ANNUAL REPORT
AND ACCOUNTS
2018
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STRATEGIC REPORT
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Performance Highlights
Company Overview
10 Competitive Strengths
18 Chairman’s Statement
22 CEO’s Statement
25
BUSINESS REVIEW
26 Business Model
29
Poultry and Related
Operations Segment
Grain Growing Segment
Other Agricultural
37
40
Segment
44
Key Performance
Indicators
47 Financial Policies
49 Financial Review
58 Risk Management
71
Corporate Responsibility
75
GOVERNANCE
76
Corporate Governance
Overview
81
Board: Composition
& Performance
89
Nominations and
Remuneration Committee
Report
91 Audit Committee Report
95 Management Report
99 Stakeholder Engagement
100
FINANCIAL
STATEMENTS
102
Statement of The Board
of Directors
103
Independent Auditor’s
Report
110
Consolidated Financial
Statements
115 Notes
168
SHAREHOLDER
INFORMATION
169 Financial Calendar
169
Key Contacts & Advisors
170 Glossary of Terms
STRATEGIC
REPORT
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Performance Highlights
Company Overview
Competitive Strengths
Chairman’s Statement
CEO’s Statement
STRATEGIC REPORT
ANNUAL REPORT 2018
PERFORMANCE HIGHLIGHTS
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MHP DEMONSTRATED ANOTHER YEAR OF FIRM
PROGRESS
US$
924
million
Export revenue
(+26% y/y; 2017: US$
732 million)
US$
128
million
Net profit
(-37% y/y; 2017:
US$ 204 million)
59%
of total revenue
Export revenue
(2017: 57%)
US$
1.17
Earnings per share
(-38% y/y;
2017: US$ 1.90)
US$
420
million
Gross profit
(+6% y/y; 2017:
US$ 396 million)
US$
0.7492
Dividend per share
(2017: US$ 0.7492)
US$
1,556
million
Revenue
(+21% y/y; 2017:
US$ 1,288 million)
US$
450
million
Adjusted EBITDA
(-2% y/y; 2017:
US$ 459 million)
US$
550
million
8-year Eurobond
issuance with a coupon
of 6.95%
STRATEGIC REPORT
ANNUAL REPORT 2018
PERFORMANCE HIGHLIGHTS
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Significant progress
on construction of
PHASE 2 OF
THE VINNYTSIA
COMPLEX
three rearing sites (brigades)
and a slaughterhouse
launched
Construction of
#2 BIOGAS
COMPLEX
at the Vinnytsia complex with
24 MW capacity to be reached
within two years
Acquisition completed in
February 2019 of
PERUTNINA
PTUJ
a leading poultry producer
and meat-processor based in
Slovenia
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPANY OVERVIEW
6
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LEADING AGRO-INDUSTRIAL GROUP. IT IS THE
LEADING DOMESTIC PRODUCER OF POULTRY
IN UKRAINE, MHP IS A VERTICALLY-INTEGRATED,
W AN INTERNATIONAL COMPANY HEADQUARTERED
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PRODUCTS WITH THE HIGHEST MARKET SHARE*
AND STRONGEST DOMESTIC BRAND RECOGNI-
TION FOR ITS PRODUCTS
LEADING PROTEIN AGRI-BUSINESS THROUGH
OPERATIONAL GROWTH AND CONTINUOUS
THE COMPANY’S VISION IS TO BE A WORLD-
STEADY FINANCIAL, ECONOMIC AND
BUSINESS EFFICIENCIES
2018 REVENUE
BY BUSINESS SEGMENT
9%
Other
Agricultural
11%
Grain
Growing
80%
Poultry and Related
Operations
* Source: SSCU
2018 REVENUE
BY DESTINATION
41%
Domestic
59%
Export
2018 REVENUE
BY PRODUCT
6%
Processed meat
10%
Other
11%
Grain sales
17%
Vegetable
oils
56%
Chicken
meat
STRATEGIC REPORT
TARGETED INTERNATIONAL GROWTH STORY
SUPPORTED BY DOMESTIC STRATEGY
MHP continues to deliver upon its targeted international growth
strategy supported by a market-leading position in its domestic
markets. During 2018, MHP launched its first rearing sites and a
slaughterhouse line as part of Phase 2 of the Vinnytsia poultry
complex. Phase 2 (260,000 tonnes of poultry meat) is expected to
be operating at 100% capacity by the end of 2021. The Company
also continues to actively look for potential mergers and acquisi-
tions (“M&A“) opportunities, both in poultry production and/or in
meat-processing operations in the EU and MENA regions.
THE VERTICALLY-INTEGRATED BUSINESS MODEL MARKS MHP
OUT FROM ITS PEERS
MHP’s vertically-integrated business model delivers a considerably
lower cost-base* compared to industry peers and sustainably higher
earnings. MHP owns and operates modern facilities at each of the key
stages of chicken production processes: grain and fodder production;
egg incubation and grow-out; processing; marketing; and sales and
distribution. This reduces the Company’s dependence on suppliers
and farmers and also its exposure to raw material price volatility. It
also enables maintenance of strict biosecurity standards throughout
the entire production process and enhances quality control.
EXPORT REVENUE NOW CONSTITUTES 59% OF TOTAL REVENUE
The Company’s expansion strategy is focussed on increasing ex-
port volumes leading to additional hard currency revenue. MHP’s
export destinations now total 82 countries and its export traction
is increasing following the launch of Phase 2 of the Vinnytsia
poultry complex. Building out from this platform, MHP is increas-
ing its export operations across countries in the EU, MENA and
Africa. At the same time the Company is expanding its operations
in the Netherlands and Slovakia, where it has cutting facilities. In
the UAE, and other GCC markets, MHP is building its distribution
network whilst steadily building its international brand Qualiko,
already recognised by local consumers.
*Source: MHP’s research
**Source: Agroperspectiva
ANNUAL REPORT 2018
COMPANY OVERVIEW
7
In February 2019, the Company completed its acquisition of
Perutnina Ptuj in Slovenia. Perutnina Ptuj is an international
food-processing company and the largest producer of poultry
meat and poultry meat products in Southeast Europe. It has as-
sets in Slovenia, Croatia, Bosnia & Herzegovina and Serbia.
MHP HAS A LEADING GRAIN CULTIVATION BUSINESS
As part of its vertically-integrated business model, MHP grows
corn, sunflower and soya to support its chicken production. MHP
also grows other grains such as wheat and rape for sale to third
parties. MHP leases agricultural land located primarily in the
highly fertile black soil regions of Ukraine with yields significant-
ly higher than Ukraine’s average**.
MHP’S FACILITIES ARE AMONGST THE MOST
TECHNOLOGICALLY ADVANCED
MHP’s investment and rapid growth have enabled it to employ
modern production assets and the Company believes that its
chicken farms are amongst the most efficient in the world. This
is driven by the Company’s commitment to continuous improve-
ment in operational efficiency, product development and inno-
vation through investment in research & development (“R&D“).
VINNYTSIA PHASE 2 IS EXPECTED
TO BE OPERATING AT
100%CAPACITY BY THE END OF 2021
STRATEGIC REPORT
POULTRY
& RELATED
OPERATIONS
GRAIN
GROWING
OUR BUSINESS SEGMENTS
The Company is organised into three business segments:
Poultry & Related Operations; Grain Growing; and Other
Agricultural.
ANNUAL REPORT 2018
COMPANY OVERVIEW
8
OTHER
AGRICULTURAL
POULTRY & RELATED OPERATIONS SEGMENT
MHP is the leading poultry producer in Ukraine, accounting for
approximately 30% of all industrially produced chicken meat
consumed in the country in 2018*.
MHP commands a leading market position and high brand
recognition domestically with its poultry products sold at pre-
mium prices.
MHP brand name
Destinations for sale
Chilled / frozen
Nasha Riaba
Ukrainian Chicken
Qualiko
Ukraine
Ukraine
Chilled
Frozen
Export (all destinations)
Chilled, frozen
Ukrainian Chicken
Export (except the EU and Asia)
Аssilah
Sultanah
Al Hassanat
Bibilo
Export (MENA)
Export (MENA)
Export (Iraq)
Export (Georgia)
Frozen
Frozen
Frozen
Frozen
Frozen
Product
Whole, parts
Whole, parts
Whole, parts
Whole, parts
Whole
Whole
Whole, parts
Whole
MHP supplies chicken and other meat products to a number of
nationwide supermarket chains, including Fozzy, ATB-Market,
Metro Cash & Carry, ECO, Novus and Auchan.
MHP also produces and sells vegetable oils (sunflower and soy-
bean oils) as a by-product of its fodder production, mainly to
international traders.
MHP ACCOUNTED FOR
30%OF ALL INDUSTRIALLY PRODUCED
CHICKEN MEAT CONSUMED IN
UKRAINE IN 2018
* Source: MHP
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPANY OVERVIEW
9
GRAIN GROWING SEGMENT
370,000
MHP has a leading grain cultivation business growing corn, sun-
flower and soybean to support the vertical integration of its chicken
production. The Compa-
ny is self-sufficient in corn
with any excess produc-
tion sold for export, pro-
viding one of the Com-
pany’s sources of hard
currency revenue.
HECTARES OF LAND, ONE
OF THE LARGEST LAND
PORTFOLIOS IN UKRAINE*
Increasingly, other grains such as wheat and rape are grown
for sale to both domestic and international customers. This
provides a natural hedge against local currency volatility and
allows for better control of poultry production costs.
In 2018, MHP’s landbank constituted approximately 370,000
hectares of land, one of the largest land portfolios in Ukraine.
Crop yields are well above the Ukraine average*.
MHP ACCOUNTED FOR
15%OF ALL SAUSAGE AND COOKED
MEATS PRODUCED IN UKRAINE
IN 2018
OTHER AGRICULTURAL SEGMENT
MHP’s meat-processing business is an important driver of the
segment’s profitability as it produces value-added products
that customers are willing to pay a premium for. Processing in-
cludes the production of a wide variety of fresh meat products,
prepared food and ready-to-eat food; these include sausages,
cooked meats and convenience food products predominantly
from chicken meat.
MHP is one of the leaders in the highly fragmented meat-pro-
cessing market in Ukraine, accounting for approximately 15% of
all sausage and cooked meats produced in Ukraine in 2018.
MHP brand name
Destinations for sale
Product
Bashchinsky
Lehko!
Sytni
Qualiko
Non-branded
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
*Source: https://latifundist.com/novosti/40999-nazvany-agroholdingi-s-samym-ustojchivym-zembankom--issledovanie
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
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HIGH DEGREE
OF VERTICAL
INTEGRATION
•
Business model reduces costs by creating synergies there-
by reducing per unit costs
•
Reduces dependence on third-party suppliers and farmers
• Offers a strong hedge against raw material price volatility
Enables maintenance of strict biosecurity standards
•
throughout entire production process
Enhances quality control
•
Management believes MHP is the lowest cost chicken meat pro-
ducer in Ukraine and one of the lowest cost chicken meat pro-
ducers worldwide*. One of the key drivers for this efficiency is
the Company’s vertically-integrated business model, as well as
intensive and efficient capex.
MHP owns and operates each of the key stages of chicken pro-
duction processes (please see page 26 for more information on
our business model). MHP has been self-sufficient in fodder and
corn since 2005 and 2008 respectively, and began producing
soybean protein and oil in 2015. The internal production of sun-
flower and soybean protein reduces dependence on third-party
farmers and significantly reduces MHP’s fodder production costs.
In addition, MHP’s land plots are consolidated at its grain grow-
ing enterprises. This enables MHP to achieve economies of
scale and supports vertical integration due to the close proximi-
ty of MHP’s facilities, the efficient use of machinery and reduced
transport and storage costs. Such vertical integration reduces
MHP’s dependence on third-party suppliers and controls its ex-
posure to increases in raw material prices.
Vertical integration creates synergies in a number of other areas
and reduces per unit costs. In addition, it allows MHP to maintain
strict biosecurity and to control the quality of its inputs. This is
important in an increasingly regulated industry and secures the
quality and traceability of products through to the point of sale.
*Source: MHP research
STRATEGIC REPORT
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ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
11
DIVERSIFIED SALES STRATEGY —
BOTH FOR EXPORTS AND
DOMESTICALLY
DOMESTIC MARKETS
EXPORT MARKETS
• Helps broaden domestic customer base
• Helps achieve better pricing by creating a competitive
balance between principal distribution channels
•
•
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Targeted route-to-market strategy
Supplemented by acquisitions
Additional “hard currency” revenue
MHP distributes its chicken products mainly through super-
markets, hypermarkets and its network of 1,970 branded
points of sale (as at 31 December 2018). It also sells some of
its chicken products to meat processors, butchers’ shops (in-
dependent meat shops) and foodservice businesses.
MHP supplies chicken and various other meat products to a
number of nationwide supermarket chains. This makes MHP’s
products widely available, helping to increase sales volumes
as these retailers continue to expand throughout Ukraine.
MHP believes that its diversified sales structure helps to broad-
en its customer base and to achieve better pricing by creating a
competitive balance between its principal distribution channels.
Since 2008, MHP has been developing and delivering upon its export
strategy, growing exports to the CIS (Commonwealth of Independent
States), MENA (Middle East and North Africa), the EU, Africa and Asia.
In 2018, MHP exported 286,846 tonnes of chicken meat to 82 coun-
tries, compared to 220,983 tonnes of chicken meat in 2017 to 63 coun-
tries, representing year-on year volume growth of 30%.
MHP will continue to diversify its production and marketing bases in
key export markets through carefully targeted acquisitions. In addi-
tion, the Company has a clear and focussed route-to-market strategy
for Europe, the GCC (Gulf Cooperation Council) and MENA regions.
In keeping with this strategy, MHP established local operations in the
Netherlands and the UAE in 2016, and in Slovakia in 2017.
STRATEGIC REPORT
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ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
12
LEADING MARKET
POSITION AND
STRONG BRANDS
•
•
•
Reputation for quality
Enables realisation of economies of scale
Competitive advantage over existing competition
and potential new entrants
MHP is the leading producer of poultry products in Ukraine, with
an approximate 30% share of the production of poultry for con-
sumption in Ukraine in 2018, according to MHP’s calculations.
MHP has strong brands in the consumer markets in which it oper-
ates and intends to continue focussing its marketing efforts on en-
hancing the value of its brands and expanding its customer base.
MHP’s established market position and reputation for quality en-
hances its ability to negotiate advantageous terms. MHP’s scale
helps it to realise production and marketing economies of scale
and positions the Company to capitalise on the expected contin-
ued growth and development of the Ukrainian market.
STRATEGIC REPORT
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ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
13
CONSERVATIVE
FINANCIAL
POLICY AND
STRONG TRACK
RECORD
•
The Company recognises the importance of strong corpo-
rate governance in line with good international practice
•
The Company continues to demonstrate strong financial
management and performance
The Board has adopted the UK Corporate Governance Code
(“the UK Code”) as the appropriate international governance
benchmark. This decision was based on the Board’s opinion
that the UK Code is viewed by the investment community as
a strong international governance standard. Additionally, the
Board views this standard as appropriate, given the Company
has had its global depositary receipts (“GDRs”) listed on the
GDR Main Market of the London Stock Exchange since 2008.
MHP has established a strong track record in international capital
markets over the past ten years, demonstrating its access to ex-
ternal funding to support investment as and when required. MHP
has fully honoured all of its capital markets’ borrowing obligations
since its debut issuance in 2007, including during the 2014 - 2016
crisis in Ukraine. This included a fully paid Eurobond in 2015 and
Eurobond refinancings in 2017 and 2018.
MHP has in place a conservative financial policy, aiming to main-
tain a net debt to EBITDA ratio of less than 3.0x.
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
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HIGHLY EXPERIENCED
MANAGEMENT TEAM AND
BOARD SUPPORTED BY
MOTIVATED EMPLOYEES
•
Considerable agro-industry and food products industry
expertise
• Well-placed to identify and capitalise on future market op-
•
portunities in line with the Company’s ambitions to become
a global protein producer, including potential M&A
Successful track record of deal execution furthering the
Company’s international expansion, including in the EU
(the Netherlands and Slovakia) and the GCC
MHP’s senior management team largely comprises experienced
professionals who have worked closely and effectively together
at the Company since 1998. Together they have over 100 years’
combined agro-industry experience.
Our Board has significant and varied experience in the industry and
also in M&A, including the successful integration of acquisitions and
change management. This depth of experience will be invaluable
as we continue to implement our international growth strategy.
Senior management is supported by our highly skilled and
knowledgeable workforce, comprising over 28,500 employees
based in Ukraine and abroad. We are committed to investing
in our people’s development and to providing opportunities for
them to realise their full potential.
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
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FOCUS ON
CONSUMER-
DRIVEN
INNOVATION
FOREFRONT
OF INDUSTRY
INNOVATION
• Well-positioned to capitalise on the consumer-driven
move towards healthier, higher quality food and
convenience foods
• Development of Centre of Innovation since 2018
MHP continues to promote and develop its strong brands
through consumer-driven innovation and the introduction of
new products. This enables it to both attract new customers
and retain existing customers.
MHP’s consumer-driven innovation addresses a shifting trend
among consumers in Ukraine towards the consumption of
higher quality food, as well as affording MHP flexibility in the
product ranges it offers to different markets.
MHP prides itself on being at the forefront of industry innovation.
The Company has been developing a Centre of Innovation since
2018 that will lead to centres of excellence in meat science; health
and nutrition; and innovative new products in value-added and
shelf-stable products.
Since 2018, in partnership with IBM, the Company has been fo-
cussing on blockchain traceability, which covers: full traceability
of grain production; animal welfare; commodity non-GMO compli-
ance; and food safety issues across the whole integrated chain.
STRATEGIC REPORT
ANNUAL REPORT 2018
COMPETITIVE STRENGTHS
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MODERN PRODUCTION
ASSETS AND TECHNOLOGY
Enables the manufacture of high-quality products
Enables cost savings
•
•
• Optimisation of yields in grain growing operations
D
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MHP employs modern production assets at its various produc-
tion facilities and the Management believes that MHP’s chicken
farms and facilities are amongst the most modern and efficient
in the world.
Management believes that the benefits of its modern equipment
and advanced technologies are reflected in MHP’s favourable
performance indicators, such as low chicken mortality rates and
production costs.
Much of MHP’s production process is automated, which ensures
and promotes consistently high-quality products in a cost-effec-
tive manner. MHP sources the equipment for its chicken produc-
tion facilities mainly from leading European suppliers.
MHP applies up-to-date farming practices supported by modern
machinery in its grain cultivation business which helps optimise
yields and reduce wastage and consumption of fuel.
STRATEGIC REPORT
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COMPETITIVE STRENGTHS
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HIGH BIOSECURITY
AND ANIMAL WELFARE
STANDARDS
•
•
•
Company standards are in line with Ukrainian legislation
and international best practice
Ensures animal welfare
Enhances the Company’s reputation for reliability and quality
MHP employs strict biosecurity measures throughout the poul-
try production process to minimise the risk of contamination and
disease at its chicken production facilities.
sale partners and monitors compliance through frequent ran-
dom inspections. In addition, MHP complies with the high hy-
giene standards of its retail customers.
Management believes MHP’s biosecurity both complies with
Ukrainian legislation and follows international best practice.
MHP imposes strict hygiene standards on its branded points of
MHP complies with EU Animal Welfare standards and undertakes
steps to improve living conditions of animals at rearing sites, fol-
lowing international best practice and recommendations.
STRATEGIC REPORT
ANNUAL REPORT 2018
CHAIRMAN’S STATEMENT
18
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TARGETED
INTERNATIONAL GROWTH STORY
SUPPORTED BY DOMESTIC STRATEGY
CONTINUING STRONG GROWTH IN 2018 WITH
SIGNIFICANT PROGRESS ACHIEVED IN POULTRY
EXPORTS VOLUMES (UP 30% YEAR-ON-YEAR)
AND WITH OUR EXPORT DESTINATIONS NOW
COMPRISING OVER 80 COUNTRIES (2017: 63
COUNTRIES)
The Company’s international expansion was furthered in Febru-
ary 2019 with the completion of the acquisition of PPJ (Perutnina
Ptuj, Slovenia) in the Balkans, and delivers upon our strategy to
become a global protein producer. We are well-positioned to cap-
italise on future opportunities and will continue to actively monitor
other potential M&A targets, both in poultry production and in the
meat-processing industry, in Europe and in the Middle East.
Dear Shareholder,
MHP continues to deliver on its targeted international growth strategy supported by a market-lead-
ing position in ots domestic markets. The Company posted strong growth during 2018 with respect
to both Ukraine domestic sales and export sales. Year-on-year revenue growth in 2018 was 21% to
US$ 1,556 million (2017: US$ 1,288 million) with export revenue growth of around 26% year-on-year
to US$ 924 million, representing 59% of the Company’s total revenue.
MHP continued to demonstrate strong financial management and performance. During 2018, MHP’s
vertically-integrated business model enabled the Company to maintain its track record of delivering a
high profit margin in challenging market conditions. The Company reported adjusted EBITDA* of US$
450 million (2017: US$ 459 million) and an adjusted EBITDA margin of 29% (2017: 36%); Adjusted EBIT-
DA margins have consistently been in the 26% in 2013 to 38% in 2014 range over the past 15 years.
* Earnings before interest, tax,
depreciation and amortisation.
STRATEGIC REPORT
THE BOARD HAS
RECOMMENDED AN
INTERIM DIVIDEND OF US$
0.7474
PER SHARE
* Source: 2000-2016
DYNAMIC MARKETS
2018 presented arguably the most unpredictable set of trading
conditions ever seen in the global poultry industry. Sanctions
implemented by the US administration have significantly af-
fected trade flow in both meats and commodities and caused
significant disparities between commodity and meat prices
globally. Poultry trade flows continued to be influenced by
the conditions in Brazil which have led to significant difficul-
ties for poultry companies domiciled there and which have in
turn triggered insolvencies and consolidation in the industry.
In addition, changes to regulations in Saudi Arabia in relation
to halal processing disrupted poultry flows to the Kingdom,
the largest market in the MENA region. Elsewhere, the impact
of Brexit is yet to be seen: it has the potential to have some
impact on EU markets.
Global meat protein flows and prices will be further affected by
the outbreak of African Swine Fever in China. This is a disease
that is causing major disruption in pork production and it is likely
to spread to Asia and particularly South East Asia with unprece-
dented consequences. The likely outcomes are higher levels of
poultry consumption at higher prices.
DELIVERING ON OUR STRATEGY
During 2018, MHP completed its second-stage expansion of
the Vinnytsia production facilities primarily dedicated to the
EU, Middle Eastern and African markets. It is well on track to
enable the Company to meet its target up to 840,000 tonnes
of increasing overall poultry production capacity from Ukraine
(including poultry by-products) in 2022e.
Our active and targeted M&A strategy that includes the EU,
Middle East and United Kingdom, continues to drive MHP’s in-
ternational growth story. At the beginning of 2019, the Group
completed the acquisition of Perutnina Ptuj, an integrated poul-
try company based in Slovenia that has outstanding value-add
and further-processed production facilities; it is also the stron-
gest brand* in the region. Perutnina Ptuj has one of the largest
ANNUAL REPORT 2018
CHAIRMAN’S STATEMENT
19
market shares* in the Balkans and has sales, marketing and
distribution facilities across seven countries. The acquisition
will bolster MHP’s processing expertise and further strength-
en middle management resources and marketing abilities.
One of the key tenets of our M&A strategy is the presence of
high-quality management teams at our acquired companies.
The Group continued on its previously-stated long-term funding
strategy with an additional bond issuance in April 2018 of US$ 550
million with an 8-year tenor at 6.95%, well below sovereign rates.
The Company has maintained, and will continue to maintain, its
net debt to EBITDA ratio below the bond covenants (3x) and the
increased hard currency revenues from export sales have fur-
ther increased the ability to more than fully service foreign-cur-
rency denominated debt.
DIVIDEND
The Board has recommended an interim dividend of US$ 0.7474 per
share, amounting to US$ 80 million (2017: US$ 0.7492 per share).
The Board remains committed to a dividend that maintains a bal-
ance between the need to invest in further development at the
Company and the right of shareholders to share in the net profit
of the Company.
CORPORATE GOVERNANCE
The Company recognises the importance of strong corporate gov-
ernance in line with good international practice. It is conducting a
programme to develop over time its already robust procedures.
As part of this process and subsequent to the migration of the reg-
istered office from Luxembourg to Cyprus, during 2018 the Compa-
ny (with the support of its professional advisors) reviewed its own
governance codes, related policies and terms of reference.
STRATEGIC REPORT
ANNUAL REPORT 2018
CHAIRMAN’S STATEMENT
20
Based on the review’s findings, the Board decided to adopt the
UK Corporate Governance Code as the appropriate international
governance benchmark. This decision was based on the Board’s
opinion that the UK Code is viewed by the investment commu-
nity as a strong international governance standard. Additionally,
the Board views this standard as appropriate given the Compa-
ny’s listing in London. MHP intends to pursue greater adoption of
the UK Code’s principles and provisions and has prepared a gap
analysis for investors and other interested stakeholders (see page
77 of this Report).
OUR PEOPLE
2018 marked MHP’s 20th anniversary. Perhaps what marked
this milestone most clearly was the enormous depth of loyalty
shown by the more than 28,500 people who are employed by
the Company (based both in Ukraine and abroad) demonstrating
the results of years of the Company’s commitment to investing
in employee development. We are proud to say that the com-
mitment of our employees underpins the foundations on which
MHP’s success has been built.
Christakis Taoushanis was appointed to the Board as Non-Ex-
ecutive Director in July 2018. Mr Taoushanis has over 30 years’
experience in banking in Europe and Asia (see Mr Taoushanis’
biography on page 84). Following a recommendation from
the Audit Committee, and with the agreement of the Board,
Christakis joined the Audit Committee as of 19 March 2019.
Roger Wills was appointed to the Board as a Non-Executive Di-
rector in December 2018. Mr Wills has senior finance and M&A
experience, particularly in Russia and Eastern Europe with sig-
nificant experience in this field within the poultry, meat and ag-
riculture industries. Following recommendations from both the
Audit and the Nominations and Remuneration Committees, and
with the agreement of the Board, Roger joined both committees
as of 19 March 2019 (see Mr Wills’ biography on page 85).
These recent Board appointments bring with them significant
and varied experience in M&A and, importantly, in the successful
integration of acquisitions and change management. This depth
of experience will be invaluable as we continue to implement
our international growth strategy.
During 2018 the Company continued to invest in its people and
the communities around its operations and to undertake a num-
ber of social projects and cooperation programmes with local
universities and schools.
William Richards stepped down from the Board in October 2018
for personal work-related reasons. I would like to thank Will for his
contribution over the last year and to wish him well for the future.
BOARD DEVELOPMENTS
During the year, three new Non-Executive Directors were ap-
pointed to the Board as part of a process the Company has un-
dertaken to develop Board independence, knowledge and skills.
Roberto Banfi was appointed to the Board as Non-Executive Di-
rector in June 2018. Mr Banfi brings with him a wealth of experi-
ence in the poultry industry, in particular in sales, marketing and
distribution in the MENA and EU regions where he previously
held a very senior position with BRF International (see Mr Banfi’s
biography on page 83).
As part of the continuing development programme for Board
members, it was agreed that each Non-Executive Director would
attend a series of relevant training sessions in the UK organised
by organisations such as the Institute of Directors and the large
accountancy firms. The aim of this training is to ensure that the
Board is always fully conversant with the latest developments
and best practice in matters including corporate governance, cor-
porate responsibility, accounting standards and cyber security.
STRATEGIC REPORT
EMPLOYEES
STAKEHOLDER ENGAGEMENT, LOCAL COMMUNITIES
AND HUMAN RIGHTS
The conduct of all MHP’s business activities is aligned with
international human rights and best practice stakeholder en-
gagement principles. The Company is supported in achieving
these aims by its network of experienced advisors.
During 2018, in partnership with both IFC World Bank and
the EBRD, the Company was pleased to support the ap-
pointment of independent consultants to review and devel-
op its approach to this important aspect of its activities. The
Board and the Company are keen to foster mutually bene-
ficial cooperation with local communities and stakeholders.
INNOVATION, RESEARCH AND DEVELOPMENT
At MHP, we pride ourselves on being at the forefront of industry
innovation.
I note a few of the exciting Company developments in this area:
•
•
• Centre of Innovation: Since 2018, the Company has been
developing a Centre of Innovation that will lead to centres of
excellence in meat science; health and nutrition; and innova-
tive new products in value-added and shelf-stable products.
Food traceability: Since 2018, the Company has been fo-
cussing on blockchain traceability, which covers: animal
welfare; commodity non-GMO compliance; and food safety
issues across the whole integrated chain.
Antibiotic-free poultry company: MHP aspires to be the
first major poultry company globally to be antibiotic-free.
Long-term strategy to be carbon neutral: MHP has also
put in place a long-term strategy to become carbon neu-
tral for every kilogram of poultry meat produced, another
world first. Since 2018, the Company has been constructing
its second and largest biogas facility (24 MW) at the Vinnyt-
sia Poultry Complex, which will reach its full capacity in two
years. This is another important step in the Company’s target
of becoming carbon neutral in its production of poultry meat.
•
ANNUAL REPORT 2018
CHAIRMAN’S STATEMENT
21
MHP is committed to maintaining and continually seeking to
improve its market-leading animal welfare and product quali-
ty standards. Our unique, vertically-integrated business model
facilitates 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.
LOOKING FORWARD
2019 is expected to be turbulent in relation to global markets
and trade flows, making market predictions more challenging.
Against this backdrop, MHP will continue to develop and deliver
upon its long-term growth strategy. This is being achieved by
two means: firstly, generating export growth, both organically,
focussing on distribution and routes to market, and by target-
ed acquisitions; secondly, by MHP’s domestic focus on higher
value-added products. This gradual domestic shift to high-
er-margin products will be driven by the strategic substitution of
lower-margin frozen chicken in favour of higher-margin consum-
er-driven meat product sales.
MHP continues to be well-positioned to deliver further in-
creases in both revenue and profit in 2019, driven by increas-
ing production, mainly from the Poultry and Related Opera-
tions segment, and by the recent acquisition of Perutnina Ptuj
in the Balkans.
Dr John Rich, Chairman
1 April 2019
STRATEGIC REPORT
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ANNUAL REPORT 2018
CEO’S STATEMENT
22
EXPORT GROWTH SUPPORTED BY DOMESTIC
FOCUS ON HIGHER-MARGIN PRODUCTS
During 2018 we enjoyed another year of firm progress in terms of
capacity and sales growth, at the same time as continuing to focus
on putting in place the foundations for further development. I’d like
to highlight in particular the solid start to the construction of Phase
2 of the Vinnytsia poultry complex with additional volumes pro-
duced and exported; the construction of the second biogas com-
plex; and the establishment of the Centre of Innovation.
In line with our strategy of further expansion and growth outside
Ukraine, we completed the acquisition of a Slovenian poultry and
meat-processing company in early 2019. We have also been suc-
cessfully developing our international projects in Slovakia, the
Netherlands, and GCC.
MHP has continued to demonstrate itself to be a strong and prof-
itable company underpinned by its vertically-integrated business
model and driven by its low-cost leadership position, adherence
to high standards, drive for innovation and intensive investment
programme, strong management team and talented employees.
STRATEGIC REPORT
MARKETS AND ENVIRONMENT
Our stakeholders will be aware that, particularly in recent years,
the geopolitical and macroeconomic situations in Ukraine have
been improving. In particular, Ukraine is experiencing annual GDP
growth of around 2.5-3.0%, as well as enjoying the relative stability
of its currency and the continued development and investment into
a number of industries, especially that of agriculture.
PERFORMANCE HIGHLIGHTS IN 2018
During the year, we consolidated our position as the leading in-
dustrial producer of chicken meat in Ukraine. Total poultry sales
increased by 11% year-on-year to around 593,000 tonnes, with
sales in Ukraine remaining stable.
We continued to execute upon our strategy of diversification of
sales. Poultry exports increased by 30% year-on-year and the
number of countries to which we export our poultry increased
from 62 to over 80. Growing our international reach remains a
strategic imperative for MHP and in 2018 we exported around
286,846 tonnes of poultry meat mainly to the EU, MENA and
Africa. Poultry exports constituted around 48% of total poultry
sales volumes (2017: 41%).
Our financial results were in line with Management expecta-
tions, with adjusted EBITDA of US$ 450 million (2017: US$ 459
million) and an adjusted EBITDA margin of 29% (2017: 36%). Ex-
ports of poultry, oils and grains generated a further increase in
hard currency revenues to US$ 924 million (2017: US$ 732 mil-
lion), thereby growing the proportion of hard currency revenue
from 57% to 59% of total Group revenue.
BUSINESS REVIEW
MHP made significant progress on several fronts during the year:
•
Efficient production growth. Our production facilities
across all of our business segments continued to operate
ANNUAL REPORT 2018
CEO’S STATEMENT
23
at full capacity. Production at our Poultry & Related Oper-
ations segment increased by an additional 30,000 tonnes
due to the launch of Phase 2 of the Vinnytsia poultry com-
plex and brought us additional hard currency revenues.
•
Eurobond issue. In April 2018, MHP successfully complet-
ed a Eurobond transaction involving the repurchase of US$
416 million Eurobonds 2020 and issue of a new US$ 550
million 8-year Eurobond with a coupon of 6.95%.
Our Grain Growing segment showed outstanding results
both in terms of yields, with a record harvest of corn of 10.9 t/
ha in net weight, and in terms of adjusted EBITDA per ha (US$
416 compared with US$ 267 in 2017), thereby demonstrating
MHP’s leadership position within our peer group in Ukraine.
Our Other Agricultural segment has continued to expand
its range of value-added products to satisfy consumer de-
mand and taste, showing positive results in sales.
•
Future growth: Ukraine and international expansion. In line
with our strategy, we will continue to grow both domestical-
ly in Ukraine and in export markets. The capacity increase
at the Vinnytsia poultry complex is expected to be our main
driver of growth over the next 3-5 years and will result in an
increase in overall poultry production capacity to around
840,000 by 2022e (compared with 617,943 tonnes in 2018).
The next major step in our expansion strategy is to suc-
cessfully integrate and subsequently develop our recently
acquired company in Slovenia, Perutnina Ptuj. Perutnina
Ptuj’s current annual poultry production capacity consti-
tutes around 80,000 tonnes and it sells this produce into
22 EU countries. This company will provide a platform for
further development and opportunities in the EU with fur-
ther capacity expansion planned over the next 3-5 years.
We will also continue to monitor and explore potential
M&A opportunities, in particular in Europe and MENA, and
to develop export market opportunities worldwide from
our cutting facilities in the EU and our sales & distribution
office in UAE.
• Our people and their development. It is important for me
and for the Company that we work together and share our
success with talented, innovative, strong, self-motivated,
smart, experienced people, who strive to achieve new, dif-
ferent and ambitious goals. We are committed to maximis-
ing opportunities for the people working with us and we
have in place a number 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 demon-
strating drive and an entrepreneurial spirit and approach.
Our search is helped significantly by our “MHP Start” proj-
ect for university students.
• Communication with stakeholders. MHP has an ongoing
programme of cooperation with our main stakeholders –
employees, partners (clients), local communities and in-
vestors. Our employees are residents of the villages and
cities where the Company operates meaning that we are
in constant collaboration with local communities. We have
been focussing our efforts on the principles of sustainable
development and partnership, engaging local communities
in joint projects. Working together, we are able to improve
the quality of life within communities and regions, ensuring
the sustainable development of both MHP and Ukraine. We
produce quality products for our partners (clients) and in-
vest in new equipment and new technology in compliance
with international standards.
STRATEGIC REPORT
STRATEGY AND PRIORITIES FOR 2019
Our strategy can be found in the Management Report on page 96.
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 our focus on exports, cementing our position in
existing territories and exploring and capitalising on new
opportunities;
to continue to investigate potential targeted acquisitions
and joint ventures, both in Europe and the MENA regions;
to maintain our investment in people and build on our reputation
as a high-quality, responsible and transparent employer; and
to promote the sustainable development of the business,
with a particular focus on our environmental impact (in-
cluding alternative energy projects), animal welfare and
corporate responsibility.
ANNUAL REPORT 2018
CEO’S STATEMENT
24
OUTLOOK
In 2019, 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 sus-
tainable growth enabling us to deliver strong operational and
financial performances in 2019 and beyond.
Yuriy Kosyuk,
CEO and founder of MHP
1 April 2019
INCREASING TOTAL
POULTRY PRODUCTION
LEVELS TO AROUND
840,000
TONNES PER YEAR BY 2022e
BUSINESS
REVIEW
26
29
37
40
44
47
49
52
71
Business Model
Poultry and Related
Operations Segment
Grain Growing Segment
Other Agricultural Segment
Key Performance Indicators
Financial Policies
Financial Review
Risk Management
Corporate Responsibility
S
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OUR VISION — TO BE A WORLD-LEADING
PROTEIN AGRI-BUSINESS THROUGH STEADY
FINANCIAL, ECONOMIC AND OPERATIONAL
GROWTH AND CONTINUOUS BUSINESS
EFFICIENCIES
BUSINESS REVIEW
OUR BUSINESS MODEL
ANNUAL REPORT 2018
BUSINESS MODEL
27
HOW WE GENERATE REVENUE HOW WE CREATE VALUE
OUR ASSETS
POULTRY
& RELATED
OPERATIONS
SEGMENT
We produce and sell
chicken meat (fresh and
frozen); vegetable oils
(sunflower and soybean);
and mixed fodder
GRAIN
GROWING
SEGMENT
We grow crops for
fodder production and
for sale to third parties
US$ 1,241
million revenue
617,943
tonnes of poultry
produced
US$ 181
million revenue
2,654,422
tonnes of crops
produced
OTHER
AGRICULTURAL
SEGMENT
We produce and sell
sausage and cooked
meat; convenience foods;
and produce from cattle
and milk operations
US$ 134
million revenue
51,547
tonnes of meat
products produced
SUSTAINED INVESTMENT IN CAPEX AND R&D
Our sustained CAPEX and R&D programmes have enabled consistent
production expansion, rigorous cost control, developed and main-
tained product quality, and ensured high standards of product safety.
OUR PEOPLE
We have a highly skilled and knowledgeable workforce, an
experienced management team and we are committed to
continuously investing in training and development.
MARKETPLACE
We are always looking to expand into new markets for our
products and now sell our products to over 80 countries.
INNOVATION
We look for dynamic and innovative ways of developing our
production and agricultural processes to improve efficiency, drive
down costs and reduce our environmental impacts.
LONG-TERM CASH AND REVENUE GENERATION
Our businesses have a consistent track record of revenue and cash
generation providing a solid platform for value creation.
VERTICALLY-INTEGRATED STRUCTURE
Our structure differentiates us from our peers, and enables us to
reduce our dependence on third-party suppliers and our exposure
to raw material price volatility. It also ensures the maintenance of
strict biosecurity standards throughout the production process.
MODERN AND EFFICIENT PRODUCTION ASSETS
Our investment has enabled us to employ modern production
assets and the Company believes that its chicken farms are
amongst the most efficient in the world.
STRONG BRANDS
Our brands have a high degree of domestic recognition with a
reputation for quality, enabling products to be sold at premium prices.
BUSINESS REVIEW
ANNUAL REPORT 2018
BUSINESS MODEL
28
WHAT
WE DO
MHP’S GRAIN PRODUCTION
SATISFIES ALL OF THE
COMPANY’S CORN
REQUIREMENTS.
We control approximately
370,000 hectares of land in
Ukraine (long-term lease) with
a harvest of >2.5 million tonnes
per annum.
WE USE CRUSHING TECHNOLOGY
FOR PRODUCING PROTEIN
FROM SUNFLOWER SEEDS/SOYA
EXTRACTION.
The US$ exports of cakes,
oils and granulated husk provide
a natural hedge.
ALL MHP’S QUALITY
CONTROLLED FODDER IS
GMO-FREE AND PRODUCED
AT MHP’S THREE FODDER
MILLS (2018: 1.66 MILLION
TONNES).
MHP has 1.6 million cubic
metres of grain storage
facilities.
GRAIN GROWING
SUNFLOWER AND SOYBEAN
PROTEIN PRODUCTION
FODDER PRODUCTION
ALL THE MANURE AND
HUSKS PRODUCED BY
MHP’S ACTIVITIES ARE USED
IN BIOGAS PRODUCTION.
A 5 MW project is complete and a 24 MW project is
under construction. The first stage of that project, a
12 MW plant, which will be launched in the middle
of 2019, the work enabling enhanced environmantal
management and control. The project demonstrates
the Company’s commitment to reducing greenhouse
gas emissions and robust environmental management.
BIOGAS
40% OF POULTRY IS SOLD VIA
BRANDED OUTLETS.
Approx. 1,970 dedicated outlets.
100% OF DOMESTIC POULTRY
DELIVERED TO CUSTOMERS
WITHIN 24 HOURS.
МНР has a fleet of around 400
vehicles and 11 distribution centres
in Ukraine.
PRODUCTION OF MEAT-
PROCESSING PRODUCTS
WITH GROWING MARKET
SHARE OF VALUE-ADDED
PRODUCTS.
100% OF POULTRY GROWN AND
PROCESSED AT OWN FACILITIES.
3 vertically-integrated poultry
complexes, from hatching to rearing
and processing, managing 6.6 million
heads per week. Compliance with
EU Animal Welfare standards and
production standards at all stages of
the process.
100% SELF-SUFFICIENCY IN
HATCHING EGGS.
2 breeding farms with around
459 million hatching eggs
produced in 2018.
RETAIL
DISTRIBUTION
MEAT-PROCESSING
POULTRY PRODUCTION
HATCHING EGGS
BUSINESS REVIEW
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
29
D
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KYIV
617,943
TONNES OF POULTRY
MEAT PRODUCED IN 2018
POULTRY
FODDER COMPLEXES AND ELEVATORS
• Vinnytsia Poultry Complex
• Vinnytsia Fodder Complex
•
(greenfield, broiler)
Myronivka Poultry Complex
(greenfield, broiler)
Oril Leader (broiler complex)
•
• Starynska Nova (breeding complex)
Peremoga Nova (breeding 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
BUSINESS REVIEW
KEY OPERATIONAL DATA
POULTRY
Production volume, tonnes
Sales volume, third party tonnes
Export sales volume, third party tonnes
Price per 1 kg net of VAT, UAH
SUNFLOWER OIL
2018
617.943
593,527
286,846
39.86
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
30
2017
% change
566.242
532,727
220,983
35.63
Sales volume, third party tonnes
315,079
311,393
SOYBEAN OIL
Sales volume, third party tonnes
50,044
27,282
KEY FINANCIAL DATA
in mln. 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)
2018
1,241
973
268
(1)
301
24%
311
25%
0.53
2017
1,051
795
256
29
311
30%
367
35%
0.64
9%
11%
30%
12%
1%
83%
% change
18%
22%
5%
-103%
-3%
-6 pps*
-15%
-10 pps
-17%
* pps — percentage points
BUSINESS REVIEW
PHASE 2
OF THE VINNYTSIA POULTRY COMPLEX NOW IN OPERATION
PRODUCTION
MHP is a long-term growth story with export growth supported
by a domestic focus on higher-margin products (e.g. boneless
chicken thigh meat).
Chicken meat is produced at MHP’s Ukraine-based facilities in
four principal stages: production of hatching eggs; hatching;
grow-out; and processing. MHP’s chicken production facilities
include three principal chicken broiler complexes, two breeding
farms and three fodder complexes.
MHP continues to invest in Ukraine. In Q2 2018, MHP launched
the Phase 2 production sites at the Vinnytsia Poultry Complex
(“the Complex”) including three rearing sites (brigades) and a
slaughterhouse. Utilisation of this new capacity has been in-
creasing gradually during H2 2018.
Other poultry production facilities continued to operate at full
capacity during the period.
In 2018, MHP’s chicken farms produced 617,943 tonnes of chick-
en meat (2017: 566,242 tonnes), 9% higher volumes year-on-
year due to the rearing of chickens of a greater average weight,
decreased levels of thinning and the launch of new rearing sites
at Phase 2 of the Complex.
Over 87% of MHP’s poultry was produced at the Company’s green-
field facilities — the Vinnytsia and Myronivka poultry complexes.
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
31
The fodder complexes include three sunflower crushing plants,
one soybean extraction plant, and storage facilities for 1,590 mil-
lion m3 tonnes of grain. Approximately 694,395 tonnes of grain
can be stored in plastic bags.
MHP produces an extensive range of chicken products, primarily
chilled and some frozen. These products have industry-leading
hygiene and safety records and there have been no material
incidents of this type in recent years. MHP is constantly looking
to enhance its product quality and has a long-term aim to be
an industry leader in the reduction of saturated fat levels in its
poultry products.
POULTRY SALES AND PRICES
MHP’s competitive strengths include its leading market position
and high brand recognition domestically with poultry products
sold at premium prices. Sales of chilled chicken products are
made direct to retailers (including supermarkets), branded part-
nership networks, food service customers (hotel, restaurant and
cafeteria operators, or “HoReCa”) and producers of processed
meat products. Substantially all of MHP’s chilled chicken prod-
ucts are sold under the “Nasha Riaba” brand. 11 Ukrainian dis-
tribution centres ensure the efficient delivery of fresh poultry
products to customers.
87%OF MHP’S POULTRY WAS
PRODUCED AT THE COMPANY’S
GREENFIELD FACILITIES
BUSINESS REVIEW
30%INCREASE YEAR-ON-YEAR IN
POULTRY EXPORT SALES
IN 2018
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
32
In 2018, MHP sold 52% of its poultry products in Ukraine and
48% for export. Total poultry sales in 2018 increased by 11% to
593,527 tonnes (2017: 532,727 tonnes) driven predominantly by
the export growth strategy.
POULTRY EXPORTS
MHP’s strategy for export operations focusses on the diversifi-
cation of sales and on market targeting – delivering the right
products to the right markets.
MHP’s domestic sales growth is in line with the broader local mar-
ket. Annual poultry sales in the domestic market (both fresh and
frozen) remained relatively stable year-on-year and this steady
domestic poultry market provides good earnings visibility.
The average chicken meat price increased 12% year-on-year
to UAH 39.86 per kg excluding VAT. This year-on-year price
increase was mainly driven by export price growth as a result
of product mix optimisation undertaken by the Company in line
with its export strategy, as well as an increase in fresh poultry
prices in Ukraine.
In US$ terms, average MHP poultry prices in 12M 2018 increased
by 9% year-on-year.
During the last four years, the Company has significantly grown
its export of frozen and fresh chicken products primarily to the
GCC, the EU, Africa and Asia. In 2018, poultry exports increased
by 30% to 286,846 tonnes (2017: 220,983 tonnes). This was
driven by significant exports in H2 2018, mainly to Saudi Arabia,
Slovakia, Iraq and the Netherlands. Out of total poultry sales
volumes, poultry exports constituted around 48% in 2018 (2017:
41%), with exports to 82 countries in 2018 (2017: 63 countries).
DOMESTIC AND EXPORT POULTRY SALES SHARE
POULTRY: TOTAL AND EXPORT SALES VOLUMES
(‘000 TONNES)
48%
Export
52%
Domestic
41%
Export
59%
Domestic
2018
POULTRY SALES
BY MARKETS
2017
POULTRY SALES
BY MARKETS
600
500
400
300
200
100
0
594
533
287
221
2018
2017
Poultry Total Sales
Export
BUSINESS REVIEW
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
33
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IN 2018 MHP’S STRATEGY OF DIVERSIFICATION AND
MARKET TARGETING DROVE A 30% YEAR-ON-YEAR
INCREASE IN POULTRY EXPORT VOLUMES
EXPORT VOLUMES (TONNES) OF CHICKEN MEAT BY REGION IN 2018
286,846
tonnes of chicken
meat exports
82
export
countries
4
international
offices*
35%
EU
34%
Middle East
and Northern Africa
15%
CIS
11%
Africa
5%
Other (including Asia)
*Slovakia, the Netherlands, UAE
and Slovenia (since February 2019)
BUSINESS REVIEW
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
34
FUTURE GROWTH
MHP is progressing with the construction and launch of production
sites at the Vinnytsia poultry complex in line with the Company’s
investment plan. When finished, this second phase of Vinnytsia
will comprise two lines delivering an annual chicken meat capaci-
ty of 260,000 tonnes and increasing MHP’s overall annual poultry
production capacity to an expected 840,000 tonnes by 2022e.
MHP has been constructing the first phase of its alternative ener-
gy biogas plant during 2018 with a launch expected in the mid-
dle of 2019. This first phase has an annual capacity of 12 MW per
annum: the plant is expected to reach an annual capacity of 24
MW within two years, two phases. This biogas plant is core to the
Vinnytsia project.
PRODUCTION INCREASE SCHEDULE (‘000 TONNES)
1000
750
500
250
0
*
840THOUSAND TONNES POULTRY
PRODUCTION CAPACITY BY 2022e
CAGR (2018–2022e): 10%
Vinnytsia (Phase 2) 260,000 tonnes
CAPEX US$ 420 million
707
120
750
40
130
618
30
810
100
130
840
130
130
259
270
270
270
270
CAGR (2013–2016): 8%
Vinnytsia (Phase 1)
260,000 tonnes
CAPEX US$ 750
million
Myronivka Complex –
220,000 tonnes
CAPEX US$ 550 million
566
259
453
100
353
220
220
133
133
173
40
133
133
2005
2007
2010
229
251
235
235
235
235
133
2013
80
2017
78
2018
75
75
75
75
2019E
2020E
2021E
2022E
Existing Capacity
Myronivka
Vinnytsia, Phase #1
Vinnytsia, Phase #2 (Line 1)
Vinnytsia, Phase #2 (Line 2)
Total
BUSINESS REVIEW
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ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
35
NASHA RIABA
QUALIKO
АSSILAH
AL HASSANAT
Ukraine
Chilled
Whole, parts
MHP ownership
Export (all destinations)
Chilled, frozen
Whole, parts
MHP ownership
Export
(except the EU and Asia)
Frozen
Whole, parts
Export (Iraq)
Frozen
Whole, parts
MHP’s ownership
Partner ownership
UKRAINIAN CHICKEN
UKRAINIAN CHICKEN
SULTANAH
BIBILO
Ukraine
Frozen
Whole, parts
MHP ownership
Export
(except the EU and Asia)
Frozen
Whole, parts
MHP ownership
Export (except the EU)
Export (Georgia)
Frozen
Whole, parts
MHP ownership
Frozen
Whole
Partner ownership
BUSINESS REVIEW
1,661
MILLION TONNES OF MIXED
FODDER PRODUCTION IN 2018
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 agricultural commodities
including corn, sunflower and soybean. These mills support the
Poultry and Related Operations segment with an aggregate an-
nual mixed fodder production in 2018 of approximately 1,661 mil-
lion tonnes (2017: 1,525 million tonnes).
The key operational processes at the fodder mills include pur-
chasing ingredients (mainly from MHP’s grain growing enterpris-
es), weighing and conducting laboratory analysis of ingredients,
manufacturing, including laboratory analysis of fodder, and de-
livery to MHP’s breeding and chicken farms. A wide variety of
fodder types are produced with various vitamin and protein con-
tents meeting the age requirements and covering the needs of
chickens at the breeding and chicken farms. All fodder produced
by MHP is granulated and ingredients are thoroughly mixed so
that the components are dispersed throughout the meal. A pro-
portion of granulated fodder is crushed so that it can be fed to
younger chickens. To ensure freshness and quality, MHP trans-
ports 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 of the soybean oil extraction plant at the Katerynopil
complex, 40% of the soybean protein requirements come from
MHP’s own harvest. The use of contemporary crushing technol-
ogy to extract a substantial amount of sunflower protein meal
means that 22% of the Company’s sunflower seed requirement
now comes from the Company’s own crops.
ANNUAL REPORT 2018
POULTRY AND RELATED OPERATIONS SEGMENT
36
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, protecting the Company from local currency volatility.
MHP’s sales of sunflower oil in 2018 remained stable and consti-
tuted 315,079 tonnes (2017: 311,393 tonnes) as a result of chang-
es in delivery terms and increased stocks of sunflower oil, which
will be sold in Q1 2019. Sales of soybean oil increased substan-
tially by 83% to 50,044 tonnes in 2018 from a low base in 2017
(2017: 27,282 tonnes) partly as a result of pushing a contract
for approx. 6,000 tonnes of oil from Q4 2017 into January 2018.
MHP also sells soybean cake to third parties.
In 2018, all MHP’s vegetable oils were sold through international
traders to export markets, generating total revenues of US$ 274
million (2017: US$ 256 million).
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 requirements for natural gas but also its overall pro-
duction 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 biosecurity of its operations.
SALES OF SOYBEAN OIL
INCREASED YEAR-ON-YEAR BY
83%
BUSINESS REVIEW
ANNUAL REPORT 2018
GRAIN GROWING SEGMENT
37
T
N
E
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G
E
S
I
G
N
W
O
R
G
N
A
R
G
I
KYIV
2,654,422
TONNES OF CROPS
GATHERED IN 2018
MHP’S LARGEST GRAIN GROWING
SITES (BY AREA)
Zernoproduct
•
•
Urozhay
• Zakhid-Agro
• Urozhayna Kraina
• Ridny Kray
• Perspective
• Agro-S
• Agrokryazh
362,820
HECTARES OF LAND
HARVESTED IN 2018
BUSINESS REVIEW
ANNUAL REPORT 2018
GRAIN GROWING SEGMENT
38
% OF CROPPED AREA:
KEY FINANCIAL DATA
12%
other
10%
soybean
11%
rapeseed
20%
sunflower
34%
corn
13%
wheat
MHP’s yields are consistently amongst the high-
est in Ukraine and are higher than Ukraine’s aver-
age (source: MHP, Agroperspectiva).
2018
2017
MHP’s
average*
Ukraine’s
average**
MHP’s
average*
Ukraine’s
average**
Corn
Wheat
Sunflower
Rapeseed
Soya
10.9
6.1
3.2
3.3
3.0
7.8
3.7
2.3
2.7
2.6
7.3
6.0
3.0
3.3
2.1
4.9
4.2
2.1
2.9
1.9
* Tonnes per hectare
** MHP yields are net weight, Ukraine – bunker weight
in mln. US$ unless indicated otherwise
REVENUE
IAS 41 standard gains/(losses)
GROSS PROFIT
ADJUSTED EBITDA
Adjusted EBITDA per hectare
2018
181
33
108
151
416
2017
117
(12)
66
95
267
% change
55%
+375%
64%
59%
56%
GRAIN GROWING FACILITIES
As at 31 December 2018, MHP leased approximately 370,000
hectares of land at its eight principal grain growing facilities.
These facilities cultivate corn, sunflower and soybean to sup-
port the Company’s Poultry and Related Operations segment.
Increasingly other grains, such as wheat and rapeseed, are
grown for sale to third parties.
In 2018, the Company’s grain growing operations harvest-
ed around 362,820 hectares of land and gathered 2,654,422
tonnes of crops, which is around 33% higher than in 2017 mainly
due to a strong harvest of corn of 10.9 tonnes per hectare, a
record for MHP.
As at the beginning of 2019, MHP has around 94,000 hectares
under winter crops, of which around 50% is sown with winter
wheat and 41% with winter rapeseed. All winter crops are in
good condition.
HARVEST CAMPAIGN RESULTS
Corn
Wheat
Sunflower
Rapeseed
Soya
Other*
TOTAL:
Production, tonnes
2018
Cropped hectares
2018
Production, tonnes
2017
Cropped hectares
2017
1,344,547
295,640
235,245
125,346
114,322
539,322
2,654,422
123,398
48,379
72,981
38,541
37,558
41,963
362,820
893,149
293,765
205,079
104,782
82,793
419,527
1,999,095
121,908
48,676
68,931
31,968
39,684
44,913
356,080
* Including barley, rye, sugar beet, sorghum and other crops and excluding land left fallow as part of crop rotation.
ANNUAL REPORT 2018
GRAIN GROWING SEGMENT
39
BUSINESS REVIEW
EXPORT SALES OF CROPS FROM
THE TOTAL HARVEST IN 2018 WAS
18%
Most of the corn, wheat, soybean and sunflower produced by MHP
are used at the Company’s own fodder production facilities in or-
der to produce feed for chicken. The excess corn and wheat as
well as rapeseed and other crops is sold to domestic and interna-
tional traders. Export sales of crops from the total harvest in 2018
was 18% (2017: 21%).
Sales of grains (after eliminating intersegment sales) accounted
for approximately 11% of MHP’s revenues in US dollar terms in 2018
(2017: 9%) with adjusted EBITDA per ha of US$ 416 (2017: US$ 267).
MHP uses chicken litter to meet part of its needs for the fertiliser
used in grain production (both directly from rearing sites and from
the biogas complex).
MHP operates a crop rotation scheme to increase productivity and
achieve long-term operational efficiency. Each field is cultivated
with different crops on a fixed rotation plan which ends with a fal-
low 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.
MHP’s integrated business model, crop rotation and its application
of chicken litter for energy production and fertiliser significantly re-
duces the greenhouse gas emissions associated with its products.
In line with MHP’s strategy, the Company plans to increase its land
bank to 500,000 hectares of land in the medium term.
BUSINESS REVIEW
ANNUAL REPORT 2018
OTHER AGRICULTURAL SEGMENT
40
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G
A
R
E
H
T
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KYIV
51,547
TONNES OF MEAT-PROCESSING PRODUCTS
AND CONVENIENCE FOOD PRODUCED IN 2018
MEAT-PROCESSING OPERATIONS
• Ukrainian Bacon
•
Myronivsky Meat Processing Plant Lehko (MMPP)
BUSINESS REVIEW
ANNUAL REPORT 2018
OTHER AGRICULTURAL SEGMENT
41
KEY FINANCIAL DATA
in mln. US$, except margin data
REVENUE
- Meat processing
- Other*
IAS 41 STANDARD GAINS
GROSS PROFIT
Gross margin
ADJUSTED EBITDA
Adjusted EBITDA margin
2018
134
103
31
0
11
8%
16
12%
2017
120
67
53
4
19
16%
19
16%
% change
12%
54%
-42%
-100%
-42%
-8 pps
-16%
-4 pps
* Includes convenience food products, milk, cattle, goose meat, foie gras and feed grains.
The Other Agricultural Segment mainly comprises meat-process-
ing operations which have seen substantial increases in the pace
of growth and capacity utilisation over the last two to three years.
MHP’s two meat-processing facilities are the largest and most
technologically advanced in Ukraine: Ukrainian Bacon is the Com-
pany’s meat-processing plant; and Myronivsky Meat-Processing
Plant Lehko (“MMPP”) is the convenience food plant. According to
SSCU*, MHP is the leader in a highly-fragmented meat-process-
ing market, accounting for approximately 15% of all sausage and
cooked meats produced in Ukraine in 2018.
15%OF ALL SAUSAGE AND COOKED MEATS
PRODUCED IN UKRAINE IN 2018
** State Statistics Committee of Ukraine
*** Stock Keeping Units
SAUSAGES AND COOKED MEATS
Ukrainian Bacon is an integrated production facility for meat
products located in the Donetsk region. The Company produc-
es and sells to the domestic market various types of chicken,
pork and beef sausages, including frankfurters, smoked and
semi-smoked sausages, ham and other cooked meat products.
Processed meat products are only sold in Ukraine under the
following brands: “Bashchinsky” (around 90%); “Europroduct”
(around 5%); and “Sytni” (around 4%); and other brands (around
1%). There are currently 236 SKUs** in the range including sau-
sages, frankfurters, meat balls and shish kebabs.
Sales volumes of processed meat products in 2018 remained
stable and constituted 33,975 tonnes. Average sausage and
cooked meat prices increased by 20% year-on-year to UAH
62.22 per kg excluding VAT.
Meat-processing products
Sales volume, tonnes
Price per kg excluding VAT (UAH)
2018
33,975
62.22
2017
33,823
51.97
% change
0%
20%
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ANNUAL REPORT 2018
OTHER AGRICULTURAL SEGMENT
42
BASHCHINSKY
Ukraine
Sausages,
convenience food (chilled),
smoked chicken
LEHKO!
Ukraine
NON-BRANDED
Ukraine
Convenience food
(frozen)
Convenience food (frozen),
bulk
SYTNI
Ukraine
QUALIKO
Export
Convenience food
(frozen)
Convenience food (frozen),
raw marinated chicken (frozen)
BUSINESS REVIEW
CONVENIENCE FOOD PRODUCTS
MHP is one of the leading Ukrainian industrial producers of
chicken, pork and beef convenience food products which are
mainly sold under the “Sytni” brand. More than 50% of the Com-
pany’s meat requirements are sourced from internally produced
chicken meat and around 11% of total convenience food products
was exported.
ANNUAL REPORT 2018
OTHER AGRICULTURAL SEGMENT
43
In 2018, convenience food sales volumes increased by 26% to
17,997 tonnes with a year-on-year price increase of 7% to UAH
42.53 per kg excluding VAT.
Convenience food
Sales volume, tonnes
Price per kg excluding VAT (UAH)
2018
17,997
42.53
2017
14,240
39.68
% change
26%
7%
IN 2018, CONVENIENCE
FOOD SALES VOLUMES
INCREASED YEAR-ON-YEAR
BY
The MMPP facility 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 168 SKUs
in the convenience food range including the “Sytni” brand,
the “Baschinsky” brand (chilled cooked products), the “Leh-
ko!” brand (chicken nuggets, “Chicken Kiev”) and raw salted
non-branded products for exports. MHP supplies “Yum! Brands”
with poultry products for its Kentucky Fried Chicken (“KFC”) res-
taurants in Ukraine. All MHP’s poultry meat for KFC is processed
at the Lehko plant.
E
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S
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Y
E
K
WE MONITOR PROGRESS AGAINST THE
DELIVERY OF OUR STRATEGIC GOALS USING
SEVERAL FINANCIAL KEY PERFORMANCE
INDICATORS (“KPIs”).
Each KPI provides a way of measuring elements of our strate-
gy. Our strategy focusses upon the medium to long term and
therefore we consider how we have performed over a number of
years, showing the KPIs for the last five years.
BUSINESS REVIEW
ANNUAL REPORT 2018
KEY PERFORMANCE INDICATORS
45
REVENUE, US$m
EXPORT REVENUE, US$m
ADJUSTED EBITDA, US$m
1,556
1,379
1,288
1,135
1,062
1600
1400
1200
1000
800
600
400
200
0
1000
800
600
400
200
0
924
59%
57%
732
56%
635
49%
524
580
42%
70%
60%
50%
40%
30%
20%
10%
0
600
500
400
300
200
100
0
518
436
415
459
450
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
As reported.
Revenue to destinations outside Ukraine, received in US$ and EUR.
US$m (LHS)
% of total revenue (RHS)
HOW WE CALCULATE IT
To ensure we are successful in growing the business.
WHY WE MEASURE IT
To ensure we are delivering on our strategy of international expansion
and in turn leading to additional hard currency revenue. Export
revenue provides MHP with a natural hedge against local currency
volatility.
2018 PROGRESS
Adjusted EBITDA is defined as profit before tax, net finance costs,
depreciation and amortisation, net after-tax exceptional and non-
recurring items, net foreign exchange loss, and net other expenses.
To track the underlying performance of the business.
Revenue was up 21% y/y driven by an increase in production of poultry
meat, grains, vegetable oils and convenience food.
Export revenue was up 26% y/y driven by an increase in exports of
poultry meat, grains and vegetable oils. MHP now exports poultry
meat to over 80 countries (2017: 63 countries).
Adjusted EBITDA was down 2% y/y mainly due to the cancellation of
VAT subsidies in Ukraine.
Execution of our diversified sales strategy – both for exports and
domestically.
Export growth through sales diversification and market targeting.
Production efficiency and focus on consumer innovation.
KPI unchanged y/y.
CHANGE TO KPI
KPI unchanged y/y.
KPI unchanged y/y.
LINK TO STRATEGY
BUSINESS REVIEW
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Y
E
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THE COMPANY IS BASED ON A
VERTICALLY-INTEGRATED BUSINESS
MODEL, WHICH IS THE KEY TO STRONG
PROFITABILITY.
ANNUAL REPORT 2018
KEY PERFORMANCE INDICATORS
46
CONSOLIDATED 2018 ADJUSTED EBITDA MARGIN
29%
POULTRY & RELATED OPERATIONS SEGMENT
GRAIN GROWING SEGMENT
0.87
489
520
0.66
573
566
0.64
0.49
700
600
500
400
300
200
100
0
1
618
0.53
0.5
0
3000
2500
2000
1500
1000
500
0
423
2,371
2,655
416
2,027
294
1,892
276
1,999
267
450
400
350
300
250
200
150
100
50
0
2014*
2015*
2016*
2017*
2018
2014
2015
2016
2017
2018
Production of poultry, thousand tonnes (LHS)
EBITDA per kg, US$ (Net of IAS 41) (RHS)
Production of grains, thousand tonnes (LHS)
EBITDA per ha, US$ (RHS)
* since 2014, adjusted without Crimea assets
BUSINESS REVIEW
ANNUAL REPORT 2018
FINANCIAL POLICIES
47
A CONSOLIDATED AND AT A SEGMENT LEVEL.
PERFORMANCE UNDER IFRS, INCLUDING EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION
AND AMORTISATION (“EBITDA”) AND LAST TWELVE MONTHS’ EBITDA (“LTM EBITDA”) BOTH AT
S MHP HAS INCLUDED CERTAIN MEASURES IN THIS REPORT THAT ARE NOT MEASURES OF
E
I
C
I
L
O
P
The Group’s Segment measure in the consolidated financial
statements is defined as “Segment result” and represents oper-
ating profit by Segment before unallocated corporate expense,
being the Segment measure reported to the chief operating
decision maker for the purposes of resource allocation and as-
sessment of Segment performance. Within the Management Re-
port, 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.
Additionally, the Directors believe these measures are frequent-
ly used by investors, analysts and other interested parties to
evaluate the efficiency of the Group’s operations and its ability
to employ its earnings for the repayment of debt, capital expen-
diture and working capital requirements.
Adjusted EBITDA, LTM Adjusted EBITDA and Segment Adjust-
ed EBITDA are presented in this Report because the Directors
consider them to be important supplemental measures of the
Group’s financial performance.
L
A
I
C
N
A
N
I
F
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-recur-
ring items, net foreign exchange loss, and net other expenses.
Depreciation and amortisation expense are components of both
cost of sales and selling, general and administrative expenses in
the consolidated financial statements.
LTM Adjusted EBIDTA is defined as Adjusted EBITDA for the pri-
or 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 EBIT-
DA (as defined above) for losses/gains on impairment/reversal of
impairment of property, plant and equipment, net, losses on dis-
posals of subsidiaries, other expenses, net and foreign exchange
(loss)/gain, net. The Group believes that this measure is more
useful in evaluating the financial performance of the Company
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.
Net debt is defined as bank borrowings, bonds issued and fi-
nance lease obligations less cash and cash equivalents. The
Group believes that net debt is commonly used by securities
analysts, investors and other interested parties in the evalua-
tion 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 Adjusted EBITDA
and Segment Adjusted EBITDA are not measurements of MHP’s
operating performance under IFRS and should not be consid-
ered as an alternative to profit for the year, operating profit,
Segment result or any other performance measures derived in
accordance with IFRS or as an alternative to cash flow from op-
erating activities or as a measure of MHP’s liquidity.
Such measures presented in this Annual Report may not be com-
parable to similarly titled measures of performance presented
by other companies, and should not be considered as substi-
tutes for the information contained in the consolidated financial
statements.
BUSINESS REVIEW
ANNUAL REPORT 2018
FINANCIAL POLICIES
48
RECONCILIATION OF ADJUSTED EBITDA
RECONCILIATION OF NET DEBT
Year ended
31 December
2018
Year ended
31 December
2017
128,104
230,255
US$
thousand
Profit for the
year from
continuing
operations
Income taxes
50,527
(17,118)
Finance costs
138,019
108,399
Finance income
(4,457)
134,953
Depreciation
and
amortisation
expense
(3,472)
93,225
EBITDA
447,146
411,289
Сalculation of net debt was aligned with definitions used for
the purpose of assessment of compliance with debt covenants
provided in the respective loan agreements. Thus, the accrued
interest which has been included previously as part of the carry-
ing amount of bank borrowings, bonds issued and finance lease
obligations has been excluded from the amount of total debt.
As of 31 December 2018 and 2017 the leverage ratio was as fol-
lows:
US$ thousand
Bank borrowings
Bonds issued
Finance lease obligations
Total debt
Less:
Cash and cash equivalents
Net debt
Year ended
31 December 2018
Year ended
31 December 2017
238,498
1,090,935
13,442
1,342,875
(211,768)
1,131,107
175,734
970,088
11,450
1,157,272
(125,554)
1,031,718
Adjustments:
Loss on
impairment/
reversal of
impairment of
property, plant
and equipment,
net
Other expenses,
net
Foreign
exchange
loss/(gain),
net
Adjusted
EBITDA
3,803
3,607
Segment results represent operating profit, as adjusted for un-
allocated corporate expenses, which is reconciled to Segment
Adjusted EBITDA before unallocated expenses by adding back
Segment depreciation as illustrated in the following tables:
10,568
8,077
(11,638)
35,615
449,879
458,588
SEGMENT PERFORMANCE
Year ended 31 December 2018
US$ million
External sales
Sales between business segments
Total revenue
Segment results
Add back
Depreciation and amortisation
Segment Adjusted EBITDA before unallocated
expenses
Poultry
Segment
Grain
Growing
Segment
Other
Agricultural
Segment
Eliminations Consolidated
1,241
50
1,291
229
82
311
181
244
425
106
45
151
134
1
135
8
8
16
–
(295)
(295)
-
1,556
–
1,556
344
134
478
BUSINESS REVIEW
ANNUAL REPORT 2018
FINANCIAL REVIEW
49
Operations
•
W HOW THE COMPANY PERFORMED IN 2018
E
I
V
E
R
Poultry production reached 617,943 tonnes, up 9% (12M
2017: 566,242 tonnes).
The average price of chicken meat increased by 12% year-
on-year to UAH 39.86 per kg excluding VAT (12M 2017: UAH
35.63 per kg) (excluding VAT).
Chicken meat exports increased by 30% to 286,846 tonnes
(12M 2017: 220,983 tonnes), mainly as a result of increased
sales to countries in MENA and the EU.
•
•
L
A
I
C
N
A
N
I
F
in million US$ unless indicated otherwise
Revenue
IAS 41 standard gains/(losses)
Gross profit
Gross profit margin
Adjusted operating profit**
Adjusted operating profit margin
Adjusted EBITDA
Adjusted EBITDA margin
Net profit before foreign exchange difference
* pps – percentage points
Net profit margin before foreign exhange gain/(loss)
** Adjusted operating profit from continuing
operations before loss on impairment
of property, plant and equipment
***Average official FX rate: UAH/US$ 27.2016
in 2018 and UAH/US$ 26.5947 in 2017
Foreign exchange gain/(loss)***
Net profit / (loss)
Net profit margin
Financials
•
Revenue of US$ 1,556 million, increased by 21% year-on-
year (12M 2017: US$ 1,288 million).
Export revenue amounted to US$ 924 million, 59% of total
revenue (12M 2017: US$ 732 million, 57% of total revenue).
Adjusted EBITDA margin decreased to 29% from 36%; adjusted
EBITDA decreased to US$ 450 million from US$ 459 million.
•
•
• Net profit for the period is US$ 128 million (2017: US$ 230
million profit).
2018
1,556
32
420
27%
315
20%
450
29%
116
7%
12
128
8%
2017
1,288
21
396
31%
365
28%
459
36%
266
21%
(36)
230
18%
% change*
21%
52%
6%
-4 pps
-14%
-8 pps
-2%
-7 pps
-56%
-14 pps
133%
-44%
-10 pps
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US$
35,371
THOUSAND
GOVERNMENT GRANTS RECEIVED
BY THE GROUP IN 2018
to purchase agricultural machinery produced in Ukraine. On 7
February 2018, the Cabinet of Ministers of Ukraine approved the
procedure to obtain livestock sector state support.
During the year ended 31 December 2018, the Group received gov-
ernment grants in accordance with the compensation programme
for the construction and reconstruction of livestock farms of UAH
960,666 thousand (US$ 34,371 thousand). Government grants are
presented in the statement of the financial position as deferred
revenues, which is recognised in profit or loss on a systematic ba-
sis over the useful life of the related assets. Also, during the year
ended 31 December 2018 the Group received UAH 27,940 (US$
1,000 thousand) thousand for rearing cattle. This amount was rec-
ognised in the consolidated statement of profit or loss and other
comprehensive income in full.
Government grant income
On 30 December 2016, the President of Ukraine signed the Law
No. 1791 “On Amendments to the Tax Code of Ukraine Regarding
the Balancing of Budget Revenues in 2017” (the “Law No. 1791”).
The Law No. 1791 introduced changes to VAT administration for
agricultural companies which previously enjoyed a special VAT
regime. In order to continue state support for agricultural com-
panies, the Law No. 1791 introduced budget subsidies for agri-
cultural companies. From 2017 onwards, budget subsidies will
be provided for five consecutive years until 1 January 2022. The
agricultural producers eligible for the subsidies include those
involved in poultry production and animal farming, as well as
fruit and vegetable farmers. For each agricultural producer, the
amount of the direct subsidy is not to exceed the amount of VAT
tax paid by the producers, and is distributed on a monthly basis.
As of the date of the authorisation of these consolidated finan-
cial statements, the Government has not allocated the specific
amount for the state subsidies for qualifying agricultural com-
panies in 2018. Therefore, during the year ended 31 December
2018 the Group was not able to receive respective state subsi-
dies from the budget and has not recognised any such subsidies
in the consolidated financial statements accordingly. In 2017,
US$ 52,605 thousand of subsidies were recognised.
However, the Ukrainian Government continues to support do-
mestic agri producers and attract investments into the agricultur-
al sector. According to the Law “On the State Budget for 2018”,
UAH 6,311 million allocated to support the agricultural sector in
2018 via a compensation programme, including UAH 4,000 mil-
lion to support the livestock sector and up to UAH 1,000 million
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59%
OF 2018 GROUP REVENUE WAS
DENOMINATED IN FOREIGN
CURRENCIES (PRIMARILY US
DOLLARS)
Currency risk
During the year ended 31 December 2018, the Ukrainian Hryvnia
appreciated against the EUR and the US$ by 5.62% and 1.37%
respectively (2017: depreciated against the EUR by 15.14% and
3.12% against the US$). As a result, during the year ended 31 De-
cember 2018 the Group recognised net foreign exchange gain
of US$ 11,638 thousand (2017: foreign exchange loss of US$
35,615 thousand) in the consolidated statement of profit or loss
and other comprehensive income.
During the year ended 31 December 2018, US$ 328 thousand
(2017: US$ 336 thousand) net foreign exchange gain resulting
from the difference in National Bank of Ukraine and Ukrainian
interbank currency market exchange rates was included in Other
operating expenses, net.
Currency risk is mitigated by the existence of US$-denominated
proceeds from sales of sunflower oil, grain and chicken meat,
which are sufficient for servicing the Group’s foreign currency
denominated liabilities and were as follows during the years,
ended 31 December 2018 and 2017:
THE GROUP’S EXPORT SALES TO EXTERNAL CUSTOMERS BY MAJOR PRODUCT TYPES IN 2018 AND 2017
US$ thousand
Chicken meat and related products
Vegetable oil and related products
Grain
Other agricultural products
2018
471,177
274,313
156,511
21,703
923,704
2017
334,385
259,054
108,815
30,012
732,266
The functional currency for the Ukrainian companies of the
Group is the Ukrainian Hryvnia (UAH). However, for the conve-
nience of stakeholders, MHP presents its financial statements
in US dollars (US$), using quarterly average and historical ex-
change rates.
RELEVANT EXCHANGE RATES
Currency
UAH/US$
UAH/EUR
Closing rate as
at 31 December 2018
27.6883
31.7141
Average
for 2018
27.2016
32.1341
Closing rate as
at 31 December 2017
28.0672
33.4954
Average
for 2017
26.5947
30.0128
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2017
1,051
795
256
29
311
30%
367
35%
0.64
% change*
18%
22%
5%
-103%
-3%
-6 pps
-15%
-10 pps
-17%
2018
1,241
973
268
(1)
301
24%
311
25%
0.53
SEGMENT REVENUES INCREASED
YEAR-ON-YEAR BY
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) (US$)
* pps – percentage points
During 2018 the Poultry and Related Operations segment’s
revenue increases by 18% y/y driven mostly by an increase
in price and sales volume of chicken meat, partly offset by
decreases in the price of vegetable oil.
An IAS 41 gain/(loss) reflects the net change in the fair value of
biological assets and agricultural produce. The IAS 41 standard
loss in 2018 amounted to US$ 1 million mainly as a result of a
reduction in poultry meat stocks, partly offset by an increase in
broiler chicken stocks due to the launch of new rearing sites.
The segment gross profit for 2018 remained almost stable at
US$ 301 million.
In 2018, adjusted EBITDA decreased by 15%, mainly due to a de-
crease in government grant income (there was no allocation of
grants/subsidies in Ukraine’s 2018 budget), as well as an increase
in administration, sales and distribution expenses mainly due to
increases in payroll costs, logistics costs and warehouse rent.
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2018
181
33
108
151
416
2017
% change
117
(12)
66
95
267
55%
+375%
64%
59%
56%
THE SEGMENT’S
REVENUE FOR 2018
GRAIN GROWING SEGMENT
in million US$ unless indicated otherwise
Revenue
IAS 41 gains / (losses)
Gross profit
ADJUSTED EBITDA
ADJUSTED EBITDA per 1 hectare (US$)
The Grain Growing segment’s revenue in 2018 amounted to US$
181 million compared to US$ 117 million in 2017. This increase in
revenue was mainly attributable to the larger volumes of crops
sold in 2018 as a result of the stronger harvest in 2018.
The IAS 41 gain in 2018 amounted to US$ 33 million. The gain
was primarily driven by an increase in the volume of agricultur-
al produce stocks as of 31 December 2018 compared to 2017
caused by substantially higher yields and an increase in the
amount of corn reserved for MHP’s own consumption during
2019, as well as the revaluation of field crops (biological assets)
at the reporting date.
The segment’s 2018 adjusted EBITDA increased by 59% year-
on-year due to higher yields from the principal crops.
MILLION, US$
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2018
134
103
31
0
11
8%
16
12%
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FINANCIAL REVIEW
54
2017
120
67
53
4
19
16%
19
16%
% change*
12%
54%
-42%
-100%
-42%
-8 pps
-16%
-4 pps
THE REVENUE OF THE
SEGMENT INCREASED BY
OTHER AGRICULTURAL SEGMENT
in million US$ except margin data
Revenue
Meat processing
Other**
IAS 41 gains / (losses)
Gross profit
Gross margin
Adjusted EBITDA
Adjusted EBITDA margin
* pps - percentage points
** includes convenience food products, milk, cattle, goose meat, foie gras and feed grains.
The Other Agricultural segment revenue increased by 12%
year-on-year in 2018 to US$ 134 million, in line with an in-
crease in the price of processed meat products.
The segment’s adjusted EBITDA decreased to US$ 16 million
in 2018 compared to US$ 19 million in 2017, a decrease of 16%
year-on-year driven mostly by lower returns earned from cat-
tle and milk operations.
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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 cash*
2018
306
(45)
261
(232)
7
(225)
137
(89)
48
84
2017
333
(120)
213
(123)
76
(47)
(113)
(81)
(194)
(28)
* 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
2018 amounted to US $306 million (2017: US$ 333 million).
Use of funds in working capital during 2018 mostly related to
higher investment in the stock of crops designated for MHP’s
consumption as of 31 December 2018, partly offset by an in-
crease in prepayments for sunflower oil.
During 2018, total CAPEX amounted to US$ 232 million mainly
due to the launch of production sites of Phase 2 of the Vinnytsia
Poultry Complex.
DURING 2018 TOTAL CAPEX
AMOUNTED TO
MILLION, US$
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DEBT STRUCTURE AND LIQUIDITY
US$ million, unless indicated otherwise
Total Debt
Long-term debt
Short-term debt
Cash and bank deposits
Net Debt
LTM Adjusted EBITDA
Net Debt / LTM Adjusted EBITDA
31 December
2018
31 December
2017
1,343
1,206
137
(212)
1,131
450
2.51 x
1,157
1,116
41
(126)
1,032
459
2.25 x
EXPORT REVENUE IN
2018 AMOUNTED TO
As of 31 December 2018, long-term debt represented 90% of total
outstanding debt. The weighted average interest rate was around
7%.
The Net Debt / LTM adjusted EBITDA ratio was 2.51 x as of 31 De-
cember 2018, well within the Eurobond covenant limit of 3.0 x.
As of 31 December 2018, MHP’s cash and cash equivalents amount-
ed to US$ 212 million.
Net debt increased to US$ 1,131 million, compared to US$ 1,032 mil-
lion as of 31 December 2017.
As a hedge for currency risks, revenues from the export of grain,
sunflower and soybean oil, sunflower husks and chicken meat are
denominated in US$, covering debt service expenses in full. Export
revenue in 2018 amounted to US$ 924 million or 59% of total reve-
nues (2017: US$ 732 million or 57% of total sales).
MILLION, US$
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We are confident that, with our vertically-integrated business
model, we will continue to deliver strong financial results, sup-
ported by a significant and growing share of hard currency reve-
nues from exports of chicken, oils and grain.
OUR MAIN DRIVERS FOR GROWTH IN 2019 WILL BE:
• An increase in the production volumes of chicken meat by
around 100,000 tonnes as a result of our capital investment
in the expansion of the Vinnysia poultry project (Phase 2);
• MHP continues to be well-positioned to deliver further increases in
both revenue and profit in 2019, driven by increasing production,
mainly from the Poultry and Related Operations Segment and its
recent acquisition of Perutnina Ptuj in the Balkans.
• An increase in export sales of chicken meat across all regions,
which is expected to result in around 320,000 tonnes of chicken
meat; and
• Construction of the first phase of and launch of an alternative energy
biogas project of 12 MW capacity at the Vinnytsia poultry complex.
A YEAR-ON-YEAR INCREASE IN CHICKEN MEAT
PRODUCTION VOLUMES OF AROUND
TONNES
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THE ENVIRONMENT AND MARKETS IN WHICH
WE OPERATE ARE DYNAMIC AND SUBJECT
TO CONSTANT CHANGE. WE MUST BE ABLE
TO RESPOND TO THESE CHANGES, TAKING
APPROPRIATE LEVELS OF RISK TO PROTECT
OUR MARKET POSITION AND TO TAKE ADVANTAGE
OF OPPORTUNITIES.
A failure to manage these changes and risks could have an ad-
verse impact on our business and on the achievement of our stra-
tegic goals.
We have integrated our risk management processes with our strategy
and embedded them throughout the Company, thereby aligning risk
management, strategy and performance across all entities, departments
and functions. This enables us to make better business decisions.
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RISK MANAGEMENT
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TO UNDERSTAND OUR RISK PROFILE AND ALIGN IT WITH OUR OBJECTIVES AND DECISION-MAKING PROCESSES, WE OPERATE A GLOBAL RISK
FRAMEWORK THAT ENSURES WE IDENTIFY RISK, SET TOLERANCE LEVELS AND CONTINUALLY MANAGE RISK ACROSS OUR BUSINESS
STEP
IDENTIFY
RISK
• Our management team
identifies risks that may
affect the achievement of
the Group’s strategy and
business objectives.
STEP
MEASURE
POTENTIAL
IMPACT
STEP
MANAGE
RISK
STEP
MONITOR
STEP
REPORT
•
Responses to risks are
implemented in the context of
the Group’s risk appetite.
• New risks and changes in
•
existing risks are monitored
on a continuous basis.
•
Key risks are discussed
regularly by the
management team and
reported at least annually
to the Board through the
Audit Committee.
Risk management
information is used to make
informed decisions.
•
•
•
•
Identified risks are assessed
and risk tolerance is set.
Risks are prioritised in order of
severity of potential impact on
strategy and business objectives.
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 residual risks against
the Company’s risk appetite
and to prioritise further risk
management actions.
A portfolio view of risk
appetite is assumed.
CONTINUOUS ASSESSMENT AND IMPROVEMENT OF RISK MANAGEMENT FRAMEWORK
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RISK OVERSIGHT
The Audit 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 annual review of the risk
management process and risk matrix. Results are reported to
the Board, which has overall responsibility for risk management.
The Internal Audit function provides objective assurance to the
management team and to the Audit Committee on the effective-
ness of risk management and helps management to continuous-
ly improve its risk management framework and process.
ENHANCEMENTS OVER THE LAST 12 MONTHS
We constantly strive to improve our risk management process.
In 2018, MHP enhanced and implemented its risk management
framework based upon the recommendations in the COSO
(The Committee of Sponsoring Organisations of the Treadway
Commission) Enterprise Risk Management Framework. This
risk management framework defines how to identify, classify,
assess and manage the risks that the Company faces in order
to provide reasonable assurance regarding the achievement
of the Company`s strategy and objectives. The implementa-
tion of the risk management framework has been supported
by the training of the management teams.
The Company’s approach to the identification and assessment
of risks, and the response to risks, is based on best business
practices and international COSO Enterprise Risk Manage-
ment standards.
Following the most recent COSO guidance for risk management,
in 2018 we focussed on the development and enhancement of
the Group’s risk management culture:
IN 2018, MHP ENHANCED
AND IMPLEMENTED ITS
RISK MANAGEMENT
FRAMEWORK BASED ON
RECOMMENDATIONS FROM
COSO
•
•
Encouraging the identification of risks
Managers support open communication and promote dis-
closure and risk management discussions.
Integrating risk management in every role and function
Every employee shares the responsibility for managing risk.
• Continuous identification and assessment of risks
Process owners regularly look for new operational risks, re-
assess the status of known risks, and reevaluate or update
plans to prevent or respond to problems associated with
these risks.
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The principal risks facing the group are set out below
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.
•
ANNUAL REPORT 2018
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regular monitoring of poultry condi-
tions, including analysis of indicators
of their well-being and health and in-
vestigation of the quality of raw ma-
terials (litter, food, water) and prod-
ucts (poultry carcasses);
• monitoring compliance with biosafe-
•
ty rules; and
strict control over the implemen-
tation of preventive and control
measures. In January 2017, EU com-
partmentalisation procedures were
introduced in Ukraine. This means
that the emergence of avian influen-
za symptoms in poultry flocks in part
of a country does not have to lead to
a total trade suspension.
HOW WE MANAGE IT
•
To ensure the well-being of livestock at
MHP’s facilities, the Company has imple-
mented high biosecurity standards and
systems supplemented by a set of pre-
ventive veterinary-sanitary and hygiene
measures, including:
•
ongoing monitoring of avian flu cas-
es worldwide followed by rigorous
assessment of MHP’s existing bios-
ecurity systems based on identified
reasons causing those cases;
geographic separation of poultry
rearing facilities with a significant
distance between each facility;
• where any infected areas are identi-
fied, immediate actions are taken to
limit the access of all visitors to MHP
facilities;
•
OCCURRENCE OF A MATERIAL ENVIRONMENTAL OR HEALTH AND SAFETY INCIDENT
IMPACT
The occurrence of a material environmen-
tal or health and safety incident impacts
day-to-day operations, leading to finan-
cial penalties and reputational harm.
HOW WE MANAGE IT
MHP maintains environmental; health
and safety policies, management sys-
tems and procedures in line with good
practice and legal requirements. These
are regularly reviewed and updated
and employees participate in frequent
training and development activities.
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FLUCTUATIONS IN PRICES OF GRAINS AND RELATED PRODUCTS
IMPACT
Fluctuations in prices of grains and relat-
ed products in Ukraine and globally may
affect the cost of chicken production and
the profitability of MHP’s grain growing
operations, which could materially affect
MHP’s operating results.
HOW WE MANAGE IT
MHP drives cost efficiency across all its
businesses, supported by its vertically-in-
tegrated business model. MHP minimises
its exposure to fluctuations in world grain
prices by growing internally 100% of the
corn required for poultry feed produc-
tion. The Company has also adopted an
innovative approach by replacing a sig-
nificant proportion of expensive imported
soybean protein with protein from sun-
flower seeds grown by MHP.
FLUCTUATIONS IN DEMAND AND MARKET PRICES OF CHICKEN MEAT
IMPACT
MHP’s business and financial results are
dependent upon prices of chicken prod-
ucts, both in Ukraine and worldwide.
HOW WE MANAGE IT
Demand for chicken in Ukraine is expect-
ed 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 a diet
perspective. MHP products are availa-
ble for purchase through different sales
channels at all times and the Company
offers competitive trade terms to its cus-
tomers. MHP’s domestic strategy, and in
particular its focus on higher value-add
products, are drivers for increasing the
Company’s profitability
from chicken
meat sales in Ukraine.
FAILURE TO IMPLEMENT THE GROWTH STRATEGY AND EXPANSION INTO EXPORT MARKETS
IMPACT
MHP may be unsuccessful in its attempt
to increase market share for its chicken
meat in export markets and may be im-
pacted by import restrictions imposed
by other countries on agricultural com-
modities.
HOW WE MANAGE IT
MHP has a long-term strategy for the
Group’s expansion into diversified export
markets. MHP sees more uncertainty in
the Middle East and Africa compared with
the EU. However, MHP’s market share of
key poultry import markets remains rel-
atively low (less than 10%) allowing MHP
to redistribute volumes between mar-
kets without disruption. Since our market
share is low, MHP will be able to grow its
presence gradually. This will be partly
through growth in population and con-
sumption per capita and partly through
offering better service and quality to our
customers.
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OCCURRENCE OF A MATERIAL PRODUCT QUALITY OR PRODUCT SAFETY INCIDENT
IMPACT
The occurrence of a material product
quality or product safety incident impacts
day-to-day operations, leading to financial
penalties and a reduction in brand value.
HOW WE MANAGE IT
MHP prioritises product safety and qual-
ity in line with international best practice
and the applicable regulations. It main-
tains robust quality and safety manage-
ment systems and has an excellent track
record in this area.
FLUCTUATIONS IN COMMODITY PRICES SUCH AS GAS, FUEL AND ENERGY
IMPACT
Changes in commodity prices affect
MHP’s production and distribution costs
and in turn impact operating results and
cash flows.
HOW WE MANAGE IT
MHP closely monitors and controls its
gas, fuel and energy costs. Energy price
risks are mitigated by a priority focus on
developing renewable sources of ener-
gy and a consistent increase in the use
of co-generation and alternative energy
technology. The processing of sunflower
results in the production of large volumes
of husks that are burned to generate
steam heat for our fodder complexes.
UNFAVOURABLE WEATHER CONDITIONS
IMPACT
Extreme changes in temperature or rain-
fall including weather changes in sum-
mer and winter could influence agricul-
tural productivity as a whole and crop
transportation
yield, harvesting and
costs in particular.
HOW WE MANAGE IT
Ukraine’s weather is generally temper-
ate, with plenty of sunshine in the sum-
mer and adequate rainfall. This com-
bines 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*.
* Source: Agroperspectiva
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FAILURE TO SUCCESSFULLY INTEGRATE NEWLY ACQUIRED BUSINESSES
IMPACT
The acquisition and subsequent integra-
tion of new businesses in Europe will be
subject to a number of challenges and
uncertainties, including: the diversion of
Management’s attention from other busi-
ness concerns and potential disruption
to MHP’s ongoing business; the potential
necessity of coordinating geographically
separated facilities; incurring unanticipat-
ed expenses; the consolidation of func-
tional areas where appropriate; adapting
MHP’s business model and practices to
different jurisdictions; adapting any ac-
quired companies’ practices and policies
to those of MHP; and possible inconsist-
encies in standards, controls, procedures
and policies, operating systems and busi-
ness culture.
HOW WE MANAGE IT
In anticipation of new acquisitions MHP
has prepared a succession and develop-
ment plan for the Company’s managers
which allows them to participate inten-
sively in the management of new busi-
nesses. MHP has developed a plan of
key controls and safeguards to be put in
place. During our due diligence process-
es on potential target acquisitions we
pay specific attention to the production
and safety standards of those potential
acquisitions and we develop plans to in-
tegrate such standards with MHP. This is
also factored in to our financial resources
allocation.
LACK OF HIGHLY QUALIFIED STAFF AT STRATEGIC LEVEL AND PRODUCTION ENTERPRISES
IMPACT
The agriculture industry is facing a num-
ber of personnel challenges including: the
migration of skilled workers to neighbour-
ing countries; the ageing of the current
workforce; and changes in the required
skills base. A lack of qualified science,
engineering, technical and other employ-
ees could increase risks to the long-term
future of the business.
HOW WE MANAGE IT
MHP works to maintain positive relation-
ships with employees and strives to build
upon its reputation as a high-quality, re-
sponsible employer of choice. As part
of this, MHP provides a number of pro-
grammes designed to enrich its employ-
ees and the broader community including:
the provision of education and pro-
•
fessional programmes for the young-
er generation;
•
•
•
the provision of its “Personnel Re-
serve” and “New Horizons” training
for prospective and
programmes
high-performing employees;
the implementation of a strategic
action plan to build and support
schools in regions where its facilities
operate; and
the development of a digitalisation
strategy that is in the process of im-
plementation and focusses on auto-
mating business processes and de-
cision-making (artificial intelligence).
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RISK MANAGEMENT
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FAILURE TO ACCOMPLISH THE DIGITALISATION
STRATEGY
IMPACT
Changes in technology may render cur-
rent technology obsolete or require MHP
to make substantial capital investments.
Resistance of employees and/or lack of ex-
pertise might result in an inability to accom-
plish the Company’s digitalisation strategy
which is aimed at increasing the efficiency
of business operations and decreasing the
dependence on the labour market.
HOW WE MANAGE IT
MHP has upgraded its digital transforma-
tion strategy, focussing on optimisation
and automation of key business pro-
cesses. A change management culture
is also being continuously developed
throughout the Company. Strong internal
project managers and counterparties are
in place to assist in the successful imple-
mentation of the digitalisation strategy.
INEFFICIENT PROCUREMENT AND AN INCREASE
IN PRODUCTION COSTS
IMPACT
An increase in MHP’s production costs
could materially and adversely affect its
profitability.
HOW WE MANAGE IT
MHP strives to continually improve its
procurement procedures and production
processes. The procurement of strategic
items is centralised with a high level of
regulation and control. The KPIs are set
and are closely monitored with a view to
decreasing costs of production.
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RISK MANAGEMENT
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FLUCTUATIONS IN FOREIGN EXCHANGE RATES
IMPACT
MHP operates globally and has op-
erations and transactions in different
currencies. Fluctuations in the value of
the UAH versus the US dollar and other
currencies give rise to transaction and
translation exposure.
HOW WE MANAGE IT
The majority of MHP borrowings are de-
nominated in US dollars. The resulting
exposure is hedged by the generation in
2018 of 59% of total revenue in hard cur-
rency 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 activi-
ties.
FLUCTUATIONS IN INTEREST RATES
IMPACT
Changes in interest rates affect the cost
of borrowings, the value of our finan-
cial instruments, our profit and loss and
shareholders’ equity.
HOW WE MANAGE IT
MHP monitors its interest rate exposures
and analyses the potential impact of in-
terest 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 Compa-
ny’s debt is also in the form of Eurobonds
issued at fixed interest rates.
CREDIT RISK
IMPACT
Counterparties involved in transactions
with MHP may fail to make scheduled pay-
ments, resulting in financial losses to MHP.
HOW WE MANAGE IT
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 is, on average, between
5 and 21 days. To hedge the risk, MHP
procedures require verification of coun-
terparties’ 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. At foreign
subsidiaries of MHP an insurance compa-
ny is involved to approve the credit limit
amount and to insure against the risk of
non-payment.
BUSINESS REVIEW
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RISK MANAGEMENT
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LIQUIDITY RISK
IMPACT
If, in the long term, MHP is unable to gen-
erate and maintain positive operating
cash flows and operating income, it may
need additional funding. An inability to
raise capital on favourable terms could
lead to a default on its payment obliga-
tions and could have a material adverse
effect on MHP’s business, results of oper-
ations, financial condition and prospects.
HOW WE MANAGE IT
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 en-
abling capital projects to be deferred if
necessary. MHP has an irreducible bal-
ance in hard currency on correspondent
accounts and maintains a certain level of
undrawn credit lines.
INEFFICIENT INVESTMENTS
IMPACT
An inefficient regulation of the Compa-
ny’s investment appraisal and realisation
procedures or a lack of evaluation or
proper authorisation of investment pro-
jects could result in the implementation
of unauthorised and unprofitable invest-
ment decisions and a subsequent waste
of capital.
HOW WE MANAGE IT
MHP has developed and implemented
procedures to ensure due process in this
area. The Evaluation of Investment Pro-
jects procedure requires that the Invest-
ment / Project Team approves investment
projects. All investment projects of the
Company should be documented with a
formal investment appraisal report and
financial model and be jointly approved
by the Investment / Project Team.
BUSINESS REVIEW
ANNUAL REPORT 2018
RISK MANAGEMENT
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LOCAL COMMUNITIES
IMPACT
A deterioration in local community re-
lationships may lead to disruption in
day-to-day business activities, adverse
perceptions about MHP’s approach to
human rights and negative reputation-
al effects.
HOW WE MANAGE IT
MHP is in regular dialogue with its local
communities and other stakeholders in
the regions in which it operates and aims
to conduct these relationships sensitively
and with mutual respect. It also prioritis-
es the human rights of its local communi-
ties. MHP has designed and implemented
stakeholder relations programmes in line
with good international practice. This ac-
tivity includes regular meetings with local
community representatives, roadshows
to enable local people to meet the Com-
pany and the design and maintenance
of a variety of communication channels.
MHP also supports, designs and con-
ducts a number of projects in conjunction
with local authorities and local communi-
ties that aim to improve local standards
of living and infrastructure.
INVESTOR AND OTHER STAKEHOLDER RELATIONS
IMPACT
information
Inaccurate or out-of-date
about MHP and its activities leads to neg-
ative impacts on the Company’s reputa-
tion and adverse impacts on its relations
with material stakeholders including its
shareholders.
HOW WE MANAGE IT
MHP maintains an experienced and
well-resourced communications and in-
vestor relations team that is supported by
a national and international network of
professional services advisors. The team
is tasked with ensuring that MHP’s inves-
tor and wider communications activities
are conducted in line with international
good practice. The team also ensures
that information about the Company is
distributed in a timely manner, is accurate
and up-to-date. MHP also monitors exter-
nal commentary about its activities to en-
sure that any inaccuracies are corrected
promptly. A qualitative measurement of
the Company’s image is performed on a
regular basis and monitored by its senior
management team.
BUSINESS REVIEW
ANNUAL REPORT 2018
RISK MANAGEMENT
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LEGAL AND REGULATORY RISK
IMPACT
The Group’s businesses may be affected
by regulatory developments in any of the
countries in which MHP operates, includ-
ing changes in fiscal, tax or other regu-
latory regimes. Potential impacts include
higher costs to meet new environmental
requirements, the possible expropriation
of assets, other taxes, or new require-
ments for local ownership.
BRIBERY AND CORRUPTION
HOW WE MANAGE IT
MHP’s management team actively moni-
tors regulatory developments in the coun-
tries in which the Group operates. MHP’s
financial control framework has adopted
tax and treasury approaches fully in com-
pliance with relevant local laws in the juris-
dictions 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 the Market Abuse Regulation and sus-
tainability reporting.
IMPACT
A bribery or corruption incident leads to
significant reputational harm, adverse
stakeholder relations effects, financial
penalties and threatens MHP’s licence to
operate.
HOW WE MANAGE IT
MHP maintains robust anti-bribery and
corruption policies and procedures
which are regularly reviewed and mon-
itored by the Audit Committee. These
include a Code of Ethical Conduct and
Investigations Procedures which all
employees are required to adhere to.
These address matters such as bribery,
gifts, supplier and customer relations,
conflicts of interest and other areas of
potentially corrupt activity.
FAILURE TO COMPLY WITH THE COVENANTS
UNDER LOAN AGREEMENTS
IMPACT
A failure by MHP to comply with restric-
tive covenants under the terms of its in-
debtedness could put MHP into default.
HOW WE MANAGE IT
Strict monitoring of compliance with
the covenants is organised within the
Company.
BUSINESS REVIEW
ANNUAL REPORT 2018
RISK MANAGEMENT
70
FAILURE OF IT SYSTEMS COULD MATERIALLY AFFECT MHP’S
BUSINESS
IMPACT
MHP is becoming more dependent on IT
systems and considers them critical to
successful business operations. MHP re-
lies on its IT systems in many parts of its
business, including aspects of accounting
records, business monitoring, execution,
production of orders, invoicing, payment
monitoring and health and safety. Al-
though MHP backs up its IT systems and
has a disaster recovery plan in place, the
failure of IT systems could have a materi-
al adverse effect on MHP’s business, op-
erational results, financial condition and
prospects.
HOW WE MANAGE IT
A number of measures have been imple-
mented across the Company to reduce
the risk of IT systems failure. These in-
clude: the implementation of additional
business continuity measures; the organi-
sation of reserved data channels; moving
services to the Cloud; and the establish-
ment of an incident management process
providing continuous support for the busi-
ness. In addition, the Information Security
(IS) team performs regular audits of criti-
cal IT services in order to determine any
IS weaknesses and to perform penetra-
tion testing of Company vulnerabilities. It
also increases employee awareness of IS
risks and focusses on developing proper
behaviours.
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BUSINESS REVIEW
ANNUAL REPORT 2018
CORPORATE RESPONSIBILITY
71
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INITIATIVE (“GRI”) REPORTING FRAMEWORK.
PROVIDED IN THE FORTHCOMING NON-FINANCIAL REPORT WHICH WILL BE PUBLISHED DURING THE
SUMMER. THE NON-FINANCIAL REPORT WILL APPLY THE LATEST APPLICABLE GLOBAL REPORTING
OF THE COMPANY’S APPROACH TO CORPORATE RESPONSIBILITY MATTERS AND HOW THIS ASPECT
OF THE BUSINESS IS INTEGRATED INTO ITS OVERALL STRATEGY. DETAILED INFORMATION WILL BE
Y THIS SECTION OF THE ANNUAL REPORT IS PROVIDED TO GIVE READERS AN OUTLINE UNDERSTANDING
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STRIVING TO ACHIEVE THE BEST INTERNATIONAL STANDARDS
MHP strives to achieve corporate responsibility best practice in line with international standards. Corporate responsibility forms an
integral part of the Company’s long-term corporate vision. The Board views this aspect of MHP’s activities as important to the achieve-
ment of its ambition of becoming a global leader in its business sector.
KEY FOCUS AREAS
MHP’s approach to responsible business focusses on seven key areas.
Environment
& climate
change
Greenhouse gas
and atmospheric
emissions
Occupational
health & safety
Product
quality
& safety
Local
communities
Local stakeholder
engagement
Anti-bribery and
corruption
Minimum
antibiotic policy
Occupational
health
Business
conduct
Animal
welfare
Workplace
diversity
Product hygiene
People
Biodiversity
management
Accident
prevention
Product quality
Regulatory and
legal compliance
Equal
opportunities
Effects of
business activity
Maintenance of
appropriate living
conditions
Water use
Provision
of healthy
workplaces
Scientific analysis
Constant access
to balanced food
and fresh water
Supplier and
customer
relationships
Training and
development
Reuse, recycling
and waste
management
Energy use
Quality of raw
materials
Veterinary
supervision
Product labelling
and pricing
Fair working
conditions
Maintenance of
biological safety
standards
Access to high
quality bedding
materials
Data protection
and information
security
Approach to
organised labour
Local
infrastructure
investment
Contribution to
local economic
development
BUSINESS REVIEW
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BEST PRACTICE
POLICY
FRAMEWORK
OVERALL
STRATEGY
KEY AREAS
OF FOCUS
1
2
3
4
5 REPORTING &
MANAGEMENT
SYSTEMS
COMMUNICATIONS
ANNUAL REPORT 2018
CORPORATE RESPONSIBILITY
72
OVERALL CORPORATE RESPONSIBIITY STRATEGY LINKED
TO MHP’S AIMS & OBJECTIVES
ENVIRONMENT
& CLIMATE CHANGE
OCCUPATIONAL
HEALTH & SAFETY
PRODUCT QUALITY
& SAFETY
ANIMAL WELFARE
BUSINESS CONDUCT
PEOPLE
LOCAL COMMUNITIES
BEST PRACTICE POLICY FRAMEWORK REFERENCING THE APPROPRIATE STANDARDS
AND GUIDELINES AND EACH KEY AREA OF FOCUS
TAILORED MANAGEMENT SYSTEMS FOR EACH KEY AREA OF FOCUS ADDRESSING
THE RISKS AND OPPORTUNITIES THAT RELATE TO MHP’S ACTIVITIES
KPIs & TARGETS FIXED
FOR EACH KEY AREA
OF FOCUS
KPIs APPLIED IN
REGULAR INTERNAL
REPORTING PROCESSES
KPIs APPLIED IN COMPANY
REPORTING WITH
ACCOMPANYING NARRATIVE
BUSINESS REVIEW
ANNUAL REPORT 2018
CORPORATE RESPONSIBILITY
73
Commitment to value each employee and promote equality
of opportunity
Prohibition of discrimination, forced and child labour
Commitment to freedom of association and collective bar-
gaining
Local communities
•
Commitment to build trusting and mutually beneficial part-
nerships
Promotion of improvements to local living standards
Commitment to respect human rights and the interests of
local stakeholders
•
•
•
•
POLICY FRAMEWORK
Highlights of MHP’s corporate responsibility policy framework
include
People
•
Environment and climate change
•
Commitment to reduce greenhouse gas emissions intensi-
ty with a long-term aim of making the Company’s activities
carbon neutral
Commitment to minimise the impacts the Company’s activi-
ties have on the local environment
Commitment to minimise water use and discharges to water
Commitment to preserve local biodiversity
Commitment to minimise energy use and to apply renew-
able sources where practicable
•
•
•
•
Occupational health and safety
•
•
Provision of a healthy and safe working environment
Commitment to incident prevention in line with industry best
practice
Product quality and safety
• Maintenance of the highest quality and safety standards in
line with industry best practice and the applicable laws and
regulations
Constant monitoring of biological safety
•
Animal welfare
• Humane treatment of animals in line with industry best prac-
tice at all times
Business conduct
•
•
Zero tolerance approach to bribery and corruption
Commitment that all employees will adhere to responsible
standards of business behaviour
ANNUAL REPORT 2018
CORPORATE RESPONSIBILITY
74
BUSINESS REVIEW
MANAGEMENT SYSTEMS
MHP’s policy framework is supported by comprehensive cor-
porate responsibility management systems which have been
developed in line with industry best practice and international
standards.
All MHP locations employ environmental specialists and em-
ployees responsible for the maintenance of environmental stan-
dards and compliance with the relevant laws and regulations.
Occupational health and safety is governed by the Company’s
Labour Protection Service. As well as compliance and accident
prevention, the department is tasked with raising and maintain-
ing employee awareness of health and safety through a variety
of dialogue and communications mechanisms.
Product safety and quality is of paramount importance to MHP
and it is proud of its record in this area. A key aspect of its man-
agement systems is its use of internal and external laboratories
to ensure this record is maintained. All are certified for compli-
ance with ISO/IEC 17025.
Animal welfare is a natural priority and the Company’s systems
ensure comfortable living conditions and high standards of bio-
logical safety. Antibiotic use is prohibited at rearing sites and the
Company does not use hormones or growth stimulants. Antibi-
otics are used selectively based on a diagnosis which indicates
that their use is desirable and only with permissions from State
and local entity Chief Veterinary Officers.
MHP’s anti-corruption and bribery procedures include regular
reviews of the Company’s risk management systems by the se-
curity department and regular employee training.
MHP places significant emphasis on training and development.
Procedures include the New Horizons employee development
programme that enables high-performing employees to choose
areas of the business in which to further their careers and devel-
op their knowledge base and skills.
The Company continues to develop its stakeholder engagement
activities and relationships with its local communities. This in-
cludes the rollout of the stakeholder engagement plan (details
may be found on the Company website at www.mhp.com.ua)
and a programme of investment in local infrastructure and facili-
ties, such as “Village: Steps to Development”.
CASE STUDY – SECOND BIOGAS PLANT
MHP demonstrated its commitment to renewable energy and re-
ducing its carbon footprint during 2018. The project is expected
to reach 12MW capacity by the end of 2019. MHP’s first 5MW
plant reached full capacity in 2014. The new project is expected
to reduce annual CO2e (carbon dioxide equivalent) emissions by
approximately 85,500 tonnes.
THE SECOND BIOGAS PROJECT IS EXPECTED
TO REACH
BY THE END OF 2019
GOVERNANCE
76
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89
91
95
99
Corporate Governance Overview
Board: Composition & Performance
Nominations and Remuneration
Committee Report
Audit Committee Report
Management Report
Stakeholder Engagement
GOVERNANCE
ANNUAL REPORT 2018
CORPORATE GOVERNANCE OVERVIEW
76
(“SOCIÉTÉ ANONYME”) INTO A EUROPEAN COMPANY (“SOCIETAS EUROPAEA”)
W WITH EFFECT FROM 7 AUGUST 2017, MHP CONVERTED FROM A PUBLIC LIMITED LIABILITY COMPANY
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MHP was established on 30 May 2006. With effect from 27 De-
cember 2017, the Company’s registered office and central ad-
ministration was transferred to Cyprus and the Company is cur-
rently registered in the Cyprus Registry for SE Companies, under
number SE 27. Since that date, the Company’s registered office
address has been 16-18 Zinas Kanther Street, Agia Triada, 3035
Limassol, Cyprus.
The Company upholds and practices the highest standards
of ethics and integrity in its relationships with its sharehold-
ers, the Board of Directors, personnel, business community
and other stakeholders including government and regulato-
ry agencies.
On 27 December 2017, the Company also adopted a New Memo-
randum and Articles of Association to comply with the provisions
of the Cyprus Companies Law, Cap. 113, Council Directive 2001/86/
EC of 8 October 2001, which supplements the Statute for a Euro-
pean company with regard to the involvement of employees, the
SE Regulation and the European Public Limited – Liability Compa-
The Company’s corporate governance structures, processes
and procedures are outlined in its Code of Corporate Gover-
nance which can be viewed at the corporate website.
ny Regulations 2006, that are applicable in Cyprus. This New
Memorandum and Articles of Association can be found here:
https://www.mhp.com.ua/library/file/memorandum-english.pdf
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GOVERNANCE STRUCTURE
BOARD OF DIRECTORS
NA
Dr John Rich
Non-Executive Chairman
Roberto Banfi
Non-Executive Director
Yuriy Kosyuk
Chief Executive Officer
Yuriy Melnyk
Chief Operating Officer
Viktoria Kapelyushnaya
Chief Financial Officer
Christakis Taoushanis
Non-Executive Director
AI
John Grant
Non-Executive Senior Independent
Director
NAI
Roger Wills
Non-Executive
Director
NAI
(since 2019)
AUDIT COMMITTEE A
NOMINATIONS & REMUNERATION COMMITTEE N
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A
N
Independent Director
Member of the Audit Commitee
Member of the Nominations
& Remuneration Committee
SENIOR MANAGEMENT
Yuriy Kosyuk, Chief Executive Officer
GOVERNANCE
ANNUAL REPORT 2018
CORPORATE GOVERNANCE OVERVIEW
77
STATEMENT OF COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
The Company has been steadily developing its corporate gov-
ernance processes and procedures over the last few years.
During 2018, it undertook important steps to develop the exper-
tise and independence of Board members through the appoint-
ment of two independent Non-Executive Directors. MHP com-
plies with the requirements of Cypriot law and regards the UK
Corporate Governance Code as the appropriate international
and good practice benchmark for its approach.
It is the opinion of the Board that during 2018, the Company
complied with the principles and requirements outlined in the
UK Corporate Governance Code except in relation to the mat-
ters noted below.
Code Section
Principle|Code Section
Explanation
A 2.1
A 3.1
B 1.1
The division of responsibilities between the Chairman
and Chief Executive should be clearly established,
set out in writing and agreed by the Board.
Within the Company’s Corporate Governance Charter, the roles of Chairman and Chief Executive Officer (“CEO”) are clearly defined.
The Chairman is responsible for running the Board and the CEO leads the executive management structure. At the request of the Board, and
in recognition of his extensive experience, the Chairman has recently agreed to support the CEO with the conduct of certain specific strategic
projects where his knowledge and expertise are particularly helpful. These involve potential acquisitions, joint ventures and related matters.
This change means he can no longer be viewed as independent although the Board is satisfied, in view of his credentials, experience, expertise
and independence of thought, that these arrangements are in the best interests of the Company, its shareholders and other stakeholders.
The Chairman should on appointment meet the
independence criteria set out in the Code.
On his appointment in 2017, the Chairman had served on the Board as a Non-Executive Director since 2006. At the time of his appointment he
was also employed by the International Finance Corporation as a Senior Regional Consulting Agribusiness Industry Specialist (a role that has
subsequently ended). After considering the Chairman’s credentials, experience, expertise and independence of thought, it is the Board’s view
that the Chairman was independent at the time he was appointed.
The board should determine whether the director
is independent in character and judgement and
whether there are relationships or circumstances
which are likely to affect, or could appear to affect,
the director’s judgement.
John Grant has served as a Non-Executive Director of the Company since 2006. In view of his extensive experience as a Board director of a wide
range of major public companies in a variety of business sectors, the Board values the broad business perspective he brings to the Board and
continues to view him as independent of mind and judgement.
B 2.1
A majority of members of the nomination committee
should be independent non-executive directors.
During 2018 the membership of the Nominations and Remuneration Committee consisted of John Rich (Chairman) and John Grant (Independent
Non-Executive Director). Subsequently the Company has expanded the Committee’s membership. Membership now includes Roger Wills who is
an Independent Non-Executive Director.
D
Remuneration
D.2.1
The board should establish a remuneration
committee of at least two, independent non-
executive directors. In addition, the company
chairman may also be a member of, but not
chair, the committee if he or she was considered
independent on appointment as chairman.
The Company, in common with many listed companies with the majority of their operations in Ukraine, does not disclose detailed information
about director remuneration and related processes and is not legally required to do so. It is the responsibility of the Nominations and
Remuneration Committee to ensure that the Executive Directors are compensated sufficiently in order to retain and attract high calibre talent and
ensure that they are motivated to perform in the best interests of shareholders and other stakeholders. To date, the Company has compensated
the Executive Directors mainly in the form of competitive salaries. As the Company develops, consideration will be given to adopting other forms
of incentive when the Board believes that this approach will be in the best interests of shareholders and other stakeholders.
Membership of the Nominations and Remuneration Committee during 2018 consisted of John Rich (Chairman) and John Grant (Independent Non-
Executive Director). Membership now includes Roger Wills who is an Independent Non-Executive Director.
GOVERNANCE
PRINCIPAL RESPONSIBILITIES OF THE BOARD
The Board is responsible for the overall conduct of the Com-
pany’s business and has the powers, authorities and duties
vested in it by and pursuant to the relevant Cyprus laws and
regulations and the Articles of Association of the Company,
see: https://mhp.com.cy/corporate-governance/regulatory-doc-
uments/.
The Company has a unitary governance structure and the Board
is the ultimate decision-making body, except for the powers re-
served for the Shareholders’ Meeting by law or as specified in
the Articles of Association (please see Board Composition on
pages 81-88).
ROLE OF THE CHAIRMAN
The Board elects the Chairman from amongst members that
meet the Board’s criteria for an independent Director following
the preparation of a job specification by the Nominations and
Remuneration Committee. The Company’s Corporate Gover-
nance Charter excludes the CEO from also becoming Chairman.
The Chairman of the Board is responsible for the proper 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.
Prior to each meeting, the Chairman ensures that Directors re-
ceive complete and accurate information and, to the extent ap-
propriate, a copy of any Management 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.
ANNUAL REPORT 2018
CORPORATE GOVERNANCE OVERVIEW
78
The Chairman of the Board represents the Board to shareholders
and the public and chairs Shareholders’ Meetings. The Chairman
serves as the interface between the Board and major sharehold-
ers of the Company on matters of corporate governance.
has performed consultancy work for the Company. The Board
considers Mr Grant to be independent notwithstanding his peri-
od of service since 2006.
RELATIONSHIP BETWEEN THE CHAIRMAN AND THE CEO
A clear division of responsibilities is maintained between the
Chairman and the CEO. The CEO may not carry out the duties
of the Chairman of the Board and vice versa.
In 2018, the Board conducted an annual effectiveness review in
order to evaluate its performance as well as that of its Commit-
tees and individual Directors. The evaluation process was initi-
ated by a questionnaire. The conclusions were analysed by the
Board to further strengthen its composition and performance.
The Chairman is required to establish close relations with the
CEO by giving him support and advice while respecting the ex-
ecutive responsibilities of the CEO. The CEO provides the Chair-
man of the Board with all the information he requires to carry
out his tasks.
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 management
of the outcome of all Board decisions. The CEO is delegated
powers that are not exclusively reserved to the Board or to the
Shareholders’ Meeting. The CEO can delegate authority for
daily management to subordinate executives but will retain ul-
timate accountability to the Board of Directors for the actions
which are conducted during the performance of the role and the
actions of delegates.
CHANGES TO THE BOARD OF DIRECTORS IN 2018 AND
OTHER DEVELOPMENTS
During 2018 there were several new appointments to the Board:
Roberto Banfi was appointed in June 2018. Please see Mr
•
Banfi’s biography on page 83;
Christakis Taoushanis was appointed in July 2018. Please
see Mr Taoushanis’ biography on page 84;
Roger Wills was appointed in December 2018. Please see
Mr Wills’ biography on page 85.
•
•
William Richards stepped down from tha Board in October 2018
for personal work-related reasons.
AUDITORS’ REMUNERATION
The auditor’s remuneration was US$ 1,604 thousand for the
year ended 31 December 2018 (2017: US$ 980 thousand). This
includes both audit and non-audit services, with statutory au-
dit fees amounting to US$ 430 thousand for the year ended
31 December 2018 (2017: US$ 420 thousand). Fees for other
assurance services were US$ 458 thousand (2017: US$ 294
thousand); for tax advisory services US$ 20 thousand (2017:
US$ 130 thousand); and for other non-audit services US$ 697
thousand (2017: US$ 136 thousand).
The Company has rules and processes in place to ensure the
independence of the auditors, including non-audit fee limita-
tions set by the Board, and prior approval by the Audit Commit-
tee of any non-audit services to ensure they do not compromise
the independence of the auditors.
The Chairman is also responsible for ensuring that new Direc-
tors receive a complete and tailored induction 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.
BOARD OF DIRECTORS
Members of the Board are elected annually by a majority vote
of shareholders at the AGM and may be re-elected an unlimit-
ed number of times. At 31 December 2018, the Board had eight
directors, three of whom are regarded by the Board as indepen-
dent. Mr Banfi is not considered to be independent because he
GOVERNANCE
DIRECTOR INDEPENDENCE
The independence of each of the Non-Executive Directors is
considered on appointment. Each year, the Board also consid-
ers the facts and circumstances relating to Director indepen-
dence (and throughout the year as appropriate). This process
includes an assessment of whether each Non-Executive Direc-
tor is independent of management and any business or other
relationships that could materially interfere with their exercise
of objective, 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 manage-
ment, major shareholders, associated companies and other
parties with whom the Company conducts business.
Following the conduct of these processes, the Board has
concluded that John Grant is an Independent Board Director.
Christakis Taoushanis and Roger Wills, who joined the Board of
Directors during 2018, are also regarded by the Board as Inde-
pendent Non-Executive Directors.
SENIOR INDEPENDENT DIRECTOR
John Grant has been designated as the Board’s Senior Indepen-
dent Director since 2011. The Senior Independent Director is avail-
able to shareholders if they have any concerns that they cannot
resolve through the normal channels (e.g. Chairman, CEO or
other Non-Executive Directors). The Senior Independent Director
also provides a sounding board for the Chairman, is responsible
for the evaluation of the Chairman and serves as a trusted inter-
mediary for Non-Executive Directors as and when necessary. In
2018, the Senior Independent Director received three information
requests from shareholders and other stakeholders.
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 execu-
tive positions that are taken up outside the Company during the
term of office. If, in the opinion of the Board, a conflict of interest
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 transac-
tions involving conflicts of interest (whether actual or potential) of:
1. MHP’s Management team members, including Directors of
subsidiaries and branches (“key management”);
2. MHP’s line managers who have authority to authorise trans-
actions on behalf of MHP (“line managers”); and
3. other MHP employees who are authorised to approve or
have the power to influence significant transactions, changes in
policy or business strategy.
CONFIDENTIAL INFORMATION
All Board Directors are required to keep information received
in their capacity as Directors confidential and may not use it for
any purpose other than for fulfilling their remit.
OTHER PROFESSIONAL COMMITMENTS
Every Director is required to allocate the time and attention re-
quired 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-Executive
Directors, have access to independent professional advice at
the Company’s expense where they judge it necessary to dis-
charge 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 Com-
pany Secretary, who is responsible to the Board for ensuring
that Board procedures are complied with.
The Chairman is responsible for ensuring that the Directors receive
accurate, timely and clear information. The Company’s Executive
Management team is obliged to provide such information and Di-
rectors to seek clarification or amplification where necessary.
ANNUAL REPORT 2018
CORPORATE GOVERNANCE OVERVIEW
79
INTERNAL CONTROL AND RISK MANAGEMENT
The Board of Directors is ultimately responsible for the Compa-
ny’s governance, risk management, internal control environment
and processes and reviews their effectiveness at least annually.
Once identified, risks are evaluated to establish financial or
non-financial impact and the likelihood of their occurrence. For
risks assessed as significant, a mitigation action-plan is deter-
mined by the operational business management team. The
summary of key risks is regularly discussed with MHP’s man-
agement team and annually reported to the Board of Directors
through the Audit Committee. The Company has Internal Audit
in place, providing objective assurance to the Management and
to the Audit Committee on the effectiveness of risk management
and helping management to continuously improve its risk man-
agement framework and process.
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 59 of this Report.
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 Compa-
ny’s internal audit function in the context of the Company’s
overall risk management system;
Approving the appointment and removal of the Head of In-
ternal Audit;
Approving the remit of the internal audit function;
Ensuring it has adequate resources and is free from man-
agement or other restrictions;
•
•
•
GOVERNANCE
Agreeing the internal audit plan;
Reviewing internal audit reports;
•
•
• Monitoring management responses to internal audit rec-
ommendations; and
• Meeting the Head of Internal Audit annually, without manage-
ment being present, to discuss the department’s remit and any
issues arising from the internal audit work carried out.
FINANCIAL REPORTING PROCESS
MHP has in place a comprehensive financial review cycle which
includes a detailed annual budgeting process. The annual bud-
get and the business plan, upon which the budget is based, is
reviewed and approved by the Board of Directors.
Major commercial and financial risks are assessed as part of the
business planning process. There is a comprehensive system of
financial reporting, with monthly performance reports present-
ed to the Board of Directors.
At Group level, MHP has in place common accounting policies
and procedures for internal and external financial reporting.
Management monitors the publication of new reporting stan-
dards and works closely with the external auditors in evaluating
in advance the potential impact of these standards.
COMPENSATION OF KEY MANAGEMENT PERSONNEL
Total compensation of the Group’s key management person-
nel amounted to US$ 16,809 thousand for the year ended 31
December 2018 (2017: US$ 14,143 thousand). Compensation of
key management personnel consists of contractual salary and
performance bonuses.
Total compensation of the Group’s Non-Executive Directors,
which consists of contractual salary, amounted to US$ 1,106
thousand in 2018 (2017: US$ 460 thousand).
Key management personnel totalled 31 and 35 individuals as of
31 December 2018 and 2017 respectively.
COMMITTEES
ANNUAL REPORT 2018
CORPORATE GOVERNANCE OVERVIEW
80
DIRECTORS AND OFFICERS LITIGATION STATEMENT
No member of the Board of Directors or of MHP’s senior man-
agement has, for at least five years:
1.
2. been a senior manager or a member of the administrative
or supervisory bodies of any company at the time of, or
preceding, any bankruptcy, receivership or liquidation; or
any convictions relating to fraudulent offences;
3. been subject to any official public incrimination and/or sanc-
tion 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, man-
agement or supervisory bodies of a company, or from acting in
the management or conduct of the affairs of a company.
SHARE OPTIONS
At the date of this Annual Report, neither the Company nor
PJSC MHP has a share option plan and no share options have
been granted to members of the Board of Directors, members of
MHP’s senior management or employees.
ADDITIONAL DISCLOSURES
At the date of this Annual Report, 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 repur-
chase the Senior Notes from holders if a change in control oc-
curs as a result of a takeover bid.
There are no agreements between the Company and its Direc-
tors or employees providing for compensation on loss of office
or employment (whether through resignation, purported redun-
dancy or otherwise) that would occur because of a takeover bid.
NOMINATIONS AND REMUNERATION
COMMITTEE
Dr John C Rich, Chairman
John Grant
Roger Wills (from March 2019)
The Committee’s main tasks are disclosed in the
updated 2018 Corporate Governance Charter
(Annex E): https://www.mhp.com.ua/library/file/
corporate-governance.pdf
During 2018, the Committee held four meetings
and all of the Committee members attended.
The Nominations and Remuneration Committee
Report is provided in a separate section of the An-
nual Report on page 89.
AUDIT COMMITTEE
John Grant, Chairman
Dr John C Rich
Christakis Taoushanis (from November 2018)
Roger Wills (from March 2019)
The Committee’s main tasks are disclosed in the
updated 2018 Corporate Governance Charter
(Annex D): https://www.mhp.com.ua/library/file/
corporate-governance.pdf
During 2018, the Committee held four meetings
and the average attendance of Committee mem-
bers was 100%.
The Audit Committee Report is provided in a sepa-
rate section of the Annual Report on page 91.
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
81
GOVERNANCE
D
R
A
O
B
S
R
O
T
C
E
R
I
D
F
O
DR JOHN C RICH
Board and committee interests
• Non-Executive Chairman
•
• Member of the Audit Committee
Chairman of the Nominations and Remuneration Committee
Tenure
Dr Rich joined the Board in 2006. In 2016 he was named interim
Chairman of the Board of Directors of MHP S.A. and Chairman of
the Nominations and Remuneration Committee. In 2017, the Board
confirmed his appointment as Chairman on a permanent basis. The
Corporate Governance Overview on page 77 of this Report explains
that Dr Rich has recently agreed to accept responsibilities which
mean he will no longer be regarded as independent.
Nationality
Australian
Career and prior experience
From 1990 to 2003, Dr Rich was an executive director of Austa-
sia Pty Ltd, an agri-business conglomerate that has operations in
Australia, South East Asia and China. From 1995 to 2002 he was
a director of AN-OSI Pty Ltd, a company that specialised in sup-
ply-chain management for feedlot beef, poultry and dairy oper-
ations in Asia and Europe. Dr Rich was a specialist agri-business
consultant for the IFC and IFC-invested clients until 2018.
Dr Rich holds a BSc and a BVSc from the University of Sydney, is a mem-
ber of the Australian College of Veterinary Scientists and a registered
financial member of the Australian College of Veterinary Surgeons.
He has completed a number of post-graduate courses in agricul-
tural and food-related industries.
Other current roles
• Managing Director of Aus-
tralian Agricultural Nutri-
tion and Consulting Pty
Ltd (AANC)
Relevant skills
and experience
Industry
•
• Operations
•
Regulatory / risk
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
82
GOVERNANCE
D
R
A
O
B
S
R
O
T
C
E
R
I
D
F
O
JOHN GRANT
Board and committee interests
Senior Independent Director
•
Chairman of the Audit Committee
•
• Member of the Nominations and Remuneration Committee
Tenure
Mr Grant joined the Board in
2006.
Nationality
British
Career and prior experience
Mr Grant’s previous non-executive director roles included Chair-
man of Gas Turbine Efficiency plc, Hasgo Group Limited, Motor
Sports Association Limited and Torotrak plc. He was also Senior
Independent Director of Melrose plc, Pace plc and Wolfson Micro-
electronics plc and a non-executive director of National Grid plc,
Corac Group plc and the Royal Automobile Club Limited.
In his executive career, he was Finance Director of Lucas Industries
plc and LucasVarity plc from 1992 to 1996, and before that Direc-
tor of Corporate Strategy for Ford Motor Company and Executive
Deputy Chairman of Jaguar Cars.
Mr Grant holds a BSc in Economics from Queen’s University Bel-
fast, an MBA from Cranfield School of Management and an Honor-
ary Doctorate of Engineering from the University of Bradford.
Other current roles
• Non-Executive Director of
Augean Plc, a UK-based
hazardous waste man-
agement business
Chairman of the British Rac-
ing Drivers’ Club Limited
•
Relevant skills
and experience
Finance
•
Strategy
•
• Operations
GOVERNANCE
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
83
D
R
A
O
B
Board and committee interests
Non-Executive Director
•
Tenure
Mr Banfi joined the Board in
June 2018. He had been an
advisor to the Board of MHP
since 2016.
S ROBERTO BANFI
R
O
T
C
E
R
I
D
Nationality
Italian
F
O
Career and prior experience
Formerly a Specialised Corporate Consultant for BRF, Mr. Banfi was
involved in scouting entries into new markets, mainly India and Malay-
sia. From January 2014 to May 2016 he was BRF’s General Manager
for Europe and Eurasia, at that time a € 1 billion operation generating
very positive results.
Mr. Banfi was at Sadia S.A from 1998 to 2009 in various executive po-
sitions including Director of Sales & Marketing for the Brazilian market,
Director of Global Sales and GM for the Russian and Middle East &
North Africa regions. This was followed by four years as an indepen-
dent consultant in agri-business operations in Latin America and board
membership of a Saudi poultry operation until the end of 2013.
Before joining Sadia, he was Director of National Sales in Brazil for Best
Foods (nowadays part of Unilever) after gaining experience in Category
Management for global corporate brands including Knorr, Hellmann’s,
Mazola and Ades. He served as a Director at Swift Armor Brazil and
Cica, at that time the leading canned food processor in Latin America.
Born and raised in Europe, Mr Banfi has lived and worked extensively in
the USA, Central and South America, Brazil, Russia, Europe and the Mid-
dle East. Mr. Banfi received his MBA from Stanford University, California
and an undergraduate degree from HEC - Lausanne, Switzerland.
Other current roles
•
An Independent Consultant
in the Food sector covering
several geographic regions
and specialising in animal
proteins
Relevant skills
and experience
•
Industry
• Operations
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
84
GOVERNANCE
D
R
A
O
B
S
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O
T
C
E
R
I
D
F
O
CHRISTAKIS TAOUSHANIS
Board and committee interests
• Non-Executive Director
• Member of the Audit Committee
Tenure
Mr Taoushanis joined the
Board in July 2018.
Nationality
Cypriot
Career and prior experience
Mr Taoushanis has 30 years’ of banking experience, having worked
for four years with Continental Illinois National Bank of Chicago in
Chicago and Greece; for 18 years with the HSBC Group in Hong
Kong and Cyprus (the last 12 years as the Managing Director in
Cyprus); and for eight years as the Chief Executive Officer of the
Cyprus Development Bank.
He is a non-executive member of the boards of various regulated
and/or listed companies, mostly with international interests, such
as iSignthis, Capital Intelligence and Louis. He served as non-ex-
ecutive director of numerous firms and associations, including Aker
Cyprus, Association of Cyprus Commercial Banks (Chairman),
Bank of Cyprus, Coca Cola Hellenic (Lanitis Bros – a subsidiary),
Cooperative Central Bank (Chairman), Forthnet and TDE.
Mr Taoushanis is a graduate of the London School of Economics
and London Business School.
He has been active in the local Cypriot community and charitable
organisations such as Cyprus Rotary and Phaneromeni Church.
Relevant skills
and experience
Finance
•
Other current roles
•
A member of the board of
various regulated and/or
listed companies, mostly
with international interests
Advisor to a number of com-
panies through the private
firm, TTEG & Associates
•
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
85
GOVERNANCE
D
R
A
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B
S
R
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T
C
E
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I
D
F
O
ROGER WILLS
Board and committee interests
• Non-Executive Director
• Member of the Audit Committee (since 19 March 2019)
• Member of the Nominations and Remuneration Committee
(since 19 March 2019)
Tenure
Mr Wills joined the Board in
December 2018.
Nationality
New Zeland
Career and prior experience
Mr Wills was born and raised in New Zealand and graduated from
the University of Otago, New Zealand with majors in Accounting
and Finance. He then embarked on travel overseas and worked in
London in various finance roles before taking up a management
consulting role with Coopers & Lybrand in Russia in 1995. Mr Wills
joined leading Russian investment banking group Brunswick in 1998
and held various senior management roles in the Brunswick and UBS
groups before being appointed CEO of Brunswick Capital in 2003.
Mr Wills has held several non-executive directorships including
Cherkizovo Group (2017-2018), the leading Russian producer of
meat products, and T-Plus Group (2015-current), a major Russian
listed electric and thermal energy group.
Relevant skills
and experience
•
•
Accounting and Finance
Industry (Poultry, Meat and
Agriculture)
Other current roles
•
Since 2007 Mr Wills has
managed his own family
office and focussed on in-
vestment opportunities in
private equity, venture cap-
ital and public markets with
a focus on emerging mar-
kets and Eastern Europe
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
86
GOVERNANCE
D
R
A
O
B
S
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T
C
E
R
I
D
F
O
YURIY KOSYUK
Board and committee interests
Chief Executive Officer
•
Tenure
Mr Kosyuk founded MHP in
1998 and is also the CEO of
PJSC MHP.
Nationality
Ukrainian
Career and prior experience
In 1995 Mr Kosyuk founded the Business Centre for the Food Indus-
try (BCFI) in Kyiv, Ukraine and was President until 1999. BCFI oper-
ated in the domestic and export markets for grain and other agricul-
tural products.
Mr Kosyuk graduated in 1992 as a processing engineer in meat
and milk production from the Kiev Institute of the Food Industry.
Other current roles
• None
Relevant skills
and experience
Industry
•
• Operations
•
Regulatory / risk
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
87
GOVERNANCE
D
R
A
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B
S
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C
E
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I
D
F
O
YURIY MELNYK
Board and committee interests
Chief Operating Officer
•
Tenure
In July 2010, Mr Melnyk was
appointed First Deputy CEO
of MHP.
Nationality
Ukrainian
Career and prior experience
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 correspon-
dent 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 Agri-
culture of Ukraine as a Zoo Engineer in 1985.
Other current roles
• None
Relevant skills
and experience
Industry
•
Agriculture
•
ANNUAL REPORT 2018
BOARD: COMPOSITION AND PERFORMANCE
88
GOVERNANCE
D
R
A
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B
S
R
O
T
C
E
R
I
D
F
O
VIKTORIA KAPELYUSHNAYA
Board and committee interests
Chief Financial Officer
•
Tenure
Ms Kapelyushnaya joined MHP
in 1998 and was appointed to
the Board in 2006. She is also
Finance Director at PJSC MHP.
Nationality
Ukrainian
Career and prior experience
Ms Kapelyushnaya was previously Deputy Chief Accountant and
subsequently Chief Accountant of the Business Centre for the Food
Industry (BCFI).
She holds diplomas in meat processing engineering (1992) and fi-
nancial auditing (1998) from the Kiev Institute of the Food Industry.
Other current roles
• None
Relevant skills
and experience
Industry
•
Finance
•
Regulatory / risk
•
GOVERNANCE
ANNUAL REPORT 2018
NOMINATIONS AND REMUNERATION
COMMITTEE REPORT
89
S
N
O
I
T
A
N
M
O
N
I
N
O
I
T
A
R
E
N
U
M
E
R
D
N
A
T
R
O
P
E
R
E
E
T
T
I
M
M
O
C
THE NOMINATIONS AND REMUNERATION COM-
MITTEE (“THE COMMITTEE”) HAS OVERALL RE-
SPONSIBILITY FOR MAKING RECOMMENDATIONS
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 en-
able members to discharge their respective duties and respon-
sibilities effectively; and for setting the remuneration policies
across the Company.
MEMBER
Dr John Rich (Chairman)
John Grant
NO OF MEETINGS
4/4
4/4
Dr John Rich,
Chairman, Nominations
and Remuneration Committee
GOVERNANCE
THE PRINCIPAL RESPONSIBILITIES OF THE COMMITTEE ARE TO:
a. ensure the Company has exceptional people who occupy
appropriate positions and who have the necessary incen-
tives to achieve, and are fully compensated for, exceptional
performance;
b. set the overarching principles and parameters of Remuner-
c.
ation Policy across the Company; and
review the Company’s workforce requirements and ensure suf-
ficient depth of management to support expansion and suc-
cession.
The Committee is expected to meet not less than twice a year.
During 2018, the Committee met four times and the attendance
of its members at these Committee meetings is shown in the
table above. The Committee’s terms of reference, which were
last revised in May 2018, are available to view on the Compa-
ny’s website in the Corporate Governance Charter (Annex E) at
https://www.mhp.com.ua/library/file/corporate-governance.pdf.
Further details regarding the Committee’s composition, areas of
focus in 2018 and diversity policy are set out below.
COMPOSITION
The Corporate Governance Overview on page 76 of this Report
explains that the Committee’s Chairman, Dr John Rich, has recent-
ly agreed to accept responsibilities which mean he will no longer
be regarded as independent. The Committee has therefore been
strengthened by the appointment of a further independent Non-Ex-
ecutive Director. Roger Wills was appointed to the Committee on 19
March 2019. His biography can be found on page 85.
The Committee was chaired by Dr John Rich. John Grant also
served on the Committee throughout the year. The Company
Secretary acts as secretary to the Committee. On occasion, the
Committee invites the Chief Executive, the Chief Financial Of-
ficer or the Group HR Director to attend discussions where their
input is required.
AREAS OF FOCUS IN 2018
The principal focus of the Committee during 2018 was to consid-
er 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 Exec-
utive Directors and Non-Executive Directors in conjunction
with the provisions of the UK Corporate Governance Code
and best practice. Specifically, the Committee accepted
the resignation of Mr Will Richards from the Board due to
his inability to meet the necessary time commitments re-
quired by MHP’s Board duties. The Committee appointed
Mr Roberto Banfi, an industry expert, to add to the Board’s
level of skills. The Committee also appointed Mr Roger
Wills, an experienced finance executive with significant
experience in Russia and Eastern Europe who was previ-
ously employed by Coopers & Lybrand, Moscow followed
by leading investment banks Brunswick and UBS in Rus-
sia. Mr Wills has prior experience at Board level in the pol-
try, meat and agriculture industries. Christakis Taoushanis
was also appointed to the Board and brings with him over
30 years’ experience in banking in Europe, the US and
Asia. The Committee continued throughout the year and
beyond to look for opportunities to strengthen the Board.
The Committee considered and approved the continuing
education programme for Non-Executive Directors for 2019.
This includes membership of the Institute of Directors (IoD)
and attendance at courses run by the IoD’s and Deloitte’s
respective academies. In addition, a plan of continuing
education recommendations has been made for senior
management executives with an emphasis on courses be-
ing held at well known institutions in the UK and the USA.
•
The Committee conducteed a remuneration review of the
Board and the senior management team. During 2018 new sen-
ior management salaries were recommended and adopted.
ANNUAL REPORT 2018
NOMINATIONS AND REMUNERATION COMMITTEE REPORT
90
DIVERSITY POLICY
The Board recognises the importance of fully considering di-
versity matters (including ethnicity, social background, creed,
gender and age) when ensuring that the best candidates are
selected for membership of the Board and to ensure that the
Board has an optimal blend of experience and knowledge. It
is committed to the principles of equality of opportunity for
all employees.
Dr John Rich
Chairman, Nominations
and Remuneration Committee
1 April 2019
THE COMMITTEE IS EXPECTED
TO MEET NOT LESS
THAN TWICE A YEAR
ANNUAL REPORT 2018
AUDIT COMMITTEE REPORT
91
GOVERNANCE
T
R
O
P
E
R
E
E
T
T
I
M
M
O
C
T
I
D
U
A
I AM PLEASED TO PRESENT THE 2018 REPORT
OF THE AUDIT COMMITTEE, WHICH DESCRIBES
HOW THE COMMITTEE HAS CARRIED OUT ITS
RESPONSIBILITIES DURING THE YEAR
The Audit Committee (“the Committee”) is responsible for the in-
tegrity of the Group’s financial reporting and its internal control
and risk management processes. The Committee also makes rec-
ommendations to the Board on the appointment of external and
internal auditors, and oversees their activities.
MEMBER
John Grant (Chairman)
John Rich
Will Richards (resigned October 2018)
Christakis Taoushanis
(appointed November 2018)
NO OF MEETINGS
4/4
4/4
3/3
1/1
Mr John Grant,
Chairman, Audit Committee
GOVERNANCE
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
in the Corporate Governance Charter (Annex C) at https://www.
mhp.com.ua/library/file/corporate-governance.pdf. The Com-
mittee is responsible for protecting the interests of shareholders
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 financial
statements, including the Annual Report and any formal
announcements relating to financial performance;
ensuring compliance with legal and regulatory require-
ments;
keeping under review the effectiveness of the Company’s
financial reporting, risk management and internal control
systems;
reviewing the independence, objectivity and effectiveness
of the external auditors, and making recommendations to
the Board regarding the appointment, re-appointment and
replacement of external auditors and their terms of en-
gagement;
reviewing policy and practice regarding provision of
non-audit services by the external auditor;
considering the requirement for, and monitoring the effec-
tiveness of, internal audit;
ensuring compliance with accounting standards and con-
sistency of accounting policies;
reviewing and challenging the going concern assump-
tion; and
reviewing the Annual Report and financial statements to
ensure they are fair, balanced and understandable.
•
•
•
•
•
•
•
•
ANNUAL REPORT 2018
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92
SIGNIFICANT ISSUES RELATED TO THE FINANCIAL
STATEMENTS
The Committee undertook the following recurring activities in
relation to the financial statements:
•
reviewed and agreed the scope of the audit work to be un-
dertaken by the external auditor;
considered the external auditor’s report on their audit of the
full year results;
reviewed the Annual Report and annual and quarterly fi-
nancial 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 accordingly;
considered the processes in place for the valuation of as-
sets, including the reasonableness and consistency of as-
sumptions; and
reviewed the effectiveness of the Company’s risk manage-
ment and internal controls.
•
•
•
•
MEETINGS
IN 2018
COMPOSITION
At the end of 2018, the Committee comprised three Non-Exec-
utive Directors. Two of these Directors are considered by the
Board to be independent. The Chairman of the Committee is
John Grant, who has recent and relevant financial experience
in a wide range of senior Non-Executive roles (see biography
on page 82).
The Corporate Governance Overview on page 76 of this Report
explains that Committee member, Dr John Rich, has recently
agreed to accept responsibilities which mean he will no longer
be regarded as independent. The Committee has therefore
been strengthened by the appointment of two further independ-
ent Non-Executive Directors. Christakis Taoushanis joined the
Committee in November 2018 and Roger Wills was appointed
to the Committee on 19 March 2019. Their biographies can be
found on pages 84 and 85.
The Committee Chairman 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 ap-
propriate. The Committee has the right to invite any other direc-
tor 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 time-
table, enabling the Committee to review the annual and quar-
terly financial statements, to agree the audit plan in advance of
the full year audit, and to maintain oversight of the Group’s in-
ternal controls and processes. In 2018, the Committee met four
times. The attendance of members at these meetings is shown
in the table at the previous page.
GOVERNANCE
ANNUAL REPORT 2018
AUDIT COMMITTEE REPORT
93
AREAS OF FOCUS FOR 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.
VALUATION OF BIOLOGICAL ASSETS
Valuation of biological assets requires the use of complex models and
a number of assumptions to arrive at fair values.
REVENUE RECOGNITION
There is а presumed risk of misstatement on revenue recognition due
to fraud.
COMPLIANCE WITH BOND AND BANK COVENANTS
Continued compliance with covenants included in bond and bank debt
agreements is a prime focus for the Committee.
TAX RISKS
In view of the ambiguity of tax legislation, certain transactions may be
challenged by the relevant governmental authorities.
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.
GOING CONCERN
Assessment of the going concern assumptions, taking account of
political and economic uncertainties in Ukraine.
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.
The Committee reviewed the assumptions and judgements applied by
management and verified the reasonableness of input data and the
accuracy of calculations.
The Committee confirmed that appropriate procedures had been
undertaken to address the risk.
The Committee verified that appropriate stress tests, taking account of
potential depreciation of the Ukrainian currency, had been performed
and that it was satisfied with the Company’s position.
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.
The Committee ensured that appropriate procedures had been
followed to evaluate 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.
The Committee reviewed the assumptions underlying the assessment
of the Company’s ability to continue as a going concern and, after
considering the stress tests undertaken by the auditor, supported
management’s recommendation that the going concern assumption
continued to be appropriate.
GOVERNANCE
EXTERNAL AUDIT
Auditor rotation
In accordance with European regulatory requirements and the
guidance provided by the Competition and Markets Authority
regarding the statutory audit of public-interest entities, the Com-
pany 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 Compa-
ny’s auditor since 2003. As reported previously, at the conclu-
sion of a comprehensive selection process, in December 2016
the Committee decided, based on its assessment of which of the
four candidate firms had the strongest capabilities, 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
The Committee assessed the effectiveness of the auditor fol-
lowing completion of the audit of the 2017 accounts. The Com-
mittee remains satisfied with the quality, integrity and effective-
ness of the work undertaken by the external auditor.
Non-audit services
A policy is in place covering engagement of the external audi-
tor for the supply of non-audit services to ensure that its inde-
pendence and objectivity are not impaired. An analysis of fees
earned by the external auditor for audit and non-audit services
can be found in Note 8 to the financial statements.
EU and Competition Commission rules that became effective in
2016 specify that the cost of non-audit services provided by the
external auditor 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.
This is not expected to have a material impact on the Company.
It is the Committee’s intention to ensure future non-audit servic-
es are provided by a number of different firms to ensure both
independence of the external audit and best quality and best
value provision of non-audit services.
•
•
•
assessing the efficiency and effectiveness with which re-
sources are employed;
liaising with external auditors in audit planning and assist-
ing the external auditors as required; and
investigating any instances of fraud, irregularity or corruption.
ANNUAL REPORT 2018
AUDIT COMMITTEE REPORT
94
Auditor objectivity and independence
The Committee has a policy and procedures in place to ensure
that auditor independence and objectivity are never compro-
mised. 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 au-
ditor and requirements for rotation of the audit partner every
7 years. Each year, the auditor is required to provide evidence
to the Committee of how it believes its independence and ob-
jectivity have been maintained. Based on these requirements
and procedures, the Committee remains confident that auditor
independence and objectivity have been maintained.
INTERNAL AUDIT
The Company has an Internal Audit function whose primary pur-
pose is to provide independent assurance to management and
the Committee, and hence the Board, on the Company’s risk
management and control environment. Internal Audit coverage
includes all of the Company’s operations, resources, services
and responsibilities to other bodies, with no department or busi-
ness 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 pro-
vided to stakeholders;
assessing compliance with statutory and regulatory re-
quirements;
assessing compliance with Company policies and procedures;
ensuring that the Company’s assets are properly account-
ed for and safeguarded;
•
•
•
•
The Internal Audit programme is approved annually by the
Committee and the Head of Internal Audit reports findings peri-
odically to the Committee. Following the resignation of the pre-
vious incumbent, a new Head of Internal Audit was appointed
in May 2018.
RISK MANAGEMENT AND INTERNAL CONTROL
The Committee monitors the effectiveness of the Company’s
risk management and control systems through regular updates
from management, reviews of the key findings of the external
and internal auditors and an annual review of the risk manage-
ment 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 potentially im-
pact the achievement of MHP’s strategic and financial objec-
tives. 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 residual risks against
the Company’s risk appetite and to prioritise further risk man-
agement actions. The Company’s approach to the identification
and assessment of risks, and the response to risks, is based on
best business practices and international COSO Enterprise Risk
Management standards.
No incidents of significant control weaknesses or failures were
identified at any time during the year.
John Grant
Chairman, Audit Committee
1 April 2019
GOVERNANCE
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ANNUAL REPORT 2018
MANAGEMENT REPORT
95
DISCLOSURES ELSEWHERE IN THE ANNUAL REPORT ARE CROSS-REFERENCED WHERE APPROPRIATE.
TAKEN TOGETHER, THEY VOLUNTARILY FULFIL THE MAJORITY OF THE COMBINED REQUIREMENTS
OF THE UK COMPANIES ACT 2006, THE UK DISCLOSURE AND TRANSPARENCY RULES, THE LISTING
RULES OF THE UK FINANCIAL CONDUCT AUTHORITY AND THE UK CORPORATE GOVERNANCE
CODE. THE COMPANY’S MINIMUM LEGAL REQUIREMENT IS TO COMPLY WITH THE REPORTING OF
DISCLOSURE REQUIREMENTS OF CYPRUS, WHERE IT IS DOMICILED
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
MHP is a leading international agro-industrial company and the
largest producer of chicken in Ukraine*. The Company operates a
vertically-integrated business model, owning and operating each
of the key stages of chicken production processes, with the objec-
tive of maximising self-sufficiency and efficiency in production costs
by consolidating multiple steps in the value-chain.
The business is organised into and operates through three business
segments: Poultry and Related Operations Segment; Grain Growing
Operations Segment; and Other Agricultural Operations Segment.
Key to the Company’s approach to managing waste and mi-
nimising its use of energy is MHP’s biogas programme, which
enables the recycling of waste including husk and manure. Its
first plant, with 5 MWs of capacity, is in operation and a further
biogas complex with 24 MWs of capacity is under construction.
POULTRY AND RELATED OPERATIONS SEGMENT
The Poultry and Related Operations Segment produces and
sells chicken meat (fresh and frozen), vegetable oils (sunflow-
er and soybean) and mixed fodder. It incorporates three poultry
farms and two breeding farms, three sunflower oil plants, two
soybean crushing plants and three feed mills.
* Source: SSCU
2018 production figures were as follows:
•
Three chicken meat complexes produced 617,943 tonnes of
chicken meat;
Two breeding farms produced 459,309,450 hatching eggs;
Three sunflower oil plants produced 314,115 tonnes of oil;
•
•
• One soybean crushing plant produced 39,066 tonnes of oil; and
Three feed mill plants produced 1,660,958 tonnes of meal.
•
GRAIN GROWING OPERATIONS SEGMENT
The Grain Growing Operations Segment grows crops for fodder
production and for sale to third-parties.
In 2018 MHP’s total landbank constituted 378,293 hectares
(ha) of land of which 369,314 ha were in grain cultivation
incorporating a number of arable farms in Ukraine. MHP
harvested 362,820 ha of land yielding 2,654,422 tonnes
of crops.
Grain storage facilities were 1,590,000 m3 and 694,395 tonnes
capacity in plastic bags.
OTHER AGRICULTURAL OPERATIONS SEGMENT
The Other Agricultural Operations Segment predominantly pro-
duces and sells sausage and cooked meat, convenience foods
and produce from cattle and milk operations.
It incorporates two facilities for producing prepared meat prod-
ucts and a number of mixed farms. The meat-processing opera-
tion is the Segment’s flagship business, producing 33,975 tonnes
of meat-processing products and 17,997 tonnes of convenience
foods in 2018.
GOVERNANCE
FUTURE DEVELOPMENTS
The Executive Management team believe there are ample op-
portunities for growth both internationally and within Ukraine. In
Ukraine, customers tend to buy domestically produced chicken,
choosing from the wide range of poultry products that MHP de-
velops and offers to its customers. These products are both 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.
MHP’s strategy is:
•
•
•
•
•
To expand poultry production capacity during the period
2019-2022;
To explore merger and acquisition opportunities and to
potentially acquire further meat-processing and/or poultry
production businesses in the EU and/or MENA regions;
To continue export expansion through sales diversification
and market targeting;
To continue establishing international sales and distribution
offices and potentially joint ventures;
To increase production efficiency through modernisation and
innovation, improvement in cost and quality control, use of
up-to-date technology, and increased vertical integration;
ANNUAL REPORT 2018
MANAGEMENT REPORT
96
•
•
•
•
•
•
To maintain its “continuous improvement” approach to the
Company’s already high biosecurity standards, environ-
mental standards, health and safety procedures and animal
welfare practices;
To promote and develop the Company’s strong brands
through consumer-driven innovation and the introduction of
new products;
To increase the Company’s presence in value-added food
products such as processed meat and convenience food;
To expand alternative energy projects (e.g. biogas);
To potentially expand the Company’s landbank to around
500,000 hectares over the medium term in order to further
reduce the dependence on third-party suppliers of ingredi-
ents for fodder, and to provide additional hard currency rev-
enues from grain export sales; and
To continue to develop our local stakeholder relationships in
partnership with our local communities and business partners.
GOVERNANCE
BOARD MEETINGS
During 2018, the Board of Directors held six meetings 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 18 circular resolutions.
The Board conducts regular effectiveness reviews in order to evalu-
ate its performance as well as that of its committees and individual
Directors. The evaluation process is normally initiated by a question-
naire 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 each year, MHP’s Non-Executive Directors have a
regular meeting to discuss and to evaluate the performance of the
executive Directors. The latest meeting took place in London, UK,
in December 2018. The results of the evaluation are usually com-
municated to executive Directors at the first Board meeting of the
following year.
AGM
The next AGM will take place on 19 June 2019 at noon at 16-18
Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.
The 2019 AGM notice will be posted on the Company’s web-
site at https://www.mhp.com.ua/en/investor-relations/corpo-
rate-governance/MHP-S-E-Cyprus/annual-general-meeting.
BOARD OF DIRECTORS
The biographical details of the current serving Directors are set
out on pages 81 to 88.
The Directors who served during the year were: Mr Roberto Banfi
(appointed to the Board in June 2018); Mr John Grant; Ms Viktoria
Kapelyushnaya; Mr Yuriy Kosyuk; Mr Yuriy Melnyk; Mr William Rich-
ards (stood down from the Board in October 2018); Dr John Rich; Mr
Christakis Taoushanis (appointed to the Board in July 2018); and Mr
Roger Wills (appointed to the Board in December 2018).
ANNUAL REPORT 2018
MANAGEMENT REPORT
97
More information on Board developments and changes during
the year can be found in the Chairman’s Statement on pages
18 to 21.
ownership interest in Agrofort to 100% through the acquisition of
a non-controlling interest.
DIRECTORS’ INTERESTS
The interests of Non-Executive Directors in MHP’s GDRs are
shown in the table below.
RESEARCH AND DEVELOPMENT
Sustaining significant investment in R&D is fundamental to the
Company’s long-term growth strategy.
John Rich
John Grant
Roberto Banfi
25,000
17,000
15,000
MHP employs state-of-the-art technology throughout its oper-
ations. Our target is to sustain our position as a world leader
in poultry production, cost control and efficiency levels at the
same time as adopting a sustainable and responsible approach
to society, the environment and animal welfare.
DIRECTORS’ INDEMNITY ARRANGEMENTS
The Directors have the benefit of a Directors’ liability insurance
policy and the Company has entered into qualifying third-party
indemnity arrangements with them, as permitted by the Compa-
nies Act 2006. The policy was in force throughout 2018, at the
year end, and continues in force at the date of this Report. The
Directors are permitted to take independent legal advice at the
Company’s expense within set limits in furtherance of their duties.
DIVIDEND POLICY
In March 2013 the Board of Directors approved the adoption of
a dividend policy that maintains a balance between the need to
invest in further development and the right of shareholders to
share the net profits of the Company.
BUSINESS REVIEW AND RISKS
A review of the Group’s performance and the key risks and uncer-
tainties which face the business as well as details on likely de-
velopments can be found in the Chairman’s Statement on pages
18 to 21 and Risk Management on pages 58 to 70 of this Report.
CORPORATE RESPONSIBILITY REPORTING
The Group initiated Corporate Responsibility reporting in 2015
and issues a separate Corporate Responsibility Report (Non-Fi-
nancial Report) annually. This Report includes information for
MHP’s material stakeholders and applies the latest applicable
GRI reporting framework.
The dividend policy confirms the Company’s intention to pay an-
nual dividends to shareholders. The Company paid dividends of
US$ 80 million in 2018 (2017: US$ 80 million).
The latest Corporate Responsibility Report (Non-Financial Re-
port) is for 2017 and can be found in the “Sustainable Develop-
ment” section of the Company’s website at: https://www.mhp.
com.ua/en/responsibility/sustainable-development.
The Board has recommended an interim dividend of US$ 0.7474 per
share, amounting to US$ 80 million (2017: US$ 0.7492 per share).
The Company expects the 2018 Report to be available in June 2019.
SIGNIFICANT SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS
In December 2018, the Group exchanged 256,414 of its shares
in the form of GDRs held in treasury to increase its effective
Summary Corporate Responsibility information is also included
on pages 71 to 74 within this Annual Report.
BRANCHES
MHP does not have any branches.
ANNUAL REPORT 2018
MANAGEMENT REPORT
98
The Company has chosen, in accordance with Section 414
C(11) of the UK Companies Act 2006, and as noted in this Man-
agement Report, to include certain matters in its Strategic Re-
port that would otherwise be required to be disclosed in this
Management Report. The Strategic Report can be found on
pages 3 to 24.
APPROVAL
Approved by the Board and signed on its behalf by:
Dr John Rich
Chairman of the Board of Directors of MHP SE
GOVERNANCE
GOING CONCERN
After reviewing the 2019 budget and longer-term plans, the Di-
rectors are satisfied that, at the time of the approval of the finan-
cial statements, it was appropriate to adopt the going concern
basis in preparing the financial statements of the Group.
POLITICAL DONATIONS
The Group did not make any political donations or incur any
political expenditure during the year.
COMMUNICATION WITH SHAREHOLDERS
The Directors highlight the importance of effective and clear
communication with shareholders. During 2018 shareholders
had a number of meetings and discussions with Board mem-
bers, predominantly with Mr Yuriy Kosyuk, Dr John Rich, and Ms
Viktoria Kapelyushnaya, including meetings during roadshows,
at conferences and regular conference calls.
In order to facilitate communication with Independent Directors,
the Board has introduced a direct communication channel be-
tween shareholders and independent Directors and provides
direct contact details through the Investor Relations Director.
Details can be found at http://www.mhp.com.ua/en/investor-re-
lations/ir-contacts.
EVENTS AFTER THE BALANCE SHEET DATE
On 15 February 2019, MHP received clearance from the Slove-
nian Competition Protection Agency for its acquisition of Pe-
rutnina Ptuj, a well-established international food-processing
company and the most important and largest producer of poul-
try meat and poultry meat products in Southeast Europe. The
acquisition had already received clearance from regulators in
Austria, North Macedonia, Serbia and Romania.
On 21 February 2019, MHP completed its acquisition of Perut-
nina Ptuj.
DISCLOSURE OF INFORMATION TO AUDITORS
So far as each Director is aware, all information relevant to the
audit of the Group’s consolidated financial statements has been
supplied to the Group’s auditors. Each Director has taken all
steps that he/she ought to have taken in his/her duty as a Direc-
tor in order to make himself/herself aware of any relevant audit
information and to establish that the Group’s auditors are aware
of that information.
The independent auditors, Deloitte Limited, have expressed
their willingness to continue in office and a resolution authoris-
ing the Board of Directors to fix their remuneration will be sub-
mitted at the forthcoming Annual General Meeting.
ADDITIONAL DISCLOSURES
Other information that is relevant to the Management Report,
and which is incorporated by reference into this Report, can be
located as follows:
Corporate Governance Overview
Pages
76 to 80
GOVERNANCE
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We understand how important it is for the Company’s stakehold-
ers (shareholders, bondholders, IFIs, rating agencies, financial
media etc) to be able to access information about its develop-
ment, results and strategy. We work to ensure that stakeholder
communications are conducted regurarly and effectively. The
financial calendar is published on MHP’s website and is kept up
to date. Key personnel who interface with stakeholders include
our Non-Executive Directors, Senior Executives and our Director
of Investor Relations. Further details are shown below.
ANNUAL REPORT 2018
STAKEHOLDER ENGAGEMENT
99
NON-EXECUTIVE DIRECTORS:
Dr John Rich, Chairman of the Board
Mr John Grant, Senior Independent Director
EXECUTIVE DIRECTORS:
Mr Yuriy Kosyuk, CEO
Ms Victoria Kapelyushna, CFO
Ms Anastasiya Sobotyuk, Director of Investor Relations
During 2018 MHP participated in six conferences organised by
investment banks from the US, the UK and Ukraine and had over
140 meetings with investment funds. MHP conducted a road-
show with CEO and CFO participation.
In order to update MHP’s shareholders regularly on operational
and financial results, MHP issues press releases and hosts reg-
ular investor calls with top management. In 2018 MHP issued
eight press releases dedicated to quarterly, semi-annual and
annual updates, and held four conference calls.
In 2018 the Company had one AGM. and two EGMs. The major
resolutions agreed at the meetings related to the adoption of the
Company’s new corporate governance code, new share dealing
code, re-appointment of auditors, appointment of a new director,
and re-appointment of Board directors.
MEETINGS WITH
INVESTMENT FUNDS
FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
CONTENTS
ANNUAL REPORT 2018
101
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 2018 ............................................. 102
INDEPENDENT AUDITOR’S REPORT ............................................................................................................... 103
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR
ENDED 31 DECEMBER 2018
Consolidated statement of profit or loss and other comprehensive income ....................................... 109
Consolidated statement of financial position ..................................................................................................111
Consolidated statement of changes in equity ............................................................................................... 112
Consolidated statement of cash flows .............................................................................................................114
Notes to the Consolidated financial statements ........................................................................................... 115
1. Corporate information ....................................................................................................................................... 115
2. Changes in the group structure..................................................................................................................... 116
3. Summary of significant accounting policies ...............................................................................................117
4. Critical accounting judgments and key sources of estimation uncertainty ......................................134
5. Segment information ........................................................................................................................................135
6. Revenue ...............................................................................................................................................................138
7. Cost of sales ........................................................................................................................................................138
8. Selling, general and administrative expenses ..........................................................................................139
9. Government grants income ............................................................................................................................139
10. Finance costs ................................................................................................................................................... 140
11. Income tax ...........................................................................................................................................................141
12. Property, plant and equipment ....................................................................................................................142
13. Land lease rights ..............................................................................................................................................145
14. Other non-current assets, net .......................................................................................................................146
15. Biological assets ..............................................................................................................................................146
16. Inventories .........................................................................................................................................................149
17. Agricultural produce ........................................................................................................................................149
18. Taxes recoverable and prepaid ...................................................................................................................149
19. Trade accounts receivable, net ...................................................................................................................149
20. Other current assets ...................................................................................................................................... 151
21. Cash and cash equivalents .......................................................................................................................... 151
22. Shareholders’ equity...................................................................................................................................... 151
23. Non-controlling interests ............................................................................................................................. 152
24. Bank borrowings .............................................................................................................................................153
25. Bonds issued ....................................................................................................................................................154
26. Finance lease obligations ........................................................................................................................... 156
27. Other current liabilities ..................................................................................................................................157
28. Related party balances and transactions ...............................................................................................157
29. Contingencies and contractual commitments ....................................................................................... 158
30. Dividends ......................................................................................................................................................... 160
31. Fair value of financial instruments ............................................................................................................. 160
32. Risk management policies .......................................................................................................................... 162
33. Pensions and retirement plans ...................................................................................................................167
34. Earnings per share .........................................................................................................................................167
35. Subsequent events .........................................................................................................................................167
36. Authorization of the consolidated financial statements ......................................................................167
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
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H
T
STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2018
The Board of Directors is responsible for the preparation of the consoli-
dated financial statements that give a true and fair view of the financial
position of MHP SE (the “Company”) and its subsidiaries (the “Group”)
as of 31 December 2018 and of the consolidated statements of profit
or loss and other comprehensive income, changes in equity and cash
flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
’ RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL
S
R
O
T
C
E
R
I
D
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 un-
derstandable information;
In accordance with Article 9 sections (3c) and (7) of the Transparency Re-
quirements (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 2018, on the basis of our knowledge, declare that:
a) the consolidated financial statements which are presented on
(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
The consolidated financial statements of the Group as of and for
the year ended 31 December 2018 were authorized for issue by
the Board of Directors on 19 March 2019.
Board of Directors’ responsibility statement
pages 109 to 167:
• providing additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on
the Group’s consolidated financial position and financial performance;
• making an assessment of the Group’s ability to continue as a
going concern.
The Board of Directors, within its competencies,
is also responsible for:
• designing, implementing and maintaining an effective and
sound system of internal controls, throughout the Group;
• maintaining adequate accounting records that are sufficient to
show and explain the Group’s transactions and disclose with rea-
sonable accuracy at any time the consolidated financial position
of the Group, and which enable them to ensure that the consoli-
dated financial statements of the Group comply with IFRS;
• maintaining statutory accounting records in compliance with local
legislation and accounting standards in the respective jurisdictions;
• taking such steps as are reasonably available to them to safe-
guard the assets of the Group; and
• preventing and detecting fraud and other irregularities.
(ii) provide a true and fair view of the assets and liabilities,
the financial position and the profit or loss of the Compa-
ny’s and subsidiary companies, consolidated financial
statements as a whole and
b) the Management report provides a fair review of the develop-
ments 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.
On behalf of the Board:
Director
Director
Director
Director
Director
Director
Director
Director
Yuriy Kosyuk
John Grant
Viktoria Kapelyushnaya
John Clifford Rich
Yuriy Melnyk
Christakis Taoushianis
Roberto Banfi
Roger Wills
F
O
F
O
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
103
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
Basis for Opinion
We have audited the consolidated financial statements of MHP
SE (the “Company”), and its subsidiaries (the “Group”), which are
presented in pages 109 to 167 of the consolidated financial state-
ments and comprise the consolidated statement of financial posi-
tion as at 31 December 2018, and the consolidated statements of
comprehensive income, changes in equity and cash flows for the
year then ended, and notes to the consolidated financial state-
ments, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial state-
ments give a true and fair view of the consolidated financial po-
sition of the Group as at 31 December 2018, and of its consoli-
dated financial performance and its consolidated cash flows for
the year then ended in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union
and the requirements of the Cyprus Companies Law, Cap. 113.
We conducted our audit in accordance with International Stan-
dards on Auditing (ISAs). Our responsibilities under those stan-
dards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of
our report. We remained independent of the Group through-
out the period of our appointment in accordance with the In-
ternational Ethics Standards Board for Accountants’ Code of
Ethics for Professional Accountants (IESBA Code) together with
the ethical requirements that are relevant to our audit of the
consolidated financial statements in Cyprus, and we have ful-
filled our other ethical responsibilities in accordance with these
requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to pro-
vide a basis for our opinion.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
104
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
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
Valuation of biological assets
The Group’s policy is to measure biological assets at fair value in accordance with IAS-41 Agricul-
ture (“IAS 41”).
As of 31 December 2018, the carrying amount of biological assets was USD 202,682 thousand, of
which USD 179,290 thousand was classified within current assets and USD 23,392 thousand with-
in 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 tech-
nique 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 judgmen-
tal. 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 tech-
nique (see notes 4 and 15 to the consolidated financial statements) are:
• 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.
How our audit addressed the Key Audit Matter
We have performed the following audit procedures in order to address the risks of material mis-
statement 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 assump-
tions used fell within an acceptable range.
• We evaluated the reasonableness and appropriateness of the discount rate with the assis-
tance of our internal valuation specialists.
• 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 relat-
ing to these sensitivities (note 15 to the consolidated financial statements).
• We considered the appropriateness of all related disclosures provided in the consolidated
financial statements (note 15 to the consolidated financial statements).
No significant issues were noted as a result of our testing.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
105
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Key Audit Matter
Impairment losses on financial instruments
As described in note 3 to the consolidated financial statements, the Group has adopted IFRS 9
“Financial Instruments” for the first time for the year beginning 1 January 2018.
We consider the adoption of the new standard to be a key audit matter in relation to the calculation
of Expected Credit Losses (ECL) of financial assets. IFRS 9 is a new and complex accounting stan-
dard which requires considerable judgment and interpretation in its implementation, in particular
around the calculation of ECL.
Key areas of judgment included:
• The interpretation of the requirements to determine impairment under application of IFRS 9,
which is reflected in the Group’s ECL model.
• Assumptions used in the ECL model such as the financial condition of the counterparty, ex-
How our audit addressed the Key Audit Matter
We have performed the following audit procedures in order to address the risks of material mis-
statement associated with this key audit matter with the assistance of our internal experts:
• We evaluated whether the management’s modelling approach and the accounting policies
are appropriate and incorporate the requirements of IFRS 9 and guidance issued by relevant
bodies.
• We evaluated the completeness, accuracy and appropriateness of input data included in the
calculations.
• We have reviewed and challenged the probability-weighted macroeconomic scenarios, stag-
ing criteria and loss given default estimates to identify whether indicators of possible manage-
ment bias exist and ensured that they fell within an acceptable range.
• For provisional matrix, we tested segmentation of portfolio and historical information.
• We have assessed the mathematical accuracy of the models and verified inputs used.
• We performed a sensitivity analysis on the significant assumptions to evaluate the extent of
pected future cash flows and forward looking macroeconomic factors.
impact on the ECL.
As at 31 December 2018 the Group holds:
• US$ 15,980 thousand (2017: US$10,825 thousand) in loan receivables, and
• US$ 69,305 thousand (2017: US$ 62,305 thousand) trade receivables.
• We considered the appropriateness of all related disclosures provided in the financial state-
ments (notes 14 and 19 to the consolidated financial statements).
No significant issues were noted as a result of our testing.
Note 3 “Significant accounting policies” to the consolidated financial statements provides informa-
tion on the adoption of IFRS 9 “Financial Instruments” (“IFRS9”) by the Company from 1 January
2018, including the impact of the adoption.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
106
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Reporting on other information
Responsibilities of the Board of Directors and those charged
with governance for the Consolidated Financial Statements
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
The Board of Directors is responsible for the other information.
The other information comprises the information included in the
consolidated management report as presented in pages 100 to
121, which was obtained prior to the date of this auditor’s report
and the Annual Report, which is expected to be made available
to us after that date.
Our opinion on the consolidated financial statements 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 financial state-
ments, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is
materially 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 conclude 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 Annual Report, if we conclude that there is a
material misstatements therein, we are required to communicate
the matter to those charged with governance.
The Board of Directors is responsible for the preparation of con-
solidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards as
adopted by the European Union and the requirements of the Cy-
prus Companies Law, Cap. 113, and for such internal control as the
Board of Directors determines is necessary to enable the prepa-
ration of consolidated financial statements that are free from ma-
terial 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 contin-
ue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting
unless the Board of Directors either intends to liquidate the Group
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing
the Group’s financial reporting process.
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assur-
ance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs will always detect a ma-
terial misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consoli-
dated financial statements.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
107
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 Consolidated
Financial Statements (Cont’d)
ditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
As part of an audit in accordance with ISAs, we exercise profes-
sional judgment and maintain professional scepticism throughout
the audit. We also:
• Identify and assess the risks of material misstatement 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
appropriate 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 error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations,
or the override 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 effectiveness 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 accounting and, based on the
audit evidence obtained, whether a material uncertainty exists
related 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 statements 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 au-
• Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclo-
sures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner
that achieves a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the fi-
nancial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely re-
sponsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficien-
cies in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regard-
ing independence, and to communicate with them all relation-
ships 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 gover-
nance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
108
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Report on Other Legal and Regulatory Requirements
Other Legal Requirements
Other Matter
Pursuant to the requirements of Article 10(2) of the EU Regulation
537/2014 we provide the following information in our Independent
Auditor’s Report, which is required in addition to the requirements
of International Standards on Auditing.
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 second period of
engagement appointment.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the consolidated financial
statements expressed in this report is consistent with the addi-
tional report to the Audit Committee of the Company, which we
issued on 19 March 2019 in accordance with Article 11 of the EU
Regulation 537/2014.
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in Ar-
ticle 5 of the EU Regulation 537/2014 and Section 72 of the Audi-
tors Law of 2017 were provided. In addition, there are no non-audit
services which were provided by us to the Group and which have
not been disclosed in the consolidated financial statements or the
consolidated management report.
Pursuant to the additional requirements of the Auditors 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 con-
sistent 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 re-
quired to report if we have identified material misstatements
in the consolidated 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 gov-
ernance 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 finan-
cial statements.
• In our opinion, based on the work undertaken in the course of
our audit, the corporate governance statement includes all infor-
mation referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of par-
agraph 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 re-
quired to report if we have identified material misstatements
in the corporate governance statement in relation to the infor-
mation 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.
This report, including the opinion, has been prepared for and only
for the Company’s members as a body in accordance 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 assume 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 indepen-
dent auditor’s report is Costas Georghadjis.
Costas Georghadjis
Certified Public Accountant and Registered Auditor
for and on behalf of
Deloitte Limited
Certified Public Accountants and Registered Auditors
Limassol, 19 March 2019
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
109
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
(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
Government grants income
Other operating expenses, net
Impairment of property, plant and equipment
Operating profit
Finance income
Finance costs
Foreign exchange gain/(loss), net
Other expenses, net
Profit before tax
Income tax (expense)/benefit
Profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Profit for the year
Notes
6
5
7
8
9
12
10
32
11
2
2018
1,555,977
32,094
(1,167,668)
420,403
(99,674)
1,200
(7,003)
(3,803)
311,123
4,457
(138,019)
11,638
(10,568)
178,631
(50,527)
128,104
-
128,104
2017
1,287,752
21,001
(912,844)
395,909
(79,239)
52,605
(3,912)
(3,607)
361,756
3,472
(108,399)
(35,615)
(8,077)
213,137
17,118
230,255
(25,864)
204,391
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
110
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Other comprehensive income
Notes
2018
2017
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
Total comprehensive income attributable to:
Equity holders of the Parent
Non-controlling interests
12
11
23
Earnings per share from continuing and discontinued operations
Basic and diluted earnings per share (USD per share)
Earnings per share from continuing operations
Basic and diluted earnings per share (USD per share)
34
-
49,357
14,054
63,411
191,515
124,926
3,178
128,104
186,828
4,687
191,515
1.17
1.17
209,737
(30,979)
(25,008)
153,750
358,141
202,860
1,531
204,391
354,400
3,741
358,141
1.90
2.14
On behalf of the Board:
Chief Executive Officer
Chief Financial Officer
Yuriy Kosyuk
Viktoria Kapelyushnaya
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
111
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
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, net
Current assets
Inventories
Biological assets
Agricultural produce
Other current assets
Taxes recoverable and prepaid
Trade accounts receivable, net
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital
Treasury shares
Additional paid-in capital
Revaluation reserve
Retained earnings
Translation reserve
12
13
11
15
24
14
16
15
17
20
18
19
21
1,498,530
1,383,102
48,809
-
23,392
3,387
59,869
45,410
121
20,405
2,524
24,817
Non-controlling interests
Total equity
Non-current liabilities
Bank borrowings
Bonds issued
Finance lease obligations
1,633,987
1,476,379
Deferred revenues
273,522
179,290
224,789
32,858
45,146
69,305
211,768
226,368
141,028
183,407
25,327
37,767
62,305
125,554
Deferred tax liabilities
Current liabilities
Trade accounts payable
Other current liabilities
Bank borrowings
Accrued interest
Finance lease obligations
1,036,678
801,756
2,670,665
2,278,135
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
31 December
2018
31 December
2017
23
16,536
17,141
1,098,006
985,707
24
25
26
9
11
27
24
24, 25
26
105,783
138,817
1,090,935
970,088
9,087
34,578
12,953
7,410
-
23,730
1,253,336
1,140,045
66,398
96,383
132,715
19,472
4,355
43,175
50,296
36,917
17,955
4,040
319,323
152,383
1,572,659
1,292,428
2,670,665
2,278,135
22
284,505
284,505
On behalf of the Board:
12
(44,593)
174,022
642,800
(48,503)
175,291
661,454
1,040,327
925,978
Chief Executive Officer
Chief Financial Officer
Yuriy Kosyuk
Viktoria Kapelyushnaya
(1,015,591)
(1,030,159)
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
Equity attributable to equity holders
of the Parent
1,081,470
968,566
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
112
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Balance at 31 December 2016
284,505
(48,503)
175,291
570,649
719,340
(1,024,916)
676,366
16,698
693,064
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
Derecognition of interests in subsidiaries (Note 2)
Translation differences on revaluation reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
202,860
-
202,860
174,583
174,583
-
(23,043)
151,540
202,860
(23,043)
354,400
(44,838)
44,838
-
-
(24,841)
(14,099)
(80,000)
-
24,841
14,099
-
-
-
-
(80,000)
-
(810)
17,800
17,800
(2,488)
15,312
-
-
-
-
1,531
2,210
3,741
-
-
Balance at 31 December 2017
284,505
(48,503)
175,291
661,454
925,978
(1,030,159)
968,566
17,141
985,707
Effect of adoption IFRS 9 (Note 3)
Balance at 1 January 2018
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transfer from revaluation reserve to retained
earnings
Dividends declared by the Parent (Note 30)
Dividends declared by subsidiaries
Non-controlling interests acquired (Note 2)
Derecognition of interests in subsidiaries (Note 2)
Translation differences on revaluation reserve
-
-
-
-
2,904
-
2,904
-
284,505
(48,503)
175,291
661,454
928,882
(1,030,159)
971,470
17,141
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,910
(1,269)
-
124,926
-
49,357
49,357
-
124,926
12,545
12,545
(73,587)
73,587
-
-
-
(80,000)
-
997
(539)
(7,526)
-
-
-
-
2,023
-
124,926
61,902
186,828
-
(80,000)
-
3,638
(466)
-
3,178
1,509
4,687
-
-
(9,369)
(3,638)
7,715
-
-
-
-
-
(1,950)
7,526
Balance at 31 December 2018
284,505
(44,593)
174,022
642,800
1,040,327
(1,015,591)
1,081,470
16,536
1,098,006
On behalf of the Board:
Chief Executive Officer
Chief Financial Officer
Yuriy Kosyuk
Viktoria Kapelyushnaya
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
204,391
153,750
358,141
-
(80,000)
(810)
2,904
988,611
128,104
63,411
191,515
-
(80,000)
(9,369)
-
7,249
-
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
113
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Operating activities
Profit before tax
Non-cash adjustments to reconcile profit
before tax to net cash flows
Depreciation and amortization expense
Net change in fair value of biological assets and
agricultural produce
5
5
178,631
187,273
134,953
93,225
Income taxes paid
Interest paid
Withholding tax related to interest paid
(32,094)
(21,001)
Net cash flows from operating activities
Investing activities
Purchases of property, plant and equipment
Loss on disposal of subsidiaries
-
25,864
Change in allowance for irrecoverable amounts and
direct write-offs
3,333
3,305
Investments in other non-current assets
Loss on impairment of property, plant and equipment
12
3,803
3,607
1,953
182
10
(4,457)
138,019
(3,472)
108,399
Purchase of land lease rights
Government grants received
Net cash inflow on disposal of subsidiaries
Proceeds from disposals of property,
plant and equipment
Purchases of non-current biological assets
9
2
-
619
Withdrawals of short-term and long-term deposits
(11,638)
35,615
Investments in short-term deposits
412,503
433,616
Loans provided to employees, net
Loans (provided to)/repaid by related parties, net
Notes
2018
2017 (Restated
Note 25)
(97,464)
(102,832)
-
(13,398)
260,905
(210,038)
(42,032)
(9,404)
35,371
7,249
2,138
(2,747)
4,452
(5,673)
(483)
(2,706)
(603)
(423)
213,577
(101,710)
(12,249)
(7,970)
-
75,558
99
(2,321)
4,006
(1,791)
(151)
19
Net cash flows used in investing activities
(223,873)
(46,510)
On behalf of the Board:
Chief Executive Officer
Chief Financial Officer
Yuriy Kosyuk
Viktoria Kapelyushnaya
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
(21,032)
(29,338)
(12,964)
(6,663)
(6,327)
(16,003)
39,607
7,696
(44,892)
(4,507)
(29,787)
(987)
(7,188)
(15,557)
(15,495)
(1,163)
367,479
314,040
4,288
3,395
Loss on disposal of property, plant and equipment
and other non-current assets
Finance income
Finance costs
Withholding tax related to interest and payment
of dividends
Non-operating foreign exchange (gain)/loss, net
Operating cash flows before movements
in working capital
Working capital adjustments
Change in inventories
Change in biological assets
Change in agricultural produce
Change in other current assets
Change in taxes recoverable and prepaid
Change in trade accounts receivable, net
Change in other current liabilities
Change in trade accounts payable
Cash generated by operations
Interest received
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
114
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Other comprehensive income
Notes
2018
2017 (Restated
Note 25)
Financing activities
Proceeds from bank borrowings
Repayment of bank borrowings
Proceeds from bonds issued
Repayment of bonds
Transaction costs related to corporate bonds issued
Transaction costs related to bank loans received
Repayment of finance lease obligations
Dividends paid to shareholders
Dividends paid by subsidiaries to non-controlling shareholders
Consent payment related to corporate bonds
Net cash flows from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents attributable to disposal group classified
as held for sale at 1 January
Net foreign exchange difference
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
On behalf of the Board:
Chief Executive Officer
Chief Financial Officer
Yuriy Kosyuk
Viktoria Kapelyushnaya
25
30
25
21
12
255,024
(201,531)
550,000
(416,183)
(44,468)
(384)
(4,416)
(80,000)
(9,369)
(992)
47,681
84,713
-
1,501
125,554
211,768
-
5,647
11,377
6,287
70,711
(403,613)
500,000
(254,400)
(15,145)
(1,993)
(9,217)
(80,000)
(810)
-
(194,467)
(27,400)
2,098
(126)
150,982
125,554
206,130
5,518
7,135
6,698
The accompanying notes on the pages 115 to 167 form an integral part of these consolidated financial statements
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Name
Raftan Holding Limited
Larontas Limited
MHP Lux S.A.
Myronivsky Hliboprodukt
Myronivsky Plant of Manufacturing
Feeds and Groats oil production
Vinnytska Ptakhofabryka
Peremoga Nova
Oril-Leader
Myronivska Pticefabrika
Starynska Ptakhofabryka
Ptakhofabryka Snyatynska Nova
Zernoprodukt MHP
1. CORPORATE INFORMATION
MHP SE (the “Parent” or “MHP SE”), a limited liability company
(Societas Europaea) registered under the laws of Cyprus, was
formed on 30 May 2006. MHP SE serves as the ultimate hold-
ing company of PJSC “Myronivsky Hliboproduct” (“MHP”) and
its subsidiaries. Hereinafter, MHP SE and its subsidiaries are re-
ferred to as the “MHP SE Group” or the “Group”. The registered
address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada,
3035 Limassol, Cyprus.
The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk
(“Principal Shareholder”), who owns 100% of the shares of WTI
Trading Limited (“WTI”), which is the immediate majority share-
holder of MHP SE, which in turn directly owns of 59,7% of the
total outstanding share capital of MHP SE.
The principal business activities of the Group are poultry and
related operations, grain growing, as well as other agricultur-
al operations (meat processing and meat products ready for
consumption). The Group’s poultry and related operations in-
tegrate all functions related to the production of chicken, in-
cluding 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 2018
the Group employed 28,575 people (2017: 27,589 people).
The primary subsidiaries, the principal activities of the compa-
nies forming the Group and the Parent’s effective ownership in-
terest as of 31 December 2018 and 2017 were as follows:
Katerinopilskiy Elevator
Ukraine
2005
SPF Urozhay
Agrofort
Urozhayna Krayina
Ukrainian Bacon
AgroKryazh
Agro-S
Zakhid-Agro MHP
Scylla Capital Limited
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
British Virgin
Islands
2006
2006
2010
2008
2013
2013
2015
2014
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
2011
1999
2003
2004
2003
2005
2005
Year
established
acquired
Principal
activities
31 December
2018
31 December
2017
Country of
registration
Cyprus
Cyprus
Luxembourg
Ukraine
2006
2015
2018
1998
Sub-holding Company
Sub-holding Company
Finance Company
Management,
marketing and sales
99.9%
100.0%
100.0%
99.9%
Ukraine
1998
Fodder and vegetable
88.5%
99.9%
100.0%
0.00%
99.9%
88.5%
99.9%
99.9%
99.9%
99.9%
100.0%
99.9%
99.9%
99.9%
86.1%
99.9%
79.9%
99.9%
51.0%
100.0%
100.0%
Chicken farm
Breeder farm
Chicken farm
Chicken farm
Breeder farm
Geese breeder farm
Grain cultivation
Fodder production
and grain storage,
vegetable oil production
Grain cultivation
Grain cultivation
Grain cultivation
Meat processing
Grain cultivation
Grain cultivation
99.9%
99.9%
99.9%
99.9%
100.0%
99.9%
99.9%
99.9%
99.9%
99.9%
79.9%
51.0%
51.0%
Grain cultivation
100.0%
Trading in sunflower
oil and poultry meat
100.0%
99.9%
99.9%
The Group’s primary operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk,
Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Sumy and Khmelnitsk regions.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
Assets and liabilities of Crimean companies as of the date of
disposal were as follows:
The following table presents the net result of the transaction:
17 February
2017
52,530
Consideration received
Net assets disposed
Non-controlling interest
2. CHANGES IN THE GROUP STRUCTURE
Changes in non-controlling interests in subsidiaries
In December 2018 the Group decreased its effective ownership
interest in AgroKryazh to 51% through the selling of 49% owner-
ship interest for cash consideration of USD 7,249 thousand. The
difference between carrying value of the net assets disposed
and consideration received was recognised as an adjustment to
retained earnings.
In December 2018 the Group increased its effective ownership
interest in Agrofort to 100% through the acquisition of a non-con-
trolling interest previously held by one of its key management
personnel in exchange for 256,414 treasury shares held by
the Group. The difference between the fair value of the shares
transferred and their carrying value in the amount of USD 1,269
thousand was recognised as an adjustment to additional paid-
in capital. The difference between the fair value of the shares
transferred and the carrying value of non-controlling interest
was recognised as an adjustment to retained earnings in the
amount of USD 997 thousand.
Disposal of subsidiaries
Crimean companies
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 con-
sideration consisted only of cash, there were no material direct
costs related to disposal.
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
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
77,785
(88,337)
2,488
(17,800)
Cumulative exchange loss in respect of the net
assets of the subsidiaries reclassified from equity to
profit or loss on loss of control in subsidiaries*)
Loss on disposal
(25,864)
Consideration received in cash and cash
equivalents
77,785
Less: cash and cash equivalents balances disposed
(2,227)
Net cash inflow arising on the disposal
75,558
The loss on disposal is included in the loss for the year from
discontinued operations.
* Upon disposal of subsidiaries, the total cumulative exchange differences attrib-
utable 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 revaluation reserve of
property, plant and equipment were not reclassified to profit or loss, but trans-
ferred directly to retained earnings in the amount of USD 24,841 thousand.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of new and revised International
Financial Reporting Standards
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 subsidiar-
ies of the Group maintain their accounting records under local
accounting standards.
Local principles and procedures may differ from those general-
ly accepted under IFRS. Accordingly, the consolidated financial
statements, which have been prepared from the Group entities’
local accounting records, reflect adjustments necessary for such
financial statements to be presented in accordance with IFRS.
Basis of preparation
These consolidated financial statements have been prepared
on the assumption 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 basis of historical cost except for revalued amounts of
buildings and structures, grain storage facilities, production ma-
chinery, vehicles and agricultural machinery, biological assets,
agricultural produce, and certain financial instruments, 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.
IFRS 9 Financial Instruments
In the current year, the Group has applied IFRS 9 Financial In-
struments (as revised in July 2014) and the related consequen-
tial amendments to other IFRS Standards that are effective for an
annual period that begins on or after 1 January 2018. The tran-
sition provisions of IFRS 9 allow an entity not to restate com-
paratives. The adjustments arising from the new requirements
associated with the recognition and measurement of financial
instruments are therefore not reflected in the restated balance
sheet as of 31 December 2017, but are recognised in the opening
balance sheet on 1 January 2018.
The key requirements of IFRS 9 are:
• Classification and measurement of financial assets. All rec-
ognised 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 contractual cash
flows that are solely payments of principal and interest on
the principal outstanding are generally measured at am-
ortised cost at the end of subsequent accounting periods.
Debt instruments that are held within a business model
whose objective is achieved both by collecting contractual
cash flows and selling financial assets, and that have con-
tractual terms that give rise on specified dates to cash flows
that are solely payments of principal and interest on the
principal amount outstanding, are generally measured at
fair value through other comprehensive income (“FVTOCI”).
All other debt investments and equity investments are meas-
ured at their fair value at the end of subsequent accounting
periods. In addition, under IFRS 9, entities may make an ir-
revocable election to present subsequent changes in the fair
value of an equity investment (that is not held for trading nor
contingent consideration recognised by an acquirer in a busi-
ness combination) 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 (“FVTPL”), IFRS 9 requires
that the amount of change in the fair value of a financial liabil-
ity that is attributable to changes in the credit risk of that lia-
bility is presented in other comprehensive 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 val-
ue of the financial liability designated as fair value through
profit or loss is presented in profit or loss.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
The Group has applied IFRS 9 in accordance with the transition
provisions set out in IFRS 9.
Adoption of new and revised International Financial
Reporting Standards (continued)
• 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 cred-
it 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 rec-
ognition. 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 accounting require-
ments retain the three types of hedge accounting mechanisms
currently available in IAS 39. Under IFRS 9, greater flexibility has
been introduced to the types of transactions eligible for hedge
accounting, specifically broadening the types of instruments
that qualify for hedging instruments and the types of risk compo-
nents of non-financial items that are eligible for hedge account-
ing. In addition, the effectiveness test has been overhauled and
replaced with the principle of an ‘economic relationship’. Retro-
spective assessment of hedge effectiveness is also no longer
required. Enhanced disclosure requirements about an entity’s
risk management activities have also been introduced.
Additionally, the Group adopted consequential amendments to
IFRS 7 Financial Instruments: Disclosures that were applied to
the disclosures for 2018.
There were no financial assets or financial liabilities which the
Group had previously designated as at FVTPL under IAS 39 that
were subject to reclassification or which the Group has elected
to reclassify upon the application of IFRS 9. There were no finan-
cial assets or financial liabilities which the Group has elected to
designate as at FVTPL at the date of initial application of IFRS 9.
Summarized impact from the adoption of IFRS 9 is as follows:
• Presentational changes in other non-current assets, net (Note 14),
trade accounts receivable, net (Note 19), other current assets
(Note 20), other current liabilities (Note 27), risk management
policies (Note 32) note disclosures to reflect the business
model and cash flow characteristics of these assets and lia-
bilities and Group them into their respective IFRS 9 category
or other IFRS classification;
• An additional expected credit loss allowance in the amount of
USD 7,922 thousand as of 1 January 2018 (Note 14 and Note 19)
and decrease of carrying amount of Bonds issued in the amount
of USD 10,826 thousand as of 1 January 2018 (Note 25), recog-
nised against opening retained earnings.
Total effect of IFRS 9 implementation on retained earnings as
of 1 January 2018 amounts to USD 2,904 thousand (increase).
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Adoption of new and revised International Financial Reporting Standards (continued)
Financial assets
Other non-current assets, net
Trade accounts receivable, net
Other current assets*
Cash and cash equivalents*
Financial liabilities
Bank borrowings
Bonds issued
Trade accounts payable
Other current liabilities
Notes
Original
measurement
category under
IAS 39
New
measurement
category under
IFRS 9
IAS 39 carrying
amount
31 December
2017
Reclassifications Remeasurements
IFRS 9 carrying
amount
1 January 2018
Retained
earnings
effect on
1 January 2018
14
19
20
21
24
25
27
Loan and receivable
Amortised cost
Loan and receivable
Amortised cost
Loan and receivable
Amortised cost
Loan and receivable
Amortised cost
18,889
62,305
4,404
125,554
Amortised cost
Amortised cost
175,734
Amortised cost
Amortised cost
970,088
Amortised cost
Amortised cost
Amortised cost
Amortised cost
43,175
40,575
-
-
-
-
-
-
-
-
(1,532)
(6,390)
-
-
-
(10,826)
-
-
17,357
55,915
4,404
125,554
175,734
959,262
43,175
40,575
(1,532)
(6,390)
-
-
-
10,826
-
-
* Management assessed that impact from the adoption of IFRS 9 as of 01 January 2018 and 31 December 2018 was not material
IFRS 15 Revenue from Contracts with Customers
In the current year, the Group has applied IFRS 15 Revenue from
Contracts with Customers (as amended in April 2016) which is ef-
fective for an annual period that begins on or after 1 January 2018.
IFRS 15 establishes a single comprehensive model for entities
to use in accounting for revenue arising from contracts with cus-
tomers. IFRS 15 will supersede the current revenue recognition
guidance including IAS 18 Revenue, IAS 11 Construction Con-
tracts and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods
or services. Specifically, the Standard introduces a 5-step ap-
proach 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 obligations
in the contracts;
• Recognize revenue when (or as) the entity satisfies a perfor-
mance obligation.
Under IFRS 15, an entity recognizes 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. Further-
more, 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.
The Group has applied IFRS 15 in accordance with the retro-
spective method, with recognition the cumulative effect of ini-
tially applying this Standard as an adjustment to the opening
balance of retained earnings. The Group’s accounting policies
for its revenue streams are disclosed in detail in Note 3 below.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Adoption of new and revised International Financial
Reporting Standards (continued)
Apart from providing more extensive disclosures for the Group’s
revenue transactions (Note 6), the application of IFRS 15 has not
had a significant impact on the financial position and/or financial
performance of the Group. Certain comparative information for
the year ended 31 December 2017 presented in Note 6 has been
revised in order to achieve comparability with the presentation
used in the consolidated financial statements for the year ended
31 December 2018. Such reclassifications and revisions were not
significant to the Group consolidated financial statements.
In the current year, the Group has applied a number of amend-
ments to IFRS Standards and Interpretations issued by the Inter-
national Accounting Standards Board (IASB) that are effective
for an annual period that begins on or after 1 January 2018:
• IFRS 2 (amendments) Classification and Measurement of
Share based Payment Transactions
• IAS 40 (amendments) Transfers of Investment Property
• Annual Improvements to IFRS Standards 2014 – 2016 Cycle:
amendments to IAS 28 Investments in Associates and Joint
Ventures
• IFRIC 22 Foreign Currency Transactions and Advance Con-
sideration
Adoption of these standards and interpretation had no any ma-
terial impact on the disclosures or on the amounts reported in
these financial statements.
Standards and Interpretations in issue but not effective
At the date of authorization of these consolidated financial state-
ments, the following Standards and Interpretations, as well as
amendments to the Standards were in issue but not yet effective:
Standards and Interpretations
IFRS 16 Leases*
IFRS 17 Insurance Contracts
Amendments to IFRS 9: Prepayment
Features with Negative Compensation*
Amendments to IAS 28: Long-term
Interests in Associates and Joint
Ventures*
Amendments to IFRSs – Annual
Improvements to IFRSs 2015 –2017 Cycle
Amendments to IAS 19: Plan Amendment,
Curtailment or Settlement
Amendments to IAS 1
and IAS 8: Definition of Material
Amendments to IFRS 3 Business
Combinations
Amendments to IFRS 10 and IAS 28:
Sale or Contribution of Assets between
an Investor and its Associate or Joint
Venture
IFRIC 23 Uncertainty over Income Tax
Treatments*
Effective for annual
period beginning
on or after
1 January 2019
1 January 2021
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2020
Deferred indefinitely
1 January 2019
* Standards have been already endorsed for use in the European Union
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identifica-
tion of lease arrangements and accounting treatments for both
lessors and lessees. IFRS 16 will supersede the current lease
guidance including IAS 17 Leases and the related interpretations
when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the ba-
sis of whether an identified asset is controlled by a customer.
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 value assets.
The right-of-use asset is initially measured at cost and subse-
quently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted
for any remeasurement of the lease liability. The lease liabil-
ity is initially measured at the present value of the lease pay-
ments 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. Fur-
thermore, the classification of cash flows will also be affected
as operating 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.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Standards and Interpretations in issue
but not effective (continued)
In contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17, and contin-
ues to require a lessor to classify a lease either as an operating
lease or a finance lease.
Furthermore, extensive disclosures are required by IFRS 16.
The Group intends to apply IFRS 16 Leases using the modified
retrospective approach with the cumulative effect of initially ap-
plying IFRS 16 recognised in retained earnings at the date of ini-
tial application on 1 January 2018, as permitted under the specific
transition provisions in the standard. The analysis conducted by
the Group indicated the probable recognition of right-of-use as-
set and lease liability in the consolidated balance sheet in the
amount not higher than USD 103,933 thousand upon application
of IFRS 16. In terms of the future effects on the consolidated state-
ment of profit or loss and other comprehensive income, in contrast
to the presentation operating lease expense to date, the Group
will be recognizing depreciation charges on right to use-of-asset
and the interest expense from unwinding the lease the discount
on the lease liability. Under IAS 17, all lease payments on oper-
ating leases are presented as part of cash flows from operating
activities. The impact of the changes under IFRS 16 would be to
reduce the cash generated by operating activities and to increase
net cash used in financing activities by the same amount.
The above assessment for IFRS 16 is preliminary because not all
transition work has been finalized. The actual effect of adopting
IFRS 16 may change because their adoption will require the Group
to revise its accounting processes and internal controls and these
changes are not yet completed. The new accounting policies, as-
sumptions, judgements and estimation techniques are subject to
changes until the Group finalizes its first consolidated financial
statements that include the date of initial application.
For other Standards and Interpretations management antici-
pates that their adoption will not have a material effect on the
consolidated financial statements of the Group in future periods.
Functional and presentation currency
The functional currency of Ukrainian companies of the Group
is the Ukrainian Hryvnia (“UAH”); the functional currency of the
Cyprus companies of the Group is US Dollars (“USD”). Trans-
actions in currencies other than the functional currency of the
entities concerned are treated as transactions in foreign curren-
cies. Such transactions are initially recorded at the rates of ex-
change 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 un-
realized gains and losses arising on exchange differences are
recognized in the consolidated statement of comprehensive in-
come for the period.
These consolidated financial statements are presented in US
Dollars (“USD”), which is the Group’s presentation currency.
The results and financial position of the Group are translated
into the presentation currency using the following procedures:
• Assets and liabilities for each consolidated statement of fi-
nancial position presented are translated at the closing rate
as of the reporting date of that statement of financial position;
• Income and expenses for each consolidated statement of
comprehensive income are translated at exchange rates at
the dates of the transactions;
• All resulting exchange differences are recognised as a sepa-
rate component of equity;
• All equity items, except for the revaluation reserve, are trans-
lated at the historical exchange rate. The revaluation reserve
is translated at the closing rate as of the date of the statement
of financial position.
For practical reasons, the Group translates items of income and
expenses for each period presented in the financial statements
using the quarterly average exchange rates, if such translations
reasonably approximate the results translated at exchange
rates prevailing at the dates of the transactions.
The relevant exchange rates were:
Currency
Closing
rate as of 31
December
2018
Average
for 2018
Closing
rate as of 31
December
2017
Average
for 2017
UAH/USD
27.6883
27.2016
28.0672
26.5947
UAH/EUR
31.7141
32.1341
33.4954
30.0128
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Basis of consolidation
The consolidated financial statements incorporate the finan-
cial 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 involve-
ment with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an in-
vestee 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. Specifi-
cally, income and expenses of a subsidiary acquired or dis-
posed of during the year are included in the consolidated
statement of comprehensive income from the date the Com-
pany 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 interests
even if this results in the non-controlling interests having a
deficit balance.
All significant intercompany transactions, balances and unreal-
ized gains or losses on transactions are eliminated on consolida-
tion, except when the intragroup losses indicate an impairment
that requires recognition in the consolidated financial statements.
Where necessary, adjustments are made to the financial state-
ments of subsidiaries to bring the accounting policies used in
line with those adopted by the Group.
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are account-
ed for using the acquisition method. On acquisition, the assets,
liabilities and contingent liabilities of a subsidiary are measured
at their fair values.
The consideration transferred by the Group is measured at
fair value, which is the sum of the acquisition-date fair values
of the assets transferred by the Group, liabilities incurred by
the Group to the former owners of the acquired subsidiary and
the equity interests issued by the Group in exchange for control
of the subsidiary. Acquisition-related costs are generally rec-
ognised 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 consid-
eration is measured at its acquisition-date fair value and is in-
cluded as part of the consideration transferred. Changes in the
fair value of the contingent consideration that qualify as mea-
surement period adjustments are adjusted retrospectively, with
corresponding adjustments against goodwill. Measurement pe-
riod adjustments are adjustments that arise from additional in-
formation 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 sub-
sidiary’s net assets in the event of liquidation may be initially
measured either at fair value or at the non-controlling interests’
proportionate share of the recognized amounts of the subsidi-
ary’s identifiable net assets. The choice of measurement basis
is made on a transaction-by-transaction basis. Other types of
non-controlling interests, if any, are measured at fair value or,
when applicable, on the basis specified in other IFRS standards.
Goodwill is measured as the excess of the sum of the consider-
ation 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. If, after reassessment, the net
of the acquisition-date amounts of the identifiable assets acquired
and the liabilities assumed exceeds the sum of the consideration
transferred, the amount of non-controlling interests in the subsid-
iary and the fair value of the Group’s previously-held interest in
the subsidiary (if any), the excess is recognised in the consolidated
statement of comprehensive income, as a bargain purchase gain.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Any gain or loss on disposals to entities under common control are
recognised directly in equity and attributed to owners of the Parent.
Accounting for acquisitions (continued)
Changes in the Group’s ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries
are accounted for as equity transactions. The carrying amounts
of the Group’s interests and the non-controlling interests are
adjusted to reflect the changes in their relative interests in
subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity
and attributed to owners of the Parent.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either in the
principal market for the asset or liability, or in the absence of a
principal market, in the most advantageous market for the asset
or liability. The principal or the most advantageous market must
be accessible to by the Group.
When an acquisition of a legal entity does not constitute a busi-
ness, the cost of the group of assets is allocated between the
individual identifiable assets in the group based on their relative
fair values.
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.
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 fi-
nancial statements at pre-acquisition carrying values. Any dif-
ference between the carrying value of net assets of these sub-
sidiaries, 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.
A fair value measurement of a non-financial asset takes into ac-
count a market participant’s ability to generate economic ben-
efits by using the asset in its highest and best use or by selling
it to another market participant that would use the asset in its
highest and best use.
The Group uses valuation techniques that are appropriate in
the circumstances and for which sufficient data 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 measured or dis-
closed in the financial statements are categorized within the fair
value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:
• Level 1: Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
• Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable
• Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines wheth-
er 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.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(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 acquisition, con-
struction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready
for their intended use or sale, are added to the cost of those
assets, until such time as the assets are substantially ready for
their intended use or sale.
Investment income earned on the temporary investment of spe-
cific borrowings pending their expenditure on qualifying assets
is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognised in the statement of
profit or loss and other comprehensive income in the period in
which they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognised in the consolidated finan-
cial statements. Rather, they are disclosed in the notes to the con-
solidated financial statements unless the possibility of an outflow
of resources embodying economic benefits is remote. Contingent
assets are recognised only when the contingency is resolved.
Segment information
Segment reporting is presented on the basis of management’s
perspective and relates to the parts of the Group that are de-
fined as operating segments. Operating segments are identified
on the basis of internal reports provided to the Group’s chief
operating decision maker (“CODM”). The Group has identified
its top management team as its CODM and the internal reports
used by the top management team to oversee operations and
make decisions on allocating resources serve as the basis of
information presented. These internal reports are prepared on
the same basis as these consolidated financial statements.
Based on the current management structure, the Group has
identified the following reportable segments:
• Poultry and related operations;
• Grain growing operations;
• Other agricultural operations.
Reportable segments represent the Group’s principal business
activities. Poultry and related operations segment include sales
of chicken meat, sales of by-products such as vegetable oil and
related products and other poultry-related products. CODM is con-
sidering oil extraction as a part of mixed fodder production rather
than a separate line of business as primarily quality and effec-
tiveness of mixed fodder production prevails over oil output. Grain
growing operations include sale of grain other than feed grains
and green-fodder. Other agricultural operations segment primari-
ly 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 de-
cision-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 recovered principally
through a sale transaction rather than through continuing use.
This condition is regarded as met only when the asset (or dis-
posal group) is available for immediate sale in its present condi-
tion subject 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 recognition as a completed sale within
one year from the date of classification.
When the Group is committed to a sale plan involving loss of con-
trol of a subsidiary, all of the assets and liabilities of that subsid-
iary are classified as held for sale when the criteria described
above are met, regardless of whether the Group will retain a
non-controlling interest in its former subsidiary after the sale.
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.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
The Group generates revenue primarily from the sale of agricul-
tural products to the end customers. Revenue is measured based
on the consideration to which the Group expects to be entitled
in a contract with a customer and excludes amounts collected
on behalf of third parties. The Group recognises revenue when it
transfers control of a product or service to a customer.
Non-monetary exchanges or swaps of goods which are of simi-
lar nature and value are not treated as transactions which gen-
erate revenue.
The Group recognises revenue from the following major sources:
• chicken meat
• vegetable oil and related products
• other poultry related sales (delivery services, sunflower and
soybean meals, sunflower husk and other)
• grain
• meat processing products and other meat
• other agricultural operations (milk, feed grains and other)
Revenue is measured based on the consideration to which the
Group expects to be entitled in a contract with a customer. The
Group recognises revenue when it transfers control of a product
or service to a customer.
The major part of the Group’s sales are generated from the
wholesale market. Revenue is recognised when control of
the goods has transferred, being when the goods have been
shipped to the wholesaler’s specific location or delivered to ma-
jor Ukrainian sea ports. Following delivery, the wholesaler has
full discretion over the manner of distribution and price to sell
the goods, has the primary responsibility when on-selling the
goods, and bears the risks of obsolescence and loss in relation
to the goods. A receivable is recognised by the Group when the
goods are delivered to the wholesaler as this represents the
point in time at which the right to consideration becomes uncon-
ditional. Under the Group’s standard contract terms, customers
have no right of return.
The Group sells its products for export on various terms, some
of which include shipping and handling 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.
Such services are recognised as a separate performance obli-
gation. The transaction price for shipping and handling services
is determined based on the costs of such services. The Group
satisfies its performance obligation associated with transferring
the promised goods or services to a customer when the custom-
er obtains control of that assets.
VAT refunds and other government grants
The Group’s companies are subject to special tax treatment for
value-added tax (“VAT”). The Group’s entities, which qualify as
agricultural producers, are entitled to retain the net VAT pay-
able. VAT amounts payable are not transferred to the State, but
credited to the entity’s separate special account to support the
agriculture activities of the Group. Net result on VAT operations,
calculated as excess of VAT liability over VAT credit is charged
to profit or loss. VAT receivable exceeding VAT liability is used
as a reduction in tax liabilities of the next period.
Government grants are recognised as income over the periods
necessary to match them with the related costs, or as an offset
against finance costs when received as compensation for the
finance costs for agricultural producers. To the extent the con-
ditions 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, which is recognised
in profit or loss on a systematic basis over the useful life of the
related assets.
Other government grants are recognised at the moment when
the decision to disburse the amounts to the Group is made.
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions at-
taching to them and that the grants will be received.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
All groups of property, plant and equipment are carried at reval-
ued amounts, being their fair value at the date of the revaluation
less any subsequent depreciation and impairment 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 equipment
comprises (a) its purchase price, including import duties and
non-refundable purchase taxes, after deducting trade discounts
and rebates; (b) any costs directly attributable to bringing the
item to the location and condition necessary for it to be capable
of operating in the manner intended by the management of the
Group; (c) the initial estimate of the costs of dismantling and re-
moving the item and restoring the site on which it is located, (d)
the obligation for which the Group incurs either when the item is
acquired or as a consequence of having used the item during a
particular period for purposes other than to produce inventories
during that period; and (e) for qualifying assets, borrowing costs
capitalized in accordance with the Group’s accounting policy.
Subsequently capitalized costs include major expenditures for
improvements and replacements that extend the useful lives of
the assets or increase their revenue generating capacity. Repairs
and maintenance expenditures that do not meet the foregoing
criteria for capitalization are charged to the consolidated state-
ment of comprehensive income as incurred.
For all groups of property, plant and equipment carried at reval-
uation the model revaluations are performed with sufficient reg-
ularity such that the carrying amount does not differ materially
from that which would be determined using fair values at the
reporting date. If the asset’s carrying amount is increased as a
result of a revaluation, the increase is credited directly to equity
as a revaluation reserve. However, such increase is recognised in
the statement of comprehensive income to the extent that it re-
verses a revaluation decrease of the same asset previously rec-
ognised in the statement of comprehensive income. If the asset’s
carrying amount is decreased as a result of a revaluation, the de-
crease is recognised in the statement of comprehensive income.
However, such decrease is debited directly to the revaluation re-
serve to the extent of any credit balance existing in the revalua-
tion 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 retirement of a reval-
ued asset, the attributable revaluation surplus remaining in the
revaluation reserve is transferred 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
Other fixed assets
15–55 years
20–60 years
10–25 years
5–25 years
20–50 years
5–15 years
3–10 years
Depreciable amount is the cost of an item of property, plant and
equipment, or revalued amount, less its residual value. The resid-
ual value is the estimated amount that the Group would currently
obtain from disposal of the item of property, plant and equip-
ment, after deducting the estimated costs of disposal, if the asset
was already of the age and in the condition expected at the end
of its useful life.
Assets held under finance leases are depreciated over their ex-
pected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease.
The residual value, the useful lives and depreciation method are
reviewed at each financial year-end. The effect of any chang-
es from previous estimates is accounted for prospectively as a
change in an accounting estimate.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment (continued)
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 carrying amount of the asset and is rec-
ognised in the statement of comprehensive income.
Construction in progress comprises costs directly related to the
construction of property, plant and equipment including an ap-
propriate allocation of directly attributable variable overheads
that are incurred in construction. Construction in progress is not
depreciated. Depreciation of construction in progress commenc-
es when the assets are available for use, i.e. when they are in
the location and condition necessary for them to be capable of
operating in the manner intended by the management.
Intangible assets
Intangible assets, which are acquired by the Group and which
have finite useful lives, consist primarily of land lease rights.
Land lease rights acquired separately are carried at cost less
accumulated amortization and accumulated impairment losses.
Land lease rights acquired in a business combination and rec-
ognised separately from goodwill are initially recognised at their
fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, land lease rights acquired in
a business combination are reported at cost less accumulated
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.
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows (cash-generating units). Recoverable amount is the higher
of fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
The amortization period and the amortization method for intan-
gible 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 fu-
ture economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset, mea-
sured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in profit or loss
when the asset is derecognised.
Impairment of tangible and intangible assets
other than goodwill
At each reporting date, the Group reviews the carrying amounts of
its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is esti-
mated in order to determine the extent of the impairment loss (if any).
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recov-
erable amount. An impairment loss is recognised immediately in
the statement of comprehensive income unless the relevant as-
set is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carry-
ing amount of the asset (cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment
loss been recognised for the asset (cash-generating unit) in
prior years. A reversal of an impairment loss is recognised im-
mediately in the statement of comprehensive income, unless
the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a reval-
uation increase.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocat-
ed to each of the Group’s cash generating units (or groups of
cash-generating units) that is expected to benefit from the syn-
ergies 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 recover-
able amount of the cash-generating unit is less than its carry-
ing amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro rata based on the carrying
amount of each asset in the unit. Any impairment loss for good-
will is recognised directly in the statement of comprehensive
income. An impairment loss recognised on goodwill is not re-
versed 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 differ-
ences between the carrying amount of assets and liabilities in
the consolidated financial statements and the corresponding
tax basis used in the computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable temporary dif-
ferences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences can be utilized.
Deferred tax assets and liabilities are offset when:
• The Group has a legally enforceable right to set off the recog-
nised amounts of current tax assets and current tax liabilities;
• The Group has an intention to settle on a net basis, or to real-
ize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabilities relate
to income taxes levied by the same taxation authority in each
future period in which significant amounts of deferred tax li-
abilities and assets are expected to be settled or recovered.
The carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be avail-
able to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the re-
porting period. The measurement of deferred tax liabilities and as-
sets reflects the tax consequences that would follow from the man-
ner 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 com-
prehensive income, except when it relates to items credited or
charged directly to equity or other comprehensive income, in
which case the deferred tax is also dealt with in equity or other
comprehensive income.
The majority of the Group companies that are involved in agri-
cultural production (poultry farms and other entities engaged in
agricultural production) benefit substantially from the status of
an agricultural producer. These companies are exempt from in-
come 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 applied unless
more favorable rates (reduced rates) are provided by a relevant
double taxation treaty (DTT) signed between Ukraine and for-
eign 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 beneficial owner of such income.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Withholding tax (continued)
Tax residency status should be confirmed by tax residency cer-
tificate issued by tax authorities of the recipient’s country of resi-
dence for tax year in which the income is paid.
According to the Tax Code of Ukraine, agents, nominee holders,
and other intermediaries in respect of received income cannot
be beneficial owners of income sourced in Ukraine and are not
entitled to favorable treaty provisions. The Ukrainian tax author-
ities 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 substance of transactions.
No formal requirements exist to the above documents and, in
practice, such documents may include evidence that the recipi-
ent of income has a real office, employees and that the recipient
is fully entitled to manage and dispose the received income with-
out limitations.
Inventories
Inventories are stated at the lower of cost and net realizable val-
ue. Costs comprise raw materials and, where applicable, direct
labour costs and those overheads that have been incurred in
bringing the inventories to their present locations and condition.
Cost is calculated using the FIFO (first-in, first-out) method. Net
realizable value is determined as the estimated selling price less
all estimated costs of completion and costs to be incurred in mar-
keting, selling and distribution.
The difference between fair value less costs to sell and total pro-
duction costs is allocated to biological assets held in stock as of
each reporting date as a fair value adjustment.
Agriculture related production process results in production of
joint products: main and by-products. A by-product arising from
the process is measured at net realizable value and this value is
deducted from the cost of the main product.
Biological assets and agricultural produce
Agricultural activity is defined as a biological transformation
of biological assets for sale into agricultural produce or into
additional biological assets. The Group classifies hatchery
eggs, live poultry and other animals and plantations as bio-
logical assets.
The Group recognizes a biological asset or agricultural produce
when the Group controls the asset as a result of past events, it
is probable that future economic benefits associated with the
asset will flow to the Group, and the fair value or cost of the
asset can be measured reliably.
Biological assets are stated at fair value less estimated costs to
sell at both initial recognition and as of the reporting date, with
any resulting gain or loss recognised in the consolidated state-
ment of comprehensive 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.
The change in this adjustment from one period to another is rec-
ognised as “Net change in fair value of biological assets and
agricultural produce” in the statement of comprehensive income.
Agricultural produce harvested from biological assets is measured
at its fair value less costs to sell at the point of harvest. A gain or loss
arising on initial recognition of agricultural produce at fair value less
costs to sell is included in the statement of comprehensive income.
Based on the above policy, the principal groups of biological as-
sets and agricultural produce are stated as follows:
Biological Assets
(i) Broiler chickens
Broilers comprise poultry held for chicken meat production.
The fair value of broilers is determined by reference to the
cash flows that will be obtained from the sales of 42-day aged
chickens, with an allowance for costs to be incurred and risks
to be faced during the remaining transformation process.
(ii) Breeders
The fair value of breeders is determined using the discounted
cash flow approach based on hatchery eggs’ market prices.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Biological assets and agricultural produce (continued)
(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 de-
termined based on market prices of livestock of similar age,
breed and genetic merit. Cattle, for which market-determined
prices or values are not available and for which alternative
estimates of fair value are determined to be clearly unreli-
able, are measured using the present value of expected net
cash flows from the asset discounted at a current market-de-
termined pre-tax rate.
(iv) Crops in fields
The fair value of crops in fields is determined by reference to
the cash flows that will be obtained from sales of harvested
crops, with an allowance for costs to be incurred and risks to
be faced during the remaining transformation process.
(v) Hatchery eggs
The fair value of hatchery eggs is determined by reference
to market prices at the point of harvest.
Agricultural Produce
(ii) Grain
The fair value of fodder grain is determined by reference to
market prices at the point of harvest.
The Group’s biological assets are classified into bearer and
consumable biological assets depending upon the function of a
particular group of biological assets in the Group’s production
process. Consumable biological assets are those that are to be
harvested as agricultural produce, and include hatchery eggs
and live broiler chickens intended for the production of meat, as
well as pork and meat cows. Bearer biological assets include
poultry held for hatchery eggs production, orchards, milk cows
and breeding bulls.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group’s statement of financial position when the Group becomes
a party to the contractual provisions of the instrument.
Financial assets and financial liabilities of the Group are rep-
resented by cash and cash equivalents, trade accounts re-
ceivable, 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.
(other than financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the fair val-
ue of the financial assets or financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
Financial assets
All recognised financial assets are measured subsequently in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are mea-
sured subsequently at amortised cost (this category is the most
relevant to the Group):
• the financial asset is held within a business model whose ob-
jective is to hold financial assets in order to collect contractu-
al cash flows; and
• the contractual terms of the financial asset give rise on speci-
fied dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are mea-
sured subsequently at FVTOCI:
(i) Dressed poultry, beef and pork
The fair value of dressed poultry, beef and pork is deter-
mined by reference to market prices at the point of harvest.
Financial assets and financial liabilities are initially recognised
at fair value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and financial liabilities
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
• the financial asset is held within a business model whose ob-
jective is achieved by both collecting contractual cash flows
and selling the financial assets; and
• the contractual terms of the financial asset give rise on speci-
fied dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequent-
ly at FVTPL.
Financial assets at amortised cost are subsequently measured us-
ing the effective interest (EIR) method and are subject to impairment.
The effective interest method is a method of calculating the
amortised cost of a debt instrument and of allocating interest
income over the relevant period.
The amortised cost of a financial asset is the amount at which the
financial asset is measured at initial recognition minus the princi-
pal repayments, plus the cumulative amortisation using the effec-
tive interest method of any difference between that initial amount
and the maturity amount, adjusted for any loss allowance. The
gross carrying amount of a financial asset is the amortised cost of
a financial asset before adjusting for any loss allowance.
loss. ECLs are estimated as the difference between all contractual
cash flows that are due to the Group in accordance with the contract
and all the cash flows that the Group expects to receive, discounted
at the original effective interest rate. The amount of expected credit
losses is updated at each reporting date to reflect changes in credit
risk since initial recognition of the respective financial instrument.
For trade accounts receivable and contract assets, the Group ap-
plies a simplified approach in calculating ECLs. Therefore, the
Group does not track changes in credit risk, but instead recog-
nises a loss allowance based on lifetime ECLs at each reporting
date. The Group has established a provision matrix that is based
on its historical credit loss experience, adjusted for forward-look-
ing factors specific to the debtors and the economic environment.
For all other financial instruments, the Group recognises life-
time ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that fi-
nancial instrument at an amount equal to 12 month ECL.
Lifetime ECL represents the expected credit losses that will re-
sult from all possible default events over the expected life of a
financial instrument. In contrast, 12 month ECL represents the
portion of lifetime ECL that is expected to result from default
events on a financial instrument that are possible within 12
months after the reporting date.
pares the risk of a default occurring on the financial instrument at
the reporting date with the risk of a default occurring on the finan-
cial instrument at the date of initial recognition. In making this as-
sessment, the Group considers both quantitative and qualitative
information that is reasonable and supportable, including histor-
ical experience and forward looking information that is available
without undue cost or effort. Forward looking information consid-
ered includes the future prospects of the industries in which the
Group’s debtors operate, obtained from economic expert reports,
financial analysts, governmental bodies, as well as consideration
of various external sources of actual and forecast economic infor-
mation that relate to the Group’s core operations.
Irrespective of the outcome of the above assessment, the Group
presumes that the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments
are more than 30 days past due, unless the Group has reason-
able and supportable information that demonstrates otherwise.
Low credit risk financial instruments
Despite the foregoing, the Group assumes that the credit risk on
a financial instrument has not increased significantly since ini-
tial recognition if the financial instrument is determined to have
low credit risk at the reporting date. A financial instrument is
determined to have low credit risk if:
(1) The financial instrument has a low risk of default,
(2) The debtor has a strong capacity to meet its contractual
cash flow obligations in the near term, and
Impairment of financial assets
Significant increase in credit risk
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through profit or
In assessing whether the credit risk on a financial instrument has
increased significantly since initial recognition, the Group com-
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Financial assets (continued)
(3) Adverse changes in economic and business conditions in
the longer term may, but will not necessarily, reduce the abili-
ty of the borrower to fulfil its contractual cash flow obligations.
Default definition
The Group considers that default has occurred when a finan-
cial asset is more than 90 days past due unless the Group has
reasonable and supportable information to demonstrate that a
more lagging default criterion is more appropriate.
Credit impaired financial assets
A financial asset is credit impaired when one or more events
that have a detrimental impact on the estimated future cash
flows of that financial asset have occurred. Evidence that a fi-
nancial asset is credit impaired includes observable data about
the following events:
(a) significant financial difficulty of the issuer or the borrower;
(b) a breach of contract, such as a default or past due event;
(c) the lender(s) of the borrower, for economic or contractual
reasons relating to the borrower’s financial difficulty, hav-
ing granted to the borrower a concession(s) that the lend-
er(s) would not otherwise consider;
(d) it is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation; or
(e) the disappearance of an active market for that financial
asset because of financial difficulties.
Write-off policy
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group’s obligations are discharged, cancelled or
have expired. The difference between the carrying amount of
the financial liability derecognised and the consideration paid
and payable is recognised in profit or loss.
When the Group exchanges with the existing lender one debt
instrument into another one with the substantially different
terms, such exchange is accounted for as an extinguishment
of the original financial liability and the recognition of a new
financial liability. Similarly, the Group accounts for substantial
modification of terms of an existing liability or part of it as an
extinguishment of the original financial liability and the recogni-
tion of a new liability. It is assumed that the terms are substan-
tially different if the discounted present value of the cash flows
under the new terms, including any fees paid net of any fees
received and discounted using the original effective rate is at
least 10 per cent different from the discounted present value of
the remaining cash flows of the original financial liability. If the
modification is not substantial, the difference between: (1) the
carrying amount of the liability before the modification; and (2)
the present value of the cash flows after modification should
be recognised in profit or loss as the modification gain or loss.
The Group writes off a financial asset when there is information indi-
cating that the debtor is in severe financial difficulty and there is no
realistic prospect of recovery, e.g. when the debtor has been placed
under liquidation or has entered into bankruptcy proceedings, or in
the case of trade accounts receivable, when the amounts are over
three years past due, whichever occurs sooner. Financial assets writ-
ten off may still be subject to enforcement activities under the Group’s
recovery procedures, taking into account legal advice where appro-
priate. Any recoveries made are recognised in profit or loss.
Inputs, assumptions and estimation techniques used by mea-
surement and recognition of expected credit losses are dis-
closed in respective Notes 14 and 19 to financial assets.
Financial liabilities
Initial recognition and measurement
The Group’s financial liabilities include trade and other pay-
ables, loans and borrowings, finance leases and derivative fi-
nancial instruments.
All financial liabilities are recognised initially at fair value and
are measured subsequently at amortised cost using the effec-
tive interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an in-
tegral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or (where appropriate) a shorter period, to the
amortised cost of a financial liability.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Trade accounts receivable, net
Trade accounts receivable, net are measured at initial recog-
nition at transaction price, and are subsequently measured at
amortised cost using the effective interest rate method. Trade
accounts receivable, net which are non-interest bearing, are
stated at their nominal value.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash with
banks, deposits and marketable securities with an original ma-
turity of less than three months.
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 amortised cost using the effective interest rate method. Any
difference between the proceeds (net of transaction costs) and
the settlement or redemption amount is recognised over the
term of the borrowings and recorded as finance costs.
Derivative financial instruments
The Group enters into derivative financial instruments to pur-
chase sunflower seeds. Derivatives are initially recognised at
fair value at the date the derivative contracts are entered into
and subsequently remeasured to their fair value at the end of
each reporting period. The resulting gain or loss is recognised
in profit or loss immediately.
Trade and other accounts payable
Accounts payable are measured at initial recognition at fair val-
ue, and are subsequently measured at amortised cost using the
effective interest rate method.
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the Group. All other leases are classified as operating leases.
Assets held by the Group under finance leases are recognised
as assets of the Group at their fair value at the date of acquisi-
tion or, if lower, at the present value of the minimum lease pay-
ments. The corresponding liability to the lessor is included in the
consolidated statement of financial position as a finance lease
obligation. Lease payments are apportioned between finance
charges and a reduction of the lease obligation so as to achieve
a constant rate of interest on the remaining balance of the liabili-
ty. Finance expenses are recognised directly to the statement of
comprehensive income and are classified as finance costs.
Rental income or expenses under operating leases are rec-
ognised in the consolidated statement of comprehensive in-
come on a straight line basis over the term of the lease.
Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation (either based on legal regulations or
implied) as a result of past events, and it is probable that an
outflow of resources will be required to settle the obligation and
a reliable estimate of the obligation can be made.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
4. CRITICAL ACCOUNTING JUDGMENTS
AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are
described in Note 3, management is required to make judge-
ments, estimates and assumptions about the carrying amounts
of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are rec-
ognised in the period in which the estimate is revised if the revi-
sion affects both current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those in-
volving estimations (see below), that management has made
in the process of applying the Group’s accounting policies and
that have the most significant effect on the amounts recognised
in the consolidated financial statements.
When determining whether to perform a fair value assess-
ment in a given period, the management of the Group consid-
ers development of macroeconomic 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 the fair
value of all groups property, plant and equipment not to be
materially different from the reported book values as of 31
December 2018.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future,
and other key sources of estimation uncertainty at the end of
the reporting period that have a significant risk of causing a ma-
terial adjustment to the carrying amounts of assets and liabili-
ties within the next financial year.
Fair value less costs to sell of biological assets and agricul-
tural produce
Biological assets are recorded at fair values less costs to sell.
The Group estimates the fair values of biological assets based
on the following key assumptions:
• Average meat output for broilers and livestock for meat pro-
Revaluation of property, plant and equipment
duction;
As described in Note 3, the Group applies the revaluation model to
the measurement of all groups of property, plant and equipment, ex-
cept land and other fixed assets. At each reporting date, the Group
carries out a review of the carrying amount of items of property, plant
and equipment accounted for using a revaluation model to deter-
mine whether the carrying amount differs materially from fair value.
• Average productive life of breeders and cattle held for regen-
eration 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 2018 the fair value of bio-
logical assets was estimated using discount factors of 15.7% and
18.0% (31 December 2017: 12.7% and 18.1%) for non-current and
current assets, respectively.
Although some of these assumptions are obtained from pub-
lished market data, the majority of these assumptions are es-
timated based on the Group’s historical and projected results
(Note 15).
Useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and
equipment is a matter of management estimate based upon ex-
perience with similar assets. In determining the useful life of an
asset, management considers the expected usage, estimated
technical obsolescence, physical wear and tear and the physi-
cal 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 suf-
ficient future taxable profit. Based on management assessment
the Group decided to recognize deferred tax assets on unused
tax losses, which will be utilized in future against existing de-
ferred tax liabilities and available future tax profits.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
The accounting policies of the reportable segments are the same
as the Group’s accounting policies described in Note 3. Sales be-
tween segments are carried out at market prices. The segment
result represents operating profit under IFRS before unallocated
corporate expenses and loss on impairment of property, plant and
equipment. Unallocated corporate expenses include management
remuneration, representative expenses, and expenses incurred in
respect of the maintenance of office premises. This is the measure
reported to the chief operating decision maker for the purposes
of resource allocation and assessment of segment performance.
The Group does not disclose geographical revenue information as
it is not available and the cost to develop it would be excessive.
5. SEGMENT INFORMATION
The majority of the Group’s operations and non-current assets
are located within Ukraine.
Segment information is analysed on the basis of the types of
goods supplied by the Group’s operating divisions. The Group’s
reportable segments under IFRS 8 are as follows:
Poultry and related operations segment:
• sales of chicken meat
• 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)
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
5. SEGMENT INFORMATION (CONTINUED)
As of 31 December and for the year then ended the Group’s segmental information from continuing operations was as follows:
Year ended 31 December 2018
External sales
Sales between business segments
Total revenue
Segment result
Unallocated corporate expenses
Loss on impairment of property, plant and equipment
Other expenses, net*
Profit before tax from continuing operations
Other information:
Additions to property, plant and equipment**
Depreciation and amortization expense***
Net change in fair value of biological assets and agricultural produce
Poultry and
related operations
Grain growing
operations
Other agricultural
operations
Total reportable
segments
1,241,181
50,181
1,291,362
229,293
180,976
244,151
425,127
106,401
133,820
324
134,144
7,996
1,555,977
294,656
1,850,633
343,690
189,677
82,093
(934)
30,747
44,503
33,028
12,496
7,555
-
232,920
134,151
32,094
Eliminations
Consolidated
-
1,555,977
(294,656)
(294,656)
-
-
-
-
-
1,555,977
343,690
(28,764)
(3,803)
(132,492)
178,631
232,920
134,151
32,094
* Include finance income, finance costs, foreign exchange loss, net and other expenses, net.
** Additions to property, plant and equipment in 2018 (Note 12) do not include unallocated additions in the amount of USD 5,948 thousand.
*** Depreciation and amortization for the year ended 31 December 2018 does not include unallocated depreciation and amortization in the amount of USD 802 thousand.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
5. SEGMENT INFORMATION (CONTINUED)
Year ended 31 December 2017
External sales
Sales between business segments
Total revenue
Segment result
Unallocated corporate expenses
Loss on impairment of property, plant and equipment
Other expenses, net*
Profit before tax from continuing operations
Other information:
Additions to property, plant and equipment**
Depreciation and amortization expense***
Net change in fair value of biological assets and
agricultural produce
Poultry and related
operations
Grain growing
operations
Other agricultural
operations
Total reportable
segments
Eliminations
Consolidated
1,050,724
37,168
1,087,892
306,528
117,077
191,993
309,070
65,643
119,951
194
120,145
15,496
1,287,752
229,355
1,517,107
387,667
93,136
59,614
28,580
21,069
29,675
(11,863)
3,493
3,268
4,284
117,698
92,557
21,001
-
(229,355)
(229,355)
-
-
-
-
1,287,752
-
1,287,752
387,667
(22,304)
(3,607)
(148,619)
213,137
117,698
92,557
21,001
* Include finance income, finance costs, foreign exchange loss, net and other expenses, net.
** Additions to property, plant and equipment in 2017 (Note 12) do not include unallocated additions in the amount of USD 7,938 thousand.
*** Depreciation and amortization for the year ended 31 December 2017 does not include unallocated depreciation and amortization in the amount of USD 668 thousand.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
5. SEGMENT INFORMATION (CONTINUED)
6. REVENUE
7. COST OF SALES
The Group’s export sales to external customers by major prod-
uct types were as follows during the years ended 31 December
2018 and 2017:
Revenue for the years ended 31 December 2018 and 2017 was
as follows:
Cost of sales for the years ended 31 December 2018 and 2017
was as follows:
Poultry and related operations segment
2018
2017
2018
2017
Chicken meat
870,851
718,032
Chicken meat and related products
471,177
334,385
Vegetable oil and related products
271,122
260,251
Vegetable oil and related products
274,313
259,054
Shipping and handling services
43,586
33,104
Grain
156,511
108,815
Other poultry related sales
55,622
39,337
Other agricultural segment products
21,703
30,012
1,241,181
1,050,724
923,704
732,266
Grain growing operations segment
Export sales includes revenue from shipping and handling ser-
vices in the amount of USD 33,325 thousand as of 31 December
2018 (2017: USD 24,412 thousand).
Grain
168,118
108,068
Shipping and handling services
12,858
9,009
180,976
117,077
Other agricultural operations segment
Export sales of vegetable oil and related products and export
sales of grains are primarily made to global trading companies.
The major markets for the Group’s export sales of chicken meat
are MENA and EU countries.
Other meat
Shipping and handling services
Other agricultural sales
97,190
83,599
5,313
31,317
4,207
32,145
133,820
119,951
1,555,977
1,287,752
Poultry and related operations
891,065
718,407
Grain growing operations
154,053
89,075
Other agricultural operations
122,550
105,362
1,167,668
912,844
For the years ended 31 December 2018 and 2017 cost of sales
comprised the following:
Costs of raw materials and other
inventory used
2018
2017
754,942
626,104
Payroll and related expenses
162,395
113,875
Depreciation and amortization
expense
Other costs
124,993
82,835
125,338
90,030
1,167,668
912,844
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
8. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years end-
ed 31 December 2018 and 2017 were as follows:
Payroll and related expenses
Services
Depreciation expense
Representative costs and business
trips
Advertising expense
Fuel and other materials used
Insurance expense
Bank services and conversion fees
Other
2018
43,653
21,957
9,960
2017
31,759
17,620
10,390
9,830
8,920
7,779
2,715
492
431
2,857
5,256
2,588
61
488
2,157
99,674
79,239
Remuneration to the auditors, included in Services above,
amounted to USD 1,605 thousand for the year ended 31 Decem-
ber 2018 (2017: USD 980 thousand). Such remuneration includes
both audit and non-audit services, with the statutory audit fees
component amounted to USD 430 thousand (2017: USD 420
thousand) for the year ended 31 December 2018 and fees for
other assurance services component approximating USD 458
thousand (2017: USD 294 thousand), for tax advisory services
component approximating USD 20 thousand (2017: USD 130
thousand) and for other non-audit services component approxi-
mating USD 697 thousand (2017: USD 136 thousand) for the year
ended 31 December 2018.
during the year ended 31 December 2018 the Group was not
able to receive respective state subsidies from the budget and
has not recognised any such subsidies in the consolidated fi-
nancial statements accordingly. In 2017, USD 52,605 thousand
amount of subsidies were recognised.
9. GOVERNMENT GRANTS INCOME
On 30 December 2016, the President of Ukraine signed the
Law No. 1791 “On Amendments to the Tax Code of Ukraine Re-
garding the Balancing of Budget Revenues in 2017” (the “Law
No. 1791”). The Law No. 1791 introduced changes to VAT admin-
istration for agricultural companies which previously enjoyed
a special VAT regime. In order to continue state support for
agricultural companies, the Law No. 1791 introduced budget
subsidies for agricultural companies. From 2017 onwards, bud-
get subsidies will be provided for five consecutive years until 1
January 2022. The agricultural producers eligible for the sub-
sidies, include those, involved in poultry production and ani-
mal farming, as well as fruit and vegetable farmers. For each
agricultural producer, the amount of the direct subsidy is not to
exceed the amount of VAT tax paid by the producers, and was
distributed on a monthly basis. As of the date of the authori-
zation of these consolidated financial statements, the Govern-
ment has not allocated the specific amount for the state sub-
sidies for qualifying agricultural companies in 2018. Therefore,
However, the Ukrainian Government continues to support do-
mestic agri producers and attract investments into agricultural
sector. According to the Law “On the State Budget for 2018”,
UAH 6,311 million were allocated to support agricultural sector
in 2018 via compensation program, including UAH 4,000 million
to support livestock sector and up to UAH 1,000 million to pur-
chase agricultural machinery produced in Ukraine. On 7 Febru-
ary 2018, the Cabinet of Ministers of Ukraine approved the pro-
cedure to obtain livestock sector state support. During the year
ended 31 December 2018, the Group received government grants
in accordance to the compensation program for construction and
reconstruction of livestock farms in an amount of UAH 960,666
thousand (USD 34,371 thousand). Government grants are present-
ed in the statement of the financial position as deferred revenues,
which is recognised in profit or loss on a systematic basis over
the useful life of the related assets. Also, during the year ended
31 December 2018 the Group received UAH 27,940 (USD 1,000
thousand) thousand for keeping rearing cattle. This amount was
recognised in consolidated statement of profit or loss and other
comprehensive income in full.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
10. FINANCE COSTS
Finance costs for the years ended 31 December 2018 and 2017
were as follows:
2018
2017
Interest on corporate bonds
93,200
83,102
Transaction costs related to
corporate bonds
32,915
4,588
Interest on bank borrowings
11,852
19,430
Interest on obligations under
finance leases
Bank commissions and other
charges
1,154
1,211
4,417
4,643
Total finance costs
143,538
112,974
Less:
Finance costs included in the cost
of qualifying assets
(5,519)
(4,575)
138,019
108,399
For qualifying assets, the weighted average capitalization rate
on funds borrowed during the year ended 31 December 2018
was 8.60% (2017: 9.69%).
Interest on corporate bonds for the years ended 31 December
2018 and 2017 includes the amortization of premium and debt is-
sue costs on bonds issued in the amounts of USD 6,196 thousand
and USD 5,788 thousand, respectively.
11. INCOME TAX
The majority of the Group’s operating entities are located in
Ukraine, therefore the effective tax rate reconciliation is com-
pleted based on Ukrainian statutory rates. The net results of the
Group companies incorporated in jurisdictions other than Ukraine
were insignificant during the years ended 31 December 2018 and
2017.
During the year ended 31 December 2018, the Group’s compa-
nies 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 Janu-
ary 2014. The deferred income tax assets and liabilities as of 31
December 2018 and 2017 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 involved in ag-
ricultural production (poultry farms and other entities engaged
in agricultural production) benefit substantially from the status
of an agricultural producer. The tax rates for agricultural pro-
ducers is calculated as a percentage of the target-ratio based
monetary valuation per hectare of agricultural land resulting in
substantially lower tax charges compared to CIT. Agricultural
manufacturers 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 agricultural produc-
tion (i.e. sale of the entity’s cultivated and processed prod-
ucts) to the total share of its income equals or exceeds 75
per cent; and
2. These agriproducts were cultivated on land that such ag-
ricultural manufacturers own or lease, and the ownership
title and leases have been duly registered.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
11. INCOME TAX (CONTINUED)
The components of income tax expense/(benefit) were as fol-
lows for the years ended 31 December 2018 and 2017:
Current income tax expense
Withholding tax
Deferred tax expense/(benefit)
Income tax benefit
2018
2,169
10,927
37,431
50,527
2017
388
-
(17,506)
(17,118)
The reconciliation between profit before tax from continuing op-
erations multiplied by the statutory tax rate and the tax expense
for the years ended 31 December 2018 and 2017 was as follows:
Derecognition of previously recognised tax losses results from the
reversal of deferred tax liabilities related to property revaluation
that were the source of taxable income relied on previously to
support recognition.
As of 31 December 2018 and 2017 deferred tax assets and liabil-
ities recognised the following:
Deferred tax assets arising from:
Other current liabilities
Inventories
Tax losses
2018
2017
1,235
354
800
28
60,048
90,793
Total deferred tax assets
61,637
91,621
Profit before income tax
178,631
213,137
Property, plant and equipment
(61,908)
(114,684)
2018
2017
Deferred tax liabilities arising from:
During the years ended 31 December 2018 and 2017 the Group did not
recognize tax losses in the amount of USD 67,717 (USD 12,189 thousand
of deferred tax assets), USD 26,582 thousand (USD 4,785 thousand of
deferred tax asset), respectively, as the Group did not intend to deduct
the relevant expenses for tax purposes in subsequent periods, as there
are uncertainties on whether sufficient taxable profits will be generated
by particular companies of the Group in the future. There is no expira-
tion date of accounting tax losses according to Tax Code of Ukraine.
Deferred tax liabilities have not been recognised in respect of
unremitted earnings of Ukrainian subsidiaries as the earnings
can be remitted free from taxation currently and in future years,
based on current legislation.
The movements in net deferred tax liabilities for the years ended
31 December 2018 and 2017 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
and other exempt from income tax
Derecognition and utilisation
of previously recognised tax losses
Withholding tax
Non-deductible expenses
Expenses not deducted for tax
purposes
Translation loss
Income tax benefit
36,209
39,171
(33,249)
(57,927)
30,802
10,927
1,894
2,129
1,815
50,527
-
-
(3,984)
4,785
837
(17,118)
Inventories
(493)
(546)
Total deferred tax liabilities
(62,401)
(115,230)
Net deferred tax liabilities
(764)
(23,609)
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes relate
to the same fiscal authority. The following amounts, determined
after appropriate offsetting, are presented in the consolidated
statement of financial position as of 31 December 2018 and 2017:
Deferred tax assets
2018
12,189
2017
121
Deferred tax liabilities
(12,953)
(23,730)
Deferred tax assets not
recognised
(12,189)
-
(12,953)
(23,609)
Net deferred tax liabilities
as of beginning of the year
2018
2017
(23,609)
(9,703)
Deferred tax (expense)/benefit
(37,431)
17,506
Deferred tax on revaluation of
property, plant and equipment
charged directly to other
comprehensive income
49,357
(30,979)
Translation difference
(1,270)
(433)
Net deferred tax liabilities
as of end of the year
(12,953)
(23,609)
Deferred tax benefit on revaluation of property, plant and equip-
ment is related to the intercompany sale of fixed assets from
CIT-payers entity to FAT-payers (tax-exempt) entity, which has led
to reversal of the respective part of the deferred tax liability.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(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 2018:
Cost or fair value:
At 1 January 2018
Additions
Disposals
Transfers
Impairment loss
Translation difference
2,816
1,515
-
21
-
11
586,297
76,837
269,093
43,494
47,748
(573)
29,955
-
497
(1)
-
-
41,730
(1,652)
20,707
-
6,668
1,043
2,615
5,535
(137)
2,031
-
464
90,111
10,477
(24)
3,996
-
980
198,903
8,697
113,351
1,389,599
38,887
(2,524)
166
(1,697)
2,110
1,242
(286)
49
-
101
91,237
238,868
(149)
(5,346)
(56,925)
-
(2,106)
1,086
(3,803)
15,078
At 31 December 2018
4,363
670,095
78,376
332,493
51,387
105,540
235,845
9,803
146,494
1,634,396
Accumulated depreciation:
At 1 January 2018
Depreciation charge for the year
Elimination upon disposal
Transfers
Translation difference
At 31 December 2018
Net book value
At 1 January 2018
At 31 December 2018
-
-
-
-
-
-
-
-
-
-
-
-
24,090
5,596
35,511
6,838
5,960
53,720
(154)
-
(21)
-
-
(98)
(186)
-
(621)
(22)
-
(120)
23,915
5,498
34,704
6,696
(5)
-
(104)
5,851
(643)
-
(933)
52,144
6,497
1,134
(245)
-
(328)
7,058
-
-
-
-
-
-
6,497
132,849
(1,255)
-
(2,225)
135,866
2,816
4,363
586,297
646,180
76,837
72,878
269,093
297,789
43,494
44,691
90,111
99,689
198,903
183,701
2,200
2,745
113,351
1,383,102
146,494
1,498,530
* Other fixed assets include bearer plants, office furniture and equipment.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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
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
1,217
1,661
-
66
-
-
(128)
2,816
-
-
-
-
-
-
-
518,152
85,267
264,939
41,529
80,030
218,741
7,548
59,401
1,276,824
13,783
(507)
7,828
65,164
(885)
(17,238)
1,066
(41)
7,540
(13,733)
(158)
(3,104)
7,054
(664)
9,629
(1,785)
(775)
(9,305)
2,315
(44)
(6,317)
7,850
(797)
(1,042)
586,297
76,837
269,093
43,494
9,181
14,265
(58)
4,417
6,025
(6)
(22,270)
(9,982)
-
(1,118)
-
-
(454)
-
39,774
23,566
(1,659)
(59,451)
(5)
(2,225)
-
2,290
4,370
(66)
(6,134)
3
(463)
-
2,446
(4)
(2,460)
12,686
(94)
(2,493)
90,111
1,794
2,720
(2)
(4,312)
-
(200)
-
23,748
(3,846)
(3,208)
(27,785)
(898)
(7,849)
198,903
33,543
37,099
(3,037)
(65,191)
2
(2,416)
-
1,415
(125)
178
-
-
(319)
8,697
5,491
1,273
(122)
-
-
(145)
6,497
72,148
125,636
-
(13,256)
-
-
(5,231)
-
42,397
(3,607)
(4,942)
(46,420)
113,351
1,389,599
-
-
-
-
-
-
-
96,490
89,318
(4,950)
(167,340)
-
(7,021)
6,497
1,217
2,816
508,971
80,850
225,165
39,239
586,297
76,837
269,093
43,494
78,236
90,111
185,198
198,903
2,057
2,200
59,401
1,180,334
113,351
1,383,102
* Other fixed assets include bearer plants, office furniture and equipment;
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As of 31 December 2018, included within construction in prog-
ress were prepayments for property, plant and equipment in the
amount of USD 13,117 thousand (2017: USD 13,014 thousand).
As of 31 December 2018, included within property, plant and
equipment were fully depreciated assets with the original cost
of USD 7,040 thousand (2017: USD 5,584 thousand).
As of 31 December 2018 and 2017 the net carrying amount of
property, plant and equipment, represented by vehicles and ag-
ricultural machinery, held under finance lease agreements was
USD 21,449 thousand and USD 21,834 thousand, respectively.
Impairment assessment
The Group reviews its property, plant and equipment each peri-
od to determine if any indication of impairment exists. Based on
these reviews, there were no indicators of impairment as of 31
December 2018 and 2017, except for the impairment of certain
assets in the amount of USD 3,803 thousand USD 3,607 thou-
sand as of 31 December 2018 and 2017, respectively.
the fair value of vehicles and agricultural machinery was materially
different from the reported book values. Based on analysis of fluctu-
ations of the cumulative index of producer’s prices, the index of phys-
ical depreciation and the functional currency depreciation, Manage-
ment assessed the fair value of vehicles and agricultural machinery
not to be materially different from the reported book values.
Revaluation of production machinery
During the year ended 31 December 2017, the Group engaged
independent appraisers to revalue its production machinery. The
effective date of revaluation was 31 December 2017. The valua-
tion, which conformed to the International Valuation Standards,
was determined using market comparable approach adjusted
based on age and condition of the machinery or for items of spe-
cialized nature depreciated replacement cost method. During the
year ended and as of 31 December 2018, the Group evaluated if
the fair value of production machinery was materially different
from the reported book values. Based on analysis of fluctuations
of the cumulative index of producer’s prices, the index of physical
depreciation and the functional currency depreciation, Manage-
ment assessed the fair value of such production machinery not to
be materially different from the reported book values.
During the year ended and as of 31 December 2018, the Group
evaluated if the fair value of buildings and structures was mate-
rially different from the reported book values. Based on analysis
of the fluctuations of the cumulative index of inflation of construc-
tion works and index of physical depreciation, Management as-
sessed the fair value of such buildings and structures not to be
materially different from the reported book values.
Revaluation of Grain storage facilities
During the year ended 31 December 2017, the Group engaged
independent appraisers to revalue its grain storage facilities as
of 31 December 2017. The valuation, which conformed to the In-
ternational Valuation Standards, was determined using depreci-
ated replacement cost method by reference to observable prices
in an active market adjusted based on age and condition of the
facilities. During the year ended and as of 31 December 2018,
the Group evaluated if the fair value of grain storage facilities
was materially different from the reported book values. Based
on analysis of fluctuations of the cumulative index of inflation of
construction works and the index of physical depreciation, Man-
agement assessed the fair value of grain storage facilities not to
be materially different from the reported book values.
Revaluation of vehicles and agricultural machinery
During the year ended 31 December 2017, the Group engaged in-
dependent appraisers to revalue its vehicles and agricultural ma-
chinery. The effective date of revaluation were 31 December 2017.
The valuation, which conformed to the International Valuation Stan-
dards, was determined using market comparable approach adjust-
ed based on age and condition of the machinery. During the year
ended and as of 31 December 2018, the Group evaluated whether
Revaluation of buildings and structures
During the year ended 31 December 2017, the Group engaged in-
dependent appraisers to revalue its buildings and structures. The
effective date of revaluation was 31 December 2017. The valua-
tion, which conformed to the International Valuation Standards,
was determined using depreciated replacement cost method
by reference to observable prices in an active market adjust-
ed based on age and condition of the buildings and structures.
Revaluation of Auxiliary and other machinery
During the year ended 31 December 2017, the Group engaged
an independent appraiser to determine the fair value of its Aux-
iliary and other machinery as of 31 December 2017. The valua-
tion, which conformed to the International Valuation Standards,
was determined using the market comparable approach adjust-
ed based on age and condition of the machinery or for items of
specialized nature depreciated replacement cost method.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
13. LAND LEASE RIGHTS
During the year ended and as of 31 December 2018, the Group evaluated if the fair value of
Auxiliary and other machinery was materially different from the reported book values. Based on
analysis of fluctuations of the cumulative index of inflation of construction works and the index of
physical depreciation, Management assessed the fair value of Auxiliary and other machinery not
to be materially different from the reported book values.
Revaluation of Utilities and infrastructure
During the year ended 31 December 2017, the Group engaged independent appraisers to revalue its
utilities and infrastructure as of 31 December 2017. The valuation, which conformed to the International
Valuation Standards, was determined using depreciated replacement cost method by reference to ob-
servable prices in an active market adjusted based on age and condition of the facilities. During the year
ended and as of 31 December 2018, the Group evaluated if the fair value of utilities and infrastructure was
materially different from the reported book values. Based on analysis of fluctuations of the cumulative
index of inflation of construction works and the index of physical depreciation, Management assessed
the fair value of utilities and infrastructure not to be materially different from the reported book values.
Had the Group’s property plant and equipment been measured on a historical cost basis, their
carrying amount would have been as follows:
Fair value
hierarchy
Fair value
Net book value
if carried at cost
2018
2017
2018
2017
Buildings and structures
Grain storage facilities
Level 3
Level 3
646,180
586,297
266,075
197,780
72,878
76,837
31,189
31,013
Production machinery
Level 2, 3
297,789
269,093
171,600
124,617
Vehicles and agricultural
machinery
Level 2
183,701
198,903
93,489
82,227
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 2018 and 2017:
2018
2017
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
60,697
9,340
667
70,704
15,287
6,513
95
21,895
45,410
48,809
54,873
7,970
(2,146)
60,697
11,028
4,859
(600)
15,287
43,845
45,410
14. OTHER NON-CURRENT ASSETS, NET
The balances of other non-current assets, net were as follows as of 31 December 2018 and 2017:
Financial assets at amortised cost
Loan receivables
Other financial assets
Utilities and infrastructure
Level 3
99,689
90,111
51,771
39,364
Non-financial instruments
Auxiliary and other
machinery
Level 2, 3
44,691
43,494
27,195
22,740
Prepayment for business acquisition (Note 35)
Other non-financial instruments
There are no restrictions on the distribution of the revaluation surplus to the shareholders.
2018
15,980
1,377
23,771
18,741
59,869
2017
10,825
504
-
13,488
24,817
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
14. OTHER NON-CURRENT ASSETS, NET (CONTINUED)
15. BIOLOGICAL ASSETS
Loan receivables are represented by loans with fixed interest at
2.5% with maturity as of 31 January 2022 and 31 January 2023.
Total gross amortised cost of loans granted as of 31 December
2018 and 2017 is USD 18,766 thousand and USD 10,825 thousand
respectively.
The Group determines the lifetime expected credit loss of other
non-current loan receivables based on different scenarios of prob-
ability of default and expected loss applicable to each of the mate-
rial underlying balances. The movement in loss allowance for loan
receivables classified at amortised cost is detailed below:
31 December 2017
loss allowance under IFRS 9
01 January 2018
charged during the year
31 December 2018
2018
-
(1,532)
(1,532)
(1,254)
(2,786)
The balances of non-current biological assets were as follows as of 31 December 2018 and 2017:
Thousand units Carrying amount Thousand units Carrying amount
2018
2017
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
18.1
0.1
3.6
18.3
0.3
3.8
19,953
88
539
20,580
2,812
2,812
23,392
17,923
117
470
18,510
1,895
1,895
20,405
The balances of current biological assets were as follows as of 31 December 2018 and 2017:
Thousand units Carrying amount Thousand units Carrying amount
2018
2017
Breeders held for hatchery eggs production, units
3,954
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
44,199
33,063
92
6
66,509
66,509
64,519
8,253
37,416
2,132
461
112,781
179,290
Other current consumable biological assets include geese and other livestock
3,473
40,355
35,776
88
8
55,716
55,716
54,207
9,016
20,623
1,250
216
85,312
141,028
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
15. BIOLOGICAL ASSETS (CONTINUED)
The following table represents movements in major biological assets for the years ended 31 December 2018 and 2017:
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
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 2018
Milk cows, boars, sows
Breeders held for
hatchery eggs
production
Broiler chickens
Crops in fields
12,764
7,479
13,936
-
7,675
(417)
(22,698)
(699)
18,040
2,553
17,889
-
1,395
(143)
(19,918)
225
20,041
46,483
102,702
29,651
(110,586)
-
-
(10,491)
(2,043)
55,716
129,737
6,071
(110,376)
-
-
(15,222)
583
66,509
40,558
450,363
242,893
110,586
-
-
(788,100)
(2,093)
54,207
585,798
243,746
110,376
-
-
(930,190)
582
64,519
20,977
239,908
67,932
-
-
-
(307,522)
(672)
20,623
295,960
120,541
-
-
-
(399,998)
290
37,416
Information on movements in hatchery eggs and cattle and pigs groups have been considered immaterial for disclosure.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
15. 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 of
31 December 2018
Fair value as of
31 December 2017
Valuation
technique(s)
Unobservable inputs
Range of unobservable
inputs (average) 2018
Range of
unobservable inputs
(average) 2017
Relationship of unobservable
inputs to fair value
Crops in fields
37,416
20,623
Discounted
cash flows
Crops yield –
tonnes per hectare
3.5 – 6.1 (4.9)
3.3 – 6.0 (5.0)
Crops price – per tonne
USD 160 – 380 (253)
USD 118 – 362 (209)
Breeders held
for hatchery eggs
production
66,509
55,716
Discounted
cash flows
Number of hatchery eggs
produced by one breeder
Discount rate
18.0%
165
18.1%
160
USD 0.25
USD 0.25
15.7%
2.33
12.7%
2.34
Hatchery egg price –
per egg
Discount rate
Average weight
of one broiler – kg
Broiler chickens
64,519
54,207
Cash flows
Milk cows
19,953
17,923
Poultry meat price – per kg
UAH 30.36
UAH 29.35
Discounted
cash flows
Daily milk yield –
litre per cow
Weight of the cow –
kg per cow
15.89 – 19.76 (18.55)
16.80 – 17.55 (17.12)
523 – 567 (548)
521 – 559 (544)
Milk price – per litre
UAH 7.62 – 8.68 (7.93)
UAH 7.32 – 8.11 (7.55)
Meat price – per kg
UAH 18.69 – 24.22 (22.81)
UAH 22.27 – 25.96
(24.41)
Discount rate
15.7%
12.7%
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 71,964 thousand (2017: USD 42,440 thousand) and USD 64,758 thousand (2017: USD 39,612 thousand), respectively.
The higher the crops yield,
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
The higher the number,
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
The higher the weight,
the higher the fair value
The higher the market price,
the higher the fair value
The higher the milk yield,
the higher the fair value
The higher the weight,
the higher the fair value
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
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
16. INVENTORIES
The balances of inventories were as follows as of 31 December
2018 and 2017:
Components for mixed fodder
production
Other raw materials
Work in progress
Sunflower oil
Spare parts
Packaging materials
Mixed fodder
Other inventories
2018
2017
157,203
127,812
37,471
33,155
22,140
16,010
3,455
3,016
1,072
32,645
28,581
17,970
10,916
3,041
3,521
1,882
273,522
226,368
As of 31 December 2018 and 2017 work in progress in the amount
of USD 33,155 thousand and USD 28,581 thousand comprised
expenses incurred in cultivating fields to be planted in the years
2018 and 2017, respectively.
17. AGRICULTURAL PRODUCE
18. TAXES RECOVERABLE AND PREPAID
The balances of agricultural produce were as follows as of 31
December 2018 and 2017:
Taxes recoverable and prepaid were as follows as of 31 Decem-
ber 2018 and 2017:
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
2018
2017
VAT recoverable
Miscellaneous taxes prepaid
Chicken meat
29.7
40,651
37.9
48,103
Other meat
N/A*
2,147
N/A*
1,618
2018
39,834
5,312
45,146
2017
31,530
6,237
37,767
Grain
1,105
168,044
788
120,537
19. TRADE ACCOUNTS RECEIVABLE, NET
Other crops
N/A*
13,947
N/A*
13,149
224,789
183,407
* 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 2018, agricultural produce with carrying
amount of USD 23,750 thousand (2017: USD nil) was pledged as
collateral to secure bank borrowings (Note 24).
The balances of trade accounts receivable were as follows as of
31 December 2018 and 2017:
Chicken meat
Meat processing
and convenience food
Grain
Sunflower oil sales
Due from related parties (Note 28)
Other agriculture operations
Less: allowance for irrecoverable
amounts
2018
2017
57,834
47,104
12,761
11,666
3,748
508
111
6,724
3,614
324
109
3,731
(12,381)
(4,243)
69,305
62,305
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
150
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
19. TRADE ACCOUNTS RECEIVABLE, NET (CONTINUED)
The average credit period on sales of poultry is 30 days and on sales of agricultural goods is 60
days. No interest is charged on outstanding trade accounts receivable. The Group always measures
the loss allowance for trade accounts receivable at an amount equal to lifetime ECL. The expected
credit losses on trade accounts receivable are estimated on a collective basis using a provision ma-
trix and on individual basis using different scenarios of probability of default.
The provision matrix is used by reference to past default experience of the debtor and an analysis
of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general
economic conditions of the industry in which the debtors operate and an assessment of both the
current as well as the forecast direction of conditions at the reporting date.
An individual assessment is used for the individually significant debtors with credit risk characteristics
that are not aligned with others.
The Group has recognised a loss allowance of 100% against all trade accounts receivable over 270
days past due, which are assesses on a collective basis, because historical experience has indicated
that these trade accounts receivable are generally not recoverable.
There has been no change in the estimation techniques or significant assumptions made during the
current reporting period. The Group writes off a trade accounts receivable when there is information
indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery,
e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings,
or when the trade accounts receivable are over 3 years past due, whichever occurs earlier. None of
the trade accounts receivable that have been written off are subject to enforcement activities.
The following table details the risk profile of trade accounts receivable based on the Group’s provi-
sion matrix. It discloses chicken meat Ukraine, chicken meat export and agricultural Ukraine, agricul-
tural export sales as separate classes of financial instruments and applies the simplified approach to
its trade accounts receivable so that the loss allowance is always measured at an amount equal to
lifetime expected credit losses. The following table illustrates the use of a provision matrix as a risk
profile disclosure under the simplified approach:
31 December 2018
Portfolio assessment:
Chicken meat Ukraine
ECL rate, %
Estimated total gross carrying amount
at default
Lifetime ECL
Chicken meat export
ECL rate, %
Estimated total gross carrying amount
at default
Lifetime ECL
Agricultural Ukraine
ECL rate, %
Estimated total gross carrying amount
at default
Lifetime ECL
Agricultural export
ECL rate, %
Estimated total gross carrying amount
at default
Lifetime ECL
Estimated total gross carrying
amount at default
Total lifetime ECL
Individual assessment
Trade accounts receivable – days past due
Not past
due
< 30
31-90
91-270
>270
Total
0.01%
0.3%
1.24%
8.92%
100.0%
19,984
1,591
(2)
(4)
54
(1)
13
(1)
30
(30)
21,672
(38)
0.21%
0.16%
0.55%
5.71%
100.0%
15,241
7,224
1,559
(32)
(12)
(9)
444
(25)
1,705
26,173
(1,705)
(1,783)
0.23%
1.30%
1.76%
3.08%
100.0%
15,266
2,262
1,342
212
347
19,429
(35)
(29)
(24)
(7)
(347)
(442)
0.07%
1.47%
42.24%
42.90%
100.0%
4,288
(3)
-
-
8
(3)
7
(3)
120
(120)
4,423
(129)
71,697
(2,392)
ECL rate, %
0.00%
0.00%
0.00%
0.00%
100.0%
Estimated total gross carrying amount
at default
Lifetime ECL
Estimated total gross carrying
amount at default
Total lifetime ECL
-
-
-
-
-
-
-
-
9,989
9,989
(9,989)
(9,989)
81,686
(12,381)
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
19. TRADE ACCOUNTS RECEIVABLE, NET (CONTINUED)
20. OTHER CURRENT ASSETS
The following table shows the movement in lifetime ECL that
has been recognised for trade and other accounts receivable in
accordance with the simplified approach set out in IFRS 9. Note
that Management considered that it would take undue cost and
effort to determine whether the credit risk for trade and other
receivables has increased significantly for amounts recognised
prior to IFRS 9 adoption therefore comparative information has
not been presented.
Collectively
assessed
Individually
assessed
31 December 2017
Additional loss allowance under
IFRS 9
01 January 2018
Charged/(reversed) during
the year
31 December 2018
453
-
453
1,939
2,392
3,790
6,390
10,180
(191)
9,989
The balances of other current assets, net were as follows as of
31 December 2018 and 2017:
2018
2017
Financial assets at amortised cost
Loans and finance aid
receivable from related
parties (Note 28)
5,950
Other financial assets
1,409
Non-financial instruments
Prepayments to
suppliers
Other non-financial
instruments
19,106
6,393
32,858
21. CASH AND CASH EQUIVALENTS
3,182
1,222
14,889
6,034
25,327
The balances of cash and cash equivalents were as follows as
of 31 December 2018 and 2017:
Cash on hand and with banks
211,768
125,536
2018
2017
UAH short-term deposits with
banks
-
18
211,768
125,554
In accordance with the international rating agency of Moody’s,
credit ratings of the banks with which the Group had the ac-
counts opened as of 31 December were as follows:
International banks with Aa3 rating
158,784
2018
2017
86,688
Ukrainian subsidiaries of
international banks without
international ratings
Ukrainian state owned bank with
Caa1
Foreign banks without ratings
22. SHAREHOLDERS’ EQUITY
37,008
26,199
9,296
6,680
211,768
5,344
7,323
125,554
Share capital
As of 31 December 2018 and 2017 the authorized, issued and
fully paid share capital of MHP SE comprised the following num-
ber of shares:
2018
2017
Number of shares issued and fully
paid
110,770,000
110,770,000
Number of shares outstanding
107,038,208
106,781,794
The authorized share capital as of 31 December 2018 and 2017
was EUR 221,540 thousand represented by 110,770,000 shares
with par value of EUR 2 each.
All shares have equal voting rights and rights to receive divi-
dends, which are payable at the discretion of the Group.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
152
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
23. NON-CONTROLLING INTERESTS
The table below shows details of non-wholly owned subsidiaries of the Group that have material
non-controlling interests:
Proportion of
ownership interests
and voting rights
held by non-
controlling interests
Profit/(loss)
allocated to non-
controlling interests
Accumulated non-
controlling interests
2018
49%
2017
-
2018
-
2017
-
2018
5,016
2017
-
11.5%
11.5%
(901)
(1,221)
3,816
4,178
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Group
Revenue
Expenses
n/a
n/a
4,079
2,752
7,704
12,963
Loss for the year
Name of subsidiary
AgroKryazh
Myronivsky Zavod po
Vygotovlennyu Krup i
Kombikormiv
Other subsidiaries
with immaterial non-
controlling interests
n/a
n/a
3,178
1,531
16,536
17,141
Summarised financial information in respect of each of the Group’s subsidiaries that has material
non-controlling interests is set out below. The summarised financial information below represents
amounts before intragroup eliminations.
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 (loss)/income attributable to
owners of the Company
Total comprehensive (loss)/income attributable to
the non-controlling interests
Total comprehensive (loss)/income for the year
Net cash inflow/(outflow) from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Myronivsky Zavod po
Vygotovlennyu Krup i
Kombikormiv
AgroKryazh
171,328
112,646
167,829
84,971
27,357
317,802
(325,631)
(7,829)
(6,929)
(900)
(7,829)
4,149
539
4,688
(2,780)
(361)
(3,141)
10,666
(10,318)
-
212,203
94,348
203,197
85,315
13,861
424,171
20,748
12,013
19,837
-
7,908
19,518
(434,786)
(15,952)
(10,615)
(9,394)
(1,221)
(10,615)
13,555
1,761
15,316
4,161
540
4,701
(489)
(3,622)
-
3,566
3,566
-
3,566
23
22
45
3,589
22
3,611
4,202
(977)
(3,216)
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
24. BANK BORROWINGS
The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2018 and 2017:
Bank
Non-current
Foreign banks
Foreign banks
Current
Ukrainian banks
Ukrainian banks
Ukrainian banks
Current portion of
long-term bank borrowings USD, EUR
Total bank borrowings
Currency
WAIR*
USD’ 000
WAIR*
USD’ 000
2018
2017
USD
EUR
UAH
EUR
USD
7.99%
4.72%
-
3.76%
4.50%
56,718
49,065
105,783
-
12,943
48,000
71,772
132,715
238,498
7.72%
2.57%
121,576
17,241
138,817
13.00%
9,620
-
-
-
-
27,297
36,917
175,734
The Group’s borrowings are drawn from various banks as term
loans, credit line facilities and overdrafts. Repayment terms of
principal amounts of bank borrowings vary from monthly repay-
ment 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 ba-
sis. Interest on borrowings drawn with foreign banks is payable
semi-annually.
Term loans and credit line facilities were as follows as of 31 December 2018 and 2017:
Credit lines
Term loans
* WAIR represents the weighted average interest rate
on outstanding borrowings.
2018
60,943
177,555
238,498
2017
9,620
166,114
175,734
As of 31 December 2018 and 2017 all of the Group’s foreign
bank term loans and credit lines bear floating interest rates.
Bank borrowings and credit lines outstanding as of 31 Decem-
ber 2018 and 2017 were repayable as follows:
Within one year
In the second year
In the third to fifth
year inclusive
After five years
2018
132,715
56,719
42,271
6,793
2017
36,917
72,950
58,719
7,148
238,498
175,734
As of 31 December 2018, the Group had available undrawn
facilities of USD 316,429 thousand (2017: USD 264,895 thou-
sand). These undrawn facilities expire during the period from
March 2019 until February 2022.
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 com-
plied 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 2018 and 2017 the Group
has complied with all covenants imposed by banks providing
the borrowings.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
154
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
24. BANK BORROWINGS (CONTINUED)
The Group’s bank borrowings are jointly and severally guaranteed by Myronivsky Hliboprodukt,
Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga Nova, Starynska
Ptakhofabryka, Zernoproduct MHP, Katerinopilskiy Elevator, Agrofort, SPF Urozhay, MHP SE, Scyl-
la Capital Limited, Myronivska Pticefabrika, Ptakhofabryka Snyatynska Nova, Vinnytska Ptakho-
fabryka, Zakhid-Agro MHP, Urozhayna Krayina, Raftan Holding Limited, Merique Holding Limited.
As of 31 December 2018, the Group had deposits with banks in the amount of USD 3,387 thousand
(2017: USD 2,524 thousand) that were restricted as collateral to secure bank borrowings.
As of 31 December 2018, the Group had borrowings of USD 19,000 thousand that were secured.
These borrowings were secured by agricultural produce with a carrying amount of USD 23,750
thousand (Note 17).
As of 31 December 2018 and 2017 accrued interest on bank borrowings was USD 3,150 thousand
and USD 2,578 thousand, respectively.
25. BONDS ISSUED
Bonds issued and outstanding as of 31 December 2018 and 2017 were as follows:
8.25% Senior Notes due in 2020
7.75% Senior Notes due in 2024
6.95% Senior Notes due in 2026
Unamortised debt issuance cost
2018
79,417
500,000
550,000
(38,482)
Total long-term portion of bonds issued
1,090,935
2017
495,600
500,000
-
(25,512)
970,088
As of 31 December 2018 and 2017 accrued interest on bonds issued was USD 16,322 thousand
and USD 15,377 thousand, respectively.
6.95% Senior Notes
On 3 April 2018, MHP Lux S.A., a public company with limited liability (société anonyme) incorporated
in 2018 under the laws of the Grand Duchy of Luxembourg, issued USD 550,000 thousand 6.95%
Senior Notes due in 2026 at par value. Out of the total issue amount USD 416,183 thousand were
designated for redemption and exchange of existing 8.25% Senior Notes due in 2020.
Early redemption of 8.25% Senior Notes due in 2020 out of issue of 6.95% Senior Notes due in 2026,
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 amortised over the maturity period of the 6.95% Senior Notes due in 2026.
The part of expenses, connected with placement of 6,95% Senior Notes amounted to USD 11,564
thousand were capitalized, including USD 10,413 thousands related to the exchange. All other related
expenses in the amount of USD 32,915 thousand were expensed as incurred.
As a result of a non-substantial modification, the difference between the present value of the cash
flows under the original and modified terms discounted at the original effective interest rate was
recognised as a gain in the amount of USD 4,733 thousand at the date of modification in the consol-
idated statement of profit or loss.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP SE, PrJSC “My-
ronivsky Hliboprodukt”, PJSC “Myronivsky Plant of Manufacturing Feeds and Groats”, PrJSC “Zer-
noprodukt MHP”, PrJSC “Agrofort”, PrJSC “Oril-Leader”, PrJSC “Myronivska Pticefabrika”, “SPF
“Urozhay” LLC, “Starynska Ptakhofabryka” ALLC, “Vinnytska Ptakhofabryka” LLC, “Peremoga Nova”
SE, “Katerinopolskiy Elevator” LLC, Scylla Capital Limited and Raftan Holding Limited.
Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to
certain restrictive covenants including, but not limited to, limitations on the incurrence of additional in-
debtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers
or consolidations, limitations on liens and dispositions of assets and limitations on transactions with
affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may, upon written notice to the Group, declare
all outstanding Senior Notes to be due and payable immediately.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
25. BONDS ISSUED (CONTINUED)
6.95% Senior Notes (continued)
outstanding Notes may, upon written notice to the Group, de-
clare all outstanding Senior Notes to be due and payable imme-
diately. 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.
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75%
Senior Notes due in 2024 at par value. Out of the total issue
amount USD 245,200 thousand were designated for redemp-
tion and exchange of existing 8.25% Senior Notes due in 2020.
Early redemption of 8.25% Senior Notes due in 2020 out of
issue of 7.75% Senior Notes due in 2024, which were placed
with the same holders and where the change in the net pres-
ent 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 amortised over the
maturity period of the 7.75% Senior Notes due in 2024.
The part of expenses, connected with placement of 7.75% Senior
Notes amounted to USD 9,830 thousand were capitalized, in-
cluding USD 7,318 thousands related to the exchange. All other
related expenses, including part of consent fees, in the amount
of USD 4,599 thousand were expensed as incurred.
The carrying amount of the Senior Notes was adjusted on transi-
tion to IFRS 9. Under IFRS 9, as a result of a non-substantial modifi-
cation, the difference between the present value of the cash flows
under the original and modified terms discounted at the original
effective interest rate should be recognised as a gain at the date
of modification. The difference between the carrying amount of the
Senior Notes under IAS 39 and IFRS 9 was recognised in opening
retained earnings in the amount of USD 7,566 thousand (Note 3).
The Senior Notes are jointly and severally guaranteed on a
senior basis by PrJSC “Myronivsky Hliboprodukt”, PJSC “My-
ronivsky Plant of Manufacturing Feeds and Groats”, PrJSC “Zer-
noprodukt MHP”, PrJSC “Agrofort”, PrJSC “Oril-Leader”, PrJSC
“Myronivska Pticefabrika”, “SPF “Urozhay” LLC, “Starynska
Ptakhofabryka” ALLC, Vinnytska Ptakhofabryka LLC, SE “Per-
emoga Nova”, “Katerinopolskiy Elevator” LLC, Scylla Capital
Limited, Raftan Holding Limited.
Interest on the Senior Notes is payable semi-annually in arrears.
These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of addi-
tional indebtedness in excess of Net Debt to EBITDA ratio as de-
fined 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 imposed, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may, upon writ-
ten 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 ac-
crued and unpaid interest and additional amounts, if any.
8.25% Senior Notes
On 8 April 2013, MHP SE issued USD 750,000 thousand 8.25%
Senior Notes due in 2020 at an issue price of 100% of the princi-
pal amount. USD 350,000 thousand out of issued USD 750,000
thousand 8.25% Senior Notes were used to early redemption
and exchange of its existed 10.25% Senior Notes due in 2015.
Early redemption of 10.25% Senior Notes due in 2015 out of
issue of 8.25% Senior Notes due in 2020, which were placed
with the same holders and where the change in the net pres-
ent value of the future cash flows discounted using the original
effective interest rate was less than 10% was accounted as an
exchange and thus all the related expenses, including consent
fees, were capitalized and will be amortised over the maturity
period of the 8.25% Senior Notes due in 2020.
The part of expenses, connected with placement of 8.25% Se-
nior Notes amounted to USD 28,293 thousand were capitalized,
including USD 22,813 thousands related to the exchange. All
other related expenses, including part of consent fees, in the
amount of USD 16,515 thousand were expensed as incurred.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
156
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
25. BONDS ISSUED (CONTINUED)
8.25% Senior Notes (continued)
The carrying amount of the Senior Notes was adjusted on tran-
sition to IFRS 9. Under IFRS 9, as a result of a non-substantial
modification, the difference between the present value of the
cash flows under the original and modified terms discounted
at the original effective interest rate should be recognised as
a gain at the date of modification. The difference between the
carrying amount of the Senior Notes under IAS 39 and IFRS 9
was recognised in opening retained earnings in the amount of
USD 3,260 thousand (Note 3).
The Senior Notes are jointly and severally guaranteed on a se-
nior basis by PrJSC “Myronivsky Hliboprodukt”, SE “Peremoga
Nova”, PrJSC “Oril-Leader”, PJSC “Myronivsky Plant of Manu-
facturing Feeds and Groats”, PrJSC “Zernoproduct MHP”, PrJSC
“Myronivska Pticefabrika”, “Starynska Ptakhofabryka” ALLC,
Snyatynska Ptakhofabryka, “Katerinopolskiy Elevator” LLC, Pr-
JSC “Agrofort”, “SPF “Urozhay” LLC, Vinnytska Ptakhofabryka
LLC, Scylla Capital Limited, Raftan Holding Limited, Merique
Holding Limited.
Interest on the Senior Notes is payable semi-annually in ar-
rears. These Senior Notes are subject to certain restrictive
covenants including, but not limited to, limitations on the in-
currence of additional indebtedness in excess of Net Debt
to EBITDA ratio as defined by the indebtedness agreement,
restrictions on mergers or consolidations, limitations on liens
and dispositions of assets and limitations on transactions with
affiliates. If the Group fails to comply with the covenants im-
posed, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may, upon written notice
to the Group, declare all outstanding Senior Notes to be due
and payable immediately. If a change of control occurs the
Group shall make an offer to each holder of the Senior Notes
to purchase such Senior Notes at a purchase price in cash in
an amount equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and additional amounts, if any.
Cash flow presentation
Though the Group believes that all necessary disclosures re-
garding the impact of cash flows arising from the bonds ex-
change were made in this Note to the consolidated financial
statements, the Group decided that reporting cash flows from
these transactions on the gross basis in the statement of cash
flows provides users with more relevant information.
Consent solicitation
On 12 October 2018, the Group received consent from the Hold-
ers of the outstanding USD 79,417 thousand 8.25% Senior Notes
for certain proposed amendments to the Indenture and the Notes.
The Amendments were implemented by way of execution of the
Supplemental Indenture on 15 October 2018, and became effec-
tive from the Consent Settlement Date (17 October 2018).
In relation to the Notes, the Company has, on the Consent Set-
tlement Date, paid to those Holders from whom valid Consents
were delivered and not revoked on or prior to the Consent Expi-
ration Date and which Consents were accepted by the Compa-
ny the Consent Payment of USD 10.00 for each USD 1 thousand
in principal amount of the Notes that were subject of the rele-
vant Electronic Instructions.
Thus, in 2018 the Group decided to change presentation of
cash flows from the bonds exchange from a net to a gross ba-
sis. In order to conform to the presentation in the statement of
cash flows for the year ended 31 December 2018 the compar-
ative information for the year ended 31 December 2017 has
been restated. For this purpose, the Group reflected in 2017
the gross proceeds from bonds issued in the amount of USD
500,000 thousand and repayment of bonds in the amount of
USD 254,400 thousand (this amount includes a repayment of
the bonds in the amount USD 9,200 thousand previously re-
ported separately), in contrast to the USD 254,800 thousand
presented on net basis in prior year. This change did not have
an impact on the Net cash flows from financing activities for
the year ended 31 December 2017.
During the reporting years ended 31 December 2018 and 31 De-
cember 2017 the Group has complied with all covenants de-
fined by indebtedness agreement.
The weighted average effective interest rate on the Senior
Notes is 8.60% per annum and 9.25% per annum for the year
ended 31 December 2018 and year ended 31 December 2017,
respectively.
26. FINANCE LEASE OBLIGATIONS
Long-term finance lease obligations represent amounts due
under agreements for the leasing of trucks, agricultural ma-
chinery and equipment with Ukrainian and foreign companies.
As of 31 December 2018, the weighted average interest rates
on finance lease obligations were 6.40% and 8.61% for finance
lease obligations denominated in EUR and USD, respectively
(2017: 7.78% and 9.77%).
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
26. FINANCE LEASE OBLIGATIONS (CONTINUED)
The following are the minimum lease payments and present value of minimum lease payments
under the finance lease agreements as of 31 December 2018 and 2017:
Minimum lease
payments
Present value of
minimum lease payments
2018
5,409
4,764
5,660
2017
4,979
3,780
4,875
2018
4,355
4,050
5,037
2017
4,040
3,118
4,292
15,833
13,634
13,442
11,450
Payable within one year
Payable in the second year
Payable in the third to fifth year inclusive
Less:
Future finance charges
(2,391)
(2,184)
-
-
13,442
11,450
13,442
11,450
Present value of finance
lease obligations
Less:
Current portion
Finance lease obligations,
long-term portion
28. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of these financial statements, parties are considered to be related if one party
controls, is controlled by, or is under common control with the other party, or exercises significant
influence over the other party in making financial or operational decisions. In considering each
possible related party relationship, attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions
between related parties may not be effected on the same terms and conditions as transactions
between unrelated parties.
Transactions with related parties under common control
The Group enters into transactions with related parties that are the companies under common con-
trol of the Principal Shareholder of the Group (Note 1) in the ordinary course of business for the
purchase and sale of goods and services and in relation to the provision of financing arrangements.
(4,355)
(4,040)
9,087
7,410
Terms and conditions of sales to related parties are determined based on arrangements specific to
each contract or transaction. 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 2018 and 2017 were
as follows:
27. OTHER CURRENT LIABILITIES
Other current liabilities were as follows as of 31 December 2018 and 2017:
2018
2017
Loans provided to key management personnel
Financial liabilities at amortised cost
Accrued payroll
Amounts payable for property, plant and equipment
Other financial liabilities
Non-financial instruments
Advances from third parties
Payroll related taxes
Other non-financial instruments
37,698
16,146
6,327
30,388
3,138
2,686
96,383
25,456
11,173
3,946
6,774
2,184
763
50,296
Purchases from related parties
Loans and finance aid provided
Loans and finance aid repaid
2018
768
44
8,091
5,322
2017
425
32
-
-
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
28. RELATED PARTY BALANCES
AND TRANSACTIONS (CONTINUED)
The balances owed to and due from related parties were as fol-
lows as of 31 December 2018 and 2017:
2018
2017
Loans and finance aid receivable
5,950
3,188
Loans to key management personnel
971
Trade accounts receivable (Note 19)
Payables due to related parties
111
19
956
109
17
Compensation of key management personnel
Total compensation of the Group’s key management personnel
included primarily in selling, general and administrative ex-
penses in the accompanying consolidated statements of profit
and loss and other comprehensive income amounted to USD
16,809 thousand and USD 14,143 thousand for the years ended
31 December 2018 and 2017, respectively. Compensation of key
management personnel consists of contractual salary and per-
formance bonuses.
The Group has provided several of its key management person-
nel with short-term loans at rates comparable to the average
commercial rate of interest. The loans to key management per-
sonnel are unsecured.
Key management personnel totalled 35 and 37 individuals as
of 31 December 2018 and 2017, respectively, including 4 and 2
independent non-executive directors as of 31 December 2018
and 2017, respectively.
Other transactions with related parties
In December 2018 the Group increased its effective owner-
ship interest in Agrofort to 100% through the acquisition of a
non-controlling interest previously held by one of its key man-
agement personnel in exchange for 256,414 treasury shares
held by the Group. The difference between fair value of shares
transferred and their carrying value in the amount of USD
1,269 thousand was recognised as an adjustment to addition-
al paid-in capital. The difference between fair value of shares
transferred and the carrying value of non-controlling interest
was recognised as an adjustment to retained earnings in the
amount of USD 997 thousand.
29. CONTINGENCIES AND CONTRACTUAL COMMITMENTS
Operating Environment
In 2018, the Ukrainian economy proceeded recovery from the
economic and political crisis of previous years and demonstrat-
ed sound real GDP growth of around 3.4% (2017: 2.5%), modest
annual inflation of 9.8% (2017: 13.7%), and slight devaluation of
national currency by around 2.4% to USD and 8.2% to EUR com-
paring to previous year averages.
Total compensation of the Group’s independent non-executive
directors, which consists of contractual salary, amounted to
USD 1,106 thousand and USD 460 thousand in 2018 and 2017,
respectively.
Also Ukraine continued to limit its political and economic ties with
Russia, given annexation of Crimea, an autonomous republic of
Ukraine, and a frozen armed conflict with separatists in certain
parts of Luhanska and Donetska regions. Amid such events, the
Ukrainian economy demonstrated further refocusing on the Eu-
ropean Union (“EU”) market realizing all potentials of established
Deep and Comprehensive Free Trade Area with EU, in such a
way effectively reacting to mutual trading restrictions imposed
between Ukraine and Russia. As a result, the weight of the Rus-
sian’s export and import substantially fell from 18.2% and 23.3%
in 2014 to around 7.7% and 14.2% in 2018, respectively.
In terms of currency regulations, the new currency law was
adopted in 2018 and came into force on 7 February 2019.
It purports to enable the NBU to promulgate more liberal
currency regulation and soften a number of currency re-
strictions, such as: requirement to register loans obtained
from non-residents with the NBU, 180-day term for making
payments in foreign economic transactions, required 50%
share of mandatory sale of foreign currency proceeds, etc.
Further economic growth depends, to a large extent, upon
success of the Ukrainian government in realization of
planned reforms, cooperation with the International Mone-
tary Fund (“IMF”), and smooth transition through presiden-
tial and parliamentary elections, due in March and October
2019, respectively.
The management of the Group believes that the negative im-
pact of the political and economic turmoil at the Group’s enti-
ties is reasonably limited due to the Group’s significant portion
of export sales, its access to the international financial mar-
kets and the significant distance of its main production sites
from any conflict zones.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
29. CONTINGENCIES AND CONTRACTUAL
COMMITMENTS (CONTINUED)
Taxation and legal issues
Ukrainian tax authorities are increasingly directing their at-
tention to the business community as a result of the overall
Ukrainian economic environment. The local and national tax
environment is constantly changing and subject to inconsistent
application, interpretation and enforcement. Non-compliance
with Ukrainian laws and regulations can lead to the imposition
of severe penalties and fines. Future tax examinations could
raise issues or assessments which are contrary to the Group
companies’ tax filings. Such assessments could include tax-
es, penalties and fines, and these amounts could be material.
While the Group believes it has complied with local tax legisla-
tion, there have been many new tax and foreign currency laws
and related regulations introduced in recent years which are
not always clearly written.
Management believes that the Group has been in compliance
with all requirements of effective tax legislation and currently is
assessing the possible impact of the introduced amendments.
The Group exports vegetable oil, chicken meat and related prod-
ucts, and performs intercompany transactions, which may po-
tentially be in the scope of the Ukrainian transfer pricing (“TP”)
regulations. The Group has submitted the controlled transaction
report for the year ended 31 December 2017 within the required
deadline, and has prepared all necessary documentation on
controlled transactions for the years ended 31 December 2018 as
required by legislation and plans to submit reports.
As of 31 December 2018, the Group’s management assessed its
possible exposure to tax risks for a total amount of USD 4,452
thousand related to corporate income tax (31 December 2017:
USD 4,392 thousand). No provision was recognised relating to
such possible tax exposure.
As of 31 December 2018, companies of the Group were
engaged in ongoing litigation with tax authorities for the
amount of USD 2,831 thousand (2017: USD 2,273 thousand),
including USD 2,108 thousand (2017: USD 1,534 thousand)
of litigations with the tax authorities related to disallowance
of certain amounts of VAT refunds and deductible expenses
claimed by the Group. Of this amount, USD 1,228 thousand
as of 31 December 2018 (2017: USD 1,457 thousand) relates
to cases where court hearings have taken place and where
the court in either the first or second instance has already
ruled in favour of the Group. Management believes that
based on the past history of court resolutions of similar law-
suits by the Group, it is unlikely that a significant settlement
will arise out of such lawsuits and, therefore, no respective
provision is required in the Group’s financial statements as
of the reporting date.
Contractual commitments on purchase of property,
plant and equipment
During the years ended 31 December 2018 and 2017, the com-
panies of the Group entered into a number of contracts with
foreign suppliers for the purchase of property, plant and equip-
ment for development of agricultural operations. As of 31 De-
cember 2018, purchase commitments amounted to USD 16,826
thousand (2017: USD 17,412 thousand).
Commitments on land operating leases
The Group has the following contractual obligations in respect of
agricultural land operating leases as of 31 December 2018 and 2017:
Within one year
31,330
20,833
2018
2017
In the second to the fifth
year inclusive
After fifth year
104,346
69,896
112,078
247,754
60,933
151,662
The aforementioned commitments with respect to land operating
leases comprised both contractual and constructive obligations.
Ukrainian legislation provides for a ban on sales of agricultur-
al land plots until 1 January 2020. There are significant uncer-
tainties as to the subsequent extension of the ban. The current
legislation has resulted in the Group holding land lease rights,
rather than the land itself.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
160
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
30. DIVIDENDS
On 6 March 2018, the Board of Directors of MHP SE approved
the payment of an interim dividend of USD 0.7492 per share,
equivalent to approximately USD 80,000 thousand, which were
paid to shareholders during the year ended 31 December 2018.
31. 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 the price that would be expected to be received
to sell an asset or paid to transfer a liability in an orderly trans-
action in the principal (most advantageous) market at the mea-
surement date under current market conditions. Where avail-
able, market values have been used to determine fair values.
When market values are not available, fair values have been
calculated by discounting expected cash flows at prevailing
market interest and exchange rates. The estimated fair values
have been determined using market information and appropri-
ate valuation methodologies, but are not necessarily indicative
of the amounts that Group could realise in the normal course
of business.
The fair value is estimated to approximate the carrying value for
cash and cash equivalents, short-term bank deposits, trade ac-
counts receivable, and trade accounts payable, other financial
assets and other financial liabilities due to the short-term nature
of the financial instruments.
Set out below is the comparison by category of carrying
amounts and fair values of all the Group’s financial instruments,
excluding those discussed above, that are carried in the consol-
idated statement of financial position:
Carrying amount
Fair value
2018
2017
2018
2017
The carrying amount of Senior Notes issued and bank borrow-
ings includes interest accrued at each of the respective dates.
The fair value of bank borrowings and finance lease obliga-
tions as of 31 December 2018 was estimated by discounting
the expected future cash outflows by a market rate of interest
for bank borrowings: 8.0% (2017: 7.7%) and for finance lease
obligations of 8.2% (2017: 9.3%), and is within Level 2 of the
fair value hierarchy.
The fair value of Senior Notes was estimated based on market
quotations and is within Level 1 of the fair value hierarchy.
Financial
liabilities
Bank
borrowings
(Note 24)
Senior Notes
due in 2020,
2024 (Note 25)
Finance lease
obligations
(Note 26)
241,648
178,312
233,898
168,627
1,107,257 985,465 1,027,226
1,085,693
13,442
11,450
13,726
11,691
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
31. 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 fi-
nancing 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 state-
ment of cash flows as cash flows from financing activities.
1 January 2018
Cash flow from
proceeds /
(repayments)
Transaction
costs
payments
Foreign
exchange
movements
Purchases through direct bank-lender
payments to the vendor and under
finance lease and vendor
financing agreements
Amortisation
and write-off of
transaction costs
31 December 2018
Non-cash movements
Bank borrowings (Note 24)
175,734
Senior Notes due in 2020,
2024, 2026 (Note 25)
Finance lease obligations
(Note 26)
959,262
11,450
53,493
133,817
(4,416)
(384)
(45,460)
-
1,146,446
182,894
(45,844)
(2,954)
(20)
(366)
(3,340)
11,377
-
6,774
18,151
1,232
43,336
238,498
1,090,935
-
13,442
44,568
1,342,875
1 January 2017
Cash flow from
proceeds /
(repayments)
Transaction
costs
payments
Foreign
exchange
movements
Purchases through direct bank-lender
payments to the vendor and under
finance lease and vendor
financing agreements
Amortisation
and write-off of
transaction costs
31 December 2017
Non-cash movements
Bank borrowings (Note 23)
496,374
(332,902)
725,361
245,600
(1,993)
(15,145)
Senior Notes due in 2020,
2024, 2026 (Note 24)
Finance lease obligations
(Note 26)
13,625
(9,217)
-
1,235,360
(96,519)
(17,138)
6,325
4
1,524
7,853
7,135
-
5,518
12,653
795
14,268
175,734
970,088
-
11,450
15,063
1,157,272
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
162
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. RISK MANAGEMENT POLICIES
During the years ended 31 December 2018 and 2017 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 procure-
ment risk managing.
Capital risk management
The Group manages its capital to ensure that entities of the
Group will be able to continue as a going concern while max-
imising the return to the equity holders through maintaining
a balance between the higher returns that might be possible
with higher levels of borrowings and the security afforded by a
sound capital position. The management of the Group reviews
the capital structure on a regular basis. Based on the results of
this review, the Group takes steps to balance its overall capi-
tal 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 de-
fines its leverage ratio as the proportion of net debt to adjusted
operating profit.
As of 31 December 2018 and 2017 the leverage ratio was as follows:
Bank borrowings (Note 24)
Bonds issued (Note 25)
Finance lease obligations (Note 26)
Total Debt
Less:
Cash and cash equivalents (Note 21)
Net debt
Operating profit before loss on impairment
of property, plant and equipment
Adjustments for:
Depreciation and amortization expense (Notes 7, 8)
Adjusted operating profit
Net debt to adjusted operating profit
2018
238,498
1,090,935
13,442
1,342,875
(211,768)
1,131,107
314,926
134,953
449,879
2.51
2017
175,734
970,088
11,450
1,157,272
(125,554)
1,031,718
365,363
93,225
458,588
2.25
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. 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, cur-
rency risk, interest rate risk, livestock diseases risk, and commodity price and procurement risk.
Credit risk
The Group is exposed to credit risk which is the risk that one party to a financial instrument will
fail to discharge an obligation and cause the other party to incur a financial loss. The Group does
not hold any collateral or other credit enhancements to cover its credit risks associated with its
financial assets.
Major categories of financial instruments
Financial assets:
Other non-current assets, net (Note 14)
Long-term bank deposits
Other current assets (Note 20)
Trade accounts receivable, net (Note 19)
Cash and cash equivalents (Note 21)
Financial liabilities:
Bank borrowings (Note 24)
Bonds issued (Note 25)
Finance lease obligations (Note 26)
Amounts payable for property, plant and equipment (Note 27)
Accrued interest (Note 24,25)
Trade accounts payable
Accrued payroll (Note 27)
Other payables (Note 27)
2018
2017
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one customer or group of customers. The approved credit period for major
groups of customers, which include franchisees, distributors and supermarkets, is set at 10-30 days.
17,357
3,387
7,359
69,305
211,768
309,176
238,498
1,090,935
13,442
16,146
19,472
66,398
37,698
6,327
11,329
2,524
4,404
62,305
125,554
206,116
175,734
970,088
11,450
11,173
17,955
43,175
25,456
3,946
1,488,916
1,258,977
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 2018 about 26% (2017: 26%) of
trade accounts receivable comprise amounts due from 12 large supermarket chains, which have
the shortest contractual receivable settlement period among customers.
The credit risk on liquid funds is limited because the counterparties are banks with high credit-rat-
ings 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 managed. The Group has in place a detailed
budgeting and cash forecasting process to help ensure that it has adequate cash available to
meet its payment obligations.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
164
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. 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 undiscounted cash flows of financial liabilities using the earliest date on which the Group can be required to
pay. The table includes both interest and principal cash flows as of 31 December 2018 and 2017. 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.
The Group’s target is to maintain its current ratio, defined as the
proportion of current assets to current liabilities, at the level of
not less than 1.2. As of 31 December 2018 and 2017, the current
ratio was as follows:
Carrying amount
Contractual
Amounts
Less than 1 year
From 2nd
to 5th year
After 5th year
Year ended
31 December 2018
Bank borrowings
Bonds issued
Finance lease
obligations
Total
Year ended
31 December 2017
Bank borrowings
Bonds issued
Finance lease
obligations
Total
241,648
1,107,257
257,354
1,639,058
13,442
15,833
1,362,347
1,912,245
178,312
985,465
11,450
196,021
1,349,693
13,634
142,301
83,527
5,409
231,237
45,779
79,637
4,979
107,944
390,593
10,424
7,109
1,164,938
-
508,961
1,172,047
142,408
711,931
8,655
7,834
558,125
-
1,175,227
1,559,348
130,395
862,994
565,959
All other financial liabilities (excluding those disclosed above) are repayable within one year.
Current assets
Current liabilities
2018
2017
1,036,678
801,756
319,323
3.25
152,383
5.26
Currency risk
Currency risk is the risk that the value of a financial instrument
will fluctuate due to changes in foreign exchange rates. The
Group undertakes certain transactions denominated in foreign
currencies. The Group does not use any derivatives to man-
age 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.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
165
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. RISK MANAGEMENT POLICIES (CONTINUED)
Currency risk (continued)
The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities as of 31 December were as follows:
2018
2017
USD
EUR
USD
EUR
The table below illustrates the Group’s sensitivity to a change
in the exchange rate of the Ukrainian Hryvnia against the US
Dollar and EUR. The sensitivity analysis includes only outstand-
ing foreign currency denominated monetary items and adjusts
their translation at the year end for possible change in foreign
currency rates.
ASSETS
Long-term bank deposits
Other non-current assets, net
Trade accounts receivable, net
Other current assets, net
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade accounts payable
Other current liabilities
Accrued interest
Short-term bank borrowings
Short-term finance lease obligations
Non-current liabilities
Long-term bank borrowings
Bonds issued
Long-term finance lease obligations
-
15,980
26,072
3,601
151,535
197,188
2,536
31
18,877
110,771
2,290
134,505
56,702
1,090,935
3,072
1,150,709
1,285,214
3,387
-
5,434
-
17,088
25,909
2,543
6,916
595
21,944
2,066
34,064
49,081
-
6,014
55,095
89,159
-
11,617
22,266
110
99,204
133,197
2,776
24
17,846
12,121
3,142
2,524
-
2,311
-
5,669
10,504
3,083
5,929
109
15,176
887
2018
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
2017
Increase in USD exchange rate
35,909
25,184
Increase in EUR exchange rate
Decrease in USD exchange rate
Decrease in EUR exchange rate
121,576
970,088
5,362
1,097,026
1,132,935
17,241
-
1,986
19,227
44,411
Change
in foreign
currency
exchange
rates
Effect on
profit before
tax, gain/
(loss)
10%
10%
5%
5%
10%
10%
5%
5%
(108,803)
(6,325)
54,401
3,164
(99,974)
(3,391)
49,987
1,695
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
166
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. RISK MANAGEMENT POLICIES (CONTINUED)
Currency risk (continued)
During the year ended 31 December 2018 the Ukrainian Hryvnia appreciated against the EUR and
USD by 5.62% and 1.37% respectively (2017: depreciated against the EUR by 15.14% and 3.12% against
the USD). As a result, during the year ended 31 December 2018 the Group recognised net foreign
exchange gain in the amount of USD 11,638 thousand (2017: foreign exchange losses in the amount of
USD 35,615 thousand) in the consolidated statement of profit or loss and other comprehensive income.
During the year ended 31 December 2018 USD 328 thousand (2017: USD 336 thousand) net for-
eign exchange gain resulting from the difference in NBU and Ukrainian interbank currency market
exchange rates, was included in Other operating expenses, net.
The currency risk is mitigated by the existence of USD-denominated proceeds from sales of sun-
flower 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 2018 and 2017:
2018
LIBOR
LIBOR
EURIBOR
EURIBOR
2017
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%
(8,642)
8,642
(3,955)
3,955
(7,110)
7,110
(1,765)
1,765
Vegetable oil and related products
Chicken meat and related products
Grain
Other agricultural segment products
2018
274,313
471,177
156,511
21,703
923,704
2017
259,054
334,385
108,815
30,012
732,266
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect primarily bor-
rowings 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%
(2017: 5%). The analysis was applied to interest bearing liabilities (bank borrowings, finance lease ob-
ligations and accounts payable under grain purchase financing arrangements) based on the assump-
tion that the amount of liability outstanding as of the reporting date was outstanding for the whole year.
The effect of interest rate sensitivity on shareholders’ equity is equal to that on statement of com-
prehensive income.
Livestock diseases risk
The Group’s agro-industrial business is subject to risks of outbreaks of various diseases. The
Group faces the risk of outbreaks of diseases, which are highly contagious and destructive to
susceptible livestock, such as avian influenza or bird flu for its poultry operations. These and other
diseases could result in mortality losses. Disease control measures were adopted by the Group to
minimize and manage this risk. The Group’s management is satisfied that its current existing risk
management and quality control processes are effective and sufficient to prevent any outbreak of
livestock diseases and related losses.
FINANCIAL STATEMENTS
ANNUAL REPORT 2018
167
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(in thousands of US dollars, unless otherwise indicated)
32. RISK MANAGEMENT POLICIES (CONTINUED)
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect on current or future earnings from
fluctuations in the prices of commodities. To mitigate this risk the Group continues expansion of
its grain growing segment, as part of vertical integration strategy, and also accumulates sufficient
commodity stock to meet its production needs.
33. PENSIONS AND RETIREMENT PLANS
The employees of the Group receive pension benefits from the government in accordance
with the laws and regulations of Ukraine. The Group’s contributions to the State Pension Fund
for the year ended 31 December 2018 was USD 33,097 thousand and is recorded in the con-
solidated statement of profit or loss and other comprehensive income on an accrual basis
(2017: USD 23,680 thousand). The Group companies are not liable for any other supplemen-
tary pensions, post-retirement health care, insurance benefits or retirement indemnities to its
current or former employees, other than pay-as-you-go expenses.
34. 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
124,926
228,724
Earnings used in calculation of earnings per share
124,926
228,724
Weighted average number of shares outstanding
106,804,274
106,781,794
Basic and diluted earnings per share (USD per share)
1.17
2.14
2018
2017
The Group has neither potentially dilutive ordinary shares nor other dilutive instruments; there-
fore, the diluted earnings per share equal basic earnings per share.
35. SUBSEQUENT EVENTS
On 21 February 2019, the Group acquired 90.69% of the ordinary shares in Perutnina Ptuj d.d.,
a Slovenian based international meat-processing company and the most important and largest
producer of poultry meat and poultry meat products in Southeast Europe. Perutnina Ptuj d.d. to-
gether with its subsidiaries has production capacity of 55,000 tonnes per annum of poultry meat
and more than 35,000 tonnes per annum of value- added meat . The deal was financed by cash
from operations and bank loan from ING NV in the amount of EUR 100 million. As part of the trans-
action, the Company has made a prepayment of EUR 20,000 thousand (USD 23,771 thousand) be-
fore the year end. The final consideration amount is subject to the completion of audited results of
Perutnina Ptuj d.d. for the year ended 31 December 2018. The necessary measure of fair values of
the identifiable assets acquired and the liabilities assumed as well as other calculations required
for this business combination have not yet been finalized.
36. AUTHORIZATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements were authorized for issue by the Board of Directors of
MHP SE on 19 March 2019.
SHAREHOLDER
INFORMATION
Financial Calendar
Key Contacts & Advisors
169
169
170 Glossary of Terms
ANNUAL REPORT 2018
FINANCIAL CALENDAR
KEY CONTACTS & ADVISORS
169
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.
Website
Shareholders are encouraged to visit our website,
www.mhp.com.ua, to obtain information on the Company
including its history, reports, news and press information.
KEY CONTACTS & ADVISORS
Company Registered Office
16-18 Zinas Kanther Street, Ayia Triada, 3035 Limassol, Cyprus
Company Office
EB 1, Nicolaides Sea View City Block AB, 3-7 Archbishop
Makarios III Avenue, 6017 Larnaca, Cyprus
Auditor
Deloitte Limited
Maximos Plaza, Tower 1, 3rd Floor
213 Archbishop Makarios III Avenue
CY-3030 Limassol
Cyprus
Director of Investor Relations
Anastasiya Sobotyuk
Email: a.sobotyuk@mhp.com.ua
Registrar
Citigroup Global Markets Deutschland AG
Reuterweg 16
60323 Frankfurt Germany
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F
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AGM
Broiler
CAPEX
CEO
CFO
CIS
Company
COSO
CO2
CO2e
CSR
EBITDA
Annual general meeting
A young chicken raised for meat
Capital expenditure
Chief Executive Officer
Chief Financial Officer
Commonwealth of Independent States
MHP SE
Committee of Sponsoring Organisations
Carbon Dioxide
Carbon Dioxide Equivalent
Corporate Social Responsibility
Earnings before interest, tax, depreciation
and amortisation
EBRD
European Bank for Reconstruction and Development
EGM
Extraordinary general meeting
EU
European Union
Fodder
Food for livestock
FX
Foreign Exchange
GCC
Gulf Cooperation Council
GDP Gross Domestic Product
GDR
GMO Genetically Modified Organisms
Greenfield
GRI
Group
Grow-out
Ha
HR
IAS
IFC
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
Global depositary receipt
ANNUAL REPORT 2018
170
International financial institution
International Financial Reporting Standards
Investor relations
Joint venture
Kilograms
Key performance indicators
Left Hand Scale
Last twelve months
Mergers and acquisitions
Middle East and North Africa region
Megawatt
National Bank of Ukraine
Non-executive director
Non-governmental organisation
Organisation for Economic Co-operation
and Development
Persentage Points
Research and development
Right Hand Scale
Societas Europaea
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
IFI
IFRS
IR
JV
Kg
KPIs
LHS
LTM
M&A
MENA
MW
NBU
NED
NGO
OECD
pps
R&D
RHS
SE
SKU
SPOT
UAE
UAH
UK
UNIC
US
US$ /USD
y/y
VAT