1
202
A LEADING INTERNATIONAL
AGRO-INDUSTRIAL COMPANY
ANNUAL REPORT
AND ACCOUNTS 2017
ANNUAL REPORT 2017 03
04
06
10
15
18
21
Strategic Report
Performance Highlights
Company Overview
Our Strengths
Chairman’s Statement
CEO’s Statement
Business Model
24
25
30
33
35
37
40
49
57
Business Review
Poultry and Related
Operations Segment
61
62
Governance
Corporate Governance
Overview
Grain Growing Segment
69
Board: Composition
Other Agricultural Segment
& Performance
Key Performance Indicators
71
Nominations and Remuneration
82
89
97
154
154
154
Independent Auditor’s Report
Financial Statements
Notes
Shareholder Information
Financial Calendar
Key Contacts & Advisors
Financial Policies
Financial Review
Risk Management
Corporate Responsibility
73
78
81
Committee Report
Audit Committee Report
155 Glossary of Terms
Management Report
Stakeholder Engagement
CONTENTS
3
STRATEGIC
REPORT
04
06
10
15
18
21
Performance Highlights
Company Overview
Our Strengths
Chairman’s Statement
CEO’s Statement
Business Model
ANNUAL REPORT 2017 4
PERFORMANCE HIGHLIGHTS
MHP MADE PROGRESS ON A NUMBER OF FINANCIAL AND OPERATIONAL PRIORITIES
FINANCIAL HIGHLIGHTS
US$
1,288
million
Revenue
(+13% y/y;
2016: US$ 1,135 million)
US$
732
million
Export revenue
(+15% y/y;
2016: US$ 635 million)
57%
of revenue
in US$
(2016: 56%)
US$
365
million
Adjusted operating
profit
(+15% y/y;
2016: US$ 317 million)
US$
459
million
Adjusted EBITDA
(+11% y/y;
2016: US$ 415 million)
US$
230
million
Net profit
(+233% y/y;
2016: US$ 69 million)
US$
2.14
Earnings per share
(+257% y/y;
2016: US$ 0.60)
US$
0.7492
Dividend per share
(2016: US$ 0.7529)
US$
500
million
Successful
7-year Eurobond
with a coupon of 7.75%
ANNUAL REPORT 2017 5
PERFORMANCE HIGHLIGHTS
/CONTINUED
OPERATIONAL AND STRATEGIC HIGHLIGHTS
MIGRATION OF
THE COMPANY
from Luxembourg to Cyprus
NEW CUTTING
FACILITY
in Slovakia in line with export
strategy
VINNYTSIA
POULTRY COMPLEX
– significant progress in the
construction of Phase 2
of the complex
BIOGAS
COMPLEX
– start of the construction
of second biogas complex
at the Vinnytsia poultry
complex – 12 MW capacity
CRIMEAN
ASSETS
DISPOSAL
ANNUAL REPORT 2017 6
COMPANY OVERVIEW
AN INTERNATIONAL COMPANY HEADQUARTERED IN UKRAINE,
MHP1 IS A VERTICALLY-INTEGRATED, LEADING AGRO-INDUSTRIAL GROUP
MHP is a long-term growth story
It is the leading domestic producer of poultry products
with the greatest market share2 and highest brand rec-
ognition3 for its poultry products.
Its vertically-integrated business model
marks MHP out from its peers
It delivers a low cost base leadership position and
sustainably higher earnings. MHP owns and operates
facilities at each of the key stages of chicken produc-
tion processes: grain and fodder production; egg incu-
bation and grow-out; processing; marketing; and sales
and distribution. MHP leases agricultural land locat-
ed in the highly fertile black soil regions of Ukraine.
With modern production assets, which are amongst
the most technologically advanced in Ukraine and the
EU, and the high biosecurity standards inherent in the
Company’s activities, there are also clear responsible
business benefits in both animal welfare and full con-
trol of food safety.
A key growth driver is the expansion
of the Vinnytsia complex
Export revenue now constitutes 57%
of total revenue
MHP exports chicken meat, vegetable oils and
grains. Serving large, attractive and growing inter-
national poultry markets, the Company’s expansion
strategy is focussed on increasing export volumes,
leading to additional hard currency revenue. Export
revenue provides MHP with a natural hedge against
local currency volatility. MHP now exports to 63
countries and demonstrates steadily increasing ex-
port traction. Building out from this platform, MHP
is expanding its international operations in Europe
(the Netherlands and Slovakia) and the Gulf Coop-
eration Council (GCC). In addition to organic growth,
the Company’s expansion may be supplemented by
targeted acquisitions.
Stable and sustainable profitability
Since 2013 MHP generates positive cash flow and pays
an annual dividend. Company’s profit margins (EBIT-
DA) are sustainably higher compared to international
peers – in the 28% to 42% range over the past 15 years.
Phase 2 of the development commenced in 2016 and pro-
gressed substantially during 2017 to create new capacity.
When fully operational, it is expected to position the Compa-
ny to offer high-return expansion and export share growth.
Strong credit history
MHP has an established and strong track record in inter-
national capital markets and has been a responsible issu-
er of debt for over 10 years.
1 MHP SE, a société européenne, registered
under the laws of Cyprus, was established on
May 30, 2006. The Company is the ultimate
holding company of PJSC Myronivsky
Hliboproduct (MHP) and its subsidiaries.
In this Annual Report & Accounts,
MHP SE and its subsidiaries are referred
to as “MHP”, “The Company” or “the
Group”.
2 Source: SSCU.
3 Source: Research conducted by InMind.
ANNUAL REPORT 2017 7
COMPANY OVERVIEW
/CONTINUED
REVENUE SPLIT BY BUSINESS SEGMENTS
OUR BUSINESS SEGMENTS
9%
Other Agricultural
9%
Grain Growing
THE COMPANY IS ORGANISED INTO THREE SEGMENTS WHICH FORM
THE CORNERSTONES OF THE VERTICALLY-INTEGRATED BUSINESS MODEL:
POULTRY AND RELATED OPERATIONS SEGMENT; GRAIN GROWING SEGMENT;
82%
Poultry and Related
Operations
AND OTHER AGRICULTURAL SEGMENT
POULTRY AND RELATED OPERATIONS SEGMENT
Poultry and Related Operations, Grain
Growing and Other Agricultural Segments’
sales accounted for 82%, 9% and 9%, re-
spectively, of MHP’s revenues in 2017.
MHP is the leading poultry producer in Ukraine, ac-
counting for approximately 30% of all industrially pro-
duced chicken meat consumed in the country in 2017 1.
MHP commands high brand recognition domestically
with its poultry products sold at premium prices.
Geography
Chilled / Frozen
Product
MHP’S POULTRY BRANDS
Brand Name
Nasha Riaba
Ukrainian Chicken
Qualiko
Ukraine
Ukraine
Export
Ukrainian Chicken
Export (except the EU and Asia)
Аssilah
Sultanah
Al Hassanat
Bibilo
Export (MENA)
Export (MENA)
Export (Iraq)
Export (Georgia)
Chilled
Frozen
Chilled / Frozen
Frozen
Frozen
Frozen
Frozen
Frozen
Whole, parts
Whole, parts
Whole, parts
Whole, parts
Whole
Whole
Whole, parts
Whole
1 Source: SSCU
MHP supplies chicken and other meat products to a num-
ber of nationwide supermarket chains, including Fozzy,
ATB-Market, Metro Cash & Carry, ECO, Novus, Auchan.
MHP also produces and sells vegetable oils (sunflower
and soybean oils) as a by-product of its fodder produc-
tion, mainly to international traders.
ANNUAL REPORT 2017
8
OUR GLOBAL FOOTPRINT
MHP is steadily gaining traction in export mar-
kets, driven by sustained growth in a number of
key regions such as the EU, MENA and Africa.
The Company has expanded in the EU with two
European cutting (deboning) facilities. These
establishments have been operated in the
Netherlands since 2016 and in Slovakia since
2017. In 2016, the Company also established a
sales and distribution office in the UAE as part
of its export strategy.
2017 GROUP EXPORT AND DOMESTIC REVENUE
43%
Domestic
57%
Export
COMPANY OVERVIEW
/CONTINUED
GRAIN GROWING SEGMENT
MHP is one of the leading grain cultivation business-
es in Ukraine growing corn, sunflower and soybean
to support the vertical integration of its chicken pro-
duction. Increasingly, other grains such as wheat and
rape are grown for sale to third parties. In 2017, MHP’s
landbank constituted around 370,000 hectares of
land, one of the largest land portfolios in Ukraine. Crop
yields are well above the Ukrainian average.
OTHER AGRICULTURAL SEGMENT
MHP’s meat-processing business is a main driver of the
Segment’s profitability as it gives the Company addi-
tional value-add in its products that its customers are
willing to pay a premium for. Processing includes the
production of a wide variety of sausages, smoked chick-
en, and chilled and frozen cooked convenience food
predominantly from chicken meat. MHP is one of the
leaders in a highly fragmented meat-processing mar-
ket in Ukraine, accounting for approximately 14%1 of
meat-processing products in Ukraine in 2017.
MHP’S PROCESSED MEAT BRANDS
Brand Name
Bashchinskiy
Lehko!
Sytni
Qualiko
Non-branded
Geography
Product
Ukraine
Ukraine
Ukraine
Export
Ukraine
Sausages, convenience food (chilled),
smoked chicken
Convenience food (frozen)
Convenience food (frozen)
Convenience food (frozen),
raw marinated chicken (frozen)
Convenience food (frozen), bulk
1Source: SSCU
ANNUAL REPORT 2017
ANNUAL REPORT 2017
9
Europe export
COMPANY OVERVIEW
/CONTINUED
Estonia
Lithuania
Ireland
United
Kingdom
The Netherlands
Poland
Belgium
Germany
Czech
Republic
Kyiv
Slovakiya
Hungary
France
Switzerland
Spain
Slovenia
Romania
Italy
Montenegro
Bulgaria
Macedonia
POULTRY
EXPORT
MARKETS
IN 2017 MHP’S STRATERY
OF DIVERSIFICATION AND MARKET
TARGETING DROVE
A 16% YEAR-ON-YEAR INCREASE
IN POULTRY EXPORTS
3
international
offices
63
export
countries
220,983
tonnes
of chicken meat in 2017
5%
Other
17%
CIS
29%
EU
23%
Middle
East
7%
Africa
19%
Northern
Africa
EXPORT VOLUMES (TONNES) OF CHICKEN MEAT
BY REGION IN 2017
10
OUR STRENGTHS
VERTICALLY-INTEGRATED
BUSINESS MODEL
THE LEADING PRODUCER
OF POULTRY PRODUCTS IN UKRAINE
Business Impact
• Reduces costs by creating synergies in a number of areas
and thereby reducing per unit costs
• Reduces dependence on suppliers and farmers
• Reduces exposure to raw material price volatility
• Enables maintenance of strict biosecurity standards
throughout entire production process
• Enhances quality control
Business Impact
• Reputation for quality
• Enables realisation of production and marketing economies of scale
• Competitive advantage over existing competition and potential
new entrants
• Organic growth through greenfield projects in Ukraine
• Start of construction of Phase 2 of the Vinnytsia project
MHP grows corn, sunflower and
soybean to support its chicken
production.
MHP is considered to be the
lowest cost poultry producer in
Ukraine and worldwide. This is
mainly due to the vertically-inte-
grated business model and inten-
sive and efficient CAPEX.
The reduction in dependence on
suppliers and farmers and con-
sequent reduction in exposure to
increases in raw material prices
is particularly important in devel-
oping markets, such as Ukraine,
to avoid supply interruption and
price volatility.
Vertical integration also allows
MHP to maintain strict biosecu-
rity, to control the quality of its
inputs and the resulting quality
and consistency of its products
through to the point of sale. This
is a clear differentiator for the
Company.
Management believes that MHP’s
established market position and
reputation for quality strength-
en its bargaining position with
respect to MHP’s domestic retail
customers.
MHP’s scale helps it to realise
production and marketing econ-
omies of scale and positions
MHP to capitalise on the expect-
ed continued growth and devel-
opment of the Ukrainian market.
During 2017, MHP continued the
construction of
the Vinnytsia
complex – Phase 2, with two
lines, is expected to double cur-
rent production capacity at the
complex. The production and
launch schedule can be found
on pp.28.
ANNUAL REPORT 2017 11
OUR STRENGTHS
/CONTINUED
HIGHLY EXPERIENCED
MANAGEMENT TEAM
DIVERSIFIED AND
GROWING EXPORTS
Business Impact
• Considerable agro-industry and food products industry expertise
• Well placed to identify and capitalise on future market
opportunities including potential acquisitions
• Successful track record of execution of deals furthering
the Company’s international expansion, including in the EU
(the Netherlands and Slovakia) and the GCC
Together they have over 100
years of combined agro-industry
experience.
MHP was founded in 1998 by the
Group’s CEO, Mr Yuriy Kosyuk,
who was one of the first industri-
alists to capitalise on the opportu-
nities in the Ukrainian agricultural
market following the transition to
a market economy.
MHP’s senior management team
largely comprises experienced
professionals who have worked
closely and effectively together
at MHP since 1998.
Business Impact
• Diversification decreases exposure to geopolitical Ukrainian risk factors
• International growth opportunities
• Additional hard currency revenue
• Reduced local currency exposure
• New cutting facililty in Slovakia
Since 2008, MHP has been de-
veloping and growing its exports
into the CIS (Commonwealth of In-
dependent States), MENA (Middle
East and North Africa), the EU, Afri-
ca and Asia. In 2017 MHP exported
220,983 tonnes of chicken meat to
63 countries (2016: 190,223 tonnes
to 69 countries).
In line with the Company’s consis-
tent strategy, MHP will continue
to seek to diversify its sales geo-
graphically.
Since 2016, MHP has also adopted
a strategy of market targeting i.e.
targeting particular regions or mar-
kets with certain products, gradu-
ally improving the profitability of
those exports and thereby increas-
ing export revenue.
MHP sells both chilled chicken
meat (mainly to the EU, which
represented around 29% of total
poultry exports in 2017) and fro-
zen chicken meat, mainly under its
“Qualiko” brand.
ANNUAL REPORT 2017 12
OUR STRENGTHS
/CONTINUED
DIVERSIFIED
SALES NETWORK IN UKRAINE
ESTABLISHED
DISTRIBUTION NETWORK
IN UKRAINE
Business Impact
• Helps to broaden customer base
• Achievement of better pricing by creating a competitive balance
between principal distribution channels
Business Impact
• Increases efficiency and enables higher standards of customer service
• Reduces transportation costs and delivery times
• Increases availability of MHP’s products
• More efficient monitoring of franchisees’ compliance with MHP’s
MHP distributes and sells its chick-
en products through a number of
channels including: supermarkets
and hypermarkets; branded out-
lets; and direct to meat proces-
sors and foodservice businesses
(hotels, restaurants and cafes).
By supplying chicken and other
meat products to a number of
nationwide supermarket chains
MHP’s products are more widely
available. This helps to increase
sales volumes as these retailers
continue to expand throughout
Ukraine.
MHP operates with partners and
sells its products via a network of
branded outlets, which Manage-
ment believes is a unique model
among Ukrainian food business-
es. This network consisted of 1,934
outlets as at 31 December 2017.
retail standards
MHP maintains a network of
located
11 distribution centres
within major Ukrainian cities.
MHP uses its own fleet of 477
refrigerated trucks for the distri-
bution of its products. The main-
tenance of the Company’s own
fleet reduces both transportation
costs and delivery times.
MHP’s extensive distribution net-
work helps it to enhance its over-
all customer service and to
secure its market position by en-
suring quality, as well as reliable
and timely product delivery. It
also increases the overall avail-
ability of MHP’s products.
MHP’s distribution and logistics
centres provide support to super-
markets and branded outlets and
also monitor their compliance with
the Company’s retail standards.
ANNUAL REPORT 2017 13
OUR STRENGTHS
/CONTINUED
STRONG BRANDS
HIGH BIOSECURITY STANDARDS
Business Impact
• Represent quality and reliability to consumers
• Increase customer loyalty
• Help to grow market share through ‘word-of-mouth’
MHP recognises the importance of
continued investment and intends
to continue to focus a significant
its marketing ef-
proportion of
forts on enhancing the value of its
brands.
MHP has strong brands in the con-
sumer markets in which it operates.
In 2017, unprompted brand rec-
ognition of MHP’s “Nasha Riaba”
brand was 95%, and prompted
brand recognition was 99%1.
MHP also has several other widely
recognised national and regional
brands for processed meat products.
Management believes
its
brands are perceived as represent-
ing the highest quality and greatest
reliability, thereby helping to sup-
port MHP’s pricing strategy. The
Company sells its poultry prod-
ucts under the Nasha Riaba brand
name at a premium to competitors.
that
Business Impact
• Company standards are in line with Ukrainian legislation
and with international best practice
• Ensures animal welfare
• Enhances Company’s reputation for reliability and quality
Management strives for the highest
standards in safety and hygiene
and is not only confident that MHP’s
biosecurity systems comply with
Ukrainian legislation but also be-
lieves that they are in line with inter-
national best practice.
Very strict biosecurity standards
have been established and are
adhered to by the Company at
every stage of the poultry produc-
tion process, and in the Company’s
fodder production facilities, in or-
der to minimise the risk of contam-
ination and disease. This enables
the Company to minimise antibiot-
ic usage.
These measures include:
• keeping chickens within indoor
production facilities;
• employing multi-site farming;
• disinfecting vehicles entering pro-
duction areas;
• regularly monitoring the health of
livestock and employees; and
• providing the means to trace each
batch of chickens back to its pro-
duction facility.
Unlike many other producers
that acquire eggs or chicks from
third-party suppliers, MHP’s chick-
ens are typically hatched, grown-
out and processed within a single
chicken farm.
MHP also imposes strict hygiene
standards on its franchisees and
monitors compliance with these
standards through continuous ran-
dom inspections.
In addition, MHP complies with the
high hygiene standards of its retail
customers.
1 Based on research
conducted by InMind
ANNUAL REPORT 2017 14
OUR STRENGTHS
/CONTINUED
MODERN TECHNOLOGY
AND INNOVATION
HIGHLY FERTILE
AGRICULTURAL LAND
Business Impact
• At the forefront of industry innovation
• Enables the manufacture of high-quality products
• Enables cost savings
• Optimisation of yields in grain growing operations
• Well-positioned to capitalise on the consumer-driven move towards
healthier, higher quality food and convenience foods
MHP employs advanced technolo-
gies at its production facilities and
Management believes that MHP’s
facilities are at the forefront of tech-
nological innovation in the industry.
Much of MHP’s production process
is automated, which helps to en-
sure the manufacture of consistently
high-quality products in a cost-effec-
tive manner. Management believes
that the benefits of its modern equip-
ment and advanced technologies
are reflected in MHP’s performance
indicators including chicken survival
rates and production costs.
MHP applies modern farming prac-
tices, supported by modern machin-
ery, in its grain cultivation business,
which helps optimise yields and
reduce wastage and consumption
of fuel.
The Company is also focussed on
consumer-driven innovation. Man-
agement believes MHP was the
first company to introduce a num-
ber of value-added products to the
Ukrainian market, including its “Leh-
ko!” line of convenience food prod-
ucts and meat snacks.
MHP has also been a leader in retail-
ing and packaging innovation, such
as in its branded outlets “Nasha Ri-
aba” and in the introduction of new
ways of packaging chicken products
to the market that extend the shelf-
life of the product.
Management believes that these
innovations ad-
consumer-driven
dress a shifting trend among con-
sumer groups in Ukraine towards
healthier, higher quality food and
convenience foods.
Business Impact
• Approximately 370,000 hectares of leased land located in the black
soil regions of Ukraine
• Highly fertile and naturally irrigated land
• Reduces associated costs
In 2017, MHP produced 1,999,095
tonnes of grain of which approx-
imately 24% from the harvest
was sold to third parties (2016:
2,351,491 tonnes of which ap-
proximately 17% from the harvest
was sold to third parties). The
c15% decline year-on-year was
caused by challenging weath-
er conditions which adversely
affected MHP yields across all
crops.
MHP leases agricultural land lo-
cated in the highly fertile black
soil regions of Ukraine. This land
benefits
from a considerable
amount of rainfall per annum
where irrigation systems are not
needed thereby helping to con-
trol costs.
Black soil has a significant per-
centage of organic matter and
Management believes that the
quality of MHP’s leased land
plots enables it to minimise its
fertiliser and fuel costs.
Under
its vertically-integrated
business model, MHP grows
corn, sunflower and soybean to
support its chicken production.
Increasingly MHP also grows
other grains, such as wheat and
rape, for sale to third parties.
ANNUAL REPORT 2017 15
CHAIRMAN’S STATEMENT
MULTI-YEAR GROWTH PROFILE WITH INTERNATIONAL EXPANSION OPPORTUNITIES
1 Indicators by which
performance is measured
include 100% capacity
utilisation, 86% of poultry
volumes produced at
greenfield capacities,
EBITDA of 36%.
Dear Shareholder,
It is a pleasure to report that MHP has continued to per-
form beyond industry benchmark standards in both pro-
duction and financial measures over the past year1.
Our unique vertically-integrated business model has
enabled the Company to continue its track record of de-
livering stable and high profit margins in what is a highly
cyclical industry and in challenging market conditions.
MHP continues to demonstrate strong financial man-
agement and performance. During 2017, the Company
delivered EBITDA of US$ 459 million and an EBITDA
margin of 36%; EBITDA margins have consistently been
in the 28% to 42% range over the past 15 years.
During the year, prices in the global poultry market
recovered from levels seen in 2016, partly reflecting
changes in global poultry trade flows due to avian in-
fluenza and the food-safety crisis in Brazil. MHP was
well-positioned to capitalise on the opportunities pre-
sented by these changing market dynamics. During the
year the Company also continued its strategy of diversi-
fying its export portfolio and increasing export revenue,
which now represents 57% of Group revenue, up from
56% in 2016.
In line with the Company’s stated objectives, MHP has con-
tinued to invest in growing the domestic market in Ukraine.
THE GROUP’S FUNDING STRATEGY IS TO ENSURE ONGOING ACCESS
TO APPROPRIATE SOURCES OF CAPITAL TO SUPPORT INVESTMENT IN ITS
BUSINESS AS AND WHEN REQUIRED. CONSISTENT WITH ITS STRATEGY
OF HAVING MINIMUM SHORT-TERM DEBT AND THE MAJORITY AS LONG-TERM
DEBT, THE COMPANY RAISED US$ 500 MILLION THROUGH A SUCCESSFUL
BOND ISSUE IN MAY 2017.
Dr John Rich,
Chairman
ANNUAL REPORT 2017 16
CHAIRMAN’S STATEMENT
/CONTINUED
2018 will see further investment in our Vinnytsia pro-
duction facilities; when completed in 2022 this will in-
crease the Group’s annual poultry production capacity
to approximately 840,000 tonnes. As part of our strategy
of continuing sustainable growth, we expect both to in-
crease production capacity further and to diversify our
production and marketing bases in key markets through
carefully targeted acquisitions. The Company has a
clear and focussed route-to-market strategy towards Eu-
rope and the GCC and MENA regions.
The Group’s funding strategy is to ensure ongoing
access to appropriate sources of capital to support
investment in its business as and when required. Con-
sistent with its strategy of having minimum short-term
debt and the majority as long-term debt, the Compa-
ny raised US$ 500 million through a successful bond
issue in May 2017. The Company is considering a re-
turn to the markets in early 2018 with another bond
issue to further extend debt maturities. The Company
expects to keep the ratio of net debt to EBITDA below
covenant (3.0x), in order to maintain strong interest
cover and to continue to ensure that the Group’s ex-
port revenue comfortably exceeds its foreign currency
debt service obligations.
Dividend policy
The Board has recommended a final dividend of US$
0.7492 per share, amounting to US$ 80 million (2017:
US$ 80.0 million, US$ 0.7492 per share). The Board re-
mains committed to a dividend policy that maintains a
balance between the need to invest in further develop-
ment at the Company and the right of shareholders to
share in the net profit of the Company.
Corporate governance
The Company upholds the highest standards of ethics,
governance and compliance procedures across the
Group and these high standards of conduct are embed-
ded in the way we do business and in our values.
The Board and the Company aspire to achieve full com-
pliance with the UK Corporate Governance Code over the
coming years. In the meantime, the Company has applied
the Ten Principles of Corporate Governance of the Luxem-
bourg Stock Exchange as a benchmark for its approach
to corporate governance. The Governance section of this
Report, beginning on page 62, sets out our procedures
and reports on our compliance record throughout the year.
Board developments
During the year, there were a number of changes to the
Board.
Philippe Lamarche stepped down from the Board in Oc-
tober 2017 following a six-year tenure as a Non-Execu-
tive Director. I would like to thank Philippe for his contri-
bution to the Board over this period and to wish him well
for the future.
William Richards was appointed to the Board as a
Non-Executive Director in October 2017. Mr Richards
brings with him a wealth of experience in the food in-
dustry, in particular in manufacturing and distribution.
The Nominations and Remuneration Committee fo-
cussed during the year on, amongst other priorities,
senior management succession planning and incentive
plans for senior executives to ensure that we continue
to achieve the optimum structure in our management
compensation arrangements.
US$
80
million
Recommended dividend
for 2017
ANNUAL REPORT 2017
CHAIRMAN’S STATEMENT
/CONTINUED
27,589
employees
Our highly skilled and
knowledgeable workforce
17
During 2018, a priority for the Committee is to increase
the representation of independent Non-Executive Di-
rectors on the Board. The Board recognises the impor-
tance of diversity and we will continue to take this into
account in our recruitment process whilst ensuring that
candidates are selected on merit and that there is an
appropriate range and balance of skills, experience and
background on the Board.
A programme of continuing education for Board mem-
bers is in place for 2018 in line with recent recommen-
dations by the London Stock Exchange.
Our people
Our highly skilled and knowledgeable workforce, com-
prising 27,589 employees, is our greatest asset. We are
committed to investing in our people’s development and
to providing opportunities for them to realise their full
potential. We strive to build upon our reputation as a
high-quality, responsible employer of choice.
We regard the health and safety of our employees and
those working on our premises as paramount and creat-
ing and fostering a safe working environment is one of
our highest priorities.
We are also committed to investing in the people and
the communities around us and undertake a number of
social projects and cooperation programmes with local
universities and schools.
The Company is committed to maintaining and continu-
ally seeking to improve its market-leading animal wel-
fare and product quality standards. Our vertically-inte-
grated business model allows for complete control over
every stage of the production process. This enables us
to maintain strict biosecurity standards encompassing
animal welfare, quality control and assurance, halal
certification and food safety. The Company is also com-
mitted to a minimum antibiotic policy. This is an increas-
ingly important factor for consumers and a key differen-
tiator relative to many of the Company’s peers.
In 2018, MHP plans to develop certain aspects of its
approach that will build on its established food safe-
ty and quality track record, the important contribution
made by its local community investments in the areas
where it operates in Ukraine, and its success in man-
aging corruption risks. In particular, it plans to improve
its environmental approach, develop its related levels
of transparency through enhanced technical reporting
and to continue the process of developing its stakehold-
er communications.
Looking forward
2018 is expected to be another year of progress for MHP
as the Company continues to deliver on its strategy of or-
ganic growth both in Ukraine and in export markets, with
the potential for this to be supplemented by selective
acquisitions in Europe and the GCC and MENA regions.
Corporate Responsibility
All areas of our business are guided by international
standards of corporate responsibility.
With poultry prices predicted to be relatively stable in
2018, the Company is well-positioned to deliver further
increases in revenue and profit based on increasing
production and sales across all Business Segments.
Dr John Rich, Chairman
06 March 2018
ANNUAL REPORT 2017 18
CEO’S STATEMENT
A YEAR OF SIGNIFICANT PROGRESS WITH GROWTH VISIBILITY
Markets and environment
Our stakeholders are aware that, particularly in recent
years, MHP has operated in a challenging domestic en-
vironment. I am pleased to note, however, that decisive
reforms over recent years are continuing to boost confi-
dence, leading to significant improvements in both the
geopolitical and macroeconomic situations in Ukraine and
to a steadily improving economy. Against this backdrop,
MHP has become progressively stronger, successfully
managing the challenging macro and market conditions
and diversifying its footprint and product lines to bring
more resilience to the Company’s own performance.
MHP has continued to build on its track record of strong
profitability and growth, powered by its low cost leader-
ship, in turn driven out of its vertically-integrated model.
Our experienced management team has a track record
of delivery in both domestic and international markets.
Construction of Phase 2 of the Vinnytsia project is pro-
gressing on budget and on time and the team has suc-
cessfully launched international expansion projects in
Europe (the Netherlands and Slovakia) and the GCC.
International expansion is strategically significant
for MHP because it diversifies geographic and
currency risk exposure at the same time as
creating new market opportunities. We con-
tinue to investigate opportunities for domes-
tic and international growth, exploring new
markets and developing new products for
our customers, supplemented by potential
targeted acquisitions.
2017 HAS BEEN A YEAR OF FURTHER PROGRESS FOR MHP.
IN PARTICULAR, IT HAS SEEN THE COMPANY STRENGTHEN
ITS PROFESSIONALISM, PRODUCTIVITY AND EFFICIENCY
WHILST FURTHERING STRATEGIC INITIATIVES DESIGNED
TO SECURE FUTURE GROWTH AND CAPITALISE ON
A BROAD SPECTRUM OF MARKET OPPORTUNITIES.
Mr Yuriy Kosyuk,
CEO and founder of MHP
ANNUAL REPORT 2017 19
Performance highlights in 2017
During the year, we consolidated our position as the lead-
ing industrial producer of chicken meat in Ukraine. Domes-
tic poultry sales were stable at 311,743 tonnes, while our
Nasha Riaba™ brand achieved 95%1 customer recognition.
We continue to show excellent progress in export sales.
Growing our international reach is a strategic imperative
for MHP and in 2017 we exported around 220,983 tonnes
of chicken meat to 63 different countries, representing
year-on-year growth of 16%.
Our financial results were in line with Management expec-
tations, with EBITDA of US$ 459 million and an EBITDA
margin of 36%. Exports of poultry, oils and grains generat-
ed a further increase in hard currency revenues, growing
by 15% year-on-year to US$ 732 million.
Business review
MHP made significant progress on several fronts during
the year.
Efficient production
All of our production facilities, as usual, continued to
work at full capacity to meet customer demand. Pro-
duction at our Poultry and Related Operations Segment
became ‘smarter’ (more efficient in terms of cost man-
agement) and less volatile due to the skills and expe-
rience of our management team. Our Grain Growing
Segment deployed new and advanced technologies
such as drones and satellite imaging for smarter man-
agement of the application of seeds and fertilisers; this
puts us in a leadership position within our peer group in
Ukraine. And our Other Agricultural Segment has contin-
ued to expand its range of products to satisfy consum-
er demand and taste, showing 6% y/y growth in sales.
Future growth
Our next major poultry project – Phase 2 expansion of the
Vinnytsia complex – is on schedule. The first production
sites are expected to be launched in mid-2018 with pro-
duction in the year expected to increase by approximate-
ly 40,000 tonnes of chicken meat, which will mainly be
earmarked for export.
International expansion
At the same time as sustaining and growing our leading
position in the domestic market, we continue to explore
and develop export market opportunities worldwide. We
have already established new partnerships in the EU and
MENA and introduced market targeting for specific prod-
ucts in those regions. To improve access to EU markets,
in the first quarter of 2017 the Company invested US$ 3
million in commissioning a chicken processing operation
in Slovakia. Together with our Dutch facility (commis-
sioned in 2016), this will enable MHP to increase its ser-
vices to European customers by offering them different
products and allowing better control of export volumes.
We have also made significant progress in our sales and
distribution office in the UAE. Further opportunities for in-
ternational expansion continue to be actively explored.
Eurobond issue
In May 2017, MHP successfully completed a Eurobond
transaction involving the repurchase of US$ 245 million
Eurobonds 2020 and issue of a new US$ 500 million
7-year Eurobond with a coupon of 7.75%. The issue was
more than three times oversubscribed, which demon-
strates MHP’s strong relationship with its bondholders
and their trust in the Company.
CEO’S STATEMENT
/CONTINUED
US$ 459
million
EBITDA in 2017
US$ 3
million
invested in commissioning
a chicken processing
operation in Slovakia
1Source: Unaided recognition,
InMind, Brand health tracking
ANNUAL REPORT 2017 20
CEO’S STATEMENT
/CONTINUED
Our people and their development
Expanding on the Chairman’s Statement, our skilled and
professional workforce is integral to our success and they
are achieving new, ambitious goals. We are committed to
maximising opportunities not only for the Company but also
for the people working with us and we have in place a num-
ber of programmes to further this goal. Our “New Horizons”
programme delivers remote training and also enabled us
to update our assessment process. As we seek to recruit
the best new people to the Company, we focus, amongst
other things, on identifying those demonstrating drive and
self-motivation. Our search is helped significantly by our
“Start Your Career with MHP” project for university students.
In addition, in 2017 we took decisive steps to strength-
en our senior management teams at production sites, in
Sales and Marketing, IT, R&D and Project Management.
Corporate responsibility
MHP made significant enhancements to its approach to
sustainability matters in 2017. The developments includ-
ed securing the required capital to construct a second
state-of-the-art biogas facility which will benefit waste
management, reduce energy usage and significantly cut
the Company’s greenhouse gas emissions. The Compa-
ny also introduced a new local stakeholder engagement
plan to provide a more formal framework for its estab-
lished local stakeholder engagement procedures, further
develop dialogue with local communities, publicise, and
streamline grievance mechanisms and make it easier for
employees of the Company to be contacted.
MHP underlined its existing commitment to robustly ad-
dressing corruption risk by becoming a member of a new
organisation, the Ukrainian Network of Integrity and Compli-
ance (UNIC). This is a national network of companies whose
members have pledged to work together to enhance the
reputation of business in Ukraine. The Com pany’s deter-
STRATEGY AND PRIORITIES FOR 2018
Our strategy can be found in the Management Report on page 78.
However, I’d like to take the opportunity here to draw out a few tenets of that
strategy and with that, to highlight some of our priorities for the year:
• To continue construction of Phase 2 of the
Vinnytsia project and launch the first produc-
tion sites with the ultimate aim of lifting total
production levels to around 840,000 tonnes
of poultry meat per year by 2021–2022e.
• To continue our focus on exports, cement-
ing our position in existing territories and
investigating the development potential of
new opportunities.
• To continue to investigate potential targeted
acquisitions and joint ventures, both in the EU
and MENA regions.
• To maintain our investment in people and
build on our reputation as a high-quality,
responsible and transparent employer.
• To promote the corporate responsibility
credentials of the Group, with a particu-
lar focus on environmental management
(including alternative energy projects),
animal welfare, food safety and quality,
investment in the Company’s people and
their welfare, risk management, commu-
nity investment and stakeholder engage-
ment.
mination to support the development of new business in
the country was underlined by its partnership with Radar
Tech – an organisation that aims to create an ecosystem to
promote the implementation of ideas, growth and develop-
ment of different sectors within Ukraine’s economy.
Outlook
In 2018, I expect MHP to continue to strengthen its position as
a leading international agro-industrial company with good
growth visibility in both domestic and international markets.
I am confident that our strategy will continue to generate
sustainable growth enabling us to deliver strong oper-
ational and financial performance in 2018 and beyond.
840,000
tonnes per year
target total chicken meat production
by 2021–2022e
Mr Yuriy Kosyuk, CEO
06 March 2018
ANNUAL REPORT 2017 ANNUAL REPORT 2017
21
BUSINESS MODEL
OUR ASSETS
OUR INVESTMENT CASE
WHAT WE DO
• Highly skilled and knowledgeable workforce
• State-of-the-art facilities and advanced tech-
nologies
• Stable capital base
• Strong and established position
in Ukraine
• Uniquely integrated business
• Export markets development potential
• Organic growth supplemented
by potential targeted acquisitions
• Talented and experienced
management team
• Established intellectual property
• Track record of profitability
and brands
and growth
• Crop growing
• Sunflower and soybean oil production
• Hatching egg production and incubation
• Poultry rearing and further processing
• Domestic and export poultry sales,
distribution and marketing
Grain growing
Sunflower and soybean
protein production
Fodder
production
Breeder farms
Biogas
Retail
Distribution
Meat-processing
Poultry
production
Hatching eggs
22
UNIQUE INTEGRATED
BUSINESS MODEL
REDUCED EXPOSURE TO RAW MATERIAL PRICE VOLATILITY DUE TO HIGH
LEVEL OF VERTICAL INTEGRATION AND DIVERSIFICATION OF SALES
370,000 HECTARES
OF LAND UNDER
CONTROL IN UKRAINE
338,675 TONNES
OF VEGETABLE OILS
GRAIN
SUNFLOWER & SOYBEAN OIL
MHP cultivates one of the largest landbanks in
MHP produces vegetable oils as a by-product of
Ukraine in Sumy, Kyiv, Vinnytsia, Ternopil, Khmel-
its fodder production and sells them for export.
nytsky, Lviv, Ivano-Frankivsk, Dnipro and other re-
This constitutes one of the Company’s sources of
gions. MHP’s yields are significantly higher than
hard currency revenue.
average for Ukraine.
3 FODDER MILLS,
OWN GRAIN STORAGE
FACILITIES
426 MILLION
HATCHING EGGS
PER ANNUM
FODDER
HATCHING EGGS
MHP is self-sufficient in fodder.
MHP is self-sufficient in hatching eggs
and produces them at two breeding farms.
ANNUAL REPORT 2017 23
UNIQUE INTEGRATED BUSINESS MODEL
/CONTINUED
3 POULTRY COMPLEXES:
FROM HATCHING TO REARING
AND PROCESSING
35,899 TONNES
OF MEAT-PROCESSING
PRODUCTS
POULTRY
MEAT-PROCESSING
MHP produces 86% of its poultry meat at two
MHP is one of the leading producers of meat-
greenfield poultry complexes, which were built
processing products in Ukraine with a wide range
during the last 10 years and accredited by the EU.
of high quality products.
SECOND BIOGAS
PROJECT
1,937 BRANDED POINTS OF
SALE IN UKRAINE
BIOGAS PROJECT
SALES
As part of its commitment to growing the Compa-
In Ukraine MHP’s poultry sales are relatively even-
ny’s self-sufficiency in energy to ensure lower costs
ly balanced between supermarkets (37%), brand-
and to behave as a responsible corporate citizen,
ed points of sale (34%). The balance in sales (29%)
in 2017 MHP started to build its second biogas proj-
goes to meat-processing and HoReCa.
ect of 12 MW capacity.
100% OF POULTRY
DELIVERED TO CUSTOMERS
DISTRIBUTION
MHP has 11 distribution centres in Ukraine, which
allow the Company to deliver the product fresh
WITHIN 24 HOURS
and on time.
ANNUAL REPORT 2017 24
BUSINESS
REVIEW
25
30
33
35
37
40
49
57
Poultry and Related Operations Segment
Grain Growing Segment
Other Agricultural Segment
Key Performance Indicators
Financial Policies
Financial Review
Risk Management
Corporate Responsibility
ANNUAL REPORT 2017 25
POULTRY
AND RELATED
OPERATIONS
SEGMENT
566,242
tonnes
of poultry meat produced in 2017
KYIV
POULTRY
FODDER COMPLEXES AND ELEVATORS
• Vinnytsia Poultry Complex
•
(greenfield, broiler)
Myronivka Poultry Complex
(greenfield, broiler)
Oril Leader – broiler complex
•
• Starynska Nova – breeding complex
Peremoga Nova – breeding complex
•
• Vinnytsia Fodder Complex
(fodder plant, crushing plant, silo)
• Myronivka Fodder Complex
(fodder plant, crushing plant, silo)
• Katerynopil Fodder Complex (fodder plant, crushing plant,
extraction plant, silo)
• 11 elevators
11
distribution centres
in Ukraine
ANNUAL REPORT 2017 26
220,983
tonnes
of poultry meat exported in 2017
POULTRY AND RELATED OPERATIONS SEGMENT
/CONTINUED
Production
MHP enjoys a leading market position and high do-
mestic brand recognition, with poultry products sold
at premium prices. Chicken meat is produced at
MHP’s facilities in four principal stages: production
of hatching eggs; hatching; grow-out; and process-
ing. MHP’s chicken production facilities include three
principal chicken broiler complexes, two breeding
farms and three fodder complexes.
In 2017, MHP’s chicken farms produced 566,242
tonnes of chicken meat (2016: 574,328 tonnes). Over
86% of MHP’s poultry was produced at the Compa-
ny’s greenfield projects – the Vinnytsia and Myroniv-
ka poultry complexes.
The fodder complexes include three sunflower crushing
plants, one soybean extraction plant, and storage fa-
cilities for 1,585 million m3 tonnes of grain and 324,336
tonnes of plastic bags.
MHP produces an extensive range of chicken products, pri-
marily chilled and some frozen. 11 Ukrainian distribution cen-
tres ensure the efficient delivery of fresh poultry products to
customers. Sales of chilled chicken products are made direct
to retailers (including supermarkets), branded partnership
networks, food service customers (hotel, restaurant and caf-
eteria operators, or “HoReCa”) and producers of processed
meat products. Substantially all of MHP’s chilled chicken
products are sold under the “Nasha Riaba” brand.
MHP’S POULTRY EXPORT EVOLUTION BY MARKET
2017
2020e — Vinnytsia expansion
5%
Asia
7%
Africa
23%
Middle
East
19%
Northern
Africa
17%
CIS
2017
29%
EU
3%
Asia
12%
Africa
32%
Middle
East
2020 —
Vinnytsya
expansion
13%
CIS
11%
Northern
Africa
29%
EU
400,000+
tonnes
targeted for export in 2020e
ANNUAL REPORT 2017
27
24%
UAH poultry price increase year-
on-year mainly driven
by export prices
Poultry exports (in ‘000 tonnes)
Poultry sales volumes to third parties
Poultry exports (as % of Poultry sales)
POULTRY AND RELATED OPERATIONS SEGMENT
/CONTINUED
Poultry sales and prices
MHP sells 59% of its poultry products in Ukraine and
41% for export. At 532,727 tonnes of total poultry
sales (2016: 534,356 tonnes), sales of fresh chicken
remained relatively stable y/y, while sales of frozen
chicken meat both on the domestic market and for
export insignificantly decreased. The decrease in
sales on the Ukrainian market was offset by an in-
crease in exports.
In 2017, the average chicken meat price was UAH
35.63 per kg excluding VAT, 24% higher y/y (21% higher
in US$ terms). The increase in price was mainly driven
by export price growth as a result of product mix op-
timisation undertaken by the Company in line with its
export strategy.
POULTRY EXPORT VOLUMES EVOLUTION
%
of total tonnage
41%
36%
28%
26%
55%
45%
35%
25%
476
490
534
533
15%
135
125
190
221
5%
2014
2015
2016
2017
800
600
400
200
0
MHP is expanding its worldwide customer base in line
with its international growth strategy. Serving large,
attractive and growing international poultry markets
decreases macro risks, creating new market opportu-
nities and currency diversification.
During the last three years, the Company has signifi-
cantly grown the export of frozen and fresh chicken
products primarily to the GCC, the EU, Africa and
Asia, with some sales to the CIS (no exports to the
Russian Federation since February 2014). In 2017,
total exports accounted for 220,983 tonnes of chick-
en meat (2016: 190,223 tonnes), a year-on-year in-
crease of 16%.
EU expansion was achieved when MHP estab-
lished its first processing (cutting) plants in close
cooperation with long-term partners Jan Zandber-
gen BV in the Netherlands (2016), and WE Trade
s.r.o. and subsidiaries in Slovakia (2017). These
processing plants will allow MHP to increase its
export services to distributors and customers and
to exert greater control over export volumes. They
also create the opportunity to provide European
customers with commodity as well as packaged
products for food service channels. In the first quar-
ter of 2016 MHP invested circa US$ 3.5 million in
two cutting production lines at the facility in the
Netherlands and the Company is investing approx-
imately US$ 3.0 million in four cutting production
lines in Slovakia.
In line with its strategy of growing MHP’s global foot-
print, a sales and distribution office was established in
the UAE in 2016.
ANNUAL REPORT 2017 28
POULTRY SEGMENT
/CONTINUED
840,000
tonnes
expected annual production
of chicken 2021-2022e
Future growth
MHP has a multi-year growth profile. Building out from
this platform, in 2017, the Company commenced con-
struction of Phase 2 of the Vinnytsia complex. When fin-
ished, this will comprise two lines delivering an annual
chicken meat capacity of 260,000 tonnes, doubling the
facility’s current production capacity.
PRODUCTION INCREASE SCHEDULE (‘000 TONNES)1, 3
CAGR (2018-2022): 10%
Vinnytsia Phase 2
CAGR (2013-2016): 8%
Vinnytsia Phase 1
573
566
617
36
810
100
840
130
130
130
707
36
94
453
100
220
133
520
489
204
250
215
70(2)
221
49
265
259
270
270
270
270
243
229
235
235
235
235
In keeping with MHP’s vertically-integrated business
model, the Vinnytsia complex will incorporate different
production sites such as a fodder plant, a sunflower
crushing plant, a hatchery, rearing sites, a slaughter
house as well as infrastructure and social responsibil-
ity projects (e.g. roads, community engagement proj-
ects). MHP expects the first line to become operational
in mid-2018 and to reach full capacity in 2020. Con-
struction of the second line is scheduled to begin in
2018 with production expected to come online during
the period 2018-2022.
Completion of Phase 2 of the Vinnytsia complex is
expected to cement the Company’s low cost base
leadership position, delivering further economies of
scale, decreasing MHP’s per unit operating costs and
increasing its poultry exports. It will transform MHP into
one of the largest poultry production companies in the
world, creating the additional capacity to meet grow-
ing Ukrainian and export market demand. MHP antic-
ipates producing around 840,000 tonnes of chicken
meat per annum by 2021-2022e.
By the end of 2017, MHP had started the construction
of ta second biogas project with an annual capacity
of 12 MW.
Other chicken farms
Vinnytsia, Phase #2 (Line 2)
Vinnytsia, Phase #2 (Line 1)
Vinnytsia, Phase #1
Myronivka
Total
900
800
700
600
500
400
300
200
100
2013
2014
2015
2016
2017
2018E
2019E
2020E
2021–
2022E
65
80
75
75
75
75
1 Excluding operations in Crimea since 2014
2 Includes volumes of Peremoga Nova (former broiler farm)
3 Since 2017 in natural weight
ANNUAL REPORT 2017 29
311,393
tonnes
of sunflower oil sold in 2017
POULTRY AND RELATED OPERATIONS SEGMENT
/CONTINUED
Fodder production
The fodder conversion rate at a chicken farm depends
largely on the quality and composition of the meal. MHP
produces its own mixed fodder at three mills using agricul-
tural commodities such as corn, sunflower and soybean.
These mills support the Poultry and Related Operations
Segment with an aggregate annual mixed fodder pro-
duction capacity in 2017 of approximately 1,525 million
tonnes (2016: 1,694 million tonnes).
The key operational processes at the fodder mills in-
clude purchasing ingredients (mainly from MHP’s grain
growing enterprises), weighing and conducting labora-
tory analysis of ingredients, manufacturing, concluding
laboratory analysis of fodder and delivery to MHP’s
breeding and chicken farms. A wide variety of fodder
types are produced with various vitamin and protein
contents meeting the age requirements and cover-
ing the needs of chickens at the breeding farms and
chicken farms. All fodder produced by MHP is gran-
ulated and ingredients are thoroughly mixed so that
the components are dispersed throughout the meal. A
proportion of granulated fodder is crushed so that it
can be fed to younger chickens. To ensure freshness
and quality, MHP transports the meal to its chicken
and breeder farms on its own trucks.
MHP is fully self-sufficient in corn for fodder production.
Since the launch in 2015 of the soybean oil extraction
plant at the Katerynopilsky complex, 41% of the soy-
bean protein requirements come from MHP’s own har-
vest. The use of contemporary crushing technology to
extract a substantial amount of sunflower protein meal
means that 18% of the sunflower seed requirement
now comes from the Company’s own crops.
Sales of vegetable oil
Vegetable oil is a by-product of fodder production,
specifically sunflower and soybean oil. MHP views
vegetable oil exports as one of the “natural hedge”
routes to accumulating hard currency revenues, pro-
tecting the Company from local currency volatility.
MHP sold approximately 311,393 tonnes of high-quality
unrefined edible sunflower oil in 2017 (2016: 342,240
tonnes) and approximately 27,282 tonnes of soybean
oil in 2017 (2016: 34,150 tonnes). Sales of soybean oil
are down 20% as a result of pushing a contract for ap-
proximately 6,000 tonnes of oil back to January 2018.
MHP also sells soybean cake to third parties.
In 2017, all MHP’s vegetable oils were sold through
international traders to export markets, generating
total revenues of US$ 256 million (2016: US$ 286
million), down 10% mainly driven by decreased pric-
es and volumes.
In addition to oil production, which is a by-product,
the boiler houses at our fodder plants burn sunflower
husks to make steam used in the production of mixed
fodder. This not only reduces the Company’s require-
ments for natural gas, but also its overall production
costs. In addition, husks are recycled as bedding at its
chicken production facilities, once again enabling MHP
to reduce its production costs and improve the biose-
curity of its operations.
ANNUAL REPORT 2017 30
GRAIN
GROWING
SEGMENT
KYIV
1,999,095
tonnes
of crops gathered
GRAIN
Zernoproduct
•
•
Urozhay
• Zakhid-Agro
• Urozhayna Kraina
• Ridny Kray
• Perspective
• Agro-S
• Agrokryazh
356,080
hectares
harvested in 2017
ANNUAL REPORT 2017 31
GRAIN GROWING SEGMENT
/CONTINUED
Grain growing operations
As at 31 December 2017, MHP leased ap-
proximately 370,000 hectares of land at its
eight principal grain growing facilities where
it cultivates corn, sunflower and soybean to
support its chicken operations and, to an in-
creasing extent, other grains such as wheat
and rapeseed for sale to third parties.
In 2017 the Company harvested 356,080
hectares of land and gathered 1,999,095
tonnes of crops, around 15% lower than in
2016 mainly due to challenging weather
conditions which adversely affected MHP
yields across all crops.
% OF CROPPED AREA
13%
other
9%
rapeseed
11%
soybean
34%
corn
14%
wheat
19%
sunflower
RESULTS OF MHP’S HARVEST CAMPAIGNS FOR 2017 AND 2016
Corn
Wheat
Sunflower
Rapeseed
Soybean
Other1
Total:
1Including barley, rye, sugar beet, sorghum
and other crops and excluding land left
fallow as part of crop rotation
2017
2016
Production,
tonnes
Cropped
hectares
Production,
tonnes
Cropped
hectares
893,149
293,765
205,079
104,782
82,793
419,527
121,908
48,676
68,931
31,968
39,684
44,913
1,056,887
123,350
379,693
218,049
68,325
98,607
58,813
67,399
20,069
40,771
529,930
44,598
1,999,095
356,080
2,351,491
355,000
ANNUAL REPORT 2017 32
GRAIN GROWING SEGMENT
/CONTINUED
24%
export sales of crops from
the total harvest in 2017
US$ 117
million of revenue from
Grain Growing Segment
in 2017
Most of the corn, wheat, soybean and sunflower pro-
duced by MHP is used at the Company’s own fodder
production facilities in order to produce feed for chick-
en. The excess corn and wheat as well as rapeseed
and other crops was sold to domestic and international
traders. In 2017, which covers the 2016-2017 harvest,
MHP sold all the rapeseed, approximately 45% of the
wheat and approximately 15% of the corn it produced
to Ukraine-based traders for export using forward-dat-
ed and SPOT contracts mainly denominated in US dol-
lars. Export sales of crops from the total harvest in 2017
was 24% (2016: 17%).
MHP uses chicken litter to meet part of its needs for the
fertiliser used in grain production.
MHP operates a precision farming approach to increase
productivity and achieve long-term operational efficien-
cy. Each field is cultivated with different crops on a fixed
rotation plan which ends with a fallow period to allow
the soil to recover. The crop rotation scheme ensures
that land is cropped without exhausting the soil and the
use of chemical fertilisers and pesticides is minimised.
As a result, the hectarage under cultivation for the vari-
ous grain types varies from year to year.
Sales of grains (excluding intersegment sales) account-
ed for US$ 117 million in revenue, representing 9% of
total MHP’s revenue in 2017 (2016: US$ 85 million, 7%).
In line with MHP’s strategy, the Company is planning
to increase its landbank to 500,000 ha of land in the
mid-term.
MHP’S YIELDS ARE CONSISTENTLY AMONGST THE HIGHEST IN UKRAINE
1Tonnes per hectare
2MHP yields are net weight,
Ukraine yields are bunker weight
Corn
Wheat
Sunflower
Rapeseed
Soybean
2017
2016
MHP’s
average1
Ukraine’s
average2
MHP’s
average1
Ukraine’s
average2
7.3
6.0
3.0
3.3
2.1
4.9
4.2
2.1
2.9
1.9
8.6
6.5
3.2
3.4
2.4
5.7
3.9
2.2
2.6
1.9
ANNUAL REPORT 2017 33
OTHER AGRICULTURAL
SEGMENT
KYIV
OTHER AGRICULTURAL SEGMENT
IS MAINLY COMPRISED OF MEAT-
PROCESSING OPERATIONS
MEAT
• Ukrainian Bacon
•
Myronivsky Meat Processing Plant Lehko (MMPP)
35,899
tonnes
Sales of processed meat
products in 2017
ANNUAL REPORT 2017 34
OTHER AGRICULTURAL SEGMENT
/CONTINUED
According to SSCU, MHP is the leader in a highly
fragmented meat-processing market, accounting for
approximately 14% of all sausage and cooked meats
produced in Ukraine in 2017.
Sausages and cooked meat
Ukrainian Bacon is an integrated production facility for
meat products located in the Donetsk region. The Com-
pany produces and sells to the national market various
types of chicken, pork and beef sausages, including frank-
furters, smoked and semi-smoked sausages, ham and
other cooked meat products. Processed meat products
are sold under the “Baschinsky” brand only in Ukraine.
There are currently 268 SKUs in the “Baschinsky” range.
Sales volumes of processed meat products increased
by 6% year-on-year to 35,899 tonnes in 2017, mainly
as a result of a new product promotion strategy and
advertising campaign for the product range and the
“Baschinsky” brand. Average sausage and cooked
meat prices in 2017 increased by 16% to UAH 49.17 per
kg excluding VAT.
Convenience food products
MHP is one of the leading Ukrainian industrial pro-
ducers of chicken, pork and beef convenience food
products, sourcing more than 50% of the meat require-
ments from internally produced chicken meat. In 2017
MHP produced around 13,808 tonnes of convenience
products, of which around 15% was exported.
Myronivsky meat-processing plant “Lehko” produces a
wide assortment of products at affordable prices which
are available in supermarkets and at “Nasha Riaba”
branded franchise outlets. The “Lehko!” range consists
of a variety of convenience food products ranging from
raw (marinated) to pre-cooked. There are currently over
250 SKUs in the convenience food range including the
“Lehko!” brand (for example chicken nuggets and “Chick-
en Kiev” etc), the “Baschinsky” brand (chilled cooked
products), the “Sytni” brand and raw salted non-brand-
ed products for export. MHP supplies “Yum! Brands” with
poultry products for the Kentucky Fried Chicken (“KFC”)
restaurants in Ukraine. All MHP’s poultry meat for KFC is
processed at the “Lehko” plant.
268
SKUs
in the “Baschinsky” range
including sausages,
frankfurters, meat balls
and shish kebabs
250
SKUs
in convenience food
ANNUAL REPORT 2017 35
KEY PERFORMANCE
INDICATORS
Despite challenging macroenvironment in Ukraine, including singnificant depreciation of the Ukrainian currency (Hryvnia, UAH), flactuations
in the commodity prices on international markets, MHP’s performance was strong significantly supported by growing share of hard currency
revenue. MHP will continue to grow its exports and hard currency generation in the future.
REVENUE
CURRENCY RATIO
UAH per U.S.$1.00, average
EBITDA
US$ million
1487
1407
1229
1240
1600
1400
1288
1200
1135
1062
1000
57%
800
56%
38% 47%
49%
34%
29%
600
400
200
944
803
711
25%
15% 22%
26.60
25.69
21.83
30
25
20
15
10
5
11.91
7.79
7.94
7.97
7.99
7.99
5.26
518
468
401
391
460
436
415
312
325
271
600
550
500
450
400
350
300
250
200
150
100
50
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
Revenue, US$ million
Export revenue, % of total revenue
ANNUAL REPORT 2017 36
KEY PERFORMANCE
INDICATORS BY SEGMENT
The Company is based on a vertically-integrated business model, which allows it to recieve high and sustainable profitability during the
whole its history. Smart management, state-of-the-art greenfield projects, efficient cost control and innovations – all results in MHP’s top
class profitability margins.
POULTRY SEGMENT
GRAIN GROWING SEGMENT
CONSOLIDATED AND BY SEGMENT EBITDA
%
1.3
1
1.0
547
0.9
567
574
566
0.8 0.8 0.8
404
384
360
473
0.7
0.5
285
225
0
0.7
0.6
0.5
700
600
500
400
300
200
100
600
500
400
300
200
482
458
447
2371
423
1999
1984 2027
1892
322
1712
1607
294
276
268
960 913
145
100
735
136
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
60%
50%
40%
30%
20%
10%
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
2008
2009
2010
2011
2012
2013
2014
2015 2016 2017
Production of poultry, thousand tonnes
EBITDA per kg, US$ (Net of IAS 41)
Production of grains, thousand tonnes
EBITDA per ha, US$
EBITDA margin (Poultry)
EBITDA margin (Grain Growing)
Consolidated EBITDA margin of the Group
ANNUAL REPORT 2017 37
FINANCIAL POLICIES
MHP HAS INCLUDED
CERTAIN MEASURES
IN THIS REPORT THAT
ARE NOT MEASURES
OF PERFORMANCE
UNDER IFRS, INCLUDING
EARNINGS BEFORE
INTEREST, TAXATION,
DEPRECIATION AND
AMORTISATION (“EBITDA”)
AND LAST TWELVE
MONTHS EBITDA
(“LTM EBITDA”) BOTH AT
A CONSOLIDATED AND
AT A SEGMENT LEVEL
Adjusted EBITDA, LTM Adjusted EBITDA and Segment
Adjusted EBITDA are presented in this Report because
the Directors consider them to be important supple-
mental measures of the Group’s financial performance.
Additionally, the Directors believe these measures are
frequently used by investors, analysts and other inter-
ested parties to evaluate the efficiency of the Group’s
operations and its ability to employ its earnings toward
repayment of debt, capital expenditures and working
capital requirements.
We define Adjusted EBITDA as profit for the year
before income tax expense, finance costs, finance
income, depreciation and amortisation expense, net
after-tax exceptional and non-recurring items, net for-
eign exchange loss, and net other expenses. Depre-
ciation and amortisation expense are components of
both cost of sales and selling, general and adminis-
trative expenses in the consolidated financial state-
ments.
LTM Adjusted EBIDTA is defined as Adjusted EBITDA
for the prior 12 consecutive months ending on such
date of measurement; LTM Adjusted EBITDA for the
year ended 31 December equals Adjusted EBITDA.
“Adjusted EBITDA” is derived by adjusting EBITDA
(as defined above) for losses/gains on impairment/
reversal of impairment of property, plant and equip-
ment, net, losses on disposals of subsidiaries, other
expenses, net and foreign exchange (loss)/gain, net.
The Group believes that this measure is more useful
in evaluating of the financial performance of the Com-
pany and its subsidiaries than traditional EBITDA due
to the exclusion items that management considers
not to be representative of the underlying operations
of the Group.
The Group’s Segment measure in the consolidat-
ed financial statements is defined as “Segment re-
sult” and represents operating profit by Segment
before unallocated corporate expenses, being the
Segment measure reported to the chief operating
decision maker for the purposes of resource alloca-
tion and assessment of Segment performance. With-
in the Management Report, the reported Segment
result is adjusted for the amount of depreciation
and amortisation per Segment in order to present
“Segment Adjusted EBITDA” to external users, which
MHP feels is a more commonly-used external metric
familiar to investors.
Net debt is defined as bank borrowings, bonds issued and
finance lease obligations less cash and cash equivalents.
ANNUAL REPORT 2017 38
FINANCIAL POLICIES
/CONTINUED
The Group believes that net debt is commonly used
by securities analysts, investors and other interested
parties in the evaluation of a Company’s leverage.
Adjusted EBITDA, LTM Adjusted EBITDA and Segment
Adjusted EBITDA are measures of MHP’s operating
performance that are not required by, or presented
in accordance with IFRS. Adjusted EBITDA, LTM Ad-
justed EBITDA and Segment Adjusted EBITDA are
not measurements of MHP’s operating performance
under IFRS and should not be considered as an al-
ternative to profit for the year, operating profit, seg-
ment result or any other performance measures de-
rived in accordance with IFRS or as an alternative to
cash flow from operating activities or as a measure of
MHP’s liquidity.
Such measures presented in this Annual Report may
not be comparable to similarly titled measures of
performance presented by other companies, and
should not be considered as substitutes for the in-
formation contained in the consolidated financial
statements.
RECONCILIATION OF ADJUSTED EBITDA
US$ thousand
(Loss)/Profit for the year from continuing operations
Income taxes
Finance costs
Finance income
Depreciation and amortisation expense
EBITDA
Adjustments:
Loss on impairment/reversal of impairment of property, plant and equipment, net
Other expenses, net
Foreign exchange loss/(gain), net
Adjusted EBITDA
Year ended 31 December
2016
Year ended 31 December
2017
68,786
(13,080)
106,843
(2,234)
98,567
258,882
1,443
9,289
145,217
414,831
230,255
(17,118)
108,399
(3,472)
93,225
411,289
3,607
8,077
35,615
458,588
ANNUAL REPORT 2017 39
RECONCILIATION OF NET DEBT
FINANCIAL POLICIES
/CONTINUED
Сalculation of net debt was aligned with definitions used for the purpose of assessment of compliance with debt covenants provided in respective loan
agreements. Thus, the accrued interest which has been included previously as part of the carrying amount of bank borrowings, bonds issued and finance
lease obligations has been excluded from the amount of total debt. The comparative information for the year ended 31 December 2016 has been restated
accordingly by the way of reducing previously reported amount of net debt in the amount of USD 1,258,091 thousand by the accrued interest in the amount
of USD 22,731 thousand. As of 31 December 2017 and 2016 the leverage ratio was as follows:
US$ thousand
Bank borrowings
Bonds issued
Finance lease obligations
Total debt
Less:
Cash and cash equivalents
Net debt
Year ended 31 December
2016
Year ended 31 December
2017
496,374
725,361
13,625
1,235,360
(154,570)
1,080,790
175,734
970,088
11,450
1,157,272
(125,554)
1,031,718
Segment results represent operating profit, as adjusted for unallocated corporate expenses, which is reconciled to Segment Adjusted EBITDA before unallocated
expenses by adding back Segment depreciation as illustrated in the following tables:
RESULTS BY SEGMENT
Year ended 31 December 2017
US$ million
External sales
Sales between business segments
Total revenue
Segment results
Add back
Depreciation and amortisation
Segment EBITDA before unallocated expenses
Poultry
Segment
Grain
Growing
Segment
Other
Agricultural
Segment
Eliminations
Consolidated
1,050
37
1,088
307
60
367
117
192
309
66
30
95
120
0
120
15
3
19
–
(229)
(229)
–
–
–
1,288
–
1,288
388
93
480
ANNUAL REPORT 2017
40
FINANCIAL REVIEW
HOW THE COMPANY PERFORMED IN 2017
Operations
• Poultry production volumes reached 566,242 tonnes,
down by 1% y/y (2016: 574,328 tonnes).
• The average chicken meat price increased by 24%
y/y to UAH 35.63 per kg (2016: UAH 28.44 per kg)
(excluding VAT).
• Chicken meat exports increased by 16% to 220,983
tonnes (2016: 190,223 tonnes) as a result of increased
exports mainly to countries in the EU and the MENA.
• The Company established a processing plant in Slo-
vakia as part of its export strategy.
Financials
• Revenue of US$ 1,288 million, increased by 13% year-
on-year (2016: US$ 1,135 million), mainly driven by an
increase in poultry prices.
• Export revenue amounted to US$ 732 million, 57%
of total revenue (2016: US$ 635 million, 56% of total
revenue), driven by an increase in poultry exports.
• EBITDA margin decreased to 36% from 37%; EBITDA
increased to US$ 459 million from US$ 415 million.
• Net profit for the period is US$ 230 million, compared
to profit US$ 69 million for 12M 2016, including US$
36 million (2016: US$ 145 million) of non-cash foreign
exchange translation loss.
(in million US$ unless indicated otherwise)
Revenue
IAS 41 standard gains/(losses)
Gross profit
Gross profit margin
Adjusted pperating profit2
Adjusted operating profit margin
Adjusted EBITDA
Adjusyed EBITDA margin
Net profit before foreign exchange differences
Net profit margin before forex gain/(loss)
Foreign exchange gain/(loss)
Net profit (loss)
Net profit margin
2017
1,288
2016
1,135
21
396
31%
365
28%
459
36%
266
21%
(36)
230
18%
39
346
30%
317
28%
415
37%
214
19%
(145)
69
6%
% change1
13%
-46%
14%
1 pps
15%
0 pps
11%
-1 pps
24%
2 pps
-75%
233%
12 pps
1pps – percentage points
2Adjusted operating profit from continuing operations before loss on impairment of property, plant and equipment
Average official FX rate: UAH/US$ 26.5947 in 2017 and UAH/US$ 25.5458 in 2016
ANNUAL REPORT 2017
41
FINANCIAL REVIEW
/CONTINUED
General tax system – tax legislation changes
The majority of the Group’s operating entities are locat-
ed in Ukraine and therefore the effective tax rate rec-
onciliation is completed based on Ukrainian statutory
rates. The net results of the Group’s companies incor-
porated in jurisdictions other than Ukraine were insignif-
icant both in 2017 and 2016.
In 2017, the Group’s companies that have the status
of Corporate Income Tax (the “CIT”) payers in Ukraine
were subject to income tax. The Tax Code of Ukraine
introduced an 18% income tax rate effective from 1 Jan-
uary 2014. The deferred income tax assets and liabil-
ities as at 31 December 2017 and 2016 are measured
based on the tax rates expected to be applied to the
period when the temporary differences are expected to
reverse (please see Note 11, p.118).
State support for agricultural production in Ukraine
The Ukrainian legislation provides for a number of dif-
ferent grants and tax benefits for companies involved in
agricultural operations. The grants and similar privileg-
es 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 the Water Industry, the customs authorities
and local district administrations.
The government grants recognised by the Group as in-
come in 2017 constituted US$ 53 million (2016: US$ 34
million) of VAT refunds.
On 30 December 2016 the President of Ukraine signed
Law No. 1791 On Amendments to the Tax Code of
Ukraine Regarding the Balancing of Budget Revenues
in 2017. Law No. 1791 introduces changes to VAT admin-
istration for agricultural companies which previously
enjoyed a special VAT regime. The special VAT regime
for agricultural companies was terminated as of 1 Jan-
uary 2017.
However, in order to continue state support for agricul-
tural companies, Law No. 1791 introduced budget sub-
sidies for agricultural companies by amending the Law
of Ukraine On State Support of Agriculture of Ukraine.
The agricultural producers eligible for the subsidies in-
clude those involved in poultry production and animal
farming, as well as fruit and vegetable farmers. For each
agricultural producer, the amount of the subsidy is not
to exceed the amount of VAT tax paid by the producers,
and is distributed on a monthly basis.
US$
53
million
– the government grants
recognised by the Group as
income in 2017
ANNUAL REPORT 2017 42
FINANCIAL REVIEW
/CONTINUED
Foreign currency exchange rates
and functional currency
MHP’s operating assets are located in Ukraine and
consequently its revenues and costs are denominat-
ed principally in Ukrainian Hryvnias. Almost all of the
Company’s financial costs and currency denominated
proceeds amounting to 57% of revenue are denom-
inated in foreign currencies (primarily US dollars).
Management believes that MHP’s exposure to curren-
cy exchange rate fluctuations as a result of foreign
currency costs is hedged by its US dollar revenue
earned from the export of vegetable oil, poultry and
grain. In 2017 the Company generated US$ 732 mil-
lion of foreign-currency denominated revenue, up by
14% compared with the US$ 635 million generated in
2016 driven mostly by an increases in poultry exports.
57%
of revenue
are denominated in
foreign currencies
(primarily US dollars)
THE GROUP’S EXPORT SALES TO EXTERNAL CUSTOMERS BY MAJOR PRODUCT TYPES IN 2017 AND 2016
US$ thousand
Chicken meat and related products
Vegetable oil and related products
Grain
Other agricultural products
2017
334,385
259,054
108,815
30,012
2016
243,725
295,596
80,990
14,409
732,266
634,720
The functional currency for the Group’s companies
is the Ukrainian Hryvnia (UAH), however, for the con-
venience of stakeholders, MHP presents its financial
statements in US dollars (US$), using quarterly aver-
age and historical exchange rates.
RELEVANT EXCHANGE RATES
Currency
UAH/USD
UAH/EUR
UAH/RUB
Closing rate as
at 31 December
2017
Average for 2017
Closing rate as
at 31 December
2016
Average for 2016
28.0672
33.4954
0.4870
26.5947
27,1909
25,5458
30.0128
0.4560
28.4226
28.2828
0.4511
0.3832
ANNUAL REPORT 2017
43
FINANCIAL REVIEW
/CONTINUED
SEGMENT PERFORMANCE
POULTRY AND RELATED OPERATIONS SEGMENT
(in million US$,unless indicated otherwise)
Revenue
– Poultry and other
– Vegetable oil
IAS 41 standard gains/(losses)
Gross profit
Gross margin
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted EBITDA per 1 kg (net of IAS 41)
* pps – percentage points
2017
1,051
795
256
29
311
30%
367
35%
0.64
2016
954
668
286
5
276
29%
267
28%
0.49
% change*
10%
19%
-10%
472%
13%
1 pps
37%
7 pps
31%
Segment revenue for 2017 increased by 10% y/y
mostly due to increases in the price of chicken meat,
partly offset by lower price and sales volumes of
vegetable oil.
IAS 41 standard gain/(loss) reflects the net change in
the fair value of biological assets and agricultural pro-
duce. IAS 41 standard gain in 2017 amounted to US$
29 million mainly as a result of increases in the price
of chicken meat and the fair value of parent stock due
to increases in global market prices for hatchery eggs.
The gross profit of the Segment for 2017 increased by
30% y/y mainly as a result of an increase in sales price
which was partly offset by increased production costs,
reflecting higher prices of grain consumed as well as
higher payroll costs.
EBITDA for the period increased mostly in line with the
increase in gross profit. An additional positive impact
was attributable to an increase in government grant
income due to amendments in the Tax Code of Ukraine
that became effective from 2017.
The revenue of
the Segment
increased by
10%
ANNUAL REPORT 2017
44
FINANCIAL REVIEW
/CONTINUED
GRAIN GROWING SEGMENT
(in million US$ unless indicated otherwise)
Revenue
IAS 41 standard gains
Gross profit
EBITDA
EBITDA per 1 hectare
2017
117
(12)
66
95
267
2016
85
32
107
150
423
% change
38%
-138%
-38%
-37%
37%
The Segment’s revenue for 2017 amounted to US$ 117
million compared with US$ 85 million in 2016. This
increase is mainly attributable to larger volumes of
crops exported in 2017 as a result of the better harvest
in 2016 compared to 2015, a significant part of which
was sold in 2017.
Segment EBITDA for 2017 has decreased by 37%
compared to 2016 due to both: lower yields of main
crops as a result of unfavorable weather conditions;
and increased costs reflecting higher prices of seeds
for growing, as well as higher land lease, energy and
payroll expenses.
IAS 41 standard loss for 2017 amounted to US$ 12 mil-
lion. The loss represents the effect of the revaluation
of agricultural produce (sunflower, corn, wheat and
soybean) remaining in stock as at 31 December 2017.
This decrease in IAS 41 value is mainly related to lower
stocks as at 31 December 2017 compared to 2016 due
to lower yields and production volumes in 2017.
US$
117
million
The segment’s
revenue for 2017
ANNUAL REPORT 2017
FINANCIAL REVIEW
/CONTINUED
45
OTHER AGRICULTURAL SEGMENT
(in million US$ except margin data)
Revenue
– Meat processing
– Other2
IAS 41 standard gains
Gross profit
Gross margin
Adjusted EBITDA
Adjusted EBITDA margin
2017
120
67
53
4
19
16%
19
16%
2016
% change1
97
55
42
2
16
16%
16
16%
24%
22%
26%
100%
19%
0 pps
19%
0 pps
1 pps – percentage points
2 in 2017 the Group decided to include convenience food (previously reported in the Poultry and Related Operations Segment)
in the Other Agricultural Operations in line with how the Group’s chief operating decision maker evaluates the performance of the Segments.
Comparative information was restated retrospectively.
Segment revenue in 2017 increased by 24% year-on-
year, in line with the increases in sales volumes and
prices for meat-processing and amounted to US$ 120
million. The Segment’s EBITDA increased to US$ 19
million in 2017 compared to US$ 16 million in 2016,
an increase of 19% y/y mostly as a result of higher
returns earned from meat-processing, cattle and milk
operations.
Segment
revenue in 2017
increased by
24%
ANNUAL REPORT 2017
FINANCIAL REVIEW
/CONTINUED
46
GROUP FINANCIAL POSITION AND CASH FLOW
US$ million
Cash from operations
Change in working capital
Net Cash from operating activities
CAPEX
Disposal of subsidiaries
Net cash used in investing activities
Cash used in financing activities
Dividends
Total financial activities
Total change in cash1
2017
333
(120)
213
(123)
76
(47)
(113)
(81)
(194)
(28)
2016
273
77
350
(108)
–
(108)
(60)
(84)
(144)
98
1 Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities
Cash flow from operations before changes in working
capital for 2017 amounted to US $333 million (2016:
US$ 273 million). Excluding non-cash loss on disposal
of subsidiaries, cash from operations before working
capital changes increased during 2017 compared to
2016 mostly in line with the increase in net profit before
foreign exchange differences.
The decrease in cash from changes in working cap-
ital during 2017 compared to 2016 is mostly related
to lower investment in the stock of crops (sunflower)
designated for internal consumption as at 31 Decem-
ber 2016 compared to 31 December 2015, and subse-
quently more investment required in inventory during
2017 as well as reimbursement of VAT receivable in
2016 for previous periods and a decrease in prepay-
ments of sunflower oil and rapeseed.
During 2017 total CAPEX amounted to US$ 123 million
mainly due to preparation works related to Phase 2 of
the Vinnytsia poultry complex.
ANNUAL REPORT 2017
47
FINANCIAL REVIEW
/CONTINUED
DEBT STRUCTURE AND LIQUIDITY
US$ million
Total Debt
Long-term debt
Short-term debt
Cash and bank deposits
Net Debt
LTM Adjusted EBITDA
Net Debt / LTM Adjusted EBITDA
31 December 2017
30 September 2017
31 December 2016
1,157
1,115
42
(126)
1,031
459
2.25
1,150
1,114
36
(146)
1,004
444
2.26
1,236
991
245
(155)
1,081
415
2.60
As at 31 December 2017, the Company’s debt struc-
ture had changed compared to 31 December 2016: the
share of long-term debt in the total outstanding debt
has increased to 96% from 80%. The weighted aver-
age interest rate was around 8%.
As at 31 December 2017, MHP’s cash and cash equiva-
lents amounted to US$ 126 million. Net debt decreased
to US$ 1,031 million, compared to US$ 1,081 million as
at 31 December 2016.
The Net Debt / LTM EBITDA ratio was 2.25 as at
31 December 2017, well within the Eurobond covenant
limit of 3.0x.
As a hedge for currency risks, revenue from the export of
grain, sunflower and soybean oil, sunflower husks, and
chicken meat are denominated in US Dollars, covering
debt service expenses in full. Export revenue in 2017
amounted to US$ 732 million or 57% of total revenue
(US$ 635 million or 56% of total revenue in 2016).
ANNUAL REPORT 2017
48
FINANCIAL REVIEW
/CONTINUED
Dividends
On 14 March 2017, the Board of Directors of MHP SE ap-
proved payment of an interim dividend of US$ 0.7492 per
share for 2016, equivalent to approximately US$ 80 million.
The dividend was paid to shareholders on 29 March 2017.
On 06 March 2018, the Board of Directors of MHP SE
approved payment of an annual dividend of US$ 0.7492
per share for 2017, equivalent to approximately US$ 80
million. The announcement will be published on 12 April
2018.
Outlook
Winter crops are in sufficiently good condition to provide
the Company with a positive outlook for the 2018 harvest
of winter wheat and winter rapeseed.
OUR MAIN DRIVERS FOR GROWTH IN 2018 WILL BE:
• An increase in production volumes of
chicken meat by around 40,000 tonnes
as a result of our capital investments in
the expansion of the Vinnysia poultry
project (Phase 2);
• An increase in export sales of chicken
meat across all regions, which is expect-
ed to result in around 265,000 tonnes
of chicken meat; and
• Construction of an alternative energy
biogas project of 12 MW capacity at the
Vinnytsia poultry complex.
We are confident that, with our vertically-integrated
business model, we will continue to deliver strong fi-
nancial results, supported by a significant and growing
share of hard currency revenues from exports of chick-
en, oils and grain.
ANNUAL REPORT 2017 49
RISK MANAGEMENT
THE BOARD OF DIRECTORS AND MANAGEMENT TEAM VIEW RISK MANAGEMENT
AS AN INTEGRAL PART OF VALUE CREATION, SO MHP’S RISK MANAGEMENT PROCESS
IS CLOSELY ALIGNED WITH THE GROUP’S STRATEGY. SYSTEMATIC MANAGEMENT
OF RISKS, INCLUDING CAREFULLY DESIGNED MITIGATION ACTIONS, IS A KEY ELEMENT
IN OUR MANAGEMENT OF BUSINESS PERFORMANCE
How we manage risks
MHP is in the process of adopting international stan-
dards such as COSO’s (Committee of Sponsoring Or-
ganisations of the Treadway Commission) Enterprise
Risk Management Framework and ISO 31000 Risk Man-
agement to provide an appropriate framework for the
identification and management of risks which could pre-
vent the Group from achieving its business objectives.
Once identified, risks are evaluated to establish the like-
lihood of their occurrence and their potential financial or
non-financial impact. For risks assessed as significant,
mitigation action plans are developed and implement-
ed by operational management.
The summary of key risks is discussed regularly with
MHP’s Management team and reported at least annually
to the Board of Directors through the Audit Committee.
In 2017, a new Risks and Process Management Department was estab-
lished to focus on identifying and managing risks and analysing and
improving business processes.
ANNUAL REPORT 2017 50
PRINCIPAL RISKS
PRINCIPAL RISKS FACING THE GROUP AND MITIGATING ACTIONS
BUSINESS RISKS
FLUCTUATIONS IN GLOBAL PRICES FOR GRAINS AND POULTRY
RISK MANAGEMENT
/CONTINUED
Impact: Changes in global prices
for grains and poultry affect MHP’s
business, operating results, finan-
cial condition and prospects.
its businesses, supported by
Mitigations: MHP drives cost efficiency across
all
its vertically-
integrated business model, experienced and skillful
management, modern technologies and state-of-the-
art production facilities.
MHP minimises the impact of fluctuations in world
grain prices by growing internally 100% of the corn
required for poultry feed production. The Company
has also adopted an innovative approach by replacing
a significant proportion of expensive imported soybean
protein with protein from sunflower seeds grown
by MHP: 18% of sunflower seed and 41% of soybean
requirements are produced internally with the balance
procured from domestic growers.
Since 2015, soybean protein has been produced at the
oil extraction plant located in Katerynopil.
FLUCTUATIONS IN DEMAND AND MARKET PRICES OF CHICKEN MEAT IN UKRAINE
Impact: Domestic sales of chicken
meat account for a significant pro-
portion of MHP’s total revenues. Ac-
cordingly, any factors
influencing
the supply of, demand for, or price
of, chicken products in Ukraine could
have a material impact on MHP’s
business and financial results.
Mitigations: The trend of low meat consumption in Ukraine
in comparison to European countries still persists. Demand for
chicken in Ukraine is expected to remain strong and to have
further growth potential as beef and pork are mostly produced
by households and small farms and are far more expensive to
produce and purchase than chicken. Chicken meat is the most
affordable kind of meat from both a price and diet perspective.
MHP products are available for purchase through different
sales channels at all times and the Company offers
competitive trade terms to its customers.
For several years MHP has pursued a strategy of
diversifying sales resulting in 41% of MHP’s chicken meat
now being exported to 63 different countries, reducing
dependence on the domestic Ukrainian market.
MHP continues to focus on the further development of
its operational efficiency, product enhancement and
innovation through an unceasing R&D process and by
selling the most appropriate products for each market in
order to achieve higher profitability per unit.
ANNUAL REPORT 2017 51
RISK MANAGEMENT
/CONTINUED
OUTBREAKS OF AVIAN FLU AND OTHER LIVESTOCK DISEASES
Impact: Avian flu may result in:
• loss of flock;
• loss of customers;
• export restrictions;
• distribution of disease; and
• significant financial losses.
Mitigations: To ensure the well-being of livestock at
MHP’s facilities, the Company has implemented high
biosecurity standards and systems supplemented by
a set of preventive veterinary-sanitary and hygiene
measures, including:
• ongoing monitoring of avian flu cases worldwide followed
by double-checking MHP’s existing biosecurity systems
based on identified reasons causing those cases;
• geographic separation of poultry rearing facilities
with a remote distance between each facility;
• where any infected areas are identified, immediate
actions are taken to limit the access of all visitors to
MHP facilities;
• regular monitoring of poultry conditions, including
analysis of indicators of their well-being and health
and investigation of the quality of raw materials (litter,
food, water) and products (carcasses of poultry);
• monitoring compliance with biosafety rules; and
• strict control over the implementation of preventive
and control measures.
Since January 2017, the EU compartmentilisation
procedures were introduced in Ukraine. This means
that the emergence of avian influenza symptoms in
poultry flocks in part of a country does not have to
lead to a total trade suspension.
FLUCTUATIONS IN COMMODITY PRICES SUCH AS GAS, FUEL AND ENERGY
Impact: Changes in certain com-
modity prices (including grain, gas,
fuel) affect MHP’s production and
distribution costs that influence op-
erating results and cash flows.
Mitigations: MHP ensures that its gas, fuel and energy
costs each do not exceed 4% of the Group’s total costs.
Energy price risks are mitigated by a priority focus
on developing renewable sources of energy and a
consistent increase in the use of co-generation and
alternative energy technology. Processing of sunflower
leaves a huge amount of husks that are burned to
generate steam heat for our fodder complexes.
ANNUAL REPORT 2017 52
RISK MANAGEMENT
/CONTINUED
UNFAVOURABLE WEATHER CONDITIONS
rainfall
Impact: Extreme changes in tem-
including
perature or
weather change in summer and
winter could influence agricultural
productivity as a whole and crop
yield, harvesting and transporta-
tion costs in particular.
Mitigations: Ukraine’s weather is generally temperate,
with plenty of sunshine in summer and adequate rainfall.
This combines with extremely fertile soil to create
excellent growing conditions.
In addition, MHP’s Management team supports the
use of modern technology to achieve a yield which is
significantly higher than the average for Ukraine.
LABOUR MARKET DISRUPTION RISK
Impact: The agriculture industry is
facing a threat caused by the age-
ing of the current workforce and
changes in the skills base. A lack
of science, engineering, technical
and working staff could increase
the risk to the long-term future of
the business.
Mitigations: MHP maintains positive relations with
employees and trives to build upon its reputation as a
high-quality, responsible employer of choice.
As a part of this MHP provides education and professional
programmes for the younger generation.
MHP also provides its “Personnel Reserve” and “New
Horizon” training programmes for prospective and high
performing employees.
MHP also follows a strategic action plan to build and
support schools in regions where its facilities operate.
ANNUAL REPORT 2017 53
RISK MANAGEMENT
/CONTINUED
FINANCIAL RISKS
FLUCTUATIONS IN FOREIGN EXCHANGE RATES AND INFLATION
Impact: MHP operates globally
and has operations and transac-
tions in different currencies. De-
valuation of the UAH against the
US dollars and changes in other
exchange rates give rise to transac-
tion exposure.
Mitigations: The majority of MHP borrowings is
denominated in US dollars; the resulting exposure
is hedged by earning 57% of total revenue in US
dollars from the export of sunflower and soybean
oils, chicken meat and grain. The amount of export
sales will continue to increase with the further
expansion of the Vinnytsia poultry complex and
the strengthening of the Group’s positions in export
markets. This will allow MHP to continue to service
all dollar-denominated loans and payments for
operating activities.
In 2016, the Company developed and implemented a
Procurement Policy that sets out restrictions in conducting
purchase contracts denominated in foreign currencies.
MHP’s policy promotes the conduct of purchase contracts
mostly in its functional currency (UAH).
FLUCTUATIONS IN INTEREST RATES AND INFLATION
Impact: Changes in interest rates
affect the cost of borrowings, the
value of our financial instruments,
and our profit and loss and share-
holders’ equity.
Mitigations: MHP monitors its interest rate exposures
and analyses the potential impact of interest rate
movements on its net interest expenses.
MHP’s debt portfolio is well balanced with an 85/15
share of fixed/ floating interest rates. The majority
of MHP’s borrowings are from foreign banks at rates
lower than those available in Ukraine; a significant part
of the Company’s debt is also in the form of Eurobonds
issued at fixed interest rates.
85/15
ratio of fixed/ floating
interest rates
ANNUAL REPORT 2017 54
RISK MANAGEMENT
/CONTINUED
CREDIT RISK
Impact: Counterparties involved in
transactions with MHP may fail to
make scheduled payments, result-
ing in financial losses to MHP.
LIQUIDITY RISK
Impact: If, in the long term, MHP is
unable to generate and maintain
positive operating cash flows and
operating income, it may need ad-
ditional funding. MHP’s inability to
raise capital on favourable terms
could lead to a default on its pay-
ment obligations and could have a
material adverse effect on MHP’s
business, results of operations, fi-
nancial condition and prospects.
Mitigations: MHP has a diversified pool of customers.
The amount of credit allowed to any one customer or
group of customers is strictly controlled. Credit offered
to major groups of customers, including supermarkets
and franchisees, on average is between 5 and 21 days.
To hedge the risk, MHP procedures require verification
of counterparties’ solvency prior to the signing of an
agreement with contractors. Policies and operating
guidelines include limits in respect of counterparties
to ensure that there is no significant concentration of
credit risk.
Credit risks are managed by security paragraphs,
which are included in agreements with customers.
Mitigations: MHP maintains efficient budgeting and
cash management processes to ensure that adequate
funds are available to meet its business requirements.
MHP adopts a flexible CAPEX programme enabling
capital projects to be deferred if necessary.
MHP has an irreducible balance in hard currency on
correspondent accounts and maintains a certain level
of undrawn credit lines.
ANNUAL REPORT 2017 55
RISK MANAGEMENT
/CONTINUED
REPUTATIONAL
RISKS
COMMUNITY RELATIONS RISK
Impact: Failure
to successfully
manage relations with local com-
munities and NGOs could disrupt
operations and adversely affect the
Group’s reputation.
Mitigations: MHP cooperates closely with the local
communities and other stakeholders in the regions
in which it operates and implements programmes
and initiatives to improve the quality and standards
of living.
For these purposes MHP organises regular meetings with
local communities during which MHP representatives
discuss relevant issues, actual business performance,
further action plans and answer questions raised by
local residents.
MHP business representatives organise roadshows for local
citizens where they have the opportunity to ask questions.
MHP uses communication channels including personal
communication, communication via the official website/
entities’ websites/ social networks/ information boards/
corporate publications and media and enterprises tours.
The Company cooperates with governments and local
and community organisations to contribute to and
anticipate important changes in public policy.
MHP has implemented Corporate Social Responsibility
(‘CSR’) and Communication Policies and an Animal
Welfare Policy.
MHP is targeting to decrease its carbon footprint on an
annual basis.
ANNUAL REPORT 2017 56
COMPLIANCE RISKS
LEGAL AND REGULATORY RISK
RISK MANAGEMENT
/CONTINUED
Impact: The Group’s business may
be affected by regulatory develop-
ments in any of the countries in which
MHP operates, including changes in
fiscal, tax or other regulatory regimes.
Potential impacts include higher costs
to meet new environmental require-
ments, the possible expropriation of
assets, other taxes, or new require-
ments for local ownership.
team
Mitigations: MHP’s Management
is actively
monitoring regulatory developments in the countries
where the Group operates.
MHP’s financial control framework has adopted tax and
treasury approaches fully in compliance with relevant
local laws in the jurisdiction where the business is
registered. MHP pays its taxes in full.
Moreover, MHP is consistently developing and integrating
into its business practices standards such as Market
Abuse Regulation and in Sustainability Reporting.
SOVEREIGN RISK
Impact: Political
instability may
negatively affect the economy as a
whole and have a material adverse
effect on MHP’s business results,
operations, financial conditions and
prospects including civil unrest, har-
vesting permits, land leases or pur-
chases, decrease in profitability and
impairment of assets.
Mitigations: MHP’s operations extend
through all
regions of Ukraine with wide regional diversification.
Deep vertical integration and internally developed
supply chains allow operations located in potentially
distressed regions of Ukraine to remain self-sufficient
with both production needs and markets, even in a case
of temporary regional isolation.
MHP minimises the political risks associated with its
business presence in Ukraine by executing on its strategy
to expand the territory of the Group’s operations and
access new and priority markets.
ANNUAL REPORT 2017 57
CORPORATE RESPONSIBILITY
Striving to achieve the highest international
standards
MHP strives to achieve Corporate Responsibility best
practice and has implemented a strategy to achieve
this objective. This forms an integral part of the Com-
pany’s long-term corporate vision and strategy of be-
coming a global leader in its business activities.
In each of these seven areas MHP has set policies,
put in place management systems, and measures and
monitors its performance to ensure that it is meeting
its own targets and its stakeholders’ expectations. In
addition, MHP is committed to maintaining a two-way
dialogue with its stakeholders about corporate re-
sponsibility and these seven aspects of its activities.
We believe that by acting as a responsible global
citizen we will improve our performance, minimise
business risk and enhance our reputation as a part-
ner of choice.
This section of the Annual Report provides a summary
of Corporate Responsibility information, performance
highlights and case studies. The Company will pub-
lish a detailed Corporate Responsibility Report by the
end of June 2018 which will address the information
requirements of all MHP’s material stakeholders and
which will apply the latest applicable Global Report-
ing Initiative’s (GRI) reporting framework.
Approach to responsible business
MHP’s approach to responsible business focuses on
seven important aspects of corporate responsibility:
• people;
• occupational health and safety;
• local communities;
• environment and climate change;
• product quality and safety;
• animal welfare; and
• business conduct.
2017 Corporate Responsibility highlights
• MHP secured a €25 million loan from the European
Bank of Reconstruction and Development (EBRD)
for the construction of a new 12 MW biogas plant
at Ladyzhyn in the Vinnytsia region of Ukraine. This
plant is expected to reduce the Company’s annu-
al greenhouse gas emissions by 85,500 tonnes of
CO2e per annum.
• MHP published and continued to implement the de-
tailed stakeholder engagement plan initiated four-
years ago. This includes details of the Company’s
complaints and grievance procedures, outlines the
Company’s planned activities, and includes exten-
sive local and central contact information.
• MHP became a member of the Ukrainian Network
of Integrity and Compliance (UNIC). UNIC is a net-
work of companies that have pledged to conduct
their business responsibly, enhance the reputation
of business in Ukraine and counter bribery and cor-
ruption risks.
• The Company also supported local business devel-
opment. In particular, MHP launched an innovation
support programme with Radar Tech, an organisa-
tion that aims to create an ecosystem to promote
the implementation of ideas, growth and develop-
ment of sectors within Ukraine’s economy.
Policy framework
Key elements of MHP’s Corporate Responsibility poli-
cy framework include:
• A pledge to: value each employee; provide equal-
ity of opportunity; provide a workplace that is free
of discrimination; prohibit forced and child labour;
and permit freedom of association and collective
bargaining.
• The provision of a healthy and safe working envi-
ronment.
• A commitment to building trusting and mutually
profitable partnerships with the Company’s local
communities. This includes the development of proj-
ects and initiatives leading to the improvement of
local living standards whilst respecting the human
rights and requirements of local stakeholders.
• A commitment to reduce the intensity of green-
house gas emissions, manage waste effectively
and prevent harm to the local environment; mini-
mise the use and discharge of water; preserve local
biodiversity; minimise the use of energy; and to use
renewable sources where practicable.
• MHP’s detailed food quality and safety policy commits
it to maintaining the highest standards through its man-
agement systems and through regular dialogue with
suppliers, contractors, customers and consumers.
• The Company’s animal welfare policy commits it to
ensure humane treatment of animals in line with ap-
plicable laws, regulations and best practice; and to
ANNUAL REPORT 2017 58
CORPORATE RESPONSIBILITY
/CONTINUED
supply appropriate training to employees to ensure
that the policy is adhered to at all times.
• MHP’s anti-corruption policy sets out a zero-tolerance ap-
proach to corruption and a commitment that all employ-
ees will adhere to responsible standards of behaviour.
MHP’s Corporate Responsibility website section contains
full versions of the Company’s policies, which are also
available for download at the following link: https://www.
mhp.com.ua/en/responsibility/communication/policies.
Key aspects of the Corporate Responsibility
management systems
People
The Company places significant emphasis on training,
personal development and self-motivation. MHP en-
sures that all employees are trained to a level which
ensures that regulatory requirements are complied
with and provides all staff with the opportunity for
continuous development and skills improvement. The
“New Horizons” programme is an example of consis-
tently high-performing employees being presented
with the opportunity to select areas of the business to
further their careers at the same time as developing
their knowledge base and skills.
Occupational health and safety
MHP has deployed a Labour Protection Service. This
manages and develops occupational health and safe-
ty systems; ensures compliance with the relevant laws
and regulations; prevents incidents and accidents;
and develops a culture of safety awareness. It is also
tasked with developing programmes to improve work-
ing conditions; prevent profession-related diseases;
and provide the necessary resources and facilities to
ensure that these objectives are achieved.
The Labour Protection Service’s activities include
managing a variety of communications and dialogue
mechanisms that are designed to raise and maintain
awareness of health and safety matters throughout the
Company’s businesses. These activities include holding
conferences, regular meetings, workshops and exhibi-
tions and the dissemination of news, information and
experience-sharing. Internal audits of the Company’s
health and safety systems are performed regularly.
MHP also supports the development and maintenance
of a healthy lifestyle amongst its employees and has
opened sports facilities to encourage this. Company
sports teams participate in a variety of competitions,
both internally and externally.
Local communities
Through the conduct of its local community relation-
ships, the Company aims to play a significant role in
providing local employment opportunities and sup-
plementing educational and medical services in its
communities. In parallel with a programme of con-
tinuous social investment, local management teams
are tasked with conducting regular dialogue with their
communities. Local management teams are also re-
quired to maintain and conduct grievance and com-
plaints procedures in line with the stakeholder en-
gagement plan which was updated in 2017.
MHP prioritises working with local suppliers wherever
possible. This helps it support and develop local busi-
ness, local employment and supply chains.
Environment and climate change
All Company locations employ environmental spe-
cialists and people responsible for environmental pro-
tection. In accordance with Ukrainian laws and regu-
lations, the Company’s environmental teams always
receive the appropriate training and certifications.
The Company’s environmental teams’ responsibilities
include:
• complying with the requirements of environmental
legislation;
• minimising the use of energy and resources;
• minimising the effect of the Company’s activities on
the local environment and maintaining local biodi-
versity;
• preventing accidents;
• minimising spills, pollution and fugitive emissions;
• minimising water use and discharges to water;
• encouraging the use of recycling and reuse meth-
ods; and
• reducing greenhouse gas emissions associated
with the Company’s activities.
Product quality and safety
Indicators of product quality and safety are complex
and depend not only on production processes but
also on the raw materials used. Quality and safety
control begins at the stage of grain growing, with lab-
oratory control at each production stage. The Com-
pany’s internal laboratories and external indepen-
dent laboratories are certified for compliance with
ISO/IEC 17025.
Those Company businesses engaged in food produc-
tion harness up-to-date technologies for the produc-
tion, processing and packaging of products. Systems
of food quality and safety management at these en-
tities have been developed and implemented on the
basis of hazard analysis, critical control points and
ANNUAL REPORT 2017
59
CORPORATE RESPONSIBILITY
/CONTINUED
good manufacturing practice. They are duly certified
for compliance with the requirements of key manage-
ment standards: ISO 9001 Quality Management Sys-
tem; ISO 22000 Food Safety Management System;
FSSC 22000 Food Safety System Certification (includ-
ing requirements of ISO 22000, ISO/ TS 22002 and
additional requirements of FSSC); BRC Food Safety –
Food Safety International Standard. The viability of
management systems implemented by the Company
are independently confirmed by audits conducted by
international certification body SGS.
MHP prioritises suppliers with ISO 9001 and ISO 22000
certifications. The Company’s commitment to regularly in-
vest in the technologies it applies in its activities ensures
that its strong track record in this area is maintained.
Animal welfare
MHP adheres to best practice methods of addressing
animal welfare during the conduct of its production ac-
tivities. Management systems ensure that the appro-
priate industry and legal regulations and guidelines
are complied with. Other features of the Company’s
systems include the maintenance of appropriate liv-
ing conditions at all times; strict adherence to high
standards of biological safety; constant access to bal-
anced food and fresh water; continuous veterinary su-
pervision; and timely treatment and access to ample
high-quality bedding materials.
Antibiotics are used selectively and only with the per-
mission of the State Veterinarian, the Company’s Chief
Veterinary Officer and the Chief Veterinary Officer of
the relevant local entity. Antibiotics may be adminis-
tered after diagnosis has been made and the sensitivi-
ty of the causative agent to certain types of antibiotics
has been determined through laboratory tests.
The use of antibiotics to prevent diseases at rearing
sites is prohibited. The Company does not use hor-
mones or growth stimulants in the production process.
Business conduct
The Company’s anti-bribery and corruption sys-
tems focus on ensuring high standards of behaviour
throughout the business and educating employees
about international anti-corruption practices. Learn-
ing activities feature external conference attendance
and training that focusses on the conduct of business
in Ukraine. To support this approach the Security De-
partment is tasked with minimising this type of risk. It
holds regularly scheduled meetings with legal experts,
security specialists and anti-corruption advisors. This
knowledge is applied to develop risk management
systems at the Company’s businesses and knowl-
edge-sharing through newsletter distribution and oth-
er internal communication methods. All suppliers and
customers (including distributors and traders) are re-
quired to comply with the Company’s anti-corruption
policy and to adopt methods to combat corruption.
Case studies
Biogas plants
A key aspect of MHP’s approach to managing waste,
minimising its use of energy through the use of alterna-
tive energy sources and reducing its greenhouse gas
emissions is its biogas plant programme.
Biogas plants have a significantly positive environmental
impact. They enable the efficient utilisation of chicken ma-
nure and other agricultural residues for energy production
and the application of the best available techniques relat-
ing to waste management. They also facilitate a signifi-
cant reduction in MHP’s greenhouse gas emissions.
ANNUAL REPORT 2017
60
CORPORATE RESPONSIBILITY
/CONTINUED
MHP began construction of its first biogas plant at the
Orіl-Leader poultry farm in Dnipropetrovsk Oblast in
2012. At the end of 2014, it reached its full energy capac-
ity of 5 MW. This is the largest biogas station in Europe
that uses chicken manure and slaughterhouse waste.
The total investment was US$ 15 million.
New planned facility
At the end of 2017, MHP received € 25 million in finance
from the EBRD for the construction of a new greenfield
12 MW biogas plant at its Vinnytsia production site.
The techniques employed for the reduction and control
of air emissions will include a three-stage desulphurisa-
tion process. The biogas complex’s water consumption
is estimated to be approximately 5.155 m3/day, mainly
for sanitary and associated purposes. Efficient water use
at the biogas complex will be ensured through the recir-
culation of 80 per cent of the digestate liquid phase. The
remaining 20 per cent will be discharged into a lined la-
goon within the biogas complex’s site. This will then be
used as fertiliser on the agricultural fields MHP cultivates
in the area.
The reduction of greenhouse gas emissions will be
achieved through better chicken litter management and
capturing methane gas through anaerobic digestion to
substitute natural gas combustion at the existing slaugh-
terhouse in Ladyzhyn.
Stakeholder engagement
In 2014, MHP compiled and published a detailed stake-
holder engagement plan. This is part of its commitment
to engage in dialogue with local stakeholders; address
local concerns about its activities; improve access to
and understanding of the Company’s complaints and
grievance procedures; and enhance understanding and
the transparency of its current and future activities.
The document, which is available on the Company’s
website at https://www.mhp.com.ua/en/responsibility/
communication/stakeholder-engagement-plan, also con-
tains detailed contact information for the information of
its stakeholders. MHP has been engaged in a series of
dialogue activities with interested local and national
NGOs, local community representatives and other inter-
ested parties. It intends to apply this dialogue to devel-
op its existing local relationships and enhance its stake-
holder engagement activities in the future.
Alignment with Ukraine’s anti-corruption initiative
In October 2017, MHP became a member of the recently
formed UNIC. As stated in the 2017 Corporate Respon-
sibility highlights above, this important national initiative
is a network of companies that have pledged to conduct
their business responsibly, enhance the reputation of
business in Ukraine and counter bribery and corruption
risks. Membership of UNIC underlines MHP’s commit-
ment to responsible business conduct and to robustly
addressing corruption and bribery risks.
MHP expects the new biogas facility to go live in 2018
and has calculated that the project will achieve further
greenhouse gas emission reductions of approximately
85,500 tonnes of CO2e annually.
UNIC aims to unite responsible companies through-
out Ukraine and promote the idea of ethical business
conduct through educational activities; policy and pro-
gramme development; knowledge sharing; and an an-
nual assessment of the level of compliance of members.
The Network currently comprises over 40 Ukrainian and
international companies.
Members of UNIC commit themselves to enhancing
the level of integrity in their companies and they are
required to report annually on the results achieved. Im-
portantly, UNIC is also supported by the EBRD and the
Organisation for Economic Co-operation and Develop-
ment (OECD).
Launch of business innovation
support programme
In October 2017, MHP partnered with the Radar Tech
Technology Cluster to launch a business innovation sup-
port programme. This programme assists the develop-
ment of Ukrainian business start-ups. The project has a
national remit and will be conducted across the country.
The programme has two stages. In the first stage, twen-
ty-five teams will be selected by the lead project part-
ners. Of these, ten teams will progress to the second
stage. Here they will be supported by business experts
and mentors as well as MHP in conducting trial activities.
MHP decided to participate in this initiative to enable
useful, meaningful ideas to be turned into real work proj-
ects. The Company also wished to apply its resources
to ensure that projects are created in Ukraine and to mi-
nimise the drain of talented people leaving to conduct
their business innovation in other countries.
The programme commenced in November 2017.
ANNUAL REPORT 2017
61
GOVERNANCE
62
69
71
73
Corporate Governance Overview
Board: Composition & Performance
Nominations and Remuneration Committee Report
Audit Committee Report
78 Management Report
81
Stakeholder Engagement
ANNUAL REPORT 2017 62
CORPORATE GOVERNANCE
OVERVIEW
MHP SE, a company registered under the laws of Cy-
prus, was established on May 30, 2006. According to
the extract issued by the Luxembourg Trade and Com-
panies Register on August 08, 2017, the Company con-
verted from a public limited liability company (“société
anonyme”) into a European company (“Societas Euro-
paea”) effective as of August 07, 2017.
With effect from 27 December 2017, the Company’s
registered office and central administration was trans-
ferred to Cyprus and the Company is registered in the
Cyprus Registry for SE Companies, under number SE 27.
On and from 27 December 2017, the Company’s regis-
tered office address is situated at 16-18 Zinas Kanther
Street, Agia Triada, 3035 Limassol, Cyprus.
The Company has adopted a New Memorandum and
Articles of Association to comply with the provisions
of the Cyprus Companies Law, Cap. 113, Council Di-
rective 2001/86/EC of 8 October 2001 supplementing
the Statute for a European company with regard to the
involvement of employees, the SE Regulation and the
European Public Limited – Liability Company Regula-
tions 2006, as are applicable in Cyprus.
GOVERNANCE STRUCTURE
Dr John Rich
Non-Executive Chairman
NAI
William Richards
Non-Executive Director
BOARD OF DIRECTORS
Yuriy Kosyuk
Chief Executive Officer
Yuriy Melnyk
Chief Operating Officer
Viktoria Kapelyushnaya
Chief Financial Officer
John Grant
Non-Executive Director
NAI
AUDIT COMMITTEE A
NOMINATIONS & REMUNERATION COMMITTEE N
INTERNAL AUDIT
SENIOR MANAGEMENT
I
Intependent Director
A
Member of the Audit Commitee
N
Member of the Nominations & Remuneration Committee
THE COMPANY UPHOLDS
AND PRACTISES THE
HIGHEST STANDARDS OF
GOVERNANCE AND INTEGRITY
IN ITS RELATIONSHIPS
WITH ITS SHAREHOLDERS,
DIRECTORS, PERSONNEL,
BUSINESS COMMUNITY
AND OTHER THIRD PARTIES
INCLUDING GOVERNMENT
AND REGULATORY AGENCIES
ANNUAL REPORT 2017 63
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
Compliance with Governance Codes
In the meantime, the Company has applied the Ten
Principles of Corporate Governance of the Luxem-
bourg Stock Exchange as a benchmark for its ap-
proach to corporate governance (since the Company
was domiciled in Luxembourge until 27 December
2017). Following the transfer of the registered office to
Cyprus, the Board and the Company aspired to have
a new Comnany’s Corporate Governance Charter (un-
der review and update now) based on the UK Corpo-
rate Governance Code. Corporate governance code
effective during the FY 2017 could be found via link:
https://www.mhp.com.ua/en/investor-relations/corpo-
rate-governance/MHP-S-A-Luxembourg.
It is the Board’s view that the Company has been fully
compliant with the Ten Principles of Corporate Gover-
nance of Luxembourg Stock Exchange except for the
matters noted below.
The Board of Directors has not adopted the provisions of
the Cyprus Corporate Governance Code. The Company
is not obliged to adopt the provisions of the Code in 2017.
The main reason for non-adoption of the Corporate Gov-
ernance Code is that the Company transfered its seat to
Cyprus at the end of the year ended 31 December 2017.
Recommendation 3.5 states that the Company shall
draw up a detailed list of criteria for assessing Director
independence. The Board reviews Director indepen-
dence each year according to established principles
and, as noted below, considers Dr John Rich and John
Grant to be independent Directors, despite their mem-
bership of the Board for the last 11 years. The Com-
pany intends to draw up a formal and detailed list of
criteria in the near future.
Principle 8 addresses Directors’ remuneration and
includes supporting recommendations relating to
the disclosure of Directors’ remuneration and the
remuneration policy. In common with many listed
companies based in Ukraine, the Company has
chosen not to disclose executive Director remuner-
ation or specific policy elements and is not legally
required to do so.
• To appoint and dismiss members of the Board’s Com-
mittees; to appoint and dismiss the Chairmen of the
Board’s Committees;
• To assume ultimate responsibility for the oversight of
the Company’s activities, working with the Audit Com-
mittee to ensure that the Management of the Com-
pany develops appropriate, adequate and cost-effec-
tive internal controls;
Principal responsibilities of the Board
The Board is responsible for the overall conduct of
the Company’s business and has the powers, author-
ities and duties vested in it by and pursuant to the
relevant Luxembourg laws and regulations (during
2017) and to the relevant Cyprus laws and regu-
lations (since 27 December 2017) and the Articles
of association of the Company, see: https://www.
mhp.com.ua/library/file/mhp-se-articles-of-associa-
tion-apostilled.pdf.
The Company has a unitary governance structure and
the Board is the ultimate decision-making body, except
for the powers reserved for the Shareholders’ Meeting
by law or as specified in the Articles of Association.
The Board sets the Company’s values and standards
and ensures that its obligations to its shareholders and
others are understood and met. Its responsibilities in-
clude the following activities:
• To approve the Company’s strategy, as recommend-
ed by the CEO, and to oversee the Company’s prin-
cipal objectives;
• To appoint the CEO and approve the appointment
by the CEO of the senior officers, including the Chief
Financial Officer (“CFO”) and to appoint and remove
the Company Secretary;
To review and assess the main risks to which the
Company is exposed in pursuing its corporate pur-
pose, and the strategy implemented to control and
manage these risks;
• To review and approve the annual and, if required,
six monthly and quarterly Company financial state-
ments, examine the financial position of any subsid-
iary if needed and present to the annual Sharehold-
ers’ Meeting a clear and complete evaluation of the
Company’s financial situation;
• To determine the structure, organisation and op-
eration of the Executive Management team, and
specifically its responsibilities, obligations and
powers and record them in internal management
regulations;
• To define the skills, knowledge and experience re-
quired for the Executive Management team to oper-
ate effectively;
• To ensure that the members of the Executive Man-
agement team have the skills necessary to dis-
charge their responsibilities;
• To establish procedures for assessing and review-
ing the operation and performance of the Execu-
tive Management team as a whole and each of its
members;
• To ensure that the Company’s shareholders receive
equal treatment, are provided with useful and relevant
ANNUAL REPORT 2017
64
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
information that enables them to exercise their
rights and that the rights of majority and minority
shareholders are respected equally; and
• To encourage the active participation of sharehold-
ers at meetings and take the necessary measures
to facilitate that participation taking into account the
share ownership structure..
Role of the Chairman
The Board elects the Chairman from amongst mem-
bers that meet the Board’s criteria for an independent
Director following the preparation of a job specifica-
tion by the Nominations and Remuneration Commit-
tee. The Company’s Corporate Governance Charter
excludes the CEO from also becoming Chairman.
The Chairman of the Board is responsible for the prop-
er and efficient functioning of the Board. The Chairman
determines the calendar of the Board and Committee
meetings and the agenda of the Board’s meetings
after consultation with the CEO. The Chairman of the
Board ensuress that the agenda of the Board’s meet-
ings includes, when appropriate, the following topics:
• A review of the Company’s strategy as proposed by
the CEO;
• The establishment of targets and a review of the
proposed budget for the forthcoming fiscal year;
• A review of the achievement of targets for all key
officers of the Company;
• A review of the efficiency and competence of the
Board;
• A review of the marketing plan for the forthcoming
• A review of performance compared against budget
for the current year and the prior year; and
• A consideration of any material acquisitions or dis-
posals.
Prior to each meeting, the Chairman ensures that Di-
rectors receive complete and accurate information
and, to the extent appropriate, a copy of any Manage-
ment presentation to be made at the Board meeting.
The Chairman of the Board will also make sure that
there is sufficient time for making decisions.
The Chairman is also responsible for ensuring that
new Directors receive a complete and tailored induc-
tion to the Company prior to joining the Board and
that existing Directors continually update their skills
and the knowledge and familiarity with the Company
required to fulfil their role both on the Board and on
Board Committees.
The Chairman of the Board represents the Board to
shareholders and the public and chairs Shareholders’
Meetings. The Chairman serves as the interface be-
tween the Board and major shareholders of the Com-
pany on matters of corporate governance.
Relationship between the Chairman and the CEO
A clear division of responsibilities is maintained be-
tween the Chairman and the CEO. The CEO may not
carry out the duties of the Chairman of the Board and
vice versa.
fiscal year;
• A review of the capital expenditure plan for the
forthcoming fiscal year;
The Chairman is required to establish close relations
with the CEO by giving him support and advice while
respecting the executive responsibilities of the CEO.
The CEO provides the Chairman of the Board with all
the information he requires to carry out his task.
Role of the CEO
The CEO reports directly to the Board of Directors.
The CEO is entrusted by the Board with the day-
to-day management of the Company within the
strategic parameters established by the Board. He
oversees the organisation and efficient day-to-day
management of subsidiaries, affiliates and joint
ventures.
The CEO is responsible for the execution and man-
agement of the outcome of all Board decisions. The
CEO is delegated powers that are not exclusively re-
served to the Board or to the Shareholders’ Meeting.
The CEO can delegate authority for daily manage-
ment to subordinate executives but will retain ultimate
accountability to the Board of Directors for the actions
which are conducted during the performance of the
role and the actions of delegates.
The CEO’s responsibilities include:
• Proposing a business strategy for the Board to ap-
prove;
• Proposing budgets and business plans for the
Board to approve;
• Appointing and removing Company executives;
• The design of employee remuneration systems;
• Review and management of the performance of the
Company and its staff;
• Conducting all necessary measures to ensure
achievement of the Company’s goals; and
• Establishing and maintaining the internal deci-
sion-making processes of the Company.
ANNUAL REPORT 2017 65
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
Board of Directors
Members of the Board are elected by a majority vote
of shareholders at the AGM, may be elected for a six-
year period and may be re-elected an unlimited num-
ber of times. At 31 December 2017, the Board had six
directors, two of whom are regarded by the Board as
independent. The Board does not consider Mr Rich-
ards to be an Independent Director.
The Board considers the Chairman and John Grant to
be independent notwithstanding their period of service
(since 2006). For most of 2017, Philippe Lamarche was an
Independent Non-Executive Director and after his resig-
nation the Company has been in the process of seeking
at least one additional Independent Non-Executive Di-
rector to replace Philippe Lamarche and strengthen the
Board.
In 2017, the Board conducted an annual effectiveness
review in order to evaluate its performance as well as
that of its Committees and individual Directors. The
evaluation process was initiated by a questionnaire.
The conclusions were analysed by the Board to fur-
ther strengthen its composition and performance.
Changes to the Board of Directors in 2017
and other developments
On 13 October 2017, Philippe Lamarche resigned from
the Board of Directors of MHP SE for personal reasons
after spending seven years on the Board as a Non-Ex-
ecutive Director. Following his resignation, the Board
initiated a search process for a candidate to replace
Philippe Lamarche and simultaneously to increase
the overall number of Non-Executive Directors on the
Board. On 24 October 2017, the shareholders of the
Company resolved at the EGM to approve the ap-
pointment of William Richards as a new Non-Executive
Director of the Board, with immediate effect and for a
period ending with the AGM of the shareholders of the
Company to be held in 2019. The search for further
suitable Non-Executive Directors continues.
The terms and conditions for Mr Kosyuk’s appointment
as 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 director-
ship. Mr Kosyuk may, however, resign from his position
as CEO only subject to a prior three-months’ notice.
The terms contain confidentiality obligations applica-
ble to Mr Kosyuk for a period of five years after termi-
nation of his office. The amount of remuneration and
benefits paid by the Company to the persons respon-
sible 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 mem-
bers of the Board of Directors, including the CEO, re-
gardless of whether such remuneration is paid by the
Company or by any other entity within the Group, is es-
tablished by the Nominations and Remuneration Com-
mittee. In addition, the amount of remuneration paid to
Non-Executive Directors is approved by the AGM.
On 16 August 2017, the Board of Directors unanimously re-
solved to confirm the mandate of Mr Kosyuk as delegate
for the daily management of the Company (délégué à la
gestion journalière) until the AGM of the Company to be
held in 2019 and his attributions given by the Board.
For the results of the 2017 AGM, please see: https://www.
mhp.com.ua/library/file/agm-results-of-meeting_2.pdf.
Auditors’ remuneration
The auditor’s remuneration was approximately US$ 980
thousand for the year ended 31 December 2017 (2016:
US$ 554 thousand). This remuneration includes both au-
dit and non-audit services, with the audit fees component
being approximately US$ 420 thousand for the year
ended 31 December 2017 (2016: US$ 390 thousand).
The Company has rules and processes in place to
ensure the independence of the auditors, including
non-audit fee limitations set by the Board and annual
investigations by the Audit Committee into whether any
services provided are incompatible with the indepen-
dence of the auditors.
Director independence
The independence of each of the Non-Executive Direc-
tors is considered on appointment. Each year, the Board
also considers the facts and circumstances relating to
Director Independence (and throughout the year as
appropriate). This process includes an assessment of
whether each Non-Executive Director is independent of
Management and any business or other relationships
that could materially interfere with their exercise of ob-
jective, unfettered and independent judgement or their
ability to act in the best interests of the shareholders. In
making its decision, the Board considers relationships
with Management, major shareholders, associated com-
panies and other parties with whom the Company con-
ducts business.
Following the conduct of these processes, the Board
believes that Dr John Rich and John Grant are Inde-
pendent Board Directors. Up until his resignation in
October 2017, Philippe Lamarche was also an Inde-
pendent Non-Executive Director.
ANNUAL REPORT 2017 66
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
Senior Independent Director
The Board has a Senior Independent Director, John
Grant, who was designated as such by the Nomina-
tions and Remuneration Committee during the meet-
ing held in November 2011.
The Senior Independent Director is available to share-
holders if they have any concerns that they cannot
resolve through the normal channels (e.g. Chairman,
CEO or other Non-Executive Directors). The Senior In-
dependent Director also provides a sounding board
for the Chairman, is responsible for the evaluation of
the Chairman and serves as a trusted intermediary for
Non-Executive Directors as and when necessary. In
2017, the Senior Independent Director received only
one request from a shareholder, and none from any
other stakeholers.
Conflicts of interest
The Board has formal procedures in place to manage
conflict of interest matters. Each Director is required
to inform the Board of any other Directorship, office or
responsibility, including executive positions that are
taken up outside the Company during the term of of-
fice. If, in the opinion of the Board, a conflict of inter-
est exists, the relevant Director does not participate in
discussions and will abstain from a Board vote on the
affected matter.
The Company’s Conflict of Interest Policy covers any
transactions involving conflicts of interest (whether ac-
tual or potential) of:
1. MHP’s Management team members, including Di-
rectors of subsidiaries and branches (“key man-
agement”);
2. MHP’s line managers who have authority to authorise
transactions on behalf of MHP (“line managers”); and
3. Other MHP employees who are authorised to inter-
nally approve any decisions as to significant provi-
sions of transactions based on the internal policies
and instructions (“responsible employees”) or have
power to influence such decisions.
Confidential information
All Board Directors are required to keep information
received in their capacity as Directors confidential
and may not use it for any other purpose than for ful-
filling their remit.
Other professional commitments
Every Director is required to allocate the time and at-
tention required for the proper fulfillment of their duties.
This commitment includes limiting the number of other
professional commitments to the extent required.
Information and professional development
The Board ensures that Directors, especially Non-Ex-
ecutive Directors, have access to independent profes-
sional advice at the Company’s expense where they
judge it necessary to discharge their responsibilities
as Directors. Board Committees are also provided
with sufficient resources to undertake their duties.
All Directors have access to the advice and services
of the Company Secretary, who is responsible to the
Board for ensuring that Board procedures are com-
plied with.
The Chairman is responsible for ensuring that the
Directors receive accurate, timely and clear informa-
tion. The Company’s Executive Management team is
obliged to provide such information and Directors to
seek clarification or amplification where necessary.
The Chairman ensures that Directors continually up-
date their skills, knowledge and familiarity with the
Company in order fulfil their role both on the Board
and on Board Committees. The Company provides
the necessary means for developing and updating its
Directors’ knowledge and capabilities.
Internal control and risk management
The Board of Directors is ultimately responsible for
the Company’s governance, risk management, inter-
nal control environment and processes and reviews
their effectiveness at least annually.
Once identified, risks are evaluated to establish fi-
nancial or non-financial impact and the likelihood of
their occurrence. For risks assessed as significant, a
mitigation action-plan is determined by the operation-
al business management team. The summary of key
risks is regularly discussed with MHP’s Management
team and annually reported to the Board of Directors
through the Audit Committee. The Company has an
independent risk and process management depart-
ment whose activities are overseen by the CFO and
reported to the Audit Committee.
The Board of Directors, Management and employees
follow responsible principles of doing business that
are in line with the Company’s approved Conflict of In-
terest Policy. A summary of the Company’s framework
for managing risks, the Company’s key business risks
together with the actions taken to mitigate them can
be found on page 49 of this Report.
ANNUAL REPORT 2017 67
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
Internal audit
The Company maintains an internal audit function.
The Head of Internal Audit has the right of access to
the Audit Committee and the Chairman. The Head of
Internal Audit reports to the Audit Committee which is
responsible for:
• Monitoring and reviewing the effectiveness of the
Company’s internal audit function in the context of
the Company’s overall risk management system;
• Approving the appointment and removal of the Head
of Internal Audit;
• Approving the remit of the internal audit function;
• Ensuring it has adequate resources and is free from
Management or other restrictions;
At a Group level, MHP has in place common account-
ing policies and procedures on financial reporting and
closing. Management monitors the publication of the
new reporting standards and works closely with the ex-
ternal auditors in evaluating in advance the potential
impact of these standards.
Compensation of key Management personnel
Total compensation of the Group’s key Management
personnel amounted to US$ 14,143 thousand for the year
ended 31 December 2017 (2016: US$ 8,421 thousand).
Compensation of key Management personnel consists
of contractual salary and performance bonuses.
• Agreeing the internal audit plan;
• Reviewing internal audit reports;
• Monitoring Management responses to internal audit
Total compensation of the Group’s Non-Executive Di-
rectors, which consists of contractual salary, amounted
to US$ 460 thousand in 2017 (2016: US$ 451 thousand).
recommendations; and
• Meeting the Head of Internal Audit annually, without
Management being present, to discuss the depart-
ment’s remit and any issues arising from the internal
audit work carried out.
Key Management personnel totaled 37 and 39 individ-
uals as at 31 December 2017 and 2016 respectively,
including 2 and 3 independent directors as at 31 De-
cember 2017 and 2016, respectively.
Financial reporting process
MHP has in place a comprehensive financial review
cycle which includes a detailed annual budgeting pro-
cess. 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 com-
prehensive system of financial reporting, with monthly
performance reports presented to the Board of Directors.
Directors and Officers litigation statement
No member of the Board of Directors or of MHP’s senior
Management had, for at least five years:
1. any convictions relating to fraudulent offences;
2. been a senior manager or a member of the adminis-
trative or supervisory bodies of any company at the
time of, or preceding, any bankruptcy, receivership
or liquidation; or
3. been subject to any official public incrimination and/
or sanction by any statutory or regulatory authority
(including any designated professional body) nor
had ever been disqualified by a court from acting as
a member of the administrative, management or su-
pervisory bodies of a company, or from acting in the
management or conduct of the affairs of a company.
Share ownership
Yuriy Kosyuk, the Company’s Chief Executive Offi-
cer, owns 100% of the shares in WTI Trading Limited
(“WTI”), which in turn directly owns a total of 59.8%
of the total outstanding share capital of the Company
(comprising 41,319,511 shares and 22,552,667 of the
Company’s global depositary receipts listed on the
London Stock Exchange (“GDRs”), representing 38.7%
and 21.1%, respectively, of the outstanding share capi-
tal of the 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, no takeover bids
have been made for 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
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 compensa-
tion on loss of office or employment (whether through
resignation, purported redundancy or otherwise) that
would occur because of a takeover bid.
ANNUAL REPORT 2017 68
COMMITTEES
CORPORATE GOVERNANCE OVERVIEW
/CONTINUED
Nominations and Remuneration Committee
Dr John C Rich, Chairman
John Grant
Audit Committee
John Grant, Chairman
John Rich
Philippe Lamarche1
The Committee’s main tasks are:
• To recommend to the Board the appointment or renewal
of Directors, to review remuneration and monitor perfor-
mance of the Board, and to make recommendations to
the Board in respect of the necessary skills and experi-
ence required to improve the functioning of the Board.
• To monitor the performance of key Officers of the Com-
pany and evaluate results versus stated objectives, to
monitor training needs and programmes to improve em-
ployee 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 manag-
ers are incentivised to achieve and are compensated for
exceptional performance, to oversee the maintenance
and continuous improvement of the Company’s com-
pensation policy with a view to aligning the interests of
employees with the interests of shareholders.
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 identifi-
cation, management and reporting of risks.
• To review the Company’s policies and procedures for
the identification, management and reporting of non-fi-
nancial 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 Compa-
ny’s internal audit function in the context of the Compa-
ny’s overall risk management system.
• To submit for approval to the Board the compensation
packages of the CEO and of the Executive Manage-
ment team.
• To approve the appointment, reappointment, compensa-
tion and oversight of the Company’s external auditors.
• To assist the Board in overseeing compliance with all le-
• To approve all external hiring of key Officers.
gal and regulatory requirements.
During 2017, the Committee held five meetings, and all of
the Committee members attended.
During 2017, the Committee held four meetings and the av-
erage attendance of Committee members was 100%.
The Nominations and Remuneration Committee Report is
provided in a separate section of the Report on page 71.
The Audit Committee Report is provided in a separate sec-
tion of the Annual Report on 73.
1 On 13 October 2017, Mr Philippe Lamarche
resigned from the Board of Directors of MHP SE for per-
sonal reasons after spending seven years on the Board as a
Non-Executive Director
ANNUAL REPORT 2017 69
BOARD: COMPOSITION AND PERFORMANCE
DR JOHN C RICH
NON-EXECUTIVE CHAIRMAN OF
THE BOARD, CHAIRMAN OF THE
NOMINATIONS AND REMUNERA-
TION COMMITTEE, MEMBER OF THE
AUDIT COMMITTEE
JOHN GRANT
SENIOR INDEPENDENT DIRECTOR,
CHAIRMAN OF THE AUDIT COM-
MITTEE, MEMBER OF THE NOM-
INATIONS AND REMUNERATION
COMMITTEE
Dr Rich joined the Board in 2006
Mr Grant joined the Board in 2006
Dr Rich is the Managing Director of Australian Agricultural Nutrition and
Consulting Pty Ltd (AANC) and is a specialist agri-business consultant
for the IFC and IFC invested clients. From 1990 to 2003, he was an exec-
utive director of Austasia Pty Ltd, an agri-business conglomerate which
has operations in Australia, South East Asia and China, and from 1995
to 2002 was a director of AN-OSI Pty Ltd, a company that specialised in
supply-chain management for feedlot beef, poultry and dairy operations
in Asia and Europe. Dr Rich holds a BSc and a BVSc from the University
of Sydney, is a member of the Australian College of Veterinary Scientists
and a registered financial member of the Australian College of Veteri-
nary Surgeons.
He has completed a number of post-graduate courses in agricultural and
food-related industries.
Mr Grant is currently a Non-Executive Director of Augean plc and Chair-
man of the British Racing Drivers’ Club Ltd. He was previously a Non-Ex-
ecutive Director of Melrose Industries plc, National Grid plc, Pace plc and
Wolfson Microelectronics plc and Chairman or Non-Executive Director of a
number of smaller companies. He was Senior Independent Director at Mel-
rose, Pace and Wolfson and chaired Audit Committees at Melrose, Nation-
al Grid, Pace and Wolfson. In his executive career, he was Group Finance
Director of Lucas Industries plc and Lucas Varity plc from 1992 to 1996, and
previously was Head of Corporate Strategy at Ford Motor Company and
Executive Deputy Chairman of Jaguar Cars.
Mr Grant holds an MBA from Cranfield School of Management, a BSc in
Economics from Queen’s University Belfast, an Honorary Doctorate in
Engineering from University of Bolton, and is a Fellow of the Association
of Corporate Treasurers.
ANNUAL REPORT 2017 70
BOARD: COMPOSITION & PERFORMANCE
/CONTINUED
WILLIAM RICHARDS
NON-EXECUTIVE DIRECTOR
Mr Richards joined the Board in 2017
YURIY KOSYUK
CHIEF EXECUTIVE
OFFICER
Mr Kosyuk founded MHP in 1998
and is also the CEO of PJSC MHP
Mr Richards has spent the majority of his career in the food industry, both in
manufacturing and distribution. He worked initially for Best Foods Ltd in the
retail market and then for over 20 years in the foodservice sector, initially
as Marketing Director with DBC Foodservice and then with the Kerry Group
as Business Director. Currently he is a consultant helping companies devel-
op their foodservice business. Mr Richards holds a BA in Business Studies
from Liverpool John Moores University.
In 1995 Mr Kosyuk founded the Business Centre for the Food Industry
(BCFI) and was President until 1999. BCFI operated in the domestic and
export markets for grain and other agricultural products.
Mr Kosyuk graduated as a processing engineer in meat and milk pro-
duction from the Kiev Institute of Food Industry in 1992.
YURIY MELNYK
CHIEF OPERATING OFFICER
Mr Melnyk joined
the Board in 2011
VIKTORIA
KAPELYUSHNAYA
CHIEF FINANCIAL OFFICER
Ms Kapelyushnaya joined
the Board in 2006
Prior to joining MHP Mr Melnyk held the position of Agricultural Minster
for Ukraine and Deputy Prime Minister of Ukraine, as well as serving
as an advisor to the Prime Minister of Ukraine. Mr Melnyk is a Doctor
of Agriculture and has been a correspondent member of the National
Academy of Sciences of Ukraine since 2002. In 2004 he was awarded
the State Prize of Ukraine in science and technology. He graduated from
the Academy of Agriculture of Ukraine as a Zooengineer in 1985. In July
2010 Mr Melnyk was appointed First Deputy CEO of MHP.
Ms Kapelyushnaya, who is also Finance Director at MHP, joined MHP
in 1998 and was appointed to the Board in 2006. Previously she was
Deputy Chief Accountant and subsequently Chief Accountant of BCFI.
She holds diplomas in meat processing engineering (1992) and financial
auditing (1998) from the Kiev Institute of the Food Industry.
ANNUAL REPORT 2017 71
NOMINATIONS
AND REMUNERATION
COMMITTEE REPORT
THE NOMINATIONS AND REMUNERATION COMMITTEE
(THE “COMMITTEE”) HAS OVERALL RESPONSIBILITY
FOR MAKING RECOMMENDATIONS TO THE BOARD
ON ALL NEW APPOINTMENTS TO THE BOARD
It also has responsibility for ensuring that the
Board and its Committees have the appropriate
balance of skills, experience, independence,
diversity and knowledge of the Company to
enable them to discharge their respective
duties and responsibilities effectively.
MEMBER
NO OF MEETINGS
John Rich (Chairman)
John Grant
Philippe Lamarche
(resigned in October 2017)
5/5
5/5
4/5
Dr John Rich,
Chairman, Nominations
& Remuneration Committee
ANNUAL REPORT 2017
72
NOMINATIONS AND REMUNIRATION COMMITTEE REPORTE
/CONTINUED
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 rec-
ommendations to the Board in respect of the neces-
sary 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 ob-
jectives, 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 poli-
cy 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 improve-
ment 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 compensa-
tion packages of the CEO and of the Executive Man-
agement team.
• To approve all external hiring of key officers.
The Committee is expected to meet not less than twice
a year and during 2017, the Committee met five times.
The attendance of its members at these Committee
meetings is shown on a previous page. The Commit-
tee’s terms of reference, which were last revised in
March 2012, are available to view on the Company’s
website at http://www.mhp.com.ua/library/file/nomi-
nations-remunerations-committee-15-03-2012.pdf
Further details regarding the composition, diversity
policy and the 2017 activities of the Committee are
set out below.
Composition
According to the Articles of Association of MHP SE,
the members of the Committee were Independent
Non-Executive Directors throughout 2017.
The Committee was chaired by Dr John Rich. John
Grant and Philippe Lamarche (resigned from the
Board in October 2017) also served on the Committee
throughout the year. The Company Secretary acts as
secretary to the Committee. On occasion, the Commit-
tee invites the Chief Executive, the Chief Financial Of-
ficer and the Group HR Director to attend discussions
where their input is required.
What the Committee did in 2017
The principal focus of the Committee during 2017 has
been to consider the items set out below:
• The Committee considered the composition and
balance of the Board and the timing of future
Board changes. It also reviewed the succession
plans in place in respect of Executive Directors
and Non-Executive Directors in conjunction with
the provisions of the UK Corporate Governance
Code and best practice.
• The Committee considered and approved the con-
tinuing education programme for Non-Executive Di-
rectors in 2018.
• Taking into account that the appointment of new
Board members is critical to the Company, the
Committee considered and approved a new Policy
of Appointment for Non-Executive Directors: https://
www.mhp.com.ua/library/file/appointment-of-non-ex-
ecutive-director-policy-final.pdf. Moreover, following
the process, the Committee recommended to the
Board the appointment of Mr William Richards. In ac-
cordance with the Articles, Mr Richards was formally
appointed after the EGM on 24 October 2017.
• Remuneration review of the Board and the senior
management team.
The Board recognises the importance of diversity
throughout the workforce, be it geographical, cultur-
al or market-aligned, encompassing gender, experi-
ence and age. The Board is committed to equality of
opportunity for all employees. The Committee cur-
rently takes into account a variety of factors before
recommending any new appointments to the Board
including skills relevant to performing the role, expe-
rience and knowledge. The most important priority of
the Committee, however, has been and will continue
to be ensuring that the best candidate is selected to
join the Board and this approach will remain in place
going forward.
Dr John Rich,
Chairman,
Nominations & Remuneration Committee
06 March 2018
ANNUAL REPORT 2017 73
AUDIT COMMITTEE
REPORT
THE AUDIT COMMITTEE (THE “COMMITTEE”)
IS RESPONSIBLE FOR THE INTEGRITY
OF THE GROUP’S FINANCIAL REPORTING
AND ITS INTERNAL CONTROL AND
RISK MANAGEMENT PROCESSES
The Committee also makes recommendations to the
Board on the appointment of external and internal audi-
tors and oversees their activities.
MEMBER
NO OF MEETINGS
John Grant (Chairman)
John Rich
Philippe Lamarche
(resigned in October 2017)
4/4
4/4
3/4
Mr John Grant,
Chairman, Audit Committee
ANNUAL REPORT 2017
AUDIT COMMITTEE REPORT
/CONTINUED
Significant issues related to the financial statements
The Committee undertook the following recurring ac-
tivities in relation to the financial statements:
• reviewed the Annual Report and annual and quarter-
ly financial statements, including consideration of the
external auditor’s report on their audit of the full year
results;
• considered the processes in place for the valuation
of assets, including the reasonableness and consis-
tency of assumptions;
• reviewed the effectiveness of the Company’s risk
management and internal controls;
• considered the Annual Report and annual and quar-
terly financial statements to ensure they were fair,
balanced and understandable and provided the
information necessary for shareholders to assess
the Company’s position and performance, business
model and strategy, and advised the Board accord-
ingly; and
• reviewed and agreed the scope of the audit work to
be undertaken by the external auditor.
74
Role and responsibilities
The Committee’s role and responsibilities are set out
in its terms of reference, which can be viewed on the
Company’s website. The Committee accepts its re-
sponsibility for protecting the interests of sharehold-
ers with respect to the integrity of financial information
published by the Company and the effectiveness of the
audit. The Committee is responsible specifically for:
• reviewing and monitoring the integrity of the finan-
cial statements, including the Annual Report and
any formal announcements relating to financial
performance;
• ensuring compliance with legal and regulatory re-
quirements;
• keeping under review the effectiveness of the Com-
pany’s financial reporting, risk management and in-
ternal control systems;
• reviewing the independence, objectivity and effec-
tiveness of the external auditors, and making rec-
ommendations to the Board regarding the appoint-
ment, re-appointment and replacement of external
auditors and their terms of engagement;
• reviewing policy and practice regarding engaging
the external auditor to supply non-audit services;
• considering the requirement for, and monitoring the
effectiveness of, the internal audit function;
• ensuring compliance with accounting standards
and consistency of accounting policies;
• reviewing and challenging the going concern as-
sumption; and
• reviewing the Annual Report and financial state-
ments to ensure they are fair, balanced and under-
standable.
Composition
The Committee comprises a minimum of two Non-Ex-
ecutive Directors, each of whom is deemed by the
Board to be independent. The Chairman of the Com-
mittee is John Grant, who has recent and relevant fi-
nancial experience in senior Non-Executive roles (see
biography on page 69).
The Committee invites the Chief Financial Officer, the
Head of Internal Control, the Head of Internal Audit
and senior representatives of the external auditor to
attend meetings as appropriate. The Committee has
the right to invite any other director or employee to
attend meetings as it considers appropriate.
The Committee meets with the external auditors at
least once a year in the absence of management.
Meetings in the year
The Committee meets at least four times a year. The
scheduling of meetings is intended to align with the
financial reporting timetable, enabling the Committee
to review the annual and quarterly financial state-
ments, to agree the audit plan in advance of the full
year audit, and to maintain oversight of the Group’s
internal controls and processes. In 2017, the Commit-
tee met four times.
The attendance of members at these meetings
is shown on the previous page.
ANNUAL REPORT 2017 75
AUDIT COMMITTEE REPORT
/CONTINUED
THE COMMITTEE CONSIDERED THE FOLLOWING SIGNIFICANT ISSUES IN RELATION TO THE FINANCIAL STATEMENTS
Significant issue considered
How the issue was addressed by the Committee
Valuation of property, plant and equipment
Except for land and other fixed assets that are carried at historical cost less
accumulated depreciation, all other groups of property, plant and equipment
are carried at revalued amounts, being their fair value at the date of the revaluation
less any subsequent depreciation and impairment losses.
The Committee reviewed Management’s approach, including the use
of an independent external valuation expert, and confirmed with the auditors
that they had assessed the competence and independence of the valuer
and verified that the methods and assumptions used were appropriate
and consistent with accounting standards.
Valuation of biological assets
Valuation of biological assets requires the use of complex models to arrive
at fair values.
The Committee reviewed the assumptions and judgements applied by
management and verified the reasonableness of input data and the accuracy
of calculations.
Revenue recognition
There is а presumed risk of misstatement of revenue recognition due to fraud.
The Committee confirmed that appropriate procedures had been undertaken
to address the risk.
Compliance with bond and bank covenants
Continued compliance with covenants included in bond and bank debt agreements
is a prime focus for the Committee.
The Committee verified that appropriate stress tests, taking account of potential
depreciation of the Ukrainian currency, had been performed and satisfied.
Tax risks
In view of the ambiguity of tax legislation, certain transactions may be challenged
by the relevant governmental authorities.
The Committee confirmed that tax and legal experts had been engaged
to evaluate the Company’s tax position and that they had reviewed the adequacy
and accuracy of tax contingency disclosures in the financial statements.
Ukraine country risk
In view of the continuing crisis in Ukraine, the Committee required assurance that
the implications had been fully recognised in considering the Company’s status
as a going concern.
The Committee ensured that appropriate procedures had been performed to eval-
uate the Company’s exposure to political, economic and legal risks. The Committee
confirmed that appropriate safeguards were in place to mitigate these risks,
and that all relevant disclosures were made in the financial statements.
Going concern
Assessment of the going concern assumptions, taking account of political
and economic uncertainties in Ukraine.
The Committee reviewed the assumptions underlying the assessment of the
Company’s ability to continue as a going concern and, after considering the stress
test undertaken by the auditor, supported Management’s recommendation
that the going concern assumption continued to be appropriate.
ANNUAL REPORT 2017 AUDIT COMMITTEE REPORT
/CONTINUED
7 years. Each year, the auditor is required to provide
evidence to the Committee of how it believes its in-
dependence and objectivity have been maintained.
Based on these requirements and procedures, the
Committee remains confident that auditor indepen-
dence and objectivity have been maintained.
76
External Audit
Auditor rotation
In accordance with European regulatory require-
ments and the guidance provided by the Competition
and Markets Authority regarding the statutory audit
of public-interest entities, the Company was required
to conduct a tender process to select the provider of
the statutory audit with effect from the 2017 financial
year. Deloitte Audit S.a.r.l. (Luxembourg) had been the
Company’s auditor since 2003. As reported last year,
in September 2016 the Company invited proposals
from the four largest international audit firms. At the
conclusion of a comprehensive selection process, in
December 2016 the Committee decided, based on its
assessment of which firm had the strongest capabili-
ties, that Deloitte Audit S.a.r.l. should be re-appointed
as statutory auditor.
In October 2017, due to the migration of the corporate
office from Luxembourg to Cyprus, the Company’s
shareholders resolved to terminate the mandate of
Deloitte S.a.r.l. and to appoint Deloitte Cyprus as the
auditor of the Company. It was noted that there had
been no conflict with Deloitte S.a.r.l’s audit report.
Assessment of effectiveness
In view of the external auditor selection process, it
was not considered necessary to conduct a separate
formal assessment of auditor effectiveness during
2017. The next assessment will be undertaken follow-
ing completion of the audit of the 2017 accounts. The
Committee remains satisfied with the quality, integrity
and effectiveness of the work undertaken by the ex-
ternal auditor.
Non-audit services
A policy is in place covering engagement of the ex-
ternal auditor for the supply of non-audit services to
ensure that the independence and objectivity of the
external auditor are not impaired. An analysis of fees
earned by the external auditor for audit and non-au-
dit services can be found in Note 8 to the financial
statements.
Under new EU and Competition Commission rules
that became effective in June 2016, the cost of
non-audit services provided by the external au-
ditor will be limited to 70% of the average audit
fee for the previous three years. As no cap applies
during the first three years, the first year for which
the cap applies will be 2020. Although this is not
expected to have a material impact on the Compa-
ny, the audit tender process provided the oppor-
tunity to initiate relationships with other firms that
could provide non-audit services in future. It is the
Committee’s intention to use these relationships to
ensure future provision of non-audit services is di-
versified to ensure both independence of the exter-
nal audit and best quality and best value provision
of non-audit services.
Auditor objectivity and independence
The Committee has a policy and procedures in place
to ensure that auditor independence and objectivi-
ty are never compromised. These include approval
requirements for engagement of the external auditor
for non-audit services, periodic review of the cost of
non-audit services provided by the external auditor
and requirements for rotation of the audit partner every
ANNUAL REPORT 2017 77
AUDIT COMMITTEE REPORT
/CONTINUED
Internal Audit
The Company has an Internal Audit function whose
primary purpose is to provide independent assur-
ance to Management and the Committee, and hence
the Board, on the Company’s risk management and
control environment. Internal Audit coverage in-
cludes all of the Company’s operations, resources,
services and responsibilities to other bodies, with no
department or business unit of the Company being
exempt from review.
Internal Audit responsibilities include:
• examining and evaluating the adequacy
of the Company’s system of internal control;
• assessing the reliability and accuracy
of information provided to stakeholders;
• assessing compliance with statutory
and regulatory requirements;
• assessing compliance with Company policies
and procedures;
• ensuring that the Company’s assets are properly
accounted for and safeguarded;
• assessing the efficiency and effectiveness
with which resources are employed;
• liaising with external auditors in audit planning
and assisting the external auditors as required; and
• investigating any instances of fraud, irregularity
or corruption.
The Internal Audit programme is approved annually by
the Committee and the Head of Internal Audit reports
findings periodically to the Committee. At the end of
2017 the Audit Committee temporarily postponed exe-
cution of the program following the resignation of the
Head of Internal Audit. The Committee is actively seek-
ing a new candidate to undertake this role.
Risk management and internal control
The Committee monitors the effectiveness of the Com-
pany’s risk management and control systems through
regular updates from Management, reviews of the key
findings of the external and internal auditors and an an-
nual review of the risk management process and risk
matrix. Results are reported regularly to the Board,
which has overall responsibility for risk management.
The annual review covers key risks that could po-
tentially impact the achievement of MHP’s strategic
and financial objectives. New risks and changes in
existing risks are identified on a continuous basis.
A risk scoring system is used to help quantify both
the probability and potential impact of each major
risk after the effect of mitigating actions, to assess re-
sidual risks against the Company’s risk appetite, and
to prioritise further risk management actions. During
the year, further improvements were adopted in the
Company’s approach to the identification and as-
sessment of risks, and the response to risks, based
on best business practices and international (COSO
Enterprise Risk Management) standards.
No incidents of significant control weaknesses or fail-
ures were identified at any time during the year.
Mr John Grant, Chairman,
Audit Committee
06 March 2018
ANNUAL REPORT 2017 78
MANAGEMENT REPORT
Incorporated information
Disclosures elsewhere
in the Annual Report are
cross-referenced where appropriate. Taken together,
they fulfil the combined requirements of the Companies
Act 2006, the Disclosure and Transparency Rules and
the Listing Rules of the Financial Conduct Authority.
Principal activities and review of the business
MHP is a leading international agro-industrial company
and the largest producer of chicken in Ukraine. The busi-
ness operates a vertically integrated model with the ob-
jective of maximising self-sufficiency and controlling costs
by consolidating multiple steps in the value chain. The
business operates three Segments: Poultry and Relateed
Operations Segment; Grain Growing Segment; and Other
Agricultural Segment.
Poultry and Related Operations Segment
The Poultry Segment produces and sells chicken meat
(fresh and frozen), vegetable oils (sunflower and soy-
bean) and mixed fodder. It incorporates three chicken
and two breeder farms, three sunflower oil plants,
a soybean crushing plant and three feed mills.
Grain Growing Segment
The Grain Growing Segment grows crops for fodder
production and for sale to third parties. In 2017 MHP
had around 370,000 hectares of land incorporating a
number of arable farms in Ukraine, harvested 356,080
ha of land yielding 1,999,095 tonnes of crops. Grain
storage facilities were 1,585,000 m3 and over 324,336
tonnes capacity in plastic bags.
Other Agricultural Segment
The Other Agricultural Segment produces and sells
mainly sausage and cooked meat, convenience foods
and produce from cattle and milk operations. It incor-
porates two facilities for producing prepared meat
products and two mixed farms. The meat-processing
business is the Segment’s flagship, producing 35,899
tonnes of sausage and 13,808 tonnes of convenience
foods in 2017.
Future developments
MHP’s strategy is:
• To expand poultry production capacity during the
period 2018–2022;
• To continue export expansion through sales diversi-
fication, the establishment of international sales and
distribution offices, market targeting and potentially
joint ventures and targeted M&A opportunities;
• To expand the landbank to around 500,000 hect-
ares within the next five years to provide: stability in
the supply of ingredients for fodder; and additional
hard currency revenues from grain export sales;
• To increase production efficiency through moderni-
sation and innovation, improvement in cost and qual-
ity control, use of up-to-date technology, strengthen-
ing vertical integration;
• To maintain a continuous improvement approach to the
Company’s already high biosecurity standards, environ-
mental, health and safety and animal welfare practices;
• To promote and develop its strong brands through
consumer-driven innovation and the introduction of
new products;
THE 2017 PRODUCTION FIGURES
ARE AS FOLLOWS:
3
chicken meat
facilities produced
566,242 tonnes of chicken meat
2
breeding farms
produced
426,220,271 eggs
sunflower oil plants
produced
3
314,115 tonnes of oil
1
soybean crushing
plant produced
39,066 tonnes of oil
3
feed mill plants
produced
1,525,056 tonnes of fodder
ANNUAL REPORT 2017 79
MANAGEMENT REPORT
/CONTINUED
• To increase its presence in value-added food products
such as processed meat and convenience food; and
• To expand alternative energy projects (e.g. biogas).
The Executive Management team believes there are
ample opportunities for growth both internationally and
in Ukraine. In Ukraine, customers choose to buy domes-
tically produced chicken which is more affordable than
pork and beef and fresher than imported meat. Exports
of chicken meat balance MHP’s total sales and provide
higher margins compared to local sales.
Board meetings
During 2017, the Board of Directors held seven meet-
ings with a 100 % attendance rate. Directors attended
meetings in person and occasionally via conference
call. The Board of Directors has also approved their
decisions through seven circular resolutions.
The Board conducts regular effectiveness reviews in
order to evaluate its performance as well as that of
its committees and individual Directors. The evalua-
tion process is normally initiated by a questionnaire
and then supplemented by individual interviews by
the Chair with each of the Directors. The conclusions
are analysed by the Board to further strengthen its
composition and performance.
At the end of the year MHP SE’s Non-Executive Direc-
tors have a regular meeting to discuss and to evalu-
ate the performance of executive directors. The latest
meeting took place in London, UK, in December 2017.
The results of evaluation are usually communicated
to executive directors at the first Board meeting of the
following year.
AGM
The next AGM will take place on 25 May 2018 at noon
at 16-18 Zinas Kanther Street, Agia Triada, 3035 Limas-
sol, Cyprus.
Board of Directors
The members of the Company’s Board of Directors as
at 31 December 2017 and at the date of this report are
presented on page 69. Changes to the Board of Direc-
tors in 2017 and other developments could be found in
the Corporate governance Overview on the page 62.
Dividend policy
In March 2013 the Board of Directors approved the
adoption of a dividend policy which maintains a bal-
ance between the need to invest in further develop-
ment and the right of shareholders to share the net
profits of the Company. The new dividend policy
confirms the Company’s intention to pay annual div-
idends to shareholders on a regular basis. The Com-
pany paid dividends of US$ 80 million in 2017 (2016:
US$ 80 million).
Research and Development
MHP has always invested in research and devel-
opment and actively integrates new technologies
throughout all operations. Our target is to sustain our
position as a world leader in poultry production, cost
control and efficient levels at the same time as adopt-
ing a sustainably responsible approach to society, the
environment and animal welfare.
ANNUAL REPORT 2017 80
MANAGEMENT REPORT
/CONTINUED
Business review and risks
A review of the Group’s performance and the key risks
and uncertainties which have been faced as well as
details on likely developments can be found in the
Chairman’s statement on page 15 and Risk Manage-
ment on page 49 of this Report.
Corporate Responsibility reporting
The Group initiated Corporate Responsibility reporting
in 2015. The latest report is for 2016 and can be found
on the Company’s website at: https://www.mhp.com.
ua/library/file/gri-2016-final-engl-final.pdf. The main
stakeholders and issues to cover were employees and
employment developments, local communities, clients
and partners as well as IFIs. The Company issues its
Corporate Responsibility Report annually and expects
the 2017 Report to be available in June 2018. Summary
corporate responsibility information is also included on
pages 57 to 60 within this Annual Report.
Branches
MHP SE does not have any branches.
Going concern
After reviewing the 2018 budget and longer-term
plans, the Directors are satisfied that, at the time of the
approval of the financial statements, it was appropri-
ate to adopt the going concern basis in preparing the
financial statements of the Group.
Communication with shareholders
The Directors highlight the importance of effective and
clear communication with the shareholders. During
2017 shareholders had a number of meetings and dis-
cussions with Board members, predominantly with Mr
Yuriy Kosyuk, Dr John Rich, and Ms Viktoria Kapely-
ushna, including meetings at conferences and regular
conference calls.
In order to facilitate unbiased communication with In-
dependent Directors, the Board has introduced a di-
rect communication channel with Independent Direc-
tors (details could be found on https://www.mhp.com.
ua/en/investor-relations/ir-contacts).
Disclosure of information to auditors
Deloitte Cyprus was appointed as auditor of the con-
solidated FS after the transfer of seat of the Company
from Luxemburg to Cyprus.
So far as each Director is aware, all information which
is relevant to the audit of the Group’s consolidated fi-
nancial 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 au-
ditors are aware of that information.
Subsequent events
There are no significant subsequent events to mention.
Approval
Approved by the Board and signed
on its behalf by
Company Secretary
Ms Anastasiya Sobotyuk
ANNUAL REPORT 2017 81
STAKEHOLDER ENGAGEMENT
NON-EXECUTIVE DIRECTORS
Dr John Rich, Chairman
Mr John Grant, Senior Independent Director
EXECUTIVE DIRECTORS:
Mr Yuriy Kosyuk, CEO
Ms Victoria Kapelyushna, CFO
Ms Anastasiya Sobotyuk, Director of IR
250
meetings
with investment funds
during 2017
Approach to stakeholder engagement
We understand how it is important for the Company’s stakeholders (share-
holders, bondholders, IFIs, ratings agencies, financial media etc.) to obtain
information about its development, results and strategy. To run the communi-
cations efficiently and on a regular basis, we follow the following approach.
There are several Non-Executive Directors, Senior Executives and the Direc-
tor of IR who are regularly involved in communications with stakeholders.
Industry conferences, investor meetings and roadshows
During 2017 MHP participated in 12 conferences organised by in-
vestment banks from the US, the UK and Ukraine and had over
250 meetings with investment funds. MHP had two roadshow trips
with CEO and CFO participation.
Other core IR programme activities
In order to update MHP’s stakeholders regularly on operational and
financial results, MHP issues press releases and holds regular calls
with senior management. In 2017 MHP issued eight press releases
dedicated to quarterly, semi-annual and annual updates, and held
four conference calls.
Annual General Meeting (AGM)
and Extraordinary General Meeting (EGM)
In 2017 the Company had one AGM and two EGMs, principally con-
cerning matters relating to the migration of the Company from Lux-
embourg to Cyprus, appointment of auditors, appointment of a new
Director, and approval of new Articles of Association. All resolutions
were duly agreed with shareholders and passed successfully.
Financial Calendar
A new schedule for communications with stakeholders in 2018 is
available on the Company’s web site: http://www.mhp.com.ua/en/
investor-relations/calendar.
ANNUAL REPORT 2017
82
INDEPENDENT
AUDITOR’S
REPORT
ANNUAL REPORT 2017 83
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Auditor’s Responsibilities for the Audit of the Consoli-
dated Financial Statements section of our report. We
remained independent of the Group throughout the
period of our appointment in accordance with the Inter-
national Ethics Standards Board for Accountants’ Code
of Ethics for Professional Accountants (IESBA Code) to-
gether with the ethical requirements that are relevant
to our audit of the consolidated financial statements in
Cyprus, and we have fulfilled our other ethical respon-
sibilities in accordance with these requirements and
the IESBA Code. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide
a basis for our opinion.
OPINION
We have audited the consolidated financial state-
ments of MHP SE (the “Company”), and its subsidiaries
(the “Group”), which are presented in pages 90 to 153
and comprise the consolidated statement of financial
position as at 31 December 2017, and the consolidated
statements of comprehensive income, changes in eq-
uity and cash flows for the year then ended, and notes
to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated finan-
cial statements give a true and fair view of the consol-
idated financial position of the Group as at 31 Decem-
ber 2017, and of its consolidated financial performance
and its consolidated cash flows for the year then end-
ed in accordance with International Financial Report-
ing Standards (IFRSs) as adopted by the European
Union and the requirements of the Cyprus Companies
Law, Cap. 113.
BASIS FOR OPINION
We conducted our audit in accordance with Interna-
tional Standards on Auditing (ISAs). Our responsibili-
ties under those standards are further described in the
ANNUAL REPORT 2017 84
INDEPENDENT AUDITOR’S REPORT
/CONTINUED
Key audit matters incorporating the most significant risks of material misstatements, including assessed risk
of material misstatements due to fraud
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit
of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key Audit Matter
How audit addressed the Key Audit Matter
Valuation of property, plant and equipment
As described in Note 3 to the consolidated financial
statements, all groups of property, plant and equipment
(“PPE”) are carried at revalued amounts, except land
carried at historical cost and other fixed assets (this
category includes mainly office furniture and equipment)
carried at historical cost less accumulated depreciation.
The carrying value of PPE as of 31 December 2017 that
are subject to revaluation is USD 1,264,735 thousand
compared to PPE in total of USD 1,383,102 thousand.
The Group appointed an independent appraisal firm to
carry out the valuation of PPE as of 31 December 2017.
The revaluation is significant to our audit due to the
magnitude of the carrying value of PPE to the total
assets and the level of required judgement applied in the
valuation process (see notes 4 and 12 to the consolidated
financial statements).
The key assumptions used in the preparation of the
valuation are the following:
• present condition of particular assets;
• changes in prices of assets and construction materials
from the date of their acquisition/construction/date of
previous valuation to the date of this valuation;
• external prices for production machinery and vehicles; and
• other external and internal factors that might have effect
on fair value of property, plant and equipment under
revaluation.
We have performed the following audit procedures in order
to address the risks of material misstatement associated with
this key audit matter:
• We obtained an understanding of controls surrounding the
valuation process for PPE.
• We assessed the competence, capabilities, experience
and objectivity of the independent appraisal firm, and
verified their qualifications. In addition, we discussed the
scope of their work with management and reviewed the
related terms of engagement to determine that there were
no matters that affected their objectivity or imposed scope
limitations.
• We confirmed that the valuation methods used by the
independent appraisal firm are appropriate and comply
with International Financial Reporting Standards and
industry norms.
• With the involvement of our internal valuation specialists,
we challenged valuation assumptions with reference
to historical data and, where applicable, external
benchmarks noting the assumptions used fell within an
acceptable range.
• We performed a sensitivity analysis on the significant
assumptions to evaluate the extent of impact on the fair
values and assessed the appropriateness of the Group’s
disclosures relating to these sensitivities (refer to note 4 to
the consolidated financial statements).
• We considered the appropriateness of all related disclosures
provided in the consolidated financial statements (note 4 and
12 to the consolidated financial statements).
ANNUAL REPORT 2017 85
INDEPENDENT AUDITOR’S REPORT
/CONTINUED
Key Audit Matter
Valuation of biological assets
How audit addressed the Key Audit Matter
The Group’s policy is to measure biological assets at fair
value in accordance with IAS-41 Agriculture (“IAS 41”).
As of 31 December 2017, the carrying amount of biological
assets was USD 161,493 thousand, of which USD 141,028
thousand was classified within current assets and USD
20,465 thousand within non-current assets. Current
biological assets mainly comprise breeders held for hatchery
egg production, crops in fields and broilers. Non-current
biological assets mainly comprise milk cows.
For determining the fair value of biological assets, the Group
uses the discounted cash flow technique as well as market
prices of livestock of similar age, breed and genetic merit.
This valuation is significant to our audit because the
assessment process is complex and judgmental. It is based
on assumptions that are affected by expected market or
economic conditions, which can vary over time. The key
assumptions used in the preparation of the discounted cash
flow technique (see notes 4 and 14 to the consolidated
financial statements) are:
We have performed the following audit procedures in order
to address the risks of material misstatement associated with
this key audit matter:
• We obtained an understanding of the controls surrounding
the valuation process for biological assets.
• We assessed the competence, capabilities, experience
and objectivity of the preparers of valuation, and verified
their qualifications.
• We confirmed that the valuation methods used are in
accordance with IAS 41 and consistent with international
valuation standards and industry norms.
• We challenged management’s assumptions with reference
to historical data (yields) and, where applicable, external
benchmarks (yields, prices) and market data noting the
assumptions used fell within an acceptable range.
• We evaluated the reasonableness and appropriateness
of the discount rate with the assistance of our internal
valuation specialists.
• average meat output for broilers and livestock for meat
• We performed a sensitivity analysis on the significant
production;
• average productive life of breeders and cattle held for
regeneration and milk production;
• expected crops output;
• estimated changes in future sales prices;
• projected production costs and costs to sell; and,
• discount rate.
assumptions to evaluate the extent of impact on the fair
values and assessed the appropriateness of the Group’s
disclosures relating to these sensitivities (note 14 to the
consolidated financial statements).
• We considered the appropriateness of all related
disclosures provided in the consolidated financial
statements (note 14 to the consolidated financial
statements).
ANNUAL REPORT 2017 86
INDEPENDENT AUDITOR’S REPORT
/CONTINUED
Reporting on other information
The Board of Directors is responsible for the other
information. The other information comprises the in-
formation included in the annual report, including
the corporate governance statement, but does not
include the consolidated financial statements and
our auditor’s report thereon. The Board of Directors
is also required pursuant to article 151 of the Cy-
prus Companies Law Cap.113 to prepare a report on
non-financial information. This report is expected to
be made available to us after the date of this audi-
tor’s report.
Our opinion on the consolidated financial state-
ments does not cover the other information and we
do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated fi-
nancial statements, our responsibility is to read the
other information identified above and, in doing
so, consider whether the other information is ma-
terially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
If, based on the work we have performed, we con-
clude that there is a material misstatement of this
other information, we are required to report that
fact. We have nothing to report in this regard.
When we read the report on non-financial informa-
tion, if we conclude that there is a material misstate-
ment therein, we are required to communicate the
matter to those charged with governance.
.
Responsibilities of the Board of Directors
and those charged with governance
for the Consolidated Financial Statements
The Board of Directors is responsible for the prepa-
ration of consolidated financial statements that give
a true and fair view in accordance with Internation-
al Financial Reporting Standards as adopted by the
European Union and the requirements of the Cyprus
Companies Law, Cap. 113, and for such internal con-
trol as 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.
In preparing the consolidated financial statements,
the Board of Directors is responsible for assessing the
Group’s ability to continue as a going concern, dis-
closing, as applicable, matters related to going con-
cern and using the going concern basis of accounting
unless the Board of Directors either intends to liqui-
date the Group or to cease operations, or has no real-
istic alternative but to do so.
Those charged with governance are responsible for
overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance
about whether the consolidated financial state-
ments as a whole are free from material misstate-
ment, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Rea-
sonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a materi-
al misstatement when it exists. Misstatements can
arise from fraud or error and are considered mate-
rial if, individually or in the aggregate, they could
reasonably be expected to influence the economic
decisions of users taken on the basis of these con-
solidated financial statements.
As part of an audit in accordance with ISAs, we exer-
cise professional judgment and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstate-
ment of the consolidated financial statements,
whether due to fraud or error, design and perform
audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appro-
priate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting
from fraud is higher than for one resulting from er-
ror, as fraud may involve collusion, forgery, inten-
tional omissions, misrepresentations, or the over-
ride of internal control.
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effective-
ness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the Board of Directors.
• Conclude on the appropriateness of the Board of
Directors’ use of the going concern basis of ac-
counting and, based on the audit evidence ob-
tained, whether a material uncertainty exists related
ANNUAL REPORT 2017 87
to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the
related disclosures in the consolidated financial state-
ments or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s re-
port. However, future events or conditions may cause
the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and
content of the consolidated financial statements,
including the disclosures, and whether the consoli-
dated financial statements represent the underlying
transactions and events in a manner that achieves a
true and fair view.
• Obtain sufficient appropriate audit evidence regard-
ing the financial information of the entities or busi-
ness activities within the Group to express an opin-
ion on the consolidated financial statements. We
are responsible for the direction, supervision and
performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with gover-
nance regarding, among other matters, the planned
scope and timing of the audit and significant audit
findings, including any significant deficiencies in in-
ternal control that we identify during our audit.
We also provide those charged with governance
with a statement that we have complied with rele-
vant ethical requirements regarding independence,
and to communicate with them all relationships and
other matters that may reasonably be thought to
bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged
with governance, we determine those matters that
were of most significance in the audit of the consoli-
dated financial statements of the current period and
are therefore the key audit matters.
From the matters communicated with those charged
with governance, we determine those matters that
were of most significance in the audit of the consoli-
dated financial statements of the current period and
are therefore the key audit matters.
Report on Other Legal
and Regulatory Requirements
Pursuant to the requirements of Article 10(2) of the EU
Regulation 537/2014 we provide the following infor-
mation in our Independent Auditor’s Report, which is
required in addition to the requirements of Internation-
al Standards on Auditing.
INDEPENDENT AUDITOR’S REPORT
/CONTINUED
Appointment of the Auditor
and Period of Engagement
We were first appointed as auditors of the Group on
24 October 2017 by a shareholders’ resolution. This is
our first period of engagement appointment.
Consistency of the Additional Report
to the Audit Committee
We confirm that our audit opinion on the consoli-
dated financial statements expressed in this report
is consistent with the additional report to the Audit
Committee of the Company, which we issued on 5
March 2018 in accordance with Article 11 of the EU
Regulation 537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services re-
ferred to in Article 5 of the EU Regulation 537/2014
and Section 72 of the Auditors Law of 2017 were
provided. In addition, there are no non-audit ser-
vices which were provided by us to the Group and
which have not been disclosed in the consolidated
financial statements or the consolidated manage-
ment report.
ANNUAL REPORT 2017 88
Other Legal Requirements
Pursuant to the additional requirements of the Audi-
tors Law of 2017, we report the following:
• In our opinion, based on the work undertaken in the
course of our audit, the consolidated management
report has been prepared in accordance with the
requirements of the Cyprus Companies Law, Cap.
113, and the information given is consistent with the
consolidated financial statements.
• In light of the knowledge and understanding of the
Group and its environment obtained in the course
of the audit, we are required to report if we have
identified material misstatements in the consol-
idated management report. We have nothing to
report in this respect.
• In our opinion, based on the work undertaken in the
course of our audit, the information included in the
corporate governance statement in accordance with
the requirements of subparagraphs (iv) and (v) of
paragraph 2(a) of Article 151 of the Cyprus Companies
Law, Cap. 113, have been prepared in accordance
with the requirements of the Cyprus Companies Law,
Cap, 113, and is consistent with the consolidated fi-
nancial statements.
• In our opinion, based on the work undertaken in the
course of our audit, the corporate governance state-
ment includes all information referred to in subpara-
graphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of
Article 151 of the Cyprus Companies Law, Cap. 113.
• In light of the knowledge and understanding of the
Group and its environment obtained in the course
of the audit, we are required to report if we have
identified material misstatements in the corporate
governance statement in relation to the information
disclosed for items (iv) and (v) of subparagraph 2(a)
of Article 151 of the Cyprus Companies Law, Cap.
113. We have nothing to report in this respect.
Other Matter
TThis report, including the opinion, has been prepared for
and only for the Company’s members as a body in accor-
dance with Article 10(1) of the EU Regulation 537/2014 and
Section 69 of the Auditors Law of 2017 and for no other
purpose. We do not, in giving this opinion, accept or as-
sume responsibility for any other purpose or to any other
person to whose knowledge this report may come to.
The engagement partner on the audit resulting in this in-
dependent auditor’s report is Costas Georghadjis.
INDEPENDENT AUDITOR’S REPORT
/CONTINUED
Comparative figures
The consolidated financial statements of the Group
for the year ended 31 December 2016 were audited
by another auditor who expressed an unmodified
opinion on those financial statements on 14 March
2017.
Costas Georghadjis
Certified Public Accountant and Registered Auditor
for and on behalf of
Deloitte Limited
Certified Public Accountants and Registered Auditors
Limassol, 6 March 2018
ANNUAL REPORT 2017
89
FINANCIAL
STATEMENTS
ANNUAL REPORT 2017 90
STATEMENT OF THE BOARD OF DIRECTORS’ RESPONSIBILITIES FOR
THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2017
The Board of Directors is responsible for the preparation of the consolidated
financial statements that present fairly the financial position of MHP SE and
its subsidiaries (the “Group” or the “Company”) as of 31 December 2017and
of the consolidated statements of comprehensive income, changes in eq-
uity and cash flows for the year then ended, and notes to the consolidated
financial statements, including a summary of significant accounting policies.
In preparing the consolidated financial statements,
the Board of Directors is responsible for:
• properly selecting and applying accounting policies;
• presenting information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
• providing additional disclosures when compliance with the specific re-
quirements in IFRSs are insufficient to enable users to understand the im-
pact of particular transactions, other events and conditions on the Group’s
consolidated financial position and financial performance;
• making an assessment of the Group’s ability to continue as a going concern.
The Board of Directors, within its competencies, is also responsible for:
• designing, implementing and maintaining an effective and sound system
of internal controls, throughout the Group;
• maintaining adequate accounting records that are sufficient to show and
explain the Group’s transactions and disclose with reasonable accuracy
at any time the consolidated financial position of the Group, and which
enable them to ensure that the consolidated financial statements of the
Group comply with IFRS;
• maintaining statutory accounting records in compliance with local legisla-
• taking such steps as are reasonably available to them to safeguard the
assets of the Group; and
• preventing and detecting fraud and other irregularities.
The consolidated financial statements of the Group as of and for the year
ended 31 December 2017 were authorized for issue by the Board of Direc-
tors on 06 March 2018.
Board of Directors’ responsibility statement
In accordance with Article 9 sections (3c) and (7) of the Transparency Require-
ments (Traded Securities in Regulated Markets) Law 190 (1) / 2007 until 2013,
we, the members of the Board of Directors responsible for the drafting of the
consolidated financial statements of MHP SE for the year ended 31 December
2017, on the basis of our knowledge, declare that:
a) the consolidated financial statements which are presented on pages 10 to 71:
(i) have been prepared in accordance with the applicable International
Financial Reporting Standards as adopted by the European Union
and the provisions of article 9 section (4) of the law, and
(ii) provide a true and fair view of the assets and liabilities, the financial
position and the profit or loss of the Company’s and subsidiary com-
panies, consolidated financial statements as a whole, and
b) the Management report provides a fair review of the developments and
the performance of the business and the financial position of the Group
included in the consolidated accounts taken as a whole, together with
a description of the main risks and uncertainties which they face.
Chief Executive Officer
Yuriy Kosyuk
tion and accounting standards in the respective jurisdictions;
Chief Financial Officer
Viktoria Kapelyushnaya
ANNUAL REPORT 2017
91
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
(in thousands of US dollars unless otherwise indicated)
Continuing operations
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
Impairment of property, plant and equipment
Operating profit
Finance income
Finance costs
Foreign exchange loss, net
Other expenses, net
Other expenses, net
Profit before tax
Income tax benefit
Profit for the period from continuing operations
DISCONTINUED OPERATIONS
Loss for the period from discontinued operations
Profit for the period
Notes
2017
2016
(Restated Note 3)
6
5
7
8
9
12
10
31
11
2
1,287,752
1,135,462
21,001
(912,844)
395,909
(79,239)
52,605
(3,912)
(3,607)
38,894
(828,750)
345,606
(62,273)
34,056
(1,125)
(1,443)
361,756
314,821
3,472
(108,399)
(35,615)
(8,077)
2,234
(106,843)
(145,217)
(9,289)
(148,619)
(259,115)
213,137
17,118
230,255
(25,864)
204,391
55,706
13,080
68,786
(9,538)
59,248
The accompanying notes on the pages 97 to 153 form an integral part of these consolidated financial statements
ANNUAL REPORT 2017
92
FINANCIAL STATEMENTS
/CONTINUED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
(in thousands of US dollars unless otherwise indicated)
Other comprehensive income
Notes
2017
2016
(Restated Note 3)
ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR
LOSS:
Effect of revaluation of property, plant and equipment
Deferred tax on revaluation of property, plant and equipment
charged directly to other comprehensive income
ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS:
Cumulative translation difference
Other comprehensive income
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Parent
Non-controlling interests
12
11
22
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Equity holders of the Parent
Non-controlling interests
EARNINGS PER SHARE FROM CONTINUING
AND DISCONTINUED OPERATIONS
209,737
113,317
(30,979)
(16,143)
(25,008)
153,750
358,141
202,860
1,531
204,391
354,400
3,741
358,141
(51,918)
45,256
104,504
53,452
5,796
59,248
97,302
7,202
104,504
Basic and diluted earnings per share (USD per share)
1.90
0.50
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted earnings per share (USD per share)
33
2.14
0.60
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 97 to 153 form an integral part of these consolidated financial statements
ANNUAL REPORT 2017
93
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
FINANCIAL STATEMENTS
/CONTINUED
Notes
31 December 2017
31 December 2016
Notes
31 December 2017
31 December 2016
ASSETS
Non-current assets
Property, plant and equipment
Land lease rights
Deferred tax assets
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
Trade accounts receivable, net
Cash and cash equivalents
Assets classified as held for sale
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Treasury shares
Additional paid-in capital
Revaluation reserve
Retained earnings
Translation reserve
12
13
11
14
15
14
16
17
18
19
20
21
12
1,383,102
45,410
121
20,405
2,524
24,817
1,180,334
43,845
1,561
14,558
577
13,554
Equity attributable to equity
holders of the Parent
Non-controlling interests
Total equity
NON-CURRENT LIABILITIES
Bank borrowings
Bonds issued
Finance lease obligations
1,476,379
1,254,429
Deferred tax liabilities
226,368
141,028
183,407
25,327
37,767
62,305
125,554
–
801,756
187,332
116,214
167,389
25,424
31,235
50,868
154,570
88,396
821,428
CURRENT LIABILITIES
Trade accounts payable
Other current liabilities
Bank borrowings
Accrued interest
Finance lease obligations
Liabilities directly associated with
assets classified as held for sale
2,278,135
2,075,857
TOTAL LIABILITIES
22
23
24
25
11
26
23
23, 24
25
20
968,566
676,366
17,141
985,707
16,698
693,064
138,817
970,088
7,410
23,730
259,567
725,361
5,581
11,264
1,140,045
1,001,773
43,175
50,296
36,917
17,955
4,040
–
46,508
61,766
236,807
22,731
8,044
5,164
152,383
381,020
1,292,428
1,382,793
TOTAL EQUITY AND LIABILITIES
2,278,135
2,075,857
284,505
(48,503)
175,291
661,454
925,978
284,505
(48,503)
175,291
570,649
719,340
(1,030,159)
(1,024,916)
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 97 to 153 form an integral part
of these consolidated financial statements
ANNUAL REPORT 2017
94
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
FINANCIAL STATEMENTS
/CONTINUED
Attributable to equity holders of the Parent
Share capital
Treasury
shares
Additional
paid-in
capital
Revaluation
reserve
Retained
earnings
Translation
reserve
Total
Non-
controlling
interests
Total equity
Balance at 31 December 2015
284,505
(56,053)
178,192
567,525
645,020
(974,467)
644,722
28,127
672,849
Balance at 31 December 2016
284,505
(48,503)
175,291
570,649
(1,024,916)
676,366
–
–
(46,548)
46,548
–
–
Profit for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
for the year
Transfer from revaluation reserve to retained
earnings
Dividends declared by the Parent
Dividends declared by subsidiaries
Non-controlling interests acquired
Translation differences
on revaluation reserve
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,550
(2,901)
Profit for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
for the year
Transfer from revaluation reserve to retained
earnings
Dividends declared by the Parent (Note 29)
Dividends declared by subsidiaries
Derecognition of interests in subsidiaries
(Note 2)
Translation differences
on revaluation reserve
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
94,299
53,452
–
–
(50,449)
53,452
43,850
94,299
53,452
(50,449)
97,302
(44,627)
44,627
–
–
–
(80,000)
–
9,693
719,340
202,860
–
174,583
–
(23,043)
–
–
–
–
–
–
–
(80,000)
–
14,342
202,860
151,540
5,796
1,406
7,202
–
–
(4,289)
(14,342)
16,698
1,531
2,210
59,248
45,256
104,504
–
(80,000)
(4,289)
–
–
693,064
204,391
153,750
174,583
202,860
(23,043)
354,400
3,741
358,141
(44,838)
44,838
–
–
(80,000)
–
–
–
–
–
(80,000)
–
–
–
(810)
–
(80,000)
(810)
(24,841)
24,841
17,800
17,800
(2,488)
15,312
(14,099)
14,099
–
–
–
–
Balance at 31 December 2017
284,505
(48,503)
175,291
661,454
925,978
(1,030,159)
968,566
17,141
985,707
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 97 to 153 form an integral part of these consolidated financial statements
ANNUAL REPORT 2017
95
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
FINANCIAL STATEMENTS
/CONTINUED
Notes
2017
2016
Notes
2017
187,273
46,582
Change in trade accounts payable
Change in other current liabilities
(15,495)
(1,163)
2016
37,301
9,020
Cash generated by operations
314,040
454,842
OPERATING ACTIVITIES
Profit before tax
Non-cash adjustments to reconcile
profit before tax to net cash flows
Depreciation and amortization
expense
Net change in fair value of biological
assets and agricultural produce
Loss on disposal of subsidiaries
Change in allowance for irrecoverable
amounts and direct write-offs
Loss on impairment of property, plant
and equipment, net
Loss on disposal of property, plant and
equipment and other non-current assets
5
5
2
93,225
105,865
Interest paid
Interest received
(21,001)
(36,067)
Income taxes paid
Withholding tax related to interest paid
25,864
–
3,305
(167)
12
3,607
8,308
Net cash flows from operating
activities
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
182
1,521
Purchases of other non-current assets
Finance income
Finance costs
10
(3,472)
108,399
(2,281)
106,666
Withholding tax related to interest and
payment of dividends
619
5,478
Non-operating foreign exchange loss, net
35,615
142,162
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, net
Change in taxes recoverable and
prepaid
433,616
378,067
(44,892)
(4,507)
(29,787)
(987)
57,327
(4,029)
(36,050)
(822)
(7,188)
32,443
Purchase of land lease rights
Net cash inflow on disposal
of subsidiaries
Proceeds from disposals of property,
plant and equipment
Purchases of non-current biological
assets
Withdrawals of short-term and long-
term deposits
Investments in short-term deposits
Loans provided to employees, net
Loans repaid by/(provided to) related
parties, net
Net cash flows used in investing
activities
3,395
(102,832)
(603)
(423)
2,234
(105,139)
(2,073)
(334)
213,577
349,530
(101,710)
(91,651)
(12,249)
(7,970)
(6,021)
(7,755)
2
75,558
–
99
1,196
(2,321)
(1,704)
4,006
(1,791)
(151)
19
418
(408)
(55)
(1,818)
(46,510)
(107,798)
Change in trade accounts receivable, net
(15,557)
(18,415)
The accompanying notes on the pages 97 to 153 form an integral part
of these consolidated financial statements
ANNUAL REPORT 2017
96
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the year ended 31 December 2017
(in thousands of US dollars unless otherwise indicated)
FINANCIAL STATEMENTS
/CONTINUED
Notes
2017
2016
Notes
2017
2016
Financing activities
Proceeds from bank borrowings
Repayment of bank borrowings
Proceeds from bonds issued
24
Repayment of bonds
Transaction costs related
to corporate bonds issued
Transaction costs related
to bank loans received
Repayment of finance lease
obligations
70,711
(403,613)
254,800
(9,200)
(15,145)
(1,993)
208,396
(240,926)
–
–
–
–
(9,217)
(14,651)
Dividends paid to shareholders
29
(80,000)
(80,000)
Dividends paid by subsidiaries
to non-controlling shareholders
Withholding tax related
to dividends paid
Consent payment related
to corporate bonds
Net cash flows from/(used in)
financing activities
(810)
(4,289)
–
–
24
(3,403)
(9,148)
(194,467)
(144,021)
Net (decrease)/increase
in cash and cash equivalents
Cash and cash equivalents
attributable to disposal group
classified as held for sale
(27,400)
97,711
2,098
(2,098)
Net foreign exchange difference
(126)
(3,974)
Cash and cash equivalents
at 1 January
Cash and cash equivalents
at 31 December
Non-cash transactions
Effect of revaluation of property,
plant and equipment
Additions of property, plant and
equipment under finance leases
Additions of property, plant and
equipment financed through direct
bank-lender payments to the vendor
Property, plant and equipment
purchased for credit
150,982
59,343
19
125,554
150,982
12
206,130
105,009
5,518
3,907
7,135
6,698
–
–
.
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 97 to 153 form an integral part of these consolidated financial statements
ANNUAL REPORT 2017
97
NOTES TO FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
CORPORATE INFORMATION
MHP SE (the “Parent” or “MHP SE”), a limited liability company (Societas
Europaea) registered under the laws of Cyprus, was formed on 30 May
2006. MHP SE serves as the ultimate holding company of PJSC “My-
ronivsky Hliboproduct” (“MHP”) and its subsidiaries. Hereinafter, MHP SE
and its subsidiaries are referred to as the “MHP SE Group” or the “Group”.
The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada,
3035 Limassol, Cyprus .
MHP has converted from a public limited liability company (“société ano-
nyme”) into a European company (“Societas Europaea”) effective as of 07
August 2017 (the “Conversion”).
The Conversion provided the Company with a legal framework, which is
recognised in each of the European Union Member States. This will allow
the Company’s shareholders to transfer its registered office freely (subject
to the applicable legal provisions) to any other place within the European
Union without having to liquidate the Company or create a new legal entity.
On 27 December 2017, MHP SE has transferred its registered office from 5,
rue Guillaume Kroll, L-1882 Luxembourg, Grand Duchy of Luxembourg, to 16-
18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus (“the Transfer”).
The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk (“Principal Share-
holder”), who owns 100% of the shares of WTI Trading Limited (“WTI”), which
is the immediate majority shareholder of MHP SE.
The principal business activities of the Group are poultry and related opera-
tions, grain growing, as well as other agricultural operations (meat process-
ing and meat products ready for consumption). The Group’s poultry and re-
lated operations integrate all functions related to the production of chicken,
including hatching, fodder manufacturing, raising chickens to marketable
age (“grow-out”), processing and marketing of branded chilled products and
include the production and sale of chicken products, vegetable oil, mixed
fodder. Grain growing comprises the production and sale of grains. Other
agricultural operations comprise the production and sale of cooked meat,
sausages, convenience food products, milk, goose meat, foie gras and feed
grains. During the year ended 31 December 2017 the Group employed about
27,589 people (2016: 31,000 people).
ANNUAL REPORT 2017
98
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
The primary subsidiaries, the principal activities of the companies forming the Group
and the Parent’s effective ownership interest as of 31 December 2017 and 2016 were as follows:
Country of
registration
Year established
acquired
Principal activities
31 December 2017
31 December 2016
Name
Raftan Holding Limited
Larontas Limited
MHP
Myronivsky Zavod po Vygotovlennyu
Krup i Kombikormiv
Vinnytska Ptahofabryka
Peremoga Nova
Druzhba Narodiv Nova1)
Oril-Leader
Myronivska Ptahofabryka
Starynska Ptahofabryka
Ptahofabryka Snyatynska Nova
Zernoproduct
Katerynopilsky Elevator
Druzhba Narodiv1)
NPF Urozhay
Agrofort
Urozhayna Krayina
Ukrainian Bacon
AgroKryazh
Zernovyi kray
Zakhid-Agro MHP
Cyprus
Cyprus
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
2006
2015
1998
1998
2011
1999
2002
2003
2004
2003
2005
2005
2005
2006
2006
2006
2010
2008
2013
2013
2015
2014
Sub-holding Company
Sub-holding Company
Management, marketing and sales
Fodder and sunflower oil
production
Chicken farm
Breeder farm
Chicken farm
Chicken farm
Chicken farm
Breeder farm
Geese breeder farm
Grain cultivation
Fodder production and grain
storage, sunflower oil production
Cattle breeding, plant cultivation
Grain cultivation
Grain cultivation
Grain cultivation
Meat processing
Grain cultivation
Grain cultivation
Grain cultivation
Trading in sunflower oil
and poultry meat
99.9%
100.0%
99.9%
88.5%
99.9%
99.9%
0.0%
99.9%
99.9%
100.0%
99.9%
99.9%
99.9%
0.0%
99.9%
86.1%
99.9%
79.9%
99.9%
51.0%
100.0%
100.0%
99.9%
100.0%
99.9%
88.5%
99.9%
99.9%
100.0%
99.9%
99.9%
100.0%
99.9%
99.9%
99.9%
99.9%
99.9%
86.1%
99.9%
79.9%
99.9%
51.0%
100.0%
100.0%
Scylla Capital Limited
British Virgin Islands
1) In February 2017 the Group sold its 100% ownership interest in the Crimean companies (Note 2)
ANNUAL REPORT 2017 99
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
1. CORPORATE INFORMATION (continued)
The Group’s operational facilities are located in different regions of Ukraine,
including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Iva-
no-Frankivsk, Vinnytsia, Sumy and Khmelnitsk regions.
2. CHANGES IN THE GROUP STRUCTURE
DISPOSAL OF SUBSIDIARIES
Crimean companies
The following table presents the net result of the transaction:
Consideration received
Net assets disposed
Non-controlling interest
Cumulative exchange loss in respect of the net assets
of the subsidiaries reclassified from equity to profit or loss
on loss of control in subsidiaries1)
Loss on disposal
77,785
(88,337)
2,488
(17,800)
(25,864)
On 17 February 2017 the Group sold its 100% ownership interest in the
Group’s companies located in Autonomous Republic of Crimea for cash
consideration of USD 77,785 thousand. The consideration consisted only of
cash, there were no material direct costs related to disposal.
Assets and liabilities of Crimean companies as of the date of disposal were
as follows:
1) Upon disposal of subsidiaries, the total cumulative exchange differences
attributable to devaluation of functional currency, which were previously a
component of other comprehensive income, were reclassified to profit or
loss. Previously recognised gain of revaluation surplus remaining in the re-
valuation reserve of property, plant and equipment were not reclassified to
profit or loss, but transferred directly to retained earnings in the amount of
USD 24,841 thousand.
Property, plant and equipment, net
Other non-current assets
Biological assets
Agricultural produce
Inventories
Trade accounts receivable, net
Taxes recoverable and prepaid
Other current assets
Cash and cash equivalents
Total assets
Trade accounts payable
Other current liabilities
Total liabilities
Net assets disposed
17 February 2017
52,530
Consideration received in cash and cash equivalents
Less: cash and cash equivalents balances disposed
Net cash inflow arising on the disposal
77,785
(2,227)
75,558
The loss on disposal is included in the loss for the year from discontinued
operations.
1,451
9,938
9,242
11,795
1,917
2,913
1,805
2,227
93,818
(3,685)
(1,796)
(5,481)
88,337
ANNUAL REPORT 2017
100
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
2. CHANGES IN THE GROUP STRUCTURE (continued)
Analysis of profit for the year from discontinued operations
Results for the year from discontinued operations
Cash flows from discontinued operations
Revenue
Other gains
Expenses
Impairment of property, plant and equipment
Loss before tax
Income tax expense
Loss for the year from discontinued
operations attributable to:
Equity holders of the Parent
Non-controlling interests
2016
105,574
10,357
115,931
(118,190)
(6,865)
(9,124)
(414)
(10,383)
845
(9,538)
Net cash inflows from operating activities
Net cash outflows from investing activities
Net cash inflows from financing activities
Net decrease in cash and cash equivalents
2016
1,940
(3,475)
–
(1,535)
Information on financial result of subsidiaries for the period from 1 January
2017 until date of disposal have been considered immaterial for disclosure.
ANNUAL REPORT 2017 101
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
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 (IFRS) as adopted by the
European Union and the requirements of the Cyprus Companies Law Cap
113. The operating subsidiaries of the Group maintain their accounting re-
cords under local accounting standards.
Local principles and procedures may differ from those generally accepted under
IFRS. Accordingly, the consolidated financial statements, which have been pre-
pared from the Group entities’ local accounting records, reflect adjustments nec-
essary for such financial statements to be presented in accordance with IFRS.
Basis of preparation
These consolidated financial statements have been prepared on the as-
sumption that the Group is a going concern and will continue in operation
for the foreseeable future.
The consolidated financial statements of the Group are prepared on the ba-
sis of historical cost except for revalued amounts of buildings and structures,
grain storage facilities, production machinery, vehicles and agricultural ma-
chinery, biological assets, agricultural produce, and certain financial instru-
ments, which are carried at fair value. Historical cost is generally based on
the fair value of the consideration given in exchange for goods and services.
Adoption of new and revised International Financial Reporting
Standards
The following standards were adopted by the Group on 1 January 2017:
• Amendments to IAS 7: Disclosure Initiative;
• Amendments to IAS 12: Recognition of Deferred Tax Assets
for Unrealised Losses;
• Annual Improvements to IFRSs 2014-2016 Cycle – amendments to IFRS 12.
Amendments to IAS 7 Disclosure Initiative
The Group has applied these amendments for the first time in the current
year. The amendments require an entity to provide disclosures that enable
users of financial statements to evaluate changes in liabilities arising from
financing activities, including both cash and non-cash changes.
The Group’s liabilities arising from financing activities consist of bank bor-
rowings (Note 23), bonds issued (Note 24), finance lease obligations (Note
25) and certain other financial liabilities (Note 26). A reconciliation between
the opening and closing balances of these items is provided in Note 30.
Consistent with the transition provisions of the amendments, the Group has
not disclosed comparative information for the prior period. Apart from the
additional disclosure in Note 30, the application of these amendments has
had no impact on the Group’s consolidated financial statements.
Amendments to IAS 12 Recognition of Deferred Tax Assets
for Unrealised Losses
The Group has applied these amendments for the first time in the current
year. The amendments clarify how an entity should evaluate whether there
will be sufficient future taxable profits against which it can utilise a deduct-
ible temporary difference.
The application of these amendments has had no impact on the Group’s con-
solidated financial statements as the Group already assesses the sufficiency of
future taxable profits in a way that is consistent with these amendments.
ANNUAL REPORT 2017
102
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Annual Improvements to IFRSs – 2014–2016 Cycle
The Group has applied the amendments to IFRS 12 included in the Annual
Improvements to IFRSs 2014-2016 Cycle for the first time in the current year.
The other amendments included in this package are not yet mandatorily
effective and they have not been early adopted by the Group.
IFRS 12 states that an entity need not provide summarised financial informa-
tion for interests in subsidiaries, associates or joint ventures that are clas-
sified (or included in a disposal group that is classified) as held for sale.
The amendments clarify that this is the only concession from the disclosure
requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Group’s con-
solidated financial statements.
Standards and Interpretations in issue but not effective
At the date of authorization 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
IFRS 9 Financial Instruments 1)
IFRS 15 Revenue from contracts with customers including
amendments to IFRS 15: Effective date of IFRS 151)
Effective for annual period
beginning on or after
1 January 2018
1 January 2018
Clarifications to IFRS 15 Revenue from Contracts with Customers 1)
1 January 2018
Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts 1)
IFRIC 22 Foreign Currency Transactions
and Advance Consideration
Amendments to IAS 40: Transfers of Investment Property
Amendments to IFRS 2: Classification and Measurement
of Share-based Payment Transactions
Amendments to IFRSs – Annual Improvements
to IFRSs 2014 –2016 Cycle 1)
IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 16 Leases 1)
Amendments to IFRSs – Annual Improvements
to IFRSs 2015 –2017 Cycle
Amendments to IFRS 9: Prepayment Features
with Negative Compensation
Amendments to IAS 28: Long-term Interests in Associates
and Joint Ventures
IFRS 17 Insurance Contracts
Amendments to IFRS 10 and IAS 28: Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture
1) Standards have been already endorsed for use in the European Union
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2021
Deferred
indefinitely
ANNUAL REPORT 2017
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Standards and Interpretations
in issue but not effective (continued)
IFRS 9 Financial Instruments
IFRS 9 issued in November 2009 introduced new re-
quirements for the classification and measurement of
financial assets. IFRS 9 was subsequently amended in
October 2010 to include requirements for the classifi-
cation and measurement of financial liabilities and for
derecognition, and in November 2013 to include the new
requirements for general hedge accounting. Another re-
vised version of IFRS 9 was issued in July 2014 mainly
to include a) impairment requirements for financial as-
sets and b) limited amendments to the classification and
measurement requirements by introducing a ‘fair value
through other comprehensive income’ (FVTOCI) mea-
surement category for certain simple debt instruments.
The key requirements of IFRS 9 are:
• Classification and measurement of financial assets.
All recognised financial assets that are within the scope
of IFRS 9 are required to be subsequently measured at
amortised cost or fair value. Specifically, debt investments
that are held within a business model whose objective is
to collect the contractual cash flows, and that have con-
tractual cash flows that are solely payments of principal
and interest on the principal outstanding are generally
measured at amortised cost at the end of subsequent ac-
counting periods. Debt instruments that are held within a
business model whose objective is achieved both by col-
lecting contractual cash flows and selling financial assets,
and that have contractual terms that give rise on specified
dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding, are gen-
erally measured at FVTOCI. All other debt investments
and equity investments are measured at their fair value
at the end of subsequent accounting periods. In addition,
under IFRS 9, entities may make an irrevocable election to
present subsequent changes in the fair value of an equity
investment (that is not held for trading nor contingent con-
sideration recognised by an acquirer in a business combi-
nation) in other comprehensive income, with only dividend
income generally recognised in profit or loss.
• Classification and measurement of financial liabilities.
With regard to the measurement of financial liabilities
designated as at fair value through profit or loss, IFRS 9
requires that the amount of change in the fair value of
a financial liability that is attributable to changes in the
credit risk of that liability is presented in other compre-
hensive income, unless the recognition of such changes
in other comprehensive income would create or enlarge
an accounting mismatch in profit or loss. Changes in fair
value attributable to a financial liability’s credit risk are
not subsequently reclassified to profit or loss. Under IAS
39, the entire amount of the change in the fair value of
the financial liability designated as fair value through
profit or loss is presented in profit or loss.
• Impairment. In relation to the impairment of financial
assets, IFRS 9 requires an expected credit loss model,
as opposed to an incurred credit loss model under IAS
39. The expected credit loss model requires an entity
to account for expected credit losses and changes in
those expected credit losses at each reporting date to
reflect changes in credit risk since initial recognition. In
other words, it is no longer necessary for a credit event
to have occurred before credit losses are recognised.
• Hedge accounting. The new general hedge account-
ing requirements retain the three types of hedge ac-
counting mechanisms currently available in IAS 39. Un-
der IFRS 9, greater flexibility has been introduced to the
types of transactions eligible for hedge accounting, spe-
cifically broadening the types of instruments that quali-
fy for hedging instruments and the types of risk compo-
nents of non-financial items that are eligible for hedge
accounting. In addition, the effectiveness test has been
overhauled and replaced with the principle of an ‘eco-
nomic relationship’. Retrospective assessment of hedge
effectiveness is also no longer required. Enhanced dis-
closure requirements about an entity’s risk management
activities have also been introduced. Based on an anal-
ysis of the Group’s financial assets and financial liabili-
ties as at 31 December 2017 on the basis of the facts and
circumstances that exist at that date, the management
of the Group has assessed the impact of IFRS 9 to the
Group’s consolidated financial statements as follows:
Classification and measurement
All financial assets and financial liabilities will continue
to be measured on the same bases as is currently ad-
opted under IAS 39.
Based on its assessment, the Group does not believe
that the new classification requirements will have a ma-
terial impact on its accounting for financial assets and
financial liabilities.
ANNUAL REPORT 2017
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Standards and Interpretations
in issue but not effective (continued)
Impairment.
The Group expects to apply the simplified approach to recog-
nise lifetime expected credit losses for its trade receivables,
as permitted by IFRS 9. As regards the other receivables and
loans, the management of the Group expects to recognise
lifetime and 12-month expected credit losses for these items.
In relation to the cash and cash equivalents, the manage-
ment of the Company considers that they have low credit
risk given their strong external credit rating and hence expect
to recognise 12-month expected credit losses for these items.
In general, the management anticipates that the applica-
tion of the expected credit loss model of IFRS 9 would not
have significant impact on the amount of loss allowance
recognised for these items.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for enti-
ties to use in accounting for revenue arising from contracts
with customers. IFRS 15 will supersede the current revenue
recognition guidance including IAS 18 Revenue, IAS 11 Con-
struction Contracts and the related Interpretations when it
becomes effective.
The core principle of IFRS 15 is that an entity should recog-
nise revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the con-
sideration to which the entity expects to be entitled in ex-
change for those goods or services. Specifically, the Stan-
dard introduces a 5-step approach to revenue recognition:
• Identify the contract with the customer;
• Identify the performance obligations in the contract;
• Determine the transaction price;
• Allocate the transaction price to the performance obliga-
tions in the contracts;
• Recognise revenue when (or as) the entity satisfies a per-
formance obligation.
Under IFRS 15, an entity recognises revenue when or as a per-
formance obligation is satisfied, i.e. when ‘control’ of the goods
or services underlying the particular performance obligation
is transferred to the customer. Far more prescriptive guidance
has been added in IFRS 15 to deal with specific scenarios. Fur-
thermore, extensive disclosures are required by IFRS 15.
In April 2016, the IASB issued Clarifications to IFRS 15 in
relation to the identification of performance obligations,
principal versus agent considerations, as well as licensing
application guidance.
Based on five-step model defined by IFRS 15 The Group
performs a detailed review to understand how IFRS 15 ap-
plies to MHP business.
Apart from providing more extensive disclosures on the
Group’s revenue transactions, the management does not
anticipate that the application of IFRS 15 will have a signifi-
cant impact on the financial position and/or financial perfor-
mance of the Group.
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identi-
fication of lease arrangements and accounting treatments
for both lessors and lessees. IFRS 16 will supersede the cur-
rent lease guidance including IAS 17 Leases and the related
interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the
basis of whether an identified asset is controlled by a cus-
tomer. Distinctions of operating leases (off balance sheet)
and finance leases (on balance sheet) are removed for
lessee accounting, and is replaced by a model where a
right-of-use asset and a corresponding liability have to be
recognised for all leases by lessees (i.e. all on balance
sheet) except for short-term leases and leases of low val-
ue assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain ex-
ceptions) less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease
liability. The lease liability is initially measured at the
present value of the lease payments that are not paid
at that date. Subsequently, the lease liability is adjusted
for interest and lease payments, as well as the impact
of lease modifications, amongst others. Furthermore, the
classification of cash flows will also be affected as op-
erating lease payments under IAS 17 are presented as
operating cash flows; whereas under the IFRS 16 model,
the lease payments will be split into a principal and an
interest portion which will be presented as financing and
operating cash flows, respectively.
ANNUAL REPORT 2017
105
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Standards and Interpretations
in issue but not effective (continued)
ment are currently assessing it’s potential impact. It
is not practicable to provide a reasonable financial
estimate of the effect until the such detailed analysis
will be completed.
In contrast to lessee accounting, IFRS 16 substantially
carries forward the lessor accounting requirements in
IAS 17, and continues to require a lessor to classify a
lease either as an operating lease or a finance lease.
For other Standards and Interpretations management
anticipates that their adoption will not have a material
effect on the consolidated financial statements of the
Group in future periods.
Furthermore, extensive disclosures are required by
IFRS 16.
As of 31 December 2017, the Group has non-cancel-
lable operating lease commitments in amount of USD
151,662 thousand. IAS 17 does not require the recogni-
tion of any right-of-use asset or liability for future pay-
ments for these leases; instead, certain information
is disclosed as operating lease commitments in Note
29. A preliminary assessment indicates that these ar-
rangements will meet the definition of a lease under
IFRS 16, and hence the Group will recognise a right-of-
use asset and a corresponding liability in respect of
all these leases unless they qualify for low value or
short-term leases upon the application of IFRS 16. The
new requirement to recognise a right-of-use asset and
a related lease liability is expected to have a signifi-
cant impact on the amounts recognised in the Group’s
consolidated financial statements and the Manage-
Functional and presentation currency
The functional currency of Ukrainian companies of the
Group is the Ukrainian Hryvnia (“UAH”); the function-
al currency of the Cyprus companies of the Group is
US Dollars (“USD”). Transactions in currencies other
than the functional currency of the entities concerned
are treated as transactions in foreign currencies.
Such transactions are initially recorded at the rates
of exchange ruling at the dates of the transactions.
Monetary assets and liabilities denominated in such
currencies are translated at the rates prevailing on
the reporting date. All realized and unrealized gains
and losses arising on exchange differences are rec-
ognised in the consolidated statement of comprehen-
sive income for the period.
These consolidated financial statements are present-
ed in US Dollars (“USD”), which is the Group’s presen-
tation 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 state-
ment 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 state-
ment of comprehensive income are translated at ex-
change rates at the dates of the transactions;
• All resulting exchange differences are recognised
as a separate component of equity;
• All equity items, except for the revaluation reserve,
are translated at the historical exchange rate. The
revaluation reserve is translated at the closing rate
as of the date of the statement of financial position.
For practical reasons, the Group translates items of
income and expenses for each period presented in
the financial statements using the quarterly aver-
age exchange rates, if such translations reasonably
approximate the results translated at exchange
rates prevailing at the dates of the transactions.
ANNUAL REPORT 2017
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Functional and presentation currency (continued)
The relevant exchange rates were:
Currency
UAH/USD
UAH/EUR
UAH/RUB
Closing rate as of
31 December 2017
Average
for 2017
Closing rate as of
31 December 2016
28.0672
33.4954
0.4870
26.5947
30.0128
0.4560
27.1909
28.4226
0.4511
Average
for 2016
25.5458
28.2828
0.3832
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the MHP SE and
its subsidiaries. Control is achieved when the Company:
• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above. Consolidation
of a subsidiary begins when the Company obtains control over the subsidiary and ceases when
the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of comprehen-
sive income from the date the Company gains control until the date when the Company ceases
to control the subsidiary. Profit or loss and each component of other comprehensive income are
attributed to the owners of the Company and to the non-controlling interests. Total comprehensive
income of subsidiaries is attributed to the owners of the Company and to the non-controlling inter-
ests even if this results in the non-controlling interests having a deficit balance.
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are accounted for using the acquisition meth-
od. 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 ac-
quisition-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 trans-
ferred. Changes in the fair value of the contingent consideration that qualify as measurement
period adjustments are adjusted retrospectively, with corresponding adjustments against good-
will. 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 inter-
ests, if any, are measured at fair value or, when applicable, on the basis specified in other
IFRS standards.
All significant intercompany transactions, balances and unrealized gains or losses on transac-
tions 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.
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 previ-
ously 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.
ANNUAL REPORT 2017
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Accounting for acquisitions (continued)
If, after reassessment, the net of the acquisition-date
amounts of the identifiable assets acquired and the li-
abilities 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 previ-
ously-held interest in the subsidiary (if any), the excess
is recognised in the consolidated statement of compre-
hensive income, as a bargain purchase gain.
Changes in the Group’s ownership interests in subsid-
iaries that do not result in the Group losing control over
the subsidiaries are accounted for as equity transac-
tions. 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-con-
trolling 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.
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 car-
rying values. Any difference between the carrying value
of net assets of these subsidiaries, and the consideration
paid by the Group is accounted for in these consolidated
financial statements as an adjustment to shareholders’
equity. The results of the acquired entity are reflected
from the date of acquisition.
Any gain or loss on disposals to entities under common
control are 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 mea-
surement 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 advanta-
geous market for the asset or liability. The principal
or the most advantageous market must be accessi-
ble to by the Group.
generate economic benefits by using the asset in its
highest and best use or by selling it to another mar-
ket participant that would use the asset in its highest
and best use.
The Group uses valuation techniques that are appro-
priate in the circumstances and for which sufficient
data are available to measure fair value, maximizing
the use of relevant observable inputs and minimizing
the use of unobservable inputs.
All assets and liabilities for which fair value is mea-
sured or disclosed in the financial statements are
categorized within the fair value hierarchy, described
as follows, based on the lowest level input that is sig-
nificant 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 measure-
ment is directly or indirectly observable
• Level 3: Valuation techniques for which the lowest
level input that is significant to the fair value measure-
ment is unobservable
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
For assets and liabilities that are recognised in the finan-
cial statements on a recurring basis, the Group deter-
mines whether transfers have occurred between Levels
in the hierarchy by re-assessing categorization (based
on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each
reporting period.
ANNUAL REPORT 2017 108
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 acquisi-
tion, 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 in-
tended use or sale.
Investment income earned on the temporary invest-
ment of specific borrowings pending their expenditure
on qualifying assets is deducted from the borrowing
costs eligible for capitalization.
All other borrowing costs are recognised in the state-
ment of comprehensive income in the period in which
they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognised in the con-
solidated financial statements. Rather, they are dis-
closed 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 con-
tingency is resolved.
Segment information
Segment reporting is presented on the basis of man-
agement’s perspective and relates to the parts of the
Group that are defined as operating segments. Oper-
ating segments are identified on the basis of internal
reports provided to the Group’s chief operating de-
cision 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 resourc-
es serve as the basis of information presented. These
internal reports are prepared on the same basis as
these consolidated financial statements.
Based on the current management structure, the
Group has identified the following reportable seg-
ments:
• Poultry and related operations;
• Grain growing operations;
• Other agricultural operations.
Reportable segments represent the Group’s princi-
pal business activities. Poultry and related opera-
tions segment include sales of chicken meat, sales
of by-products such as vegetable oil and related
products and other poultry-related products. CODM
is considering oil extraction as a part of mixed fodder
production rather than a separate line of business
as primarily quality and effectiveness of mixed fod-
der production prevails over oil output. Grain grow-
ing operations include sale of grain other than feed
grains and green-fodder. Other agricultural opera-
tions segment primarily includes sales of other than
poultry meat and meat processing products, feed
grains and milk.
The Group does not present information on segment
assets and liabilities as the CODM does not review
such information for decision-making purposes.
Non-current assets held for sale
Non-current assets and disposal groups are classified
as held for sale if their carrying amount will be recov-
ered principally through a sale transaction rather than
through continuing use. This condition is regarded as
met only when the asset (or disposal group) is avail-
able for immediate sale in its present condition sub-
ject only to terms that are usual and customary for
sales of such asset (or disposal group) and its sale is
highly probable. Management must be committed to
the sale, which should be expected to qualify for rec-
ognition as a completed sale within one year from the
date of classification.
When the Group is committed to a sale plan involving
loss of control of a subsidiary, all of the assets and lia-
bilities of that subsidiary are classified as held for sale
when the criteria described above are met, regardless
of whether the Group will retain a non-controlling in-
terest in its former subsidiary after the sale.
ANNUAL REPORT 2017
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Non-current assets held for sale (continued)
Non-current assets (and disposal groups) classified as
held for sale are measured at the lower of their carrying
amount and fair value less costs to sell.
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 own-
ership of the goods have passed to the buyer, the amount
of revenue can be measured reliably and it is probable
that collection will occur and costs incurred or to be in-
curred in respect of the transaction can be measured re-
liably. The point of transfer of risk, which may occur at
delivery or shipment, varies for contracts with different
types of customers. The Group retains neither continuing
managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold.
VAT refunds and other government grants
The Group’s companies are subject to special tax treat-
ment for value-added tax (“VAT”). The Group’s entities,
which qualify as agricultural producers, are entitled to re-
tain the net VAT payable. VAT amounts payable are not
transferred to the State, but credited to the entity’s sepa-
rate 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 pro-
ducers. 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.
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is reduced for estimated
customer returns, rebates and other similar allowances.
Other government grants are recognised at the moment when
the decision to disburse the amounts to the Group is made.
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 mea-
sured at the fair value of the goods received, adjusted by the
amount of any cash or cash equivalents transferred.
Government grants are not recognised until there is reason-
able assurance that the Group will comply with the condi-
tions attaching to them and that the grants will be received.
Property, plant and equipment
All groups of property, plant and equipment are carried at
revalued amounts, being their fair value at the date of the
revaluation less any subsequent depreciation and impair-
ment losses, except land and other fixed assets that are
carried at historical cost less accumulated depreciation.
The historical cost of an item of property, plant and equip-
ment comprises (a) its purchase price, including import du-
ties and non-refundable purchase taxes, after deducting
trade discounts and rebates; (b) any costs directly attrib-
utable 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 pro-
duce inventories during that period; and (e) for qualifying
assets, borrowing costs capitalized in accordance with
the Group’s accounting policy.
Subsequently capitalized costs include major expendi-
tures for improvements and replacements that extend the
useful lives of the assets or increase their revenue gen-
erating capacity. Repairs and maintenance expenditures
that do not meet the foregoing criteria for capitalization
are charged to the consolidated statement of comprehen-
sive income as incurred.
For all groups of property, plant and equipment carried
at revaluation the model 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.
ANNUAL REPORT 2017 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Property, plant and equipment (continued)
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 an 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 state-
ment 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 compre-
hensive income.
However, such decrease is debited directly to the re-
valuation 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. The excess of
depreciation charge on the revalued asset over the
depreciation that would have been charged based
on the historical cost of the asset is transferred from
revaluation reserve directly to retained earnings over
the assets useful life. On the subsequent sale or retire-
ment of a revalued asset, the attributable revaluation
surplus remaining in the revaluation reserve is trans-
ferred directly to retained earnings.
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
• Production machinery
• Auxiliary and other machinery
• Utilities and infrastructure
• Vehicles and agricultural machinery 5–15 years
3–10 years
• Other fixed assets
15–55 years
20–60 years
10–25 years
5–25 years
20–50 years
Depreciable amount is the cost of an item of proper-
ty, 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 ex-
pected at the end of its useful life.
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.
effect of any changes from previous estimates is ac-
counted for prospectively as a change in an account-
ing estimate.
The gain or loss arising on sale or disposal of an item
of property, plant and equipment is determined as the
difference between the sales proceeds and the carry-
ing amount of the asset and is recognised in the state-
ment of comprehensive income.
Construction in progress comprises costs directly re-
lated to the construction of property, plant and equip-
ment including an appropriate allocation of directly
attributable variable overheads that are incurred in
construction. Construction in progress is not depre-
ciated. Depreciation of construction in progress com-
mences 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 in-
tended 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.
The residual value, the useful lives and depreciation
method are reviewed at each financial year-end. The
Land lease rights acquired separately are carried at
cost less accumulated amortization and accumulated
impairment losses.
ANNUAL REPORT 2017
111
NOTES TO FINANCIAL STATEMENTS
/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 rec-
ognised for the asset (cash-generating unit) in prior
years. A reversal of an impairment loss is recognised
immediately in the statement of comprehensive in-
come, unless the relevant asset is carried at a reval-
ued amount, in which case the reversal of the impair-
ment loss is treated as a revaluation increase.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Intangible assets (continued)
Land lease rights acquired in a business combination
and recognised separately from goodwill are initial-
ly 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
amortization and accumulated impairment losses, on
the same basis as land lease rights acquired separately.
Amortization of intangible assets is recognised on a straight
line basis over their estimated useful lives. For land lease
rights, the amortization period varies from 3 to 15 years.
The amortization period and the amortization method for
intangible assets with finite useful lives 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 derecogni-
tion 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 carry-
ing 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 sep-
arately 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-gen-
erating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (cash-gen-
erating 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 re-
valuation decrease.
ANNUAL REPORT 2017 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Impairment of goodwill
For the purposes of impairment testing, goodwill is al-
located 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 an 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 impair-
ment loss for goodwill is recognised directly in the statement
of comprehensive income. An impairment loss recognised on
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 jurisdic-
tions 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 liabili-
ties 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 differ-
ences can be utilized.
The carrying amount of deferred tax assets is re-
viewed at the end of each reporting period and re-
duced 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 pe-
riod in which the liability is settled or the asset re-
alised, 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 consequenc-
es 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 compre-
hensive 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
realize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabil-
ities relate to income taxes levied by the same tax-
ation authority in each future period in which signif-
icant 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 enti-
ties engaged in agricultural production) benefit substan-
tially from the status of an agricultural producer. These
companies are exempt from income taxes and pay the
Fixed Agricultural Tax instead (Note 11).
Withholding tax
Passive income (dividends, interest, royalties, etc)
from Ukrainian sources that is paid to non-resident
entities is generally subject to withholding tax (WHT).
The WHT tax rates 15% (base rates) should be ap-
plied unless more favorable rates (reduced rates) are
provided by a relevant double taxation treaty (DTT)
signed between Ukraine and foreign country.
In order to benefit from reduced tax rate in DTT, the
non-resident recipient of income must confirm its tax
residency and should also be considered the benefi-
cial owner of such income.
ANNUAL REPORT 2017
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
where applicable, direct labour costs and those over-
heads that have been incurred in bringing the invento-
ries to their present locations and condition.
ognised in the consolidated statement of comprehen-
sive income. Costs to sell include all costs that would
be necessary to sell the assets, including costs neces-
sary to get the assets to market.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLI-
CIES (continued)
Withholding tax (continued)
Tax residency status should be confirmed by tax res-
idency certificate issued by tax authorities of the re-
cipient’s country of residence for tax year in which the
income is paid.
According to the Tax Code of Ukraine, agents, nomi-
nee holders, and other intermediaries in respect of re-
ceived income cannot be beneficial owners of income
sourced in Ukraine and are not entitled to favorable
treaty provisions. The Ukrainian tax authorities use
both legal and economic substance approach for the
beneficial owner definition considering also economic
substance of the transaction and the substance of the
recipient of income.
As result, in order to prove the beneficial ownership
status of the non-resident recipient, there should be
additional documental support to justify the sub-
stance of transactions.
Cost is calculated using the FIFO (first-in, first-out)
method. Net realizable value is determined as the es-
timated selling price less all estimated costs of com-
pletion and costs to be incurred in marketing, selling
and distribution.
Agriculture related production process results in pro-
duction of joint products: main and by-products. A
by-product arising from the process is measured at
net realizable value and this value is deducted from
the cost of the main product.
Biological assets and agricultural produce
Agricultural activity is defined as a biological trans-
formation of biological assets for sale into agricultur-
al produce or into additional biological assets. The
Group classifies hatchery eggs, live poultry and other
animals and plantations as biological assets.
No formal requirements exist to the above documents
and, in practice, such documents may include evidence
that the recipient of income has a real office, employ-
ees and that the recipient is fully entitled to manage
and dispose the received income without limitations.
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.
Inventories
Inventories are stated at the lower of cost and net
realizable value. Costs comprise raw materials and,
Biological assets are stated at fair value less estimat-
ed costs to sell at both initial recognition and as of
the reporting date, with any resulting gain or loss rec-
The difference between fair value less costs to sell and to-
tal 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 an-
other is recognised as “Net change in fair value of bi-
ological assets and agricultural produce” in the state-
ment 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 bi-
ological assets and agricultural produce are stated as
follows:
Biological Assets
(i) Broiler chickens
Broilers comprise poultry held for chicken meat pro-
duction. The fair value of broilers is determined by ref-
erence to the cash flows that will be obtained from the
sales of 42-day aged chickens, with an allowance for
costs to be incurred and risks to be faced during the
remaining transformation process.
ANNUAL REPORT 2017
114
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Biological assets and agricultural produce (continued)
(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-de-
termined 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) Crops in fields
The fair value of crops in fields is determined by refer-
ence 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.
(v) Hatchery eggs
The fair value of hatchery eggs is determined by refer-
ence to market prices at the point of harvest.
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
The fair value of fodder grain is determined by refer-
ence to market prices at the point of harvest.
The Group’s biological assets are classified into bear-
er and consumable biological assets depending upon
the function of a particular group of biological assets
in the Group’s production process. Consumable bio-
logical assets are those that are to be harvested as
agricultural produce, and include hatchery eggs and
live broiler chickens intended for the production of
meat, as well as pork and meat cows. Bearer biologi-
cal assets include poultry held for hatchery eggs pro-
duction, orchards, milk cows and breeding bulls.
Financial instruments
Financial assets and financial liabilities are recognised
on the Group’s consolidated statement of financial posi-
tion 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 en-
tity. Financial assets and financial liabilities of the Group
are represented by cash and cash equivalents, trade ac-
counts receivable, net, bank borrowings, bonds issued,
trade accounts payable and other financial liabilities. 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
recognised at fair value. Transaction costs that are di-
rectly attributable to the acquisition or issue of finan-
cial 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 as-
sets or financial liabilities at fair value through profit or
loss are recognised immediately in profit or loss.
The effective interest method is a method of calculat-
ing the amortised cost of a debt instrument and of al-
locating interest income over the relevant period. The
effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and
points paid or received that form an integral part of
the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the
debt instrument, or, where appropriate, a shorter peri-
od, to the net carrying amount on initial recognition.
The Group derecognises a financial asset when the
contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership
of the asset to another party.
ANNUAL REPORT 2017
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
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.
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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Financial instruments (continued)
On derecognition of a financial asset in its entirety,
the difference between the asset’s carrying amount
and the sum of the consideration received and receiv-
able and the cumulative gain or loss that had been
recognised in other comprehensive income and accu-
mulated in equity is recognised in profit or loss.
The Group derecognises financial liabilities when,
and only when, the Group’s obligations are dis-
charged, cancelled or they expire. The difference
between the carrying amount of the financial lia-
bility derecognised and the consideration paid and
payable is recognised in profit or loss.
Bank borrowings, corporate bonds issued and
other long-term payables
Interest-bearing bank borrowings, bonds issued and
other long-term payables are initially measured at
fair value net of directly attributable transaction costs,
and are subsequently measured at amortized cost us-
ing 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 fi-
nance costs.
Trade accounts receivable, net
Trade accounts receivable, net are measured at ini-
tial recognition at fair value, and are subsequently
measured at amortized cost using the effective in-
terest rate method. Trade accounts receivable, net
which are non-interest bearing, are stated at their
nominal value. Appropriate allowances for estimat-
ed 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 differ-
ence between the asset’s carrying amount and the
present value of estimated future cash flows dis-
counted at the effective interest rate computed at
initial recognition.
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 con-
tracts 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 con-
tracts are treated as separate derivatives when their
As of 31 December 2017 and 2016 there were no ma-
terial derivative financial instruments that were rec-
ognised 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 amor-
tized 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 leas-
es 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 ob-
ligation. Lease payments are apportioned between
finance charges and a reduction of the lease obliga-
tion 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 compre-
hensive income and are classified as finance costs.
ANNUAL REPORT 2017 116
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Leases (continued)
Rental income or expenses under operating leas-
es are recognised in the consolidated statement of
comprehensive income on a straight line basis over
the term of the lease.
Shipping costs include costs incurred to move the
product from the Group’s initial point of sale to the
buyer’s designated location and include payments
to third-party shippers. They may also include
costs incurred directly by the Group (e.g. salaries
and overheads related to the activities to prepare
the goods for shipment).
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 re-
sources will be required to settle the obligation and
a reliable estimate of the obligation can be made.
Change in accounting policy
Shipping and handling costs charged to customers
During the year ended 31 December 2017 the Group
voluntary changed its accounting policy for classi-
fication of shipping and handling costs charged to
customers.
The Group sells its products for export on various
terms, some of which include shipping and han-
dling costs in the price of the product. Sales price of
products for local market predominantly includes
shipping and handling costs in the price of the
product.
Handling costs include costs incurred to store,
move and prepare the products for shipment. Han-
dling costs are incurred from when the product is
removed from finished goods to when the product
is provided to the shipper and may include an allo-
cation of internal overheads.
Shipping and handling costs had been previously
reported as part of costs reported in sales, general
and administrative expenses.
In the current period the Group decided to change
its accounting policy with classification of shipping
and handling costs. The presentation of amounts
billed to a customer for shipping and handling de-
pends on an analysis of the principal versus agent
considerations related to shipping and handling
services. If control of the goods transfers on re-
ceipt by the customer, the Group will generally be
considered to be the principal in the shipping and
handling service. If the Group is considered to be a
principal in shipping and handling, amounts related
to shipping and handling billed to a customer in a
sale transaction are accounted as revenues earned
for the goods provided and costs related to such
services are reported in cost of sales.
If control of the goods transfers when the goods are
shipped, the Group will be generally considered as
agent with respect to the shipping service. If the
Group is considered to be an agent in shipping and
handling, only the net commission received is re-
ported as revenue.
Costs related to shipping and handling, which are
not charged to the customer or otherwise included
in the price are reported as selling, general and ad-
ministrative expenses.
The Group’s management believes that this change
in the accounting policy will result in the financial
statements providing more relevant and reliable in-
formation about the “gross profit” measure.
ANNUAL REPORT 2017 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Change in accounting policy (continued)
The effect of the retrospective application of this
policy on the consolidated statement of compre-
hensive income was as follows:
ended 31 December 2016 has been revised in or-
der to achieve comparability with the presentation
used in the consolidated financial statements for
the year ended 31 December 2017. Such reclassi-
fications and revisions were not significant to the
Group financial statements.
Cost of sales according to the
old policy
Effect of the change in
accounting policy
Cost of sales according to the
new policy
Selling, general and
administrative expenses
according to the old policy
Effect of the change in
accounting policy
Selling, general and
administrative expenses
according to the new policy
2017
2016
(881,038)
(812,250)
(31,806)
(16,500)
(912,844)
(828,750)
(111,045)
(78,773)
31,806
16,500
(79,239)
(62,273)
The change in accounting policies had no effect on
earnings per share and on consolidated statement
of financial position and on the consolidated state-
ment of cash flows either in the current or previous
periods.
Reclassifications and revisions
Certain comparative information presented in the
consolidated financial statements for the year
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY
SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting poli-
cies, which are described in Note 3, management
is required to make judgements, estimates and as-
sumptions about the carrying amounts of assets
and liabilities that are not readily apparent from
other sources. The estimates and associated as-
sumptions 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 re-
viewed on an ongoing basis. Revisions to account-
ing 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 judgments, apart
from those involving estimations (see below),
that management has made in the process of
applying the Group’s accounting policies and
that have the most significant effect on the
amounts recognised in the consolidated finan-
cial statements.
Revaluation of property, plant and equipment
As described in Note 3, the Group applies the re-
valuation model to the measurement of all groups
of property, plant and equipment, except land
and other fixed assets. At each reporting date, the
Group carries out a review of the carrying amount
of the items of property, plant and equipment ac-
counted for using a revaluation model to determine
whether the carrying amount differs materially from
fair value.
When determining whether to perform a fair value
assessment in a given period, the management of
the Group considers development of macroeco-
nomic indicators like changes in prices, inflation
rates and devaluation of Ukrainian Hryvnia (“UAH”)
against USD and EUR. Based on the results of this
review, the management of the Group concluded
that buildings and structures, grain storage facili-
ties, utilities and infrastructure, production machin-
ery, vehicles and agricultural machinery, auxiliary
and other machinery should be revalued as of 31
December 2017.
During the year ended 31 December 2017, the man-
agement of the Group appointed an independent
appraiser to perform a revaluation of these groups
as of 31 December 2017.
ANNUAL REPORT 2017 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
The results of revaluation based on the depreciat-
ed replacement cost and market comparable ap-
proaches were compared with a revaluation per-
formed using the income approach to check for
impairment indicators of revalued assets, if any.
The Group used discount factor 12.7% in the revalu-
ation performed using the income approach.
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY
SOURCES OF ESTIMATION UNCERTAINTY (continued)
Revaluation of property, plant and equipme1nt
(continued)
The independent appraiser has performed the val-
uation in accordance with International Valuation
Standards applying the following techniques:
• depreciated replacement cost for grain storage
facilities, utilities and infrastructure
• market comparable approach for vehicles and
agricultural machinery; and
• depreciated replacement cost and market com-
parable approach, if applicable, for buildings and
structures, production machinery, auxiliary and
other machinery.
Key assumptions used by the independent apprais-
er in assessing the fair value of property, plant and
equipment using the depreciated replacement cost
and market comparable methods were as follows:
• present condition of particular assets;
• changes in prices of assets and construction ma-
terials from the date of their acquisition/construc-
tion to the date of valuation;
• external prices for production machinery and ve-
hicles; and
• other external and internal factors that might
have effect on fair value of property, plant and
equipment under revaluation.
ANNUAL REPORT 2017 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)
Revaluation of property, plant and equipment (continued)
The following unobservable inputs were used to measure Buildings and structures, Utilities and infrastructure,
Grain storage facilities, Vehicles and agricultural machinery, Auxiliary and other machinery and Production machinery:
Description
Fair value
as at
31 December
2017
Fair value
as at
31 December
2016
Valuation
technique(s)
Unobservable
inputs
Range
of unobservable
inputs 2017
(average)
Range
of unobservable
inputs 2016
(average)
Relationship of unobservable
inputs to fair value
Buildings and
structures
586,297
N/A1)
Depreciated replacement
cost method
Production
machinery
269.093
N/A1)
Market comparable
approach/ Depreciated
replacement cost method
Utilities and
infrastructure
90,111
78,236
Depreciated replacement
cost method
Grain storage
facilities
76,837
80,850
Depreciated replacement
cost method
Index of physical
depreciation
Cumulative index of
inflation of construction
works
Index of physical
depreciation
Index of physical
epreciation
Cumulative index of
inflation of construction
works
Index of physical
depreciation
Cumulative index of
inflation of construction
works
1–70%
1.0–9.55
0–90%
N/A1)
N/A1)
N/A1)
0–70%
0–81%
1.0–9.55
1.0–6.17
1–70%
6–56%
1.0–8.71
1.0–6.17
Vehicles and
agricultural
machinery
Auxiliary and other
machinery
198,903
185,198
Market comparable
approach
Index of physical
depreciation
0–90%
0–90%
43,494
39,239
Market comparable
approach
Index of physical
depreciation
0–90%
5–100%
1) Due to the absence of revaluation during the year ended 31 December 2016
The higher the index of
physical depreciation, the
lower the fair value
The higher the index,
the higher the fair value
The higher the index of
physical depreciation, the
lower the fair value
The higher the index of
physical depreciation, the
lower the fair value
The higher the index,
the higher the fair value
The higher the index of
physical depreciation, the
lower the fair value
The higher the index,
the higher the fair value
The higher the index of
physical depreciation, the
lower the fair value
The higher the index of
physical depreciation, the
lower the fair value
ANNUAL REPORT 2017 120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY
SOURCES OF ESTIMATION UNCERTAINTY (continued)
Revaluation of property, plant and equipment
(continued)
If the above unobservable inputs to the valuation
model were 5 p. p. higher/lower while all other vari-
ables were held constant, the carrying amount of
the property, plant and equipment under revalua-
tion would decrease/increase by USD 60,563 thou-
sand and USD 64,470 thousand, respectively.
Key sources of estimation uncertainty
The following are the key assumptions concern-
ing 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 adjust-
ment to the carrying amounts of assets and liabili-
ties 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 biolog-
ical 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;
• Estimated changes in future sales prices;
• Projected production costs and costs to sell; and,
• Discount rate.
During the year ended 31 December 2017 the fair
value of biological assets and agricultural pro-
duce was estimated using discount factors of 12.7%
and 18.1% (31 December 2016: 14.9% and 21.4%) 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 14).
Useful lives of property, plant and equipment
The estimation of the useful life of an item of proper-
ty, plant and equipment is a matter of management
estimate based upon experience with similar assets.
In determining the useful life of an asset, manage-
ment considers the expected usage, estimated tech-
nical 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.
Deferred tax assets
Deferred tax assets, including those arising from
unused tax losses are recognised to the extent that
it is probable that they will be recovered, which is
dependent on the generation of sufficient future tax-
able profit. Based on management assessment the
Group decided to recognise deferred tax assets on
unused tax losses, which will be utilized in future
against existing deferred tax liabilities and available
future tax profits.
5. SEGMENT INFORMATION
The majority of the Group’s operations and non-cur-
rent assets are located within Ukraine.
Segment information is analysed on the basis of
the types of goods supplied by the Group’s oper-
ating divisions. The Group’s reportable segments
under IFRS 8 are as follows:
• sales of chicken meat
Poultry and related
operations segment:
• sales of vegetable oil
and related products
• 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
(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 rep-
resents operating profit under IFRS before unallocat-
ed corporate expenses and loss on impairment of
property, plant and equipment. Unallocated corpo-
rate 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.
ANNUAL REPORT 2017
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
5. SEGMENT INFORMATION (continued)
The Group does not disclose geographical revenue information as it is not available and the cost to develop it would be excessive.
As of 31 December and for the year then ended the Group’s segmental information from continuing operations was as follows:
Poultry
and related
operations
1,050,724
37,168
Grain growing
operations
Other agricultural
operations
Total reportable
segments
Eliminations
Consolidated
117,077
191,993
119,951
1,287,752
–
1,287,752
194
229,355
(229,355)
–
1,087,892
309,070
120,145
1,517,107
(229,355)
1,287,752
306,528
65,643
15,496
387,667
–
Year ended 31 December 2017
External sales
Sales between business segments
Total revenue
Segment results
Unallocated corporate expenses
Loss on impairment of property,
plant and equipment
Other expenses, net 1)
Profit before tax from continuing
operations
Other information:
Additions to property,
plant and equipment 2)
93,136
21,069
3,493
117,698
Depreciation and amortization expense 3)
59,614
29,675
3,268
92,557
Net change in fair value of biological
assets and agricultural produce
28,580
(11,863)
4,284
21,001
1) Include finance income, finance costs, foreign exchange loss, net and other expenses, net.
2) Additions to property, plant and equipment in 2017 (Note 12) do not include unallocated additions in the amount of USD 7,938 thousand.
3) Depreciation and amortization for the year ended 31 December 2017 does not include unallocated depreciation and amortization in the amount of USD 668 thousand.
–
–
–
387,667
(22,304)
(3,607)
(148,619)
213,137
117,698
92,557
21,001
ANNUAL REPORT 2017 122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
5. SEGMENT INFORMATION (continued)
During the year ended 31 December 2017 the Group
decided to include convenience food previously report-
ed in poultry and related operations segment to other
agricultural operations in line with how Group’s chief
operating decision maker (“CODM”) started to evaluate
performance of the segments. Based on the analysis of
convenience food type and nature, the Group believes
this disclosure provide more relevant information about
the types of goods supplied by the Group’s operating
divisions. Comparative information has been restated
accordingly.
Year ended 31 December 2016
External sales
Sales between business segments
Total revenue
Segment results
Unallocated corporate expenses
Loss on impairment of property,
plant and equipment
Other expenses, net 1)
Profit before tax from continuing
operations
Other information:
Additions to property,
plant and equipment 2)
Poultry
and related
operations
953,542
29,759
983,301
205,746
74,823
Depreciation and amortization expense 3)
60,065
Grain growing
operations
Other agricultural
operations
Total reportable
segments
Eliminations
Consolidated
84,753
195,872
280,625
116,670
97,167
249
97,416
12,482
1,135,462
225,880
1,361,342
334,898
–
1,135,462
(225,880)
(225,880)
–
–
–
–
–
1,135,462
334,898
(18,634)
(1,443)
(259,115)
55,706
97,463
97,010
38,894
Net change in fair value of biological
assets and agricultural produce
5,039
32,198
1) Include finance income, finance costs, foreign exchange loss (net) and other expenses (net).
2) Additions to property, plant and equipment in 2016 (Note 12) do not include unallocated additions in the amount of USD 2,520 thousand.
3) Depreciation and amortization for the year ended 31 December 2016 does not include unallocated depreciation and amortization in the amount of USD 1,557 thousand.
18,955
33,336
3,685
3,609
1,657
97,463
97,010
38,894
ANNUAL REPORT 2017 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
5. SEGMENT INFORMATION (continued)
The Group’s export sales to external customers
by major product types were as follows during the
years ended 31 December 2017 and 2016:
Chicken meat
and related products
Vegetable oil
and related products
Grain
Other agricultural
segment products
2017
2016
334,385
243,725
259,054
295,596
108,815
80,990
30,012
14,409
732,266 634,720
Export sales of vegetable oil and related products
and export sales of grains are primarily made to glob-
al trading companies at CPT port terms. The major
markets for the Group’s export sales of chicken meat
are MENA, EU and CIS countries.
6. REVENUE
Revenue for the years ended 31 December 2017
and 2016 was as follows:
7. COST OF SALES
Cost of sales for the years ended 31 December
2017 and 2016 was as follows:
2017
2016
(Restated
Note 5)
2017
2016
(Restated
Note 3)
POULTRY AND RELATED
OPERATIONS SEGMENT
Poultry and related operations
718,407
683,353
Grain growing operations
89,075
62,526
Chicken meat
719,330
590,146
Other agricultural operations
105,362
82,871
Vegetable oil and related
products
260,251
295,596
Other poultry related sales
71,143
67,800
912,844 828,750
GRAIN GROWING
OPERATIONS SEGMENT
Grain
Other agricultural
operations segment
Other meat
Other agricultural sales
1,050,724 953,542
For the years ended 31 December 2017 and 2016
cost of sales comprised the following:
117,077
84,753
117,077
84,753
Costs of raw materials and
other inventory used
2017
2016
(Restated
Note 3)
626,104
558,730
87,806
32,145
119,951
71,550
25,617
97,167
1,287,752 1,135,462
Payroll and related expenses
113,875
95,298
Depreciation and amortization
expense
Other costs
82,835
87,992
90,030
86,730
912,844 828,750
By-products arising from the agricultural produc-
tion process are measured at net realizable value,
and this value is deducted from the cost pool.
ANNUAL REPORT 2017
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
8. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for
the years ended 31 December 2017 and 2016 were
as follows:
2017
2016
Payroll and related expenses
31,759
21,520
Services
17,620
13,380
Depreciation expense
10,390
10,575
Representative costs
and business trips
Advertising expense
8,920
6,763
5,256
4,938
Fuel and other materials used
2,588
Bank services and conversion fees
488
Insurance expense
61
2,913
525
169
Other
2,157
1,490
79,239
62,273
Remuneration to the auditors, included in Ser-
vices above, approximate to USD 980 thousand
for the year ended 31 December 2017 (2016: USD
554 thousand). Such remuneration includes both
audit and non-audit services, with the statutory
audit fees component approximating USD 420
thousand (2016: USD 390 thousand) for the year
ended 31 December 2017 and fees for other assur-
ance services component approximating USD 294
thousand (2016: USD nil), for tax advisory services
component approximating USD 130
thousand
(2016: USD 61 thousand) and for other non-audit
services component approximating USD 136 thou-
sand (2016: USD 103 thousand) for the year ended
31 December 2017.
9. VAT REFUNDS AND OTHER GOVERNMENT
GRANTS INCOME
The Ukrainian legislation provides for a number of
different grants and tax benefits for companies in-
volved in agricultural operations. The below men-
tioned 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 au-
thorities and local district administrations.
VAT refunds and other government grants rec-
ognised by the Group as income during the years
ended 31 December 2017 and 2016 were as follows:
VAT refunds
2017
–
2016
34,056
Other government grants
52,605
–
52,605
34,056
VAT refunds and other government grants
for agricultural industry
According to the Tax Code of Ukraine issued in De-
cember 2010 and effective since 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.
During the year ended 31 December 2015 and before,
VAT collected from agricultural producers was fully re-
tained by these companies. On 24 December 2015, the
Law “On amending the Tax Code of Ukraine and certain
legislative acts of Ukraine in terms of ensuring the bal-
anced budget receipts in 2016” was adopted effective
1 January 2016. In accordance with the new legislation,
agricultural producers were entitled to retain only a
portion of VAT on agricultural operations. Producers of
grain and industrial crops, cattle and dairy producers,
poultry and other agriculture producers retained VAT in
a portion of 15%, 80% and 50%, respectively.
On 30 December 2016 the President of Ukraine
signed the Law No. 1791 On Amendments to the Tax
Code of Ukraine Regarding the Balancing of Budget
Revenues in 2017 (hereinafter the “Law No. 1791”).
The Law No. 1791 introduces changes to VAT admin-
istration for agricultural companies which previously
enjoyed a special VAT regime. The special VAT re-
gime for agricultural companies was terminated as
of 1 January 2017.
However, in order to continue state support for ag-
ricultural companies, the Law No. 1791 introduced
budget subsidies for agricultural companies by
amending the Law of Ukraine On State Support of
Agriculture of Ukraine. The agricultural producers
eligible for the subsidies include those involved in
poultry production and animal farming, as well as
fruit and vegetable farmers. For each agricultural
producer, the amount of the subsidy is not to ex-
ceed the amount of VAT tax paid by the producers,
and is distributed on a monthly basis.
ANNUAL REPORT 2017
125
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
9. VAT REFUNDS AND OTHER GOVERNMENT GRANTS
INCOME (continued)
As of the date of the authorization of these consoli-
dated financial statements the Government has not
yet allocated the specific amount for the state sub-
sidies for qualifying agricultural companies in 2018.
10. FINANCE COSTS
Finance costs for the years ended 31 December 2017
and 2016 were as follows:
2017
2016
Interest on corporate bonds
83,102
68,184
Transaction costs related to
corporate bonds
4,588
–
Interest on bank borrowings
19,430
35,186
Interest on obligations under
finance leases
Bank commissions and other
charges
1,211
1,835
4,643
6,063
Total finance costs
112,974
111,268
LESS:
Finance costs included in the
cost of qualifying assets
(4,575)
(4,425)
108,399
106,843
For qualifying assets, the weighted average capi-
talization rate on funds borrowed during the year
ended 31 December 2017 was 9.69% (2016: 9.69%).
Interest on corporate bonds for the years ended 31
December 2017 and 2016 includes amortization of
premium and debt issue costs on bonds issued in
the amounts of USD 5,788 thousand and USD 5,978
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. The net results of the Group com-
panies incorporated in jurisdictions other than
Ukraine were insignificant during the years ended
31 December 2017 and 2016.
During the year ended 31 December 2017, the
Group’s companies that have the status of Corpo-
rate Income Tax (the “CIT”) payers in Ukraine were
subject to income tax. The Tax Code of Ukraine in-
troduced an 18% income tax rate effective from 1
January 2014. The deferred income tax assets and
liabilities as of 31 December 2017 and 2016 are
measured based on the tax rates expected to be
applied to the period when the temporary differ-
ences are expected to reverse.
The majority of the Group companies that are in-
volved in agricultural production (poultry farms
and other entities engaged in agricultural produc-
tion) benefit substantially from the status of an
agricultural producer. On 1 January 2015, the Law
“On Amendments to the Tax Code of Ukraine and
Certain Legislative Acts of Ukraine on Tax Reform”
(the “Law”) became effective. Under the Law, the
fixed agricultural tax regime (“FAT”) was trans-
formed, without substantial changes to tax rules,
by means of introducing a separate (4th) group of
single taxpayers – agricultural manufacturers. The
tax rates calculated as a percentage of the tar-
get-ratio based monetary valuation per hectare of
agricultural land resulting in substantially lower tax
charges compared to CIT. Agricultural manufactur-
ers are eligible to apply for a single tax if they meet
both the following two requirements:
1. The share of the entity’s revenue from agricultur-
al production (i.e., sale of the entity’s cultivated
and processed products) to the total share of its
income equals or exceeds 75 per cent; and
2. These agriproducts were cultivated on land that
such agricultural manufacturers own or lease,
and the ownership title and leases have been
duly registered.
ANNUAL REPORT 2017
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
11. INCOME TAX (continued)
The components of income tax expense/(benefit)
were as follows for the years ended 31 December
2017 and 2016:
Current income tax expense
Deferred tax benefit
Income tax benefit
2017
388
2016
621
(17,506)
(13,701)
(17,118)
(13,080)
During the years ended 31 December 2017 and 2016 the
Group did not recognise deferred tax assets arising from
temporary differences of USD 26,582 thousand and USD
38,911 thousand, respectively, as the Group did not intend
to deduct the relevant expenses for tax purposes in subse-
quent periods, as there are uncertainties on whether suffi-
cient taxable profits will be generated by particular compa-
nies of the Group in the future. There is no expiration date
of accounting tax losses according to Tax Code of Ukraine.
The reconciliation between profit before tax from con-
tinuing operations multiplied by the statutory tax rate
and the income tax benefit for the years ended 31 De-
cember 2017 and 2016 was as follows:
Deferred tax liabilities have not been recognised in re-
spect of unremitted earnings of Ukrainian subsidiaries as
the earnings can be remitted free from taxation currently
and in future years, based on current legislation.
Profit before income tax
213,137
55,706
2017
2016
As of 31 December 2017 and 2016 deferred tax assets
and liabilities comprised the following:
Certain Group’s companies incurred losses during the 2017
and preceding years. The Group has recognised deferred
tax assets on accounting tax losses to the extent of possible
future taxable income or taxable temporary differences.
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 de-
ferred 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 2017 and 2016:
Deferred tax assets
2017
121
2016
1,561
Deferred tax liabilities
(23,730)
(11,264)
(23,609)
(9,703)
2017
2016
The movements in net deferred tax liabilities for the years
ended 31 December 2017 and 2016 were as follows:
Income tax expense calculated
at rates effective during the
year ended in respective
jurisdictions
Tax effect of:
Income generated by FAT
payers (exempt from income tax)
39,171
7,405
DEFERRED TAX ASSETS
ARISING FROM:
Property, plant and equipment
Other current liabilities
Inventories
–
800
28
6
761
326
2017
2016
(57,927)
(40,678)
Tax losses
Total deferred tax assets
90,793
91,621
81,923
83,016
Non-deductible expenses
(3,984)
12,821
Expenses not deducted
for tax purposes
4,785
7,004
Translation loss
837
368
Income tax benefit
(17,118)
(13,080)
DEFERRED TAX LIABILITIES
ARISING FROM:
Property, plant and equipment
(114,684)
(92,700)
Inventories
(546)
(19)
Prepayments to suppliers
Total deferred tax liabilities (115,230)
(23,609)
Net deferred tax liabilities
–
–
(92,719)
(9,703)
Net deferred tax liabilities
as of beginning of the year
2017
2016
(9,703)
(7,487)
Deferred tax benefit
17,506
13,701
Deferred tax liabilities arising
on acquisition of subsidiaries
Deferred tax on revaluation of
property, plant and equipment
charged directly to other
comprehensive income
Translation difference
Net deferred tax liabilities
as of end of the year
–
–
(30,979)
(16,143)
(433)
226
(23,609)
(9,703)
ANNUAL REPORT 2017
127
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT
The following table represents movements in property, plant and equipment for the year ended 31 December 2017:
Cost or fair value:
At 1 January 2017
Additions
Disposals
Transfers
Revaluations
Impairment loss recognised
Translation difference
At 31 December 2017
Accumulated depreciation:
At 1 January 2017
Depreciation charge for the year
Elimination upon disposal
Eliminated on revaluation
Transfers
Translation difference
At 31 December 2017
Net book value
At 1 January 2017
At 31 December 2017
Land
1,217
1,661
–
66
–
–
Buildings
and
structures
Grain
storage
facilities
Production
machinery
Auxiliary
and other
machinery
Utilities
and
infrastructure
Vehicles and
agricultural
machinery
Other fixed
assets1
Construction
in progress
Total
518,152
85,267
264,939
41,529
80,030
218,741
7,548
59,401
1,276,824
13,783
(507)
7,828
1,066
(41)
7,540
65,164
(13,733)
(885)
(158)
7,054
(664)
9,629
(1,785)
(775)
2,315
(44)
(6,317)
7,850
(797)
(128)
2,816
(17,238)
586,297
(3,104)
76,837
(9,305)
269,093
(1,042)
43,494
2,446
(4)
(2,460)
12,686
(94)
(2,493)
90,111
23,748
(3,846)
(3,208)
(27,785)
(898)
1,415
(125)
178
–
–
72,148
125,636
–
(5,231)
(13,256)
–
–
–
42,397
(3,607)
(7,849)
198,903
(319)
8,697
(4,942)
113,351
(46,420)
1,389,599
–
–
–
–
–
–
–
9,181
14,265
(58)
4,417
6,025
(6)
39,774
23,566
(1,659)
2,290
4,370
(66)
1,794
2,720
(2)
(22,270)
(9,982)
(59,451)
(6,134)
(4,312)
–
(1,118)
–
–
(454)
–
(5)
(2,225)
–
3
(463)
–
–
(200)
–
33,543
5,491
37,099
(3,037)
(65,191)
2
(2,416)
–
1,273
(122)
–
–
(145)
6,497
–
–
–
–
–
–
–
96,490
89,318
(4,950)
(167,340)
–
(7,021)
6,497
1,217
2,816
508,971
586,297
80,850
76,837
225,165
269,093
39,239
43,494
78,236
90,111
185,198
198,903
2,057
2,200
59,401
113,351
1,180,334
1,383,102
1) Other fixed assets include bearer plants, office furniture and equipment.
ANNUAL REPORT 2017 128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
12. PROPERTY, PLANT AND EQUIPMENT (continued)
The following table represents movements in property, plant and equipment for the year ended 31 December 2016:
Cost or fair value:
At 1 January 2016
Additions
Disposals
Transfers
Reclassified as held for sale
(Note 20)
Revaluations
Impairment loss2
Translation difference
At 31 December 2016
Accumulated depreciation:
At 1 January 2016
Depreciation charge for the year3
Elimination upon disposal
Eliminated on revaluation
Reclassified as held for sale
(Note 20)
Translation difference
At 31 December 2016
Net book value
At 1 January 2016
At 31 December 2016
Land
775
567
(39)
–
–
–
–
(86)
1,217
–
–
–
–
–
–
–
Buildings
and
structures
Grain
storage
facilities
Production
machinery
Auxiliary
and other
machinery
Utilities
and
infrastructure
Vehicles and
agricultural
machinery
Other fixed
assets1
Construction
in progress
Total
595,322
65,181
280,493
36,947
57,575
214,391
16,348
79,803
1,346,835
17,433
(1,157)
19,500
(37,450)
340
(93)
–
–
18,304
10,389
5,356
(676)
11,228
(379)
144
(76)
2,684
18,744
(2,900)
906
2,185
26,665
99,983
(139)
88
(247)
(5,706)
(34,550)
–
(8,223)
–
(842)
(19,089)
(10,531)
(243)
(76,378)
–
28,433
–
(24,315)
(51,181)
518,152
–
(8,594)
85,267
(2,437)
(33,750)
264,939
2,691
(688)
(7,575)
41,529
24,263
(229)
(8,701)
80,030
31,500
(6,052)
(18,759)
218,741
–
(75)
(328)
7,548
–
86,887
(2,798)
(36,594)
(9,229)
59,401
(138,203)
1,276,824
–
15,967
(213)
5,083
5,090
–
20,224
10,999
14,503
31,805
5,971
27,010
(626)
3,106
(145)
2,665
(63)
45,218
(2,180)
1,341
(132)
–
(5,034)
–
(9,059)
(12,993)
(27,630)
–
(8,808)
–
(3,860)
–
(602)
(12,692)
(922)
2,235
9,181
(722)
4,417
(2,974)
39,774
(2,611)
2,290
(1,716)
1,794
(978)
33,543
(767)
5,491
–
–
–
–
–
–
–
88,585
100,397
(3,359)
(54,716)
(26,884)
(7,533)
96,490
775
1,217
595,322
508,971
60,098
80,850
260,269
225,165
25,948
39,239
43,072
78,236
182,586
185,198
10,377
2,057
79,803
59,401
1,258,250
1,180,334
1) Other fixed assets include bearer plants, office furniture and equipment;
2) Impairment loss contains USD 35,151 thousand of loss on impairment of property, plant and equipment included in a disposal group held for sale;
3) Depreciation charge for the year included in results from discontinued operations USD 7,298 thousand.
ANNUAL REPORT 2017 129
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT (continued)
As of 31 December 2017, included within construction in
progress were prepayments for property, plant and equip-
ment in the amount of USD 13,014 thousand (2016: USD
8,661 thousand).
As of 31 December 2017, included within property, plant and
equipment were fully depreciated assets with the original
cost of USD 5,584 thousand (2016: USD 9,490 thousand).
As of 31 December 2017 and 2016 the net carrying amount of
property, plant and equipment, represented by vehicles and ag-
ricultural machinery, held under finance lease agreements was
USD 21,834 thousand and USD 39,460 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 impair-
ment as of 31 December 2017 and 2016, except for impair-
ment of certain assets in the amount of USD 3,607 thousand
(2016: USD 1,443 thousand).
Revaluation of vehicles and agricultural machinery
During the year ended 31 December 2017 and 2016, the
Group engaged independent appraisers to revalue its ve-
hicles and agricultural machinery. The effective dates of
revaluation were 31 December 2017 and 31 March 2016 re-
spectively. The valuation, which conformed to the Interna-
tional Valuation Standards, was determined using market
comparable approach adjusted based on age and condi-
tion of the machinery.
Revaluation of production machinery
During the year ended 31 December 2017, the Group en-
gaged independent appraisers to revalue its production
machinery. The effective date of revaluation was 31 De-
cember 2017. The valuation, which conformed to the In-
ternational Valuation Standards, was determined using
market comparable approach adjusted based on age and
condition of the machinery or for items of specialized nature
depreciated cost method. During the year ended and as of
31 December 2016, the Group evaluated if the fair value of
production machinery was materially different from the re-
ported carrying values. Based on analysis of fluctuations
of the cumulative index of producers prices, index of phys-
ical depreciation and functional currency depreciation, the
Management assessed it not to be materially different from
the reported book values.
Revaluation of buildings and structures
During the year ended 31 December 2017, the Group en-
gaged independent appraisers to revalue its buildings and
structures. The effective date of revaluation was 31 Decem-
ber 2017. The valuation, which conformed to the International
Valuation Standards, was determined using depreciated cost
method by reference to observable prices in an active mar-
ket adjusted based on age and condition of the buildings and
structures. During the year ended and as of 31 December
2016, the Group evaluated if the fair value of buildings and
structures was materially different from the reported carrying
values. Based on analysis of fluctuations of the cumulative
index of inflation of construction works and index of physical
depreciation, the Management assessed it not to be materi-
ally different from the reported carrying values.
Revaluation of Grain storage facilities
During the year ended 31 December 2017 and 2016, the Group
engaged independent appraisers to revalue its grain storage
facilities as of 31 December 2017 and 31 March 2016, respec-
tively. 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.
Revaluation of Auxiliary and other machinery
During the year ended 31 December 2017 and 2016, the
Group engaged an independent appraiser to determine the
fair value of its Auxiliary and other machinery as of 31 De-
cember 2017 and 31 March 2016 respectively. The valuation,
which conformed to the International Valuation Standards,
was determined using the market comparable approach ad-
justed based on age and condition of the machinery or for
items of specialized nature replacement cost method.
Revaluation of Utilities and infrastructure
During the year ended 31 December 2017 and 2016, the
Group engaged independent appraisers to revalue its utili-
ties and infrastructure as of 31 December 2017 and 31 March
2016 respectively. The valuation, which conformed to the
International Valuation Standards, was determined using
depreciated cost method by reference to observable prices
in an active market adjusted based on age and condition of
the facilities.
ANNUAL REPORT 2017
130
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT (continued)
Had the Group’s property plant and equipment been measured on a historical cost basis,
their carrying amount would have been as follows:
Buildings and structures
Grain storage facilities
Production machinery
Vehicles and agricultural machinery
Utilities and infrastructure
Auxiliary and other machinery
Fair value
hierarchy
Level 3
Level 3
Level 2,3
Level 2
Level 3
Level 2, 3
Fair value
Net book value if carried at cost
2017
586,297
76,837
269,093
198,903
90,111
43,494
2016
508,971
80,850
225,165
185,198
78,236
39,239
2017
2016
197,780
142,990
31,013
124,617
82,227
39,364
22,740
38,504
109,178
39,791
42,427
26,477
There are no restrictions on the distribution of the revaluation surplus to the shareholders.
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 2017 and 2016:
2017
2016
Cost
As of 1 January
Additions
Translation difference
As of 31 December
Accumulated amortization:
As of 1 January
Amortization charge for the year
Translation difference
As of 31 December
Net book value:
As of 1 January
As of 31 December
54,873
7,970
(2,146)
60,697
11,028
4,859
(600)
15,287
43,845
45,410
53,868
7,755
(6,750)
54,873
7,616
4,582
(1,170)
11,028
46,252
43,845
ANNUAL REPORT 2017
131
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
14. BIOLOGICAL ASSETS
The balances of non-current biological assets were as follows as of 31 December 2017 and 2016:
Milk cows, units
Boars and 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
2017
2016
18.3
0.3
3.8
18.1
1.7
3.5
17,923
117
470
18,510
1,895
1,895
20,405
12,532
232
323
13,087
1,471
1,471
14,558
The balances of current biological assets were as follows as of 31 December 2017 and 2016:
Thousand
units
Carrying
amount
Thousand
units
Carrying
amount
2017
2016
Breeders held for hatchery eggs production, units
3,473
Total bearer current biological assets
Broiler chickens, 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
40,355
35,776
88
8
3,741
38,685
30,701
93
17
55,716
55,716
54,207
9,016
20,623
1,250
216
85,312
141,028
46,483
46,483
40,558
6,202
20,977
1,845
149
69,731
116,214
Other current consumable biological assets include geese and other livestock.
ANNUAL REPORT 2017
132
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
14. BIOLOGICAL ASSETS (continued)
The following table represents movements in major biological assets for the years ended 31 December 2017 and 2016:
As of 31 December 2015
Costs incurred
Gains 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
Reclassified as held for sale
Translation difference
As of 31 December 2016
Costs incurred
Gains 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
As of 31 December 2017
Milk cows,
boars, sows
Breeders
held for
hatchery eggs
production
Broiler
chickens
Crops
in fields
13,837
5,611
52,523
64,707
49,234
459,893
27,224
219,285
7,454
29,415
162,626
107,259
–
5,506
(498)
(17,485)
–
(1,661)
12,764
7,479
(85,857)
85,857
–
–
–
–
–
–
–
(8,134)
(712,668)
(329,794)
–
(6,171)
46,483
102,702
1,204
(5,588)
40,558
450,363
–
(2,997)
20,977
239,908
13,936
29,651
242,893
67,932
–
7,675
(417)
(22,698)
(699)
18,040
(110,586)
110,586
–
–
(10,491)
(2,043)
–
–
–
–
–
(788,100)
(307,522)
(2,093)
(672)
55,716
54,207
20,623
Information on movements in hatchery eggs and cattle and pigs groups have been considered immaterial for disclosure.
ANNUAL REPORT 2017
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
14. BIOLOGICAL ASSETS (continued)
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 a similar age, breed and genetic merit, and which are therefore
measured at fair value within Level 2 of the fair value hierarchy. There were no transfers between any levels during the year.
The following unobservable inputs were used to measure biological assets:
Description
Fair value
as at 31
December
2017
Fair value
as at 31
December
2016
Valuation
technique(s)
Crops in fields
20,623
20,977
Discounted
cash flows
Breeders held
for hatchery
eggs production
55,716
46,483
Discounted
cash flows
Broiler chickens
54,207
40,558
Discounted
cash flows
Unobservable inputs
Crops yield – tonnes per
hectare
Crops price – per tonne
Discount rate
Number of hatchery eggs
produced by one breeder
Range of
unobservable
inputs 2017
(average)
Range of
unobservable
inputs 2016
(average)
Relationship of unobservable
inputs to fair value
3.3–6.0 (5.0)
3.3–6.2 (5.2)
The higher the crops yield, the higher the fair value
USD 118–362
(209)
18.1%
USD 101–341 (185) The higher the market price, the higher the fair value
21.4%
The higher the discount rate, the lower the fair value
160
165
The higher the number, the higher the fair value
Hatchery egg price – per egg
USD 0.25
USD 0.20
The higher the market price, the higher the fair value
Discount rate
Average weight
of one broiler – kg
12.7%
2.34
14.9%
The higher the discount rate, the lower the fair value
2.4
The higher the weight, the higher the fair value
Poultry meat price – per kg
UAH 8.11–38.44
(29.35)
UAH 6.7–35.6
(23.59)
The higher the market price, the higher the fair value
Daily milk yield – litre per cow
16.80–17.55 (17.12)
13.12–20.58 (18.13) The higher the milk yield, the higher the fair value
Weight of the cow – kg per cow
521–559 (544)
514–545 (531)
The higher the weight, the higher the fair value
Milk cows
17,923
12,532
Discounted
cash flows
Milk price – per litre
Meat price – per kg
Discount rate
UAH 7.32–8.11
(7.55)
UAH 5.36–6.17
(5.83)
UAH 22.27–25.96
(24.41)
12.7%
UAH 13.55–18.88
(17.10)
14.9%
The higher the market price, the higher the fair value
The higher the market price, 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 increase /decrease by USD 42,440 thousand and USD 39,612 thousand, respectively.
ANNUAL REPORT 2017 134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
15. INVENTORIES
The balances of inventories were as follows as of
31 December 2017 and 2016:
16. AGRICULTURAL PRODUCE
The balances of agricultural produce were as fol-
lows as of 31 December 2017 and 2016:
17. TAXES RECOVERABLE AND PREPAID
Taxes recoverable and prepaid were as follows as of
31 December 2017 and 2016:
Components for mixed fodder
production
2017
2016
127,812
108,571
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
2017
2016
32,645
24,186
Chicken meat
37.9
48,103
33.8
36,441
Other raw materials
Work in progress
Sunflower oil
Spare parts
Mixed fodder
Packaging materials
Other inventories
28,581
17,970
10,916
3,521
3,041
1,882
26,073
9,958
10,201
3,191
3,478
1,674
226,368
187,332
As of 31 December 2017 and 2016 work in prog-
ress in the amount of USD 28,581 thousand and
USD 26,073 thousand comprised expenses in-
curred in cultivating fields to be planted in the
years 2018 and 2017, respectively.
As of 31 December 2017, components for mixed
fodder production with carrying amount of USD
nil thousand (2016: USD 106,101 thousand) were
pledged as collateral to secure bank borrowings
(Note 23).
Other meat
N/A1)
1,618
N/A1)
2,354
Grain
788
120,537
847
116,316
Other crops
N/A1)
13,149
N/A1)
12,278
183,407
167,389
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 of date of harvest and is
within Level 2 of the fair value hierarchy.
As of 31 December 2017, grains with carrying amount
of USD nil thousand (2016: USD 4,000 thousand)
were pledged as collateral to secure advances re-
ceived from customers (Note 26).
2017
2016
VAT recoverable
31,530
26,034
Miscellaneous taxes prepaid
6,237
5,201
37,767
31,235
18. TRADE ACCOUNTS RECEIVABLE, NET
The balances of trade accounts receivable were as
follows as of 31 December 2017 and 2016:
Agricultural operations
66,190
50,737
Sunflower oil sales
249
284
2017
2016
Due from related parties
(Note 27)
Less: allowance for
irrecoverable amounts
109
113
(4,243)
(266)
62,305
50,868
The allowance for irrecoverable amounts is estimat-
ed 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.
ANNUAL REPORT 2017
135
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
18. TRADE ACCOUNTS RECEIVABLE, NET (continued)
The Group also performs specific analysis of trade ac-
counts receivable due from individual customers to deter-
mine whether any further adjustments are required to the
allowance for irrecoverable amounts assessed on the per-
centages disclosed above. Based on the results of such a
review as of 31 December 2017 the Group determined that
trade accounts receivable on sales of poultry meat of USD
2,813 thousand (2016: USD 1,909 thousand) were overdue
but do not require allowance for irrecoverable amounts.
For the years ended 31 December 2017 and 2016 the
Group has not recorded any impairment of receivables re-
lating to amounts owed by related parties as management
is certain about their recoverability.
The ageing of trade accounts receivable that were im-
paired as of 31 December 2017 and 2016 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
2017
2016
2017
2016
213
3,966
4,179
60
209
269
4,448
–
–
–
334
120
454
454
(53)
(3,966)
(4,019)
(15)
(209)
(224)
(4,243)
–
–
–
(146)
(120)
(266)
(266)
19. CASH AND CASH EQUIVALENTS
The balances of cash and cash equivalents were as follows as of 31 December 2017 and 2016:
Cash on hand and with banks
UAH short-term deposits with banks
EUR short-term deposits with banks
2017
2016
125,536
18
–
125,554
150,951
31
3,588
154,570
As of 31 December 2016, EUR short-term deposits with
banks in the amount of USD 3,588 thousand were re-
stricted as collateral to secure bank borrowings.
Cash and cash equivalents included in disposal
group classified as held for sale as of 31 December
2016 comprised USD 2,098 thousand.
ANNUAL REPORT 2017 136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
20. ASSETS CLASSIFIED AS HELD FOR SALE
As at 31 December 2016 the management of the Group
had committed to a plan to dispose of its Crimean compa-
nies and anticipated that the disposal was completed on
17 February 2017.
Immediately before the classification of Crimean compa-
nies as a disposal group held for sale, the recoverable
amount was estimated for certain items of property, plant
and equipment and an impairment loss was recognised in
the amount of USD 35,151 thousand. The impairment loss
in the amount of USD 28,286 thousand is recognised in
other comprehensive income to the extent of any credit
balance existing in the revaluation reserve. The remaining
part of the impairment loss in the amount of USD 6,865
thousands was recognised in profit or loss for the year
ended 31 December 2016.
The ultimate disposal value was higher than the aggre-
gate carrying amount of the assets comprising the dis-
continued operations. As such, as at 31 December 2016,
no further impairment loss on reclassification of disposal
group as held for sale was recognised.
The major classes of assets and liabilities of the Crimean
companies at the end of the reporting period are as follows:
As at 31 December 2016
Property, plant and equipment, net
Other non-current assets
Biological assets
Agricultural produce
Inventories
Trade accounts receivable, net
Taxes recoverable and prepaid, net
Other current assets
Cash and cash equivalents
Total assets classified as held for sale
Trade accounts payable
Other current liabilities
Total liabilities associated with assets classified as held for sale
Intragroup accounts receivable and payable eliminated on consolidation, net1)
Net assets of disposal group
49,494
1,367
9,364
8,708
11,113
1,806
2,745
1,701
2,098
88,396
(3,472)
(1,692)
(5,164)
(5,691)
77,541
1) Upon disposal of subsidiaries in 2017, net intragroup accounts were offset with associated increase of net assets dispose (Note 2)
ANNUAL REPORT 2017
137
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
21. SHAREHOLDERS’ EQUITY
Share capital
As of 31 December 2017 and 2016 the authorized, issued and fully paid share capital of MHP SE comprised the
following number of shares:
Number of shares issued and fully paid
Number of shares outstanding
2017
2016
110,770,000
106,781,794
110,770,000
106,781,794
The authorized share capital as of 31 December 2017 and 2016 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.
22. NON-CONTROLLING INTERESTS
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
Name of subsidiary
Myronivsky Zavod po Vygotovlennyu
Krup i Kombikormiv
Other subsidiaries with immaterial
non-controlling interests
Proportion of ownership
interests and voting
rights held by
non-controlling interests
2017
11.5%
n/a
n/a
2016
11.5%
n/a
n/a
Profit/(loss) allocated
to non-controlling
interests
Accumulated
non-controlling
interests
2017
2016
2017
2016
(1,221)
(921)
4,178
3,638
2,752
6,717
12,963
13,060
1,531
5,796
17,141
16,698
ANNUAL REPORT 2017 138
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
22. NON-CONTROLLING INTERESTS (continued)
Summarised financial information in respect of each of the Group’s subsidiaries that has material non-controlling inter-
ests is set out below. The summarised financial information below represents amounts before intragroup eliminations.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Group
Revenue
Expenses
(Loss) for the year
(Loss) attributable to owners of the Group
(Loss) attributable to the non-controlling interests
(Loss) for the year
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to the non-controlling interests
Other comprehensive income for the year
Total comprehensive income/(loss) attributable to owners of the Company
Total comprehensive income/(loss) attributable to the non-controlling interests
Total comprehensive income/(loss) for the year
Net cash (outflow)/inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Myronivsky Zavod po Vygotovlennyu
Krup i Kombikormiv
2017
212,203
94,348
203,197
85,315
13,861
424,171
(434,786)
(10,615)
(9,394)
(1,221)
(10,615)
13,555
1,761
15,316
4,161
540
4,701
(489)
(3,622)
–
2016
312,765
104,578
299,919
85,648
28,138
509,114
(517,121)
(8,007)
(7,086)
(921)
(8,007)
4,480
582
5,062
(2,606)
(339)
(2,945)
4,723
(2,420)
–
ANNUAL REPORT 2017 139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
23. BANK BORROWINGS
The following table summarizes bank borrowings and credit lines outstanding as of
31 December 2017 and 2016:
Bank
Currency
2017
2016
WAIR 1)
USD’ 000
WAIR 1)
USD’ 000
Term loans and credit line facilities were as follows as of 31 December 2017 and 2016:
Credit lines
Term loans
2017
2016
9,620
166,114
175,734
134,252
362,122
496,374
Non-current
Foreign banks
Foreign banks
Current
Ukrainian banks
Ukrainian banks
Foreign banks
Current portion of long-
term bank borrowings
USD, EUR
Total bank
borrowings
USD
EUR
7.72%
2.57%
121,576
17,241
138,817
UAH
USD
USD
13.00%
9,620
–
–
–
–
27,297
36,917
175,734
8.09%
1.33%
–
7.20%
6.93%
241,823
17,744
259,567
–
68,752
65,500
102,555
236,807
496,374
1) WAIR represents the weighted average interest rate on outstanding borrowings.
As of 31 December 2017 and 2016 all of the Group’s bank term loans and credit lines
bear floating interest rates.
Bank borrowings and credit lines outstanding as of 31 December 2017 and 2016 were
repayable as follows:
Within one year
In the second year
In the third to fifth year inclusive
After five years
2017
2016
36,917
72,950
58,719
7,148
175,734
236,944
134,837
113,758
10,835
496,374
As of 31 December 2017, the Group had available undrawn facilities of USD 264,895
thousand (2016: USD 56,479 thousand). These undrawn facilities expire during the pe-
riod from March 2018 until August 2020.
The Group’s borrowings are drawn from various banks as term loans, credit line facil-
ities 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.
The Group, as well as, particular subsidiaries of the Group have to comply with certain
covenants imposed by the banks providing the loans. The main covenants which are
to be complied with by the Group are as follows: liability to equity ratio, net debt to
Adjusted EBITDA ratio, Adjusted 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 2017 and 2016 the Group has complied with all
covenants imposed by banks providing the loans.
ANNUAL REPORT 2017
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
23. BANK BORROWINGS (continued)
The Group’s bank borrowings are jointly and severally
guaranteed by MHP, Myronivsky Zavod po Vygotovlen-
nyu Krup i Kombikormiv, Oril-Leader, Peremoga Nova,
Starynska Ptahofabryka, Zernoproduct, Katerynopilsky
Elevator, Agrofort, NPF Urozhay, MHP SE, Scylla Cap-
ital Limited, Myronivska Ptahofabryka, Ptahofabryka
Snyatynska Nova, Vinnytska Ptahofabryka, Zakhid-Agro
MHP, Urozhayna Krayina, Raftan Holding Limited,
Merique Holding Limited.
As of 31 December 2017, the Group had deposits with
banks in the amount of USD 2,524 thousand (2016: USD
4,165 thousand) that were restricted as collateral to se-
cure bank borrowings.
As of 31 December 2016, the Group had borrowings of
USD 89,046 thousand that were secured. These borrow-
ings were secured by inventories with a carrying amount
of USD 106,101 thousand (Note 15).
As of 31 December 2017 and 2016 accrued interest on
bank borrowings was USD 2,578 thousand and USD
7,606 thousand, respectively.
24. BONDS ISSUED
Bonds issued and outstanding as of 31 December 2017
and 2016 were as follows:
As of 31 December 2017 and 2016 accrued interest
on bonds issued was USD 15,377 thousand and USD
15,125 thousand, respectively.
amount of USD 9,830 thousand. Other related expens-
es, including part of consent fees, in the amount of USD
4,599 thousand were expensed as incurred.
8.25% Senior Notes
due in 2020
7.75% Senior Notes
due in 2024
Unamortized debt
issuance cost
2017
2016
495,600
750,000
500,000
–
(25,512)
(24,639)
Total long-term portion
of bonds issued
970,088
725,361
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thou-
sand 7.75% Senior Notes due in 2024 at par value.
Out of the total issue amount USD 245,200 thousand
were designated for redemption and exchange of ex-
isting 8.25% Senior Notes due in 2020.
Early redemption of 8.25% Senior Notes due in 2020
out of issue of 7.75% Senior Notes due in 2024, which
were placed with the same holders and where the
change in the net present value of the future cash flows
discounted using the original effective interest rate was
less than 10% was accounted as an exchange and thus,
all the related expenses, including part of consent fees,
were capitalized and will be amortized over the matu-
rity period of the 7.75% Senior Notes due in 2024 in the
The Senior Notes are jointly and severally guaran-
teed on a senior basis by MHP, Ptahofabryka Per-
emoga Nova, Oril-Leader, Myronivsky Zavod po
Vygotovlennyu Krup i Kombikormiv, Zernoproduct,
Myronivska Ptahofabryka, Starynska Ptahofabryka,
Katerynopilsky Elevator, Agrofort, NPF Urozhay, Vin-
nytska Ptahofabryka, Scylla Capital Limited, Raftan
Holding Limited.
Interest on the Senior Notes is payable semi-annually
in arrears. These Senior Notes are subject to certain
restrictive covenants including, but not limited to, lim-
itations on the incurrence of additional indebtedness
in excess of Net Debt to Adjusted EBITDA ratio as
defined by the indenture, restrictions on mergers or
consolidations, limitations on liens and dispositions of
assets and limitations on transactions with affiliates.
If the Group fails to comply with the covenants im-
posed, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes may, upon
written notice to the Group, declare all outstanding
Senior Notes to be due and payable immediately. If
a change of control occurs, the Group shall make an
offer to each holder of the Senior Notes to purchase
such Senior Notes at a purchase price in cash in an
amount equal to 101% of the principal amount there-
of, plus accrued and unpaid interest and additional
amounts, if any.
ANNUAL REPORT 2017
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
24. BONDS ISSUED (continued)
8.25% Senior Notes
On 8 April 2013, MHP SE issued USD 750,000 thousand
8.25% Senior Notes due in 2020 at an issue price of
100% of the principal amount. USD 350,000 thousand
out of issued USD 750,000 thousand 8.25% Senior
Notes were used to fund the early redemption and ex-
change of its existing 10.25% Senior Notes due in 2015.
The early redemption of the 10.25% Senior Notes due
in 2015 out of the issuance of 8.25% Senior Notes due
in 2020, which were placed with the same holders and
where the change in the net present value of the fu-
ture cash flows discounted using the original effective
interest rate was less than 10% was accounted as an
exchange. Thus all the related expenses, including part
of consent fees, were capitalized and will be amortized
over the maturity period of the 8.25% Senior Notes due
in 2020 in the amount of USD 28,293 thousand.
Other related expenses, including part of consent
fees, in the amount of USD 16,515 thousand were ex-
pensed as incurred.
Ptahofabryka, Katerynopilsky Elevator, Agrofort, NPF
Urozhay, Vinnytska Ptahofabryka, Scylla Capital Lim-
ited, Raftan Holding Limited, Merique Holding Limited.
Interest on the Senior Notes is payable semi-annually
in arrears. These Senior Notes are subject to certain
restrictive covenants including, but not limited to, lim-
itations on the incurrence of additional indebtedness
in excess of Net Debt to Adjusted EBITDA ratio as
defined by the indebtedness agreement, restrictions
on mergers or consolidations, limitations on liens
and dispositions of assets and limitations on transac-
tions with affiliates. If the Group fails to comply with
the covenants imposed, the Trustee or the Holders of
at least 25% in principal amount of the outstanding
Notes may, upon written notice to the Group, declare
all outstanding Senior Notes to be due and payable
immediately. If a change of control occurs the Group
shall make an offer to each holder of the Senior Notes
to purchase such Senior Notes at a purchase price
in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and
additional amounts, if any.
were obtained before the Consent Expiration Date (7
March 2016). The Amendments were implemented by
way of execution of the Supplemental Indenture on 8
March 2016, and became effective from the Consent
Settlement Date (9 March 2016).
In relation to the Notes, the Company has, on the
Consent Settlement Date, paid to those Holders from
whom valid Consents were delivered and not revoked
on or prior to the Consent Expiration Date and which
Consents are accepted by the Company the Consent
Payment of USD 12.50 for each USD 1 thousand in
principal amount of the Notes that were subject of the
relevant Electronic Instructions.
During the reporting periods ended 31 December 2017
and 31 December 2016 the Group has complied with
all covenants defined by indebtedness agreement.
The weighted average effective interest rate on the
Senior Notes is 9.25% per annum and 9.69% per an-
num for the year ended 31 December 2017 and 2016,
respectively.
The Senior Notes are jointly and severally guaran-
teed on a senior basis by MHP, Ptahofabryka Peremo-
ga Nova, Oril-Leader, Myronivsky Zavod po Vygotov-
lennyu Krup i Kombikormiv, Zernoproduct, Myronivska
Ptahofabryka, Starynska Ptahofabryka, Snyatynska
Consent solicitation
On 7 March 2016, the Group received consent from
the Holders of the outstanding USD 750,000 thou-
sand 8.25% Senior Notes for certain proposed amend-
ments to the Indenture and the Notes. Amendments
ANNUAL REPORT 2017
142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
25. 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 2017, the weighted average interest rates on finance
lease obligations were 7.78% and 9.77% for finance lease obligations denominated in
EUR and USD, respectively (2016: 6.46% and 8.04%).
The following are the minimum lease payments and present value of minimum lease
payments under the finance lease agreements as of 31 December 2017 and 2016:
26. OTHER CURRENT LIABILITIES
Other current liabilities were as follows as of 31 December 2017 and 2016:
Accrued payroll and related taxes
Amounts payable for property, plant and equipment
Advances from and other payables due to third parties
Other payables
2017
27,640
11,173
6,774
4,709
50,296
2016
24,638
5,960
26,382
4,786
61,766
Minimum lease payments
Present value of minimum
lease payments
2017
2016
2017
2016
As of 31 December 2016, the Group had advances received from customers of USD
10,000 thousand that were secured by agricultural produce with a carrying amount
of USD 4,000 thousand (Note 16). There were no advances received from custom-
ers that were secured as of 31 December 2017.
Payable within one year
4,979
8,854
4,040
8,044
Payable in the second year
3,780
3,060
3,118
2,648
Payable in the third to fifth year
inclusive
Less:
4,875
3,411
4,292
2,933
13,634
15,325
11,450
13,625
Future finance charges
(2,184)
(1,700)
–
–
Present value of finance
lease obligations
Less:
Current portion
Finance lease obligations,
long-term portion
11,450
13,625
11,450
13,625
(4,040)
(8,044)
7,410
5,581
ANNUAL REPORT 2017 143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
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 ex-
ercises significant influence over the other party in making
financial or operational decisions. In considering each pos-
sible related party relationship, attention is directed to the
substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unre-
lated parties might not, and transactions between relat-
ed 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 ordi-
nary 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 re-
quire 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 2017 and 2016 were as follows:
The Group has provided several of its key management
personnel with short-term loans at rates comparable to
the average commercial rate of interest. The loans to
key management personnel are unsecured.
Loans provided to key
management personnel
Purchases from related parties
2017
2016
425
32
760
69
Total compensation of the Group’s independent non-ex-
ecutive directors, which consists of contractual salary,
amounted to USD 460 thousand and USD 451 thousand
in 2017 and 2016, respectively.
The balances owed to and due from related parties
were as follows as of 31 December 2017 and 2016:
Advances and finance aid
receivable
Loans to key management
personnel
2017
2016
3,188
3.310
956
884
Trade accounts receivable (Note 18)
109
113
Payables due to related parties
17
6
Compensation of key management personnel
Total compensation of the Group’s key management
personnel included primarily in selling, general and ad-
ministrative expenses in the accompanying consolidat-
ed statements of comprehensive income amounted to
USD 14,143 thousand and USD 8,421 thousand for the
years ended 31 December 2017 and 2016, respectively.
Compensation of key management personnel consists
of contractual salary and performance bonuses.
Key management personnel totalled 37 and 39 individ-
uals as of 31 December 2017 and 2016, respectively, in-
cluding 2 and 3 independent non-executive directors as
of 31 December 2017 and 2016, respectively.
Other transactions with related parties
In December 2016 the Group increased its effective
ownership interest in Starynska breeding farm to 100%
through the acquisition of a non-controlling interest pre-
viously held by one of its key management personnel in
exchange for 531,395 treasury shares held by the Group.
The difference between fair value of shares transferred
and their carrying value in the amount of USD 2,901
thousand was recognised as an adjustment to addition-
al paid-in capital.
ANNUAL REPORT 2017 144
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
The management of the Group believes that the neg-
ative impact of the political and economic turmoil at
the Group’s entities is reasonably limited due to the
Group’s significant portion of export sales, its access
to the international financial markets and the signif-
icant distance of its main production sites from any
conflict zones.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
28. CONTINGENCIES AND CONTRACTUAL
COMMITMENTS
Operating Environment
In the recent years, Ukraine has been in a political
and economic turmoil. Crimea, an autonomous re-
public of Ukraine, was effectively annexed by the Rus-
sian Federation. In 2016-2017, an armed conflict with
separatists continued in certain parts of Luhansk and
Donetsk regions.
In 2017, annual inflation rate amounted to 13.7% (2016:
12.4%). The Ukrainian economy proceeded recovery
from the economic and political crisis of previous
years that resulted in real GDP smooth growth of
around 2.1% (2016: 1.4%) and stabilization of nation-
al currency. From trading perspective, the economy
was demonstrating refocusing on the European Union
(“EU”) market, which was a result of the signed Asso-
ciation Agreement with the EU in January 2016 that
established the Deep and Comprehensive Free Trade
Area (“DCFTA”). Under this agreement, Ukraine has
committed to harmonize its national trade-related
rules, norms, and standards with those of the EU, pro-
gressively reduce import customs duties for the goods
originating from the EU member states, and abolish
export customs duties during a 10-year transitional pe-
riod. Implementation of DCFTA began on 1 January
2017. As a result, the Russian Federation implement-
ed a trade embargo or import duties on key Ukrainian
export products. In response, Ukraine implemented
similar measures against Russian products.
In terms of currency regulations, the National Bank of
Ukraine (“NBU”) decreased the required share of man-
datory sale of foreign currency proceeds from 65% to
50% from April 2017, increased settlement period for
export-import transactions in foreign currency from
120 to 180 days from May 2017, and allowed compa-
nies to pay the 2013 (and earlier) dividends with a limit
of USD 2 million per month from November 2017 (from
June 2016, companies were allowed to pay dividends
for 2014–2016 to non-residents with a limit of USD 5
million per month).
In March 2015, Ukraine signed four-year Extended
Fund Facility (“EFF”) with the International Monetary
Fund (“IMF”) that will last until March 2019. The total
program amounted to USD 17.5 billion, while Ukraine
has so far received only USD 8.7 billion from the en-
tire amount. In September 2017, Ukraine successfully
issued USD 3 billion of Eurobonds, of which USD 1.3
billion is new financing, with the remaining amount
aimed to refinance the bonds due in 2019. The NBU
expects that Ukraine will receive another USD 3.5 bil-
lion from the IMF in 2018. To receive next tranches, the
government of Ukraine has to implement certain key
reforms, including in such areas as pension system,
anti-corruption regulations, and privatization.
Further stabilization of the economic and political sit-
uation depends, to a large extent, upon success of the
Ukrainian government’s efforts, yet further economic and
political developments are currently difficult to predict.
ANNUAL REPORT 2017 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
28. CONTINGENCIES AND CONTRACTUAL
COMMITMENTS (continued)
Taxation and legal issues
Ukrainian tax authorities are increasingly directing
their attention to the business community as a result of
the overall Ukrainian economic environment. The lo-
cal and national tax environment is constantly chang-
ing and subject to inconsistent application, interpreta-
tion and enforcement. Non-compliance with Ukrainian
laws and regulations can lead to the imposition of
severe penalties and fines. Future tax examinations
could raise issues or assessments which are contrary
to the Group companies’ tax filings. Such assessments
could include taxes, penalties and fines, and these
amounts could be material. While the Group believes
it has complied with local tax legislation, there have
been many new tax and foreign currency laws and
related regulations introduced in recent years which
are not always clearly written.
Facing current economic and political issues, the Gov-
ernment has implemented certain reforms in the tax
system of Ukraine by adopting the Law of Ukraine ‘On
Amending the Tax Code of Ukraine and Certain Laws
of Ukraine’, which is effective from 1 January 2015, ex-
cept for certain provisions which will take effect at a
later date.
Management believes that the Group has been in com-
pliance with all requirements of effective tax legislation
and currently is assessing the possible impact of the in-
troduced amendments.
The Group exports vegetable oil, chicken meat and re-
lated products, and performs intercompany transactions,
which may potentially be in the scope of the Ukrainian
transfer pricing (“TP”) regulations. The Group has submit-
ted the controlled transaction report for the year ended
31 December 2016 within the required deadline, and has
prepared all necessary documentation on controlled
transactions for the year ended 31 December 2017 as
required by legislation and plans to submit report.
Contractual commitments on purchase of
property, plant and equipment
During the years ended 31 December 2017 and 2016, the
companies of the Group entered into a number of con-
tracts with foreign suppliers for the purchase of proper-
ty, plant and equipment for development of agricultural
operations. As of 31 December 2017, purchase commit-
ments amounted to USD 17,412 thousand (2016: USD
2,656 thousand).
As of 31 December 2017, the Group’s management
assessed its possible exposure to tax risks for a total
amount of USD 4,392 thousand related to corporate in-
come tax (31 December 2016: USD 4,210 thousand). No
provision was charged of such possible tax exposure.
As of 31 December 2017, companies of the Group were
engaged in ongoing litigation with tax authorities for the
amount of USD 2,273 thousand (2016: USD 6,069 thou-
sand), including USD 1,534 thousand (2016: USD 2,689
thousand) of litigations with the tax authorities relat-
ed to disallowance of certain amounts of VAT refunds
and deductible expenses claimed by the Group. Of this
amount, USD 1,457 thousand as of 31 December 2017
(2016: USD 4,965 thousand) relates to cases where court
hearings have taken place and where the court in either
the first or second instance has already ruled in favour
of the Group. Manage-ment believes that based on the
past history of court resolutions of similar lawsuits by the
Group, it is unlikely that a significant settlement will arise
out of such lawsuits and therefore no respective provi-
sion is required in the Group’s financial statements as of
the reporting date.
Commitments on land operating leases
The Group has the following contractual obligations
in respect of land operating leases as of 31 December
2017 and 2016:
Within one year
In the second to the fifth year
inclusive
After fifth year
2017
2016
20,833
18,207
69,896
57,212
60,933
43,257
151,662
118,676
Ukrainian legislation provides for a ban on sales of
agricultural land plots till 1 January 2019. There are
significant uncertainties as to the subsequent exten-
sion of the ban. The current legislation has resulted
in the Group holding land lease rights, rather than the
land itself.
ANNUAL REPORT 2017 146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
29. DIVIDENDS
On 14 March 2017, the Board of Directors of MHP SE approved the payment of an inter-
im dividend of USD 0.7492 per share, equivalent to approximately USD 80,000 thou-
sand, which were paid to shareholders during the year ended 31 December 2017.
30. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value disclosures in respect of financial instruments are made in accordance with
the requirements of IFRS 7 “Financial Instruments: Disclosure” and IFRS 13 “Fair value
measurement”. Fair value is defined as the amount at which the instrument could be
exchanged in a current transaction between knowledgeable willing parties in an arm’s
length transaction, other than in forced or liquidation sale. As no readily available mar-
ket exists for a large part of the Group’s financial instruments, judgment is necessary in
arriving at fair value, based on current economic conditions and specific risks attribut-
able to the instrument. The estimates presented herein are not necessarily indicative
of the amounts the Group could realize in a market exchange from the sale of its full
holdings of a particular instrument.
Carrying amount
Fair value
2017
2016
2017
2016
FINANCIAL LIABILITIES
Bank borrowings (Note 23)
178,312
503,980
168,627
490,923
Senior Notes due in 2020, 2024
(Note 24)
Finance lease obligations
(Note 25)
985,465
740,486
1,085,693
729,000
11,450
13,625
11,691
14,079
The carrying amount of Senior Notes issued and bank borrowings includes interest
accrued at each of the respective dates.
The fair value of bank borrowings and finance lease obligations as of 31 December
2017 was estimated by discounting the expected future cash outflows by a market rate
of interest for bank borrowings: 7.7% (2016: 8.3%) and for finance lease obligations of
9.3% (2016: 8.0%), and is within Level 2 of the fair value hierarchy.
The fair value is estimated to approximate the carrying value for cash and cash equiv-
alents, short-term bank deposits, trade accounts receivables, and trade accounts pay-
able due to the short-term nature of the financial instruments.
The fair value of Senior Notes was estimated based on market quotations and is within
Level 1 of the fair value hierarchy.
Set out on a right side is the comparison by category of carrying amounts and fair val-
ues of all the Group’s financial instruments, excluding those discussed above, that are
carried in the consolidated statement of financial position.
ANNUAL REPORT 2017
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
30. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising
from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows
as cash flows from financing activities.
01 January
2017
Cash flow from
proceeds /
(repayments)
Transaction
costs payments
Foreign
exchange
movements
Bank borrowings (Note 23)
496,374
(332,902)
(1,993)
6,325
Senior Notes due in 2020, 2024 (Note 24)
725,361
245,600
(15,145)
4
Finance lease obligations (Note 25)
13,625
(9,217)
–
1,524
1,235,360
(96,519)
(17,138)
7,853
Non-cash movements
Purchases through direct
bank-lender payments
to the vendor and under
finance lease and vendor
financing agreements
7,135
–
5,518
12,653
Amortisation
and write-off
of transaction
costs
31 December
2017
795
175,734
14,268
970,088
–
11,450
15,063
1,157,272
ANNUAL REPORT 2017
148
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
31. RISK MANAGEMENT POLICIES
During the years ended 31 December 2017 and 2016 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 contin-
ue as a going concern while maximising the return to the equity holders through main-
taining 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.
Calculation of net debt was aligned with definitions used for the purpose of assessment
of compliance with debt covenants provided in respective loan agreements. Thus, the
accrued interest which has been included previously as part of the carrying amount of
bank borrowings, bonds issued and finance lease obligations has been excluded from
the amount of total debt. The comparative information for the year ended 31 Decem-
ber 2016 has been restated accordingly by the way of reducing previously reported
amount of net debt in the amount of USD 1,258,091 thousand by the accrued interest in
the amount of USD 22,731 thousand.
As of 31 December 2017 and 2016 the leverage ratio was as follows:
Bank borrowings (Note 23)
Bonds issued (Note 24)
Finance lease obligations (Note 25)
Total Debt
Less:
2017
175,734
970,088
11,450
2016
496,374
725,361
13,625
1,157,272
1,235,360
Cash and cash equivalents and Short-term
bank deposits (Note 19)
(125,554)
(154,570)
Net debt
1,031,718
1,080,790
Operating profit before loss on impairment
of property, plant and equipment
Adjustments for:
Depreciation and amortization expense
(Notes 7, 8)
365,363
316,264
93,225
98,567
Adjusted operating profit
458,588
414,831
Net debt to adjusted operating profit
2.25
2.61
ANNUAL REPORT 2017 149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
31. RISK MANAGEMENT POLICIES (continued)
Capital risk management (continued)
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.
Adjusted operating profit is defined as operating profit adjusted for the depreciation
and amortization expense and losses and gains believed by the management to be
non-recurring in nature, as this measure produces results substantially comparable to
those reviewed for the purposes of financial covenants under the Group’s borrowings.
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 commod-
ity price and procurement risk.
Credit risk
The Group is exposed to credit risk which is the risk that one party to a financial
instrument will fail to discharge an obligation and cause the other party to incur
a financial loss.
Major categories of financial instruments
2017
2016
FINANCIAL ASSETS:
Long-term bank deposits
Loans to employees and related parties
Other receivables
Trade accounts receivable, net (Note 18)
Cash and cash equivalents (Note 19)
FINANCIAL LIABILITIES:
Bank borrowings (Note 23)
Bonds issued (Note 24)
Finance lease obligations (Note 25)
Amounts payable for property, plant and
equipment (Note 26)
Accrued interest (Note 23,24)
Trade accounts payable
Accrued payroll
Other payables (Note 26)
2,524
1,422
11,429
62,305
125,554
203,234
175,734
970,088
11,450
11,173
17,955
43,175
25,456
4,709
577
1,222
14,082
50,868
154,570
221,319
496,374
725,361
13,625
5,960
22,731
46,508
22,976
4,786
1,259,740
1,338,321
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 franchi-
sees, 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. As of 31 December 2017 about 26% (2016: 28%)
of trade accounts receivable comprise amounts due from 12 large supermar-
ket chains, which have the longest contractual receivable settlement period
among customers.
The credit risk on liquid funds is limited because the counterparties are banks
with high credit-ratings assigned by international credit-rating agencies.
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 man-
aged. The Group has in place a detailed budgeting and cash forecasting pro-
cess to help ensure that it has adequate cash available to meet its payment
obligations.
ANNUAL REPORT 2017
150
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
31. RISK MANAGEMENT POLICIES (continued)
Liquidity risk (continued)
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 un-
discounted 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 2017 and 2016. 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.
Major categories of financial instruments
Carrying
amount
Contractual
Amounts
Less than
1 year
From 2nd
to 5th year
After
5th year
Year ended
31 December 2017
Bank borrowings
178,312
196,021
45,779
142,408
7,834
Bonds issued
985,465
1,349,693
79,637
711,931
558,125
Finance lease
obligations
11,450
13,634
4,979
8,655
–
Total
1,175,227
1,559,348
130,395
862,994
565,959
Year ended
31 December 2016
Bank borrowings
503,980
547,622
261,040
274,611
11,971
Bonds issued
740,486
966,563
61,875
904,688
Finance lease
obligations
13,625
15,325
8,854
6,471
–
–
Total
1,258,091
1,529,510
331,769
1,185,770
11,971
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 De-
cember 2017 and 2016, the current ratio was as follows:
Current assets
Current liabilities
2017
801,756
152,383
5.26
2016
821,428
381,020
2.16
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 trans-
actions denominated in foreign currencies. The Group does not use any deriv-
atives 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.
ANNUAL REPORT 2017 151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
31. RISK MANAGEMENT POLICIES (continued)
Currency risk (continued)
The carrying amounts of the Group’s foreign currency denominated monetary as-
sets and liabilities as of 31 December were as follows:
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 in-
cludes only outstanding foreign currency denominated monetary items and adjusts
their translation at the period end for possible change in foreign currency rates.
2017
2016
USD
EUR
USD
EUR
ASSETS
Long-term bank deposits
–
2,524
–
Other non-current assets, net
11,617
–
Trade accounts receivable, net
22,266
2,311
Other current assets, net
110
–
5,039
20,315
8,408
577
–
117
–
Cash and cash equivalents
99,204
5,669
107,539
10,240
2017
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
133,197
10,504
141,301
10,934
2016
LIABILITIES
Current liabilities
Trade accounts payable
Other current liabilities
Accrued interest
Short-term bank borrowings
Short-term finance lease
obligations
Non-current liabilities
2,776
24
17,846
12,121
3,083
5,929
2,365
368
4,544
3,380
109
22,570
161
15,176
212,289
24,518
3,142
887
5,138
2,906
35,909
25,184
242,730
35,509
Long-term bank borrowings
121,576
17,241
241,685
17,882
Bonds issued
970,088
–
725,361
–
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
During the year ended 31 December 2017 the Ukrainian Hryvnia depreciated
against the EUR and USD by 15.14% and 3.12%, respectively (2016: depreciated
against the EUR by 7.74% and 11.73% against the USD). As a result, during the year
ended 31 December 2017 the Group recognised net foreign exchange losses in the
amount of USD 35,615 thousand (2016: foreign exchange losses in the amount of
USD 145,217 thousand) in the consolidated statement of comprehensive income.
Long-term finance lease
obligations
5,362
1,986
4,730
853
1,097,026
19,227
971,776
18,735
1,132,935
44,411
1,214,506
54,244
In April 2017, the National Bank of Ukraine (“NBU”) decreased a requirement to sell
foreign currency proceeds from any export sales at Ukrainian interbank currency
market to 50%. During the year ended 31 December 2017 USD 336 thousand (2016:
USD 235 thousand) net foreign exchange gain resulting from the difference in NBU
and Ukrainian interbank currency market exchange rates, was included in Other
Change in foreign
currency exchange
rates
Effect on profit
before tax, gain/
(loss)
10%
10%
5%
5%
10%
10%
5%
5%
(99,974)
(3,391)
49,987
1,695
(107,321)
(4,331)
53,660
2,166
ANNUAL REPORT 2017 152
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
31. RISK MANAGEMENT POLICIES (continued)
Currency risk (continued)
operating income.
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 2017 and 2016:
Chicken meat and related products
Vegetable oil and related products
Grain
Other agricultural segment products
2017
334,385
259,054
108,815
30,012
732,266
2016
243,725
295,596
80,990
14,409
634,720
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will
affect primarily borrowings by changing either their fair value (fixed rate debt)
or future cash flows (variable rate debt). 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% (2016: 5%). The analysis was applied to interest bearing
liabilities (bank borrowings, finance lease obligations and accounts payable un-
der 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.
2017
LIBOR
LIBOR
EURIBOR
EURIBOR
2016
LIBOR
LIBOR
EURIBOR
EURIBOR
Increase/ (decrease)
of floating rate
Effect on profit
before tax, gain/
(loss)
USD ‘ 000
5%
-5%
5%
-5%
5%
-5%
5%
-5%
(7,110)
7,110
(1,765)
1,765
(23,192)
23,192
(2,308)
2,308
The effect of interest rate sensitivity on shareholders’ equity is equal to that on
statement of comprehensive income.
ANNUAL REPORT 2017 153
NOTES TO FINANCIAL STATEMENTS
/CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
(in thousands of US dollars, unless otherwise indicated)
31. RISK MANAGEMENT POLICIES (continued)
Livestock diseases risk
The Group’s agro-industrial business is subject to risks of outbreaks of various diseases.
The Group faces the risk of outbreaks of diseases, which are highly contagious and
destructive to susceptible livestock, such as avian influenza or bird flu for its poultry
operations. These and other diseases could result in mortality losses. Disease control
measures were adopted by the Group to minimize and manage this risk. The Group’s
management is satisfied that its current existing risk management and quality control
processes are effective and sufficient to prevent any outbreak of livestock diseases
and related losses.
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect on current or future earn-
ings from fluctuations in the prices of commodities. To mitigate this risk the Group con-
tinues expansion of its grain growing segment, as part of vertical integration strategy,
and also accumulates sufficient commodity stock to meet its production needs.
32. PENSIONS AND RETIREMENT PLANS
The employees of the Group receive pension benefits from the government in accor-
dance with the laws and regulations of Ukraine. The Group’s contributions to the State
Pension Fund for the year ended 31 December 2017 was USD 23,680 thousand and is
recorded in the consolidated statement of comprehensive income on an accrual ba-
sis (2016: USD 18,652 thousand). 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 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)
2017
228,724
2016
63,835
228,724
63,835
106,781,794
106,256,207
2.14
0.60
The Group has neither potentially dilutive ordinary shares nor other dilutive instru-
ments; therefore, the diluted earnings per share equal basic earnings per share.
34. SUBSEQUENT EVENTS
There are no material subsequent events to mention.
35. AUTHORIZATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements were authorized for issue by the Board
of Directors of MHP SE on 06 March 2018.
ANNUAL REPORT 2017 154
SHAREHOLDER INFORMATION
Financial Calendar
MHP’s financial calendar can be found here:
http://www.mhp.com.ua/en/investor-relations/calendar.
The calendar is updated to show relevant events
and dates.
Key Contacts & Advisors
Company Registered Office
16-18 Zinas Kanther Street, Agia Triada,
3035 Limassol, Cyprus
Director of Investor Relations
and Company Secretary
Anastasiya Sobotyuk
Email: a.sobotyuk@mhp.com.ua
Website
Shareholders are encouraged to visit our website,
www.mhp.com.ua, to obtain information
on the Company including its history,
news and press information.
Auditor
Deloitte Limited
Maximos Plaza, Tower 1, 3rd Floor
213 Arch. Makariou III Avenue
CY-3030 Limassol
Cyprus
Registrar
Confitrust Limited
Zinas Kanther 16-18,
Ayia Triada,
3035 Limassol
Cyprus
ANNUAL REPORT 2017 155
GLOSSARY OF TERMS
AGM
Broiler
CAPEX
CEO
CFO
CIS
Company
COSO
CO2
CSR
EBITDA
EBRD
EGM
EU
Fodder
GCC
GDR
Greenfield
GRI
Group
Grow-out
Ha
HR
IAS
IFC
Annual general meeting
A young chicken raised for meat
Capital expenditure
Chief Executive Officer
Chief Financial Officer
Commonwealth of Independent States
MHP SE and its subsidiaries
Committee of Sponsoring Organisations
Carbon dioxide
Corporate Social Responsibility
Earnings before interest, tax, depreciation
and amortisation
European Bank for Reconstruction and Development
Extraordinary general meeting
European Union
Food for livestock
Gulf Cooperation Council
Global depositary receipt
Relating to previously undeveloped sites
Global Reporting Initiative
MHP SE and its subsidiaries
The period during which the broilers are raised
Hectares
Human resources
International Accounting Standards
International Finance Corporation
IFI
IFRS
IR
JV
Kg
KPIs
LTM
M&A
MENA
MW
NED
NGO
OECD
R&D
SKU
SPOT
UAE
UAH
UK
UNIC
US
US$ /USD
y/y
VAT
International financial institution
International Financial Reporting Standards
Investor relations
Joint venture
Kilograms
Key performance indicators
Last twelve months
Mergers and acquisitions
Middle East and North Africa region
Megawatt
Non-executive director
Non-governmental organisation
Organisation for Economic Co-operation
and Development
Research and development
Stock keeping unit, or distinct type of item for sale
A contract for immediate settlement on the spot date
United Arab Emirates
Ukrainian Hryvnia
United Kingdom
Ukrainian Network of Integrity and Compliance
United States
United States Dollar
Year-on-year
Value-added tax
ANNUAL REPORT 2017