M
y
r
o
n
i
v
s
k
y
H
l
i
b
o
p
r
o
d
u
c
t
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
3
Myronivsky
Hliboproduct
One of Ukraine’s
leading
agro-industrial
companies
Annual Report and Accounts 2013
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.
Our Values
Our Vision
• We contribute to the development of
Ukraine by combining the best professionals
and advanced technologies
We are:
• dynamic in developing our business
through our vertically integrated model
• We enhance the knowledge and talents of
our people to enhance their careers with us
• the leading player in the Ukrainian poultry market
• unique as a centre of knowledge to provide
• We take responsibility for those who create and
industry leadership
secure the success of our company
• We strive to achieve best results by managing
environmental and financial resources wisely
• We create trust and cooperation by providing full
information to stakeholders on a regular basis
• unique in our use of vertical integration, professional
management and financial skill to drive our success
• an excellent employer, a contributor to local
communities and an organisation that operates
with due regard to the environment
Contents
01 Financial and operational highlights
02 Our Enterprises and Product portfolio
12 Chief Executive’s review
14 Market overview
16 A robust business model
04
Key Performance Indicators
18
Grain
06 Risk management
08 Board of Directors
10
Chairman’s statement
20
Poultry
22
Other agricultural activities
24 Sustainability
26 Financial review
32 Corporate governance
34 Directors’ report
35 Statement of the Board of Directors’
responsibilities
Financial statements
36 Independent Auditor’s report
37 Consolidated statement of
comprehensive income
38 Consolidated statement of
financial position
39 Consolidated statement of changes
in equity
40 Consolidated statement of cash flows
42 Notes to the consolidated financial
statements
Financial and
operational highlights
Company results and profitability
Percentage increase
2012–2013
Percentage increase
2012–2013
Percentage increase
2012–2013
Result
2013
6%
Revenue
Poultry
17%
Poultry production
23%
Grain production
26%
EBITDA margin
• During 2013 the Vinnytsia project has been
gradually launched into operations in line with
operational and investment plans. By the end
of 2013, nine of the 12 brigades were
operational and worked at full capacity.
• MHP’s production volume increased by 17%
to 472,800 tonnes (2012: 404,000 tonnes)
mostly due to the Vinnytsia poultry farm
production growth. Sales volume increased
by 19% to 447,000 tonnes (2012: 375,300
tonnes).
• MHP’s market share was around 50% of
industrially produced chicken in Ukraine,
which is one third of poultry consumption in
Ukraine.
• The average price decreased by 7%
year-on-year to UAH 15.99 per kg (net VAT)
compared to UAH 17.19 (net VAT) in 2012
mainly due to relatively stable domestic
poultry prices during 2013 and significant
increase of share of export sales volumes
from 15% in 2012 to 28% in 2013 as well as
lower export price in H2 2013 as a result of
new markets penetration.
• Export sales of poultry increased significantly by
over 110% year-on-year and constituted close to
123,000 tonnes (2012: 58,000 tonnes).
• The Company opened around 20 new export
markets both in Asia, the Middle East and Africa,
simultaneously increasing its exports trades
across all regions.
•
In July 2013, MHP was accredited (received “EU
numbers”) by the EU authorities for exports of
poultry products to the European countries. Since
October 2013, MHP has exported its poultry
products to the European market.
• MHP sold 240,100 tonnes of sunflower oil (2012:
195,000 tonnes), which is 23% more year-on-
year, due to the increased production of fodder
mill at the Vinnytsia complex. All sunflower oil
produced was sold to external customers at an
average price of US$1,033 per tonne (2012:
US$1,109) in line with international pricing trends.
• Revenue from sunflower oil and chicken export
sales denominated in US dollars in 2013 grew by
38% year-on-year.
Grain Growing
• By the end of 2013, MHP total land bank was
•
360,000 ha.
•
In 2013 MHP acquired its first 40,000 ha agri
asset beyond Ukraine in the Russian
Federation (Voronezh region) and also
increased its land bank in Ukraine by
35,000 ha.
In 2013 MHP gathered around 2 million tonnes of
crops (2012: 1,607,900 tonnes) from 287,000 ha
(2012: 250,000 ha).
• Due to MHP’s operational efficiency and
employment of best practice, grain yields in
2013 are strong and significantly higher than
Ukraine’s average.
Other Agricultural
• MHP sales volumes of meat processing
• MHP is a sustainable market leader in meat
products decreased by 6% to 33,210 tonnes
(2012: 35,200 tonnes) due to the product
portfolio optimisation during the year.
• Average sausage and cooked meat prices
increased by 6% to UAH 23.53 per kg (net
VAT) compared to UAH 22.20 per kg
(net VAT) in 2012.
processing in Ukraine with up to 10%
market share.
01
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Who are MHP?
Our Enterprises
and Product portfolio
An introduction
from the Chief Executive
“Our robust and broadly
based operation served us
well during the year. It was a
year when we produced
more poultry and
penetrated more
international markets than
ever before. We will
continue this progress in
2014 and beyond.“
Yuriy Kosyuk
Chief Executive
Our Enterprises
MHP’s enterprises are
located in 13 regions of
Ukraine and in the Russian
Federation (Voronezh
region). Vertical integration,
economy of scale and
efficiency are key elements
in our business model.
02
Poultry
Fodder
Vinnytsia Poultry Farm
Myronivska Poultry Farm
Druzhba Narodiv Nova Poultry Farm
Oril Leader Poultry Farm
Peremoga Nova Poultry Farm
Shahtarska Nova Poultry Farm
Starynska Poultry Farm
Grain
Zernoproduct MHP
Urozhay
Agrofort
Perspective
Urozhaina Kraina
Lypivka
Ridny Kray
Zernovy Kray
AgroKryazh
Voronezh Agro Holding (the Russian
Federation)
Fodder Complex “Ladyzhinsky”
Myronivsky Plant for Manufacturing
Groats & Feeds (MFC)
Katerynopilsky Elevator
Tavriysky Plant for Manufacturing Feeds
Elevators
Meat
Meat processing Plant Druzhba Narodiv
Myronivsky Meat Processing Plant “Lehko”
Ukrainian Bacon
Other Agricultural
operations
Druzhba Narodiv (cattle and pig farms)
Crimean Fruit Company
Snyatynska Nova Poultry Farm (goose)
Myronivsky Hliboproduct Annual Report and Accounts 2013 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
MHP is a leader of
the Ukrainian market
producing all range
of chicken products
from chilled to frozen,
from whole and cuts to
convenience food.
Key products
and brands
Chilled chicken, whole or in portions
Frozen chicken, whole or in portions
Pre-cooked convenience food
Sunflower oil
US$, million
1,201
Sales in 2013
Domestic brands:
Export brands:
Grain Growing
Key products
MHP cultivates one of
the biggest land banks
in Ukraine with high
efficiency and technology
of best practice.
Corn
Sunflowers
Wheat
Rapeseeds
Soyabeans and other crops
US$, million
133
External sales in 2013
Total land bank
360,000
hectares by the end of 2013
Other
Agricultural
Meat processing is a logical
step in vertical integration
of MHP.
Foie gras and goose meat
are accredited for export to
the EU.
Key products
and brands
Sausages
Cooked meats
Premium fresh beef
Foie gras
Goose meat
Fruit and Milk
US$, million
162
Sales in 2013
03
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements How do we measure our success?
Key Performance
Indicators
Revenue US$m
1600
1400
1200
1000
800
600
400
200
0
1,408
1,496
1,229
944
803
711
2008
2009
2010
2011
2012
2013
Revenue in 2013
The Company has shown a steady development,
evidenced by a progressive increase in revenues. In
2013 they reached US$1,496 million (2012: US$1,408
million), 38% of which was received in hard currency
derived from the export sales of, in particular,
sunflower oil, chicken meat and grains.
Future
MHP will continue to grow its operations across all its
business segments - in particular, Poultry and Grain
- as well as boost its hard currency revenues in line
with the Company’s operational expansion strategy.
Gross profit US$m
450
400
350
300
250
200
150
100
50
0
422
361
324
238
247
293
2008
2009
2010
2011
2012
2013
Gross profit in 2013
Gross profit in 2013 decreased to US$324 million,
driven mainly by lower earnings in the Grain segment.
Gross margin decreased from 30% in 2012 to 22%
in 2013.
Future
The Company expects higher gross profit as a result
of greater production volumes, efficiencies,
economies of scale and growth in prices.
EBITDA US$m
468
401
391
312
271
325
2008
2009
2010
2011
2012
2013
500
450
400
350
300
250
200
150
100
50
0
04
EBITDA in 2013
EBITDA totalled US$391 million, 16% lower than in
2012 (US$468 million). This was mostly due to low
grain prices for the 2013 harvest and high fodder
costs for poultry during the first 9 months of the year.
EBITDA margin decreased from 33% in 2012 to 26%
in 2013.
Future
The Company expects EBITDA to increase, taking
into account the low grain prices in 2013. These will
filter through to lower production costs in 2014. There
is also the potential for increased poultry and grain
prices in Ukraine, at a time when MHP is looking
forward to greater production volumes in both of
these segments.
Myronivsky Hliboproduct Annual Report and Accounts 2013 Key Performance
Indicators by segment
Poultry: production thousand tonnes and EBITDA margin %
500
400
300
200
100
0
473
384
404
285
360
225
2008
2009
2010
2011
2012
2013
Adjusted EBITDA margin %
Poultry production development
Since 2006 MHP has been investing heavily in the
construction of greenfield poultry complexes. As a
result, production volumes of chicken meat over the
last six years have more than doubled: from 225,000
tonnes in 2008 to 472,800 tonnes in 2013. In 2014,
due to the additional production increase at the
Vinnytsia complex, MHP is targeting production of
more than 550,000 tonnes of chicken meat.
Adjusted EBITDA margin
The adjusted EBITDA margin in 2013 decreased to
30% (2012: 35%), mostly due to increased fodder
costs and lower poultry prices compared to 2012.
50%
40%
30%
20%
10%
0
Grain: production thousand tonnes and EBITDA margin %
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1,712
1,607
1,984
960
913
735
2008
2009
2010
2011
2012
2013
Adjusted EBITDA margin %
50%
40%
30%
20%
10%
0
Grain production development
MHP has been gradually increasing its land bank
since 2005. Currently it operates 360,000 hectares
(ha) of land. In 2013 the Company produced around
2 million tonnes of crops, which is 23% more than in
2012. By 2016, MHP plans to have increased its land
bank to around 450,000 ha.
Adjusted EBITDA margin*
The adjusted EBITDA margin in 2013 was 10% (2012:
35%), due to significantly lower international grain
prices compared to 2012.
* Comprised the result of crops harvested in respective years only
other expenses (net).
EBITDA margin %: consolidated and by segment
60
50
40
30
20
10
0
2008
2009
2010
2011
2012
2013
Adjusted EBITDA margin (Poultry) %
Adjusted EBITDA margin (Grain growing) %
Consolidated adjusted EBITDA margin %
Consolidated Adjusted EBITDA margin
MHP enjoys strong and sustainable business
profitability thanks to its vertically integrated model
of Poultry and Grain operations. In 2013 the
consolidated adjusted EBITDA margin was 26%,
which is 7 percentage points lower than in 2012 and
in line with EBITDA trends (see page 04).
Future
MHP expects its consolidated adjusted EBITDA
margin to remain strong and, within the 25-33%
range, well above those of its domestic and
international peers. Again this is due to its robust
vertically integrated model.
05
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements 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.
Increased cost for, or disruptions
in, gas and fuel supplies
Potential Impact
Gas and fuel, used for production and
distribution, are imported. Uncertainty in
supply and fluctuating prices could affect
production and costs.
Mitigation
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,
and proportion is converted into briquettes for
generating energy and these are exported.
Weather
Potential Impact
Inclement weather could affect crop yield.
Mitigation
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.
Operational risks
Fluctuations in demand and
market prices
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.
Avian flu and other livestock
diseases
Potential Impact
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.
Mitigation
We operate strict biosecurity measures,
including disinfectant washes and culling wild
birds in the immediate vicinity of our farms.
Fluctuations in grain prices
Potential Impact
World prices could affect our poultry
production costs.
Mitigation
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 20% 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).
06
Myronivsky Hliboproduct Annual Report and Accounts 2013 Interest rate risk
Potential Impact
Changes in interest rates affecting the cost of
borrowings, the value of our financial
instruments, and our profit and loss and
shareholders’ equity.
Mitigation
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.
Political and country risks
Potential Impact
Decrease in profitability and impairment
of assets.
Mitigation
Our operations extend throughout all regions
of Ukraine with wide regional diversification.
Deep vertical integration and internally
developed supply chains allow our operations
located in potentially distressed regions of
Ukraine to remain self-sufficient with both
production needs and markets, even in the
case of temporary regional isolation.
Financial risks
Credit risk
Potential Impact
Debtors fail to make scheduled payments.
Mitigation
No single customer represents more than 8%
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 franchisees, is restricted to
between five and 21 days.
Liquidity risk
Potential Impact
Lack of funds to make payments due.
Mitigation
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.
Currency exchange risk
Potential Impact
Exposure to depreciation of UAH against
US dollars.
Mitigation
We earn around 40% of our total revenue in
US dollars through the sale of sunflower oil,
sunflower husk, chicken meat and grain.
The amount of exports sales will continue to
increase with further expansion of Vinnytsia
poultry complex and strengthening of
positions on export markets. This will allow us
to service all our dollar-denominated loans
and payments for operational purchases.
07
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements How do we conduct our business?
Board of Directors
1
2
3
1. Yuriy Kosyuk
2. Viktoria Kapelyushnaya
3. Yuriy Melnyk
Chief Executive Officer
Mr Kosyuk founded MHP in 1998
and is also the CEO of PJSC MHP.
In 1995 he founded the Business
Centre for the Food Industry (BCFI)
and was its 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
Kiev Food Industry Institute in 1992.
Chief Financial Officer
Ms Kapelyushnaya, who is also
Financial Director of PJSC MHP,
joined MHP in 1998 and was elected
to the Board in 2006. She was
previously Deputy Chief Accountant,
and then Chief Accountant, of BCFI.
She holds diplomas in Meat
Processing Engineering (1992) and
Financial Auditing (1998) from the
Kiev Food Industry Institute.
First Deputy CEO
Mr Melnyk is a scientist focusing on
animal breeding and selection. He is
a Doctor of Agricultural Sciences,
Senior Researcher and Academician
of the Ukrainian National Academy of
Agricultural Sciences.
In 1985 he graduated from the
Animal Science faculty (breeding
department) of the Ukrainian
Agricultural Academy. Mr Melnyk
holds a Ph.D. in Agricultural Sciences,
specialising in animal breeding and
genetics (2000). He has been a
Member of the Ukrainian Academy of
Agricultural Sciences since 2002, and
a Doctor of Agricultural Science in his
specialism from 2010.
Since March 2010, Mr Melnyk has
been the First Deputy CEO of MHP.
08
Myronivsky Hliboproduct Annual Report and Accounts 2013 4
5
6
7
4. Charles E. Adriaenssen
5. John Grant
6. Dr John C. Rich
7. Philippe Lamarche
Non-Executive Chairman of
the Board, and of the
Nominations and
Remunerations Committee
Mr Adriaenssen joined the Board
and became Chairman in 2006.
He is Founder and Chairman of
CA & Partners SA, a consulting
company, Chairman of Outhere SA,
an independent European classical
music publisher, and Chairman of
Bastille Investments, a private
investment company. He was a
director of INTERBREW between
2000 and 2004 and, since 2000,
has been a director of Rayvax SA,
a holding company of ABINBEV.
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.
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.
Non-Executive Director
Dr Rich joined the Board in 2006. He
is the senior regional consulting
agribusiness industry specialist for
the International Finance Corporation
(EMENA and West Africa), a
non-executive director of Axzon
Denmark and an executive director of
Australian Agricultural Nutrition and
Consulting Pty Ltd. In addition, he is a
senior board consultant for a number
of agribusiness companies
worldwide. 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.
Non-Executive Director
Mr Lamarche joined the Board in
2011. He is a private banker of
Banque Puilaetco Dewaay,
Luxembourg and has been involved
in wealth management and
structuring in that country since
1997. He previously worked as a
solicitor in the shipping industry in
Belgium and Luxembourg. He holds
a degree in law and economics from
The Catholic University of Louvain
and a degree from the European
Association of Financial Analysts.
09
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 How are we creating value?
Chairman’s statement
Deal of 2013
40,000ha
MHP’s first deal outside of
Ukraine (in the Russian
Federation)
It is always pleasing to report an excellent
performance, but to record impressive results
against a background of challenging market
conditions is particularly gratifying.
The year 2013 was notable for a collapse in
commodity prices which, as a significant
grower of grains, was inevitably reflected in the
financial results of MHP.
Yet it says much about the quality of the
Company’s people, and the strength of its
structure, resources and brand, that we were
able to weather the storm and look forward to
better conditions.
Indeed, our vertically integrated model means
that this could still have silver linings. In 2014,
we can look forward to significantly lower
costs for our poultry production, and higher
margins, just as Phase 1 of our multi-million
dollar new production facility becomes
fully operational.
This was a year when MHP showed
professionalism, resilience and maturity;
qualities that augur well as the Company
seeks to realise its full potential both
domestically and in new territories.
We can take a great deal of
pride from our performance
in 2013: it showed our
capability to produce
sustainable results in the
face of adverse conditions.
Dividend payment in 2013
39%
of net profit
In 2013 MHP introduced its
dividend policy and paid its first
dividend for 2012, which
constituted US$120 million
10
Myronivsky Hliboproduct Annual Report and Accounts 2013 The outlook
After the challenges of 2013, which were
largely outside of our control, we are looking
forward to realising the upside of lower
commodity prices.
This will feed through to lower production
costs and higher margins, and at an especially
welcome time as Phase 1 of our Vinnytsia
project becomes fully open and contributing
to production. This net effect will be a
considerable offset to the impact of market
conditions last year.
In addition, we fully intend to follow up
our successful acquisition in the Russian
Federation in 2013 with other exciting
possibilities outside of our borders. By the
EU and indeed global standards we are now
a very large producer, and strategically we are
focused not only on developing exports but
also adding value through carefully chosen
acquisitions in mature markets where we
can benefit from our enhanced margins
and profitability.
In 2014 we are therefore being highly active
in casting our net far and wide in Europe, and
possibly further afield, in search of excellent
consolidation opportunities.
This is a testament to the quality of
management and high calibre of people
whose efforts drove the Company forward
during the year. As a Board, we thank each
and every one for their skill, enthusiasm
and dedication.
We were pleased to authorise a significant
dividend payment for the first time in 2013.
This marks a new policy, and we intend
to become consistent in this regard in
future years.
The Board
The Board enjoyed a year of continuity with
no changes in its composition.
I continue to be impressed not only with the
mix of skills and experience we have around
our table but the highly productive way
the Board functions and engages with the
management team. This is based on clear and
continuous communication and the quality of
information we receive.
During 2013 measurable progress was made
in ever-more demanding areas such as risk
management, finance and legal issues, as well
as honing and updating key policy areas such
as anti-bribery, environmental and animal
welfare standards.
I believe the excellent functioning of the Board
and its deep knowledge of the business
serves its stakeholders well. Equally, evolving
its composition is always an option as fresh
thinking and skills become required.
A solid financial performance
Our financial performance in 2013 illustrated
our ability to deliver creditable results in even
highly unfavourable conditions.
An integrated business model and careful
management of costs, significant progress of
the Vinnytsia complex launch during 2013
and, as a result, increased poultry sales,
resulted in 6% revenue growth to US$1,496
million (2012: US$1,408 million).
However, due to the inflated poultry
production cost, softening average poultry
prices and lower prices for crops harvested in
2013, MHP generated EBITDA of US$391
million, 16% lower than last year (2012:
US$468 million).
Achievement, internally and externally
In my report last year I said that MHP had a
clear strategy: to increase our production,
extend our exports and build our brands. Our
performance in this reporting year has been
true to each of these goals.
We have made excellent progress building
out our Vinnytsia project, closing the year with
nine of the 12 brigades coming into service
and producing at full capacity. For the first
time, we also ventured beyond Ukraine to
make a strategic acquisition to increase our
land bank.
We extended our exports into new territories
and received the green light of EU
accreditation. At home, we increased our
market share to over 50% and strengthened
our position for a future growth.
If a single word could categorise MHP, it is
“efficient”. Our business model has efficiency
at its heart, and the Company is tireless in its
pursuit of optimising its activities. So during
the year, from the well-above-average crop
yields to the greatly improved finance terms of
our renegotiated Eurobonds, 2013 brought
many important successes.
11
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements How are we creating value?
Chief Executive’s
review
2013
26%
EBITDA margin
Another year of professionalism,
productivity and important
gains towards our goal.
12
When in years to come we look back on the
development of MHP, 2013 will be a year we
recall with considerable satisfaction.
The word “up” is one we can use against all the
key indicators. Turnover, sales, exports, markets,
production, capacity – every major metric from
2013 makes pleasing reading.
It is also the mark of a strong company when
it can manage adverse market conditions.
During the year, and in line with all Ukrainian grain
growers, we were challenged by lower market
prices for our output year on year. Our robust
and broadly based operation served us well,
and our vertically integrated model means that
those low prices are now working in our favour
in the form of lower production costs for the
poultry segment.
We have therefore entered 2014 with great
optimism; a year when we will produce more
poultry and penetrate more international
markets than ever before; and more grains
from new lands.
Highlights of 2013
Projects: on schedule, on budget
Our quest to strengthen our business never
ceases and in 2013 we made important
progress on a number of fronts. These included:
• Efficient production capacity
Having previously announced our intention to
increase production, we delivered on our
promise with positive action. During 2013 we
gradually phased in extra capacity created
at our new Vinnytsia complex. By the end of
the year, nine of the 12 new brigades were
operational and working at full capacity,
contributing to an overall production increase
of 17% year-on-year. This major project,
which we started in mid-2012, will soon
complete its Phase 1 development and add
a further three brigades during 2014. The
complex also enhances our ethos of
self-sufficient vertical integration, bringing
together different facets of agriculture and
poultry production under the efficient control
of a single facility.
• An increased land bank
Our agricultural capacity was boosted by
our successful acquisition of 75,000
additional hectares of excellent arable
land. For the first time, this included
40,000 hectares outside our borders, in
the Russian Federation. In the south of the
country, conditions, the soil, climate, skills
and techniques – are very similar to our
own, but an important difference is that
the investment CAPEX required is
attractively lower.
Myronivsky Hliboproduct Annual Report and Accounts 2013 • Development of people
We are determined to maximise the
opportunities unfolding before us and in
2013 we took decisive steps to strengthen
our senior management teams.
deemed the time was right to be able to share
the Company’s success with our loyal
shareholders in a meaningful way. The funds
allocated for this purpose amounted to
US$120 million, or 39% of net profit.
Our sales team was also fully reconfigured,
producing immediate and tangible results:
like-for-like sales increased by 6% during the
reporting year in a stable market.
We also achieved record yields from our land
and, as is customary, far exceeded national
averages for Ukraine. The differentiating factor
is always our people: their skill, and our
training and support, produces results far in
excess of industry norms. Add to this an ideal
hot and wet growing climate in 2013, and the
result was an outstanding harvest.
Excellent progress in exports
During the year we consolidated our position
as the leading industrial producer of chicken
meat in Ukraine, which resulted in strong 50%
market share of industrially produced chicken
meat in 2013.
Our revenues from poultry and related
operations rose to US$1,201 million. While
domestic consumption remained robust –
chicken accounts for around 50% of all meat
sold in Ukraine – an important contributor was
a marked increase in our exports. During the
year, we sold 123,000 tonnes of chicken to
markets outside Ukraine, representing an
increase of 112% over 2012.
This growing international reach is an
important strategic advance: we were
successful in taking our poultry products to
around 20 new countries during the year, with
a wide geographical spread ranging across
Africa, the Middle East, and Asia. This widens
our customer base and provides a valuable
hedge against any potential domestic issues
and fluctuations.
We were also delighted to receive full EU
certification for our products during the year.
This was the successful conclusion of five
years’ concerted work to satisfy all
compliance issues, and it will open up
important possibilities.
Our first dividend
It is also a sign of our growing maturity that we
were in a position to make our first dividend
payment in 2013.
With our previous phase of major capital
expenditure being largely complete, we
Our intention is to maintain dividend
payments in the future and follow the best
international practice.
The outlook for 2014
There is much to look forward to as we build
on our progress in 2013.
During 2014 we expect the final completion of
Phase 1 of the Vinnytsia project. This will add
a further three production brigades, taking the
total annual capacity to over 550,000 tonnes
of chicken meat.
Plans for Phase 2 are now being considered
with the ultimate aim of elevating production
to 800,000 tonnes a year. We believe this
would create the most efficient chicken meat
production facility in Ukraine (and indeed
Europe) and deliver significant economies
of scale.
We will continue to focus on our export
business, cementing our new territories and
allocating around 25-30% of our total
production to this increasing coverage of
countries and continents. Europe will also be a
key growth area as we build on our initial
exports made there in 2013.
The results of our biogas project to power our
operations have been very encouraging. The
efficiencies and good eco sense make a
compelling case to roll out the concept to
other MHP production facilities and we are
investigating the possibilities now.
We will maintain our investment in people and
build on our reputation as being a high-quality
and transparent employer. This helps us to
attract and retain the high performers we need.
Every employee will have a career development
plan and in 2014 we will trial an Employee
Satisfaction Survey with the aim of rolling it out
to the whole Company in due course.
MHP is also the biggest employer of talented
graduates in our sector and we will strengthen
our links with the major universities.
By bringing together the brightest minds and
the very best facilities and technologies, we
bring our goal ever-closer: to become the
leading poultry producer in Europe.
Percentage increase
2012–2013
23%
in grain production
Total MHP harvest accounted
for around 2 million tonnes of
crops as a result of land bank
increase, favourable weather
conditions, and application of
best agri technics.
Percentage increase
2012–2013
17%
in poultry production
Due to the significant progress
of the Vinnytsia complex, MHP
increased its poultry production
volumes to around 473,000
tonnes (2012: 404,000 tonnes).
13
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements What are our objectives?
Market overview
According to the SSCU, in
2013 overall consumption
of meat in Ukraine remained
stable at 56 kg per capita.
The domestic meat market
Meat production
In 2013, supplies of meat to the Ukrainian
market, including imports, amounted to
approximately 2.6 million tonnes, which
remained almost at the same level as in 2012.
Market share
Industrial production %
MHP
Agromars
Dniprovski
Agrooven
Volynska
Others
50%
14%
5%
5%
4%
22%
Source: SSCU, Poultry Producers
Union of Ukraine
The majority of meat consumed in Ukraine,
across all kinds, is industrially produced.
According to the SSCU (State Statistics
Committee of Ukraine), industrial producers
accounted for 60% of total meat produced
domestically in 2013. Of this, the percentage
of industrially produced poultry (82%) was
significantly higher than that of beef (27%),
pork (47%) or of meat generally (60%).
The Company believes that this relatively high
level of industrialisation continues to enable
poultry producers (including MHP) to respond
more efficiently than others to increased
demand for meat products.
Overall production of poultry in Ukraine
increased by approximately 11% in volume
year-on-year and constituted around 1.2
million tonnes of chicken meat. At the same
time, production of pork and beef increased
by 9% and 4% accordingly, mostly due to the
slight decrease in household production and
increase in industrial production. In total,
765,000 tonnes of pork and 403,000 tonnes
of beef were produced during the year.
Imports
Even though agriculture plays a fundamental
role in the Ukrainian economy, the amount of
imported meat consumed has remained
significant over the last 10-15 years. In 2013, it
amounted to about 14% of meat consumed
in Ukraine.
In 2013, total imports of meat stood at
400,000 tonnes, of which over 43% was
poultry (including unofficial imports of around
45,000 tonnes). Most imported chicken meat
comprised carcasses and other low-value
constituent parts, for use by meat processors.
Exports
Just as the production of poultry in Ukraine is
growing annually, so are exports. In 2013
Ukraine exported around 176,000 tonnes of
different meats (2012: 118,000 tonnes), 83%
of which was poultry meat (see chart, p.15).
Consumption
During the year, consumption of meat, and the
choice of meat types, remained rather similar
to 2012.
According to the SSCU and the Poultry
Producers Union of Ukraine, annual intake
amounted to 56 kg per capita with the
amounts of poultry, pork and beef each
remaining relatively static year-on-year.
The level of meat consumption in Ukraine is
still below the annual recommended dietary
requirement, which is approximately 80 kg
per capita per annum.
Global meat consumption
thousand tonnes
Global meat trade
thousand tonnes
10,000
8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Pork
Poultry
Beef and veal
Pork
Poultry
Beef and veal
120,000
100,000
80,000
60,000
40,000
20,000
0
14
Myronivsky Hliboproduct Annual Report and Accounts 2013
In line with international market trends, we
believe that consumption of chicken meat will
grow in the short and medium terms. This is
based on the relative affordability of meat for
the Ukrainian consumer, the difference in price
between poultry and pork and beef, and
dietary reasons.
International market
The meat industry worldwide has
demonstrated substantial development over
the last 20 years and more.
Global meat consumption has increased
significantly, driven mostly by the growth of
poultry consumption in emerging market
countries. During the same period, the growth
rate of beef and veal production has been
slowing. Poultry, amounting to 34% of the
world’s meat production volume, is now the
second largest meat market after pork.
The growth of poultry consumption reflects
changing consumer preferences for making
healthier dietary choices. Poultry is also
unaffected by religious restrictions. Behind
the scenes, a shift from small-to large-scale
production units; vertical integration of
companies; shorter production cycles; and
lower production costs compared to beef
and pork have all contributed to the growth
of the poultry industry. Future consumer
behaviour will be mostly influenced by price,
recognising poultry as a highly competitive
source of protein.
Global meat demand and trade continue to
grow strongly, especially in many middle-and
low-income countries, including Ukraine.
Trade volumes of poultry have increased
steadily during the last 40 years. Indeed,
poultry meat is now the most traded meat. in
2013, the total volume of imports was around
9 million tonnes – well ahead of pork and beef.
In 2013, the leading global importers were
Japan, Saudi Arabia, Mexico, the EU, Iraq and
the Russian Federation. The top global
exporters were the United States, Brazil, the
EU and Thailand.
With Ukraine’s strong agricultural heritage,
its potential to become a major exporter of
chicken meat is considerable. MHP being
a leading producer of chicken meat in Ukraine
is ready to become one of the leading
exporter’s of protein to the international
markets and has great potential to develop
this business direction.
Imported and exported meat
thousand tonnes
Meat consumption in 2013
kg per capita
18%
14%
16%
17%
14%
700
600
500
400
300
200
100
0
115
102
51
48
120
100
80
60
40
20
0
78
Biological norm: 80kg
63
64
56*
22
32
25
26*
2010
2011
2012
2013
USA
Brazil
EU-27
Mexico
Russia
Ukraine
2009
Imported
poultry
Unofficial import
of poultry*
Imported
other meats
Exported
poultry
Exported
other meats
Total meat
Poultry
Source: SSCU, Poultry Producers Union of Ukraine
* Company’s estimates
* Includes unofficial poultry import
Source: SSCU, Poultry Producers Union of Ukraine
* Company’s estimates
% imported as % of total poultry supply
Top poultry importers 2013
thousand tonnes
Top poultry exporters 2013
thousand tonnes
860
810
675
670
655
540
1000
800
600
400
200
0
355
340
300
270
260
238
233
200
185
175
Japan
Saudi
Arabia
Mexico European
Iraq
Russia
Union
South
Africa
Angola Venezuela Hong
Kong
China
Kazakhstan Cuba
Ghana
Ukraine
United
Arab
Emirates
4000
3500
3000
2500
2000
1500
1000
500
0
3,580
3,354
1,095
540
415
365
323
150
145
100
Brazil
United
States
European
Union
Thailand
China
Turkey
Argentina
Canada
Ukraine
Belarus
Source: SSCU, Poultry Producers Union of Ukraine
Source: SSCU, Poultry Producers Union of Ukraine
15
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
How does MHP work?
A robust business model
of vertical integration
18-19
Grain
Operating one of the
largest land banks in
Ukraine
Sunflower
protein
Fodder
production
360,000
hectares
1,984,170
tonnes per annum
100%
self-sufficiency in corn
Our main crops are corn,
sunflower, wheat, soyabeans
and rapeseed. Corn and
sunflower are used in our
fodder mills for fodder
production; wheat, soyabeans
and rapeseed are sold to third
parties through world grain
trading companies.
Export revenues from grain
sales serve us as ‘a natural’
hedging.
“MHP’s unique vertically
integrated business model,
intensive capital expenditure
and professional personnel
are key factors behind our
stability and success.“
Yuriy Kosyuk
Chief Executive Officer
16
Myronivsky Hliboproduct Annual Report and Accounts 2013 20-21
Poultry
Around 50% of
industrial production
and one third of
domestic consumption
with one of the
strongest food brands
“Nasha Riaba”
Hatching
22-23
Other
agricultural
activities
Meat processing is a
key contributor to the
segment
Processing
Retail
Distribution
Bio gas production
The poultry production sector
includes five broiler farms, two
breeder farms (with facilities for
producing hatching eggs) and
six hatcheries. 100% of poultry is
processed at our own facilities.
Our 11 distribution centres and
around 500 refrigerated delivery
vehicles enable us to deliver our
products, chilled as well as
frozen, to our customers.
5broiler farms
2breeder farms
2,600
franchised outlets
As a logical step in our vertical
integration model, MHP
produces meat processing
products, where chicken meat
is a main ingredient.
Approximately 1,500 hectares
of land in Crimea are dedicated
to orchards, of which 50% is
under apple trees.
3processing facilities
33,210
tonnes of meat
processing
products in 2013
35,640
tonnes of fruits
17
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 A fertile year for our talents
Divisional review
Grain
In 2013, we increased our
total land bank by 26% and
recorded one of our
outstanding harvests
Land bank increase
2012–2013
Grain production
By volume %
+75,000
fresh hectares
Corn
Wheat
Sunflower
Rapeseed
Soya
Other
57%
11%
7%
3%
2%
20%
Percentage increase
2012–2013
23%
harvest of crops
2013 harvest yields
By tonnes per hectare
10
8
6
4
2
0
8.8
6.4
5.4
3.4
3.5
3.2
2.2
2.4
2.2 2.1
Corn
Wheat Sunflower Rapeseed
Soya
MHP’s average*
Ukraine’s average**
* Tonnes per hectare
** Source: SSCU
18
Myronivsky Hliboproduct Annual Report and Accounts 2013
To quote the novelist Mark Twain: “Invest in
land. They’ve stopped making it.”
High quality, productive land has always been
at the heart of our vertically integrated strategy.
We were therefore pleased to make significant
gains in our land bank resources during 2013.
By cultivating more agricultural land and
applying innovative techniques we achieved
yields well in excess of the Ukrainian average,
we made our business self-sufficient in the
grain we need and, importantly protected the
Company from volatility in the international
grain markets.
Despite challenges with weather during the
autumn, through strong management and fully
engaged operational teams, we succeeded in
gathering the harvest even earlier than in 2012
– and, indeed, from more land.
The majority of our total harvested production
– around 65% – is used to meet our own
feedstock needs. We also grow non-fodder
crops to enable us to operate a crop rotation
system. The rest of crop we sell on the market
to generate export revenues in US dollars.
This protects the Company from currency
risks and serves as a natural hedge.
As our business expands each year, so does
our land bank. We entered 2013 with 285,000
hectares (ha) and were pleased to close it with
an additional 75,000 ha.
In 2013, grain export sales amounted to
US$101 million from 353,000 tonnes. This
compared to US$139 million from 480,000
tonnes in 2012.
For the first time, we looked beyond our
traditional borders to acquire 40,000 ha in the
Voronezh region (the Russian Federation).
More than just valuable land, this complex
acquisition also included a silo which offers
capacity of 200,000 m3 and a range of
agricultural infrastructure and equipment. The
deal was a natural fit for MHP, bringing many
synergies in terms of techniques, climate, as
well as lower capital costs. We are already
making good progress in integrating MHP’s
standards of efficiency and productivity into
this new asset and we look forward to its first
contribution to our harvest in 2014.
This milestone move for MHP is in tune with
other areas of our business where,
increasingly, we are exploring for opportunities
outside our home country.
In addition, we added a further 35,000 ha in
Ukraine, taking our land assets to 360,000 ha.
The acquisitions further cemented our position
as one of the largest operators of agricultural
land in Ukraine. Indeed, Latifundist.com ranks
MHP as having the fourth largest land portfolio
in the country.
2013: an excellent harvest
Not even the most effective integrated model
can control the weather, but 2013 will be
remembered as one of the strongest years
when our achievements on the ground were
complemented with ideal growing conditions.
The summer was hot and wet, the basis for
optimum quality and considerable quantity.
In 2013 MHP gathered harvest from 287,000
ha and received almost 2 million tonnes of
crops (2012: over 1.6 million) and oilseeds,
with pleasing results for corn, winter wheat
and sunflowers.
Grain: a challenging market
During the year crop prices in Ukraine
experienced a considerable dip compared
with those of 2012, and this was in line with
international commodity market trends. In
2013, revenues from grain growing operations
decreased to US$133 million (2012: $169
million), generating EBITDA of US$39 million.
EBITDA per hectare was US$136 (2012:
US$447).
Despite enjoying a strong harvest in 2013,
a decrease in market prices meant that
increased yields unfortunately did not offset
falling prices.
However, with our vertically integrated
business model, and the fact that the
Company is its own largest customer for
crops to feed our livestock, the upside is that
lower grain prices in 2013 will lead to the lower
production costs per kilo in 2014.
Silo and other storages
The Company’s crops are retained for our
own fodder production in extensive facilities to
store harvested grains in optimum conditions.
We have therefore invested heavily in silo
resources, as well as leading-edge ground-
based solutions, and have increased our
capacity from 1,230,600 m3 to 1,766,000 m3.
The increase was mainly due to two new
elevators totalling 185,000 m3 capacities in the
Sumy and Khmelnytsky regions and a new
type of storage (ground plastic bags for crops
– “sleeves”).
Driven by our rapidly growing poultry volumes,
in 2013 MHP produced around 1.4 million
tonnes of fodder at four fodder mill complexes,
a rise of 16% over 2012.
The power of people
Our ability to out-perform national average
yields is a direct result of the talents and skills
of our people, coupled with our intensive
investment in land. Sowing our crops is, quite
literally, sowing the seeds of success of MHP
in future years.
The Company has earned a reputation as an
employer of choice and all our businesses
have access to the wide pool of excellent
candidates that we attract. As a result
we employ high-calibre people with
demonstrable potential or proven success
in this particular discipline.
MHP’s specialists are supported by a major
investments in R&D, laboratory facilities and
testing programmes. As importantly, they have
access to knowledge-sharing and practical
experiences, with an active programme of
domestic and international site visits to share
techniques and concepts with farmers,
scientists and commercial managers.
Our professionals also need to be able to
look far ahead: the profit per hectare in the
medium-term is already being influenced by
actions taken to prepare the ground now.
Anticipating the needs of the soil and seeds,
and gauging the optimum use of chemical
and organic fertilisers, are specialist
skills indeed.
MHP’s success is rooted in our ability to excel
in grains production and remain self-sufficient
in meeting the requirements for poultry
production. It therefore receives our maximum
focus and, we believe, delivers results that
reflect that commitment.
Our objectives for grain in 2014
The reporting year was a significant one in
terms of our land bank keeping pace with our
ambitious production goals. With 75,000
additional hectares to manage and develop,
2014 will be a year of consolidating our assets
and ensuring that our rigid quality standards
continue to be uncompromised on this
larger scale.
Therefore, we are content at this stage with
organic growth in the year ahead. However, by
2015-2016 we are targeting a land bank of
approximately 450,000 ha, and if exceptional
opportunities present themselves we stand
ready to respond.
19
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
The Ukraine’s lowest-cost industrial producer of poultry
Divisional review
Poultry
Delivering the efficiencies
and reliability of vertical
integration
Poultry export
By tonnes
150,000
120,000
90,000
60,000
123,000
58,000
30,000
32,800
0
2011
2012
2013
During 2013 MHP increased its
export operations by over 100%
year-to-year and simultaneously
diversified its export channels.
20
Excellent production in a stable market
The production of chicken, both fresh and
frozen, is the core business of MHP and
contributed around 92% of EBITDA in 2013.
We rear our own livestock (both parents and
broilers), and as a major crop producer we are
self-sufficient in corn, the main ingredient in
our poultry fodder.
We were therefore pleased to strengthen our
leadership of Ukraine’s industrially produced
chicken market during 2013. Our market
share resulted in around 50% of industrially
produced poultry in Ukraine, which is one third
of total poultry consumption in the country. In
addition, the Company delivered a sizeable
increase in production and a considerable
uplift in exports.
Domestically, production was the most
significant development due to the increasing
contribution from the new Vinnytsia
poultry farm.
Internationally, MHP’s exports recorded a
significant increase to 123,000 tonnes (2012:
58,000 tonnes) with significant diversification.
Exports accounted for 28% of all our poultry
sales volumes.
Overall in 2013 we produced 473,000 tonnes
of poultry (2012: 404,000 tonnes), an increase
of 17%. Revenue for the year grew by 11% to
US$1,201 million (2012: US$1,083 million).
Significant production from Vinnytsia
Vinnytsia is MHP’s state-of-the-art production
complex.
Phase 1 of the two-phase project is currently
in its final stages of completion. During 2013
the number of brigades rose from three to
nine, working at 100% capacity. Since H2
2014, Phase 1 of the complex will account for
around 220,000 tonnes per annum.
When both phases are fully complete, the
Vinnytsia complex will contribute over 400,000
tonnes of chicken meat per year.
The complex includes a fodder plant, a
sunflower crushing plant, a hatchery, rearing
sites and a slaughterhouse, as well as
infrastructure and social responsibility projects.
MHP’s integrated model
We believe that MHP is the lowest-cost
producer in our field in Ukraine, and indeed
one of the most cost-efficient in the world.
Our business is built on a vertically integrated
model, supported by three key elements: a
major investment in greenfield projects; a
corporate culture that never stops looking for
even greater efficiencies; and, most important
of all, a company of people who are motivated,
fulfilled and respected.
MHP owns four fodder mills, producing a wide
variety of fodder to meet precise vitamin
and protein contents for different age
requirements. In 2013 we produced around
1.4 million tonnes of fodder, delivered by our
own fleet of trucks to our chicken and breeder
farms to guarantee its freshness and quality.
In addition we sold 240,100 tonnes of
sunflower oil (by-product), a 23% increase
on 2012 due to the increased production
of the fodder mill at Vinnytsia. This was
especially welcome because this product is
an important contributor (around 44%) to our
overall export sales.
We own six hatcheries, supplied by two
breeding farms which in 2013 produced 377
million hatching eggs (2012: 311 million). This
not only makes us self-sufficient in hatching
eggs but also gives us full biosecurity.
MHP also owns five broiler farms; Myronivska
and, increasingly, Vinnytsia make the largest
contributions of around 70% to total
production volumes. At every stage, quality
and efficiency are monitored and targeted.
For example, in 2013 we improved survival
rates from 96% in 2012 to 97%.
We are also specialists in using our own
resources. As an industrial user of energy we
aim to extend our self-sufficiency to the gas
and electricity we need. For instance, our
biogas power plant, ‘fuelled’ by chicken
manure, production wastewater and silage,
produces safe and environmentally friendly
green energy, while also decreasing
production costs at one of our chicken
facilities in the Dnepropetrovsk region
(Oril Leader).
MHP scrutinises every part of operations to
see how it can be optimised. Indeed, even the
husks from our own sunflower production are
used to provide chicken bedding, and as a
partial fuel for fodder production at several
fodder plants.
Marketing: domestic and exports
MHP owns one of the most trusted and
respected chicken brands in Ukraine:
Nasha Riaba.
In a highly competitive consumer market, we
adopt a two-pronged strategy to marketing
the brand: through supermarkets of all kinds,
and via distribution to an extensive network of
Myronivsky Hliboproduct Annual Report and Accounts 2013 Poultry
2012–2013
17%
increase in production
Nasha Riaba-branded franchises. These latter
points of sale, which approached 2,600
outlets in 2013, give a balance to our strategy.
During the year, the high quality positioning
and price differential of the brand was
supported by a creative and emotive
advertising campaign based on family values.
Our success in exports in 2013 was also
particularly pleasing. In addition to achieving a
volume increase to 123,000 tonnes of frozen
chicken products, we were able to extend our
Bio gas production
Capacity increase schedule
’000 tonnes, adjusted weight
Sunflower Oil, sales
By tonnes
800
700
600
500
400
300
200
100
0
2005-
2006
Existing
capacity
2007
2008
2009
2010-
2012
2013
2014E 2015E 2018E-
2020E
Myronivka
Vinnytsia
Phase #1
Vinnytsia
Phase #2
250
200
150
100
50
0
240.1
195.8
195.0
173.8
140.4
2009
2010
2011
2012
2013
reach from 20 countries to over 40. We added
new territories to our portfolio which now
stretches across the CIS countries, Asia, the
Middle East and Africa.
We also received a green light to begin
exports to the EU and we have been fulfilling
orders there since October 2013, paving the
way for exciting opportunities in the future.
Poultry: objectives for 2014
During 2014 a further three brigades will come
into service at the Vinnytsia facility, bringing
the total to 12. On this basis we expect total
production to rise to in excess of 550,000
tonnes of chicken meat.
Of this production, we expect around 30%
to be sold to foreign markets as we increase
our exports. We will strengthen our recently
created international territories and cultivate
the fresh opportunities that the recent EU
clearance has presented to us.
21
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements Continued market leadership of Ukraine’s meat sector
Divisional review
Other
agricultural
activities
Continued vertical
integration into market-
leading meat products
Fruit production
%
Apple
Peach
Sweet cherry
85%
10%
2%
Apricot, pear, strawberry
and other
3%
MHP fruit company grows
apples, strawberries, pears,
grapes, peaches, apricots and
other fruit. In 2013 we produced
35,640 tonnes of different fruit,
which is 24% more than in 2012.
22
True to our philosophy of vertical integration,
chicken meat we produce is also a main
ingredient in a diverse range of other product
lines. These include cooked and smoked
meats, smoked and semi-smoked sausages,
ham and convenience foods.
MHP is also active in rearing cattle, pigs and
geese, resulting in a range of top quality beef,
pork and foie gras. In addition, we own
orchards producing varieties of fruit.
The financial performance of other
agricultural operations segment significantly
improved in 2013 mainly due to increased
prices together with stable costs in meat
processing, as well as due to positive trends
in fruit and milk businesses.
In total an increase in revenues resulted in 4%
and reached US$162 million (2012: US$155
million). These additional agricultural activities
represented 11% (2012: 11%) of our
total gross revenues and 8% of EBITDA
(2012: 2%).
Meat processing products
Meat processing is a key sub-segment in
other agricultural activities of MHP. The
volumes of meat processing products we
produced in 2013 almost equalled those of
previous years, but achieved better prices.
MHP owns two meat processing facilities:
Ukrainian Bacon in the Donetsk Region and
Druzhba Narodiv in the Crimea.
We are the leaders in the fragmented
Ukrainian meat market, with our high-value
meat products sold under three brand
names – Baschinsky, Druzhba Narodiv and
Europroduct. In 2013, production stood
at 33,210 tonnes, a decrease on the previous
year of 6%. The portfolio is strongly guided
by consumer research, which also informs
a constant programme of new product
development.
Cattle, pigs and milk
Our Company’s integrated production
facilities are equipped with the latest
technologies for animal rearing.
In 2013 we reared over 27,390 heads of
cattle (2012: over 32,000) and 47,100 heads
of pigs (2012: over 40,000).
All facilities continued to create a direct,
bio-secure and reliable source of top quality
meat for our processed meat ranges.
MHP is also a leading producer of milk, with
volumes of around 40,000 tonnes in 2013.
Fruit
The southern Ukraine provides an excellent
temperate climate for fruit growing. MHP’s
Crimean Fruit Company grows apples,
strawberries, pears, grapes, peaches,
apricots and other fruit.
The Company’s facility includes
approximately 1,500 hectares given over
to orchards, with most of the trees planted
in 2007. Apples comprise around 50% of
the planted area, and 2013’s harvest was
particularly good, yielding over
30,460 tonnes.
In 2013 our fruit business showed its first
strong results and we believe it will be
sustainable in the future. In total, we
produced more than 35,640 tonnes of
various fruits, an increase of 24% on 2012.
The Company is also recognised for the
quality of its produce and this is enhanced by
storing the harvest in specially equipped
modern chilling facilities with adjustable
temperatures. The production also meets
ISO 9001:2008 and ISO 22000:2005
standards.
Gourmet delicacies: foie gras and
Certified Angus
Premium-priced delicacies naturally demand
high standards and capabilities, and MHP is
proud to be the only Ukrainian certified
producer of foie gras. In July 2013 we also
received certification from the EU and in
December began exports of foie gras, in
particular to Hungary.
Myronivsky Hliboproduct Annual Report and Accounts 2013
Production, tonnes
2013
Production, tonnes
2013
33,210
meat processing products
35,640
fruits
10
SILVER
25
GOLD
3
BRONZE
At the international
exhibition IFFA – 2013:
meat processing products
of MHP received the
highest grades
We rear geese and produce foie gras and
goose meat at our Snyatynska poultry farm
in the Ivano-Frankivsk region. Strict quality
controls (to international ISO 9001:2008 and
ISO 22000:2005 standards) are followed. In
2013, the Company produced over 435
tonnes of foie gras and goose meat.
MHP also offers a small niche production of
exceptional Aberdeen Angus beef, sold
under the “Certified Angus” trademark. This
very fine beef, which also meets the same
ISO standards above, is reared on our
Druzhba Narodiv farm.
23
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements Growing sustainably, acting thoughtfully
Sustainability
Neighbourhood improvement
Each year we contribute to the development
of our local schools, kindergartens and
playgrounds for children. We also assist in
improving vital local infrastructure services
including hospitals, building and repairing
roads, providing lighting for public spaces
and addressing other necessary aspects for
municipal improvement where our facilities
are located.
In particular: in 2013 we carried out a project
to help connect local people and state
institutions with water and gas supplies.
In the Kaniv district of the Cherkassy region,
the home of our Myronivka poultry complex,
we built a fire-fighting facility and equipped it
with a fire engine. We also reconstructed the
central park in the town of Myrne (where our
Starynska Poultry farm is located) for local
people to enjoy.
Sport and cultural initiatives
The Company is keen to help local children
and young people enjoy a healthy start to life
and we foster sporting initiatives where our
facilities are located. At our Druzhba Narodiv
meat processing plant in Crimea we have built
a winter sports pavilion and young athletes are
able to train there all year round. We also set
up a new equestrian sport centre in the town
of Ladyzhyn where our Vinnytsia complex
is located.
Football also has a passionate followers in our
local communities and our Myronivska poultry
farm took part in the organisation of the Kaniv
district’s cup and championship competitions.
Sponsorship and social programmes
MHP is a proud supporter of a variety of local
state institutions, cultural centres, NGOs. The
Red Cross and other organisations. This
support takes the form of our own produce
(chicken meat, convenience food etc.),
financial aid, equipment and resources. In
2013, we also gave a range of books to local
public libraries, and supported the town of
Ladyzhyn in their celebrations of Agricultural
Workers’ Day. We provided a new town clock,
together with fireworks and entertainment.
Relations between the Company and
employees
With around 30,000 employees across nearly
30 different enterprises, MHP is not only a
major business but one of the largest
employers in Ukraine. We take this
responsibility seriously, looking to safeguard
our people’s well-being and providing a
workplace that is fulfilling and fair. Various
initiatives support these aims, ranging from
monitoring employee satisfaction to controlling
and enhancing quality of life. MHP also makes
sure that lines of communication with the
labour unions are always open.
Employee benefits
Every employee of MHP receives benefits that
include transport, food, schooling and
accommodation. In 2013 our enterprises
successfully put in place a long-term
programme to provide accommodation,
ranging from residential homes for families to
dormitories and rented apartments. Every
month, every employee receives a food
package of the Company’s own poultry.
MHP also gives employees’ children access to
kindergartens and arranges transport to take
them there. Most of our enterprises also offer
programmes for university education as well.
We also care for our employees’ health,
providing medical services in the event of
illness or emergency, as well as family stays
at health resorts.
Investing in our people
Like any company that is aiming to build on
its success for the long-term, we value our
human assets above all others. Each year,
it is our aim to make MHP an even better
company in which to thrive and develop.
In 2013 we significantly increased our
investment in training and launched a series
of development programmes. These included
development of both “hard and soft” skills,
and piloting an extensive scheme that will see
every employee in the Company receive his
or her own career development plan.
During the year we launched a new
assessment system with a view to linking
salary increases to individual performance.
We also laid the plans for our first Employee
Satisfaction Survey, as part of our
determination to learn how we can become
an even better employer, in a culture of good
and open communication.
We believe that the
hallmark of a truly
successful company does
not simply lie in financial
performance. The
Company sees it as a
corporate duty, and a
privilege, to contribute to
the quality of life in its
communities.
In 2013 we continued to
build on our community
programmes, with three
main focus areas:
neighbourhood
improvements, sport and
cultural initiatives, and
sponsorship and social
programmes.
24
Myronivsky Hliboproduct Annual Report and Accounts 2013 Responsibility for the product
The Company takes seriously its responsibility
to offer safe and healthy food and therefore
controls the use of chemicals from the very
earliest stages of production. In our grain
operations we have made an official pledge
not to use “Ia/Ib” class pesticides. This is
consistent with IFC Performance Standards
and the World Bank Group EHS guidelines.
We also minimise the use of pesticides and
agro-chemicals by using crop rotation, and
any formulations we do use always comply
with all current legislation.
In addition, MHP products do not contain
genetically modified materials or steroids. The
majority of our enterprises have adopted a
new international certification scheme FSSC
2200 which corresponds with ISO 9001 and
ISO 22000 standards. This lays down defined
standards in each link of the supply chain and
is approved by the Global Initiative for Food
Safety (GFSI).
Waste disposal
MHP leads by example in using low-waste
processes and in finding innovative ways to
re-use waste as secondary raw materials. For
example, sunflower husks from oil production
are used as fuel for boiler houses and as litter
for birds. Atmospheric waste from elevators
(silos) is sent out to specialised recycling
enterprises, and the ash that results from
sunflower husk combustion serves as fertiliser.
Water management and wastewater
reduction
Water is a precious resource and MHP has
made a significant investment in recycling
technologies. We also apply scientific
techniques to extracting potable water and
are equipped with full water treatment
technologies.
Quality control is applied according to sanitary
and environmental laboratory standards, and
in accordance with Ukrainian legislation.
Nurturing new talent is central to our future
success and we work closely with universities;
indeed, we are Ukraine’s largest employer of
agricultural graduates. In 2013 we built on our
active programme of internships and training,
and around 700 students took part in our
“Start Your Career with MHP” programme.
Alongside this, we launched new programmes
to advance the careers of existing employees
and thus retain talented specialists. We also
invested further in our specialist MHP
“Agrocentre” agrarian school which teaches
the latest skills and techniques in agriculture.
Sport and activities
The many benefits of sport – health,
teamwork, strategy, camaraderie – receive our
full support at MHP. We offer fully equipped
sports halls at our enterprises and support
popular football programmes. Most
enterprises have their own competitive teams
including “Nasha Riaba” at the Myronivska
poultry farm which is a regional leader. We
also promote annual sports festivals and
contests. Just one example is the annual
“Tractor-Fast” competition, where entrants
showcase their professional tractor skills.
A safe working environment
The most important priority of all at MHP is
that our employees go home safe every day.
All MHP facilities therefore have well-
developed health and safety policies. These
require regular safety inspections of
equipment, as well as tailor-made
programmes with the emphasis on preventing
accidents and minimising potential health,
safety and environmental risks.
Our Labour Protection Department is
responsible for our ongoing compliance with
health and safety requirements. This is not
only monitored by our regular internal audits
but also by those of the European Bank of
Reconstruction and Development (EBRD) and
the International Finance Corporation (IFC).
Animal welfare
MHP believes that the welfare of poultry is
paramount and as the Company we fully
share the views of our consumers and
customers on this issue. We are committed to
the most humane methods of poultry rearing
at our enterprises. MHP adheres to the
scientific standards directives of the European
Union for the protection of animals, and to
the guidelines of the International Organization
for Animal Health, of which Ukraine is a
permanent member. The principles behind
these standards and guidelines are focused
on the health and humane treatment of birds
throughout the entire production cycle, from
the incubation and hatching of chicks through
to their rearing, transport and slaughter.
The Company’s policy also respects five
animal freedoms: freedom from hunger and
thirst; freedom from discomfort; freedom from
pain, injuries and disease; freedom to express
their normal behaviour; and freedom from fear
and stress.
In July 2013, MHP received official clearance
to export products to EU countries from its
Myronivka poultry farm (chicken meat), its
meat processing plant Legko (convenience
food) and the Snyatynska farm (goose meat
and foie gras). Exports duly began in October,
with full compliance of stringent welfare
standards.
Environment
In the course of our daily operations, we are
constantly looking for ways to reduce the
impact we make on the environment and our
use of natural resources.
Energy efficiency
The Company made a major step towards
becoming more eco-efficient in 2013 when
our new biogas plant at the Oril-Leader poultry
farm came online. It serves some of our
industrial needs and produces energy under
an official green tariff. The plant runs on
chicken manure and waste, reducing both our
carbon footprint and production costs.
We have also invested in automated systems,
solid state lighting and energy-saving plant
designed to achieve maximum efficiency from
energy resources. As importantly, our staff are
trained in the best use of energy and how to
reduce our consumption.
Air protection
All MHP sites use a combination of energy
reduction technologies and highly efficient
dust filters in order to minimise pollutants
reaching the air. The Company pays an annual
State environmental tariff to compensate for
any pollution we cause. We comply with all
relevant laws in this area and have never
incurred environmental penalties.
25
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
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*, MHP accounted for approximately 50% of all industrially produced chicken in
Ukraine and about one third of all poultry consumed there in 2013.
We also operate one of the country’s largest banks of agricultural land. At the end of 2013 MHP had around 360,000 hectares of land under its
control, including 40,000 hectares in Russia.
In addition, we produce and sell sunflower oil as a by-product of producing chicken feed, as well as sausages, fruits, 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 2013 it accounted for 80% of total sales (2012: 77%) and 92% of total EBITDA
(2012: 80%).
Grain Growing operations. This segment produces grain used as fodder for our own operations. A proportion is also sold to third parties and in
2013 this constituted 9% of MHP’s total revenue (2012: 12%) and 10% of total EBITDA (2012: 24%).
Other Agricultural operations. This 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% of 2013’s total sales (2012: 11%) and 8% of total EBITDA (2012: 2%).
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
Depreciation
EBITDA
EBITDA margin, %
Operating profit
Finance costs, net
Finance income
Foreign exchange gains/(losses)
Gain from acquisition of subsidiaries
Other expenses and income, net
Profit before tax
Income tax expense
Net income
Net margin, %
*pps –percentage points
2013
US$000
2012
US$000
1,496,079
13,634
(1,185,987)
323,726
1,407,522
16,734
(1,001,909)
422,347
Change
%
6%
(19%)
18%
(23%)
22%
30%
(8pps)*
(130,615)
100,885
(22,160)
271,836
119,014
390,850
26%
271,836
(109,775)
3,766
(11,052)
6,776
(1,316)
160,235
2,005
162,240
11%
(120,485)
102,369
(23,648)
380,583
87,135
467,718
33%
380,583
(59,311)
3,350
(3,285)
–
(2,633)
318,704
(7,788)
310,916
22%
8%
(1%)
(6%)
(29%)
37%
(16%)
(7pps)*
(29%)
85%
12%
236%
–
(50%)
(50%)
126%
(48%)
(11pps)*
In 2013, MHP’s consolidated revenue increased by 6% to US$1,496 million (2012: US$1,408 million) as a result of increased sales volumes of
chicken meat and sunflower oil.
Gross profit decreased in 2013 by 23% to US$ 324 million against US$ 422 million in 2012. This was driven mainly by lower earnings in the grain
segment. Gross margin decreased from 30% in 2012 to 22% in 2013.
In 2013, EBITDA totalled US$391 million, 16% lower than the previous year (2012: US$468 million). This was due to low grain prices for the 2013
harvest and high fodder costs during the first nine months of the year. EBITDA margin decreased from 33% in 2012 to 26% in 2013.
*source: the State Statistics Committee of Ukraine (SSCU)
26
Myronivsky Hliboproduct Annual Report and Accounts 2013
Net income for the year decreased by 48%, from US$311 million in 2012 to US$162 million in 2013. This was in line with the EBITDA trend
combined with increased depreciation (US$119 million in 2013 against US$87 million in 2012) and finance costs (US$110 million in 2013 against
US$59 million in 2012). As a result, net income margin decreased from 22% to 11%.
Income Statement by Segments in 2013
Revenue
Total revenue
Inter-segment eliminations
Sales to external customers
Net change in fair value of biological assets and agricultural produce
Gross Profit*
Segment result/operating profit
EBITDA
Finance cost
Finance income
Foreign exchange losses
Other expenses, net
Profit before tax
Income tax expense
Net profit from continuing operations
Poultry
US$000
Grain
US$000
1,250,953
(49,853)
1,201,100
25,636
311,650
275,026
358,468
328,028
(194,764)
133,264
(27,368)
(12,534)
13,555
39,076
Other
agricultural
US$000
167,358
(5,643)
161,715
15,366
24,610
25,844
32,753
Unallocated
US$000
Total
US$000
–
–
–
–
–
1,746,339
(250,260)
1,496,079
13,634
323,726
(42,589)
271,836
(39,447)
390,850
(109,775)
3,766
(11,052)
5,460
160,235
2,005
162,240
* 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 for the coming years
as well as certain changes to the rules of income tax assessment. The tax rate was set at 19% effective 1 January 2013, 18% effective 1 January
2014, 17% effective 1 January 2015 and 16% effective 1 January 2016.
The proposed decrease of the VAT rate to 17%, which was scheduled to begin in 2014 by the Tax Code of Ukraine, has been postponed. The rate
in force for 2014 remained at 20%.
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 2013 state support was provided in the form of special tax regimes (VAT and
Corporate Income Tax).
The majority of MHP 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, Special Water Consumption Duty and Trade Patent.
This tax regime is valid until further notice. According to the Tax Code, the special VAT regime for the agricultural industry will be effective until
1 January 2018.
Foreign currency exchange rates and functional currency
MHP’s operating assets are located in Ukraine and its revenues and costs are denominated principally in Hryvnias. Almost all financial costs and
currency denominated proceeds amounting to 39% of revenue 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 2013 the Company generated US$585 million of currency
denominated proceeds, up by 22% compared with the US$480 million generated in 2012. This is mostly due to increases in poultry export sales
volumes.
Export revenues, 2011-2013, US$000
Sunflower oil and related products
Chicken meat
Grains*
Other agricultural segment products
Total currency denominated proceeds
2013
2012
2011
253,194
216,683
114,923
405
585,205
227,835
112,931
138,639
431
479,836
222,418
67,874
63,101
486
353,879
*grain export sales during the year ended 31 December 2013 includes USD 14,249 thousand of gain received from operations, when goods are exchanged or swapped for goods which are
of similar nature.
27
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
How have we performed
Financial review
continued
The functional currency for the Group’s companies is the Ukrainian Hryvnia (UAH); the functional currency of the Russian Federation companies of
the Group is Russian Rouble (RUB). However, for the convenience of analysts MHP presents its financial statements in US dollars (USD), using the
quarterly average and historical exchange rates.
Currency
UAH/USD
UAH/EUR
UAH/RUB
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
*pps –percentage points
Closing
rate as of
31 December
2013
7.9930
11.0415
0.2450
Closing
rate as of
31 December
2012
7.9930
10.5372
N/A
Average for
2013
7.9930
10.6116
0.2512
Closing
rate as of
31 December
2011
7.9898
10.2981
N/A
Average for
2012
7.9910
10.2692
N/A
Average for
2011
7.9677
11.0926
N/A
2013
US$000
2012
US$000
1,201,100
952,937
248,163
25,636
311,650
26%
358,468
30%
0.80
1,082,978
866,544
216,434
11,955
342,836
32%
376,459
35%
1.00
Growth
rate %
11%
10%
15%
114%
(9%)
(6pps)*
(5%)
(5pps)*
(20%)
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.
Consumer demand for poultry remained high in 2013, and all MHP’s poultry production units continued to operate at full capacity. In 2013 poultry
production volumes increased by 17% to 472,800 tonnes of poultry (2012: 404,000 tonnes). This volume growth was mostly due to increased
operations at the new Vinnytsia poultry complex.
In 2013 MHP’s poultry sales volumes to third parties increased by 19% to 447,000 tonnes compared with 375,300 tonnes in 2012. Export sales of
poultry increased significantly by over 100% year-on-year and amounted to nearly 123,000 tonnes (2012: 58,000 tonnes). Share of export sales
increased from 15% of total sales volume in 2012 to 28% in 2013. In H2 2013 the Company substantially diversified its exports by decreasing the
proportion to Custom Union countries and increasing volumes to Arabian countries, Asia and, for the first time, the EU. In total, MHP opened up
around 20 new export markets in Asia, the Middle East and Africa, simultaneously increasing its exports trades across all regions.
High volumes of exported chicken meat were the key driver of increased revenue in foreign currencies in 2013. Poultry export sales generated
US$217 million, up by 92% compared with US$113 million in 2012, providing an additional hedge against currency risk and devaluation
of the Hryvnia.
The average sales price of poultry decreased by 7% to UAH 15.99 per kg in 2013 (2012: UAH 17.19 per kg) as a result of stable domestic prices.
This was combined with increased export volumes and lower export prices from new markets.
MHP produces sunflower oil as a by-product of the sunflower seeds we use in the manufacture of chicken feed. Almost 100% of the sunflower oil
we produce is exported. In 2013, 240,100 tonnes of sunflower oil were produced and sold for export, which is 23% more than in 2012, due to the
high sunflower harvest yield in 2013. Average prices of sunflower oil decreased by 7% to US$1,033 per tonne. This compared to US$1,109 per
tonne in 2012 and was in line with world market trends.
The segment’s revenue amounted to US$1,201 million, up 11% on the previous year (2012: US$1,083 million), driven mostly by volume growth in
poultry and sunflower oil sales.
Average poultry production costs in 2013 increased slightly, by approximately 3%, compared to 2012. As a result of the substantial rise in the grain
price at the end of 2012, costs in the first 9 months of 2013 increased by 13% year on year. However, following a sharp reduction in prices for
grains harvested in 2013, costs in Q4 2013 decreased by 16%.
28
Myronivsky Hliboproduct Annual Report and Accounts 2013
The Poultry segment`s cost of raw materials and other inventory mainly comprises feed grain and other items associated with producing fodder, as
well as items for producing hatching eggs. Most of the feed grain used in poultry production such as corn, and in part 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 during the harvest season.
The gross profit of the Poultry segment was US$312 million in 2013, 9% lower than the previous year (2012: US$343 million). Despite higher volumes
sold, gross profit margin declined from 32% in 2012 to 26% in 2013, due to a softening in chicken meat prices and higher production costs.
EBITDA for the Poultry segment decreased by 5% to US$358 million in 2013 (2012: US$376 million), mostly in line with gross profit decline. EBITDA
margin decreased to 30% in 2013 compared to 35% in 2012.
Grain growing
Revenue
IAS 41 standard gains
Gross profit
EBITDA
EBITDA per 1 hectare
2013
US$000
133,264
(27,368)
(12,534)
39,075
136
2012
US$000
169,142
4,329
72,618
111,708
447
Growth
rate %
(21%)
(732%)
(117%)
(65%)
(70%)
In 2013 the Company operated 287,000 hectares of land in Ukraine and 40,000 hectares in the Russian Federation for growing grain. Due to
favourable weather conditions the harvest from our Ukrainian land showed a marked increase to 2 million tonnes of grains and oilseeds in 2013
(2012: 1.6 million tonnes). However, high yields around the world led to a sharp decline in prices, and therefore lower revenues than in 2012. The
Company’s new 40,000 hectares in the Russian Federation were also harvested by MHP in 2013 but were sowed by the previous owner; the
contribution of this land to the Grain segment’s results was therefore zero in the reporting year.
MHP’s grain yields in 2013 were significantly higher than the Ukrainian average. This was due both to the Company’s operational efficiency and the
best-practice techniques we employ. Our corn yield increased to 8.8 tonnes per hectare in 2013 compared to 7.6 tonnes per hectare in 2012.
Similar gains were also achieved in other grains and oilseeds.
MHP uses the majority of the grain it produces (corn and sunflower seeds) in its own operations, while wheat, rape, soybean and barley are sold to
third parties. These external sales constitute the revenue of the Grain growing segment. In spite of the high volume of grain harvested, the decline
in grain prices saw revenue decrease by 21% to US$133 million in 2013 compared to US$169 in 2012. Consequently, EBITDA per hectare (ha)
decreased by 70% from US$447 per ha in 2012 to US$136 per ha in 2013.
The Grain growing segment’s costs relate primarily 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
*pps –percentage points
2013
US$000
2012
US$000
161,715
101,070
60,645
15,366
24,610
15%
32,754
20%
155,402
102,959
52,443
450
6,892
4%
10,016
6%
Growth
rate %
4%
(2%)
16%
n/a
257%
11pps*
227%
14pps*
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 fruit, milk, beef, goose and foie gras.
The financial performance of this division showed a significant improvement in 2013, mainly due to better results from its fruit business and positive
trends in the meat processing and milk businesses.
MHP’s sausage and cooked meat volumes decreased by 6% to 33,210 tonnes in 2013 compared with 35,200 tonnes in 2012. Stable demand for
meat processing products had a positive impact on sales prices during 2013. Average sausage and cooked meat prices rose by 6% to UAH 23.53
per kg in 2013. MHP is a market leader in meat processing in Ukraine and its market share remained at around 10%.
29
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
How have we performed
Financial review
continued
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 raw materials required for the Company’s meat processing operations is met by internally produced poultry.
Revenue of the segment increased by 4% to US$162 million in 2013 over 2012. Gross profit increased to US$25 million in 2013 (2012: US$7 million)
as a result of higher profitability of the meat processing, fruit and milk businesses. Positive IAS 41 effect of US$15 million in 2013 mostly related to
the fruit business where the majority of orchards reached the level of full technological productivity.
EBITDA of Other Agricultural operations rose to US$33 million in 2013 in line with the increase in gross profit. EBITDA margin increased from 6% in
2012 to 20% in 2013.
Liquidity and capital resources
MHP’s cash flow from operating activities was driven mainly by operating profit adjusted for non-cash items such as depreciation, and for changes
in working capital. Cash flow from operations before working capital changes decreased by 21% to US$305 million for the year 2013 (2012:
US$384 million) in line with the EBITDA decline.
In 2013 the decrease of working capital amounted to US$ 27 million. In Q4 we usually purchase large volumes of sunflower seeds to meet the
considerable stock we will need for the following year. However, in 2013 the investment required for sunflower seeds was lower than usual due to
lower prices and forward financing transactions with international grain trader Toepfer. At the same time, lower CAPEX also had a positive effect on
working capital dynamics through zero growth of VAT receivables.
Total CAPEX was US$267 million in 2013, mostly related to the Vinnytsia project. Since the start of construction in May 2010, more than US$700
million has been invested in the project by the end of 2013.
Cash flows
Operating activities
Operating profit before movements in working capital changes
Change in working capital
Net Cash generated from operating activities
Investing activities
CAPEX
Including non-cash investments
Assets sale and other
Deposits
Net cash used in investing activities
Financing activities
Net cash generated from financing activities
Including Treasury shares acquisition
Dividends
Net increase in cash and cash equivalents
Effects of exchange rates
Total change in cash
Debt
Total Debt US$, m
Long Term Debt
Short Term Debt
Cash and bank deposits
Net Debt
LTM EBITDA
Debt/LTM EBITDA
Net Debt/LTM EBITDA
30
2013
US$00
2012
US$000
305,034
26,592
331,626
383,731
(185,597)
198,134
(267,202)
39,172
3,335
629
(224,066)
(387,721)
123,703
1,824
1,788
(260,406)
(28,138)
–
(99,026)
79,422
(1,737)
77,685
62,279
(41,465)
–
7
20
27
31 December
2013
31 December
2012
31 December
2011
1,302
1,183
119
(172)
1,130
391
3.33
2.89
1,140
817
323
(95)
1,045
468
2.44
2.23
898
709
190
(97)
802
401
2.24
2.00
Myronivsky Hliboproduct Annual Report and Accounts 2013
As of 31 December 2013, MHP’s total debt was US$1,302 million, most of which was denominated in US dollars. The average weighted interest
rate of debt was below 8%.
Almost 60% of MHP`s total debt is the new 7-year Eurobond issued in April 2013, which matures in April 2020. After the Eurobond issue, MHP’s
debt structure improved significantly with the share of long-term debt increased to 90% at the end of 2013 compared to 72% at the end of 2012.
US$192 million of our long-term debt is principally represented by loans, covered by the ECA, which matures at various dates up to 2018. US$80
million of our debt is accounted for by IFC and EBRD loans for financing the Company’s working capital needs. US$ 60 million represents financing
for the lease of agricultural machinery and equipment used in our grain growing activities and for vehicles for distribution, and matures at various
dates up to 2018.
As of the end of 2013, MHP had US$172 million in cash. Net Debt increased to US$1,130 million as of 31 December 2013 compared to US$1,045
million as of 31 December 2012. The Net Debt/LTM EBITDA ratio at the end of the period was 2.89 (Eurobond covenant: 3.0).
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. About 39% of the Company’s revenue is 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 2013 the Company generated US$585 million of currency
denominated proceeds, up by 22% compared with the US$480 million generated in 2012. This was mostly due to increases in poultry export
sales volumes.
A positive outlook
Since November 2013, Ukraine has been subject to political instability. On 22 February 2014 the Parliament of Ukraine voted for a reinstatement of
the 2004 Constitution and the dismissal of the incumbent President. New presidential elections are scheduled for May 2014 and a transitional
government has been formed.
Despite the political turmoil, domestic demand for chicken meat remains high; during the first months of 2014 it increased by around 20%
compared to the same period last year.
At the beginning of February 2014, MHP was banned from exporting its poultry meat to the Russian Federation as well as to other Custom Union
countries (Kazakhstan and Belarus). However, taking into account our diversified export channels (with around 40 countries in our portfolio), MHP’s
export sales across the regions are currently over 20% higher than during the same period last year, and in general are in line with our objectives.
During 2014, and exactly as planned, Phase 1 of the Vinnytsia complex will be fully complete. The final three production brigades are scheduled to
be launched in operation in 2014, and by the close of the year the complex will reach its full production capacity of around 220,000 tonnes of
chicken meat per annum.
During the first months of 2014 the Ukrainian Hryvnia devalued against major world currencies. However, taking into account the Company’s
business model of vertical integration, we foresee a positive effect arising from the currency’s devaluation because:
• most of our production costs are in local currency;
• we will achieve higher profitability in grains as domestic grain prices correlate with international prices set in hard currency (US dollars).
On 27 February 2014, pro-Russian forces took control of the parliament of Crimea, an autonomous region of Ukraine. The region then voted to
hold a referendum on the status of Crimea in March 2014.
MHP owns several production facilities in the region and we are mindful of the uncertain situation there. However, the Group’s reports show that,
as of 31 December 2013, our Crimean assets generated 10% of operating profit. Therefore, the Company does not consider this disruption to
pose a significant risk to its total profitability in the future. Moreover, it is currently “business as usual” at each of those production facilities.
So despite the challenging situation that exists in Ukraine, we feel confident in delivering a strong year for MHP in 2014 both operationally and
financially. This will be driven mainly by the increase in overall production of chicken meat at the Vinnytsia complex, and by the additional grains we
will produce from our 40,000-hectare land bank expansion in the Russian Federation.
31
Myronivsky Hliboproduct Annual Report and Accounts 2013 Strategic reportCorporate governanceFinancial statements
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. Starting
from 2011, the Board conducts regular
effectiveness reviews in order to evaluate its
performance as well as that of its committees
and individual directors. The evaluation
process is normally initiated by a
questionnaire and then supplemented by
individual interviews by the Chairman with
each of the directors. The conclusions are
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, Executive
Director
Viktoria Kapelyushnaya, Chief Financial
Officer, Executive Director
During 2013 the attendance by directors at
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 shareholders meeting to be held in
2016. 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 management of
PJSC MHP or the relevant subsidiary.
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.
• 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 2013, 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.
32
Myronivsky Hliboproduct Annual Report and Accounts 2013 • 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 2013, the Committee held four
meetings, and the average attendance of
the Committee members was at the level
of 100%.
Remuneration of auditors
Remuneration of auditors amounted to
US$1.0 million, US$0.7 million, US$0.8
million in 2013, 2012 and 2011 respectively.
Auditor’s remuneration is mainly attributable
to the audit services and services provided
in respect to bonds issued 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.
The Board of Directors approved in principle
the MHP Anti-Bribery Policy, the document
which is aimed at establishing the key
principles and requirements in order to
prevent corruption and bribery and ensure
compliance with the applicable anti-
corruption laws (to the extent applicable to
MHP Group companies) enacted in the
jurisdictions in which MHP Group
companies operate. Also, the Board of
Directors approved in principle the MHP
Code of Ethics and Conflict of Interest Policy.
The aim of the Code of Ethics is to ensure
consistency in managers’ and employees’
behaviour within MHP and their interactions
with third parties. To this end, certain
procedures have been devised to avoid
potential violations of the Code.
The Conflict of Interest Policy
This policy covers any transactions involving
conflicts of interest (whether actual or
potential) of: (1) MHP’s management team
members, including directors of subsidiaries
and branches (“key management”); (2)
MHP’s line managers who have authority to
authorise transactions on behalf of MHP
(“line managers”); (3) other MHP employees
who are authorised to internally approve any
decisions as to significant provisions of
transactions based on the internal policies
and instructions (“responsible employees”)
or have power to influence such decisions.
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$12,969 thousand, US$11,686
thousand and US$8,741 thousand (including
performance bonuses of US$4,745
thousand, US$3,493 thousand and
US$2,601 thousand) in 2013, 2011 and
2010, respectively. Total compensation of
the Group’s non-executive directors, which
consists of contractual salary, amounted
to US$550 thousand, US$407 thousand
and US$380 thousand in 2013, 2012 and
2011, 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:
• any convictions relating to fraudulent
offences;
• 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
• 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.
Dividend policy
In March 2013 the Board of Directors
approved the adoption of a dividend policy
which maintains a balance between the
need to invest in further development and
the right of shareholders to share the net
profit of the Company. The new dividend
policy confirms the Company’s intention to
pay annual dividends to the shareholders
on a regular basis.
33
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 How do we conduct our business?
Directors’
report
The directors present their annual report and
audited financial statements for the year
ended 31 December 2013.
Future developments
The Group’s strategy is:
• to expand its capacity to produce chicken
Viktoria Kapelyushnaya
Chief Financial Officer
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 360,000 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
fruit. 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 pages 10-11,
the Chief Executive Officer’s review on
pages 12-13, and the Business review on
pages 16-23.
Yuriy Melnyk
First Deputy CEO
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
08-09 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 pages 32-33 of
this report.
Annual general meeting “AGM”
The AGM will be held at the Company’s
registered office in Luxembourg at 12 noon
on 28 April 2014.
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.
and chicken products in a domestic
market which has a 45.5 million population
and one of the world’s lowest rates of meat
consumption per capita;
• to expand its grain production to around
450,000 hectares by 2015-2016 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 are 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 2014 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 2013:
Charles E Adriaenssen
Independent Non-executive Director,
Chairman of the Board
Yuriy Kosyuk
Chief Executive Officer
34
Myronivsky Hliboproduct Annual Report and Accounts 2013 Statement of the Board of Directors’
responsibilities for the preparation and approval
of the financial statements
for the year ended 31 December 2013
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
2013 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;
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
• providing additional disclosures when
• preventing and detecting fraud and other
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.
irregularities.
The consolidated financial statements of the
Group for the year ended 31 December 2013
were authorised for issue by the Board of
Directors on 1 April 2014.
Board of Directors’ responsibility
statement
We confirm that to the best of our knowledge
the directors’ report, which is incorporated into
the annual 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
35
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 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
1 April 2014
560, rue de Neudorf
L-2220 Luxembourg
Independent Auditor’s report
to the Shareholders of MHP S.A. 5, rue Guillaume Kroll L-1882 Luxembourg
Report on the consolidated financial
statements
Following our appointment by the
General Meeting of the Shareholders
dated 29 April 2013, we have audited the
accompanying consolidated financial
statements of MHP S.A., which comprise
the consolidated statement of financial
position as at 31 December 2013, and the
consolidated statement of comprehensive
income, consolidated statement of
changes in equity and consolidated
statement of cash flows for the year then
ended, and a summary of significant
accounting policies and other explanatory
information.
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 agréé
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.
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 judgement
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. as of 31 December 2013, 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.
Emphasis of matter
We draw your attention to Note 28
“Contingencies and contractual
commitments” to the consolidated financial
statements, which describes the current
political crisis in Ukraine. The impact of the
continuing economic crisis and political
turmoil in Ukraine and their final resolution
are unpredictable and may adversely affect
the Ukrainian economy and the operations
of the Group. Our opinion is not qualified in
respect of this matter.
36 36
Myronivsky Hliboproduct Annual Report and Accounts 2013 Myronivsky Hliboproduct Annual Report and Accounts 2013 Consolidated statement of comprehensive income
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
Notes
2013
2012
2011
Revenue
Net change in fair value of biological assets and agricultural produce
Cost of sales
Gross profit
Selling, general and administrative expenses
VAT refunds and other government grants income
Other operating expenses, net
Operating profit
Finance income
Finance costs:
Interests and other finance costs
Transaction costs related to corporate bonds
Finance costs
Gain from acquisition of subsidiaries
Foreign exchange (loss)/gain, net
Other expenses, net
Other expenses, net
Profit before tax
Income tax benefit/(expense)
Profit for the year
Other comprehensive income/(loss)
Items that will not be reclassified to profit or loss:
Effect of revaluation of property, plant and equipment
Deferred tax charged directly to revaluation reserve
Cumulative translation difference
Other comprehensive (loss)/income 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)
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
6 1,496,079 1,407,522 1,229,090
21,288
(889,127)
16,734
7 (1,185,987) (1,001,909)
13,634
8
9
10
2
323,726
(130,615)
100,885
(22,160)
422,347
(120,485)
102,369
(23,648)
361,251
(106,447)
87,985
(22,045)
271,836
3,766
380,583
3,350
320,744
6,356
(93,121)
(16,654)
(59,311)
–
(65,918)
–
(109,775)
(59,311)
(65,918)
6,776
(11,052)
(1,316)
–
(3,285)
(2,633)
–
2,318
(1,385)
(111,601)
(61,879)
(58,629)
160,235
318,704
262,115
11
2,005
(7,788)
(2,760)
162,240
310,916
259,355
12
–
–
(22)
(22)
5,166
(826)
(436)
3,904
–
–
(3,040)
(3,040)
162,218
314,820
256,315
155,907
6,333
297,104
13,812
243,376
15,979
162,240
310,916
259,355
155,885
6,333
300,756
14,064
240,336
15,979
162,218
314,820
256,315
33
1.48
2.80
2.26
The accompanying notes on pages 42 to 77 form an integral part of these consolidated financial statements.
37
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Consolidated statement of financial position
as of 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
31 December
2013
31 December
2012
31 December
2011
Notes
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
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
12 1,493,739 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
48,837
20,022
2,414
70,442
5,802
17,656
16
15
17
18
19
20
21
21
1,658,912 1,486,860 1,135,615
245,861
199,680
172,721
38,373
209,149
70,912
–
172,470
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
1,109,166 1,001,248
808,745
2,768,078 2,488,108 1,944,360
284,505
(65,393)
181,982
22,869
1,012,826
(241,249)
284,505
(65,393)
181,982
22,869
976,919
(241,227)
284,505
(40,555)
179,565
18,781
679,815
(240,791)
1,195,540 1,159,655
39,008
53,665
881,320
44,489
1,249,205 1,198,663
925,809
22
23
24
11
192,297
951,728
39,370
7,043
199,483
571,515
45,955
3,345
109,108
567,000
32,558
2,207
1,190,438
820,298
710,873
25
26
22
22, 23
24
101,990
86,823
98,367
20,771
20,484
68,970
62,902
301,658
14,125
21,492
52,689
53,269
170,380
12,073
19,267
328,435
469,147
307,678
1,518,873 1,289,445 1,018,551
2,768,078 2,488,108 1,944,360
The accompanying notes on pages 42 to 77 form an integral part of these consolidated financial statements.
38
Myronivsky Hliboproduct Annual Report and Accounts 2013 Consolidated statement of changes in equity
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
Balance at 1 January 2011
Profit for the year
Other comprehensive income
Total comprehensive income for
the year
Dividends declared by
subsidiaries
Acquisition and changes in
non-controlling interests in
subsidiaries
Attributable to equity holders of the Parent
Share capital
284,505
–
–
Treasury
shares
Additional
paid-in capital
Revaluation
reserve
Retained
earnings
Translation
reserve
(40,555)
–
–
179,565
–
–
18,781
–
–
436,439
243,376
–
(237,751)
–
(3,040)
Non-
controlling
interests
29,384
15,979
–
Total equity
670,368
259,355
(3,040)
Total
640,984
243,376
(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 loss
Total comprehensive income for
the year
Acquisition of treasury shares
(Note 21)
Acquisition and changes in
non-controlling interests in
subsidiaries (Note 2 and 21)
Dividends declared by
subsidiaries
–
–
–
–
–
–
–
–
–
(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
–
–
–
–
–
–
–
–
–
(41,465)
–
(41,465)
19,044
(19,044)
–
–
(501)
(501)
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
Profit for the year
Other comprehensive income
Total comprehensive income for
the year
Dividends declared by the Parent
(Note 29)
Dividends declared by
subsidiaries
Non-controlling interests acquired
(Note 2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155,907
–
–
(22)
155,907
(22)
6,333
–
162,240
(22)
155,907
(22)
155,885
6,333
162,218
(120,000)
–
–
–
–
–
(120,000)
–
(120,000)
–
–
(804)
(804)
9,128
9,128
Balance at 31 December 2013
284,505
(65,393)
181,982
22,869 1,012,826
(241,249) 1,195,540
53,665 1,249,205
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on pages 42 to 77 form an integral part of these consolidated financial statements.
39
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Consolidated statement of cash flows
for the year ended 31 December 2013 (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 amortisation expense
Net change in fair value of biological assets and agricultural produce
Gain from acquisition of subsidiaries
Change in allowance for irrecoverable amounts and direct write-offs
Loss on disposal of property, plant and equipment and other non-current assets
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
Investments in long-term deposits
Investments in short-term deposits
Withdrawals of short-term and long-term deposits
Loans repaid by/(provided to) employees, net
Loans repaid by related parties, net
Net cash flows used in investing activities
Notes
2013
2012
2011
5
5
2
10
160,235
318,704
262,115
119,014
(13,634)
(6,776)
27,888
358
(3,766)
109,775
11,052
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)
404,146
474,127
397,650
9,833
(6,565)
(32,843)
(8,313)
925
3,123
32,513
27,919
430,738
3,766
(93,581)
(9,297)
(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)
331,626
198,134
197,661
2
(157,216)
(5,231)
(3,020)
2,815
(1,507)
(61,056)
–
–
629
495
25
(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)
–
(224,066)
(260,406)
(121,137)
The accompanying notes on pages 42 to 77 form an integral part of these consolidated financial statements.
40
Myronivsky Hliboproduct Annual Report and Accounts 2013 Consolidated statement of cash flows (continued)
for the year ended 31 December 2013 (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
Transaction costs related to bank loans received
Transaction costs related to corporate bonds issued
Dividends paid to shareholders
Dividends paid by subsidiaries to non-controlling shareholders
Acquisition of treasury shares
Net cash flows (used in)/from 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
Notes
2013
2012
2011
23
27,29
27,29
21
65,333
(323,079)
400,000
–
(23,912)
(1,172)
(45,507)
(99,026)
(775)
–
223,179
(96,666)
–
–
(22,268)
–
–
–
(501)
(41,465)
158,071
(142,867)
–
(9,976)
(25,740)
–
–
–
(602)
–
(28,138)
62,279
(21,114)
79,422
(1,737)
94,785
7
20
94,758
55,410
27
39,321
172,470
94,785
94,758
12,510
30,370
13,895
26,662
–
93,333
5,166
72,007
–
12
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on pages 42 to 77 form an integral part of these consolidated financial statements.
41
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements
for the year ended 31 December 2013 (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 fruit 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,
fruit and feed grains. During the year ended 31 December 2013 the Group employed about 30,000 people (2012: 27,800 people, 2011:
24,800 people).
The Group has been undertaking a large-scale investment programme to expand its poultry and related operations. In May 2010 the
Group commenced construction of the greenfield Vinnytsia poultry complex and in the second half of 2012 started the commissioning
of production facilities which were already completed. During 2013 the Group continued commissioning and launching into operations
completed production facilities (Note 12). The facilities of Vinnytsia complex which remain under construction as of 31 December 2013
will be commissioned during 2014, as scheduled.
During the year ended 31 December 2013 the Group continued to increase its agricultural land bank as part of its vertical integration
and diversification strategy through a number of business acquisitions (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 2013, 2012 and 2011 were as follows:
Name
Country of registration
acquired Principal activities
2013
2012
2011
Raftan Holding Limited
MHP
Myronivsky Zavod po Vygotovlennyu
Cyprus
Ukraine
Ukraine
2006 Sub-holding company
1998 Management, marketing and sales
1998 Fodder and sunflower oil
100.0% 100.0%
99.9%
88.5%
99.9%
88.5%
100.0%
99.9%
88.5%
Year
established/
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
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Druzhba Narodiv
Crimean Fruit Company
NPF Urozhay
Agrofort
Urozhayna Krayina
Ukrainian Bacon
AgroKryazh
Baryshevka
Voronezh Agro Holding
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Russian Federation
production
2011 Chicken farm
1999 Chicken farm
2002 Chicken farm
2003 Chicken farm
2004 Fodder production
2003 Breeder farm
2004 Chicken farm
2003 Breeder farm
2005 Geese breeder farm
2005 Grain cultivation
2005 Fodder production and grain
storage, sunflower oil production
2006 Cattle breeding, plant cultivation
2006 Fruits and grain cultivation
2006 Grain cultivation
2006 Grain cultivation
2010 Grain cultivation
2008 Meat processing
2013 Grain cultivation
2013 Grain cultivation
2013 Grain cultivation
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%
51.0%
100.0%
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%
–
–
–
The Group’s operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk,
Ivano-Frankivsk, Vinnytsia, Kherson, Sumy, Khmelnitsk regions and Autonomous Republic of Crimea as well as in Voronezh region of
the Russian Federation.
42
Myronivsky Hliboproduct Annual Report and Accounts 2013 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 2013, 2012 and 2011.
Incorporations
During the year ended 31 December 2011 the Group established a new subsidiary Vinnytska Ptahofabryka engaged in poultry
production at Vinnytsia Complex.
Acquisitions
AgroKryazh
In May 2013 the Group acquired from third parties a 99.9% interest in a group of companies “AgroKryazh”, a grain growing business,
cultivating a land bank of 12,380 hectares in the Vinnytsia region of Ukraine. The transaction was accounted for under the acquisition method.
Baryshevka
In April 2013 the Group acquired from third parties a 51.0% interest in a group of companies “Baryshevka”, a grain growing business
cultivating a land bank of 18,810 hectares in the Kyiv region of Ukraine. The transaction was accounted for under the acquisition method.
Voronezh Agro Holding
In July 2013 the Group acquired from third parties a 100% interest in a group of companies “Voronezh Agro Holding”, a grain growing
business cultivating a land bank of about 40,000 hectares, in the Voronezh region of the Russian Federation, of which 24,000 hectares
is owned by “Voronezh Agro Holding” and was included in property plant and equipment (Note 12).
This acquisition also added 200,000 m3 of storage facilities as well as agricultural machinery to the Group’s asset.
The following table presents the fair value of identifiable assets and liabilities acquired during the year ended 31 December 2013:
Provisional fair value of identifiable assets and liabilities:
Property, plant and equipment (Note 12)
Land lease rights (Note 13)
Inventories and biological assets
Loans and borrowings
Trade and other payables
Deferred tax liabilities
Non-controlling interests
Total identifiable net assets at fair value
Gain from acquisition of subsidiaries
Total cash consideration due and payable
Cash paid
Cash acquired
AgroKryazh
Baryshevka
Voronezh
Agro Holding
Total
3,779
6,187
3,308
–
(1,056)
–
–
3,195
12,283
2,363
–
(814)
–
(8,343)
53,896
3,787
9,740
(12,996)
(2,414)
(3,069)
(785)
60,870
22,257
15,411
(12,996)
(4,284)
(3,069)
(9,128)
12,218
8,684
48,159
69,061
(1,708)
(1,229)
(3,839)
(6,776)
10,510
7,455
44,320
62,285
(10,565)
55
(6,226)
–
(44,542)
222
(61,333)
277
The gain from acquisitions of subsidiaries was recognised within the consolidated statement of comprehensive income for the period
ended 31 December 2013. The gain arose as a result of a lack of resources by the previous owners, which did not allow them to
manage the assets in the most efficient manner.
From the date of acquisition the acquired group of companies contributed US$19,970 thousand of revenue and US$689 thousand of
loss to the consolidated results of the Group. Had the transactions related to acquisitions as discussed above, occurred on 1 January
2013, “Pro forma” revenue and loss for the year ended 31 December 2013 would have been US$6,021 thousand and US$3,816
thousand, respectively.
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 annualised 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.
The non-controlling interest recognised at the acquisition date was measured by reference to the proportionate share of the recognised
amounts of the subsidiary’s identifiable net assets and amounted to US$9,128 thousands.
43
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
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 equity (Note 21).
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 following Standards have been adopted by the Group for the first time for the financial year beginning on or after 1 January 2013
and have an impact on the Group:
• Presentation of items of Other Comprehensive Income” (Amendments to IAS 1). Effective for accounting periods beginning on or
after 1 July 2012;
IFRS 13 “Fair value measurement”. Fair value measurement and disclosure. Effective 1 January 2013;
IAS 19 “Employee Benefits” (2011). The revised version of IAS 19 was effective 1 January 2013; and
•
•
• “Disclosures – Offsetting Financial Assets and Financial Liabilities” (Amendments to IFRS 7). The amendments to IFRS 7 were
effective 1 January 2013.
“Presentation of items of Other Comprehensive Income” (Amendments to IAS 1)
The main change resulting from amendments to IAS 1 is a requirement to group items presented in “Other comprehensive income”
(OCI) on the basis of whether they are potentially able to be reclassified to profit or loss subsequently (reclassification adjustments). The
amendments affect presentation only and have no impact on the Group’s financial position or performance.
IFRS 13 “Fair value measurement”
IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair
value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting
but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs.
The additional disclosures required following the adoption of this standard are provided in the individual notes relating to the assets and
liabilities whose fair values were determined using the requirements of IFRS 13. Fair value hierarchy is provided in Notes 15, 17 and 30.
In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance
prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no
impact on the measurement of the Group’s assets and liabilities.
IAS 19 “Employee Benefits” (2011) and “Disclosures – Offsetting Financial Assets and Financial Liabilities” (IFRS 7 amendments).
The Group has also applied IAS 19 Employee Benefits (as revised in 2011), and “Disclosures – Offsetting Financial Assets and Financial
Liabilities” (IFRS 7 amendments)”.
The adoption of these standards and amendments did not have a material impact on the financial position or performance of
the Group.
44
Myronivsky Hliboproduct Annual Report and Accounts 2013 3. Summary of significant accounting policies continued
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
Amendment to IAS 27 “Separate Financial Statements” (revised 2011) – Investment entities
IFRS 10 “Consolidated Financial Statements”
IFRS 11 “Joint Arrangements”
IFRS 12 “Disclosure of Interests in Other Entities”
IAS 28 “Investments in Associates and Joint Ventures”
Amendments to IAS 32 “Financial instruments: Presentation” – Application guidance on the offsetting of financial
assets and financial liabilities
Amendments to IFRS 10, IFRS 11 and IFRS 12 – “Consolidated Financial Statements, Joint Arrangements and
Disclosure of Interests in Other Entities: Transition Guidance”
Amendments to IAS 36 “Recoverable amounts disclosures for non-financial assets”
Amendments to IAS 39 “Novation of derivatives and continuation of hedge accounting”
IFRIC 21 “Levies”
Amendments to IFRS 7 “Financial instruments: Disclosures” – Disclosures about the initial application of IFRS 91
Amendments to IFRS 9 and 7 – “Mandatory Effective Date of IFRS 9 and Transition Disclosures”
IFRS 9 “Financial Instruments: Classification and Measurement and Accounting for financial liabilities
and derecognition”1
Amendments to IAS 19 “Employee Benefits” – Defined Benefit Plans: Employee contribution1
IFRS 14 “Regulatory Deferral Accounts”1
Amendments to IFRSs – “Annual Improvements to IFRSs 2010-2012 Cycle”1
Amendments to IFRSs – “Annual Improvements to IFRSs 2011-2013 Cycle”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 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2015
1 January 2015
1 January 2015
Not yet adopted
in the EU
Not yet adopted
in the EU
Not yet adopted
in the EU
Not yet adopted
in the EU
Management is currently evaluating the impact of the adoption of IFRS 9 “Financial Instruments”, and amendment to IFRS 7 “Financial
instruments: Disclosures”. For other Standards and Interpretations management anticipates that their adoption in future periods will not
have a material effect on the financial statements of the Group in future periods.
Functional and presentation currency
The functional currency of Ukrainian, Cyprus and Luxemburg companies of the Group is the Ukrainian Hryvnia (UAH); the functional
currency of the Russian Federation companies of the Group is Russian Rouble (RUB). 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 realised and unrealised 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; and
• all resulting exchange differences are recognised 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.
45
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies continued
The relevant exchange rates were:
Currency
UAH/USD
UAH/EUR
UAH/RUB
Closing
rate as of 31
December
2013
Average for
2013
7.9930
11.0415
0.2450
7.9930
10.6116
0.2512
Closing rate
as of 31
December
2012
7.9930
10.5372
N/A
Closing rate
as of 31
December
2011
7.9898
10.2981
N/A
Average for
2012
7.9910
10.2692
N/A
Average for
2011
7.9677
11.0926
N/A
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 unrealised gainsor losseson 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 recognised in the 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 recognised amounts of the subsidiary’s identifiable net assets. The choice of measurement basis is made on a 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 recognised 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 recognised directly in equity and attributed to owners of the Parent.
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.
46
Myronivsky Hliboproduct Annual Report and Accounts 2013
3. Summary of significant accounting policies continued
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 is recognised directly in equity and attributed to owners of the Parent.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most
advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and
best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair
value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
observable.
• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
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 capitalisation.
All other borrowing costs are recognised in the statement of comprehensive income in the period in which they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognised 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 recognised 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.
47
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies continued
Based on the current management structure, the Group has identified the following reportable segments:
• Poultry and related operations;
• Grain growing operations; and
• 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 recognised 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.
VAT refunds and other government grants
The Group’s companies are subject to special tax treatment for VAT. The Group’s enterprises, which qualify as agricultural producers,
are entitled to retain the net VAT payable. VAT amounts payable are not transferred to the State, but credited to the entity’s separate
special account to support the agriculture activities of the Group. Net result on VAT operations, calculated as excess of VAT liability over
VAT credit is charged to profit or loss. VAT receivable exceeding VAT liability is used as a reduction in tax liabilities of the next period.
Government grants are recognised 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 recognised at the moment when the decision to disburse the amounts to the Group is made.
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 capitalised in accordance with the
Group’s accounting policy.
Subsequently capitalised 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
capitalisation 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 recognised in the statement
of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognised in the statement
of comprehensive income. If the asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised 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 derecognised.
48
Myronivsky Hliboproduct Annual Report and Accounts 2013 3. Summary of significant accounting policies continued
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.
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 amortisation and accumulated impairment losses.
Land lease rights acquired in a business combination and recognised separately from goodwill are initially recognised 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 amortisation and accumulated impairment losses, on the same basis as land lease
rights acquired separately.
Amortisation of intangible assets is recognised on a straight line basis over their estimated useful lives. For land lease rights, the
amortisation period varies from 3 to 15 years.
The amortisation period and the amortisation 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 recognised 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.
49
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies continued
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 recognised for the asset (cash-generating unit) in prior years. A reversal of an
impairment loss is recognised 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 recognised directly in
statement of comprehensive income in the consolidated statement of comprehensive income. An impairment loss recognised for
goodwill is not reversed in subsequent periods.
Income taxes
Income taxes have been computed in accordance with the laws currently enacted or substantially 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.
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 recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised.
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 recognised amounts of current tax assets and current tax liabilities.
• The Group has an intention to settle on a net basis, or to realise 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 realisable 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 realisable 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 realisable value and this value is deducted from the cost of the main product.
50
Myronivsky Hliboproduct Annual Report and Accounts 2013 3. Summary of significant accounting policies continued
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 recognises 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 recognised 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 recognised 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.
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 the 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.
(iii) Hatchery eggs
The fair value of hatchery eggs 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.
51
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies continued
Financial instruments
Financial assets and financial liabilities are recognised 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
recognised 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 recognised in the statement of comprehensive income when there is objective
evidence that the asset is impaired. The allowance recognised 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.
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 recognised 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 recognised 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 2013, 2012 and 2011 there were no material derivative financial instruments that were recognised 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 recognised 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 recognised in the consolidated statement of comprehensive income on a
straight line basis over the term of the lease.
52
Myronivsky Hliboproduct Annual Report and Accounts 2013 3. Summary of significant accounting policies continued
Provisions
Provisions are recognised 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 31 December 2012 and 2011
has been revised in order to achieve comparability with the presentation used in the consolidated financial statements for the year
ended 31 December 2013. Such reclassifications and revisions were not significant to the Group financial statements.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 3, management are required to make judgements,
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.
Critical judgements in applying accounting policies
The following are the critical judgements, 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 recognised in the
consolidated financial statements.
Acquisitions of land lease rights
During the year ended 31 December 2013, 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 judgement, 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 3,607 thousand and USD 22,257 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
recognised with respect to the exchange transactions involving goods of similar nature and value. The Group management applies
judgement to determine whether each particular transaction represents an exchange or a transaction that generates revenue. In
making this judgement, 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. The amount of exchange transaction involving goods of similar nature amounted to USD 81,808 thousand, 33,819
thousand, 4,256 thousand for the years ended 31 December 2013, 2012 and 2011.
Recognition of inventories
During the year ended 31 December 2013, 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 recognised in
the Group’s financial statements. However, based on the analysis of the nature of this arrangement, management applied judgement 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 recognised in the Group’s financial statements from the date when they were acquired by
the supplier.
Revaluation of property, plant and equipment
As described in Notes 3 and 12, the Group applies the 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.
53
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
4. Critical accounting judgements and key sources of estimation uncertainty continued
The Group appointed an independent valuer for revaluation of its grain storage facilities during the year ended 31 December 2012. Key
assumptions used by the independent valuer in assessing the fair value of grain storage facilities using the replacement cost method
were 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 their acquisition/construction to the date of valuation were
assessed as 1.15; and
• other external and internal factors that might have effect on fair value of grain-storage facilities.
Results of revaluation based on the replacement cost approach were compared with a revaluation performed using the income
approach to check for impairment indicators of revalued assets, if any.
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.
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; and
• discount rate.
During the year ended 31 December 2013 fair value of biological assets and agricultural produce was estimated using discount factors
of 14.01% and 12.37% for non-current and current assets respectively.
Although some of these assumptions are obtained from published market data, the majority of these assumptions are estimated based
on the Group’s historical and projected results (Note 15).
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 realised by the Group either through a cash refund from the State budget or by set off
against VAT liabilities in future periods. Management classified the VAT recoverable balance as current or non-current based on
expectations as to whether it will be realised within 12 months from the reporting date. In addition, management assessed whether an
allowance for irrecoverable VAT needed 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 2013 the Group continued commissioning production facilities at Vinnytsia complex.
During the period of production trials, when the facilities were not ready to be used in the manner intended by management, no
depreciation was charged. After completion of the trial period, the Group commenced depreciation of production facilities when they
were launched into operation.
In making the assessment of the trial period length, management considered actual utilisation of production facilities as well as output
achieved, for as long as these were significantly lower than the designed capacity of the equipment.
54
Myronivsky Hliboproduct Annual Report and Accounts 2013
5. Segment information
The majority of the Group’s operations are located within Ukraine.
Segment information is analysed 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.
Other agricultural operations segment:
• Sales of meat processing products and other meat.
• Other agricultural operations (sales of fruit, 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 2013
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
1,201,100
49,853
133,264
194,764
161,715
5,643
– 1,496,079
–
(250,260)
1,250,953
328,028
167,358
(250,260) 1,496,079
275,026
13,555
25,844
–
314,425
(42,589)
(111,601)
160,235
Other information:
Additions to property, plant and equipment2
Depreciation and amortisation expense3
Net change in fair value of biological assets and agricultural produce
171,102
83,442
25,636
27,930
25,521
(27,368)
7,956
6,909
15,366
–
–
–
206,988
115,872
13,634
Includes finance income, finance costs, foreign exchange loss (net) and other expenses (net).
1
2 Additions to property, plant and equipment in 2013 (Note 12) include unallocated additions in the amount of USD 4,115 thousand.
3 Depreciation and amortisation for the year ended 31 December 2013 does not include unallocated depreciation and amortisation in the amount of USD 3,142 thousand.
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
– 1,407,522
–
(195,712)
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 amortisation 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
Includes finance income, finance costs, foreign exchange gain (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 amortisation for the year ended 31 December 2012 does not include unallocated depreciation and amortisation in the amount of USD 3,122 thousand.
55
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
5. Segment information continued
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 amortisation 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
Includes 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 amortisation for the year ended 31 December 2011 does not include unallocated depreciation and amortisation in the amount of USD 3,298 thousand.
The Group’s export sales to external customers by major product types were as follows during the years ended 31 December 2013,
2012 and 2011:
Sunflower oil and related products
Chicken meat and related products
Grain
Other agricultural segment products
2013
2012
2011
253,194
216,683
100,674
405
227,835
112,931
138,639
431
222,418
67,874
63,101
486
570,956
479,836
353,879
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 the Russian Federation as well as, to
the lesser extent, other CIS countries, the Middle East and Central Asia, Africa and the EU.
6. Revenue
Revenue for the years ended 31 December 2013, 2012 and 2011 was as follows:
2013
2012
2011
881,249
258,168
61,683
804,381
227,835
50,762
693,207
222,418
63,246
1,201,100 1,082,978
978,871
133,264
169,142
103,739
133,264
169,142
103,739
101,070
60,645
102,959
52,443
99,740
46,740
161,715
155,402
146,480
1,496,079 1,407,522 1,229,090
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
56
Myronivsky Hliboproduct Annual Report and Accounts 2013
7. Cost of sales
Cost of sales for the years ended 31 December 2013, 2012 and 2011 was as follows:
Poultry and related operations
Grain growing operations
Other agricultural operations
For the years ended 31 December 2013, 2012 and 2011 cost of sales comprised the following:
Costs of raw materials and other inventory used
Payroll and related expenses
Depreciation and amortisation expense
Other costs
2013
2012
2011
877,540
155,976
152,471
705,128
147,821
148,960
684,001
71,883
133,243
1,185,987 1,001,909
889,127
2013
2012
2011
797,239
187,493
104,619
96,636
700,410
151,538
74,870
75,091
620,385
131,840
66,675
70,227
1,185,987 1,001,909
889,127
By-products arising from the agricultural production process are measured at net realisable 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 2013, 2012 and 2011 were as follows:
Payroll and related expenses
Services
Fuel and other materials used
Depreciation expense
Advertising expense
Representative costs and business trips
Insurance expense
Bank services and conversion fees
Other
2013
2012
2011
52,137
25,561
14,991
14,395
12,276
4,096
1,937
480
4,742
46,414
20,738
13,646
12,265
12,691
8,641
1,594
474
4,022
40,391
24,381
12,433
13,666
2,415
8,330
1,919
486
2,426
130,615
120,485
106,447
Remuneration to the auditors, included in Services above, approximates to USD 1,025 thousand, USD 744 thousand and USD 832 thousand
for the years ended 31 December 2013, 2012 and 2011, respectively. Such remuneration includes both audit and non-audit services, with the
audit fees component approximating USD 550 thousand for each of the years ended 31 December 2013, 2012 and 2011.
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 recognised by the Group as income during the years ended 31 December 2013, 2012 and
2011 were as follows:
VAT refunds
Other government grants
2013
2012
2011
99,220
1,665
101,581
788
87,476
509
100,885
102,369
87,985
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 the currently effective 20% to 17% starting from 1 January 2015.
The special VAT regime for the agricultural industry will be effective until 1 January 2018.
57
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
9. VAT refunds and other government grants income continued
Included in VAT refunds for the years ended 31 December 2013, 2012 and 2011 were specific VAT subsidies for the production and
sale of milk and live animals for further processing in the amount of USD 1,299 thousand, USD 1,426 thousand and USD 422 thousand,
respectively.
Other government grants
Other government grants recognised as income during the years ended 31 December 2013, 2012 and 2011 mainly comprised
subsidies related to crop growing. In accordance with the Law “On State Budget of Ukraine”, two companies of the Group received
grants for the years ended 31 December 2013, 2012 and 2011 for the creation and cultivating of orchards, vines and berry fields.
In addition to the government grants income recognised 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 2013, 2012 and 2011.
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 recognised as a reduction in the associated finance costs and during the years ended 31 December 2013, 2012
and 2011 comprised USD nil, USD nil, and USD 1,828 thousand, respectively (Note 10).
10. Finance costs
Finance costs for the years ended 31 December 2013, 2012 and 2011 were as follows:
Interest on corporate bonds
Transaction costs related to corporate bonds
Interest on bank borrowings
Interest on obligations under finance leases
Bank commissions and other charges
Interest on financing arrangements for grain purchases
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
2013
2012
2011
88,245
16,654
13,911
4,964
3,172
1,847
–
64,449
–
15,839
4,795
3,786
643
–
64,996
–
9,720
5,157
3,782
294
(1,828)
128,793
89,512
82,121
(19,018)
(30,201)
(16,203)
109,775
59,311
65,918
For qualifying assets, the weighted average capitalisation rate on funds borrowed generally during the year ended 31 December 2013
was 10.14% (2012: 8.10%, 2011: 9.55%).
Interest on corporate bonds for the years ended 31 December 2013, 2012 and 2011 includes amortisation of premium and debt issue
costs on bonds issued in the amounts of USD 9,003 thousand, USD 4,509 thousand and USD 4,124 thousand, respectively.
11. Income tax
The majority of the Group’s operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed based
on Ukrainian statutory rates and statutory rates of the Russian Federation for results generated by Voronezh Agro Holding. The net
results of the Group companies incorporated in jurisdictions other than Ukraine were insignificant during the years ended 31 December
2013, 2012 and 2011. 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, Special Water Consumption 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 recognised in the
statement of comprehensive income in other operating expenses.
During the year ended 31 December 2013, 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 19% (for the year ended 31 December 2012: 21%; 1 January 2011: 1 April 2011: 25%,
1 April 2011: 31 December 2011: 23%).
The Tax Code of Ukraine (Note 28) is introducing gradual decreases in income tax rates from 23% effective 1 April 2011, 21% effective
1 January 2012, 19% effective 1 January 2013, 18% effective 1 January 2014, 17% effective 1 January 2015, 16% effective 1 January
2016 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 2013, 2012 and 2011 were measured based on the tax rates expected to be applied to the period when
the temporary differences are expected to reverse.
58
Myronivsky Hliboproduct Annual Report and Accounts 2013
11. Income tax continued
The components of income tax (benefit)/expense were as follows for the years ended 31 December 2013, 2012 and 2011:
Current income tax charge
Deferred tax benefit
Income tax (benefit)/expense
2013
2012
2011
9,157
(11,162)
(2,005)
7,915
(127)
7,788
5,664
(2,904)
2,760
The reconciliation between profit before tax multiplied by the statutory tax rate and the tax expense for the years ended 31 December
2013, 2012 and 2011 was as follows:
Profit before income tax
Income tax expense calculated at rates effective during the year ended at respective jurisdictions
Tax effect of:
Income generated by FAT payers (exempt from income tax)
Changes in tax rate and law
Recognised deferred tax assets on property, plant and equipment
Non-deductible expenses (by law)
Expenses not deducted for tax purposes (policy choice)
Income tax expense
2013
2012
2011
160,235
30,470
318,704
66,928
262,115
61,010
(44,068)
3
–
7,263
4,327
(82,443)
–
–
19,402
3,901
(77,043)
–
(6,792)
10,332
15,253
(2,005)
7,788
2,760
As of 31 December 2013, 2012 and 2011 the Group did not recognise deferred tax assets arising from temporary differences of USD
22,724 thousand, USD 18,576 thousand and USD 64,907 thousand, respectively, as the Group did not intend to deduct the relevant
expenses for tax purposes in subsequent periods.
Deferred tax liabilities have not been recognised 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 2013, 2012 and 2011 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
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
2013
2012
2011
3,325
1,780
2,490
371
13,871
4,732
1,301
1,081
849
3,484
21,837
11,447
(7,792)
(943)
(123)
(8,858)
12,979
(4,165)
(2,138)
(258)
(6,561)
4,886
5,996
1,518
1,011
1,155
288
9,968
(2,987)
(996)
(397)
(4,380)
5,588
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 2013, 2012 and 2011:
Deferred tax assets
Deferred tax liabilities
2013
2012
2011
20,022
(7,043)
12,979
8,231
(3,345)
4,886
7,795
(2,207)
5,588
59
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
11. Income tax continued
The movements in net deferred tax assets for the years ended 31 December 2013, 2012 and 2011 were as follows:
Net deferred tax assets as of beginning of the year
Deferred tax benefit
Deferred tax liabilities arising on acquisition of subsidiaries (Note 2)
Deferred tax on property, plant and equipment charged directly to other comprehensive income
Translation difference
Net deferred tax assets as of end of the year
2013
2011
2010
4,886
11,162
(3,069)
–
–
12,979
5,588
127
–
(826)
(3)
4,886
2,688
2,904
–
–
(4)
5,588
12. Property, plant and equipment
The following table represents movements in property, plant and equipment for the year ended 31 December 2013:
Cost or fair value:
At 1 January 2013
Additions
Disposals
Transfers
Acquired through business
combination (Note 2)
Translation difference
Buildings and
structures
Grain storage
facilities
Land
Machinery
and
equipment
Utilities and
infrastructure
Vehicles and
agricultural
machinery
Office
furniture and
equipment
Construction
in progress
Total
–
312
–
–
453,870
50,767
(1,085)
95,604
20,074
152
9,727
66
49,756
9,536
–
3,602
15,080
118
434,105
41,160
(2,643)
155,851
76,151
20,907
(30)
35,224
265,287
39,450
(5,523)
254
18,534
525
(208)
559
399,690 1,697,393
211,103
(9,644)
–
48,446
(155)
(291,094)
2,088
9
754
4
11,672
(126)
46
–
1,429
–
60,870
223
At 31 December 2013
20,538
608,949
78,092
630,570
133,010
311,014
19,456
158,316 1,959,945
Accumulated depreciation and
impairment:
At 1 January 2013
Depreciation charge for the year
Elimination upon disposal
Translation difference
At 31 December 2013
Net book value
At 1 January 2013
–
–
–
–
–
66,750
24,944
(261)
(4)
91,429
75
1,916
–
(5)
139,043
43,675
(1,983)
(5)
20,081
4,625
(20)
(1)
119,542
37,009
(4,039)
(31)
12,215
2,848
(168)
–
1,986
180,730
24,685
152,481
14,895
–
–
–
–
–
357,706
115,017
(6,471)
(46)
466,206
–
387,120
49,681
295,062
56,070
145,745
6,319
399,690 1,339,687
At 31 December 2013
20,538
517,520
76,106
449,840
108,325
158,533
4,561
158,316 1,493,739
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
Myronivsky Hliboproduct Annual Report and Accounts 2013
12. Property, plant and equipment continued
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
During 2013 the Group continued commissioning production facilities at the Vinnytsia complex. The facilities of Vinnytsia complex
remaining under construction as of 31 December 2013 will be commissioned during 2014, as scheduled.
As of 31 December 2013, included within construction in progress were prepayments for property, plant and equipment in the amount
of US$9,407 thousand (2012: US$24,796 thousand, 2011: US$46,086 thousand).
As of 31 December 2013, included within property, plant and equipment were fully depreciated assets with the original cost of
US$56,817 thousand (2012: US$34,722 thousand, 2011: US$19,647 thousand).
As of 31 December 2013, certain of the Group’s machinery and equipment with the carrying amount of USD nil (2012: USD nil, 2011:
US$4,648 thousand) were pledged as collateral to secure its bank borrowings (Note 22).
As of 31 December 2013, 2012 and 2011 the net carrying amount of property, plant and equipment, represented by vehicles and
agricultural machinery, held under finance lease agreements was US$76,053 thousand, US$69,059 thousand and US$73,798
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 2013, 2012 and 2011.
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 adjusted based on age and condition
of the facilities.
No revaluation of grain storage facilities was performed during the years ended 31 December 2013 and 2011 as, based on
management’s assessment, the fair value of grain storage facilities as of 31 December 2013 and 2011 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 2013 would be US$50,662 thousand (2012: US$24,102 thousand, 2011: US$20,514 thousand).
61
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
13. Land lease rights
Land lease rights represent rights for operating leases of agricultural land plots. 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 amortisation:
As of 1 January
Amortisation charge for the year
Translation difference
As of 31 December
Net book value:
As of 1 January
As of 31 December
2013
2012
2011
31,634
3,607
22,257
–
30,332
1,314
–
(12)
24,439
5,995
–
(102)
57,498
31,634
30,332
4,940
3,721
–
8,661
3,105
1,837
(2)
4,940
1,223
1,891
(9)
3,105
26,694
27,227
23,216
48,837
26,694
27,227
14. Long-term VAT recoverable, net
As of 31 December 2013, 2012 and 2011 the balance of long-term VAT recoverable was accumulated on continuing capital
expenditures. Management expects that these balances will not be recovered within 12 months from the reporting date.
As of 31 December 2013, an allowance for estimated irrecoverable long-term VAT of USD 338 thousand was recorded by the Group
(2012: USD 7,754 thousand, 2011: USD 4,938 thousand).
15. Biological assets
The balances of non-current biological assets were as follows as of 31 December 2013, 2012 and 2011:
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
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
2013
2012
2011
1.64
22.3
5.3
38,893
26,642
1,230
66,765
3,677
3,677
70,442
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
The balances of current biological assets were as follows as of 31 December 2013, 2012 and 2011:
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
2013
2012
2011
Breeders held for hatchery eggs production, units
3,121
65,907
2,634
54,273
2,384
39,345
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
34,438
26,570
76
49
65,907
73,267
8,841
45,745
5,637
283
133,773
199,680
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
135,990
Other current consumable biological assets include geese and other livestock.
62
Myronivsky Hliboproduct Annual Report and Accounts 2013
15. Biological assets continued
The following table represents movements in biological assets for the years ended 31 December 2013, 2012 and 2011:
Breeders held
for hatchery
eggs
Crops in fields
Orchards
production Broiler poultry
Milk cows,
boars, sows
Non-current
cattle and
pigs
As of 1 January 2011
Costs incurred
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
17,840
210,683
25,768
20,976
39,530
67,498
43,287
423,599
13,997
9,794
69,913
–
–
–
(274,383)
(177)
(5,669)
–
–
–
(12,994)
(103)
26,390
(76,889)
–
–
(17,045)
(139)
192,844
76,889
–
–
(681,022)
(186)
3,000
(1,325)
4,071
(198)
(14,484)
(52)
As of 31 December 2011
23,876
27,978
39,345
55,411
14,803
Costs incurred
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
236,222
20,270
79,783
475,752
10,784
61,030
–
–
–
(281,529)
(9)
(4,410)
–
–
–
(13,805)
(15)
35,496
(87,496)
–
–
(12,836)
(19)
249,694
87,496
–
–
(817,281)
(21)
2,288
–
9,559
(599)
(18,279)
(9)
As of 31 December 2012
39,590
30,018
54,273
51,051
18,547
Costs incurred
Acquired through business combination (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
304,553
9,187
23,944
–
95,123
–
602,985
–
18,218
–
11,625
–
–
–
(319,437)
227
11,815
–
–
–
(26,884)
–
46,988
(110,442)
–
–
(20,035)
–
219,076
110,442
–
–
(910,287)
–
3,505
(48)
19,019
(1,900)
(30,699)
–
As of 31 December 2013
45,745
38,893
65,907
73,267
26,642
2,809
913
(941)
(285)
1,269
(12)
(1,104)
(9)
2,640
1,320
(1,655)
(176)
2,498
(13)
(477)
(1)
4,136
1,602
–
(2,369)
(446)
2,502
(195)
(1,553)
–
3,677
Cattle, pigs
9,119
22,122
12,072
1,610
(5,340)
(11,291)
(17,601)
(37)
10,654
31,270
1,854
176
(12,057)
(12,303)
(12,388)
(2)
7,204
40,181
–
2,877
493
(21,520)
(11,904)
(11,694)
–
5,637
Biological assets of the Group are measured at fair value within level 3 of the fair value hierarchy, except for cattle and pigs that can be
measured based on market prices of livestock of similar age, breed and genetic merit, which is measured at fair value within level 1 of
the fair value hierarchy. There were no transfers between any levels during the year.
63
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
15. Biological assets continued
The following unobservable inputs were used to measure the biological assets:
Description
Fair value as at
31 December
2013
Valuation
technique(s)
Crops in fields
45,745
Discounted
cash flows
Unobservable
inputs
Range of unobservable
inputs (average)
Relationship of unobservable
inputs to fair value
Crops yield – tonnes
3.0–5.3 (4.7)
per hectare
Crops price
Discount rate
per tonne
12.37%
USD 200 – 430 (263)
The higher the market price,
The higher the crops yield,
the higher the fair value
the higher the fair value
The higher the discount rate,
the lower the fair value
The higher the fruit yield,
the higher the fair value
Orchards
38,893
Discounted
cash flows
Fruit yield – tonnes per
hectare
5.7–39.2 (24.5) per year
Fruit price
USD 623 – 2,206 (840)
The higher the market price,
Discount rate
per tonne
14.01%
65,907
Discounted
cash flows
Number of hatchery eggs
produced by one breeder
165–175
the higher the fair value
The higher the discount rate,
the lower the fair value
The higher the number,
the higher the fair value
Breeders held for
hatchery eggs
production
Hatchery egg price
USD 0.32 – 0.36 (0.33)
The higher the market price,
Discount rate
Average weight of
one broiler – kg
per egg
12.37%
2.26
the higher the fair value
The higher the discount rate,
the lower the fair value
The higher the weight, the
higher the fair value
Poultry meat price
USD 1.47 – 1.60 (1.54)
The higher the market price,
Broiler poultry
73,267
Cash flows
Milk cows
24,111
Discounted
cash flows
Milk yield – litre per cow
10.96 – 18.79 (15.05)
per day
per kg
the higher the fair value
The higher the milk yield,
the higher the fair value
Weight of the cow – kg
475 – 532 (492)
The higher the weight, the
per cow
Milk price
higher the fair value
USD 0.40 – 0.50 (0.49)
The higher the market price,
per litre
the higher the fair value
Meat price
USD 1.2 – 1.32 (1.25)
The higher the market price,
Discount rate
per kg
14.01%
the higher the fair value
The higher the discount rate,
the lower the fair value
If the above unobservable inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the
carrying amount of the current and non-current biological assets would decrease/increase by USD 39,935 thousand and USD 24,452
thousand respectively.
64
Myronivsky Hliboproduct Annual Report and Accounts 2013 16. Inventories
The balances of inventories were as follows as of 31 December 2013, 2012 and 2011:
Components for mixed fodder production
Work in progress
Other raw materials
Spare parts
Sunflower oil
Packaging materials
Mixed fodder
Other inventories
2013
2012
2011
121,291
54,365
32,078
16,593
10,785
4,189
3,726
2,834
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
245,861
274,255
182,240
As of 31 December 2013, 2012 and 2011, work in progress in the amount of USD 54,365 thousand, USD 44,043 thousand and
USD 35,705 thousand comprised expenses incurred in cultivating fields to be planted in the years 2014, 2013 and 2012, respectively.
As of 31 December 2013, components for mixed fodder production with a carrying amount of USD nil (2012: USD 62,500 thousand,
2011: USD 45,491 thousand) were pledged as collateral to secure bank borrowings (Note 22).
17. Agricultural produce
The balances of agricultural produce were as follows as of 31 December 2013, 2012 and 2011:
Chicken meat
Other meat
Grain
Fruits, vegetables and other crops
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
2013
2012
2011
20,440
N/A1
776
N/A1
40,035
3,724
110,233
18,729
172,721
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
1 Due to the diverse composition of noted produce unit of measurement is not applicable.
The fair value of agricultural produce was estimated based on market price as at date of harvest and is within level 1 of the fair value
hierarchy.
18. Taxes recoverable and prepaid, net
Taxes recoverable and prepaid were as follows as of 31 December 2013, 2012 and 2011:
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 2013, 2012 and 2011:
Agricultural operations
Due from related parties (Note 27)
Sunflower oil sales
Less: allowance for irrecoverable amounts
2013
2012
2011
223,037
6,096
(19,984)
213,944
5,228
(18,864)
149,853
1,350
(14,028)
209,149
200,308
137,175
2013
2012
2011
69,207
1,018
2,061
(1,374)
59,177
10,359
4,237
(1,157)
53,750
10,895
1,934
(785)
70,912
72,616
65,794
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.
65
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013
Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
19. Trade accounts receivable, net continued
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 2013 the Group determined that trade accounts receivable on sales of poultry meat of
USD 445 thousand (2012: USD 456 thousand, 2011: USD 750 thousand) were overdue but do not require allowance for irrecoverable
amounts.
For the years ended 31 December 2013, 2012 and 2011 the Group has not recorded any impairment of receivables relating to amounts
owed by related parties as management is certain about their recoverability.
The ageing of trade accounts receivable that were impaired as of 31 December 2013, 2012 and 2011 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
2013
2012
2011
2013
2012
2011
–
647
647
308
649
957
915
125
1,040
359
434
793
372
344
716
199
298
497
–
(647)
(647)
(78)
(649)
(727)
(457)
(125)
(582)
(141)
(434)
(575)
1,604
1,833
1,213
(1,374)
(1,157)
(93)
(344)
(437)
(50)
(298)
(348)
(785)
20. Cash and cash equivalents
The balances of cash and cash equivalents were as follows as of 31 December 2013, 2012 and 2011:
Cash in hand and with banks
USD short-term deposits with banks
UAH short-term deposits with banks
RUB short-term deposits with banks
2013
2012
2011
98,880
60,170
11,885
1,535
41,027
45,000
8,758
–
47,119
37,000
10,639
–
172,470
94,785
94,758
During the year ended 31 December 2013, UAH, RUB and USD denominated short-term deposits earned an effective interest rate of
13.32%, 5.73% and 5.10%, respectively (2012: 18.00% and 6.42%, respectively, 2011: 5.29% and 5.60%). All cash and cash equivalents
are held within reputable foreign and Ukrainian banks.
21. Shareholders’ equity
Share capital
As of 31 December the authorised, issued and fully paid share capital of MHP S.A. comprised the following number of shares:
Number of shares authorised for issue
Number of shares issued and fully paid
Number of shares outstanding
2013
2012
2011
159,250,000
110,770,000
105,666,888
159,250,000
110,770,000
105,666,888
159,250,000
110,770,000
107,854,856
The authorised share capital as of 31 December 2013, 2012 and 2011 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 programme, 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 a 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 recognised as an adjustment to additional paid-in capital (Note 2).
66
Myronivsky Hliboproduct Annual Report and Accounts 2013 22. Bank borrowings
The following table summarises bank borrowings and credit lines outstanding as of 31 December 2013, 2012 and 2011:
Bank
Foreign banks
Foreign banks
Ukrainian banks
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.
USD
4.80%
Currency
WAIR1
USD’ 000
WAIR1
USD’ 000
WAIR1
USD’ 000
2013
2012
2011
USD
EUR
6.05%
88,414
1.81% 164,250
5.14% 190,976
2.15% 162,675
4.39%
3.13%
252,664
38,000
38,000
290,664
(98,367)
192,297
353,651
5.43% 147,490
5.39%
147,490
501,141
(301,658)
199,483
95,979
97,009
192,988
86,500
86,500
279,488
(170,380)
109,108
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 2013, 2012 and 2011:
Credit lines
Term loans
2013
2012
2011
38,000
252,664
232,490
268,651
146,500
132,988
290,664
501,141
279,488
The following table summarises fixed and floating interest rate bank loans and credit lines held by the Group as of 31 December 2013,
2012 and 2011:
Floating interest rate
Fixed interest rate
2013
2012
2011
290,664
–
501,141
–
276,712
2,776
290,664
501,141
279,488
Bank borrowings and credit lines outstanding as of 31 December 2013, 2012 and 2011 were repayable as follows:
Within one year
In the second year
In the third to fifth year inclusive
After five years
2013
2012
2011
98,367
58,479
125,390
8,428
301,658
66,840
115,316
17,327
170,380
30,951
60,871
17,286
290,664
501,141
279,488
As of 31 December 2013, the Group had available undrawn facilities of USD 287,844 thousand (2012: USD 133,981 thousand,
2011: USD 251,315 thousand). These undrawn facilities expire during the period from January 2014 until June 2020.
The Group, as well as particular subsidiaries of the Group, has 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 2013, 2012 and 2011 the Group has complied with all covenants imposed by banks providing
the loans.
As of 31 December 2013, the Group had borrowings of USD nil (2012: USD 50,000 thousand, 2011: USD 52,191 thousand) that were
secured. These borrowings were secured by property, plant and equipment with a carrying amount of USD nil (2012: USD nil, 2011:
USD 4,648 thousand) (Note 12) and inventories with a carrying amount of USD nil (2012: USD 62,500 thousand, 2011: USD 45,491
thousand) (Note 16).
67
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
22. Bank borrowings continued
As of 31 December 2013, 2012 and 2011 accrued interest on bank borrowings were USD 1,668 thousand, USD 3,969 thousand and
USD 1,916 thousand, respectively.
23. Bonds issued
Bonds issued and outstanding as of 31 December 2013, 2012 and 2011 were as follows:
8.25% Senior Notes due in 2020
10.25% Senior Notes due in 2015
Unamortised premium on bonds issued
Unamortised debt issuance cost
2013
2012
2011
750,000
234,767
1,426
(34,465)
–
584,767
2,801
(16,053)
–
584,767
3,755
(21,522)
951,728
571,515
567,000
As of 31 December 2013, 2012 and 2011 accrued interest on bonds issued were USD 19,103 thousand, USD 10,156 thousand and
USD 10,157 thousand, respectively.
8.25% Senior Notes
On 2 April 2013, MHP S.A. issued USD 750,000 thousand 8.25% Senior Notes due in 2020 at an issue price of 100% of the principal
amount. USD 350,000 thousand out of the issued USD 750,000 thousand 8.25% Senior Notes were used to facilitate the early
redemption and exchange of its existed 10.25% Senior Notes due in 2015.
The early redemption of 10.25% Senior Notes due in 2015 from the issue of 8.25% Senior Notes due in 2020, which were placed with
the same holders resulted in a change in the net present value of the future cash flows of less than 10%, and thus was accounted for
as modification and all the related expenses, including consent fees, were capitalised and will be amortised over the maturity period of
the 8.25% Senior Notes due in 2020 in the amount of USD 28,293 thousand.
Other related expenses, including consent fees, in the amount of USD 16,654 thousand were expensed as incurred.
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.
10.25% Senior Notes
In November 2006, MHP S.A. 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 and 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 2013, 2012 and 2011 the Group has complied with all covenants defined by indebtedness agreement.
The weighted average effective interest rate on the Senior Notes is 9.9% per annum for the year ended 31 December 2013 and 11.7%
per annum for the years ended 31 December 2012 and 2011. The Notes are listed on London Stock Exchange.
68
Myronivsky Hliboproduct Annual Report and Accounts 2013 24. Finance lease obligations
Long-term finance lease obligations represent amounts due under agreements for the leasing of trucks, agricultural machinery and
equipment with Ukrainian and foreign companies. As of 31 December 2013, the weighted average interest rates on finance lease
obligations were 6.85% and 7.90% for finance lease obligations denominated in EUR and USD, respectively (2012: 7.28% and 7.69%,
2011: 8.88% and 7.68%).
The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as
of 31 December 2013, 2012 and 2011:
Payable within one year
Payable in the second year
Payable in the third to fifth year inclusive
Less:
Future finance charges
Minimum lease payments
Present value of minimum lease payments
2013
2012
2011
2013
2012
2011
23,748
19,323
23,440
25,704
20,130
30,488
22,736
16,391
19,145
20,484
17,202
22,168
21,491
17,814
28,142
19,267
14,706
17,852
66,511
76,322
58,272
59,854
67,447
51,825
(6,657)
(8,875)
(6,447)
–
–
–
Present value of finance lease obligations
59,854
67,447
51,825
59,854
67,447
51,825
Less:
Current portion
Finance lease obligations, long-term portion
25. Trade accounts payable
Trade accounts payable were as follows as of 31 December 2013, 2012 and 2011:
Trade accounts payable to third parties
Payables due to related parties (Note 27)
(20,484)
(21,492)
(19,267)
39,370
45,955
32,558
2013
2012
2011
101,979
11
68,918
52
52,655
34
101,990
68,970
52,689
As of 31 December 2013 trade accounts payable included liabilities that bear a floating rate of interest under grain purchase financing
arrangements in the amount of USD 60,486 thousand and accrued interest of USD 593 thousand (2012: USD 29,362 thousand and
accrued interest of USD 294 thousand, 2011: USD 11,184 thousand and accrued interest of USD 126 thousand).
26. Other current liabilities
Other current liabilities were as follows as of 31 December 2013, 2012 and 2011:
Accrued payroll and related taxes
Advances from and other payables due to related parties (Note 27)
Advances from and other payables due to third parties
Amounts payable for property, plant and equipment
Other payables
2013
2012
2011
36,097
20,974
9,685
7,112
12,955
34,285
200
7,820
11,415
9,182
32,886
200
1,921
10,236
8,026
86,823
62,902
53,269
69
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
27. 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.
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 2013, 2012 and 2011 were as follows:
Sales of goods to related parties
Sales of services to related parties
Purchases from related parties
2013
8,103
67
228
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 2013, 2012 and 2011:
Trade accounts receivable (Note 19)
Payables due to related parties (Note 25)
Payables for dividends declared, included in Other current liabilities (Note 26)
Advances received (Note 26)
Advances and finance aid receivable
2013
2012
2011
1,018
11
20,974
–
115
10,359
52
–
200
4,935
10,895
34
–
200
2,000
The amount of payables includes payables for dividends related to the liability to the Company’s major shareholder for the declared
dividends (Note 29). The Board of Directors of MHP S.A. also acknowledged the consent of WTI Trading Limited (the Company’s major
shareholder) to be paid later than on the declared dividend payment date (but not later than 1 March 2014), with no interest accrued on
the amount of dividend paid later.
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 12,969 thousand, USD 11,686 thousand and
USD 8,741 thousand for the years ended 31 December 2013, 2012 and 2011, respectively. Compensation of key management
personnel consists of contractual salary and performance bonuses.
Total compensation of the Group’s non-executive directors, which consists of contractual salary, amounted to USD 550 thousand, USD
407 thousand and USD 380 thousand in 2013, 2012 and 2011, respectively.
Key management personnel totalled 42, 40 and 38 individuals as of 31 December 2013, 2012 and 2011, respectively, including four
independent directors as of 31 December 2013, 2012 and 2011.
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 and 21).
70
Myronivsky Hliboproduct Annual Report and Accounts 2013 28. Contingencies and contractual commitments
Political crisis
Since November 2013, Ukraine has been in a political and economic turmoil. The Ukrainian Hryvnia devalued against major world
currencies and significant external financing is required to maintain stability of the economy. The National Bank of Ukraine, among other
measures, has imposed temporary restrictions on processing of client payments by banks and on the purchase of foreign currency on
the inter-bank market. In February 2014, Ukraine’s sovereign rating has been downgraded to CCC with a negative outlook.
In February 2014, the Parliament of Ukraine voted for reinstatement of the 2004 Constitution and dismissal of the incumbent President.
New presidential elections are scheduled for May 2014 and a transitional government has been formed. In March 2014, Crimea, an
autonomous region of Ukraine, was effectively annexed by the Russian Federation. The further political developments are currently
unpredictable and may adversely affect the Ukrainian economy.
As of 31 December 2013 and for the year then ended, the Group’s assets located in the Crimea region amounted to 5% of the Group’s
total assets generating in average 9% of operating profit per annum.
As of the date of this report, operation of the Group’s facilities throughout Ukraine, including those in Crimea, continued to operate
normally through the first quarter of 2014.
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.
Starting from 1 September 2013, new detailed transfer pricing rules were introduced into the Ukrainian legislation. These rules
introduce additional reporting and documentation requirements to certain types of transactions (including, but not limited to,
transactions with related parties). The new legislation allows the tax authorities to impose additional tax liabilities in respect of these
transactions if they consider the transactions to be priced not at arm’s length. As the practice of implementation of the new transfer
pricing rules has not yet developed and wording of some clauses of the rules is unclear, the impact of challenge of the Group’s transfer
pricing positions by the tax authorities cannot be reliably estimated.
Legal issues
In the ordinary course of business, the Group is subject to legal actions and complaints. As of 31 December 2013, the Group
companies had ongoing litigations with the tax authorities related to disallowance of certain amounts of VAT refunds and deductible
expenses 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 2013 amounted to USD 32,182 thousand. Out of this amount,
USD 31,613 thousand relates to cases where court hearings have taken place and where the court in either the first or second instance
has already ruled in favour of the Group. Based on past history of court resolutions of similar lawsuits Management believes that
possible exposure relating to these court cases amounts to approximately USD 569 thousand as of 31 December 2013 (2012: USD
1,196 thousand, 2011: USD 2,000 thousand).
Contractual commitments on the purchase of property, plant and equipment
During the years ended 31 December 2013, 2012 and 2011, 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
2013, purchase commitments on such contracts were primarily related to construction of the Vinnytsia poultry complex and amounted
to USD 6,993 thousand (2012: USD 14,689 thousand, 2011: USD 80,168 thousand).
71
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
28. Contingencies and contractual commitments continued
Commitments on land operating leases
The Group has the following contractual obligations in respect of land operating leases as of 31 December 2013, 2012 and 2011:
Within one year
In the second to the fifth year inclusive
Thereafter
2013
2012
2011
25,913
81,871
80,787
22,011
74,288
79,551
12,480
41,457
64,713
188,571
175,850
118,650
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 until 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.
29. Dividends
On 4 March 2013 the Company announced that the Board of Directors approved a payment of dividend of US$1.13 per share,
equivalent to US$120 million. On 16 May 2013 the Board of Directors approved a payment date of dividends on 28 May 2013 to
shareholders of record on 22 May 2013. The Board of Directors approved that no dividend will be paid on the Company’s treasury
shares.
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 Standards 7 “Financial Instruments: Disclosure” and 13 “Fair value measurement”. Fair value is defined as the amount at
which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length
transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group’s financial
instruments, judgement 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 realise in a market exchange
from the sale of its full holdings of a particular instrument.
The fair value is estimated to be the same as the carrying value for cash and cash equivalents, short-term bank deposits, trade
accounts receivables, and trade accounts payable due to the short-term nature of the financial instruments.
Set out below is the comparison by category of carrying amounts and fair values of all the Group’s financial instruments, excluding
those discussed above, that are carried in the consolidated statement of financial position:
Financial liabilities
Bank borrowings (Note 22)
Senior Notes due in 2015 (Note 23)
Senior Notes due in 2020 (Note 23)
Finance lease obligations (Note 24)
Carrying amount
Fair value
2013
2012
2011
2013
2012
2011
290,664
234,859
735,972
59,854
501,141
581,671
–
67,447
279,488
577,157
–
51,825
297,276
242,690
669,375
60,368
508,702
601,385
–
66,342
283,677
513,697
–
51,418
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 for bank borrowings of 3.3% (2012: 3.0%, 2011: 4.5%) and for finance lease obligations of 7.5% (2012: 8.0%,
2011: 8.0%), and is within level 2 of the fair value hierarchy.
The fair value of Senior Notes was estimated based on market quotations and is within level 1 of the fair value hierarchy.
72
Myronivsky Hliboproduct Annual Report and Accounts 2013 31. Risk management policies
During the years ended 31 December 2013, 2012 and 2011 there were no material changes to the 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 3.0. The Group defines its
leverage ratio as the proportion of net debt to adjusted operating profit.
As of 31 December 2013, 2012 and 2011 the leverage ratio was as follows:
Bank borrowings (Note 22)
Bonds issued (Note 23)
Finance lease obligations (Note 24)
Debt
Less:
Cash and cash equivalents and short-term bank deposits
Net debt
Operating profit
Adjustments for:
Depreciation and amortisation expense (Notes 7 and 8)
Adjusted operating profit
Net debt to adjusted operating profit
2013
2012
2011
290,664
951,728
59,854
501,141
571,515
67,447
279,488
567,000
51,825
1,302,246 1,140,103
898,313
(172,470)
(94,785)
(96,535)
1,129,776 1,045,318
801,778
271,836
380,583
320,744
119,014
87,135
80,341
390,850
467,718
401,085
2.89
2.23
2.00
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 25). Adjusted operating profit is defined as operating profit adjusted for the depreciation and
amortisation 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.
Major categories of financial instruments
Financial assets:
Long-term bank deposits
Loans to employees and related parties
Other receivables
Trade accounts receivable, net (Note 19)
Short-term bank deposits
Cash and cash equivalents (Note 20)
Financial liabilities:
Bank borrowings (Note 22)
Bonds issued (Note 23)
Finance lease obligations (Note 24)
Amounts payable for property, plant and equipment (Note 26)
Accrued interest (Note 22 and 23)
Trade accounts payable (Note 25)
Other current liabilities (Note 26)
2013
2012
2011
5,802
1,645
19,789
70,912
–
172,470
6,154
1,966
5,750
72,616
–
94,785
6,017
2,437
1,828
65,794
1,777
94,758
270,618
181,271
172,611
290,664
951,728
59,854
7,112
20,771
101,990
12,943
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
1,445,062 1,243,795
981,337
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.
73
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
31. Risk management policies continued
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 the credit
period is expired. About 38% (2012: 31%, 2011: 28%) 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 2013, 2012 and 2011. 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 2013
Bank borrowings
Bonds issued
Finance lease obligations
Total
Year ended 31 December 2012
Bank borrowings
Bonds issued
Finance lease obligations
Total
Year ended 31 December 2011
Bank borrowings
Bonds issued
Finance lease obligations
Total
Carrying
amount
Contractual
amounts
Less than
1 year
From 2nd
to 5th year
After 5th year
318,603
290,664
951,728 1,423,050
66,080
59,854
106,083
85,939
23,664
203,978
494,298
42,416
8,542
842,813
–
1,302,246 1,807,733
215,686
740,692
851,355
501,141
571,515
67,447
526,824
734,613
76,735
313,702
59,939
25,705
195,146
674,674
51,030
17,976
–
–
1,140,103 1,338,172
399,346
920,850
17,976
279,488
567,000
51,825
299,418
794,552
58,272
177,506
59,939
22,736
103,210
734,613
35,536
18,702
–
–
898,313 1,152,242
260,181
873,359
18,702
All other financial liabilities (excluding those disclosed above) are repayable within one year.
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 2013, 2012 and 2011, the current ratio was as follows:
2013
2012
2011
1,109,166 1,001,248
469,147
328,435
808,745
307,678
3.38
2.13
2.63
Current assets
Current liabilities
74
Myronivsky Hliboproduct Annual Report and Accounts 2013 31. Risk management policies continued
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
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade accounts payable
Other current liabilities
Accrued interest
Short-term bank borrowings
Short-term finance lease obligations
Non-current liabilities
Long-term bank borrowings
Bonds issued
Long-term finance lease obligations
2013
2012
2011
USD
EUR
USD
EUR
USD
EUR
–
12,429
928
118,211
131,568
5,802
–
39
540
6,381
–
8,607
732
73,270
82,609
6,154
–
35
1,017
7,206
–
3,794
688
71,766
76,248
6,017
–
–
1,165
7,182
66,088
21,145
19,892
59,401
14,088
5,637
3,373
878
38,966
6,312
30,592
593
13,312
270,362
12,794
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
180,614
55,166
327,653
51,212
185,351
38,494
65,729
984,782
23,317
126,568
–
15,705
68,104
584,767
25,013
131,379
–
20,536
30,561
584,767
25,581
79,745
–
6,977
1,073,828
142,273
677,884
151,915
640,909
86,722
1,254,442
197,439 1,005,537
203,127
826,260
125,216
The table below illustrates the Group’s sensitivity to a change in the exchange rate of the Ukrainian Hryvnia against the US dollar and
EUR. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at
the period end for a possible change in foreign currency rates.
2013
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
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
Change in
foreign currency
exchange rates
Effect on
profit before tax
10%
10%
5%
5%
10%
10%
5%
5%
10%
10%
5%
5%
(112,287)
(19,106)
56,144
9,553
(92,293)
(19,592)
46,146
9,796
(75,001)
(11,803)
37,501
5,902
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.
75
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes to the consolidated financial statements (continued)
for the year ended 31 December 2013 (in thousands of US dollars, unless otherwise indicated)
31. Risk management policies continued
During the years ended 31 December 2013, 2012 and 2011, the Ukrainian Hryvnia was relatively stable against the US dollar. During the
year ended 31 December 2013 the Ukrainian Hryvnia depreciated against the EUR by 4.79% (2012: depreciated against the EUR by
2.32%, 2011: appreciated against the EUR by 2.60%). As a result, during the year ended 31 December 2013 the Group recognised net
foreign exchange losses in the amount of USD 11,052 thousand (2012: foreign exchange losses in the amount of USD 3,285 thousand,
2011: foreign exchange gains in the amount of USD 2,318 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 2013 a
USD 6,841 thousand (2012: USD 3,578 thousand) net foreign exchange gain resulting from the difference in NBU and Ukrainian
interbank currency market exchange rates, was included in Other operating expenses.
The 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 2013, 2012 and 2011:
Sunflower oil and related products
Chicken meat and related products
Grain1
Other agricultural segment products
2013
2012
2011
253,194
216,683
114,923
405
227,835
112,931
138,639
431
222,418
67,874
63,101
486
585,205
479,836
353,879
1 Grain export sales during the year ended 31 December 2013 includes USD 14,249 thousand of gain received from operations, when goods are exchanged or swapped for
goods which are of similar nature.
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 illustrates the Group’s sensitivity to increases or decreases of interest rates by 5% (2012: 5%, 2011: 5%). 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.
2013
LIBOR
LIBOR
EURIBOR
EURIBOR
2012
LIBOR
LIBOR
EURIBOR
EURIBOR
2011
LIBOR
LIBOR
EURIBOR
EURIBOR
Increase/(decrease)
of floating rate
Effect on profit
before tax
US$’000
5%
–5%
5%
–5%
5%
–5%
5%
–5%
5%
–5%
5%
–5%
(6,381)
6,381
(8,320)
8,320
(17,146)
17,146
(8,189)
8,189
(9,263)
9,263
(4,781)
4,781
The effect of interest rate sensitivity on shareholders’ equity is equal to that on the 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
minimise 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.
76
Myronivsky Hliboproduct Annual Report and Accounts 2013 31. Risk management policies continued
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 the 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 2013 was USD 68,297 thousand and is recorded
in the consolidated statement of comprehensive income on an accrual basis (2012: USD 58,450 thousand, 2011: USD 48,563
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.
33. Earnings per share
The earnings and weighted average number of ordinary shares used in the 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
Weighted average number of shares outstanding
Basic and diluted earnings per share (USD per share)
2013
2012
2011
155,907
155,907
297,104
297,104
243,376
243,376
105,666,888
106,242,419
107,854,856
1.48
2.80
2.26
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
There are no subsequent events to mention.
35. Authorisation of the consolidated financial statements
These consolidated financial statements were authorised for issue by the Board of Directors of MHP S.A. on 1 April 2014.
77
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes
78
Myronivsky Hliboproduct Annual Report and Accounts 2013 79
Strategic reportCorporate governanceFinancial statementsMyronivsky Hliboproduct Annual Report and Accounts 2013 Notes
80
Myronivsky Hliboproduct Annual Report and Accounts 2013 Myronivsky
Hliboproduct
PJSC Myronivsky Hliboproduct
158 Akademica Zabolotnogo Str, Kiev, 03143, Ukraine
For further enquiries: a.sobotyuk@mhp.com.ua
+38 044 207 00 70
Registered office:
5 rue Guillaume Kroll
L-1882 Luxembourg
Registered number: B116838
M
y
r
o
n
i
v
s
k
y
H
l
i
b
o
p
r
o
d
u
c
t
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
3
www.mhp.com.ua