages and cooked
meat, as well as goose, foie gras, milk and
other agricultural products. The segment
was responsible for 11.0% of 2012 total
sales (2011: 11.9%) and 2.1% of total
EBITDA (2011: 4.1%).
Results
Revenue
Net change in fair value of bio-assets and
agricultural produce
Cost of sales
Gross profit
Gross margin, %
Selling, general and administrative expenses
Government grants recognised as income
Other operating expenses and income, net
Operating profit before loss on impairment of
property, plant and equipment
Depreciation
EBITDA
EBITDA margin, %
Operating profit
Finance costs, net
Finance income
Foreign exchange gains/(losses)
Other expenses and income, net
Profit before tax
Income tax expense
Net income
Net margin, %
2012
US$000
2011
US$000
1,407,522 1,229,090
16,734
(1,001,909)
422,347
21,288
(889,127)
361,251
30%
29%
(120,485)
102,369
(23,648)
(106,447)
87,985
(22,045)
380,583
87,135
467,718
33%
380,583
(59,311)
3,350
(3,285)
(2,633)
318,704
(7,788)
310,916
22%
320,744
80,341
401,085
33%
320,744
(65,918)
6,356
2,318
(1,385)
262,115
(2,760)
259,355
21%
Change
%
15%
(21%)
13%
17%
1%
13%
16%
7%
19%
8%
17%
–
19%
(10%)
(47%)
(242%)
90%
22%
182%
20%
1%
EBITDA in local currency increased by 17%
to UAH 3,738 million (2011: UAH 3,196
million) and to US$467.7 million, also 17%
higher than 2011 (2011: US$401.1 million),
mostly due to increased poultry prices.
EBITDA margin remained stable at 33%.
EBITDA
“EBITDA” is generally defined as profit / (loss) for the
period before income tax expense, finance costs,
finance income, depreciation and amortisation expense.
In our definition of EBITDA, we further exclude foreign
exchange (loss)/gain, net, and other expenses, net.
All the key financial indicators during 2012
increased year-on-year in both local
currency (Hryvnia – UAH) and US dollars,
while margins remained almost the same.
In 2012, MHP’s consolidated revenue from
continuing operations in UAH increased
by 15% to UAH 11,248 million (2011: UAH
9,793 million) as a result of higher prices
of poultry in H1 2012 compared to H1 2011
and higher volumes of externally sold
grain. In US dollars the revenue increased
by 15% to US$1,407.5 million (2011:
US$1,229.1 million).
Gross profit from continuing operations
increased by 17% in both UAH and US
dollars. Gross profit was UAH 3,375 million
or US$422.3 in 2012 against UAH 2,878
million or US$361.3 million in 2011. Gross
margin increased from 29% in 2011 to 30%
in 2012.
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Myronivsky Hliboproduct Report and Accounts 2012 / How have we
performed?
Financial review continued
Net income for the year from continuing
operations in UAH increased by 20% to
UAH 2,485 million (2011: of UAH 2,066
million). In US dollars it increased by 20%
from US$ 259.4 million in 2011 to US$310.9
million in 2012, mostly in line with EBITDA
growth and due to an increase in
depreciation related to the Vinnytsia project
start-up. Net income margin increased
from 21% to 22%.
Income statement by segments in 2012
Poultry
US$000
Grain
US$000
Other
agricultural
US$000
Unallocated
US$000
Total
US$000
Revenue
Total revenue
Inter-segment eliminations
Sales to external customers
Net change in fair value of
biological assets and agricultural
produce
Gross Profit*
Selling, general and administrative
1,125,897
(42,919)
1,082,978
316,861
(147,719)
169,142
160,476
(5,074)
155,402
– 1,603,234
–
(195,712)
– 1,407,522
11,955
342,837
4,329
72,618
450
6,892
–
–
16,734
422,347
expenses
(87,936)
–
(9,482)
(23,067)
(120,485)
Government grants, recognised
as income
Other operating income/expenses
Segment result/operating
75,119
(11,483)
20,657
(1,136)
6,593
(509)
–
(10,520)
102,369
(23,648)
profit
318,537
92,139
3,494
(33,587)
380,583
EBITDA
Finance cost
Finance income
Foreign exchange gains
Other expenses, net
Profit before tax
Income tax expense
Net profit from continuing
operations
376,459
111,708
10,016
(30,465)
467,718
(59,311)
3,350
(3,285)
(2,633)
318,704
(7,788)
310,916
* Gross profit to external customers as adjusted for inter-segment sales results.
General tax system – tax legislation
changes
The current Tax Code of Ukraine,
which was enacted in December 2010,
introduced gradual decreases in income
tax rates over the coming years as well
as certain changes to the rules of income
tax assessment. The tax rate was set
at 21% effective 1 January 2012, 19%
effective 1 January 2013, 16% effective
1 January 2014.
In accordance with the Tax Code of Ukraine,
the VAT rate will be decreased from the
current rate of 20% to 17% in 2014.
State support for agricultural
production in Ukraine
In view of the agricultural sector’s
importance to the national economy,
as well as the need to improve living
conditions in rural areas, support for the
sector is a major priority for the Ukrainian
government. During 2012 State support
was provided in the form of special tax
regimes (VAT and Corporate Income Tax).
The majority of Group companies that
are involved in agricultural production pay
the Fixed Agricultural Tax (the “FAT”) in
accordance with the Tax Code and are
exempt from Corporate Income Tax and
other taxes such as Land Tax, Municipal
Tax, Natural Resources Usage Duty,
Geological Survey Duty, and Trade Patent.
This tax regime is valid indefinitely.
According to the Tax Code, the special VAT
regime for the agricultural industry will be
effective through to 1 January 2018.
Foreign currency exchange rates and
functional currency
MHP’s operating assets are located in
Ukraine and its revenues and costs are
principally denominated in Hryvnas. About
34% of the Company’s revenue and almost
all financial costs are denominated in
foreign currencies, primarily US dollars.
Management believes that MHP’s
exposure to currency exchange rate
fluctuations as a result of foreign currency
costs is completely hedged by its US
dollar revenue earned from the export of
sunflower oil, sunflower husks, poultry and
grain. In 2012 the Company generated
US$480 million of revenue in foreign
currencies, up by 36% compared with the
US$354 million generated in 2011 due to
increases in grain and poultry export sales.
Export revenues, 2011-2012, US$000
Sunflower oil and
related products
Grains
Chicken meat
Other agricultural
2012
2011
227,835
138,639
112,931
222,418
63,101
67,874
segment products
431
486
Total export
revenue
479,836
353,879
The functional currency for the Group’s
companies is the Ukrainian Hryvnia (UAH),
however, for the convenience of users of
its financial statements, MHP presents its
financial statements in US dollars (US$),
using the quarterly average and historical
exchange rates.
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Myronivsky Hliboproduct / Report and Accounts 2012 In 2012 the Poultry and related operations
segment generated strong financial
results driven mostly by growth in the sales
price of poultry. The segment’s revenue
amounted to US$1,083.0 million, 11% more
than the previous year (2011: US$978.9
million).
Poultry production costs in 2012 increased
by approximately 7% compared to 2011
mainly due to higher utilities prices and
start-up expenses related to the launch of
operations at our new Vinnytsia poultry
complex. The Poultry segment’s cost
of raw materials and other inventory is
primarily based on feed grain and other
items associated with producing fodder,
as well as those associated with producing
hatching eggs. Most of the feed grain used
in poultry production, such as corn, and
partially sunflower seeds, is produced by
the Company’s grain growing division.
Management believes that the prices at
which products are sold between divisions
are generally consistent with average
market prices and therefore comply with
Ukrainian transfer pricing rules.
The gross profit of the poultry segment was
US$342.8 million in 2012, 31% higher than
last year (2011: US$260.8 million), gross
profit margin rose from 27% in 2011 to 32%
in 2012 due to higher poultry prices.
EBITDA for the poultry segment increased
by 30% to US$376.5 million in 2012 (2011:
US$290.5 million) in line with gross profit
growth. EBITDA margin increased to 35%
in 2012 compared to 30% in 2011.
As of
31
December
2012
7.9930
10.5372
As of
31
December
2011
Average for
2012
7.9910
10.2692
7.9898
10.2981
Average for
2011
7.9677
11.0926
As of
31
December
2010
7.9617
10.5731
Average for
2010
7.9353
10.5313
UAH/US$
UAH/EUR
Poultry and related operations
Revenue
– Chicken meat and other
– Sunflower oil
IAS 41 standard gains
Gross profit
Gross margin
EBITDA
EBITDA margin
EBITDA per 1kg of chicken meat
MHP’s revenue from its Poultry and related
operations segment is principally generated
from sales of chicken and, to a lesser
extent, of sunflower oil (a by-product of its
sunflower protein production), mixed fodder
and convenience food.
Revenue from sales of chicken meat and
other poultry is primarily from sales of
chilled chicken, whole or in portions,
ancillary products (such as hearts and
livers), frozen chicken and convenience
food under the Lehko! brand, as well as
other products related to the poultry
production process.
In 2012 poultry production volumes
increased by 5% to 404,000 tonnes of
poultry (2011: 384,000 tonnes). The growth
of volumes produced was mostly due to
the new Vinnytsia poultry complex
commencing operations.
Consumer demand for poultry remained
high in 2012, and all MHP’s poultry
production units continued to operate at
100% capacity utilisation. In addition, the
Company produced around 20,000 tonnes
of poultry at the Vinnytsia poultry complex.
2012
US$000
2011
US$000
Growth rate
%
1,082,978
866,544
216,434
11,955
342,836
32%
376,459
35%
1.00
978,871
762,841
216,030
2,665
260,779
27%
290,481
30%
0.78
11%
14%
–
349%
31%
5%
30%
5%
28%
In 2012 MHP poultry sales volumes to
third parties remained relatively stable at
375,300 tonnes compared to 370,900
tonnes in 2011. About 15% of total poultry
sales by volume were exported. The major
markets for the Group’s export sales
of chicken meat are Kazakhstan and
Russia as well as to lower extent other
Commonwealth of Independent States
“CIS” countries, Middle East and
Central Asia.
The average sales price of poultry
increased by 15% to UAH 17.19 per kg in
2012 compared to UAH 15.00 per kg in
2011 as a result of strong poultry prices in
H1 2012 and a low price base in H1 2011.
MHP produces sunflower oil as a by-
product of using sunflower seeds in the
manufacture of chicken feed. Almost 100%
of the sunflower oil produced is exported.
In 2012 195,000 tonnes of sunflower oil
were produced and sold for export, which
is 12% more than in 2011, due to the
launch of sunflower meal production at
the Vinnytsia complex in H2 2012, the
purchase of additional sunflower meal
at attractive prices on the market and a
reduction of sunflower oil production in
2011. Average prices of sunflower oil
decreased by 11% from US$1,109 per
tonne compared to US$1,245 per tonne
in 2011 in line with world market trends.
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Myronivsky Hliboproduct Report and Accounts 2012 / How have we
performed?
Financial review continued
Grain growing
Revenue
IAS 41 standard gains
Gross profit
EBITDA
EBITDA per 1 hectare
2012
US$000
2011
US$000
Growth rate
%
169,142
4,329
72,618
111,708
447
103,739
17,322
85,934
120,708
482
63%
(75%)
(15%)
(7%)
(7%)
In 2012, the grain growing division
harvested 250,000 hectares of crops, in
line with 2011 volumes and cultivated
around 30,000 hectares of land in other
agricultural operations. At the end of 2012
the Company’s total land bank amounted
to 285,000 hectares reflecting growth
of approximately 5,000 hectares during
2012 (2011: 280,000 hectares). Due to
challenging weather conditions the MHP
2012 harvest decreased to 1.6 million
tonnes of grain and oilseeds compared
to 1.7 million tonnes in 2011.
MHP uses the majority of the grain it
produces in its own operations, with the
balance sold to third parties. These sales
generate the revenue of the grain growing
segment. Revenue increased by 63% to
US$169.1 million in 2012 compared to
US$103.7 million in 2011. This was due to
higher grain prices and external sale of a
large volume of excess crops during 9M
2012 including crops from the excellent
2011 harvest held in storage amounting
to US$78 million.
MHP’s grain yields were significantly higher
than Ukraine’s average yields in 2012 as
a result of the Company’s operational
efficiency and employment of best
practice. MHP’s corn yield decreased to
7.6 tonnes per hectare in 2012 compared
to 9.5 tonnes per hectare in 2011, while the
yields of other grain and oilseeds in 2012
were the same or even higher than yields
in 2011.
EBITDA per hectare (ha) decreased by 7%
from US$482 per ha in 2011 to US$447 per
ha in 2012 due to the challenging weather
conditions, in particular, for corn.
The Grain growing segment’s costs
primarily relate to raw materials, including
seed, fertiliser and pesticides, payroll and
related expenses, and the depreciation
of agricultural machinery, equipment and
buildings.
Other agricultural operations
Revenue
– Meat processing
– Other
IAS 41 standard gains
Gross profit
Gross margin
EBITDA
EBITDA margin
2012
US$000
2011
US$00
Growth rate
%
155,402
102,959
52,443
450
6,892
4%
10,016
6%
146,480
99,740
46,740
1,301
14,538
10%
16,393
11%
6%
3%
12%
(65%)
(53%)
(6%)
(39%)
(5%)
Other agricultural segment is mostly
represented by meat processing activity.
The contribution from this segment into
total Company’s financial results is not
significant, which is historically less than
5% of total EBITDA.
MHP’s revenue in its Other Agricultural
Operations division is generated from the
sale of sausages and cooked meat,
produced by Druzhba and Ukrainian
Bacon, and sales of beef, goose, foie gras,
fruit and milk.
Revenue of the segment increased by 6%
to US$155.4 million in 2012 compared to
2011, mostly due to higher prices for meat
processing products.
MHP’s sausage and cooked meat volumes
decreased by 5% to 35,200 tonnes in 2012
compared to 37,000 tonnes in 2011. Stable
demand for meat processing products had
a positive impact on sales prices during
2012. Average sausage and cooked meat
prices rose by 11% to UAH 22.20 per kg
in 2012. MHP is a market leader in meat
processing in Ukraine and its market share
remained around 10%.
The cost of raw materials and other
inventory primarily consists of seeds,
fertilisers, pesticides and veterinary
medicines. In addition, costs include payroll
expenses, depreciation of agricultural
machinery, equipment and buildings, and
fuel, electricity and natural gas used in the
production process. More than 50% of the
meat required for the Company’s meat
processing operations is internally
produced poultry.
32
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Myronivsky Hliboproduct / Report and Accounts 2012 The financial performance of other
agricultural operations segment slowed
down in 2012 compared to 2011 mainly as
a result of losses in goose business and
negative trends in fruits harvest related to
challenging weather conditions. The gross
profit of the segment decreased by 53%
to US$6.9 million in 2012 compared to
US$14.5 million in 2011. EBITDA decreased
to US$10.0 million in 2012 in line with the
decline in gross profit. EBITDA margin
decreased from 11% in 2011 to 6% in 2012.
Liquidity and capital resources
MHP’s cash flow from operating activities
principally resulted from operating profit
adjusted for non-cash items, such as
depreciation, and for changes in working
capital. Cash flow from operations before
working capital changes increased by
19% to US$383.7 million for the year
2012 (2011: US$322.8 million) in line with
higher EBITDA.
In 2012 the increase in working capital
amounted to US$185.6 million. The main
contributors to working capital were:
• Increase in VAT recoverable related
to the intensive CAPEX program
(US$92.9 million);
• Increase in inventories due to increased
sunflower stocks (US$75.5 million);
• Increase in biological assets related
to the start of production at Vinnytsia
Complex (US$12.1 million).
Total CAPEX was US$385.9 million in
2012, mostly related to the Vinnytsia
project. Since the start of construction in
May 2010, approximately US$636 million
has been invested in the project as of the
end of 2012.
During 2012 MHP repurchased 3,445,000
of its outstanding ordinary shares for a
total cash consideration of US$41.5 million
under the share buy-back programme.
Cash flows
Operating activities
Operating profit before movements in working capital changes
Change in working capital
Net cash generated from operating activities
Investing activities
CAPEX
Including non-cash investments
Deposits
Net cash used in investing activities
Financing activities
Net cash generated from financing activities
Including treasury shares acquisition
Net increase in cash and cash equivalents
Effects of exchange rates
Total change in cash
Debt
Total Debt US$, m
Long term debt
Short term debt
Cash and bank deposits
Net Debt
LTM EBITDA
Debt/LTM EBITDA
Net Debt/LTM EBITDA
2012
US$000
2011
US$000
383,721
(185,597)
198,134
322,809
(125,148)
197,661
(385,897)
123,703
1,788
(260,406)
(333,182)
85,902
126,143
(121,137)
62,279
(41,465)
7
20
27
(21,114)
–
55,410
27
55,437
31.12.2012
31.12.2011
1,140
817
323
(95)
1,045
468
2.44
2.23
898
708
190
(97)
801
401
2.24
2.00
As of December 31, 2012, MHP’s total debt
was US$1,140.1 million, most of which was
denominated in US dollars. The average
weighted cost of debt was below 8%.
50% of MHP’s total debt is the Eurobond,
which matures in April 2015.
US$176.9 million of our long-term debt is
principally represented by loans, covered
by ECA; it matures at various dates up
to 2018. US$95.0 million of our debt is
accounted for by IFC and EBRD three year
loans for financing the Company’s working
capital needs. US$67.0 million represents
financing for the lease of agricultural
machinery and equipment used in our
grain growing activities and for vehicles
for distribution, maturing at various dates
up to 2015.
As of the end of 2012, MHP had US$94.8
million in cash and short term bank
deposits. Net Debt increased to
US$1,045.3 million as of December 31,
2012 compared to US$801.8 million as of
December 31, 2011. The Net Debt/EBITDA
ratio at the end of the period was 2.23
(Eurobond covenant: 2.5).
As a hedge for currency risks, revenues
from the export of sunflower oil, sunflower
husks and poultry are denominated in
US Dollars, fully covering debt service
expenses.
07_HowXdoXweXconductXourXbusiness_v45.indd 33
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Myronivsky Hliboproduct Report and Accounts 2012 / How have we
performed?
Financial review continued
Outlook
Consumer demand for poultry meat in
Ukraine remains high.
Operations at the Vinnytsia complex will
gradually increase during 2013-2015. With
a significant increase in production volume
of poultry, our sales both domestically and
worldwide will grow.
Following the Company’s strategy and
objectives, MHP will continue to develop
export markets in CIS, Asia, Africa and, in
the near future, in European Union.
In line with the Company strategy, MHP is
going to gradually increase its land bank
operations in the near future.
The Vinnytsia complex CAPEX programme
is almost complete and therefore in 2013 it
will be significantly lower than in 2011-2012
and mostly related to the construction of
additional rearing sites. As our major
capital investment programme comes to
fruition, the Company will become
increasingly cash generative creating a
sound platform to continue its growth
strategy.
Our efforts in the short-term will be focused
on increasing the share of value added
products in our product mix.
We are confident that we will be able to
continue to implement our strategy and
deliver strong financial results cementing
our position as one of the leading agri-
industrial companies in Ukraine.
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Myronivsky Hliboproduct / Report and Accounts 2012 Statement of Board of Directors’ responsibilities for the
preparation and approval of the financial statements
For the year ended 31 December 2012
The Board of Directors is responsible
for the preparation of the consolidated
financial statements that present fairly the
consolidated financial position of MHP S.A.
and its subsidiaries (the “Group”) as of
31 December 2012 and the consolidated
results of its operations, cash flows and
changes in equity for the year then ended,
in accordance with International Financial
Reporting Standards as adopted by the
European Union (“IFRS”).
In preparing the consolidated financial
statements, the Board of Directors is
responsible for:
• properly selecting and applying
accounting policies;
• presenting information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• providing additional disclosures when
compliance with the specific
requirements in IFRSs are insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the Group’s
consolidated financial position and
financial performance;
• making an assessment of the Group’s
ability to continue as a going concern.
The Board of Directors, within its
competencies, is also responsible for:
• designing, implementing and
maintaining an effective and sound
system of internal controls, throughout
the Group;
• maintaining adequate accounting
records that are sufficient to show and
explain the Group’s transactions and
disclose with reasonable accuracy at
any time the consolidated financial
position of the Group, and which enable
them to ensure that the consolidated
financial statements of the Group
comply with IFRS;
• maintaining statutory accounting
records in compliance with local
legislation and accounting standards
in the respective jurisdictions;
• taking such steps as are reasonably
available to them to safeguard the
assets of the Group; and
• preventing and detecting fraud and
other irregularities.
The consolidated financial statements of
the Group for the year ended 31 December
2012 were authorised for issue by the
Board of Directors on 4 March 2013.
Board of Directors’ responsibility
statement
We confirm that to the best of our
knowledge the annual report, which is
incorporated into the directors’ report,
includes a fair review of the development
and performance of the business and
the position 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.
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
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Myronivsky Hliboproduct Report and Accounts 2012 / Report on other legal and regulatory
requirements
The directors’ report, which is the
responsibility of the Board of Directors, is
consistent with the consolidated financial
statements and includes the information
required by the law of 19 December 2002
on the commercial and companies register
and on the accounting records and annual
accounts of undertakings, as amended
with respect to the corporate governance
statement.
For Deloitte Audit
société à responsabilité limitée
Cabinet de révision agréé
Sophie Mitchell,
Réviseur d’enterprises agréé
Partner
4 March 2013
560, rue de Neudorf
L-2220 Luxembourg
How have we
performed?
Independent Auditor’s report
To the Shareholders of MHP S.A. 5, rue Guillaume Kroll L-1882 Luxembourg
An audit involves performing procedures to
obtain audit evidence about the amounts
and disclosures in the consolidated
financial statements. The procedures
selected depend on the réviseur
d’entreprises agréé’s judgment, including
the assessment of the risks of material
misstatement of the consolidated financial
statements, whether due to fraud or error.
In making those risk assessments, the
réviseur d’entreprises agréé considers
internal control relevant to the entity’s
preparation and fair presentation of the
consolidated financial statements in order
to design audit procedures that are
appropriate in the circumstances, but not
for the purpose of expressing an opinion
on the effectiveness of the entity’s internal
control. An audit also includes evaluating
the appropriateness of accounting policies
used and the reasonableness of
accounting estimates made by the Board
of Directors, as well as evaluating the
overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements give a true and fair view of the
consolidated financial position of MHP S.A.
and its subsidiaries as of 31 December
2012, and of its consolidated financial
performance and its consolidated cash
flows for the year then ended in
accordance with International Financial
Reporting Standards as adopted by the
European Union.
Report on the consolidated financial
statements
Following our appointment by the General
Meeting of the Shareholders dated 27 April
2012, we have audited the accompanying
consolidated financial statements of MHP
S.A., which comprise the consolidated
statement of financial position as of 31
December 2012, and the consolidated
statement of comprehensive income,
consolidated statement of changes in
equity and consolidated cash flow
statement for the year then ended, and
a summary of significant accounting
policies and the related notes to the
consolidated financial statements.
Responsibility of the Board of
Directors’ for the consolidated
financial statements
The Board of Directors is responsible for
the preparation and fair presentation of
these consolidated financial statements in
accordance with International Financial
Reporting Standards as adopted by the
European Union, and for such internal
control the Board of Directors determines
is necessary to enable the preparation of
consolidated financial statements that are
free from material misstatement, whether
due to fraud or error.
Responsibility of the réviseur
d’entreprises agree
Our responsibility is to express an opinion
on these consolidated financial statements
based on our audit. We conducted our
audit in accordance with International
Standards on Auditing as adopted for
Luxembourg by the Commission de
Surveillance du Secteur Financier. Those
standards require that we comply with
ethical requirements and plan and perform
the audit to obtain reasonable assurance
whether the consolidated financial
statements are free from material
misstatement.
36
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Myronivsky Hliboproduct / Report and Accounts 2012 Consolidated statement of comprehensive income
for the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
Notes
2012
2011
2010
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
6 1,407,522 1,229,090
21,288
(889,127)
16,734
7 (1,001,909)
Gross profit
Selling, general and administrative expenses
VAT refunds and other government grants income
Other operating expenses, net
Operating profit
Finance income
Finance costs
Foreign exchange (loss)/gain, net
Other expenses, net
Other expenses, net
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income/(loss)
Effect of revaluation of property, plant and equipment
Deferred tax charged directly to revaluation reserve
Cumulative translation difference
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Parent
Non-controlling interests
Total comprehensive income attributable to:
Equity holders of the Parent
Non-controlling interests
Earnings per share
Basic and diluted earnings per share (USD per share)
8
9
10
11
12
944,206
29,014
(680,637)
292,583
(102,107)
82,058
(15,750)
256,784
13,309
(62,944)
10,965
(793)
422,347
(120,485)
102,369
(23,648)
380,583
3,350
(59,311)
(3,285)
(2,633)
361,251
(106,447)
87,985
(22,045)
320,744
6,356
(65,918)
2,318
(1,385)
(61,879)
(58,629)
(39,463)
318,704
(7,788)
310,916
262,115
(2,760)
259,355
217,321
(1,873)
215,448
5,166
(826)
(436)
–
–
(3,040)
–
–
770
3,904
314,820
(3,040)
256,315
770
216,218
297,104
13,812
310,916
243,376
15,979
259,355
205,395
10,053
215,448
300,756
14,064
240,336
15,979
206,165
10,053
314,820
256,315
216,218
33
2.80
2.26
1.88
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 42 to 77 form an integral part of these consolidated financial statements
08_FinancialXstatements_v30.indd 37
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Myronivsky Hliboproduct Report and Accounts 2012 / How have we
performed? continued
Consolidated statement of financial position
as of 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
ASSETS
Non-current assets
Property, plant and equipment
Land lease rights
Deferred tax assets
Long-term VAT recoverable, net
Non-current biological assets
Long-term bank deposits
Other non-current assets
Current assets
Inventories
Biological assets
Agricultural produce
Other current assets, net
Taxes recoverable and prepaid, net
Trade accounts receivable, net
Short-term bank deposits
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Treasury shares
Additional paid-in capital
Revaluation reserve
Retained earnings
Translation reserve
Equity attributable to equity holders of the Parent
Non-controlling interests
Total equity
Non-current liabilities
Bank borrowings
Bonds issued
Finance lease obligations
Deferred tax liabilities
Current liabilities
Trade accounts payable
Other current liabilities
Bank borrowings
Bonds issued
Accrued interest
Finance lease obligations
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
31
December
2012
Notes
31 December
2011
31 December
2010
12 1,339,687 1,008,923
27,227
13
7,795
11
24,850
14
46,327
15
6,017
14,476
26,694
8,231
35,784
53,695
6,154
16,615
744,965
23,216
5,190
24,017
43,288
–
14,251
1,486,860 1,135,615
854,927
16
15
17
18
19
20
21
22
22
274,255
159,276
166,128
33,880
200,308
72,616
–
94,785
182,240
135,990
169,022
21,989
137,175
65,794
1,777
94,758
132,591
116,310
113,850
21,331
107,824
53,395
134,460
39,321
719,082
808,745
1,001,248
2,488,108 1,944,360 1,574,009
284,505
(65,393)
181,982
22,869
976,919
(241,227)
284,505
(40,555)
179,565
18,781
679,815
(240,791)
284,505
(40,555)
179,565
18,781
436,439
(237,751)
1,159,655
39,008
881,320
44,489
640,984
29,384
1,198,663
925,809
670,368
23
24
25
11
199,483
571,515
45,955
3,345
109,108
567,000
32,558
2,207
58,426
562,886
37,389
2,502
820,298
710,873
661,203
26
27
23
24
23, 24
25
68,970
62,902
301,658
–
14,125
21,492
52,689
53,269
170,380
–
12,073
19,267
19,012
38,042
140,092
9,892
11,573
23,827
469,147
307,678
242,438
1,289,445 1,018,551
903,641
2,488,108 1,944,360 1,574,009
The accompanying notes on the pages 42 to 77 form an integral part of these consolidated financial statements
38
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continued Consolidated statement of changes in equity
for the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
Balance at 1 January 2010
Profit for the year
Other comprehensive income
Total comprehensive income for
the year
Acquisition of treasury shares
(Note 22)
Treasury shares disposed of
under a compensation scheme
(Note 22)
Dividends declared by
subsidiaries
Share capital
284,505
–
–
–
–
–
–
–
–
–
–
(46,288)
–
–
5,733
750
–
–
Attributable to equity holders of the Parent
Treasury
shares
Additional
paid-in capital
Revaluation
reserve
Retained
earnings
Translation
reserve
178,815
–
–
18,781
–
–
231,044
205,395
–
(238,521)
–
770
Non-
controlling
interests
19,784
10,053
–
Total equity
494,408
215,448
770
Total
474,624
205,395
770
–
–
–
–
205,395
770
206,165
10,053
216,218
–
–
–
–
–
–
(46,288)
6,483
–
–
(46,288)
6,483
–
(453)
(453)
Balance at 31 December 2010
284,505
(40,555)
179,565
18,781
436,439
(237,751)
640,984
29,384
670,368
Profit for the year
Other comprehensive loss
Total comprehensive income for
the year
Dividends declared by
subsidiaries
Acquisition and changes in
non-controlling interests in
subsidiaries
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
243,376
–
–
(3,040)
243,376
(3,040)
15,979
–
259,355
(3,040)
243,376
(3,040)
240,336
15,979
256,315
–
–
–
–
–
–
(601)
(601)
(273)
(273)
Balance at 31 December 2011
284,505
(40,555)
179,565
18,781
679,815
(240,791)
881,320
44,489
925,809
Profit for the year
Other comprehensive income
Total comprehensive income for
the year
Dividends declared by
subsidiaries
Acquisition of treasury shares
(Note 22)
Acquisition and changes in
non-controlling interests in
subsidiaries (Note 2, 22)
–
–
–
–
–
–
–
–
–
–
(41,465)
–
–
–
–
–
16,627
2,417
–
4,088
297,104
–
–
(436)
297,104
3,652
13,812
252
310,916
3,904
4,088
297,104
(436)
300,756
14,064
314,820
–
–
–
–
–
–
–
–
–
–
(501)
(501)
(41,465)
–
(41,465)
19,044
(19,044)
–
Balance at 31 December 2012
284,505
(65,393)
181,982
22,869
976,919
(241,227) 1,159,655
39,008 1,198,663
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 42 to 77 form an integral part of these consolidated financial statements
08_FinancialXstatements_v30.indd 39
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Myronivsky Hliboproduct Report and Accounts 2012 / Consolidated statements of cash flows
for the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
Operating activities
Profit before tax
Non-cash adjustments to reconcile profit before tax to net cash flows
Depreciation and amortization expense
Net change in fair value of biological assets and agricultural produce
Change in allowance for irrecoverable amounts and direct write-offs
Loss on disposal of property, plant and equipment and other non-current assets
Bonus to key management personnel settled in treasury shares
Finance income
Finance costs
Non-operating foreign exchange loss/(gain), net
Operating cash flows before movements in working capital
Working capital adjustments
Change in inventories
Change in biological assets
Change in agricultural produce
Change in other current assets
Change in taxes recoverable and prepaid
Change in trade accounts receivable
Change in other liabilities
Change in trade accounts payable
Cash generated by operations
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
Investing activities
Purchases of property, plant and equipment
Acquisition of land lease rights
Purchases of other non-current assets
Proceeds from disposals of property, plant and equipment
Purchases of non-current biological assets
Acquisition of subsidiaries, net of cash acquired
Financing provided in relation to acquisition of subsidiaries
Investments in long-term deposits
Investments in short-term deposits
Withdrawals of short-term deposits
Loans repaid by/(provided to) employees, net
Loans repaid by related parties, net
Net cash flows used in investing activities
Notes
2012
2011
2010
5
5
28
10
318,704
262,115
217,321
87,135
(16,734)
25,605
199
–
(3,350)
59,311
3,257
80,341
(21,288)
18,888
551
–
(6,356)
65,918
(2,519)
67,902
(29,014)
8,264
1,931
6,483
(13,309)
62,944
(10,965)
474,127
397,650
311,557
(75,508)
(12,059)
2,276
(13,245)
(92,911)
(7,638)
13,615
(127)
288,530
3,350
(81,508)
(12,238)
(29,033)
(13,011)
(43,290)
(886)
(47,103)
(12,666)
7,491
13,350
272,502
6,645
(77,239)
(4,247)
(23,962)
(4,868)
(21,768)
(5,130)
(47,919)
(10,744)
256
(52,516)
144,906
12,924
(58,134)
(3,116)
198,134
197,661
96,580
2
(257,667)
(1,314)
(3,629)
1,746
(1,408)
–
–
–
(4)
1,792
78
–
(234,895)
(5,424)
(4,093)
369
(2,139)
–
–
(6,017)
(52,259)
184,419
(1,098)
–
(139,157)
(4,767)
(2,883)
703
(3,610)
(38,659)
(13,408)
–
(164,662)
37,608
(993)
100
(260,406)
(121,137)
(329,728)
The accompanying notes on the pages 42 to 77 form an integral part of these consolidated financial statements
40
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continued Consolidated statements of cash flows continued
for the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
Financing activities
Proceeds from bank borrowings
Repayment of bank borrowings
Proceeds from bonds issued
Repayment of bonds
Repayment of finance lease obligations
Repayment of other financing
Dividends paid by subsidiaries to non-controlling shareholders
Acquisition of treasury shares
Net cash flows from/(used in) financing activities
Net increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Non-cash transactions
Additions of property, plant and equipment under finance leases
Additions of property, plant and equipment financed through direct bank-lender payments to
the vendor
Revaluation of grain storage facilities
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
Notes
2012
2011
2010
24
22
223,179
(96,666)
–
–
(22,268)
–
(501)
(41,465)
158,071
(142,867)
–
(9,976)
(25,740)
–
(602)
–
565,134
(560,309)
323,018
–
(24,532)
(6,420)
(453)
(46,288)
62,279
(21,114)
250,150
7
20
94,758
55,410
27
39,321
17,002
71
22,248
94,785
94,758
39,321
30,370
13,895
16,365
93,333
5,166
72,007
–
3,970
–
12
The accompanying notes on the pages 42 to 77 form an integral part of these consolidated financial statements
08_FinancialXstatements_v30.indd 41
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Myronivsky Hliboproduct Report and Accounts 2012 / Notes to the consolidated financial statements
for the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated)
1. Corporate information
MHP S.A. (the “Parent” or “MHP S.A.”), a limited liability company (société anonyme) registered under the laws of Luxembourg, was
formed on 30 May 2006. MHP S.A. was formed to serve as the ultimate holding company of PJSC “Myronivsky Hliboproduct” (“MHP”)
and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the “MHP S.A. Group” or the “Group”. The registered
address of MHP S.A. is 5, rue Guillaume Kroll, L-1882 Luxembourg.
The controlling shareholder of MHP S.A. is the Chief Executive Officer of MHP S.A. Mr. Yuriy Kosyuk (the “Principal Shareholder”), who
owns 100% of the shares of WTI Trading Limited (“WTI”), which is the immediate majority shareholder of MHP S.A.
The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations
(meat processing, cultivation and selling fruits and producing beef 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, sunflower oil, mixed fodder and convenience food products. Grain growing comprises the production and sale of
grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, beef, milk, goose meat, foie gras,
fruits and feed grains. During the year ended 31 December 2012 the Group employed about 27,800 people (2011: 24,800 people, 2010:
22,000 people).
The Group has been undertaking a large-scale investment program to expand its poultry and related operations, and in May 2010
the Group commenced construction of the greenfield Vinnytsia poultry complex. During the second half of 2012 the Group started
commissioning production facilities at Vinnytsia complex, which were already completed. Since the end of 2012 respective production
facilities have been being launched into operations reaching a full production capacity in forthcoming years (Note 12). The facilities of
Vinnytsia complex remaining under construction as of 31 December 2012 will be commissioned during 2013 and 2014, as scheduled.
During the year ended 31 December 2010 the Group substantially increased its agricultural land bank as part of its vertical integration
and diversification strategy through acquisitions of land lease rights (Note 13).
The primary subsidiaries, the principal activities of the companies forming the Group and the Parent’s effective ownership interest as of
31 December 2012, 2011 and 2010 were as follows:
Name
Raftan Holding Limited
MHP
Myronivsky Zavod po Vygotovlennyu Krup i
Kombikormiv
Vinnytska Ptahofabryka
Peremoga Nova
Druzhba Narodiv Nova
Oril-Leader
Tavriysky Kombikormovy Zavod
Ptahofabryka Shahtarska Nova
Myronivska Ptahofabryka
Starynska Ptahofabryka
Ptahofabryka Snyatynska Nova
Zernoproduct
Katerynopilsky Elevator
Druzhba Narodiv
Crimean Fruit Company
NPF Urozhay
Agrofort
Urozhayna Krayina
Ukrainian Bacon
Country of
registration
Year
established/
acquired
Principal activities
2012
2011
2010
Cyprus
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
2011
1999
2002
2003
2004
2003
2004
2003
2005
2005
2005
2006
Sub-holding Company
1998 Management, marketing and sales
Fodder and sunflower oil
1998
production
Chicken farm
Chicken farm
Chicken farm
Chicken farm
Fodder production
Breeder farm
Chicken farm
Breeder farm
Geese breeder farm
Grain cultivation
Fodder production and grain
storage, sunflower oil production
Cattle breeding, plant cultivation
Fruits and grain cultivation
Grain cultivation
Grain cultivation
Grain cultivation
Meat processing
2006
2006
2006
2006
2010
2008
100.0% 100.0%
99.9%
88.5%
99.9%
88.5%
100.0%
99.9%
88.5%
99.9%
99.9%
99.9%
99.9%
99.9%
99.9%
99.9%
94.9%
99.9%
89.9%
99.9%
99.9%
81.9%
99.9%
86.1%
99.9%
79.9%
99.9%
99.9%
99.9%
99.9%
99.9%
99.9%
99.9%
94.9%
99.9%
89.9%
99.9%
99.9%
81.9%
89.9%
86.1%
99.9%
79.9%
–
99.9%
99.9%
99.9%
99.9%
99.9%
99.9%
94.9%
99.9%
89.9%
99.9%
99.9%
81.9%
89.9%
86.1%
99.9%
79.9%
The Group’s operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk,
Ivano-Frankivsk, Vinnytsya, Kherson, Sumy, Khmelnitsk regions and Autonomous Republic of Crimea.
42
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continued 2. Changes in the group structure
Detailed below is the information on incorporations and acquisitions of subsidiaries, as well as changes in non-controlling interests in
subsidiaries of the Group during the years ended 31 December 2012, 2011 and 2010.
Incorporations
During the year ended 31 December 2011 the Group established new subsidiary Vinnytskaya Ptahofabryka engaged in poultry
production at Vinnytsia Complex.
Acquisitions
2010 acquisitions in the grain growing segment
During the year ended 31 December 2010, the Group acquired from third parties 100% interests in a number of entities engaged in
grain growing activities. The transactions were accounted for under the acquisition method. The Group’s effective ownership interest
following the acquisition and as of 31 December 2010 was 99.9%.
The fair value of the net assets acquired was as follows:
Property, plant and equipment
Land lease rights
Non-current biological assets
Agricultural produce
Biological assets
Inventories
Taxes recoverable and prepaid, net
Trade accounts receivable, net
Cash and cash equivalents
Total assets
Accounts payable to the Group
Trade accounts payable
Other current liabilities
Total liabilities
Net assets acquired
Fair value of the consideration transferred
Goodwill
Cash consideration paid
Cash acquired
Net cash outflow arising on the acquisition
2010
16,463
18,801
3,482
5,274
5,827
1,076
1,086
113
54
52,176
(13,408)
(1,656)
(981)
(16,045)
36,131
(38,943)
2,812
(38,713)
54
(38,659)
Goodwill arising on the acquisitions of these subsidiaries is attributable to the benefits of expected synergies and future development of
the grain growing activities. Had the transactions related to acquisitions as discussed above, occurred on 1 January 2010, “Pro forma”
revenue and profit for the year ended 31 December 2010 would have been USD 957,497 thousand and USD 217,734 thousand,
respectively. “Pro forma” earnings per share would have been USD 1.9 per share.
These “pro forma” revenue and profit measures for the year do not reflect any adjustments related to other transactions. “Pro forma”
results represent an approximate measure of the performance of the combined group on an annualized basis. The unaudited “pro
forma” information does not purport to represent what the Group’s financial position or results of operations would actually have been
if these transactions had occurred at such dates or to project the Group’s future results of operations.
08_FinancialXstatements_v30.indd 43
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Myronivsky Hliboproduct Report and Accounts 2012 / 2. Changes in the group structure continued
Changes in non-controlling interests in subsidiaries
In December 2012 the Group increased its effective ownership interest in NPF Urozhay to 99.9% through the acquisition of a non-
controlling interest previously held by one of its key management personnel in exchange for 1,257,032 treasury shares held by the
Group. The transaction was recognised within the equity (Note 22).
The Group made certain other insignificant acquisitions during each of the periods presented. These acquisitions have been accounted
for based on the Group’s accounting policies. The impact of these acquisitions was not significant to the consolidated financial
statements of the Group, either individually or in aggregate.
3. Summary of significant accounting policies
Basis of presentation and accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (“IFRS”). The operating subsidiaries of the Group maintain their accounting records under Ukrainian Accounting
Standards (“UAS”). UAS principles and procedures may differ from those generally accepted under IFRS. Accordingly, the consolidated
financial statements, which have been prepared from the Group entities’ UAS records, reflect adjustments necessary for such financial
statements to be presented in accordance with IFRS.
The consolidated financial statements of the Group are prepared on the basis of historical cost, except for revalued amounts of grain
storage facilities, biological assets, agricultural produce, and certain financial instruments, which are carried at fair value.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended
IFRS and IFRIC interpretations effective as of 1 January 2012:
• IFRS 1 (Revised 2008) “First-time Adoption of International financial Reporting Standards”. Amendments to severe hyperinflation.
Effective 1 July 2011;
• IFRS 1 (Revised 2008) “First-time Adoption of International financial Reporting Standards”. Amendments to removal of fixed dates of
first-time adopters. Effective 1 July 2011;
• IFRS 7 “Financial instruments: Disclosures”. Amendments to transfers of financial assets. Effective 1 July 2011;
• IAS 12 “Income taxes”. Amendments to IAS 12 “Income Taxes” – Deferred Tax: Recovery of Underlying Assets. Effective 1 January
2012;
IFRS 1 (Revised 2008) “First-time Adoption of International financial Reporting Standards” (Amendments)
The amendments regarding severe hyperinflation provide guidance for entities emerging from severe hyperinflation either to resume
presenting IFRS financial statements or to present IFRS financial statements for the first time.
The amendments regarding the removal of fixed dates provide relief to first-time adopters of IFRSs from reconstructing transactions
that occurred before their date of transition to IFRSs.
The adoption of the amendment did not have any impact on the financial position or performance of the Group.
IFRS 7 “Financial instruments: Disclosures” (Amendment)
The amendments to IFRS 7 increase the disclosure requirement for transactions involving transfers of financial assets. These
amendments are intended to provide greater transparency around risk exposures of transactions where a financial asset is transferred
but the transferor retains some level of continuing exposure in the asset. The adoption of the amendment did not have any impact on
the financial position or performance of the Group.
IAS 12 “Income taxes” (Amendment)
Amendments to IAS 12 “Income Taxes” provide a presumption that recovery of the carrying amount of an asset measured using the fair
value model in IAS 40 “Investment Property” will, normally, be through sale.
As a result of the amendments, SIC-21 “Income Taxes — Recovery of Revalued Non-Depreciable Assets” would no longer apply to
investment property carried at fair value. The amendments provide a practical approach for measuring deferred tax liabilities and
deferred tax assets when investment property is measured using the fair value model as described in IAS 40 “Investment Property”.
The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted
if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits
embodied in the investment property over time, rather than through sale. The adoption of the amendment did not have any impact on
the financial position or performance of the Group.
44
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Standards and Interpretations in issue but not effective
At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations, as well as
amendments to the Standards were in issue but not yet effective:
Standards and Interpretations
Amendments to IAS 1 “Presentation of Financial Statements” – To revise the way other comprehensive income is
presented
IAS 27 “Separate Financial Statements” (revised 2011)
IAS 28 “Investments in Associates and Joint Ventures” (revised 2011)
IFRS 10 “Consolidated Financial Statements”
IFRS 11 “Joint Arrangements”
IFRS 12 “Disclosure of Interests in Other Entities”
IFRS 13 “Fair Value Measurement”
IFRIC 20 “Stripping costs in the production phase of a surface mine”
Amendments to IAS 19 “Employee benefits” – Post employment benefits and termination benefits projects
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” – Accounting for
government loan below-market rate when transitioning to IFRS
Amendments to IFRS 7 “Financial instruments: Disclosures” – Offsetting of financial assets and financial liabilities
Amendments to IAS 32 “Financial instruments: Presentation” – Application guidance on the offsetting of financial
assets and financial liabilities
Amendments to IFRS 7 “Financial instruments: Disclosures” – Disclosures about the initial application of IFRS 91
IFRS 9 “Financial Instruments: Classification and Measurement and Accounting for financial liabilities and
derecognition”1
1 This standard and amendment have not yet been endorsed for use in European Union.
Effective for annual period
beginning on or after
1 July 2012
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 January 2015
1 January 2015
Management is currently evaluating the impact of the adoption of IFRS 9 “Financial Instruments”, IFRS 10 “Consolidated Financial
Statements”, IFRS 12 “Disclosure of Interests in Other Entities”, IFRS 13 “Fair Value Measurement”, and amendment to IFRS 7
“Financial instruments: Disclosures”. For other Standards and Interpretations management anticipates that their adoption in future
periods will not have material effect on the financial statements of the Group in future periods.
Functional and presentation currency
The functional currency of the entities within the Group is the Ukrainian Hryvnia (“UAH”). 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 on 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
recognised 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.
For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using
the quarterly average rates of exchange, if such translations reasonably approximate the results translated at exchange rates prevailing
at the dates of the transactions.
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Myronivsky Hliboproduct Report and Accounts 2012 / 3. Summary of significant accounting policies continued
The relevant exchange rates were:
Currency
UAH/USD
UAH/EUR
Closing
rate as of
31 December
2012
Average
for
2012
Closing
rate as of
31 December
2011
Average
for
2011
Closing
rate as of
31 December
2010
Average
for
2010
7.9930
10.5372
7.9910
10.2692
7.9898
10.2981
7.9677
11.0926
7.9617
10.5731
7.9353
10.5313
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Parent and entities controlled by the Parent (its
subsidiaries). Control is achieved when the Parent has the power to govern the financial and operating policies of an entity, either
directly or indirectly, so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated
financial statements of the Group from the date when control effectively commences.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total
comprehensive income or loss of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
All significant intercompany transactions, balances and unrealized gains/(losses) on transactions are eliminated on consolidation,
except when the intragroup losses indicate an impairment that requires recognition in the consolidated financial statements.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with
those adopted by the Group.
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are accounted for using the acquisition method. On acquisition, the assets, liabilities
and contingent liabilities of a subsidiary are measured at their fair values.
The consideration transferred by the Group is measured at fair value, which is the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquired subsidiary and the equity interests
issued by the Group in exchange for control of the subsidiary. Acquisition-related costs are generally recognized in statement of
comprehensive income as incurred.
When the consideration transferred by the Group in a business combination includes assets and liabilities resulting from a contingent
consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and is included as part of the
consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments
are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that
arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiary’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of
the recognized amounts of the subsidiary’s identifiable net assets. The choice of measurement basis is made on transaction-by-
transaction basis. Other types of non-controlling interests, if any, are measured at fair value or, when applicable, on the basis specified
in other IFRS standards.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquired subsidiary, and the fair value of the Group’s previously held equity interest in the acquired subsidiary (if any) over the net
of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration
transferred, the amount of non-controlling interests in the subsidiary and the fair value of the Group’s previously-held interest in the
subsidiary (if any), the excess is recognized in the consolidated statement of comprehensive income, as a bargain purchase gain.
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted
to reflect the changes in their relative interests in subsidiaries. Any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners
of the Parent.
46
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) When an acquisition of a legal entity does not constitute a business, the cost of the group of assets is allocated between the individual
identifiable assets in the group based on their relative fair values.
Accounting for transactions with entities under common control
The assets and liabilities of subsidiaries acquired from entities under common control are recorded in these consolidated financial
statements at pre-acquisition carrying values. Any difference between the carrying value of net assets of these subsidiaries, and the
consideration paid by the Group is accounted for in these consolidated financial statements as an adjustment to shareholders’ equity.
The results of the acquired entity are reflected from the date of acquisition.
Any gain or loss on disposals to entities under common control are recognized directly in equity and attributed to owners of the Parent.
Borrowing costs
Borrowing costs include interest expense, finance charges on finance leases and other interest-bearing long-term payables and debt
service costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such
time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the statement of comprehensive income in the period in which they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognized in the consolidated financial statements. Rather, they are disclosed in the notes to the
consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
assets are recognized only when the contingency is resolved.
Segment information
Segment reporting is presented on the basis of management’s perspective and relates to the parts of the Group that are defined as
operating segments. Operating segments are identified on the basis of internal reports provided to the Group’s chief operating decision
maker (“CODM”). The Group has identified its top management team as its CODM and the internal reports used by the top
management team to oversee operations and make decisions on allocating resources serve as the basis of information presented.
These internal reports are prepared on the same basis as these consolidated financial statements.
Based on the current management structure, the Group has identified the following reportable segments:
• Poultry and related operations;
• Grain growing operations;
• Other agricultural operations.
The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-
making purposes.
Revenue recognition
The Group generates revenue primarily from the sale of agricultural products to the end customers. Revenue is recognized when the
significant risks and rewards of ownership of the goods have passed to the buyer, the amount of revenue can be measured reliably and
it is probable that collection will occur. The point of transfer of risk, which may occur at delivery or shipment, varies for contracts with
different types of customers.
When goods are exchanged or swapped for goods which are of a similar nature and value, the exchange is not regarded as a
transaction which generates revenue. When goods are sold in exchange for dissimilar goods, the exchange is regarded as a
transaction which generates revenue, and revenue is measured at the fair value of the goods received, adjusted by the amount of any
cash or cash equivalents transferred.
Government grants
Government grants received or receivable for processing of live animals and value added tax (“VAT”), and grants for the agricultural
industry (conditional upon reinvestment of the granted funds for agricultural production purposes) are recognized as income over the
periods necessary to match them with the related costs, or as an offset against finance costs when received as compensation for the
finance costs for agricultural producers. To the extent the conditions attached to the grants are not met at the reporting date, the
received funds are recorded in the Group’s consolidated financial statements as deferred income. Other government grants are
recognized at the moment when the decision to disburse the amounts to the Group is made.
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Government grants continued
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received.
Property, plant and equipment
Property, plant and equipment are carried at historical cost less accumulated depreciation and accumulated impairment losses, except
for grain storage facilities, which are carried at revalued amounts, being their fair value at the date of the revaluation less any
subsequent depreciation and impairment losses.
The historical cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-
refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the item to the
location and condition necessary for it to be capable of operating in the manner intended by the management of the Group; (c) the
initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, (d) the obligation for which
the Group incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes
other than to produce inventories during that period; and (e) for qualifying assets, borrowing costs capitalized in accordance with the
Group’s accounting policy.
Subsequently capitalized costs include major expenditures for improvements and replacements that extend the useful lives of the
assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for
capitalization are charged to the consolidated statement of comprehensive income as incurred.
For grain storage facilities revaluations are performed with sufficient regularity such that the carrying amount does not differ materially
from that which would be determined using fair values at the reporting date. If the asset’s carrying amount is increased as a result of a
revaluation, the increase is credited directly to equity as a revaluation reserve. However, such increase is recognized in the statement of
comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognized in the statement of
comprehensive income. If the asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognized in the
statement of comprehensive income. However, such decrease is debited directly to the revaluation reserve to the extent of any credit
balance existing in the revaluation reserve in respect of that asset.
Depreciation on revalued assets is charged to the statement of comprehensive income. On the subsequent sale or retirement of a
revalued asset, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. No
transfer is made from the revaluation reserve to retained earnings except when an asset is derecognized.
Depreciation of property, plant and equipment is charged so as to write off the depreciable amount over the useful life of an asset and
is calculated using a straight line method. Useful lives of the groups of property, plant and equipment are as follows:
• Buildings and structures
• Grain storage facilities
• Machinery and equipment
• Utilities and infrastructure
• Vehicles and agricultural machinery
• Office furniture and equipment
15–35 years
20–35 years
10–15 years
10 years
5–15 years
3–5 years
Depreciable amount is the cost of an item of property, plant and equipment, or revalued amount, less its residual value. The residual
value is the estimated amount that the Group would currently obtain from disposal of the item of property, plant and equipment, after
deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.
The depreciable amount of assets held under finance leases are depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, the term of the relevant lease.
The residual value, the useful lives and depreciation method are reviewed at each financial year-end. The effect of any changes from
previous estimates is accounted for prospectively as a change in an accounting estimate.
The gain or loss arising on a sale or disposal of an item of property, plant and equipment is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.
Construction in progress comprises costs directly related to the construction of property, plant and equipment including an appropriate
allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated.
Depreciation of construction in progress commences when the assets are available for use, i.e. when they are in the location and
condition necessary for them to be capable of operating in the manner intended by the management.
48
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Intangible assets
Intangible assets, which are acquired by the Group and which have finite useful lives, consist primarily of land lease rights.
Land lease rights acquired separately are carried at cost less accumulated amortization and accumulated impairment losses.
Land lease rights acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value
at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, land lease rights acquired in a business
combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as land lease
rights acquired separately.
Amortization of intangible assets is recognized on a straight line basis over their estimated useful lives. For land lease rights, the
amortization period varies from 3 to 15 years.
The amortization period and the amortization method for intangible assets with finite useful life are reviewed at least at the end of each
reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or
losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the
carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.
Impairment of tangible and intangible assets other than goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of
comprehensive income unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an
impairment loss is recognized immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued
amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash generating units (or groups of cash-
generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is
indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the
unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in
statement of comprehensive income in the consolidated statement of comprehensive income. An impairment loss recognized for
goodwill is not reversed in subsequent periods.
Income taxes
Income taxes have been computed in accordance with the laws currently enacted in jurisdictions where operating entities are located.
Income tax is calculated based on the results for the year as adjusted for items that are non-assessable or non-tax deductible. It is
calculated using tax rates that have been enacted by the reporting date.
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Income taxes continued
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used
in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred
tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled
or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting
period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items credited or
charged directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other
comprehensive income.
Deferred tax assets and liabilities are offset when:
• The Group has a legally enforceable right to set off the recognized amounts of current tax assets and current tax liabilities;
• The Group has an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future
period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.
The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in
agricultural production) benefit substantially from the status of an agricultural producer. These companies are exempt from income
taxes and pay the Fixed Agricultural Tax instead (Note 11).
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs comprise raw materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present locations and condition.
Cost is calculated using the FIFO (first-in, first-out) method. Net realizable value is determined as the estimated selling price less all
estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Agriculture related production process results in production of joint products: main and by-products. A by-product arising from the
process is measured at net realizable value and this value is deducted from the cost of the main product.
Biological assets and agricultural produce
Agricultural activity is defined as a biological transformation of biological assets for sale into agricultural produce or into additional
biological assets. The Group classifies hatchery eggs, live poultry and other animals and plantations as biological assets.
The Group recognizes a biological asset or agricultural produce when the Group controls the asset as a result of past events, it is
probable that future economic benefits associated with the asset will flow to the Group, and the fair value or cost of the asset can be
measured reliably.
Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any
resulting gain or loss recognized in the consolidated statement of comprehensive income. Costs to sell include all costs that would be
necessary to sell the assets, including costs necessary to get the assets to market.
The difference between fair value less costs to sell and total production costs is allocated to biological assets held in stock as of each
reporting date as a fair value adjustment.
The change in this adjustment from one period to another is recognized as “Net change in fair value of biological assets and agricultural
produce” in the statement of comprehensive income.
Agricultural produce harvested from biological assets is measured at its fair value less costs to sell at the point of harvest. A gain or
loss arising on initial recognition of agricultural produce at fair value less costs to sell is included in the statement of comprehensive
income.
50
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Based on the above policy, the principal groups of biological assets and agricultural produce are stated as follows:
Biological Assets
(i) Broilers
Broilers comprise poultry held for chicken meat production. The fair value of broilers is determined by reference to the cash flows that
will be obtained from the sales of 44-day aged chickens, with an allowance for costs to be incurred and risks to be faced during the
remaining transformation process.
(ii) Breeders
The fair value of breeders is determined using the discounted cash flow approach based on hatchery eggs’ market prices.
(iii) Cattle and pigs
Cattle and pigs comprise cattle held for regeneration of livestock population and animals raised for milk and beef and pork meat
production. The fair value of livestock is determined based on market prices of livestock of similar age, breed and genetic merit. Cattle,
for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be
clearly unreliable, are measured using the present value of expected net cash flows from the asset discounted at a current market-
determined pre-tax rate.
(iv) Orchards
Orchards consist of plants used for the production of fruit. Fruit trees achieve their normal productive age in the second to fifth year.
The fair value of orchards which have attained normal productive age is determined using the discounted cash flow approach.
(v) Crops in fields
The fair value of crops in fields is determined by reference to the cash flows that will be obtained from sales of harvested crops, with an
allowance for costs to be incurred and risks to be faced during the remaining transformation process.
Agricultural Produce
(i) Dressed poultry, beef and pork
The fair value of dressed poultry, beef and pork is determined by reference to market prices at the point of harvest.
(ii) Grain and fruits
The fair value of fodder grain and fruits is determined by reference to market prices at the point of harvest.
The Group’s biological assets are classified into bearer and consumable biological assets depending upon the function of a particular
group of biological assets in the Group’s production process. Consumable biological assets are those that are to be harvested as
agricultural produce, and include hatchery eggs and live broiler poultry intended for the production of meat, as well as pork and meat
cows. Bearer biological assets include poultry held for hatchery eggs production, orchards, milk cows and breeding bulls.
Financial instruments
Financial assets and financial liabilities are recognized on the Group’s consolidated statement of financial position when the Group
becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets and liabilities are
recognized using settlement date accounting. The settlement date is the date that an asset is delivered to or by an entity. Settlement
date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an asset and
recognition of any gain or loss on disposal on the day that it is delivered by the entity. The accounting policies for initial recognition and
subsequent measurement of financial instruments are disclosed in the respective accounting policies set out below in this Note.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit
or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
Accounts receivable
Accounts receivable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the
effective interest rate method. Accounts receivable, which are non-interest bearing, are stated at their nominal value. Appropriate
allowances for estimated irrecoverable amounts are recognized in the statement of comprehensive income when there is objective
evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset’s carrying amount and
the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
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Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash with banks, deposits and marketable securities with an original maturity of less
than three months.
Bank borrowings, corporate bonds issued and other long-term payables
Interest-bearing borrowings, bonds and other long-term payables are initially measured at fair value net of directly attributable
transaction costs, and are subsequently measured at amortized cost using the effective interest rate method. Any difference between
the proceeds (net of transaction costs) and the settlement or redemption amount is recognized over the term of the borrowings and
recorded as finance costs.
Derivative financial instruments
The Group enters into derivative financial instruments to purchase sunflower seeds. Derivatives are initially recognized at fair value at
the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period.
The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not
closely related to those of the host contracts and the host contracts are not remeasured at fair value through statement of
comprehensive income.
As of 31 December 2012, 2011 and 2010 there were no material derivative financial instruments that were recognized in these
consolidated financial statements.
Trade and other accounts payable
Accounts payable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective
interest rate method.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the Group. All other leases are classified as operating leases.
Assets held by the Group under finance leases are recognized as assets of the Group at their fair value at the date of acquisition or,
if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated
statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction
of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are
recognised directly to the statement of comprehensive income and are classified as finance costs.
Rental income or expenses under operating leases are recognized in the consolidated statement of comprehensive income on a
straight line basis over the term of the lease.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation (either based on legal regulations or implied)
as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate
of the obligation can be made.
Reclassifications and revisions
Certain comparative information presented in the consolidated financial statements for the years ended December 31, 2011 and 2010
has been revised in order to achieve comparability with the presentation used in the consolidated financial statements for the year
ended December 31, 2012. Such reclassifications and revisions were not significant to the Group financial statements.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 3, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects both current and future periods.
52
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Critical judgments in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process
of applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated
financial statements.
Acquisitions of land lease rights
During the year ended 31 December 2010, the Group acquired control over entities owning legal rights for operating leases of
agricultural land plots. For each individual acquisition, the Group evaluated whether the acquisition constituted an asset acquisition
or a business combination. In making this judgment, management considered whether the acquired entities are capable of being
conducted and managed as a business for the purpose of providing returns, including whether the acquired entities possess other
assets and workforce as inputs compared to normal industry requirements. As a result, the Group’s management concluded that
land lease rights of USD 4,767 thousand and USD 18,801 thousand were acquired in assets acquisition and business combination
transactions, respectively (Note 13).
Revenue recognition
In the normal course of business, the Group engages in sale and purchase transactions with the purpose of exchanging crops in
various locations to fulfill the Group’s production requirements. In accordance with the Group’s accounting policy, revenue is not
recognized with respect to the exchange transactions involving goods of similar nature and value. Group management applies
judgment to determine whether each particular transaction represents an exchange or a transaction that generates revenue. In making
this judgment, management considers whether the underlying crops are of similar type and quality, as well as whether the time
passed between the transfer and receipt of the underlying crops indicates that the substance of the transaction is an exchange of
similar goods.
Recognition of inventories
During the year ended 31 December 2012 and 2011, the Group acquired components for mixed fodder production from a local supplier
under grain purchase financing arrangements. According to the contractual terms, legal ownership to the goods passed to the Group
on physical delivery to the Group’s grain storage facilities, which is generally the date when inventories are recognized in the Group’s
financial statements. However, based on the analysis of the nature of this arrangement, management applied judgment to determine
the date on which control over these goods passed to the Group. In making this judgment, management considered the relevant
significance of risk and rewards associated with ownership of grain, in particular date of transfer of physical damage risk, as well as
commercial risks and benefits associated with ownership. Based on this assessment, management concluded that the Group
assumed risk of physical damage and obtained commercial benefits prior to obtaining legal ownership over these inventories and as
such, that these inventories should be recognized in the Group’s financial statements from the date when they were acquired by the
supplier. There were no such transactions in the year ended 31 December 2010.
Revaluation of property, plant and equipment
As described in Note 3 and 12, the Group applies revaluation model to the measurement of grain storage facilities. At each reporting
date, the Group carries out a review of the carrying amount of these assets to determine whether the carrying amount differs materially
from fair value. The Group carries out such review by preparing a discounted cash flow analysis involving assumptions on projected
revenues and costs, and a discount rate. Additionally, the Group considers economic stability and availability of transactions with
similar assets in the market when determining whether to perform a fair value assessment in a given period. Based on the results of this
review, the Group concluded that grain storage facilities should be revalued during the year ended 31 December 2012, only.
Group appointed an independent valuator for revaluation of its grain storage facilities during the year ended 31 December 2012.
Key assumptions used by independent valuator in assessing fair value of grain storage facilities using cost replacement method was
as follows:
• present condition of particular assets was ranked from excellent to good;
• changes in prices of assets and construction materials from the date of its acquisition/construction till the date of valuation was
assessed as 1.15;
• other external and internal factors that might have effect on fair value of grain-storage facilities;
• received results of revaluation based on replacement cost approach were compared with revaluation performed using income
approach to check for impairment indicators of revalued assets, if any. Discount factor used in the model was USD WACC of 18.8%.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year.
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Myronivsky Hliboproduct Report and Accounts 2012 / 4. Critical accounting judgments and key sources of estimation uncertainty continued
Fair value less costs to sell of biological assets and agricultural produce
Biological assets are recorded at fair values less costs to sell. The Group estimates the fair values of biological assets based on the
following key assumptions:
• Average meat output for broilers and livestock for meat production;
• Average productive life of breeders and cattle held for regeneration and milk production;
• Expected crops output;
• Projected orchards output;
• Estimated changes in future sales prices;
• Projected production costs and costs to sell;
• Discount rate.
During the year ended 31 December 2012 fair value of biological assets and agricultural produce was estimated using UAH WACC
discount factor of 21,67% (31 December 2011: 19,87%; 31 December 2010 15,66%).
Although some of these assumptions are obtained from published market data, a majority of these assumptions are estimated based
on the Group’s historical and projected results.
Useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and equipment is a matter of management estimate based upon
experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated
technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these
conditions or estimates may result in adjustments for future depreciation rates.
VAT recoverable
Note 14 describes long-term VAT recoverable accumulated by the Group on its capital expenditures and investments in working
capital. The balance of VAT recoverable may be realized by the Group either through a cash refund from the state budget or by set off
against VAT liabilities with the state budget in future periods. Management classified VAT recoverable balance as current or non-current
based on expectations as to whether it will be realized within twelve months from the reporting date. In addition, management
assessed whether the allowance for irrecoverable VAT needs to be created.
In making this assessment, management considered past history of receiving VAT refunds from the state budget. For VAT recoverable
expected to be set off against VAT liabilities in future periods, management based its estimates on detailed projections of expected
excess of VAT output over VAT input in the normal course of the business.
Vinnytsia complex commissioning
As discussed in Notes 1 and 12, during the second half of 2012 the Group started commissioning production facilities at Vinnytsia
complex, which were already completed, and therefore were operated under the trial mode. During this period the facilities were not
ready for being used in the manner intended by management and no depreciation was charged. After, the trial period completion, the
Group has been launching into operations production facilities reaching a full production capacity in forthcoming years and
commenced depreciation of respective assets.
In making the assessment of the trial period length, management considered actual utilization of production facilities as well as output
achieved, which were significantly lower than designed capacity of the equipment.
5. Segment information
All of the Group’s operations are located within Ukraine.
Segment information is analyzed on the basis of the types of goods supplied by the Group’s operating divisions. The Group’s
reportable segments under IFRS 8 are therefore as follows:
Poultry and related operations segment:
• sales of chicken meat
• sales of sunflower oil
• other poultry related sales
Grain growing operations segment:
• sales of grain
54
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Other agricultural operations segment:
• sales of meat processing products and other meat
• other agricultural operations (sales of fruits, milk, feed grains and other)
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 3. Sales
between segments are carried out at market prices. The segment result represents operating profit under IFRS before unallocated
corporate expenses. Unallocated corporate expenses include management remuneration, representative expenses, and expenses
incurred in respect of the maintenance of office premises. This is the measure reported to the chief operating decision maker for the
purposes of resource allocation and assessment of segment performance.
As of 31 December and for the year then ended the Group’s segmental information was as follows:
Year ended 31 December 2012
External sales
Sales between business segments
Total revenue
Segment results
Unallocated corporate expenses
Other expenses, net1
Profit before tax
Poultry
and related
operations
Grain
growing
Other
agricultural
operations Eliminations Consolidated
1,082,978
42,919
169,142
147,719
155,402
5,074
–
(195,712)
1,407,522
–
1,125,897
316,861
160,476
(195,712) 1,407,522
318,537
92,139
3,494
–
414,170
(33,587)
(61,879)
318,704
Other information:
Additions to property, plant and equipment2
Depreciation and amortization expense3
Net change in fair value of biological assets and agricultural produce
375,604
57,922
11,955
21,375
19,569
4,329
11,679
6,522
450
–
–
–
408,658
84,013
16,734
Include finance income, finance costs, foreign exchange loss (net) and other expenses (net).
1
2 Additions to property, plant and equipment in 2012 (Note 12) include unallocated additions in the amount of USD 4,092 thousand.
3 Depreciation and amortization for the year ended 31 December 2012 does not include unallocated depreciation and amortization in the amount of USD 3,122 thousand.
Year ended 31 December 2011
External sales
Sales between business segments
Total revenue
Segment results
Unallocated corporate expenses
Other expenses, net1
Profit before tax
Poultry
and related
operations
978,871
36,381
Grain
growing
Other
agricultural
operations
Eliminations Consolidated
103,739
117,831
146,480
5,203
– 1,229,090
–
(159,415)
1,015,252
221,570
151,683
(159,415) 1,229,090
236,602
104,286
9,651
–
350,539
(29,795)
(58,629)
262,115
Other information:
Additions to property, plant and equipment2
Depreciation and amortization expense3
Net change in fair value of biological assets and agricultural produce
309,072
53,879
2,665
23,079
16,422
17,322
7,598
6,742
1,301
–
–
–
339,749
77,043
21,288
Include finance income, finance costs, foreign exchange gain (net) and other expenses (net).
1
2 Additions to property, plant and equipment in 2011 (Note 12) include unallocated additions in the amount of USD 2,527 thousand.
3 Depreciation and amortization for the year ended 31 December 2011 does not include unallocated depreciation and amortization in the amount of USD 3,298 thousand.
08_FinancialXstatements_v30.indd 55
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Myronivsky Hliboproduct Report and Accounts 2012 / 5. Segment information continued
Year ended 31 December 2010
External sales
Sales between business segments
Total revenue
Segment results
Unallocated corporate expenses
Other expenses, net1
Profit before tax
Poultry
and related
operations
800,237
28,584
Grain
growing
35,631
85,668
Other
agricultural
operations
Eliminations Consolidated
108,338
3,353
–
(117,605)
944,206
–
828,821
121,299
111,691
(117,605)
944,206
225,073
55,765
3,738
–
284,576
(27,792)
(39,463)
217,321
Other information:
Additions to property, plant and equipment2
Depreciation and amortization expense3
Net change in fair value of biological assets and agricultural produce
128,972
47,600
9,473
17,360
11,397
17,019
9,825
5,585
2,522
–
–
–
156,157
64,582
29,014
Include finance income, finance costs, foreign exchange gain (net) and other expenses (net).
1
2 Additions to property, plant and equipment in 2010 (Note 12) include unallocated additions in the amount of USD 4,818 thousand.
3 Depreciation and amortization for the year ended 31 December 2010 does not include unallocated depreciation and amortization in the amount of USD 3,320 thousand.
The Group’s export sales to external customers by major product types were as follows during the years ended 31 December 2012,
2011 and 2010:
Sunflower oil and related products
Grain
Chicken meat and related products
Other agricultural segment products
2012
2011
2010
227,835
138,639
112,931
431
222,418
63,101
67,874
486
188,156
22,454
29,147
290
479,836
353,879
240,047
Export sales of sunflower oil and related products and export sales of grains are primarily made to global trading companies at CPT
port terms. The major markets for the Group’s export sales of chicken meat are Kazakhstan and Russia as well as, to the lower extent,
other CIS countries, Middle East, Central Asia and Africa.
6. Revenue
Revenue for the years ended 31 December 2012, 2011 and 2010 was as follows:
Poultry and related operations segment
Chicken meat
Sunflower oil and related products
Other poultry related sales
Grain growing operations segment
Grain
Other agricultural operations segment
Other meat
Other agricultural sales
7. Cost of sales
Cost of sales for the years ended 31 December 2012, 2011 and 2010 was as follows:
Poultry and related operations
Grain growing operations
Other agricultural operations
56
2012
2011
2010
804,381
227,835
50,762
693,207
222,418
63,246
562,982
188,156
49,099
1,082,978
978,871
800,237
169,142
103,739
35,631
169,142
103,739
35,631
102,959
52,443
99,740
46,740
79,185
29,153
155,402
146,480
108,338
1,407,522 1,229,090
944,206
2012
2011
2010
705,128
147,821
148,960
684,001
71,883
133,243
546,494
29,771
104,372
1,001,909
889,127
680,637
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) For the years ended 31 December 2012, 2011 and 2010 cost of sales comprised the following:
Costs of raw materials and other inventory used
Payroll and related expenses
Depreciation and amortization expense
Other costs
2012
2011
2010
700,410
151,538
74,870
75,091
620,385
131,840
66,675
70,227
475,093
101,425
56,799
47,320
1,001,909
889,127
680,637
By-products arising from the agricultural production process are measured at net realizable value, and this value is deducted from the
cost of the main product.
8. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended 31 December 2012, 2011 and 2010 were as follows:
Payroll and related expenses
Services
Fuel and other materials used
Advertising expense
Depreciation expense
Representative costs and business trips
Insurance expense
Bank services and conversion fees
Other
2012
2011
2010
46,414
20,738
13,646
12,691
12,265
8,641
1,594
474
4,022
40,391
24,381
12,433
2,415
13,666
8,330
1,919
486
2,426
43,576
17,517
9,166
9,094
11,103
8,611
1,734
535
771
120,485
106,447
102,107
Remuneration to the auditors, included in Services above, approximate to USD 744 thousand, USD 832 thousand and USD 1,000
thousand for the years ended 31 December 2012, 2011 and 2010, respectively, and audit fees approximate USD 600 thousand for
each of the years ended 31 December 2012, 2011 and 2010, with the remaining amount attributable to other advisory fees.
During the year ended 31 December 2010 Payroll and related expenses included a one-off bonus paid by the Group to one of the top
managers in the form of 455,000 shares representing 0.4% of the share capital of MHP S.A. (Note 22). The amount recognized as part
of selling, general and administrative expenses, was measured as the sum of the fair value of the shares at grant date of USD 6,483
thousand and the amount of payroll related taxes of USD 1,145 thousand (Note 28).
9. VAT refunds and other government grants income
The Ukrainian legislation provides for a number of different grants and tax benefits for companies involved in agricultural operations.
The below mentioned grants and similar privileges are established by Verkhovna Rada (the Parliament) of Ukraine, as well as by the
Ministry of Agrarian Policy of Ukraine, the Ministry of Finance of Ukraine, the State Committee of Water Industry, the customs
authorities and local district administrations.
VAT refunds and other government grants recognized by the Group as income during the years ended 31 December 2012, 2011 and
2010 were as follows:
VAT refunds
Fruits and vine cultivation
Other government grants
2012
2011
2010
101,581
343
445
87,476
26
483
80,223
1,219
616
102,369
87,985
82,058
VAT refunds for agricultural industry
According to the Tax Code of Ukraine issued in December 2010 and effective as of 1 January 2011 («Tax Code»), companies that
generated not less than 75% of gross revenues for the previous tax year from sales of own agricultural products are entitled to retain
VAT on sales of agricultural products, net of VAT paid on purchases, for use in agricultural production.
In accordance with the Tax Code, the VAT rate will be decreased from currently effective 20% to 17% starting from 1 January 2014.
The special VAT regime for the agricultural industry will be effective through 1 January 2018.
Included in VAT refunds for the years ended 31 December 2012, 2011 and 2010 there were specific VAT subsidies for the production
and sale of milk and live animals for further processing in the amount of USD 1,426 thousand, USD 422 thousand and USD 2,125
thousand, respectively.
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Myronivsky Hliboproduct Report and Accounts 2012 / 9. VAT refunds and other government grants income continued
Government grants on fruits and vine cultivation
In accordance with the Law “On State Budget of Ukraine” two companies of the Group received grants for the years ended
31 December 2012, 2011 and 2010 for the creation and cultivating of orchards, vines and berry-fields.
Other government grants
Other government grants recognized as income during the years ended 31 December 2012, 2011 and 2010 mainly comprised
subsidies related to crop growing.
In addition to the government grants income recognized by the Group, the Group receives a grant to compensate agricultural
producers for costs used to finance operations. Agricultural producers are entitled to the compensation of finance costs incurred on
bank borrowings in accordance with the Law “On State Budget of Ukraine” during the years ended 31 December 2012, 2011 and 2010.
The eligibility, application and tender procedures related to such grants are defined and controlled by the Ministry of Agrarian Policy
of Ukraine.
These grants were recognized as a reduction in the associated finance costs and during the years ended 31 December 2012, 2011
and 2010 were USD nil, USD 1,828 thousand and USD 4,999 thousand, respectively (Note 10).
10. Finance costs
Finance costs for the years ended 31 December 2012, 2011 and 2010 were as follows:
Interest on corporate bonds
Interest on bank borrowings
Interest on obligations under finance leases
Interest on financing arrangements for grain purchases
Bank commissions and other charges
Government grants as compensation for the finance costs of agricultural producers (Note 9)
Total finance costs
Less:
Finance costs included in the cost of qualifying assets
2012
2011
2010
64,449
15,839
4,795
643
3,786
–
64,996
9,720
5,157
294
3,782
(1,828)
50,911
8,539
5,979
3,049
1,921
(4,999)
89,512
82,121
65,400
(30,201)
(16,203)
(2,456)
59,311
65,918
62,944
For qualifying assets, the weighted average capitalization rate on funds borrowed generally during the year ended 31 December 2012
was 8.10% (2011: 9.55%, 2010: 10.62%).
Interest on corporate bonds for the years ended 31 December 2012, 2011 and 2010 includes amortization of premium and debt issue
costs on bonds issued in the amounts of USD 4,509 thousand, USD 4,124 thousand and USD 1,526 thousand, respectively.
11. Income tax
Substantially all of the Group’s operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed
based on Ukrainian statutory rates. The net results of the Group companies incorporated in jurisdictions other than Ukraine were
insignificant during the years ended 31 December 2012, 2011 and 2010. The majority of the Group companies that are involved in
agricultural production pay the Fixed Agricultural Tax (the “FAT”) in accordance with the Tax Code. The FAT replaces the following taxes
for agricultural producers: Corporate Income Tax, Land Tax, Municipal Tax, Natural Resources Usage Duty, Geological Survey Duty,
and Trade Patent. The FAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is
valid indefinitely. FAT does not constitute an income tax, and as such, is recognized in the statement of comprehensive income in other
operating expenses.
During the year ended 31 December 2012, the Group’s companies that have the status of Corporate Income Tax (the “CIT”) payers in
Ukraine were subject to income tax at a rate of 21% (1 January 2011 – 1 April 2011 – 25%, 1 April 2011 – 31 December 2011 – 23%,
and for the year ended 31 December 2010 – 25%).
The Tax Code of Ukraine (Note 29) is introducing gradual decreases in income tax rates from 23% effective 1 April 2011 to 16%
effective 1 January 2014, as well as certain changes to the rules of income tax assessment starting from 1 April 2011. The deferred
income tax assets and liabilities as of 31 December 2012, 2011 and 2010 were measured based on the tax rates expected to be
applied to the period when the temporary differences are expected to reverse.
58
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) The components of income tax expense were as follows for the years ended 31 December 2012, 2011 and 2010:
Current income tax charge
Deferred tax benefit
Income tax expense
2012
2011
2010
7,915
(127)
7,788
5,664
(2,904)
2,760
3,413
(1,540)
1,873
Reconciliation between profit before tax multiplied by the statutory tax rate and the tax expense for the years ended 31 December
2012, 2011 and 2010 was as follows:
Profit before income tax
At the Company’s statutory income tax rate of 21% (23% since 1 April 2011 till 31 December 2011,
25% till 1 April 2011)
Tax effect of:
Income generated by FAT payers (exempt from income tax)
Changes in tax rate and law
(Recognized)/unrecognized deferred tax assets on property, plant and equipment
Non-deductible expenses (by law)
Expenses not deducted for tax purposes (policy choice)
Income tax expense
2012
2011
2010
318,704
262,115
217,321
66,928
61,010
54,330
(82,443)
–
–
19,402
3,901
(77,043)
–
(6,792)
10,332
15,253
(76,815)
(18,801)
6,792
11,889
24,478
7,788
2,760
1,873
As of 31 December 2012, 2011 and 2010 the Group did not recognize deferred tax assets arising from temporary differences of USD
18.576 thousand, USD 64,907 thousand and USD 97,912 thousand, respectively, as the Group did not intend to deduct the relevant
expenses for tax purposes in subsequent periods. As of 31 December 2010 the Group did not recognize deferred tax assets on
temporary differences in respect of the property, plant and equipment of USD 27,168 thousand due to uncertainties relating to norms
of Tax Code which came into effect from 1 April 2011. As of 31 December 2011, subsequent to the implementation of the Tax Code,
management of the Group reassessed the recoverability of the deferred tax assets in respect property, plant and equipment. The
Group was able to utilize part of the deferred tax assets balance in 2011 and has the ability to utilize the residual balance in future
periods in accordance with the provisions of the Tax Code.
Deferred tax liabilities have not been recognized in respect of unremitted earnings of Ukrainian subsidiaries as the earnings can be
remitted free from taxation currently and in future years, based on current legislation.
As of 31 December 2012, 2011 and 2010 deferred tax assets and liabilities comprised the following:
Deferred tax assets arising from:
Property, plant and equipment
Other current liabilities
Inventories
Advances received and other payables
Expenses deferred in tax books
Less:
Unrecognized deferred tax assets
Total deferred tax assets
Deferred tax liabilities arising from:
Property, plant and equipment
Inventories
Prepayments to suppliers
Total deferred tax liabilities
Net deferred tax assets
2012
2011
2010
4,732
1,301
1,081
849
3,484
5,996
1,518
1,011
1,155
288
6,792
1,619
–
4,284
1,942
–
–
(6,792)
11,447
9,968
7,845
(4,165)
(2,138)
(258)
(2,987)
(996)
(397)
(6,561)
(4,380)
4,886
5,588
(2,655)
(675)
(1,827)
(5,157)
2,688
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Myronivsky Hliboproduct Report and Accounts 2012 / 11. Income tax continued
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after
appropriate offsetting, are presented in the consolidated statement of financial position as of 31 December 2012, 2011 and 2010:
Deferred tax assets
Deferred tax liabilities
2012
2011
2010
8,231
(3,345)
4,886
7,795
(2,207)
5,588
5,190
(2,502)
2,688
The movements in net deferred tax assets for the years ended 31 December 2012, 2011 and 2010 were as follows:
Net deferred tax assets as of beginning of the year
Deferred tax benefit
Deferred tax on property, plant and equipment charged directly to revaluation reserve
Translation difference
Net deferred tax assets as of end of the year
2012
5,588
127
(826)
(3)
4,886
2011
2,688
2,904
(4)
5,588
2010
1,213
1,540
–
(65)
2,688
12. Property, plant and equipment
The following table represents movements in property, plant and equipment for the year ended 31 December 2012:
Cost or fair value:
At 1 January 2012
Additions
Disposals
Transfers
Revaluations
Translation difference
Buildings and
structures
Grain storage
facilities
Machinery
and
equipment
Utilities and
infrastructure
Vehicles and
agricultural
machinery
Office
furniture and
equipment
Construction
in progress
Total
293,998
61,598
(1,293)
99,744
–
(177)
43,912
–
–
4,721
1,151
(28)
348,916
25,487
(2,222)
62,339
–
(415)
58,726
7,204
(147)
10,495
–
(127)
215,188
53,341
(4,352)
1,445
–
(335)
17,876
1,383
(947)
343
–
(121)
315,380 1,293,996
412,750
263,737
(8,979)
(18)
(179,087)
–
1,151
–
(1,525)
(322)
At 31 December 2012
453,870
49,756
434,105
76,151
265,287
18,534
399,690 1,697,393
Accumulated depreciation and impairment:
At 1 January 2012
Depreciation charge for the year
Elimination upon disposal
Eliminated upon revaluations
Translation difference
At 31 December 2012
Net book value
At 1 January 2012
51,435
16,365
(938)
–
(112)
66,750
2,373
1,584
–
(4,015)
133
109,983
31,039
(1,731)
–
(248)
16,473
3,750
(75)
–
(67)
94,868
28,239
(3,380)
–
(185)
9,941
3,195
(865)
–
(56)
75
139,043
20,081
119,542
12,215
–
–
–
–
–
–
285,073
84,172
(6,989)
(4,015)
(535)
357,706
242,563
41,539
238,933
42,253
120,320
7,935
315,380 1,008,923
At 31 December 2012
387,120
49,681
295,062
56,070
145,745
6,319
399,690 1,339,687
60
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) The following table represents movements in property, plant and equipment for the year ended 31 December 2011:
Cost or fair value:
At 1 January 2011
Additions
Disposals
Transfers
Translation difference
Buildings
and
structures
Grain storage
facilities
Machinery
and
equipment
Utilities and
infrastructure
Vehicles and
agricultural
machinery
Office
furniture and
equipment
Construction
in progress
Total
259,799
27,030
(247)
8,361
(945)
32,589
7,728
–
3,720
(125)
274,024
45,656
(743)
31,011
(1,032)
52,440
5,530
(4)
950
(190)
190,943
29,285
(2,083)
(2,263)
(694)
16,046
1,786
(121)
223
(58)
131,551
225,261
–
(42,002)
570
957,392
342,276
(3,198)
–
(2,474)
At 31 December 2011
293,998
43,912
348,916
58,726
215,188
17,876
315,380 1,293,996
Accumulated depreciation and impairment:
At 1 January 2011
Depreciation charge for the year
Elimination upon disposal
Translation difference
At 31 December 2011
Net book value
At 1 January 2011
37,189
14,517
(128)
(143)
51,435
1,046
1,331
–
(4)
83,171
27,602
(473)
(317)
13,198
3,325
(1)
(49)
71,068
25,323
(1,253)
(270)
2,373
109,983
16,473
94,868
6,755
3,322
(109)
(27)
9,941
–
–
–
–
–
212,427
75,420
(1,964)
(810)
285,073
222,610
31,543
190,853
39,242
119,875
9,291
131,551
744,965
At 31 December 2011
242,563
41,539
238,933
42,253
120,320
7,935
315,380 1,008,923
The following table represents movements in property, plant and equipment for the year ended 31 December 2010:
Cost or fair value:
At 1 January 2010
Additions
Disposals
Transfers
Acquired through business combination
(Note 2)
Reclassifications
Translation difference
Buildings
and
structures
Grain storage
facilities
Machinery
and
equipment
Utilities and
infrastructure
Vehicles and
agricultural
machinery
Office
furniture and
equipment
Construction
in progress
Total
217,356
25,500
(176)
6,670
30,929
1,563
–
12
244,698
21,906
(425)
2,248
6,365
3,652
432
–
–
85
2,106
2,869
622
52,757
4,897
(38)
1,167
22
(6,521)
156
154,570
29,526
(1,563)
122
13,897
2,102
(51)
49
66,322
75,481
–
(10,268)
780,529
160,975
(2,253)
–
7,955
–
333
15
–
34
–
–
16
16,463
–
1,678
At 31 December 2010
259,799
32,589
274,024
52,440
190,943
16,046
131,551
957,392
Accumulated depreciation:
At 1 January 2010
Depreciation charge for the year
Elimination upon disposal
Reclassifications
Translation difference
At 31 December 2010
Net book value
At 1 January 2010
23,447
13,216
(36)
540
22
37,189
–
1,049
–
–
(3)
59,634
23,409
(234)
265
97
9,593
4,397
(3)
(805)
16
49,896
22,088
(992)
–
76
1,046
83,171
13,198
71,068
3,690
3,110
(46)
–
1
6,755
–
–
–
–
–
–
146,260
67,269
(1,311)
–
209
212,427
193,909
30,929
185,064
43,164
104,674
10,207
66,322
634,269
At 31 December 2010
222,610
31,543
190,853
39,242
119,875
9,291
131,551
744,965
During the second half of 2012 the Group started commissioning production facilities at Vinnytsia complex, which were already
completed. Since the end of 2012 respective production facilities have been launching into operations reaching a full production
capacity in forthcoming years (Note 1). The facilities of Vinnytsia complex remaining under construction as of 31 December 2012
will be commissioned during 2013 and 2014, as scheduled.
As of 31 December 2012, included within construction in progress were prepayments for property, plant and equipment in the
amount of USD 24,796 thousand (2011: USD 46,086 thousand, 2010: USD 25,020 thousand).
As of 31 December 2012, included within property, plant and equipment were fully depreciated assets with the original cost of
USD 34,722 thousand (2011: USD 19,647 thousand, 2010: USD 12,494 thousand).
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Myronivsky Hliboproduct Report and Accounts 2012 / 12. Property, plant and equipment continued
As of 31 December 2012, certain of the Group’s machinery and equipment with the carrying amount of USD nil (2011: USD 4,648
thousand, 2010: USD 5,247 thousand) were pledged as collateral to secure its bank borrowings (Note 23).
As of 31 December 2012, 2011 and 2010 the net carrying amount of property, plant and equipment, represented by vehicles and
agricultural machinery, held under finance lease agreements was USD 69,059 thousand, USD 73,798 thousand and USD 72,234
thousand, respectively.
Impairment assessment
The Group reviews its property, plant and equipment each period to determine if any indication of impairment exists. Based on
these reviews, there were no indicators of impairment as of 31 December 2012, 2011 and 2010.
Revaluation of grain storage facilities
During the year ended 31 December 2012, the Group engaged independent appraisers to revalue its grain storage facilities.
The effective date of revaluation was 31 October 2012. The valuation, which conformed to the International Valuation Standards,
was determined using replacement cost method by reference to observable prices in an active market.
No revaluation of grain storage facilities was performed during the years ended 31 December 2011 and 2010 as, based on
management’s assessment, the fair value of grain storage facilities as of 31 December 2011 and 2010 did not materially differ from
their carrying amount.
If the grain storage facilities were carried at cost and depreciated on a straight line basis based on their original depreciation rate, their
net book value as of 31 December 2012 would be USD 24,102 thousand (2011: USD 20,514 thousand, 2010: USD 13,792 thousand).
13. Land lease rights
Land lease rights represent rights for operating leases of agricultural land plots, the major part of which was acquired by the Group
during the year ended 31 December 2010 as part of asset acquisitions and through business combinations.
The following table represents the movements in land lease rights for the years ended 31 December:
Cost:
As of 1 January
Additions
Acquired through business combinations (Note 2)
Translation difference
As of 31 December
Accumulated amortization:
As of 1 January
Amortization charge for the year
Translation difference
As of 31 December
Net book value:
As of 1 January
As of 31 December
2012
2011
2010
30,332
1,314
–
(12)
24,439
5,995
–
(102)
965
4,767
18,801
(94)
31,634
30,332
24,439
3,105
1,837
(2)
4,940
1,223
1,891
(9)
3,105
111
1,117
(5)
1,223
27,227
23,216
854
26,694
27,227
23,216
62
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) 14. Long-term VAT recoverable, net
As of 31 December 2012, 2011 and 2010 the balance of long-term VAT recoverable was accumulated on continuing capital
expenditures. Management expects that these balances will not be recovered within twelve months of the reporting date.
As of 31 December 2012, an allowance for estimated irrecoverable long-term VAT of USD 7,754 thousand was recorded by the
Group (2011: USD 4,938 thousand, 2010: USD 3,746 thousand).
15. Biological assets
The balances of non-current biological assets were as follows as of 31 December 2012, 2011 and 2010:
Orchards, hectare
Milk cows, boars, sows, units
Other non-current bearer biological assets
Total bearer non-current biological assets
Non-current cattle and pigs, units
Total consumable non-current biological assets
Total non-current biological assets
2012
2011
2010
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
1.64
21.6
7.1
30,018
18,547
994
49,559
4,136
4,136
53,695
1.64
14.1
5.1
27,978
14,803
906
43,687
2,640
2,640
46,327
1.87
13.1
5.9
25,768
13,997
714
40,479
2,809
2,809
43,288
The balances of current biological assets were as follows as of 31 December 2012, 2011 and 2010:
Breeders held for hatchery eggs production, units
2,634
54,273
2,384
39,345
2,360
39,530
2012
2011
2010
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
Total bearer current biological assets
Broiler poultry, units
Hatchery eggs, units
Crops in fields, hectare
Cattle and pigs, units
Other current consumable biological assets
Total consumable current biological assets
Total current biological assets
26,223
20,587
75
45
54,273
51,051
6,628
39,590
7,204
530
105,003
159,276
25,273
20,472
71
56
39,345
55,411
5,915
23,876
10,654
789
96,645
26,371
20,179
76
61
39,530
43,287
5,724
17,840
9,118
811
76,780
135,990
116,310
Other current consumable biological assets include geese and other livestock.
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Myronivsky Hliboproduct Report and Accounts 2012 / 15. Biological assets continued
The following table represents movements in biological assets for the years ended 31 December 2012, 2011 and 2010:
Crops in fields
Orchards
Breeders held
for hatchery
eggs
production
Broiler
poultry
Milk cows,
boars, sows
Non-current
cattle and
pigs
As of 1 January 2010
Increase due to purchases
Acquired through business combinations (Note 2)
Gains/(losses) arising from change in fair value of
biological assets less costs to sell
Transfer to consumable biological assets
Transfer to bearing non-current biological assets
Decrease due to sale
Decrease due to harvest
Translation difference
11,715
3,135
2,234
155,551
–
–
–
(154,791)
(4)
23,478
1,537
–
10,104
–
–
–
(9,455)
104
35,845
8,176
–
72,341
(69,968)
–
–
(6,957)
93
36,957
2,830
–
504,092
69,968
–
–
(570,647)
87
9,560
176
3,411
10,599
(1,782)
2,162
(529)
(9,611)
11
As of 31 December 2010
17,840
25,768
39,530
43,287
13,997
Increase due to purchases
Gains/(losses) arising from change in fair value of
biological assets less costs to sell
Transfer to consumable biological assets
Transfer to bearing non-current biological assets
Decrease due to sale
Decrease due to harvest
Translation difference
7,239
1,820
8,983
80
12
273,357
–
–
–
(274,383)
(177)
13,487
–
–
–
(12,994)
(103)
84,905
(76,889)
–
–
(17,045)
(139)
616,361
76,889
–
–
(681,022)
(184)
12,781
(1,325)
4,072
(198)
(14,484)
(52)
2,667
65
71
(1,976)
(295)
3,724
(7)
(1,449)
9
2,809
35
(63)
(285)
1,269
(12)
(1,104)
(9)
Cattle, pigs
6,714
1,756
3,560
23,792
2,077
(5,886)
(8,371)
(14,535)
11
9,118
1,946
32,249
1,610
(5,340)
(11,291)
(17,601)
(37)
As of 31 December 2011
23,876
27,978
39,345
55,411
14,803
2,640
10,654
Increase due to purchases
Gains/(losses) arising from change in fair value of
biological assets less costs to sell
Transfer to consumable biological assets
Transfer to bearing non-current biological assets
Decrease due to sale
Decrease due to harvest
Translation difference
6,300
1,896
10,359
186
251
54
1,722
290,952
–
–
–
(281,529)
(9)
13,964
–
–
–
(13,805)
(15)
104,920
(87,496)
–
–
(12,836)
(19)
725,261
87,496
–
–
(817,282)
(21)
12,820
–
9,559
(599)
(18,279)
(8)
(389)
(176)
2,498
(13)
(477)
(1)
4,136
31,402
176
(12,057)
(12,303)
(12,388)
(2)
7,204
As of 31 December 2012
39,590
30,018
54,273
51,051
18,547
16. Inventories
The balances of inventories were as follows as of 31 December 2012, 2011 and 2010:
Components for mixed fodder production
Work in progress
Other raw materials
Spare parts
Sunflower oil
Packaging materials
Mixed fodder
Other inventories
2012
2011
2010
175,013
44,043
25,023
10,999
9,662
4,533
3,802
1,180
111,220
35,705
19,037
5,373
3,077
4,057
2,822
949
83,477
19,100
14,345
3,831
4,234
4,092
2,231
1,281
274,255
182,240
132,591
As of 31 December 2012, 2011 and 2010 work in progress in the amount of USD 44,043 thousand, 35,705 thousand and USD 19,100
thousand comprised expenses incurred in cultivating fields to be planted in the years 2013, 2012 and 2011, respectively.
As of 31 December 2012, components for mixed fodder production with carrying amount of USD 62,500 thousand (2011: USD 45,491
thousand, 2010: USD 62,500 thousand) were pledged as collateral to secure bank borrowings (Note 23).
64
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) 17. Agricultural produce
The balances of agricultural produce were as follows as of 31 December 2012, 2011 and 2010:
Chicken meat
Other meat
Grain
Fruits, vegetables and other crops
2012
2011
2010
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
Thousand
tonnes
14,715
N/A1
631
N/A1
26,206
4,059
121,507
14,356
166,128
5,561
N/A1
841
N/A1
11,716
6,380
131,764
19,162
169,022
15,333
N/A1
455
N/A1
Carrying
amount
24,403
4,058
77,069
8,320
113,850
1 Due to the diverse composition of noted produce unit of measurement is not applicable.
18. Taxes recoverable and prepaid, net
Taxes recoverable and prepaid were as follows as of 31 December 2012, 2011 and 2010:
VAT recoverable
Miscellaneous taxes prepaid
Less: allowance for irrecoverable VAT
19. Trade accounts receivable, net
The balances of trade accounts receivable were as follows as of 31 December 2012, 2011 and 2010:
Agricultural operations
Due from related parties (Note 28)
Sunflower oil sales
Less: allowance for irrecoverable amounts
2012
2011
2010
213,944
5,228
(18,864)
149,853
1,350
(14,028)
116,534
1,472
(10,182)
200,308
137,175
107,824
2012
2011
2010
59,177
10,359
4,237
(1,157)
53,750
10,895
1,934
(785)
44,888
7,756
1,536
(785)
72,616
65,794
53,395
The allowance for irrecoverable amounts is estimated at the level of 25% of trade accounts receivable on sales of poultry meat which
are over 30 days past due (for trade accounts receivable on other sales – over 60 days). Trade accounts receivable on sales of poultry
meat which are aged over 270 days and trade accounts receivable on other sales which are aged over 360 days are provided in full.
The Group also performs specific analysis of trade accounts receivable due from individual customers to determine whether any further
adjustments are required to the allowance for irrecoverable amounts assessed on the percentages disclosed above. Based on the
results of such a review as of 31 December 2012 the Group determined that trade accounts receivable on sales of poultry meat of USD
456 thousand (2011: USD 750 thousand, 2010: USD 305 thousand) were overdue but do not require allowance for irrecoverable
amounts.
For the year ended 31 December 2012, 2011 and 2010 the Group has not recorded any impairment of receivables relating to amounts
owed by related parties as management is certain about their recoverability.
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Myronivsky Hliboproduct Report and Accounts 2012 / 19. Trade accounts receivable, net continued
The ageing of trade accounts receivable that were impaired as of 31 December 2012, 2011 and 2010 was as follows:
Trade accounts receivable on sales of poultry meat:
Over 30 but less than 270 days
Over 270 days
Trade accounts receivable on other sales:
Over 60 but less than 360 days
Over 360 days
Trade accounts receivable
Allowance for irrecoverable amounts
2012
2011
2010
2012
2011
2010
915
125
1,040
359
434
793
372
344
716
199
298
497
408
79
487
141
569
710
(457)
(125)
(582)
(141)
(434)
(575)
1,833
1,213
1,197
(1,157)
(93)
(344)
(437)
(50)
(298)
(348)
(785)
(102)
(79)
(181)
(35)
(569)
(604)
(785)
20. Short-term bank deposits
Short-term bank deposits were as follows as of 31 December 2012, 2011 and 2010:
UAH
USD
2011
2010
Effective rate
USD’ 000
Effective rate
USD’ 000
9.00 %
–
15.93 %
8.37 %
1,777
–
1,777
59,460
75,000
134,460
As of 31 December 2011 and 2010, short-term deposits were placed with Ukrainian banks for periods of six months to one year. As of
31 December 2012 the Group had no short-term bank deposits.
21. Cash and cash equivalents
The balances of cash and cash equivalents were as follows as of 31 December 2012, 2011 and 2010:
Cash in hand and with banks
USD short-term deposits with banks
UAH short-term deposits with banks
2012
2011
2010
41,027
45,000
8,758
47,119
37,000
10,639
39,321
–
–
94,785
94,758
39,321
During the year ended 31 December 2012, UAH and USD denominated short-term deposits earned an effective interest rate of 18.00%
and 6.42%, respectively (2011: 5.29% and 5.60%, respectively; 2010: nil). All cash and cash equivalents are held within reputable
foreign and Ukrainian banks.
22. Shareholders’ equity
Share capital
As of 31 December the authorized, issued and fully paid share capital of MHP S.A. comprised the following number of shares:
Number of shares authorized for issue
Number of shares issued and fully paid
Number of shares outstanding
2012
2011
2010
159,250,000
110,770,000
105,666,888
159,250,000
110,770,000
107,854,856
159,250,000
110,770,000
107,854,856
The authorized share capital as of 31 December 2012, 2011 and 2010 was EUR 318,500 thousand represented by 159,250,000 shares
with par value of EUR 2 each.
All shares have equal voting rights and rights to receive dividends, which are payable at the discretion of the Group.
Treasury shares
During the year ended 31 December 2012 the Group acquired, under the share buy-back program, 3,445,000 shares for cash
consideration of USD 41,465 thousand. In December 2012 the Group transferred 1,257,032 shares in exchange for 10% share in NPF
Urozhay, the Group’s subsidiary. The excess of the fair value of shares transferred that approximated the carrying value of the non-
controlling interest at the transaction date over the carrying value of the shares bought back, in the amount of USD 2,417 thousand was
recognized as an adjustment to additional paid-in capital (Note 2).
66
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) During the year ended 31 December 2010, the Group acquired, under the share buy-back program, 3,370,144 shares for a cash
consideration of USD 46,288 thousand, of which 455,000 shares were further partially used for the compensation scheme (Note 8).
The excess of the fair value of shares transferred over the carrying value of the shares bought back in the amount of USD 750 thousand
was recognized as an adjustment to additional paid-in capital.
23. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2012, 2011 and 2010:
Bank
Foreign banks
Foreign banks
Ukrainian banks
Ukrainian banks
Currency
WAIR1
USD’ 000
WAIR1
USD’ 000
WAIR1
USD’ 000
2012
2011
2010
USD
EUR
USD
UAH
5.14% 190,976
2.15% 162,675
4.39%
3.13%
353,651
5.43% 147,490
–
5.39%
95,979
97,009
192,988
86,500
–
86,500
279,488
(170,380)
109,108
5.52%
3.12%
6.25%
7.75%
78,642
56,712
135,354
36,750
26,414
63,164
198,518
(140,092)
58,426
Total bank borrowings
Less:
Short-term bank borrowings and current portion of
long-term bank borrowings
Total long-term bank borrowings
1 WAIR represents the weighted average interest rate on outstanding borrowings.
147,490
501,141
(301,658)
199,483
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. 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.
Term loans and credit line facilities were as follows as of 31 December 2012, 2011 and 2010:
Credit lines
Term loans
2012
2011
2010
232,490
268,651
146,500
132,988
141,806
56,712
501,141
279,488
198,518
The following table summarizes fixed and floating interest rates bank loans and credit lines held by the Group as of 31 December 2012,
2011 and 2010:
Floating interest rate
Fixed interest rate
2012
2011
2010
501,141
–
276,712
2,776
158,750
39,768
501,141
279,488
198,518
Bank borrowings and credit lines outstanding as of 31 December 2012, 2011 and 2010 were repayable as follows:
Within one year
In the second year
In the third to fifth year inclusive
After five years
2012
2011
2010
301,658
66,840
115,316
17,327
170,380
30,951
60,871
17,286
140,092
22,001
31,377
5,048
501,141
279,488
198,518
As of 31 December 2012, the Group had available undrawn facilities of USD 133,981 thousand (2011: USD 251,315 thousand, 2010:
USD 168,323 thousand). These undrawn facilities expire during the period from January 2013 until June 2020.
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Myronivsky Hliboproduct Report and Accounts 2012 / 23. Bank borrowings continued
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 as follows: total equity to total assets ratio, 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 the property to be used as collateral.
During the years ended 31 December 2012, 2011 and 2010 the Group has complied with all covenants imposed by banks providing
the loans.
As of 31 December 2012, the Group had borrowings of USD 50,000 thousand (2011: USD 52,191 thousand, 2010: USD 55,751
thousand) that were secured. These borrowings were secured by property, plant and equipment with a carrying amount of USD nil
thousand (2011: USD 4,648 thousand, 2010: USD 5,247 thousand) (Note 12) and inventories with a carrying amount of USD 62,500
thousand (2011: USD 45,491 thousand, 2010: 62,500) (Note 16).
As of 31 December 2012, 2011 and 2010 accrued interest on bank borrowings were USD 3,969 thousand, USD 1,916 thousand and
USD 1,329 thousand, respectively
24. Bonds issued
Bonds issued and outstanding as of 31 December 2012, 2011 and 2010 were as follows:
10.25% Senior Notes due in 2011
10.25% Senior Notes due in 2015
Unamortized premium on bonds issued
Unamortized debt issuance cost
Less:
Current portion of bonds issued
Total long-term portion of bonds issued
2012
2011
2010
–
584,767
2,801
(16,053)
–
584,767
3,755
(21,522)
9,967
584,767
4,640
(26,596)
571,515
567,000
572,778
–
–
(9,892)
571,515
567,000
562,886
As of 31 December 2012, 2011 and 2010 accrued interest on bonds issued were USD 10,156 thousand, USD 10,157 thousand and
USD 10,244 thousand, respectively.
10.25% Senior Notes
In November 2006, MHP SA issued USD 250,000 thousand 10.25% Senior Notes, due in November 2011, at par.
On 29 April 2010, MHP S.A. issued USD 330,000 thousand 10.25% Senior Notes due in 2015 at an issue price of 101.452% of
principal amount.
As of 13 May 2010 MHP S.A. exchanged 96.01% (USD 240,033 thousand) of USD 250,000 thousand of the existing 10.25% Senior
Notes due in 2011 for the new Notes due in 2015. As a result of the exchange, new Senior Notes were issued for the total par value of
USD 254,767 thousand.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP, Druzhba Narodiv, Druzhba Narodiv Nova, Myronivsky
Zavod po Vygotovlennyu Krup i Kombikormiv, Oril-Leader, Katerynopilsky Elevator, Ptahofabryka Peremoga Nova, Zernoproduct,
Myronivska Ptahofabryka, Starynska Ptahofabryka, Ptahofabryka Shahtarska Nova, Agrofort, NPF Urozhay, Vinnytska Ptahofabryka.
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 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, all outstanding Senior Notes will become due and payable without further
action or notice. 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.
During the years ended 31 December 2012, 2011 and 2010 the Group has complied with all covenants defined by indebtedness agreement.
The weighted average effective interest rate on the Senior Notes is 11.7% per annum for the years ended 31 December 2012, 2011 and
2010. The notes are listed on London Stock Exchange.
68
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) 25. Finance lease obligations
Long-term finance lease obligations represent amounts due under agreements for lease of trucks, agricultural machinery and
equipment with Ukrainian and foreign companies. As of 31 December 2012, the weighted average interest rates on finance lease
obligations were 7.28% and 7.69% for finance lease obligations denominated in EUR and USD, respectively (2011: 8.88% and 7.68%,
2010: 8.92% and 7.91%).
The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as
of 31 December 2012, 2011 and 2010:
Minimum lease payments
Present value of minimum lease payments
Payable within one year
Payable in the second year
Payable in the third to fifth year inclusive
Less:
Future finance charges
2012
2011
2010
2012
2011
2010
25,704
20,130
30,488
22,736
16,391
19,145
28,350
18,775
22,353
21,491
17,814
28,142
19,267
14,706
17,852
23,827
16,705
20,684
76,322
58,272
69,478
67,447
51,825
61,216
(8,875)
(6,447)
(8,262)
–
–
–
Present value of finance lease obligations
67,447
51,825
61,216
67,447
51,825
61,216
Less:
Current portion
Finance lease obligations, long-term portion
26. Trade accounts payable
Trade accounts payable were as follows as of 31 December 2012, 2011 and 2010:
Trade accounts payable to third parties
Payables due to related parties (Note 28)
(21,492)
(19,267)
(23,827)
45,955
32,558
37,389
2012
2011
2010
68,918
52
52,655
34
18,986
26
68,970
52,689
19,012
As of 31 December 2012 trade accounts payable included liabilities that bear a floating rate of interest under grain purchase financing
arrangements in the amount of USD 29,362 thousand and accrued interest of USD 294 thousand (2011: USD 11,184 thousand and
accrued interest of USD 126 thousand, 2010: nil).
27. Other current liabilities
Other current liabilities were as follows as of 31 December 2012, 2011 and 2010:
Accrued payroll and related taxes
Amounts payable for property, plant and equipment
Advances from and other payables due to third parties
Advances from related parties (Note 28)
Other payables
2012
2011
2010
34,285
11,415
7,820
200
9,182
32,886
10,236
1,921
200
8,026
24,528
4,396
4,137
200
4,781
62,902
53,269
38,042
28. 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 the companies 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 and in relation to the provision of
financing arrangements.
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Myronivsky Hliboproduct Report and Accounts 2012 / 28. Related party balances and transactions continued
Transactions with related parties under common control continued
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. The terms of the payables and receivables related to trading activities of
the Group do not vary significantly from the terms of similar transactions with third parties.
The transactions with the related parties during the years ended 31 December 2012, 2011 and 2012 were as follows:
Sales of goods to related parties
Sales of services to related parties
Purchases from related parties
2012
9,058
107
544
2011
10,649
89
127
The balances owed to and due from related parties were as follows as of 31 December 2012, 2011 and 2010:
Trade accounts receivable (Note 19)
Payables due to related parties (Note 28)
Advances received (Note 27)
Advances, finance aid
2012
2011
10,359
52
200
4,935
10,895
34
200
2,000
2010
7,476
51
194
2010
7,756
26
200
2,304
Compensation of key management personnel
Total compensation of the Group’s key management personnel included primarily in selling, general and administrative expenses in the
accompanying consolidated statements of comprehensive income amounted to USD 11,686 thousand, USD 8,741 thousand and USD
15,514 thousand for the years ended 31 December 2012, 2011 and 2010, respectively. Compensation of key management personnel
consists of contractual salary and performance bonuses. During the year ended 31 December 2010 compensation to key management
personnel included a one-off bonus to one of the top managers in the amount of USD 7,628 thousand (Note 8).
Total compensation of the Group’s non-executive directors, which consists of contractual salary, amounted to USD 407 thousand,
USD 380 thousand and USD 353 thousand in 2012, 2011 and 2010, respectively.
Key management personnel totalled 40, 38 and 38 individuals as of 31 December 2012, 2011 and 2010, respectively, including 4
independent directors as of 31 December 2012 and 2011 and 3 independent directors as of 31 December 2010.
Other transactions with related parties
In December 2012 the Group increased its effective ownership interest in NPF Urozhay to 99.9% through the acquisition of a non-
controlling interest previously held by one of its key management personnel in exchange for 1,257,032 treasury shares held by the
Group (Note 2, 22).
29. Contingencies and contractual commitments
Operating environment
The principal business activities of the Group are within Ukraine. Emerging markets such as Ukraine are subject to different risks than
more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual
or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely
affect the investment climate in Ukraine and the Ukraine’s economy in general. Laws and regulations affecting business operating in
Ukraine are subject to rapid changes and the Group’s assets and operations could be at risk if there are any adverse changes in the
political and business environment.
After the crisis year 2009, the Ukraine’s economy recovered during 2010 and 2011, and has slowed in 2012. Due to a decrease of
industrial production by 1.2%, GDP growth constituted 0.2%, in 2012, comparing to 5.2% growth in 2011 and 4.1% growth 2010.
The Ukrainian currency remained relatively stable during 2012, following the trends of 2011 and 2010.
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Taxation
Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian
economic environment. In respect of this, the local and national tax environment in Ukraine 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.
In December 2010, the Tax Code of Ukraine was officially published. In its entirety, the Tax Code of Ukraine became effective on
1 January 2011, while some of its provisions took effect later (such as, Section III dealing with corporate income tax, which came
into force from 1 April 2011). Apart from changes in CIT rates from 1 April 2011 and planned abandonment of VAT refunds for the
agricultural industry from 1 January 2018, as discussed in Notes 11 and 9, respectively, the Tax Code also changed various other
taxation rules.
Legal issues
In the ordinary course of business, the Group is subject to legal actions and complaints. As of 31 December 2012, the Group
companies had ongoing litigations with the tax authorities related to disallowance of certain amounts of VAT refunds claimed by the
Group. According to the assessment performed by the management of the Group on a case by case basis the maximum exposure
of the Group to such risks as of 31 December 2012 amounted to USD 30,729 thousand. Out of this amount, USD 29,533 thousand
relates to cases where court hearings took place and where the court in either the first or second instance has already ruled in favour
of the Group. Based on past history of court resolutions of similar lawsuits Management believes that possible exposure relating to
these court cases amounts to approximately USD 1,196 thousand as of 31 December 2012 (2011: USD 2,000 thousand, 2010: nil).
Contractual commitments on purchase of property, plant and equipment
During the years ended 31 December 2012, 2011 and 2010, 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 December
2012, purchase commitments on such contracts were primarily related to construction of the Vinnytsya poultry complex and amounted
to USD 14,689 thousand (2011: USD 80,168 thousand, 2010: USD 79,746 thousand).
Commitments on land operating leases
The Group has the following contractual obligations in respect of land operating leases as of 31 December 2012, 2011 and 2010:
Within one year
In the second to the fifth year inclusive
Thereafter
2012
2011
2010
22,011
74,288
79,551
12,480
41,457
64,713
11,855
37,037
51,688
175,850
118,650
100,580
The increase in contractual obligations under land operating leases was attributable to higher rates, introduced by the Ukrainian
Government effective from January 2012, used to determine the amount of such obligations.
Ukrainian legislation provides for a ban on sales of agricultural land plots till 1 January 2016. There are significant uncertainties as to the
subsequent extension of the ban. The current legislation has resulted in the Group holding land lease rights, rather than the land itself.
30. Fair value of financial instruments
Fair value disclosures in respect of financial instruments are made in accordance with the requirements of International Financial
Reporting Standard 7 “Financial Instruments: Disclosure”. 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.
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Myronivsky Hliboproduct Report and Accounts 2012 / 30. Fair value of financial instruments continued
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:
Financial liabilities
Bank borrowings (Note 23)
Senior Notes due in 2015 (Note 24)
Senior Notes due in 2011 (Note 24)
Finance lease obligations (Note 25)
Carrying amount
Fair value
2012
2011
2010
2012
2011
2010
501,141
581,671
–
67,447
279,488
577,157
–
51,825
198,518
573,043
9,979
61,216
508,702
601,385
–
66,342
283,677
513,697
–
51,418
199,185
613,339
10,092
63,420
The carrying amount of 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.
The fair value of Senior Notes was estimated based on market quotations.
31. Risk management policies
During the years ended 31 December 2012, 2011 and 2010 there were no changes to objectives, policies and process for credit risk,
capital risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk and commodity price and procurement risk managing.
Capital risk management
The Group manages its capital to ensure that entities of the Group will be able to continue as a going concern while maximising the
return to the equity holders through maintaining a balance between the higher returns that might be possible with higher levels of
borrowings and the security afforded by a sound capital position. The management of the Group reviews the capital structure on a
regular basis. Based on the results of this review, the Group takes steps to balance its overall capital structure through new share
issues and through the issue of new debt or the redemption of existing debt.
The Group’s target is to achieve a leverage ratio (net debt to adjusted operating profit) of not higher than 2.5. Prior to 2010 the Group
defined its leverage ratio as the proportion of debt to adjusted operating profit. During the year ended 31 December 2010, the Group
changed the definition of its leverage ratio, which now is determined as the proportion of net debt to adjusted operating profit.
As of 31 December 2012, 2011 and 2010 the leverage ratio was as follows:
Bank borrowings (Note 23)
Bonds issued (Note 24)
Finance lease obligations (Note 25)
Debt
Less:
Cash and cash equivalents and Short-term bank deposits
Net debt
Operating profit
Adjustments for:
Depreciation and amortization expense (Notes 7,8)
Adjusted operating profit
Debt to adjusted operating profit
Net debt to adjusted operating profit
2012
2011
2010
501,141
571,515
67,447
279,488
567,000
51,825
198,518
572,778
61,216
1,140,103
898,313
832,512
(94,785)
(96,535)
(173,781)
1,045,318
801,778
658,731
380,583
320,744
256,784
87,135
80,341
67,902
467,718
401,085
324,686
2.44
2.23
2.24
2.00
2.56
2.03
Debt is defined as bank borrowings, bonds issued and finance lease obligations. Net debt is defined as debt less cash and cash
equivalents and short-term bank deposits. For the purposes of the leverage ratio, debt does not include interest-bearing liabilities,
which are included in trade accounts payable (Note 26). Adjusted operating profit is defined as operating profit adjusted for
the depreciation and amortization expense and losses and gains believed by the management to be non-recurring in nature, as
this measure produces results substantially comparable to those reviewed for the purposes of financial covenants under the
Group’s borrowings.
72
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) Major categories of financial instruments
Financial assets:
Long-term bank deposits
Loans to employees and related parties
VAT bonds
Other receivables
Trade accounts receivable, net (Note 19)
Short-term bank deposits (Note 20)
Cash and cash equivalents (Note 21)
Financial liabilities:
Bank borrowings (Note 23)
Bonds issued (Note 24)
Finance lease obligations (Note 25)
Amounts payable for property, plant and equipment (Note 27)
Accrued interest
Trade accounts payable (Note 26)
Other current liabilities (Note 27)
2012
2011
2010
6,154
1,966
–
5,750
72,616
–
94,785
6,017
2,437
–
1,828
65,794
1,777
94,758
–
1,673
5,038
2,320
53,395
134,460
39,321
181,271
172,611
236,207
501,141
571,515
67,447
11,415
14,125
68,970
9,182
279,488
567,000
51,825
10,236
12,073
52,689
8,026
198,518
572,778
61,216
4,396
11,573
19,012
4,781
1,243,795
981,337
872,274
The main risks inherent to the Group’s operations are those related to credit risk, liquidity risk, currency risk, interest rate risk, livestock
diseases risk, and commodity price and procurement risk.
Credit risk
The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one customer
or group of customers. The approved credit period for major groups of customers, which include franchisees, distributors and
supermarkets, is set at 5-21 days.
Limits on the level of credit risk by customer are approved and monitored on a regular basis by the management of the Group. The
Group’s management assesses amounts receivable from the customers for recoverability starting from 30 and 60 days for receivables
on sales of poultry meat and receivables on other sales, respectively. No assessment is performed immediately from the date credit
period is expired. About 31% (2011: 28%, 2010: 29%) of trade accounts receivable comprise amounts due from 12 large supermarket
chains, which have the longest contractual receivable settlement period among customers.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all liabilities as they are due. The Group’s liquidity position is carefully
monitored and managed. The Group has in place a detailed budgeting and cash forecasting process to help ensure that it has
adequate cash available to meet its payment obligations.
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn
up based on the undiscounted cash flows of financial liabilities using the earliest date on which the Group can be required to pay. The
table includes both interest and principal cash flows as of 31 December 2012. The amounts in the table may not be equal to the
statement of financial position carrying amounts since the table includes all cash outflows on an undiscounted basis.
Year ended 31 December 2012
Bank borrowings
Bonds issued
Finance lease obligations
Total
Carrying
amount
Contractual
amounts
Less than
1 year
From 2nd to
5th year
501,141
571,515
67,447
526,824
734,613
76,735
313,702
59,939
25,705
195,146
674,674
51,030
After
5th year
17,976
–
–
1,140,103 1,338,172
399,346
920,850
17,976
All other financial liabilities (excluding those disclosed above) are repayable within one year.
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Myronivsky Hliboproduct Report and Accounts 2012 / 31. Risk management policies continued
Liquidity risk continued
The Group’s target is to maintain its current ratio, defined as the proportion of current assets to current liabilities, at the level of not less
than 1.2. As of 31 December 2012, 2011 and 2010, the current ratio was as follows:
Current assets
Current liabilities
2012
2011
2010
1,001,248
469,147
808,745
307,678
719,082
242,438
2.13
2.63
2.97
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, but the management of the Group sets limits on the level of exposure to foreign currency fluctuations in order
to manage currency risk.
The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities as of 31 December were as follows
ASSETS
Long-term bank deposits
Trade accounts receivable
Other current assets, net
Short-term bank deposits
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade accounts payable
Other current liabilities
Accrued interest
Short-term bank borrowings
Short-term finance lease obligations
Current portion of bonds issued
Non-current liabilities
Long-term bank borrowings
Bonds issued
Long-term finance lease obligations
2012
2011
2010
USD
EUR
USD
EUR
USD
EUR
–
8,607
732
–
73,270
82,609
30,592
593
13,312
270,362
12,794
–
6,154
–
35
–
1,017
7,206
–
3,794
688
–
71,766
76,248
6,017
–
–
–
1,165
–
1,954
386
75,000
27,217
7,182
104,557
–
–
–
–
128
128
4,897
5,508
813
31,296
8,698
–
12,146
266
11,416
151,918
9,605
–
3,522
7,389
657
17,264
9,662
–
104
–
11,163
89,371
8,323
9,967
2,798
2,587
311
23,627
15,504
–
327,653
51,212
185,351
38,494
118,928
44,827
68,104
584,767
25,013
131,379
–
20,536
30,561
584,767
25,581
79,745
–
6,977
26,021
584,767
24,219
33,085
–
13,170
677,884
151,915
640,909
86,722
635,007
46,255
1,005,537
203,127
826,260
125,216
753,935
91,082
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) The table below details the Group’s sensitivity to strengthening of the Ukrainian Hryvnia against the US Dollar and EUR. This sensitivity
rate 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.
2012
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
2011
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
2010
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
10%
10%
5%
5%
10%
10%
5%
5%
10%
10%
5%
5%
Change
in foreign
currency
exchange
rates
Effect on
profit
before
tax
(92,293)
(19,592)
46,146
9,796
(75,001)
(11,803)
37,501
5,902
(64,938)
(9,095)
32,469
4,548
The effect of foreign currency sensitivity on shareholders’ equity is included in the statement of comprehensive income. There are no
hedging activities in the other comprehensive income, so the statement of comprehensive income and the statement of changes in
equity impacts are the same.
During the years ended 31 December 2012, 2011 and 2010, the Ukrainian Hryvnia was relatively stable against US dollar. During the
year ended 31 December 2012 Ukrainian Hryvnia has depreciated against the EUR by 2.32% (2011: appreciated against the EUR by
2.60%, 2010: appreciated against the EUR by 7.65%). As a result, during the year ended 31 December 2012 the Group recognized net
foreign exchange losses in the amount of USD 3,285 thousand (2011: foreign exchange gains in the amount of USD 2,318 thousand,
2010: foreign exchange gains of USD 10,965 thousand) in the consolidated statement of comprehensive income.
In November 2012 the National Bank of Ukraine (“NBU”) introduced a requirement whereby a company is required to sell 50% of their
foreign currency proceeds from any export sales at Ukrainian interbank currency market. During the year ended 31 December 2012 a
USD 3,578 thousand foreign exchange gain resulting from the difference in NBU and Ukrainian interbank currency market exchange
rates, was included in Other operating expenses, net.
Group management believes that the currency risk is mitigated by the existence of USD-denominated proceeds from sales of sunflower
oil, grain and chicken meat, which are sufficient for servicing the Group’s foreign currency denominated liabilities and were as follows
during the years, ended 31 December 2012, 2011 and 2010:
Sunflower oil and related products
Grain
Chicken meat and related products
Other agricultural segment products
2012
2011
2010
227,835
138,639
112,931
431
222,418
63,101
67,874
486
188,156
22,454
29,147
290
479,836
353,879
240,047
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Myronivsky Hliboproduct Report and Accounts 2012 / 31. Risk management policies continued
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments. For variable
rate borrowings, interest is linked to LIBOR or EURIBOR.
The below table details the Group’s sensitivity to increases or decreases of interest rates by 5% (2011: 5%, 2010: 10%). The analysis
was applied to interest bearing liabilities (bank borrowings, finance lease obligations and accounts payable under grain purchase
financing arrangements) based on the assumption that the amount of liability outstanding as of the reporting date was outstanding for
the whole year.
Increase/
(decrease) of
floating rate
Effect on
profit before
tax
USD ‘000
2012
LIBOR
LIBOR
EURIBOR
EURIBOR
2011
LIBOR
LIBOR
EURIBOR
EURIBOR
2010
LIBOR
LIBOR
EURIBOR
EURIBOR
5%
–5%
5%
–5%
5%
–5%
5%
–5%
(17,146)
17,146
(8,189)
8,189
(9,263)
9,263
(4,781)
4,781
10%
–10%
10%
–10%
(11,825)
11,825
(5,778)
5,778
The effect of interest rate sensitivity on shareholders’ equity is equal to that on statement of comprehensive income.
Livestock diseases risk
The Group’s agro-industrial business is subject to risks of outbreaks of various diseases. The Group faces the risk of outbreaks of
diseases, which are highly contagious and destructive to susceptible livestock, such as avian influenza or bird flu for its poultry
operations. These and other diseases could result in mortality losses. Disease control measures were adopted by the Group to
minimize and manage this risk. The Group’s management is satisfied that its current existing risk management and quality control
processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect on current or future earnings from fluctuations in the prices of
commodities. To mitigate this risk the Group continues expansion of its grain growing segment, as part of vertical integration strategy,
and also accumulates sufficient commodity stock to meet its production needs.
32. Pensions and retirement plans
The employees of the Group receive pension benefits from the government in accordance with the laws and regulations of Ukraine.
The Group’s contributions to the State Pension Fund for the year ended 31 December 2012 was USD 58,450 thousand and is recorded
in the consolidated statement of comprehensive income on an accrual basis (2011: USD 48,563 thousand, 2010: USD 34,024
thousand). In January 2011 in accordance with the Law of Ukraine “On charge and accounting of unified social contribution” certain
changes in the administration of social charges were made and social charges are to become payable in the form of Unified Social
Contribution, including contributions to the State Pension Fund in range of 36.76%-49.7% of gross salary cost. The Group companies
are not liable for any other supplementary pensions, post-retirement health care, insurance benefits or retirement indemnities to its
current or former employees, other than pay-as-you-go expenses.
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Myronivsky Hliboproduct / Report and Accounts 2012How have we performed? continuedNotes to the consolidated financial statements continuedfor the year ended 31 December 2012 (in thousands of US dollars, unless otherwise indicated) 33. Earnings per share
The earnings and weighted average number of ordinary shares used in calculation of earnings per share are as follows:
Profit for the year attributable to equity holders of the Parent
Earnings used in calculation of earnings per share
2012
297,104
297,104
2011
243,376
243,376
2010
205,395
205,395
Weighted average number of shares outstanding
106,242,419
107,854,856
109,411,408
Basic and diluted earnings per share (USD per share)
2.80
2.26
1.88
The Group has no potentially dilutive ordinary shares nor other dilutive instruments; therefore, the diluted earnings per share equal
basic earnings per share.
34. Subsequent events
On 4 March 2013, the Board of Directors approved payment of a dividend of USD 1.13 per share, equivalent to approximately USD 120
million. Such dividend will be paid after the Company’s subsidiaries distribute their 2012 profits to the Company. Therefore, the dividend
will be paid as an interim dividend in 2013. The Company anticipates making a further announcement in this regard by mid-May 2013.
35. Authorization of the consolidated financial statements
These consolidated financial statements were authorized for issue by the Board of Directors of MHP S.A. on 4 March 2012.
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Myronivsky Hliboproduct Report and Accounts 2012 / Notes
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Myronivsky Hliboproduct / Report and Accounts 2012 Who are MHP?
MHP is a Ukrainian vertically integrated company,
operating each stage of the poultry production
process: from cultivation of land to production
and distribution of chicken meat.
MHP is the leading producer of
poultry and poultry products with
around 50% share of the market
for industrially produced chicken.
Our “Nasha Riaba” brand for
chilled chicken is one of the
strongest food brands in Ukraine.
MHP is constructing the biggest
poultry complex “Vinnytsia” in
Europe of 440,000 tonnes of
poultry meat capacity per annum,
the Phase 1 of which was
commissioned at the end of 2012.
MHP cultivates one of the
largest land banks in Ukraine
(around 285,000 hectares in 2012)
annually delivering harvest yields
across all crops almost twice
Ukraine’s average.
MHP’s meat processing
operations volumes fi rmly retain
10% of the highly fragmented
country’s market.
In 2012 MHP employed 27,800
people.
Contents
Who are MHP?
01 Financial highlights
02 Our geographic presence
What are our objectives?
04 Chairman’s statement
06 Market overview
How do we create value?
08 Chief Executive’s Review
10 Business Model and Strategy
12 Grain Review
14 Poultry Review
16 Other Agricultural Operations
How sustainable is our business?
18 MHP’s CSR Strategy, Values and Vision
How do we conduct our business?
22 Corporate governance
24 Risk management
26 Board of Directors
28 Directors’ Report
How have we performed?
29 Financial Review
35 Statement of Board’s responsibilities
36 Independent Auditor’s report
37 Financial accounts
Chicken Icon designed by C Vanderlee, from The Noun Project
Strawberry Icon designed by Alessandro Suraci, from The Noun Project
Microchip Icon designed by Alexandre Lachèze, from The Noun Project
www.mhp.com.ua
JSC Myronivsky Hliboproduct
158 Akademica Zabolotnogo Str, Kiev, 03143, Ukraine
For further enquiries: a.sobotyuk@mhp.com.ua
+38 044 207 00 70
Registered offi ce:
5 rue Guillaume Kroll
L-1822 Luxembourg
Registered number: B116838
Myronivsky
Hliboproduct
one of Ukraine’s
leading
agro-industrial
companies
Annual Report
and Accounts 2012
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