A LEAD I NG
I NTERNATIONAL
AG RO - I N D USTR IAL
COM PANY
ANNUAL REPORT
AND ACCOUNTS 2020
CONTENTS
03
STRATEGIC
REPORT
25
BUSINESS
REVIEW
61
GOVERNANCE
87
159
FINANCIAL
STATEMENTS
SHAREHOLDER
INFORMATION
04 Performance Highlights
05 Group Owerview
13 Our Business Model
16 Chairman’s Statement
21 CEO’s Statement
26 Key Performance
Indicators
62 Corporate Governance
Report
89 Statement of The Board
160 Financial Calendar
of Directors
31 Financial and Operational
Review
40 Financial Policies
43 Risk Management
54 S172 Statement &
69 Board of Directors
90 Independent Auditor’s
Report
161 Glossary of Terms
160 Key Contacts & Advisors
73 Audit Committee Report
78 Nominations and
Remuneration Committee
Report
98 Consolidated Financial
Statements
103 Notes
Stakeholder Engagement
80 International Government
57 Corporate Responsibility
Affairs and Public
Relations Committee
Report
83 Management Report
STRATEGIC
REPORT
02 Performance Highlights
04 Performance Highlights
03 Group Overview
05 Group Owerview
11 Our Business Model
13 Our Business Model
16 Chairman’s Statement
14 Chairman’s Statement
21 CEO’s Statement
19 CEO’s Statement
Performance Highlights
1 Adjusted EBITDA (net of IFRS 16)
1 Adjusted EBITDA is net of IFRS 16
4
PERFORMANCE
HIGHLIGHTS
OPERATIONAL AND
STRATEGIC HIGHLIGHTS
FINANCIAL HIGHLIGHTS
TRANSFORMATION TO CULINARY
COMPANY
Launch of a number of pilot projects during
2020 to continue development of more
customer-centric products and routes to
market
BUSINESS EFFICIENCY
Continued investment in business efficiency
through strategic modernisation and cost
optimisation
PERUTNINA PTUJ INTEGRATION
CONTINUED
US$ 335 million contribution to Group
revenue in 2020 with 16% adjusted
EBITDA1 margin
US$
million
1,911
US$
million
1,016
Revenue
(-7% y/y;
2019: US$ 2,056 million)
Export revenue
(-14% y/y;
2019: US$ 1,186 million)
US$
(1.26)
(Loss)/Earnings
per share
(2019: US$ 2.10)
US$
million
1,244
Net Debt
(net of IFRS 16)
(31 Dec 2019: US$ 1,139)
% of total
revenue
53%
Export revenue
(2019: 58%)
3.66
Net Debt/
LTM Adjusted
EBITDA1 ratio
(31 Dec 2019: 3.01)
US$
million
340
Adjusted EBITDA1
(-10% y/y;
2019: US$ 376 million)
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 Group Overview
5
1 InMind
2 Domestic revenue comprises
revenue generated from sales
by MHP Ukraine in Ukraine; and
revenue generated from sales by
Perutnina Ptuj in the Balkans
3 For information on the perfor-
mance of each business segment
and on the drivers behind the
year-on-year trends please see
the Financial and Operational
Review section on page 31.
GROUP
OVERVIEW
MHP IS A LEADING AND VERTICALLY-INTEGRATED INTERNATIONAL AGRO-
INDUSTRIAL GROUP HEADQUARTERED IN UKRAINE WITH OPERATIONS IN
UKRAINE AND THE BALKANS.
IT IS THE LEADING PRODUCER OF POULTRY PRODUCTS IN UKRAINE WITH THE
HIGHEST DOMESTIC MARKET SHARE AND STRONGEST DOMESTIC BRAND
RECOGNITION1.
THE GROUP IS IN THE PROCESS OF TRANSFORMING TO A CULINARY COMPANY
FOCUSSED ON VALUE-ADDED AND FURTHER PROCESSED PRODUCTS.
100
80
60
40
20
0
%
3
% 5
7
4
%
8
5
%
2
4
%
7
%5
0
5
100
80
60
40
20
0
%
7
2
%
6
2
%
1
2
%
2
1
%
3
%
2
%
1
%
1
%
8
6
%
7
6
100
80
60
40
20
0
%
3
1
%
7
%
8
%
7
%
7
1
%
3
1
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020 2019
2020
2019
2020
2019
2020
2019
2020
2019
Domestic2
Exports
Chicken meat
Vegetable oils
Grains
Meat-processing
products
Other products
Poultry & Related
Operations
Grain Growing
Operations
Meat-Processing &
Other Agricultural
Operations
European Oper-
ating Segment
(Perutnina Ptuj)
2020 GROUP REVENUE, %
2020 GROUP EXPORT REVENUE
BY PRODUCT TYPE, %
2020 CONTRIBUTION TO GROUP REVENUE BY
BUSINESS3
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 1 Domestic revenue comprises
revenue generated from sales by
MHP Ukraine (Poultry & Related
Operations; Grain Growing
Operations; and Meat-Processing
& Other Agricultural Operations)
in Ukraine.
2 Domestic revenue comprises
revenue generated from sales by
Perutnina Ptuj in the Balkans.
is organised
The Group
into and operates through four
business segments: Poultry and Related Operations; Grain
Growing Operations; Meat-Processing and Other Agricultural
Operations; and the European Operating Segment (“EOS”,
comprising the operations of Perutnina Ptuj or “PP”).
More information on the operational and financial results of each
of the business segments can be found in this Group Overview
and in the Financial and Operational Review section on pages
5 and 31. A snapshot of the operations and strategy of each
business segment is set out below.
6
REVENUE BY DESTINATION BY BUSINESS SEGMENT
100
80
60
40
20
0
%
2
6
%
8
4
%
2
6
%
8
4
2020
2019
100
80
60
40
20
0
%
5
8
%
4
9
%
5
1
2020
%
6
2019
%
0
9
%
8
8
%
0
1
%
2
1
100
80
60
40
20
0
%
3
7
%
7
2
100
80
60
40
20
0
%
2
7
%
8
2
2020
2019
2020
2019
Domestic1
Exports
Domestic1
Exports
Domestic1
Exports
Domestic2
Exports
POULTRY & RELATED OPERATIONS, %
GRAIN GROWING OPERATIONS, %
Grows crops for fodder production and for sale to
third-parties.
MEAT-PROCESSING &
OTHER AGRICULTURAL OPERATIONS
Produces and sells sausage and cooked meat,
convenience foods and produce from cattle and dairy
operations.
EUROPEAN OPERATING SEGMENT
(PERUTNINA PTUJ), %
A poultry meat and meat-processing company
headquartered in Slovenia and with production assets in
Slovenia, Croatia, Serbia, Bosnia and Herzegovina.
Strategy
Strategy
Strategy
Sustainable optimisation of the landbank;
technology-driven efficiency improvements.
Focus on more value-added products and market
penetration.
To become the number one producer of poultry meat
and processed-meat products across the Balkans; a
focus on more value-added products, export markets
and market penetration.
Processes and sells chicken meat (fresh and frozen),
vegetable oils (sunflower and soybean) and mixed
fodder.
Strategy
A twofold approach: for export markets, international
diversification and product optimisation, including a shift
towards value-added products in some markets; for
domestic markets, a focus on more value-added
products and market penetration through development
of sales channels.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview 1 SSSU
2 Adjusted EBITDA (net of IFRS 16)
“
The Group’s vision is to be a
world-leading sustainable food
producer.
The Group’s mission is to provide
its customers with high-quality,
sustainable, animal-welfare
friendly and safe food
products, anticipating and
meeting their evolving priorities
and requirements.
7
GROUP OVERVIEW
The Group’s vision is to be a world-leading sustainable food
producer.
The Group’s mission is to provide its customers with high-
quality, sustainable, animal-welfare friendly and safe food
products, anticipating and meeting their evolving priorities and
requirements.
The Group is the leading producer of poultry products in
Ukraine, and one of the leaders in poultry production and meat-
processing in the Balkans through its Perutnina Ptuj (“PP”)
operations. It is also one of the largest grain producers in Ukraine,
the leading processed-meat producer in Ukraine1 and the leading
biogas producer in Ukraine1.
The Group’s vertically-integrated business model, experienced
management team, diversified growth strategy and deployment
of modern innovative technologies combine to underpin and drive
MHP’s success. The Group’s response to the COVID-19 Pandemic
highlights the resilience and adaptability of the business model
and the commitment of our people; despite the challenges, our
2020 financial performance was robust, with adjusted EBITDA2
decreasing by only 10% year-on-year.
The impact of COVID-19 on the Group and the Group’s response
to the Pandemic is set out in more detail in the Chairman’s
Statement and the CEO’s Statement on pages 16 and 21.
SUSTAINABLE GROWTH DRIVEN BY DIVERSIFIED
INTERNATIONAL AND DOMESTIC STRATEGY
MHP continues to develop its international markets supported by
a strong position in its domestic markets.
The Group is in the process of transforming to a culinary company,
and its strategy in the domestic market and in export markets
remains, focussed on the shift towards higher value-added and
further processed products, such as those in the “ready-to-
cook” and “ready-to-eat” ranges. For more information about the
development of these routes to market please see the CEO’s
Statement on pages 21 to 24.
As a result of the continued execution of the Group’s geographic
diversification strategy, combined with product mix optimisation
(the “right product to the right market”), the Group now exports to
over 80 countries, with export revenue constituting 53% of total
revenue in 2020 (2019: 58%). MENA, EU, CIS and Africa are the
primary export markets.
The Group continues to monitor global developments and
potential M&A opportunities, and MHP is well-positioned to be an
active participant in continued industry consolidation.
The Group’s strategy and its evolution is discussed in more
detail in the Chairman’s Statement, the CEO’s Statement and in
the Management Report on pages 16, 21 and 83.
THE GROUP’S VERTICAL INTEGRATION MARKS IT OUT FROM
ITS PEERS
Both MHP Ukraine and PP operate vertically-integrated business
models, owning and operating modern facilities at each of the key
stages of the chicken meat production process: grain and fodder
production; egg production and incubation; hatching; breeding;
slaughtering; sausage and convenience food production; sales,
marketing and distribution.
A graphical overview of the business models at both MHP
Ukraine and PP can be found in the Business Model section on
pages 14 and 15.
The Company’s vertically-integrated business models ensure a
highly competitive cost-base versus industry peers, as well as
enhanced quality control and higher biosecurity of the poultry
flock and poultry production. These business models also
significantly reduce the Group’s dependence on suppliers and
farmers and its exposure to raw material price volatility, whilst
also providing employment opportunities and supporting the
widening of food choices beyond local staples, thus meeting
consumer preferences in terms of taste, form and quality.
Vertical integration is also a key enabler of MHP’s contribution
to the Global Food Security Index (“GFSI”) with regard to quality,
safety, financial and physical accessibility of food, natural
resources and sustainability.
OUR BUSINESS SEGMENTS
Detail on the operations, brands and strategy of each of the
Group’s four business segments is set out below.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview 8
&
POULTRY
(68% of Group revenue in 2020)
RELATED
(MHP Ukraine operations only)
OPERATIONS
SEGMENT
Operations
The Poultry & Related Operations Segment produces,
processes and sells chicken meat
frozen),
vegetable oils (sunflower and soybean) and mixed fodder.
It
includes three chicken meat complexes, two breeding
complexes, three sunflower oil plants, one soybean crushing
plant, three feed mills and two biogas complexes.
(fresh and
MHP is the leading poultry producer in Ukraine1, accounting for
approximately 30% of chicken meat consumed in the country
in 2020. MHP supplies chilled and frozen chicken and other
meat products to a number of nationwide supermarket chains,
including Fozzy, Metro Cash & Carry, ECO, Novus and Auchan.
MHP also produces and sells vegetable oils (sunflower and
soybean oils) as a by-product of its fodder production, mainly to
international traders. This is an important source of hard currency
revenue.
Brands
An overview of the poultry meat brand portfolio (Ukraine and
export) is shown below.
• Ukrainian focussed
• Chilled products
• Available whole and in parts
• Ukrainian focussed
• Chilled marinated products
• Available only in parts
• Ukrainian focussed
• Chilled marinated products
• Available only in parts
• Ukrainian focussed
• Chilled products
• Available whole and in parts
• Ukrainian focussed
• Frozen products
• Available whole and in parts
• Ukrainian focussed with sales to
HoReCa
• Chilled/frozen products
• Export product (all locations)
• Chilled/frozen products
• Available whole and in parts
• Export product (excl. EU & Asia)
• Frozen products
• Available whole and in parts
1 SSSU
• Export product (excl. EU)
• Frozen products
• Available whole and in parts
• Export product (excl. EU & Asia)
• Chilled/frozen products
• Export product (Iraq)
• Frozen products
• Available whole and in parts
• Export product (Georgia)
• Frozen products
• Available only whole
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview 9
Strategy
Poultry division of the Poultry & Related Operations Segment
continues to execute upon its strategy in both export and domestic
markets as part of the Group’s transformation to a culinary
company. In export markets, the strategy remains one of
international diversification and product optimisation
(“right
products to the right markets”). In domestic markets, the focus is
on the development of the Nasha Ryaba brand through packed
and unpacked poultry products (predominantly parts), production
of more value-added and further processed primary and cooked
products, and the evolution of its routes to market strategy
through retail, HoReCa, modern trade and franchises.
The Segment’s export revenue by region for both 2020 and
2019 is shown on the left. The year-on-year movements in
the percentage of exports to MENA and the EU were as a
consequence of the Group’s response to the imposition of trade
barriers due to Avian Influenza, and the closure of export markets
due to both COVID-19 and Avian Influenza. The Group’s response
highlights the resilience and flexibility of its operations and business
model. For a detailed explanation of these trends please see the
Financial and Operational Review on pages 34.
Poultry & Related Operations Production Figures
Product
Chicken meat, tonnes
Hatching eggs, million
Sunflower oil, tonnes
Soybean oil, tonnes
Mixed fodder, tonnes
Biogas, MW
2020
731,279
559
329,552
40,850
1,894,284
17
2019
728,917
528
366,135
47,743
1,944,726
5
The Segment’s operational and financial performance is disclosed in the Segment Performance section of the Financial and
Operational Review on page 31.
1 Only MHP Ukraine, excluding Perutnina Ptuj.
POULTRY EXPORT VOLUMES1 BY REGION
IN TONNES, %
MENA
(inc. Egypt)
Mena
(inc. Egypt)
2020
14%
Africa
(w/o Egypt)
5%
Asia and
other
19%
CIS
22%
EU
2019
13%
Africa
(w/o Egypt)
5%
Asia and
other
19%
cis
31%
EU
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview40%32% 10
Land Reform
The Group leases land from landowners on a long-term
basis and the abolition of the moratorium on the sale of agricultural
land, due to come into effect for private individuals in July 2021
and in January 2024 for legal entities registered or domiciled in
Ukraine only, is expected to have no significant impact on MHP’s
land portfolio or business model as MHP can continue to cultivate
land through land leasing.
Additional information on the land reforms is provided in the Risk
Management section on pages 43 to 53.
Strategy
The Group aims to increase the Segment’s profitability through
sustainable optimisation of the landbank. This will be achieved
via innovation and technology including Artificial Intelligence
(“AI”) and machine-learning algorithms for real-time analysis,
forecasting and facilitation of decision making.
The Segment’s operational and financial performance
is
disclosed in the Segment Performance section of the Financial
and Operational Review on page 35.
GRAIN GROWING SEGMENT
(7% of Group revenue in 2020)
Operations
MHP is one of the leading grain cultivation businesses in Ukraine.
The Segment grows corn, sunflower and soybean as well as
other grains including rape and wheat, both for fodder production
to support the vertical integration of its chicken production, and
to export for sale to third parties, thereby providing one of the
Group’s sources of hard currency revenue.
MHP leases agricultural land located primarily in the highly fertile
black soil regions of Ukraine. In 2020 MHP’s total landbank
constituted approximately 380,000 hectares (“ha”) of land,
representing one of the largest land portfolios in Ukraine. A
breakdown of the Segment’s cropped area in 2019 and 2020 is
shown on the left.
In 2020, MHP harvested 356,046 ha of land, yielding 1,706,942
tonnes of grain, a decrease of 29% year-on-year, mainly due to
unusually hot and arid weather conditions in the final weeks of
the growing season, particularly in the central regions (Cherkasy
and Vinnytsia regions) of Ukraine. This led to significantly lower
yields across most crops compared with 2019; however, despite
the abnormal weather conditions, crop yields remained above
the Ukrainian average due to operational efficiencies and the
employment of best practice.
Grain storage facilities totalled 1,590,000 m3 with a capacity of
694,395 tonnes (in plastic bags).
1 Including barley, rye, sugar beet, sorghum and other and excluding land left fallow as
part of crop rotation.
CROPPED AREA BREAKDOWN FOR
GRAIN GROWING OPERATIONS, %
2020
5%
Soya
5%
Other1
Corn
Corn
9%
Rapeseed
11%
Rapeseed
11%
Wheat
26%
Sunflower
2019
11%
Soya
8%
Other1
13%
Wheat
18%
Sunflower
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview39%44% 1 SSCU
2 SURS (Statistical Office of the Republic of
Slovenia)
• Ukrainian focussed
• Sausages, chilled
convenience products,
smoked chicken
• Ukrainian focussed
• Frozen convenience
food
• Ukrainian focussed
• Frozen convenience
food
• Export products
• Frozen convenience
food
11
EUROPEAN OPERATING SEGMENT (PP)
(17% of Group revenue in 2020)
Operations
The European Operating Segment comprises 100% of Perutnina
Ptuj (“PP”), a leading poultry and processed-meat producer in
the Balkans2 with production assets in Slovenia, Croatia, Serbia,
Bosnia and Herzegovina, and distribution companies in Austria,
North Macedonia and Romania. PP supplies products to 15
European countries. In 2020, 73% of the Segment’s revenue was
generated from domestic markets which proved resilient during
the Pandemic, in particular retail markets; the remaining 27% was
generated from exports, mainly from HoReCa and B2B sales.
PP was the first company in Slovenia to introduce a new
standard aligned to the latest research into the wellbeing of
animals. This standard exceeds EU legislative requirements.
A large and growing part of PP’s production is governed by a rigid
animal welfare breeding standard thus allowing the Company to
sell products under the PP Natur Premium Brand.
Brands
PP supplies products under its PP brands (meat, sausages and
snacks for quickly-prepared, warm and healthy meals) and Poli
(sausages, cold meats, pate and snacks) brands, with a shift in
2020 towards more packaged and ready-to-eat (convenience)
products with added value and higher margin. An overview of the
Company’s brand portfolio is shown on the next page.
Strategy
The Company will continue to invest in the region with the aim of
becoming the most efficient and undisputed number one producer
of poultry meat and processed-meat products across the Balkans
by market share and volume. As part of this strategy there will
be a continued drive towards more value-added products,
export markets and market penetration, including investment in
new sales channels (for example e-commerce, including online
shopping, and food delivery).
MEAT-PROCESSING & OTHER AGRICULTURAL OPERATIONS
SEGMENT
(8% of Group revenue in 2020)
Operations
The Meat-Processing & Other Agricultural Operations Segment
produces and sells sausage and cooked meat, convenience foods
and produce from cattle and dairy operations. It incorporates two
facilities for the production of prepared meat products and a
number of farms.
The meat-processing operations are is the Segment’s core
business and an important driver of the Segment’s profitability,
driven by the sale of value-added products: these include fresh
meat, pre-prepared and ready-to-eat products, predominantly
from chicken meat.
MHP is a leader in the highly fragmented meat-processing
market in Ukraine, accounting for approximately 14% of all
sausage and cooked meat produced in Ukraine in 20201,
with some non-branded processed-meat products exported.
The Segment produced 33,635 tonnes of meat-processing
products and 20,346 tonnes of convenience foods in 2020.
Brands
The Company’s convenience food and processed food brands
for the Ukrainian market include Bashchinsky, Lehko!, Sytni and
Qualiko. At the end of 2020, in line with the Group’s transformation
to a culinary company, MHP launched pilot brands including Ho
PerekusytyTM, a sub-brand of Bashchinsky, and Ryabchyk, dried
chicken fillets with soy sauce. An overview of MHP’s established
meat-processing and convenience food brand portfolio is shown
to the left.
Strategy
The Segment will continue to focus upon its core meat-
processing operations and the evolution of its route to market
strategy through retail, HoReCa, modern trade and franchises.
is
The Segment’s operational and financial performance
disclosed in the Segment Performance section of the Financial
and Operational Review on page 36.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview 1 Results from 21 February 2019 when the
acquisition of PP was completed.
European Operating Segment Production Figures
Product
Chicken meat, tonnes
Meat-processing products, tonnes
Hatching eggs, millions
Mixed fodder, tonnes
Biogas, MW
12
2020
102,157
39,026
43.3
227,065
1
20191
69,053
36,813
46.7
233,682
1
PP’s total grain storage capacity is approximately 90,000 tonnes.
The Segment’s operational and financial performance is disclosed in the Segment Performance section of the Financial and
Operational Review on page 37.
Brand Portfolio
MEAT
MEAT
PRODUCTS
Natur
Poultry products, with
packaging highlighting
low fat and cholesterol
content
Natur Premium
Products from poultry
bred in accordance
with premium breeding
standards
Gurman
Marinaded poultry
products
Piknik
Cut and pre-seasoned
fresh poultry products
Perutnina Ptuj
Sausages, frankfurters,
frozen and other
ready-made products
Slim & Fit
Low-fat poultry
products
Golica
Traditional Slovenian
chicken frankfurters
Pepe
We developed
a line of high-quality
products that is airned
specifically at children
taste
Perfect Poultry
Is a same brand as
Perutnina Ptuj
but for specific
export markets
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020Group Overview Our Business Model
13
OUR BUSINESS MODEL
HOW WE GENERATE REVENUE
POULTRY & RELATED OPERATIONS
SEGMENT
GRAIN GROWING
SEGMENT
MEAT-PROCESSING & OTHER
AGRICULTURAL SEGMENT
EUROPEAN OPERATING
SEGMENT
We produce and sell chicken meat
(fresh and frozen); vegetable oils
(sunflower and soybean); and mixed
fodder.
We grow crops for fodder production
and for sale to third parties.
US$
1,298
731,279
US$
134
million revenue
tonnes of poultry produced
million revenue
1.7
million tonnes of
crops produced
We produce and sell sausages;
processed and cooked meat;
convenience foods; and produce from
cattle and dairy operations.
US$
144
million revenue
53,981
tonnes of meat
products produced
We produce and sell chicken
meat and processed poultry meat
products.
US$
335
million revenue
102,157
tonnes of poultry
produced
HOW WE CREATE VALUE
SUSTAINED INVESTMENT IN CAPEX AND R&D
Sustained CAPEX and R&D programmes have
enabled consistent efficiency and cost
controls, developed and maintained product
quality, and ensured high standards of
product safety.
MARKETPLACE
MHP is always looking to new initiatives on
product development and for new markets for
its products, and now sells to over 80 countries
in the world.
INNOVATION
The Company looks for dynamic and innovative
ways to develop its production and agricultural
processes to improve efficiency, drive down
costs and reduce its 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.
OUR ASSETS
OUR PEOPLE
We have a highly skilled and knowledgeable
strong and
workforce, an experienced,
innovative management team and we are
committed to continuously investing in training
and development.
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 and quality
standards throughout the production process.
MODERN AND EFFICIENT PRODUCTION ASSETS
Extensive investment has enabled us to employ
modern, state-of-the-art production assets. The
Company believes that its chicken complexes
are amongst the most efficient in the world.
STRONG BRANDS
Our brands have high domestic recognition
with a reputation for quality, enabling products
to be sold at premium prices.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 Our Business Model
1 Including 33,635 tonnes of processed-
meat products and 20,346 tonnes of
convenience food
2 Biogas complexes at Oril-Leader (5 MW)
and at Vinnytsia (12 MW)
3 MHP total landbank
14
LAND
on long-term lease in Ukraine
with a harvest of 1.7 million
tonnes of grain per annum
380,000
HECTARES3
SUNFLOWER AND SOYBEAN
PROTEIN PRODUCTION
of cakes, oils and granulated husk
provides a natural currency hedge
USS 275
MILLION IN
EXPORTS
BIOGAS
2 projects2. All the manure and husks
generated from MHP’s operations are used to
generate biogas
17MW
FODDER
PRODUCTION
3 production facilities
1.9
MILLION TONNES
RETAIL
1,800
DEDICATED OUTLETS
DISTRIBUTION
9 distribution centres
in Ukraine
417
VEHICLES
MEAT-PROCESSING
POULTRY PRODUCTION
HATCHING EGGS
2 production facilities
53,981
TONNES1
3 vertically-integrated poultry complexes,
from hatching to rearing and processing
7.8
MILLION HEADS PER WEEK
2 breeding complexes with 559 million
hatching eggs produced in 2020
100%
IN-HOUSE PRODUCTION
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020OUR BUSINESS MODEL AT MHP UKRAINE Our Business Model
1515
LAND
4,000
HECTARES
BIOGAS
1 plant
1MW
FODDER PRODUCTION
3 production facilities
84%
IN-HOUSE
PRODUCTION
PARENT STOCK/HATCHING
EGGS PRODUCTION
3 locations (Serbia, Bosnia & Herzegovina,
Slovenia)
92%
IN-HOUSE PRODUCTION
DISTRIBUTION &
LOGISTICS
MEAT-PROCESSING AND
CONVENIENCE FOOD
5 production facilities
RETAIL
SLAUGHTERHOUSES
POULTRY PRODUCTION
10%
OF SALES THROUGH OWN
RETAIL OUTLETS
4 facilities
4 locations (Serbia, Bosnia & Herzegovina,
Slovenia, Croatia)
5%
IN-HOUSE PRODUCTION
HATCHING EGGS
4 facilities
89%
IN-HOUSE PRODUCTION
STRATEGIC REPORTCOMPANY OVERVIEWANNUAL REPORTAND ACCOUNTS 2020STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020OUR BUSINESS MODEL AT PERUTNINA PTUJ 16
CHAIRMAN’S
STATEMENT
THE OUTBREAK AND SPREAD OF COVID-19 HAS IMPACTED ALL OUR LIVES ON AN UNPRECEDENTED SCALE SINCE
I WROTE TO YOU THIS TIME LAST YEAR. AS AN EASTERN EUROPEAN-BASED PROTEIN AGRI-BUSINESS, FOR MHP
THE IMPACT OF COVID-19 WAS COMPOUNDED BY TWO OTHER FACTORS: OUTBREAKS OF AVIAN INFLUENZA; AND
EXCEPTIONALLY DRY WEATHER CONDITIONS IN UKRAINE. I AM PARTICULARLY PROUD OF THE WAY OUR PEOPLE
ADAPTED AND COLLECTIVELY RESPONDED TO THESE CHALLENGES TO DELIVER A ROBUST PERFORMANCE FOR
2020.
OUR VISION IS TO BE A WORLD-LEADING SUSTAINABLE FOOD PRODUCER AND I REMAIN CONFIDENT THAT THE
COMPANY IS WELL-POSITIONED IN THE CURRENT TURBULENT MARKETS TO CAPITALISE UPON SIGNIFICANT AND
SUSTAINABLE LONG-TERM OPPORTUNITIES.
MY CONFIDENCE IS UNDERPINNED BY THE COMMITMENT OF OUR PEOPLE, COMBINED WITH MHP’S VERTICALLY-
INTEGRATED AND EVOLVING BUSINESS MODEL, DIVERSIFIED EXPORT STRATEGY, STRONG CASH GENERATION AND
EXPERIENCED AND PROFESSIONAL MANAGEMENT TEAM.
Dear Shareholder,
2020 dealt us the “perfect storm”: a global Pandemic, outbreaks
of Avian Influenza and adverse weather conditions, all set against
a backdrop of unprecedented global uncertainty. Yet, as I write
to you today, I am able to do so with realistic confidence for the
future. I set out here the headlines of the challenges MHP faced;
how the Company, our people and the Board responded; and the
factors which provide grounds for our positive outlook.
STRATEGIC REPORTChairman’s Statement ANNUAL REPORTAND ACCOUNTS 2020““ 17
PEOPLE
Our people have always been a top priority for MHP. Never has
this been so pertinent as during the year under review; a year
during which we transformed our HR function at the same time as
delivering for our people by providing a high level of care for our
workforce during the Pandemic.
These processes were driven by MHP’s Deputy CEO - People,
Andriy Bulakh. Since Andriy’s appointment a year ago, his
priorities have included developing the corporate culture and
values, improving the efficiency of centralised support functions,
modernising remuneration and incentivisation policies, and
prioritising resources for taking care of the workforce’s physical
and mental wellbeing during the Pandemic and thereafter.
MHP now employs 30,471 people across 11 countries. I am
impressed by the dedication of our workforce at the production
sites who, despite the inherent risks of the Pandemic, have
continued to turn up, day in and day out. Very sadly, the Company
lost four colleagues due to COVID-19 during 2020; our thoughts
go out to their families and loved ones.
You can read more information about the People initiatives MHP
put in place in theCorporate Responsibility section on pages 57
of this Report.
PANDEMIC
An underlying strength of the Company is its 20-years’-plus
experience of dealing effectively with viruses including SARS
and Avian Influenza. Armed with that experience, MHP was a
confident early-mover and took the COVID-19 Pandemic seriously
right from the start. Throughout the crisis to date, MHP has put
in place, monitored and revised measures that have enabled its
sites to operate safely, thereby fulfilling its essential role as a food
producer during this challenging period for everyone.
One positive result of COVID-19 and the recent, more frequent
outbreaks of Avian Influenza, has been to encourage us to evolve
and advance our strategy. I say more about this in the Product
section below.
PRODUCT
The strength of our diversified
international export and
domestic growth strategy was well demonstrated by
the year.
the Company’s flexibility and resilience during
Despite turbulent markets, MHP continued to execute its
strategies of both geographic diversification and product mix
optimisation, developing partnerships across MENA, CIS and
African countries.
MHP’s strong and innovative leadership team has been moving
the Company towards a more value-added product model for
some time. The first phase in the Company’s ambition to transform
from a ‘commodity’ company to a ‘culinary’ company can be seen
in the development of ready-to-cook doner and shawarma meat
products in Ukraine.
The second stage in this transformation is the move towards
ready-to-eat products that are cooked, sliced and vacuum-
packed by MHP. This was originally intended to be a ‘slow
burn’ development. However, in light of the prevailing market
conditions, MHP’s leadership team reviewed its plans as well as
considering successful models adopted in different parts of the
world, where Avian Influenza has been endemic for almost 20
years and where the business model has evolved from the sale
of raw poultry to cooked value-added products. As a result of this
review, this second phase has been accelerated with early stages
of piloting now underway.
PURPOSE
MHP aims to be a best-in-class generator of shareholder and
stakeholder value by conducting all of its activities in a responsible
and sustainable manner. Clear indicators of this approach
include MHP’s commitment to rapid technological development
and its industry-leading product quality and hygiene standards
maintenance.
In particular, I would highlight our approach to stakeholders and
society in the S172 Statement & Stakeholder Engagement section
on pages 54; and to society and the environment in the Corporate
Responsibility section on pages 57.
STRATEGIC REPORTChairman’s Statement ANNUAL REPORTAND ACCOUNTS 2020 1 Adjusted EBITDA (net of IFRS 16)
ADJUSTED EBITDA1
DECREASED BY
10%
YEAR-ON-YEAR DUE TO THE
RESILIENCE OF OUR BUSINESS
MODEL AND THE EXECUTION
OF OUR STRATEGY
18
BOARD DEVELOPMENTS
During the year under review, the Board comprised five non-
executive directors (four of whom were independent) and four
executive directors including the Executive Chairman. Whilst
the composition of the Board provided the broad skills and
experience to enable it to discharge its duties and responsibilities
effectively, it was recognised that there was a need to improve
the balance between independent and executive directors.
Accordingly, in the first quarter of this year the Board has
been realigned, with Roberto Banfi agreeing to step down as
a director. Roberto Banfi (who was deemed not to be independent)
will continue to advise the Company on a consultancy basis and
is retained as an advisor to the Board.
Roger Wills, an Independent Non-Executive Director (“NED”)
and Chairman of the Nominations & Remuneration Committee,
resigned on 19 January 2021. A London-based firm has been
appointed to conduct a search for a replacement Independent
NED and I have been appointed Interim Chairman of the
Nominations & Remuneration Committee until an appointment is
made.
I would like to record my thanks to both Roberto and Roger for
their valued service on the Board.
Following these developments, the Board now comprises three
Independent “NEDs” and four Executive Directors (including the
Executive Chairman).
The Board formed a new committee, the International Government
Relations & Public Affairs Committee, during the course of the
year. This Committee is responsible for setting the strategy and
goals for these important aspects of the Company’s business as
well as for overseeing sustainability matters and the development
of the Company in this respect. The Committee’s report is on
pages 80 to 82.
A new executive bonus scheme, with formalised objectives and
assessment of key results (“OKRs”), is in the process of being
implemented for executive directors and senior executives in
2021. Further information is in the report of the Nominations &
Remuneration Committee on pages 78 to 79.
PLANET & CLIMATE CHANGE
MHP aims to conduct all of its activities in an environmentally-
responsible manner and to meet the global challenge presented
to everyone by climate change.
I would like to highlight here a key tenet of MHP’s Sustainable
Environmental Policy and a clear signal of the Company’s
commitment to taking a responsible approach to climate change:
that is, the Company’s target to become carbon neutral by 2030.
In pursuit of this target, and prior to the outbreak of COVID-19,
MHP initiated a partnership with Alltech ECO2 to reduce the
Company’s carbon footprint. The Company has embarked on
a substantial medium-term project with a view to achieving
carbon accreditation with the Carbon Trust. The Company’s vast
agricultural holdings mean that significant amounts of carbon
can be sequestered, putting MHP in a unique position amongst
poultry companies to sequester carbon into the soil.
More information on the Company’s Purpose and its approach
to climate change and protecting the planet can be found
in the Corporate Responsibility section on pages 57 and in
the Non-Financial Report to be published later this year.
2020 PERFORMANCE
Over the year, MHP continued to invest in its long-term growth
strategy. Despite the challenges set out in my opening paragraph,
our financial performance was robust, with Adjusted EBITDA1
decreasing by only 10% year-on-year due to the resilience of our
business model and the successful execution of our strategy.
The CEO’s Statement discusses performance in more detail on
pages 21 to 24.
CORPORATE GOVERNANCE
The Company recognises the importance of strong corporate
governance in line with good international practice and aims to
comply with the requirements of the UK Corporate Governance
Code 2018 (“UK Code”) to the extent practicable. An external gap
analysis was commissioned during the year to highlight areas for
improvement in the Company’s governance processes, which
have been implemented since 2020.
At my request, the Senior Independent Director is overseeing
further developments to strengthen MHP’s governance practices.
Some have already been implemented and others will follow
during 2021. More information can be found on pages 62 and 86
of this Report.
STRATEGIC REPORTChairman’s Statement ANNUAL REPORTAND ACCOUNTS 2020
19
CORPORATE RESPONSIBILITY
Responsible business is a critical element of the Company’s
long-term strategy and the Board is pleased with the progress
achieved during 2020. A key achievement has been the
manner in which we have successfully addressed the challenges
presented by the Pandemic through maintaining high levels of
uninterrupted production and operations whilst, successfully
providing a working environment which protects our employees
as interacting constructively with external communities.
I am proud of the work that the Company is undertaking in a
number of key research and development areas including carbon
sequestration, food quality and security, animal wellbeing, and
nutrition. For more information on these development areas
please see the Corporate Responsibility section on page 57.
DIVIDEND
Taking into account the current challenging market dynamics,
and with the Group’s net debt to LTM adjusted EBITDA ratio
above 3.0x on 31 December 2020, the Board agreed to limit the
2020 annual dividend payment as stipulated by its Eurobond
agreements.
On 23 March 2021 the Board approved payment of an
unchanged annual dividend of US$ 0.2803 per share, equivalent
to approximately US$ 30 million (2019: US$ 30 million), to be paid
by the end of April 2021. Further information may be found in the
Management Report on pages 83 to 86.
STAKEHOLDER ENGAGEMENT
Regular engagement, dialogue and feedback from MHP’s
internal and external stakeholders are important elements of the
success of the Company and the operation of its business model.
Understanding our stakeholders’ views informs and assists MHP’s
decision-making processes and helps drive progress towards the
achievement of MHP’s aims, objectives and strategy. In 2020,
engagements included the conduct of a shareholder perception
audit, the findings of which were reported to the Board in
September 2020 and will be factored into the decision-making
process in 2021.
In keeping with the requirements of Section 172 (1) of the UK
Companies Act 2006, we have set out on pages 54 to 56 MHP’s
key stakeholder groups, their material issues and how MHP
engages with them. Each stakeholder group requires a tailored
engagement approach to foster effective and mutually beneficial
relationships.
THE BOARD AGREED TO
LIMIT THE 2020 DIVIDEND
PAYMENT AS STIPULATED
BY ITS EUROBOND
AGREEMENTS.
US$
30
MILLION
STRATEGIC REPORTChairman’s Statement ANNUAL REPORTAND ACCOUNTS 2020 20
OUTLOOK
The global outlook for poultry for 2021 is set to be very
challenging, with continued COVID-19 disruption, soft economic
conditions, high feed prices, a highly active Avian Influenza winter
season and global oversupply; for example, at the time of writing,
the EU is holding around 500,000 metric tonnes of frozen poultry
stock in cold storage.
• Customer-centric response to health and nutrition trends:
the COVID Pandemic has placed greater emphasis on health
and nutrition. MHP’s unique poultry feeding systems produce
meat that is lower in saturated fats and higher in polyunsaturated
fats which will be significantly more attractive for the market, as
well as being healthier for consumers, given the post COVID
re-evaluation of human nutrition.
A year ago, my Chairman’s Statement set out the factors
underpinning my confidence in the business. Those still hold true
and so, looking ahead for 2021, I will return to my theme at the
beginning of this Statement and set out the additional factors
which give me grounds for confidence and optimism:
• Transformation to a culinary company: MHP is expanding
its focus. The experience of global poultry producers supports
MHP’s strategic shift to a culinary company. Moreover, we
are transforming our relationship with retail, HoReCa and
franchisees in order to reach more customers and meet
their evolving needs by providing them with new safe and
high quality products. Current challenges have led us to
accelerate this strategic shift.
• Strong cost position relative to peers: MHP’s vertically-
integrated business model delivers a considerably lower cost-
base versus industry peers, as well as enhanced quality control
and higher biosecurity of the poultry flock. These are critical
factors in an increasingly regulated industry and for consumer
choice and confidence. This business model also reduces the
Company’s exposure to raw material price volatility.
• Strongest animal protein sector: poultry is regarded as
the strongest meat protein sector for a number of reasons:
affordability - it is the ‘go-to’ meat protein in developing
countries, in some of which increasing numbers of citizens
are in a financial position to purchase meat for the first time;
poultry consumption is not impeded by religious barriers; and,
using less water and feed to rear, it is more sustainable than
red meats with a significantly lower carbon footprint. Demand
for poultry is going up at the same time as demand for red meat
is falling .
• M&A opportunities. We continue
to monitor global
developments and potential M&A opportunities. MHP is well-
positioned to be an active participant in continued industry
consolidation.
Overall, MHP
continuing disruption of 2021.
is well-placed
to navigate
the anticipated
John Rich
Executive Chairman
23 March 2021
STRATEGIC REPORTChairman’s Statement ANNUAL REPORTAND ACCOUNTS 2020 CEO’s Statement
21
CEO’S
STATEMENT
FIRST AND FOREMOST, I WANT TO EXPRESS MY GRATITUDE TO OUR PEOPLE FOR THEIR TREMENDOUS EFFORTS AND
FOR THE COMMITMENT THEY HAVE DEMONSTRATED THIS YEAR; THE COVID-19 PANDEMIC IS A ‘BLACK SWAN’ EVENT
AND I AM PROUD OF THE WAY OUR EMPLOYEES HAVE NOT ONLY ADAPTED TO THE CONSIDERABLE CHALLENGES
BUT ALSO INCREASED THEIR RESILIENCE, EMERGING STRONGER AND WITH ENERGY AND CONFIDENCE FOR THE
FUTURE.
2020 PROVED TO BE AT LEAST AS CHALLENGING AS 2019; YET CRISES ALSO PRESENT OPPORTUNITIES. DURING
THE YEAR WE HAVE CONTINUED TO IMPROVE THE EFFICIENCY OF OUR BUSINESS PROCESSES AT THE SAME TIME
AS ADVANCING OUR STRATEGY TO TRANSFORM FROM A RAW MATERIALS COMPANY TO A SUSTAINABLE CULINARY
COMPANY, LAUNCHING A NUMBER OF PILOT PROJECTS DURING 2020.
My primary focus this year has been on three areas: the health
and wellbeing of our people facing challenges in 2020; the
strategic transformation to a culinary company; and continuous
cost optimisation and modernisation of our operations. MHP
is emerging stronger: more agile, more competitive and more
customer-centric.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020““ CEO’s Statement
22
OUR PEOPLE ROSE TO THE CHALLENGE
The Chairman’s Statement pays tribute in his statement to the
efforts of MHP’s workforce at all levels of the Company. I should
like to take this opportunity to do the same.
PP performance was robust and resulted in a 16% EBITDA
margin – one of the best financial results among international
peers, which proved the resilience to challenges of both its
business model and management team.
Further information can be found in the Business Review below.
BUSINESS REVIEW
The resilience and flexibility of the Group’s business models,
combined with the management team’s considerable experience,
enabled the Group to operate safely and efficiently during the
year despite the challenges.
I have set out below some of the highlights of our progress during
2020.
Operations in Ukraine
MHP continued operating at 100% capacity, except for two
months where it ran at 90% of capacity. In product mix, effective
management of production assets enabled the Company to
respond rapidly to dynamic market changes and consequently
to adjust the relative production shares of different products. In
exports, the Company responsively switched sales from the EU
to MENA as trade barriers were imposed (due to Avian Influenza),
export markets closed (due to COVID-19 and Avian Influenza), the
HoReCa market dramatically collapsed (due to COVID-19) and
prices sharply decreased (due to COVID-19 causing overstocking
in the EU). In Ukraine, the Company continued to focus on
efficient cooperation with franchisees, retail chains and HoReCa
for all poultry products with a number of pilot projects in support
of the culinary transformation of MHP.
I would like to stress that at MHP, we, successfully managed to
go through all challenges of 2020 and, contrary to industry peers
in the world, during and due to COVID-19 pandemic, we didn’t
stop our production and, apart from a two-month period in the
first quarter when some export markets were closed due to Avian
Influenza, continued to operate at full capacity as a result of a
strong employees’ commitment to the Company and professional
management team.
MHP places emphasis on ensuring that the Company provides
a healthy and safe workplace for everyone; the opportunity for
employees to nurture their own personal wellbeing and that of
their families; an inclusive and welcoming working environment
for everyone, including the promotion of opportunities for
women; and an environment that enables every employee to
develop their skills to their maximum potential. Put simply, when
our employees thrive, the Company thrives.
Andriy Bulakh joined our senior management team as Deputy
CEO, People, in early 2020. Andriy brings with him a wealth of
experience and he and his team worked during the year to
ensure that the Company’s workforce aims were continuously
achieved against a backdrop of dynamic market conditions and
other significant business challenges including the COVID-19
Pandemic.
PERFORMANCE HIGHLIGHTS
Despite the significant challenges presented during the year, the
Group continued to successfully execute upon its strategy and its
financial performance was strong.
Taking into account all challenges of 2020 – several outbreaks
of Avian Influenza, the COVID-19 Pandemic, and terrible weather
conditions in Ukraine - Group’s adjusted EBITDA (net of IFRS 16)
decreased by only 10% year-on-year to US$ 340 million. The
Group adjusted EBITDA margin (net of IFRS 16) was 18%, driven
by a decrease in EBITDA in the Poultry and Related Operations
Segment mainly due to lower poultry prices, partly offset by an
increase in EBITDA in the Grain Growing segment and European
Operating Segment (PP).
GROUP REVENUE WAS
US$
1,911
MILLION
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 CEO’s Statement
23
PP’S ADJUSTED
IN 2020
16%
Integration of Perutnina Ptuj (“PP”)
The successful
integration of PP continued, with PP
contributing US$ 335 million to Group revenue in 2020.
initiatives were
A number of strategic cost optimisation
implemented and significant modernisation investments made
focussing on: increasing capacity; improving working conditions;
and
treatment
standards in Slovenia, Bosnia and Herzegovina.
improving animal welfare and wastewater
These initiatives included: modernisation of a slaughterhouse
in Bosnia that allowed the Company to obtain an EU number
thereby opening up the possibility for export within the wider
EU; construction of six growing facilities in Serbia which became
operational since Q4 2020; the upgrade of a slaughterhouse
and doubling of capacity in Croatia in Q3 2020; and the
modernisation of production facilities in Slovenia to ensure the
highest standards for PP’s products. MHP’s total investment in PP
amounted to €17.8 million in 2020 (2019: €9.1 million).
The readiness of the management team and the Company to
adjust to the challenges of 2020, efficient management of the
production assets, PP’s high standards of quality, and the strength
of itsbrands ensured stronger demand in PP’s domestic markets
which offset lower prices and demand from PP’s export markets
and HoReCa customers. Despite the challenging situation in
2020, PP demonstrated strong resilience with an EBITDA margin
of 16% - one of the highest margins amongst industry peers
demostrating the success of our management team at integrating,
managing and improving efficiency of processes of a business
outside Ukraine.
PP’s flagship brand, Poli, meat products, demonstrated stable
growth in all four domestic EU markets in 2020, and in its raw meat
and ready-to-cook meat products. More information about PP can
be found in the Group Overview and Financial and Operational
Review on pages 4 and 31.
Strategic transformation from a raw materials company to a
culinary company
Last year I reported on the strategic shift towards more customer-
centric, value-added primary and further-processed products
for the Ukraine domestic market and some export markets.
This strategic shift resulted in the launch of a number of pilot
projects for the culinary transformation of the Company including
“Meat Market” convenience stores and “DönerMarket” houses.
These offerings are at an early pilot stage and I look forward
to updating you on progress in due course as this model is
rolled-out more extensively over the next several years,
transforming the Group’s sales from a commodity production
base to a branded value-added base.
FUTURE STRATEGIC PRIORITIES
The Group’s strategy and its evolution is also discussed in
the Management Report on pages 83 to 86. I report here on
operational dimensions.
Transformation to a culinary company
As we continue to transform, we will further develop both our
sales channels / routes to market and our product offerings.
• Routes
to
to market: We will continue
focus on
developing new models of Meat Markets and streetmarkets
together with our
franchisee partners; on our culinary
shops and meat and vegetable meal offerings; and on
increasing market penetration by developing different
sales channels and ways of cooperation with
retail,
including partnerships with new retail networks and products
including more marinated chicken; modern trade including
supermarket
mini-
supermarkets; HoReCa including Dark Kitchens (serving only
delivery customers); and our street and fast food concepts.
hypermarkets
chains,
and
• Product development: The evolution of our customer-
centric product offerings will continue and, from spring 2021,
will be supported by a dedicated R&D centre.
> Antibiotic free: MHP remains committed to eliminating
the use of antibiotics in the chicken meat production
process in line with our strategy and action plan. Since
2020, Nasha Riaba product labelling has highlighted this
long-term commitment and this step further reinforces
MHP’s commitment to improving human health and
healthy eating.
> Value-added products: Development will focus on our
packed poultry, ready-to-cook and ready-to-eat ranges.
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 CEO’s Statement
24
two-year
> Healthy protein: Following a
research
programme, the Company is able to confirm that its
poultry products have lower levels of saturated fats
and higher levels of polyunsaturated fats - this is a key
driver of sales growth for increasingly health conscious
consumers.
More information about the Company’s commitment to product
innovation can be found in Case Study 3 in the Corporate
Responsibility Section on page 57.
Sustainable development
MHP is committed to reducing greenhouse gas emissions with
a long-term goal of being carbon neutral for every kilogram
of poultry meat produced. In addition, as elaborated upon in
the Chairman’s Statement on page 16, a research programme
focussed on carbon sequestration, whereby carbon dioxide and
other forms of carbon are stored in the soil for the long term, is
ongoing.
Exports
international
We will continue
diversification and product optimisation including the sale of
more value-added products to some export markets.
follow our strategy of
to
Digital transformation - SAP
A digital transformation strategy, including the implementation of
ERP, is in place across all entities within the MHP Group focussing
on the upgrades, optimisation and automation of key business
processes.
Increase production efficiency
As well as the further roll-out of SAO modules, additional Group-
wide (including PP) investments will be made during 2021
to enable futher advancements in the efficiency of business
processes through modernisation, innovation, and improvements
in quality and cost control. These developments will include
strategic projects such as a low fibre sunflower-processing
line and a brand new R&D complex; and further investment in
production flexibility (IQF / BQF; fresh versus frozen).
To be a targeted participant in international consolidation
We will continue to explore M&A opportunities and to potentially
acquire further meat-processing and/or poultry production
companies internationally.
Yuriy Kosyuk
CEO and Founder of MHP
23 March 2021
STRATEGIC REPORTANNUAL REPORTAND ACCOUNTS 2020 BUSINESS
REVIEW
26 Key Performance
Indicators
31 Financial and Operational
Review
40 Financial Policies
43 Risk Management
54 S172 Statement &
Stakeholder Engagement
57 Corporate Responsibility
Key Performance Indicators
26
1 Adjusted EBITDA margin for Grain
Growing segment was calculated
based on the revenue that includes
ICO sales.
2 Adjusted EBITDA margin (net of IFRS
16)
KEY PERFORMANCE
INDICATORS
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 strategy. Our strategy is focussed 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.
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1200
1000
800
600
400
200
57%
59%
56%
58%
53%
120%
600
100%
500
80%
400
60%
300
40%
200
37%
36%
29%
e
u
n
e
v
e
r
p
u
o
r
G
f
o
%
20%
100
m
$
S
U
0
5
1
4
0%
18%2
18%2
9
5
4
0
5
4
6
7
3
0
4
3
%
0%
120%
100%
100%
80%
60%
40%
20%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
43%
37%
28%
36%
35%
29%
29%
29%
25%
28%2
18%2
15%
21%
18%2
12%2
5
3
1
,
1
8
8
2
,
1
6
5
5
,
1
6
5
0
2
,
1
1
9
,
1
m
$
S
U
5
3
6
0
2
3
7
4
2
9
6
8
1
,
1
6
1
0
,
1
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Adjusted EBITDA2, US$m
Adjusted EBITDA margin2, %
Adjusted EBITDA
margin (Poultry &
Related Operations)
Adjusted EBITDA
margin (Grain
Growing)1
Group Adjusted
EBITDA margin
GROUP REVENUE, US$M
GROUP EXPORT REVENUE, US$M
GROUP ADJUSTED EBITDA
(NET OF IFRS 16), US$M
ADJUSTED EBITDA MARGIN, %
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020
Key Performance Indicators
27
KEY PERFORMANCE
INDICATORS
REVENUE, US$m
EXPORT REVENUE, US$m
ADJUSTED EBITDA, US$m
How we calculate it
As reported.
Revenue to destinations outside of country of production.
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.
Why we measure it
To ensure we are successful in growing the
business.
To ensure we are delivering on our strategy of international
expansion in turn leading to additional hard currency
revenue. Export revenue provides MHP with a natural hedge
against local currency volatility.
To track the underlying performance of the business.
2020 Progress
Revenue was down 7% y/y mainly driven by a
decrease in the sales of grain due to bad weather
conditions in central regions of Ukraine.
Export revenue was down 14% y/y driven by the impact of
several outbreaks of Avian Influenza, by the adverse effect of
the COVID-19 Pandemic throughout the year, and by a weak
result in Grain Growing Operations.
Adjusted EBITDA (net of IFRS 16) was down by 10% y/y mainly due
to a decrease in both poultry prices and sales volumes of vegetable
oils partly offset by an increase in EBITDA from the Grain Growing
Segment and the European Operating Segment.
Link to strategy
Execution of our diversified sales strategy – both
for exports and domestic sales.
Export growth through sales diversification and market
targeting.
Production efficiency and a focus on more value-added and further
processed products as we transform to a culinary company.
Change to KPI
KPI unchanged y/y.
KPI unchangved y/y.
KPI unchanged y/y.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Key Performance Indicators by SegmentROTION AND EXPORT SALES
28
KEY PERFORMANCE
INDICATORS BY SEGMENT
THE GROUP IS UNDERPINNED BY ITS VERTICALLY-INTEGRATED BUSINESS MODELS, ITS EXPERIENCED
MANAGEMENT TEAM AND ITS DIVERSIFICATION STRATEGY IN BOTH DOMESTIC AND INTERNATIONAL
MARKETS.
POULTRY AND RELATED OPERATIONS
1000
800
600
400
200
0
s
e
n
n
o
t
d
n
a
s
u
o
h
T
100%
80%
60%
40%
20%
0%
l
s
e
a
s
y
r
t
l
u
o
p
f
o
%
48%
41%
36%
53%
54%
3
7
5
0
9
1
2016
6
6
5
1
2
2
2017
8
1
6
7
8
2
2018
9
2
7
7
5
3
2019
1
3
7
4
7
3
2020
Production of poultry,
thousand tonnes
Poultry exports,
thousand tonnes
Poultry exports
(as % of Poultry sales)
1600
1400
1000
800
400
0,67
0,50
0,53
0,41
m
$
S
U
0
0
7
9
0
7
2
2016
Revenue,
US$ m
1
5
0
,
1
7
6
3
2017
1
4
2
,
1
1
1
3
2018
8
6
3
,
1
1
8
2
2019
Adjusted EBITDA,
US$ m
EBITDA per 1 kg,
US$
1,0
0,8
0,6
0,4
0,3
8
9
2
,
1
5
9
1
2020
0,2
$
S
U
0
PRODUCTION AND EXPORT SALES
REVENUE AND EBITDA
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020
ANNUAL REPORT
AND ACCOUNTS 2020
BUSINESS REVIEW
Key Performance Indicators by Segment
29
GRAIN
GROWING
SEGMENT
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
11
10
9
8
7
6
5
4
3
2
1
0
300
200
100
6
8
.
.
5
6
2
3
.
0
7
.
0
6
.
0
3
.
.
9
0
1
1
.
6
2
3
.
.
4
9
.
4
6
6
3
.
6
5
.
1
.
5
.
8
2
2016
2017
2018
2019
2020
Corn
Wheat
Sunflower
YIELDS, TONNES PER HECTARE (HA)
600
500
400
272
300
423
416
267
167
200
100
$
S
0U
1
5
3
2
,
9
9
9
,
1
4
5
6
2
,
8
0
4
2
,
7
0
7
,
1
2016
2017
2018
2019
2020
m
$
S
U
0
5
8
0
5
1
2016
7
1
1
5
9
2017
1
8
1
1
5
1
2018
8
6
2
0
6
2019
4
3
1
7
9
2020
PRODUCTION OF GRAINS, THOUSAND TONNES
REVENUE AND ADJUSTED EBITDA (NET OF IFRS 16)
Revenue,
US$ m
Adjusted EBITDA,
US$ m
EBITDA per ha,
US$
ANNUAL REPORT
AND ACCOUNTS 2020
BUSINESS REVIEW
Key Performance Indicators by Segment
1 Results from 21 February 2019 when
the acquisition of PP was completed.
2 Adjusted EBITDA margin (net of
IFRS 16)
EUROPEAN
OPERATING
SEGMENT (PP)
30
ADJUSTED EBITDA
MARGIN2
IN 202016%
110
100
90
80
70
60
50
40
30
20
10
0
2
0
1
2020
0
7
20191
110
100
90
80
70
60
50
40
30
20
10
0
400
350
300
250
200
150
100
9
3
0
3
2020
20191
50
0
m
$
S
U
16%
5
3
3
3
5
2020
15%
1
7
2
2
4
20191
100%
80%
60%
40%
20%
%
0
PRODUCTION OF POULTRY,
THOUSAND TONNES
PRODUCTION OF MEAT-PROCESSING
PRODUCTS, THOUSAND TONNES
Revenue,
US$ m
Adjusted EBITDA2,
US$ m
Adjusted EBITDA
margin2, %
REVENUE AND EBITDA
Financial and Operational Review
1 Production volumes comprise chicken meat
only, without by-products.
2 The European Operating Segment compris-
es Perutnina Ptuj’s (PP) operations.
3 Results from 21 February 2019 when the
acquisition of PP was completed.
31
FINANCIAL
AND OPERATIONAL
REVIEW
STRATEGIC HIGHLIGHTS
• The successful integration of Perutnina Ptuj (“PP”) into the
Group continued, with PP contributing US$ 335 million to
Group revenue in 2020 and reporting a 16% adjusted EBITDA
(net of IFRS 16) margin.
• A number of pilot projects were launched during the year for
the Group’s strategic transformation into a culinary company,
through the development of more customer-centric products,
including more value-added primary and further processed
products for the domestic market, and routes to market.
• The Group continued to focus on improving the efficiency of
business processes across all the business segments through
the launch of modernisation and optimisation initiatives.
POULTRY PRODUCTION
VOLUMES3 FOR THE EUROPEAN
OPERATING SEGMENT WERE UP
OPERATIONAL HIGHLIGHTS
• Poultry production volumes1
the European
Operating Segment) remained stable at 731,279 tonnes (2019:
728,917 tonnes). Poultry production volumes for the European
operating segment2 were up 48% year-on-year to 102,157
tonnes (2019: 69,053 tonnes)3.
(excluding
• The average price of chicken meat decreased by 5% year-on-
year to 36.11 UAH per kg (2019: 38.06 UAH per kg) (excluding
VAT). The average price of chicken meat produced by PP
during 2020 was EUR 2.52 per kg (2019: EUR 2.63 per kg).
• Poultry export sales volumes
(excluding
the European
increased by 5% year-on-year
(excluding PP’s 17,001 tonnes; 2019:
Operating Segment)
to 373,733 tonnes
13,881 tonnes).
48%
YEAR-ON-YEAR
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Financial and Operational Review
32
1 Adjusted EBITDA (net of IFRS 16).
2 Information for the year ended 31 Decem-
ber 2019 is presented excluding results of
discontinued operations, which is presented
as a single amount as loss after tax from
discontinued operations.
3 pps – percentage points
ADJUSTED EBITDA
US $
FINANCIAL HIGHLIGHTS
• Revenue of US$ 1,911 million, decreased by 7% year-on-year
(2019: US$ 2,056 million) mainly driven by a decrease in the
sale of grain.
• Export revenue amounted to US$ 1,016 million, representing
53% of total revenue (2019: US$ 1,186 million, 58% of total
revenue), down 14% year-on-year. The situation in export
markets deteriorated significantly due to several outbreaks
of Avian Influenza at the beginning and at the end of the
year 2020, and due to the adverse effects of the COVID-19
Pandemic throughout the year.
• Operating profit was US$ 201 million, down 7% year-on-year
(2019: US$ 216 million); operating margin remained stable at
11%.
Operating profit margin
Adjusted EBITDA
MILLION1
• Adjusted EBITDA margin (net of IFRS 16) was flat at 18%;
adjusted EBITDA (net of IFRS 16) decreased to US$ 340 million
(2019: US$ 376 million) driven mainly by a decrease in the
adjusted EBITDA (net of IFRS 16) of the Poultry and Related
Operations Segment in turn driven by the decrease in poultry
prices and sales volumes of vegetable oils, partly offset by an
increase in EBITDA from the Grain Growing segment and the
European Operating Segment.
• Net profit before foreign exchange differences for 2020 was
US$ 71 million (2019: US$ 30 million). After foreign exchange
differences the net loss for the period was US$ 133 million
(2019: US$ 215 million), primarily due to US$ 204 million in
non-cash foreign exchange losses in 2020, reflecting a 16%
year-on-year weakening in the Ukrainian Hryvnia/US Dollar
exchange rate, compared to a gain of US$ 185 million in 2019.
in mln. US$, unless
indicated otherwise
2020
20192
%
change3
Revenue
1,911
2,056
-7%
IAS 41 standard gains/(losses)
31
(40)
-178%
Gross profit
398
398
0%
Gross profit margin
Operating profit
Adjusted EBITDA margin
Adjusted EBITDA (net of
IFRS 16)
Adjusted EBITDA margin
(net of IFRS 16)
Net profit before foreign
exchange differences
Net profit margin before
foreign exhange gain/(loss)
Foreign exchange gain/(loss)
(204)
Net profit gain/(loss)
Net profit margin
(133)
-7%
21%
201
11%
395
21%
19%
216
11%
427
21%
2 pps
-7%
0 pps
-7%
0 pps
340
376
-10%
18%
18%
0 pps
71
4%
30
1%
185
215
10%
137%
3 pps
-210%
-162%
-17 pps
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020340 Financial and Operational Review
33
FUNCTIONAL AND PRESENTATION CURRENCY
The functional currency for the Ukrainian companies of the Group
is the Ukrainian Hryvnia (“UAH”); the functional currency for the
companies of the Group based in Cyprus and Luxembourg is
US Dollars (“USD”); and the functional currency of the european
companies of the Group is the Euro (“EUR”), the functional
currency of the United Arab Emirates companies is Dirham
(“AED”).
Transactions in currencies other than the functional currencies
of the entities concerned are treated as transactions in foreign
currencies. Such transactions are initially recorded at the rates
of exchange at the dates of the transactions. Monetary assets
and liabilities denominated in such currencies are translated
at the rates prevailing on the reporting date. All realised and
unrealised gains and losses arising on exchange differences are
recognised in the consolidated statement of profit or loss and
other comprehensive income for the period.
The consolidated financial statements are presented in US
Dollars, which is the Group’s presentation currency for the
convenience of stakeholders.
CURRENCY RISK
During the year ended 31 December 2020, the Ukrainian Hryvnia
depreciated against the EUR and US$ by 23.94% and 16.23%
respectively (2019: appreciated against the EUR by 20.03% and
16.90% against the US$). As a result, during the year ended
31 December 2020 the Group recognised a net foreign exchange
loss of US$ 203 million (2019: net foreign exchange gain of
US$ 185 million) in the consolidated statement of profit or loss
and other comprehensive income.
The currency risk is mitigated by the generation of foreign
currency-denominated revenue from sales of sunflower oil, grain
and chicken meat. This is sufficient for servicing the Group’s
foreign currency denominated liabilities.
Export sales denominated in foreign currency for the years
ended 31 December 2020 and 31 December 2019 are shown in
the table below:
Product type
Chicken meat and
related products
Vegetable oil and
related products
Grain
Other agricultural
segment products
2020
(US$ thousand)
2019
(US$ thousand)
577,255
588,903
274,979
302,600
114,304
49,217
251,836
42,362
Group Export Revenue
1,015,755
1,185,701
RELEVANT EXCHANGE RATES
Currency
Closing
rate as
of 31
December
2020
Average
for 2020
Closing
rate as
of 31
December
2019
Average
for 2019
UAH/USD
28.2746
26.9639
23.6862
25.8373
UAH/EUR
34.7396
30.8013
26.4220
28.9406
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Financial and Operational Review - Segment Performance
34
SEGMENT PERFORMANCE
POULTRY & RELATED OPERATIONS SEGMENT – KEY
OPERATIONAL DATA
2020
2019
%
change
Poultry
Sales volume, third parties,
tonnes
698,020
669,865
4%
-Sales in Ukraine, third parties,
tonnes
324,287
312,541
4%
-Export sales volume, third
parties, tonnes
Average price per 1 kg net of
VAT, UAH
Average price per 1 kg net of
VAT, USD
Average price per 1 kg net of
VAT, UAH (Ukraine)
Average price per 1 kg net of
VAT, US$ (export)
Sunflower oil
Sales volume, third parties
(tonnes)
Soybean oil
Sales volume, third parties
(tonnes)
373,733
357,324
5%
36.11
38.06
-5%
1.34
1.47
-9%
34.57
37.49
-8%
1.40
1.49
-6%
330,823
384,150
-14%
40,904
51,771
-21%
CHICKEN MEAT
The aggregate volume of chicken meat sold to third parties
increased by 4% during 2020 as the Segment executed its
strategy of decreasing poultry stocks accumulated during the
preceding periods; this was achieved due to increased sales
predominantly to the MENA region as well as to Africa and Asia.
Through the 12M 2020 the average export chicken meat price
was USD 1.40, 6% lower year-on-year, mainly driven by weaker
prices for chiken fillet particularly in the EU as many global
competitors experienced reduced demand, which resulted in
significant excess stocks. However, this was offset by a change
in product mix to higher priced units with an increase in sales
to MENA (breast fillets and small whole birds mainly). Average
poultry prices in the domestic market decreased by 8% year-
on-year mainly driven by significant excess stocks in Ukraine as
well as a higher proportion of lower-priced frozen chicken sales
in Ukraine. In the Q4 2020, the average meat price remained
relatively stable compared to Q4 2019.
VEGETABLE OIL (SUNFLOWER AND SOYBEAN)
During 2020, sales of sunflower oil decreased by 14% year-on-
year and amounted to 330,823 tonnes; the decline was mainly
driven by a decrease in the production of oil as a result of the
decreased production of fodder and the decrease in the share of
sunflower cake in fodder; and partially as a result of a change in
delivery terms from delivered-at-place (“DAP”) to free on board
(“FOB”).
Sales of soybeans oil have decreased by 21% year-on-year to
40,904 tonnes, mainly as a result of decreased production of
fodder and share of soya cake in fodder and partially as a result
of a change in delivery terms from DAP to FOB.
THE AGGREGATE
VOLUME OF CHICKEN
MEAT SOLD TO THIRD
PARTIES INCREASED BY
%
YEAR-ON-YEAR
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 20204 Segment Performance
1 MHP yields are net weight
2 pps - percentage points
2 Including barley, rye, sugar beet, sorghum
and other and excluding land left fallow as
part of crop rotation
3 Ukraine yields are bunker weight, MHP
yields are net weight
35
POULTRY & RELATED OPERATIONS SEGMENT – FINANCIAL
RESULTS AND TRENDS
in mln. US$, unless indicated
otherwise
2020
2019
%
change
Revenue
1,298
1,368
-5%
Poultry and other
1,022
1,073
Vegetable oil
276
295
-5%
-6%
conditions in the final weeks of the growing season, particularly
in the central regions of Ukraine (Cherkasy and Vinnytsia regions).
However, MHP’s average yields remain well above the average for
Ukraine for almost all crops due to operational efficiency and the
employment of best practices.
The tables below set out the Segment’s harvest campaign results
and its yields relative to those in Ukraine.
Harvest campaign results
IAS 41 standard gains/(losses)
Gross profit
Gross margin
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted EBITDA per 1 kg
(net of IAS 41)
(17)
191
15%
194
15%
9
-289%
273
20%
281
-30%
-5 pps
-31%
During 2020 Segment revenue decreased by 5% year-on-year
driven mostly by the decreased price of chicken meat and by
the decreased sales volume of vegetable oil, partly offset by an
increase in sales volume of chicken meat.
IAS 41 standard gains/(losses) reflects the net change in fair value of
biological assets and agricultural produce. The IAS 41 standard loss
during 2020 was US$ 17 million mainly as a result of an increase
in poultry costs in Q4 2020 due to higher grain prices compared to
last year.
The gross profit for the Segment for 2020 decreased by 30% year-
on-year driven by lower prices of chicken meat. During 2020,
adjusted EBITDA decreased by 31% in line with a decrease in gross
profit.
GRAIN GROWING SEGMENT – KEY OPERATIONAL DATA
In 2020, MHP harvested around 356,000 hectares of land in
Ukraine and gathered around 1.71 million tonnes of crops, 29% lower
year-on-year mainly due to the unusually hot and arid weather
20201
20191
Production
volume
(in tonnes)
Cropped
land
(in hectares)
Production
volume
(in tonnes)
Cropped
land
(in hectares)
Corn
Wheat
864,537
208,143
21%
-6 pps2
Sunflower
261,886
Rapeseed
80,708
0.30
0.41
-27%
43,192
155,094
40,827
93,713
30,857
19,118
1,312,416
300,396
237,755
122,597
102,418
140,221
46,797
65,447
41,233
38,197
Soya
Other3
Total
248,476
16,437
332,007
27,581
1,706,942
356,046
2,407,589
359,476
Harvest yields
20204
20194
MHP’s
average
Ukraine’s
average
MHP’s
average
Ukraine’s
average
(tonnes per hectare)
(tonnes per hectare)
Corn
Wheat
Sunflower
Rapeseed
Soya
5.6
5.1
2.8
2.6
2.3
5.4
3.7
2.0
2.2
2.0
9.4
6.4
3.6
3.0
2.7
7.1
4.3
2.6
2.6
2.3
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Financial and Operational Performance - Segment Performance
36
1 Includes milk, cattle and feed grains
2Adjusted EBITDA (net of IFRS 16)
GRAIN GROWING SEGMENT – FINANCIAL RESULTS AND
TRENDS
in mln. US$, unless
indicated otherwise
Revenue
IAS 41 standard gains/
(losses)
Gross profit
Adjusted EBITDA
Adjusted EBITDA (net
of IFRS 16)
Adjusted EBITDA per 1
hectare (net of IFRS 16)
2020
2019
% change
134
46
94
150
97
268
(50)
29
109
60
-50%
192%
224%
38%
62%
272
167
63%
revenue
for 2020 was US$
Segment
134 million
(2019: US$ 268 million). The significant decrease in revenue
was mainly attributable to the lower volumes of crops sold in
2020 as a result of the weaker harvest in 2020 compared to
2019.
GRAIN GROWING ADJUSTED
EBITDA
US$
MILLION2
The IAS 41 standard gain for 2020 was US$ 46 million
(2019: US$ 50 million loss). The gain was primarily driven by a
substantial increase in the prices of crops (especially corn).
The 2020 adjusted EBITDA (net of IFRS 16) of the segment
increased by 62% year-on-year, mainly due to an increase
in grain prices, partly offset by the weaker harvest in 2020
compared to 2019.
MEAT-PROCESSING & OTHER AGRICULTURAL OPERATIONS
SEGMENT – KEY OPERATIONAL DATA
Meat-processing products
2020
2019
% change
Sales volume, third parties
(tonnes)
32,626
35,544
-8%
Price per 1 kg net of VAT, UAH
70.78
67.34
5%
Sales of processed-meat products decreased by 8% during the
year and amounted to 32,626 tonnes; the decrease was as a
result of the challenging environment in HoReCa and open
market trade caused by the COVID-19 lockdowns. The average
price of processed meat increased by 5% year-over-year to
UAH 70.78 per kg (excluding VAT) in 2020.
Convenience food
2020
2019
% change
Sales volume, third parties
(tonnes)
19,905
19,251
3%
Price per 1 kg net of VAT, UAH
39.94
40.97
-3%
Sales volumes of convenience food increased by 3% year-
on-year to 19,905 tonnes. The average price during the year
decreased by 3% to 39.94 UAH per kg (excluding VAT).
MEAT PROCESSING & OTHER AGRICULTURAL OPERATIONS
SEGMENT – FINANCIAL RESULTS AND TRENDS
in mln. US$, unless
indicated otherwise
Revenue
Meat processing
Other1
IAS 41 standard gains
Gross profit
Gross margin
Adjusted EBITDA
Adjusted EBITDA margin
2020
2019
144
114
30
-
19
13%
20
14%
149
118
31
2
19
13%
20
13%
%
change
-3%
-3%
-3%
-100%
0%
0 pps
0%
1 pps
Segment revenue for 2020 was US$ 144 million, a 3% decrease
year-on-year mainly due to a decrease in the sales volumes of
meat-processing products partly offset by an increase in price.
The segment’s adjusted EBITDA remained flat year-on-year at
US$ 20 million.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 202097 Financial and Operational Review - Segment Performance
37
1 Results from 21 February 2019 when the
acquisition of PP was completed.
12M 2019 poultry sales (if calculated since 01
January 2019) were at 59,804 tonnes.
2 Includes sausages and convenience foods.
3 12M 2019 meat processing products sales (if
calculated since 01 January 2019) were at
35,430 tonnes.
4 Results of PP from 21 February 2019 when
the acquisition was completed.
EUROPEAN OPERATING SEGMENT (PP) – KEY OPERATIONAL
DATA
EUROPEAN OPERATING SEGMENT (PP) – FINANCIAL RESULTS
AND TRENDS
Poultry
2020
20191
% change
(in mln. US$, unless
indicated otherwise)
2020
20194
% change
Sales volume, third
parties (tonnes)
Price per 1 kg net of
VAT, EUR
63,007
51,157
23%
2.52
2.63
-4%
In 2020 sales volumes of poultry were 63,007 tonnes, 23%
higher year-on-year, with an average price of EUR 2.52.
Revenue
IAS 41 standard gain
Gross profit
Gross margin
Adjusted EBITDA
335
1
93
28%
55
271
-
77
28%
44
16%
24%
100%
21%
0 pps
25%
0 pps
Meat processing
products2
Sales volume, third
parties (tonnes)
Price per 1 kg net of
VAT, EUR
2020
20193
% change
Adjusted EBITDA margin
16%
38,771
30,254
28%
2.72
2.70
1%
Adjusted EBITDA (net
of IFRS 16)
Adjusted EBITDA margin
(net of IFRS 16)
53
42
26%
16%
15%
1 pps
In 2020 sales volumes were 38,771 tonnes, 28% higher year-on-
year, with an average price of EUR 2.72.
European Operating
The
revenue was
US$ 335 million in 2020. Adjusted EBITDA (net of IFRS 16) was
US$ 53 million for 2020 and the adjusted EBITDA margin (net of
IFRS 16) was 16%.
Segment’s
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 1 Calculated as cash used for purchases of
property, plant and equipment plus cash used
for purchases of other non-current assets.
2 Calculated as Net Cash from operating activi-
ties plus Cash used in investing activities plus
Total financial activities.
3 Net of IFRS 16 adjustments: as if any lease
that would have been treated as an operating
lease under IAS 17 as was in effect before
1 January 2019, is treated as an operating
lease for purposes of this calculation. In
accordance with covenants in MHP’s bond
and loan agreements, these data exclude the
effects of IFRS 16 on accounting for operating
leases.
4 Indebtedness under trade credit facilities that
is required to be repaid within 12 months of
drawdown should be excluded for purposes
of this calculation.
Financial and Operational Review
CURRENT GROUP FINANCIAL POSITION AND CASH FLOW
DEBT STRUCTURE AND LIQUIDITY
38
31
December
2020
31
December
2019
1,462
1,453
36
(27)
(218)
1,244
340
3.66
1,480
1,448
32
-
(341)
1,139
379
3.01
(in mln. US$)
Cash from operations
Change in working capital
Net cash from operating activities
2020
2019
225
(154)
71
310
192
502
Cash used in investing activities
(129)
(333)
in mln. US$
Total Debt3
Long-term Debt3
Short-term Debt4
Trade credit facilities4
Including:
Net cash outflow on acquisition of
subsidiaries
CAPEX1
Cash used in financing activities
Dividends
Total financial activities
Total change in cash2
-
(206)
Cash and cash equivalents
Net Debt3
LTM adjusted EBITDA3
Net Debt / LTM adjusted EBITDA3
(79)
(21)
(31)
(52)
(110)
(113)
37
(85)
(48)
121
Cash flow from operations before changes in working capital
for 2020 amounted to US$ 225 million (2019: US$ 310 million).
The change in working capital during 2020 compared to 2019
was mostly due to higher investments in the stock of crops
designated for internal use as of 31 December 2020 compared
to 31 December 2019, mainly due to an increase in the price of
grain in Q4 2020. This effect was compounded by an increase
in amounts of VAT receivable that will be reimbursed in 2021.
During 2020 total CAPEX amounted to US$ 79 million mainly
related to modernisation projects, new product development
and the maintenance and improvement of Perutnina Ptuj’s
production facilities.
As of 31 December 2020, long-term debt represented 99% of
total outstanding debt. The weighted average interest rate was
around 7%.
As of 31 December 2020, MHP’s cash and cash equivalents
amounted to US$ 218 million.
Net debt
US$ 1,139 million as of 31 December 2019.
increased to US$ 1,244 million, compared to
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was
3.66 as of 31 December 2020, which is higher than the limit of 3.0
defined by the Eurobond agreement. Although exceeding the
ratio of 3.0 does not constitute the breach of any covenant under
the indebtedness agreement, it does lead to the introduction of
additional control measures by MHP. In particular, MHP has to
supervise and assess any incurrence of additional indebtedness,
restricted payments (e.g. dividend distribution, investments in
third parties), mergers with third parties outside the Group, and
the granting of financing of any kind to third parties.
These measures became effective from the date of publication
of the audited consolidated financial statements for the year
ended 31 December 2019 (14 April 2020) until publication of the
audited consolidated financial statements for the year ended
31 December 2020 (24 March 2021).
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Financial and Operational Review
39
DEBT STRUCTURE AND LIQUIDITY (continued)
As a hedge for currency risks, revenue from the export of grain,
sunflower and soybean oil, sunflower husks, and chicken
meat are denominated in US Dollars and Euros, covering debt
service expenses in full. Export revenue for 2020 amounted to
US$ 1,016 million or 53% of total revenue (2019: US$ 1,186 million
or 58% of total revenue).
BREXIT AND ITS CONSEQUENCES FOR MHP
From 01 January 2021, as a result of the end of the transitional
period following the United Kingdom’s exit from the European
Union, the Takeover Panel will no longer exercise shared
jurisdiction over transactions involving the Company which
would otherwise be subject to the Takeover Code, including
takeover bids, merger transactions, or schemes of arrangement
resulting in the change of or consolidation of control over the
Company.
In addition, from 01 January 2021, the London Stock Exchange
(where the Company’s Global Depositary Receipts are admitted
to trading) will no longer be a regulated market as defined in
Directive 2014/65/EU of the European Parliament and of the
Council on markets in financial instruments; as a result, the
legislation in Cyprus regulating takeovers implementing the
provisions of Directive 2004/25/EC of the European Parliament
and of the Council on takeover bids requiring mandatory
takeover offers in certain situations, will no longer be applicable
to the Company.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 40
FINANCIAL POLICIES
MHP HAS INCLUDED CERTAIN MEASURES IN THIS REPORT THAT ARE NOT MEASURES OF PERFORMANCE UNDER IFRS, INCLUDING
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION AND AMORTISATION (“EBITDA”) AND LAST TWELVE MONTHS’ EBITDA (“LTM
EBITDA”) BOTH AT A CONSOLIDATED AND AT A SEGMENT LEVEL.
Adjusted EBITDA, LTM Adjusted EBITDA and Segment Adjusted EBITDA are
presented in this Report because the Directors consider them to be important
supplemental measures of the Group’s financial performance. Additionally, the
Directors believe these measures are frequently used by investors, analysts and
stakeholders to evaluate the efficiency of the Group’s operations and its ability to
employ its earnings for the repayment of debt, capital expenditure and working
capital requirements. MHP defines Adjusted EBITDA as profit for the year before
income tax expense, finance costs, finance income, depreciation and amortisation
expense, impairment of property, plant and equipment, net foreign exchange
gain/loss, and net other expenses. Depreciation and amortisation expenses are
components of both cost of sales and selling, general and administrative expenses
in the consolidated financial statements.
The introduction of IFRS 16 on Leases from January 2019 has caused adjustments
to the financial statements. MHP has chosen to present Adjusted EBITDA for 2019
and 2020 both before and after adjustment for IFRS 16. LTM Adjusted EBITDA
(net of IFRS 16) is defined as Adjusted EBITDA (net of IFRS 16) for the prior 12
consecutive months ending on such date of measurement; LTM Adjusted EBITDA
is сalculated as if acquisitions of subsidiaries had occurred on the first day of the
prior 12 consecutive months ending on such date of measurement.
LTM Adjusted EBITDA excludes the effects of IFRS 16 on accounting for operating
leases. Adjusted EBITDA is derived by adjusting EBITDA (as defined above)
for losses/gains on impairment/reversal of impairment of property, plant and
equipment, net losses on disposals of subsidiaries, other expenses, net and
foreign exchange (loss)/gain. 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 of items that Management considers not to
be representative of the underlying operations of the Group.
The Group’s Segment measure in the consolidated financial statements is
defined as “Segment result” and represents operating 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 assessment
of Segment performance. Within the Management Report, the reported Segment
result is adjusted for the amount of depreciation and amortisation per Segment in
order to present “Segment Adjusted EBITDA” to external users, which MHP feels is
a more commonly-used external metric familiar to investors.
Net debt is defined as bank borrowings, bonds issued and lease obligations less
cash and cash equivalents. Net Debt (net of IFRS 16) is defined as Net debt less
the effects of lease liabilities recognised under IFRS 16. The Group believes that
net debt is commonly used by securities analysts, investors and other interested
parties in the evaluation of a company’s leverage.
In MHP’s bond and loan agreement covenants the definitions Adjusted EBITDA,
LTM Adjusted EBITDA and Net debt exclude the effects of IFRS 16 on accounting
for operating leases. They are calculated as if any lease that would have been
treated as an operating lease under IAS 17 (as was in effect before 1 January 2019),
is treated as an operating lease.
Adjusted EBITDA is not a measure of MHP’s operating performance under IFRS
and should not be considered 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 operating activities or as a measure
of MHP’s liquidity. Such measures presented in this Annual Report may not be
comparable to similarly titled measures of performance presented by other
companies, and should not be considered as substitutes for the information
contained in the consolidated financial statements.
BUSINESS REVIEWFinancial Policies ANNUAL REPORTAND ACCOUNTS 2020 RECONCILIATION OF ADJUSTED EBITDA
RECONCILIATION OF NET DEBT
41
Year ended
31 December
2020
Year ended
31 December
2019
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 carrying amount of
bank borrowings, bonds issued and finance lease obligations has been excluded from the amount of total debt.
As of 31 December 2020 and 2019, net debt was as follows:
US$ thousand
Bank borrowings
Bonds issued
Finance lease obligations
Total debt
Cash and cash equivalents
Net debt
Effect of IFRS 16
Trade credit facilities
Net debt (net of IFRS 16)
Year ended 31 December 2020
Year ended 31 December 2019
104,396
1,370,999
198,499
1,673,894
(217,579)
1,456,315
(184,795)
(27,138)
1,244,382
100,825
1,365,669
215,863
1,682,357
(340,735)
1,341,622
(202,802)
-
1,138,820
US$ thousand
Profit for the year
from continuing
operations
Income taxes
Finance costs
Finance income
Depreciation
and amortisation
expense
131,575
221,105
(5,132)
144,257
(13,584)
32,107
147,552
(8,034)
192,103
205,691
EBITDA
186,069
598,421
Adjustments:
Loss on
impairment
Other expenses,
net
Foreign
exchange loss/
(gain), net
Adjusted
EBITDA
Effect of IFRS
16
Adjusted
EBITDA
(net of IFRS 16)
1,730
3,491
6,244
8,064
203,664
(185,291)
394,954
427,438
(54,672)
(50,975)
340,282
376,463
BUSINESS REVIEWFinancial Policies ANNUAL REPORTAND ACCOUNTS 2020 42
SEGMENT PERFORMANCE
Segment results represent operating profit, as adjusted for unallocated corporate expenses, which is reconciled to Segment Adjusted
EBITDA before unallocated expenses by adding back Segment depreciation as illustrated in the following tables:
US$ thousand
Year ended 31 December 2020
Poultry &
Related
Operations
Segment
Grain
Growing
Segment
Meat-Processing &
Other Agricultural
Operations Segment
European
Operating
Segment
Eliminations Consolidated
External sales
1,297,904
133,713
144,472
335,048
-
1,911,137
Sales between business
segments
Total revenue
Segment results
Depreciation and
amortisation
Segment Adjusted EBITDA
before unallocated
expenses
Unallocated expenses
Unallocated depreciation and
amortisation
Adjusted EBITDA
41,642
213,419
387
-
(255,448)
-
1,339,546
95,797
347,132
80,866
144,859
13,284
98,138
68,778
6,755
37,718
17,316
335,048
(255,448)
193,935
149,644
20,039
55,034
-
-
-
1,911,137
227,655
190,987
418,652
(24,814)
1,116
394,954
BUSINESS REVIEWFinancial Policies ANNUAL REPORTAND ACCOUNTS 2020 Risk Management
RISK MANAGEMENT
43
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 capitalise on opportunities. A failure to manage these changes and risks could have an adverse impact on our business and on the achievement of our strategic
goals and financial performance. We have integrated our risk management processes into 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.
RISK MANAGEMENT FRAMEWORK
To understand our risk profile and align it with our objectives and decision-making processes, we operate a global risk framework based upon the recommendations in the COSO (the Committee
of Sponsoring Organisations of the Treadway Commission) Enterprise RIsk Management Framework. The COSO Framework defines how to identify, classify, assess and manage the risks that
MHP faces in order to provide reasonable assurance regarding the achievement of the Company`s strategy and objectives. The implementation and functioning of our Risk Management Policy
is supported by training programmes for management and employees.
STEP
Identify
Risk
STEP
Measure
Potential Impact
STEP
Manage
Risk
STEP
Monitor
Risk
• Our Management team identifies
risks
the
achievement of the Group's strategy
and business objectives.
that may
affect
• 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.
• Identified risks are assessed and
risk tolerance is set.
• Risks are prioritised in order of
impact on
severity of potential
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 prioritise
further risk management actions.
• A portfolio view of risk appetite is
assumed.
CONTINUOUS ASSESSMENT AND IMPROVEMENT OF RISK MANAGEMENT FRAMEWORK
STEP
Communication
and Reporting
• Key risks are discussed regularly by
the Management team and reported
at
least annually to the Board
through the Audit Committee.
• Risk management
information
used to make informed decisions.
is
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 20201»2»3»4»5 Risk Management
44
RISK OVERSIGHT
The Audit 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 management process and risk matrix. Results are
reported regularly to the Board, which has overall responsibility
for risk management.
ENHANCEMENTS TO RISK MANAGEMENT OVER
THE PAST 12 MONTHS
2020 was a turbulent year as the COVID-19 Pandemic and outbreaks
of Avian Influenza impacted both domestic and international
markets. To ensure business continuity and high performance
throughout the period, the Management team performed robust
risk assessments and developed and implemented appropriate
response plans.
The Internal Audit function provides objective assurance to the
Management team and to the Audit Committee on the effectiveness
of risk management and helps Management to continuously
improve its risk management framework and processes.
At the same time, we continued to enhance our risk management
throughout the Group, including conducting a series of training
programmes for our workforce and operational management to
ensure implementation of our risk management culture.
I.
II.
Encouraging the identification of risks:
Managers encourage open communication and promote
and support disclosure and risk management discussions.
Embedding risk management within every role
and function:
Every employee shares the responsibility for managing risk.
III. Continuous
identification and assessment of risks:
Process owners regularly look for new operational risks,
reassess the status of known risks, and re-evaluate or
update plans to prevent or respond to problems associated
with these risks.
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.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
45
THE PRINCIPAL RISKS FACING THE GROUP ARE SET OUT IN THE TABLE BELOW
Principal risk
BUSINESS RISKS
Year-on-year
change in risk
level
Impact
How we manage the risk
Fluctuations in prices for grains
and related products required
for production input
in Ukraine and
Unfavourable weather conditions
globally and the consequent reduction in yields in
2020 led to significant increases in prices for corn
and oilseeds required for production of fodder; this
materially affects the cost of chicken production and
MHP’s operating results.
`MHP drives cost efficiency across all its businesses, supported by its vertically-integrated business
model. MHP’s grain growing operations produce internally 100% of the corn required for poultry feed
production. The Company adopts innovative approaches for improving feed recipes and the structure
of feed so as to optimise cost and increase the conversion ratio at the same time.
in demand
Fluctuations
for
and market prices of chicken
meat and crops
Failure to implement growth
strategy and expansion into
export markets
MHP’s business and financial results are affected by
prices for chicken products and crops, both in Ukraine
and worldwide.
The risk increased in 2020 due to lower chicken
sales volumes and prices year-on-year as the result
of demand fluctuations during the global COVID-19
Pandemic.
Demand for chicken in Ukraine is expected to remain strong and to have further growth potential as
beef and pork are mostly produced by households and small farms and are far more expensive to
produce and purchase than chicken. Chicken meat is the most affordable kind of meat from both a
price and diet perspective. MHP products are available for purchase through different sales channels
at all times and the Company offers competitive trade terms to its customers. 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.
In international markets, MHP continues to execute upon its strategy of geographic diversification of
exports combined with product mix optimisation and a focus on customised products for new potential
markets.
MHP may be unsuccessful in its attempt to increase
market share in export markets for its chicken meat and
may be impacted by import restrictions imposed on
agricultural commodities by other countries.
The risk increased in 2020 due to regulatory restrictions
on poultry sales to the Kingdom of Saudi Arabia (“KSA”),
one of the Group’s largest and most profitable export
markets; between September 2019 and February 2020,
MHP was prohibited from exporting poultry to KSA.
In addition, there was a cessation of exports into the
EU due to Avian Influenza and the COVID-19 Pandemic.
MHP has in place a long-term strategy for the Group’s expansion into diversified export markets.
Although there are varying levels of uncertainty regarding MHP’s export markets, MHP’s share of
its key poultry markets remains relatively low (less than 10%) allowing MHP to redistribute volumes
between markets without disruption and to grow its presence gradually; this will be partly through
growth in population and consumption per capita and partly through offering better service and
quality to our customers.
To reduce the impact of any disruptions to trade flows in future, MHP will continue to execute its
strategy of geographic diversification.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
46
Principal risk
Year-on-year
change in risk
level
Impact
How we manage the risk
Avian Influenza and other diseases may result in:
• Ongoing monitoring of Avian Influenza cases worldwide followed by rigorous assessment of MHP’s
To ensure the well-being of livestock at MHP’s facilities, the Company has implemented high
biosecurity standards and systems supplemented by a set of preventive veterinary-sanitary and
hygiene measures, including:
Outbreaks of Avian Influenza
and other livestock diseases
Moratorium on the sale of
agricultural land in Ukraine
• loss of livestock;
• loss of customers;
• export restrictions;
• distribution of disease; and
• significant financial losses.
The risk level increased during 2020 as there were
several outbreaks of Avian Influenza at other poultry
producers, resulting in temporary export restrictions.
Ukraine’s parliament, Verkhovna Rada, voted on 30
March 2020 to abolish a moratorium on the sale of
agricultural land. The law comes into force for private
individuals in July 2021 and for legal entities (registered
or domiciled in Ukraine only) in January 2024.
The Group leases land from landowners on a long-
term basis. For MHP, the abolition of the moratorium
could mean that current landowners initiate the sale of
their land which could lead to a reduction in the size of
MHP’s leased landbank.
existing biosecurity systems based on identifying the causes of those cases;
• Geographic separation of poultry-rearing facilities with a significant distance between each facility;
• Where any infected areas are identified, immediate actions are taken to limit the access of all
visitors to MHP facilities;
• Constant monitoring of poultry conditions,
poultry
well-being and health and investigation of the quality of raw materials (litter, food, water) and
products (poultry carcasses); and
including analysis of
indicators of
• Monitoring compliance with biosafety rules.
MHP is also assisting all other poultry producers (mainly egg layers) in the Vinnytsia region to
strengthen their own biosecurity.
MHP supports the opening of the land market and free competition in this area. The Group estimates
the risk level to be stable, due to MHP’s long-term land lease agreements, and continuous monitoring
of the situation in the regions in which the Group operates. It is expected to have no significant impact
on its land portfolio or business model.
Occurrence of a significant
health and safety incident
The occurrence of a significant health and safety
incident could impact day-to-day operations, leading
to financial penalties and reputational harm.
MHP maintains robust environmental and health and safety policies, management systems and
procedures in line with best practice and legal requirements. These are regularly reviewed and
updated, and employees participate in frequent training and development activities.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
Year-on-year
change in risk
level
Principal risk
Occurrence of a material
product quality or product
safety incident
Impact
How we manage the risk
The occurrence of a material product quality or product
safety incident could impact day-to-day operations,
leading to financial penalties and a reduction in brand
value.
MHP prioritises product safety and quality in line with international best practice and applicable
regulations. It maintains robust quality and safety management systems and has an excellent track
record in this area.
47
Fluctuations in commodity
prices such as gas, fuel and
energy
Changes in commodity prices affect MHP’s production
and distribution costs and in turn impact operating
results and cash flows.
MHP tightly monitors and controls its gas, fuel and energy costs. Energy price risks are mitigated by a
priority focus on developing renewable sources of energy and a continued increase in the use of co-
generation and alternative energy technology. The processing of sunflowers results in the production
of large volumes of husks that are burned to generate steam heat for fodder complexes.
Unfavourable weather
conditions
Global climate change
Extreme changes in temperature or rainfall including
weather change in summer and winter could influence
agricultural productivity as a whole and crop yield,
harvesting and transportation costs in particular.
Ukraine’s weather is generally temperate, with plenty
of sunshine in summer and adequate rainfall. This
combines with extremely fertile soil to create excellent
growing conditions. However, the risk level increased
in 2020 due to the significant impact of unfavourable
weather conditions on MHP’s grain growing operations.
Global climate change is already causing extreme
weather events that negatively affect crop and
livestock production: sudden changes in temperature
and unpredictable precipitation leading to floods or
droughts can cause changes in soil moisture levels,
reduced yields, animal discomfort and in the future will
lead to degradation of soil.
MHP’s management team constantly uses modern technology and implements improvements year-
on-year to minimize the impact of extreme weather change.
MHP aims to conduct all of its activities in an environmentally-responsible manner and to meet the
global challenge presented to everyone by climate change.
MHPachieves this by:
• reducing its the total energy consumption year-on-year;
• planting tree saplings together with communities;
• replacing fossil fuels with renewable energy (biogas, solar energy, straw, sunflower husk);
• growing rapeseed and maize for biofuel production, which are exported under ISCC contracts
https://www.iscc-system.org after the relevant Certification Audits;
• calculating greenhouse gas emissions annually.
A key tenet of the Company’s Sustainable Environmental Policy is to become carbon neutral by
2030. In 2021, MHP has begun partnering with independent third party Alltech ECO2 which will audit
ongoing greenhouse gas emissions and advise on potential opportunities to reduce greenhouse gas
emissions further. There is also sets a target to achieve carbon accreditation with the Carbon Trust.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
48
Principal risk
Year-on-year
change in risk
level
Impact
How we manage the risk
Irrational water use
Irrational and irresponsible water use has an
extremely negative impact on water sources,
which can often be unalterable for both the
local population and the company’s production
processes:
• Excessive water intake and water
consumption can lead to depletion of water
resources;
• Insufficient wastewater treatment can lead
to significant pollution of water supply
sources (surface and groundwater);
Deforestation and conversion
of high-carbon lands into
agricultural land, including
drainage of peat bogs
The increase in arable land due to deforestation
and the conversion of high-carbon land is one
of the most significafit factors in climate change.
MHP considers such actions inadmissible.
More information and objectives can be found
in the Policy on the Company web site.
To ensure rational water consumption:
• all water wells and shafts are certified and equipped with water meters, which are regularly checked;
• the first zone of the Sanitary Protection zone for each underground water supply source is calculated in
accordance with the legislation and enclosed by a fence;
• for each enterprise of the group the calculation of normative water consumption with definition of monthly
limits of water consumption is made;
• for each enterprise of the group a register of wells and mine wells for water is created, which is updated
annually;
• for each of the sources of water intake, the limits set by the state are strictly observed.
To prevent pollution of surface waters and groundwater aquifers, there is the following list of measures:
• laboratory quality control of wastewater treatment at biological treatment facilities is performed at each
stage, according to the Sampling Schedules developed at the enterprises;
• places of storage of waste and oil products are equipped in such a way as to exclude pollution of ground
waters;
• waterproofing of all places for temporary storage of sewage is executed;
• due to the reduction of water consumption per bird, the amount of wastewater itself decreases.
In 2021, MHP plans to replace those meters that have been in use far more than 10 years.
MHP guarantees the absence of deforestation and the conversion of high-carbon lands to agricultural land
through the following:
• the MHP land bank consists exclusively of lands on which there has been no conversion or deforestation;
• each field has its own agrochemical passport, which allows you to trace its history;
• each field was tested for deforestation and land conversion using the online tool Global Risk Assessment
Services https://www.gras-system.org/
• MHP Group companies undergo annual field inspections for deforestation and land conversion during the
lnternational Sustainability and Carbon Certification Certification Audit https://www.iscc-system.org/
• MHP does not import soybeans. which guarantees that no deforestation has been carried out for its
cultivation.
In 2021, it is planned to stipulate in any soybean procurement contracts a separate clause requiring the
supplier to report the region of origin of soybeans and to confirm that they have been grown on land that has
not been deforested or converted.
MHP’s Corporate Sustainable Invironmental Policy sets a number of objectives to contribute to sustainable
development of the country at all locations, where the Company has got its operations, such as:
• contribute to the overall fight against climate change, including striving to become a carbon neutral
company by 2030;
• integrate sustainability considerations into all business decisions;
• ensure sustainability in procurement of goods and services with an emphasis on supplier diversity and
environmental attributes;
• comply with applicable environmental legislation and sustainability commitments and others.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
49
Principal risk
Year-on-year
change in risk
level
Impact
How we manage the risk
Lack of highly-qualified staff at
strategic level and production
enterprises
Outdated equipment and
technology
The agriculture industry is facing a number of personnel
challenges including: migration of skilled workers to
neighbouring countries; move of labour force from
villages to urban environment; ageing of the current
workforce; and changes in the required skills base. A
lack of qualified science, engineering, technical and
other employees could increase risks to the long-term
future of the business.
MHP works to maintain positive relationships with employees and strives to build upon its reputation as
a high-quality, responsible employer of choice. As part of this, MHP provides a number of programmes
designed to enrich its employees and the broader community including:
• Education and professional programmes for the younger generation;
• “Personnel Reserve” and “New Horizon” training programmes for prospective and high-performing
employees respectively;
• A strategic action plan to build and support schools in regions where its facilities operate; and
• Development of a digitalisation strategy that is in the process of implementation and focusses on
automating business processes and decision making (including artificial intelligence).
in
technology
Changes
digital
transformation may render the current technologies
and IT systems obsolete or require MHP to make
substantial capital investments.
global
and
Manufacturing processes in the agricultural industry are
prone to technological and process changes which may
render MHP’s current processes obsolete. Moreover,
IT systems of the Group and the processes within
such systems might require transformation to meet the
challenges of the digital era. MHP might face a lack of
in-house expertise and/or resistance of process owners
whilst it is accomplishing its transformation strategy. In
order to orchestrate its transformation successfully, MHP
may be required to invest substantial sums of money
to adopt newer technologies and processes. The level
of investment required could have a material adverse
effect on MHP’s business, results of operations, financial
position and prospects.
A digital transformation strategy, including the implementation of ERP, is in place across all entities
within the Group focussing on the upgrades, optimisation and automation of key business processes.
Experienced and competent internal project managers and subcontractors are in place to direct the
successful implementation of the digitalisation strategy.
MHP has consistently invested in technology for the automation of business processes and
improvement in productivity.
Inefficient procurement and an
increase in production costs
An increase in MHP’s production costs could materially
and adversely affect its profitability.
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. KPIs are set
and are closely monitored with a view to decreasing the costs of production.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 50
Risk Management
Year-on-year
change in risk
level
Principal risk
FINANCE RISKS
Fluctuations in foreign
exchange rates
Fluctuations in interest rates
Impact
How we manage the risk
MHP operates globally and has operations and
transactions in different currencies. Fluctuations in
the value of the Ukrainian Hryvna versus the US$ and
other currencies give rise to transaction and translation
exposure.
In 2020, total FX losses of US$ 204 million were mostly
non-cash, representing a revaluation of Eurobonds
with maturities starting from 2024.
The majority of MHP’s borrowings are denominated in US$. The resulting exposure is effectively
hedged by the generation of around 53% of total revenue in US$ in 2020 from the export of sunflower
and soybean oils, chicken meat and grain. The hard currency revenue generated is more than
sufficient for MHP to continue to service all dollar-denominated loans and payments.
Changes in interest rates affect the cost of borrowings,
the value of our financial instruments, profit and loss
and shareholders’ equity.
The proportion of fixed interest rate debt increased
year-on-year, decreasing the risk of an adverse impact
from interest rate fluctuations.
MHP monitors its interest rate exposure and analyses the potential impact of interest rate movements
on its net interest expenses.
The majority of MHP’s debt portfolio is at fixed interest rates. MHP’s debt portfolio has an 99% / 1%
share of fixed/floating interest rates. The majority of the Company’s debt is in the form of Eurobonds
issued at fixed interest rates. Bank borrowings are mostly from foreign banks or Ukrainian subsidiaries
of international banks at rates lower than those available from Ukrainian banks.
Credit risk
Counterparties involved in transactions with MHP may
fail to make scheduled payments, resulting in financial
losses to MHP.
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 this risk, MHP procedures require
verification of counterparties’ solvency prior to the signing of an agreement. 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 provisions included in agreements with customers. At foreign
subsidiaries of MHP, an insurance company is involved to approve the credit limit and to insure against
risk of non-payment.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
51
Principal risk
Year-on-year
change in risk
level
Impact
How we manage the risk
If, in the long term, MHP is unable to generate and
maintain positive operating cash flows and operating
income, it may need additional funding. MHP’s inability
to raise capital on favourable terms could lead to a
default on its payment obligations and could have a
material adverse effect on MHP’s business, results of
operations, financial condition and prospects.
MHP maintains efficient budgeting and cash management processes to ensure that adequate
funds are available to meet its business requirements. MHP adopts a flexible CAPEX programme
enabling capital projects to be deferred if necessary. MHP holds cash balances in hard currency on
correspondent accounts and maintains an adequate level of undrawn credit lines.
During 2020 MHP fulfilled all its payment obligations. The total amount of available credit lines at 31
December 2020 was US$ 304 million, in addition to US$ 218 million cash on accounts.
Liquidity risk
Inefficient investments
STAKEHOLDER RELATIONS RISKS
Inefficient regulation of the Company’s investment
appraisal and realisation procedures or a lack of
evaluation or proper authorisation of investment
implementation of
in
projects could
unauthorised and unprofitable investment decisions and
subsequent poor use of capital.
result
the
MHP has developed and implemented procedures to ensure due process in this area. The Evaluation
of Investment Projects procedure requires that the Investment Committee approves investment projects.
All of the Company’s investment projects are documented with a formal investment appraisal report and
financial model which are jointly approved by the Investment Committee. All major investment decisions
require approval by the Board.
MHP is in regular dialogue with its local communities and other stakeholders in the regions in which
it operates. The Company aims to conduct these relationships sensitively and with mutual respect.
It also prioritises the human rights of its local communities. MHP has designed and implemented
stakeholder relations programmes in line with good international practice. This activity includes
regular meetings with local community representatives, roadshows to enable local people to meet
the Company and the design and maintenance of a variety of communication channels. MHP also
supports, designs and conducts a number of projects in conjunction with local authorities and local
communities that aim to improve local standards of living and infrastructure.
MHP continued to develop its local stakeholder relations in 2020 following the successful
implementation of a range of Corporate Responsibility projects including:
• The roll-out of educational programmes at all levels, from kindergarten to adult-learning;
• The development and encouragement of local entrepreneurship through new projects and
programmes. Entrepreneurship is important for the development of regions and local communities;
it creates new jobs, develops infrastructure, and encourages innovation and the rational use of
resources. MHP works in partnership with entrepreneurs to develop and improve local communities;
and
• The development of infrastructure and safety, which includes environmental safety, healthcare,
product quality and safety, safety of buildings, structures and other infrastructure.
Local communities
A deterioration in local community relationships may
lead to disruption in day-to-day business activities,
adverse perceptions about MHP’s approach to human
rights, the environment and negative reputational
effects.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
52
Principal risk
Year-on-year
change in risk
level
Impact
How we manage the risk
Investor and other stakeholder
relations
COMPLIANCE RISKS
Legal and regulatory risk
Bribery and corruption
Inaccurate or out-of-date information about MHP and its
activities leads to negative impacts on the Company’s
reputation and adverse impacts on its relations with
material stakeholders including its shareholders and
bond holders.
MHP maintains an experienced and well-resourced communications and investor relations team that
is supported by a national and international network of professional advisors. The team is tasked
with ensuring that MHP’s investor 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 external commentary about its
activities to ensure that any inaccuracies are addressed promptly. A qualitative measurement of the
Company’s image is performed on a regular basis and monitored by its senior management team and
the Board.
including changes
The Group’s businesses may be affected by regulatory
developments in any of the countries in which MHP
in fiscal, tax or other
operates,
regulatory regimes. Potential impacts include higher costs
to meet new environmental requirements; the possible
expropriation of assets; other taxes; or new requirements
for local ownership.
MHP’s management team actively monitors regulatory developments in the countries in which the
Group operates. MHP’s financial control framework has adopted tax and treasury approaches fully
in compliance with relevant local laws in the jurisdictions in which the business is registered. MHP
pays its taxes in full in all jurisdictions in which it operates. Moreover, MHP is consistently developing
and integrating into its business practices standards such as the Market Abuse Regulation and
sustainability reporting.
A material bribery or corruption incident could lead
to significant reputational harm, adverse stakeholder
relations, financial penalties and could threaten MHP’s
licence to operate.
MHP maintains robust anti-bribery and corruption policies and procedures which are regularly
reviewed and monitored by the Audit Committee. These include a Code of Ethical Conduct and
investigation procedures which all employees are required to adhere to, and address matters such
as bribery, gifts, supplier and customer relations, conflicts of interest and other areas of potentially
corrupt activity. MHP operates a whistle blower hotline for the reporting of suspected bribery and
corruption
Failure to comply with
the covenants under loan
agreements
A failure by MHP to comply with restrictive covenants
under the terms of its indebtedness could put MHP into
default.
MHP has developed and follows control procedures to monitor compliance with the covenants. In
2019, the Company implemented a “Procedure for consolidated leverage ratio more than 3.0x“, which
contains a roles and responsibility matrix, communication rules and a modelling tool, which is used
before approval and actioning of transactions which have limitations if the consolidated leverage ratio
exceeds 3.0x.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Risk Management
Principal risk
BUSINESS CONTINUITY RISK
Year-on-year
change in risk
level
Failure of IT systems could
materially affect MHP’s
business
COVID-19
53
Impact
How we manage the risk
MHP is becoming more dependent on IT systems and
considers these critical to successful business operations.
MHP relies on its IT systems in many areas of its business,
including aspects of accounting records, business
monitoring, execution, production of orders, invoicing,
payment monitoring and health and safety. Although
MHP backs up its IT systems and has a disaster recovery
plan, the failure of IT systems could have a material
adverse effect on MHP’s business, results of operations,
financial condition and prospects.
A Pandemic such as COVID-19 can affect the health and
welfare of MHP’s employees and partners and have an
adverse effect on customer demand and on continuity of
supply and production. As a result, it can have a material
impact on the Company’s financial results.
In 2020, the major effects of COVID-19 on MHP were:
• A sharp reduction in the HoReCa market for poultry,
particularly in Europe, resulting in excess supplies
and stocks of chicken which reduced prices in the
second half of the year; and
• Employee absence due to illness or lockdowns.
There was only limited impact on continuity of supply and
production.
A number of measures have been implemented across the Company to reduce the risk of IT
system failure. These include: the implementation of additional business continuity measures;
the organisation of reserved data channels; moving services to the Cloud; and the establishment
of an incident management process providing continuous support for the business. In addition, the
Information Security (“IS”) team performs regular audits of critical IT services in order to determine
any IS weakness and to perform penetration testing of Company vulnerabilities. It also increases
employee awareness of IS risks and focusses on developing proper behaviours.
The Management team implemented a range of measures for preventing sickness and the spread of
infection within the Company (remote working, additional medical screenings, corporate transfers and
protective masks etc.). At production facilities work is organised in shifts of small numbers of people
that allows limited contact and minimises the potential spread of infection. To assist employees who
became infected, the Company provided paid-for medical support, both screenings and treatment.
MHP has developed and implemented flexible production and sales plans that redirect sales from
closed channels to other markets and channels as required. This is a continuous activity that is
embedded into planning processes across the Group.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 S172 Statement & Stakeholder Engagement
54
S172 STATEMENT
& STAKEHOLDER
ENGAGEMENT
Section 172 of the UK Companies Act 2006 requires each Director
of the Company to act in the way he or she considers, in good
faith, would most likely promote the success of the Company for
the benefit of its members as a whole. In this way, Section 172
requires a Director to have regard, among other matters, to the:
• likely consequences of any decisions in the long term;
• interests of the Company’s employees;
• need to foster the Company’s business relationships with
suppliers, customers, and other material stakeholders;
• impact of the Company’s operations on local communities and
STAKEHOLDER ENGAGEMENT
Regular engagement, dialogue and feedback with MHP’s material
internal and external stakeholders is clearly an important element
of the success of the Company and the operation of its business
model. Understanding their views informs and assists MHP’s
decision-making process and helps drive progress towards the
achievement of MHP’s aims, objectives and strategy. The table
on the following page summarises MHP’s key stakeholders, their
areas of interest and how the organisation engages with each
stakeholder group.
MHP regularly reviews its understanding of each stakeholder
group, their areas of interest and its ongoing communications,
reporting and dialogue activities.
MHP employs experienced and qualified employee teams to
conduct these activities. They include members of the Board,
senior management, investor relations staff, human resources
personnel and local stakeholder representatives. These are
supported when required by experienced, professionally-
qualified external advisors and services.
the environment;
• desirability of the Company maintaining a reputation for high
standards of business conduct; and
• need to act fairly between members of the Company.
In discharging its Section 172 duties, the Board has regularly
considered the factors set out above and the views of key
stakeholders. By considering MHP’s objectives and commitment
to responsible business, together with its strategic priorities, the
Board aims to ensure that its decisions are consistent, predictable,
and always in the best interests of the business.
Further details of the Board’s activities can be found in the
Governance section of this Report on pages 61 to 86. This
includes how the Board reaches its decisions; the matters
discussed and debated during the year; the stakeholder
considerations that were central to those discussions; and how
the Board fosters MHP’s relationships with customers, suppliers,
and other stakeholders. Other relevant information can be found
at MHP’s main corporate website at www.mhp.ua.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 ANNUAL REPORT
AND ACCOUNTS 2020
S172 Statement & Stakeholder Engagement
55
Stakeholder
Key stakeholder issues
How MHP engages
2020 highlights
WORKFORCE
• Learning and development opportunities;
• A shared vision for MHP’s long-term success;
MHP has a dedicated and
experienced workforce
that is committed to and is
a key element in achieving
MHP’s aims and objectives
• Occupational health and wellbeing;
• A conducive workplace featuring diversity, inclusion,
flexibility, responsible business practice and clear
communication;
• Fair and transparent employment terms and
conditions.
• Corporate volunteering;
• Grievance mechanism;
• Regular surveys;
• Workplace wellness programme.
• Regular two-way communication;
• Substantial two-way communication resources applied
to ensure safe working for everyone during the COVID-19
Pandemic;
• Clear communication of Company and management goals;
• Training, education and mentoring;
• HR team reorganisation improved internal
communications throughout MHP;
• Programmes for the development of innovative thinking;
• Annual online ‘town hall’ meeting with employees by the
COMMUNITIES
MHP’s reputation and
business continuity are
supported by its aim to be
a proactive and supportive
member of its local
communities and a good
neighbour
CUSTOMERS, BUSINESS
PARTNERS AND
SUPPLIERS
MHP’s ongoing and
uninterrupted business
continuity relies on the
strength and maintenance
of its relationships with its
customers, suppliers and
business advisors
• Transparency, clear communication and opportunities
to engage;
• Stakeholder Engagement Plan;
• Grievance mechanism;
• Development and support of local infrastructure and
• Regional recruiting programme;
services;
• Medical assistance in the village programme;
• Regular participation in local community meetings as part
• MHP’s approach to environmental, health and safety
issues;
• Regular public hearings;
• Local employment opportunities.
• Regular investment in public infrastructure in partnership with
local stakeholders.
• Fair business conduct, terms and conditions;
• Interaction via tender platform;
of the stakeholder engagement plan;
• Participation in numerous projects in partnership with
local communities.
• New centrilised approach to community activities,
including creation of new centre of expertise. For more
information on this see the Case Study in the Corporate
Responsibility section.
• MHP’s approach and performance relating to
biosecurity, product quality, environmental, health and
safety matters;
• Transparency, clear communication channels and
opportunities to engage.
• Dedicated staff teams to interact with customers, suppliers and
• Regular interaction to manage the effects of the COVID-19
business advisors;
• Provision of questionnaire facilities;
• Participation in regular customer due diligence processes.
Pandemic;
• Provision of facilities to support remote communications
and interaction during the COVID-19 Pandemic;
• Working closely with suppliers to ensure compliance with
MHP’s business partner code addressing matters such as
environmental and social standards.
CEO;
• Quarterly vlog with CEO and employees;
• Provision of COVID-19 prevention mechanisms to provide
a safe environment for on-site working;
• Provision of facilities to support remote working and
communication during the COVID-19 Pandemic.
• Ongoing participation in EBRD/IFC mediation process;
• Substantial communication support and advice about the
effects of the COVID-19 Pandemic;
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 S172 Statement & Stakeholder Engagement
56
Stakeholder
Key stakeholder issues
How MHP engages
2020 highlights
SHAREHOLDERS,
FINANCIERS AND THE
INVESTMENT COMMUNITY
MHP’s ongoing access
to capital and liquidity
depends on maintaining
strong and lasting
relationships with
investors, debt providers,
financiers and financial
analysts
• Financial and share price performance;
community;
• Regular provision of conference calls for the investment
• Credit rating;
• Strategy;
• Risk management;
• Environmental, social and governance (“ESG”)
approach and performance;
• Transparency, regular and proactive communication
and reporting.
• Quarterly results announcements;
• One-to-one meetings with investors and financiers;
• Annual general meeting;
• Dedicated IR section on the Company’s website;
• Annual financial and non-financial reports;
• Site visits;
• Investor surveys.
• Investor survey of MHP’s performance and investor
relations activities;
• Launch of new MHP main corporate website to assist
understanding of the business;
• Provision of regular information about the effects on the
business following the COVID-19 Pandemic and Avian
Influenza outbreaks;
• Regular communication with investors and specialist
agencies such as Sustainalytics about ESG matters.
GOVERNMENTS AND
REGULATORS
MHP’s licence to operate is
dependent on its relations
with governments and
regulators and operating
within the applicable laws
and regulations
• Adherence to applicable laws and regulations;
• Support and cooperation with local (Ukraine and
also within those countries in the EU, UK and MENA)
economic development agencies;
• I nvestment into infrastructure, education and medical
facilities;
• Transparency, clear communication channels and
opportunities to engage.
• Regular meetings with local governments;
• Participation in local infrastructure, health and education projects;
• Close cooperation with local regulators over matters such
as maintenance of strict bio-security, health and safety and
environmental matters.
• Regular dialogue to support local and national efforts to
address the Pandemic and Avian Influenza outbreaks;
• Regular participation in local community events to
understand the needs and requirements of local people.
MEDIA
An important element of all
of MHP’s key stakeholder
relations is that the
media reports timely and
accurate information about
its activities
• Receipt of timely, complete and up-to-date news and
information about MHP’s activities;
• Contact information for the media;
• Transparency, clear communication channels and
opportunities to engage.
• Company websites;
• Regular distribution of Company news and information;
• Availability of senior management for media interviews and
• Launch of new MHP main corporate website to assist
briefings;
• Site-visits for the media.
understanding of the business.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Corporate Responsibility
57
CORPORATE
RESPONSIBILITY
THIS SECTION OF THE ANNUAL REPORT IS PROVIDED TO GIVE CURRENT AND PROSPECTIVE SHAREHOLDERS AND OTHER STAKEHOLDERS AN
OUTLINE UNDERSTANDING OF MHP’S APPROACH TO CORPORATE RESPONSIBILITY MATTERS. IT REPORTS HOW THIS ASPECT OF THE BUSINESS
IS INTEGRATED INTO ITS OVERALL STRATEGY, POLICY INFORMATION, A SUMMARY OF MANAGEMENT STRUCTURES, GREENHOUSE GAS EMIS-
SIONS INFORMATION AND COMMUNITY CASE STUDY INFORMATION. AS IN PREVIOUS YEARS, THE FORTHCOMING NON-FINANCIAL REPORT WILL
PROVIDE DETAILED INFORMATION ABOUT THIS ASPECT OF MHP’S BUSINESS AND WILL BE PUBLISHED IN JUNE 2021. THIS WILL APPLY THE LATEST
APPLICATE GLOBAL REPORTING INITIATIVE (“GRI”) FRAMEWORK.
KEY FOCUS AREAS
MHP’s approach to responsible business focusses on seven key areas, which are illustrated in this table, highlighting MHP’s key areas of impact and opportunity.
Environment &
climate change
Occupational health
& safety
Product quality
& safety
Greenhouse gas and
atmospheric emissions
Occupational health
Maintenance of
biological safety
standards
Biodiversity management
Accident prevention
Product hygiene
Animal welfare
Business conduct
People
Local
communities
Antibiotic-free
programme
Anti-bribery and
corruption
Workplace diversity
Local stakeholder
engagement
Maintenance of
appropriate living
conditions
Regulatory and legal
compliance
Equal opportunities
Effects of business
activity
Water use
Provision of healthy
workplaces
Product quality
Constant access to
balanced food and
fresh water
Supplier and
customer
relationships
Training and
development
Local infrastructure
investment
Reuse, recycling and
waste management
Employee health and
well-being
Scientific analysis
Veterinary
supervision
Product labelling and
pricing
Fair working
conditions
Contribution to
local economic
development
Energy use
Addressing COVID-19
Quality of raw materials
High-quality bedding
materials
Data protection and
information security
Approach to
organised labour
Minimise impact on
local communities
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Corporate Responsibility
58
POLICY FRAMEWORK
MHP’s corporate responsibility framework is regularly reviewed by the Board
and will be developed over time supervised by the recently formed International
Government Relations and Public Affairs Committee on behalf of the Board. For
further information on this Committee, please see page 62.
MHP’s related policies form part of the Corporate Governance Charter which
is available for download from the Company’s websites (www.mhp.com.cy,
www.mhp.ua). They comprise the following policy statements and address all the
key focus areas in the table on page 57.
MHP’s policies also align the organisation with the appropriate industry, regulatory
and international standards and guidelines.
• Code of Ethics
• Code of Business Partner Conduct
• Conflict of Interest Management Policy
• Anti-Money Laundering and Combating Terrorist Financing Policy
• Gift and Business Hospitality Policy
• Health and Safety Policy
• Sustainable Environmental Policy
• Corporate Social Responsibility Policy (relating to communities and related
stakeholder engagement activities)
• Corporate Philanthropy and Charity Policy
• Anti-Bribery and Corruption Policy
• Related Party Transaction Policy
• Land Use Policy
• Animal Welfare Policy
• Whistleblowing Policy
• Human Resources Policy
• Share Dealing Code
MANAGEMENT SYSTEMS
MHP’s policy framework is supported by comprehensive corporate responsibility
management systems which have been developed in line with industry best
practice and international standards. Board level management of these systems is
supervised in the main by the International Government Relations and Public
Affairs Committee. The Committee regularly reviews this structure in line with the
aim of maintaining a programme of continuous improvement and achieving the
highest industry standards. Highlights are recorded below and further information
will be recorded within the forthcoming Non-Financial Report.
Environment and
climate change
All MHP locations employ environmental specialists and people responsible for the maintenance of environmental standards and compliance with relevant
laws and regulations.
Occupational health
and safety
This is now managed by the Human Resources team. As well as compliance and accident prevention, the department is tasked with raising and maintaining
employee awareness of health and safety through a variety of training, dialogue and communications mechanisms.
Product safety and
quality
This aspect of the business is of paramount importance to MHP and it is proud of its record in this area. A key aspect of its management systems is its use
of internal and external laboratories to ensure this record is maintained. All are certified for compliance with ISO/IEC 17025.
Animal welfare
Animal welfare is a natural priority and MHP’s systems ensure comfortable living conditions and high standards of biological safety. Antibiotic use is
prohibited at rearing sites and the Company does not use hormones or growth stimulants. Antibiotics 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 has a programme in place to
reduce antibiotic use over time.
Business conduct
MHP’s anti-corruption and bribery procedures include regular reviews of the Company’s risk management systems by the security department and regular
employee training.
People
MHP’s HR team has been digitising the department’s management systems and rolling out the internationally recognised Objectives and Key Results
(“OKR”) HR management methodology. It has also been reorganising the department into internal centres of expertise and a front office arm to improve
communications with different parts of the business.
Local communities
The Company continues to develop its stakeholder engagement activities and relationships with its local communities (see case study on the following
page). This includes the rollout of the Stakeholder Engagement Plan, a programme of investment in local infrastructure and the delivery of support in
addressing the COVID-19 pandemic.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Corporate Responsibility
GREENHOUSE GAS EMISSIONS
MHP’s greenhouse gas emissions data encompasses all its operations in Ukraine
that are under MHP’s financial control. It does not currently include the emissions
from its operations in other countries. The calculation applied the following
methodologies.
• Global Warming Potential (“GWP”) from IEA – CO2 emissions from Fuel
Combustion Highlights (2013 edition)
• IPCC Fifth Assessment Report (Intergovernmental Panel on Climate Change)
• IFC Carbon Emissions Tool (“CEET”) www.ifc.org
Emissions for 2020 with prior year comparative
The data has not been externally verified although MHP will consider taking this
step in the future.
Emission type
2020 (tonnes CO2e)
2019 (tonnes CO2e)
Change
Scope 1
Scope 2
Total
321,427.650
232,301.650
553,729.300
328,579.760
236,555.610
-2.18%
-1.80%
565,135.370
-2.02%
CASE STUDY: 1
A NEW APPROACH TO MHP’S COMMUNITY AND LOCAL STAKEHOLDER
ACTIVITIES
MHP prioritises its relationships with its local stakeholders and views the
management of these relationships as important to the long-term success of the
business.
During 2020 MHP refined its approach by centralising its activities. Previously
individual subsidiary companies managed this aspect of MHP’s business at a local
level. To achieve this MHP created a new centre of expertise and a new charity
called MHP Hromada.
The new approach shifts the emphasis of MHP’s community work from acting
as a donor to working in partnership with local communities and raising their
understanding of how to work with the business sector.
MHP now aims to work in partnership with other large businesses, international
donors and national Ukrainian charities in the development of its community
projects and to share and develop expertise.
The central team was also strengthened in 2020 to enable this new approach to
be supported by employees with specific knowledge and expertise to achieve
maximum value for its local stakeholders.
59
CASE STUDY: 2
PROTECTING MHP’S WORKERS DURING THE COVID-19 PANDEMIC
The COVID-19 Pandemic presents significant challenges to the food production
industry. During 2020, notable virus outbreaks were experienced at the operations
of several companies around the world operating within MHP’s business sector
that affected a large number of workers. It was therefore important that all of MHP’s
businesses promptly put in place robust and effective prevention procedures
and protocols to minimise the risk of workers being infected and transmitting the
virus in the workplace. It was also important that comprehensive training, advice,
support and guidance was provided to everyone that works for MHP. That resulted
in undisrupted production during the Pandemic, despite all the new challenges
COVID-19 brought to the business and its employees.
MHP’s industry-leading track record in the management and maintenance of
hygiene standards supported the many Group-wide initiatives to address the
difficult issues presented by the Pandemic. None of MHP’s production operations
experienced the sort of significant disruptions or virus outbreaks within the
workforce that were experienced elsewhere within the industry during 2020 and
the Management team is proud of and grateful for everyone’s ongoing efforts at
all of MHP’s businesses.
Key features of MHP’s approach included:
• The provision of uninterrupted pay and conditions for any worker in isolation as
a result of exposure to COVID-19 or infection;
• Home or remote working where this was possible;
• Ensuring that the required medical support was provided for all employees who
became infected with the virus;
• The introduction of temperature checks, site access controls, social distancing
measures and the provision of personal protection equipment in working
environments where this was necessary throughout MHP’s businesses;
• The introduction of COVID-19 rapid testing facilities at many of MHP’s sites;
• Production of informative webinars to provide information to MHP employees
and their families about the virus;
• Access to a medical advisory hotline;
• The introduction of further special hygiene measures to ensure maximum safety
(for instance regular probiotic deep cleaning and ventilation treatment at MHP’s
Kyiv headquarters).
MHP’s management of the Pandemic is kept constantly under review by the senior
management team and ongoing efforts to refine and develop its approach will
continue throughout 2021 and beyond.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 Corporate Responsibility
60
CASE STUDY: 3
MHP’S COMMITMENT TO PRODUCT INNOVATION IS UNDERLINED BY THE
FORMATION OF THE INNOVATION LAB
Innovation has always been a key element in MHP’s long-term business success
and will continue to play a key role in the business as it aims to become a
customer-centric company. This focus is led by MHP’s CEO who believes that
this aspect of MHP’s business strategy ensures that it continues to address the
challenges presented by changing customer behaviour and global technological
developments.
CASE STUDY: 4
BUSINESS CONDUCT
MHP’s Board of Directors closely monitors the Company’s business conduct
progress and performance and responsibility for this aspect of the business is
divided between the Audit Committee and the Government Affairs and Public
Relations Committee. MHP believes its long-term business success is linked to its
business conduct track record and that it is important that its stakeholders regard
its policies, management systems and performance as robust and in line with
international best practice.
In May 2020, day-to-day responsibility for ensuring that MHP’s focus on this area is
maintained and further developed was passed to the newly-formed Innovation Lab
staffed by a highly experienced team. The team’s tasks include applying an agile
experiment-based process and inter-departmental collaboration to develop new
products. An important aspect of the team’s activities is a commitment to invest in
consumer research to identify current and future trends and culinary preferences.
The Innovation Lab team also plans to engage with a large number of national
and international stakeholders to select business partners to help it achieve its
aims and objectives. Four companies have already been selected to work with
MHP for this purpose. They include an e-commerce delivery service, two hardware
companies and a plant-protein producer.
The team has already developed a number of new lines for consumer market-
testing in Ukraine. These include soups or broths, meal kits containing pre-prepared
ingredients for cooking restaurant-style meals at home and frozen ready-to-cook
products. Plans are now in place to distribute the successfully trialled products
through MHP’s existing business channels to reach the targeted consumer
markets. Going forward an innovation pipeline will be created based on a large
number of product concepts for market-testing and distribution in the short-,
medium- and long-term.
The Ethics and Compliance Programme seeks to ensure that the Company’s
business practices conform to applicable laws, international regulations and ethical
business principles as well as developing a culture of integrity. The Programme
aims to align MHP with a number of industry and international business conduct
standards including the Copa Cogeca policy framework, the OECD Guidelines for
Multinational Enterprises, the Supplier Code of Conduct published by the Food and
Agricultural Organisation of the United Nations and the seventeen UN Sustainable
Development Goals. MHP also supports the aims and objectives of the European
Green Deal and aims to adhere to all of the applicable laws and regulations within
the countries in which it operates.
Key features of MHP’s Compliance Programme framework include:
• A culture of rigorous assessment and oversight
• Robust leadership and governance structures
• A comprehensive policy and management system framework
• Maintenance of an ethics helpline which is available to all employees
• Regular employee training and development
• Development and rollout of an Ethics and Compliance Ambassadors Programme
The Programme was reviewed and updated as a result of the unique challenges
presented to the business by the global COVID-19 Pandemic in 2020.
All employees are required to comply with the Company’s Code of Ethics,
compliance policies, and policies related to gifts, business entertainment, insider
trading, anti-money laundering and promotional materials compliance.
BUSINESS REVIEWANNUAL REPORTAND ACCOUNTS 2020 GOVERNANCE
62 Corporate Governance
Report
69 Board of Directors
73 Audit Committee Report
78 Nominations and
Remuneration Committee
Report
80 International Government
Affairs and Public
Relations Committee
Report
83 Management Report
Corporate Governance Report
62
Governance structure as of 31 December 2020
BOARD OF DIRECTORS
AUDIT
COMMITTEE
NOMINATIONS
AND
REMUNERATION
COMMITTEE
INTERNATIONAL
GOVERNMENT
RELATIONS AND
PUBLIC AFFAIRS
COMMITTEE
CHIEF EXECUTIVE OFFICER
SENIOR MANAGEMENT
CORPORATE
GOVERNANCE REPORT
MHP IS CONSTITUTED AS A EUROPEAN COMPANY (“SOCIETAS EUROPAEA”)
MHP was established on 30 May 2006. According to the
extract issued by the Luxembourg Trade and Companies Register
on 8 August 2017, the Company converted from a public limited
liability company (“société anonyme”) into a European company
(“Societas Europaea”) effective the previous day.
Effective 27 December 2017, the Company’s registered office
and central administration was transferred to Cyprus and the
Company is currently registered in the Cyprus Registry for SE
Companies, under number SE 27. The Company’s registered
office is at 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol,
Cyprus.
In December 2017, the Company adopted a new Memorandum
and Articles of Association to comply with the provisions of
Cyprus Companies Law, Cap. 113, Council Directive 2001/86/EC
of 8 October 2001 supplementing the Statute for a European
company with regard to the involvement of employees, the SE
Regulation and the European Public Limited – Liability Company
Regulations 2006, as applicable in Cyprus.
This new Memorandum and Articles of Association can
be found on the Group websites (www.mhp.com.cy, www.
mhp.ua). The Company’s corporate governance structures,
processes and procedures are outlined in its Code of Corporate
Governance which can also be viewed at the Group websites.
The Company upholds and practises the highest standards of
corporate governance with its shareholders, the Board of
Directors, personnel, business
community and other
stakeholders including government and regulatory agencies.
Board structure as of 31 December 2020
EXECUTIVE CHAIRMAN
CHIEF
EXECUTIVE
OFFICER
CHIEF
FINANCIAL
OFFICER
CHIEF
OPERATING
OFFICER
SENIOR
INDEPENDENT
DIRECTOR
THREE
INDEPENDENT
NON-EXECUTIVE
DIRECTORS
ONE NON-
EXECUTIVE
DIRECTOR
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
STATEMENT OF COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE 2018
The Company has been steadily developing its corporate
governance processes and procedures over recent years
and aspires to the achievement of best practice in line with
international standards.
During 2020, it undertook further steps in order to comply as
far as practicable with the UK Corporate Governance Code 2018
(available from the Financial Reporting Council at www.frc.org.
uk). MHP also complies with the requirements of Cypriot law and
regards the UK Corporate Governance Code as the appropriate
international best practice benchmark for its approach.
It is the opinion of the Board that during 2020 the Company
complied with the principles and requirements of the UK
Corporate Governance Code except in relation to the matters
noted below.
IN 2021 PRIOR TO THE
CHANGES TO THE BOARD
PUBLICATION OF THIS REPORT
Roger Wills, Independent Non-Executive Director, left the Board
in January 2021 and Roberto Banfi, Non-Executive Director, left
the Board in February 2021. In order to continue to satisfy the
independence requirements of the UK Corporate Governance
independence, further
Code
in relation to overall Board
63
develop Board and Board Committee independence and to
develop the Board’s breadth of experience and skills, a search
for a replacement Independent Non-Executive Director was
immediately commenced using the services of an experienced
external recruitment agency. This process is being supervised by
the Senior Independent Director and MHP expects to announce
further developments shortly.
Provision
number
Provision requirement
Explanation
9
The Chair should be independent on appointment under the criteria
outlined in Provision 10.
10
11
19
The Board should identify in the annual report each Non-Executive
Director it considers to be independent. Circumstances which are likely to
impair, or could appear to impair, a Non-Executive Director’s independence
include whether a Director has served on the Board for more than nine
years from the date of their first appointment. A clear explanation should
be provided if the Board nonetheless considers the Non-Executive Director
to be independent.
At least half the Board, excluding the Chair, should be Non-Executive
Directors whom the Board considers to be independent
The Chair should not remain in post beyond nine years from the date
of their first appointment to the Board. To facilitate effective succession
planning and the development of a diverse board, this period can be
extended for a limited time, particularly in those cases where the Chair
was an existing Non-Executive Director on appointment.
32 to 41
Remuneration
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. This role has subsequently ended. After
considering the Chairman’s credentials, experience, expertise and independence of thought, it was the Board’s view that the Chairman was independent at the
time of his appointment.
In 2018, at the request of the Board, the Chairman agreed to support the Chief Executive Officer with certain specific strategic projects where his extensive
knowledge and expertise could be particularly helpful. Subsequently, in March 2019, his role was designated as Executive Chairman. Consequently, he
can no longer be regarded as independent. The Board is satisfied that, in view of his credentials, experience, expertise and independence of thought, these
arrangements are in the best interests of the Company, its shareholders and other stakeholders.
John Grant has served as a Non-Executive Director of the Company since 2006 and is the Senior Independent Director. The Board values his business
perspective in view of his extensive experience as a Director of a wide range of major public companies in a variety of business sectors and is satisfied that he
possesses the necessary independence of thought to be regarded as independent.
This provision was satisfied from March 2020 onwards when Philip J Wilkinson OBE became an Independent Non-Executive Director of MHP.
The Chairman became a Non-Executive Director in 2006 and was appointed Chairman in 2017 at which time the Board was satisfied of his independence of
thought and viewed the appointment as in the best interests of the Company, its shareholders and other stakeholders. His subsequent adoption of executive
responsibilities was also, and continues to be, viewed as being in the best interests of these parties.
It is the responsibility of the Nominations and Remuneration Committee to ensure that the Executive Management 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, supplemented by performance-related bonuses. As the
Company develops, consideration will be given to adopting other forms of incentive when the Board believes that these could be in the best interests of the
Company, shareholders and other stakeholders. Information on remuneration of the Board can be found on page 85.
A remuneration consultant (Deloitte) was appointed during 2020 to conduct a comparative review of compensation of the Executive Directors and Senior
Management. The results were used to support implementation of the change to a more performance-related bonus scheme.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
ABOUT THE BOARD
Biographies of the current Directors are set out on pages 69 to
72.
The Directors who served during the year were;
• John Rich
• John Grant
• Roger Wills
• Roberto Banfi
• Christakis Taoushanis
• Philip J Wilkinson OBE (from March 2020)
• Yuriy Kosyuk
• Yuriy Melnyk
• Viktoria Kapelyushnaya
More information on Board developments and changes during
the year can be found below and in the Chairman’s Statement
on pages 16 to 20.
At 31 December 2020, the Board had nine directors, four of
whom were regarded by the Board as independent. Roberto
Banfi is not regarded as independent because of his provision
of other paid services to the Company. John Rich was viewed by
the Board as independent on appointment as Chair in 2017 but
is now viewed as not independent because of his subsequent
performance of certain executive management functions. The
Board considers John Grant to be independent notwithstanding
his period of service since 2006.
CHANGES TO THE BOARD OF DIRECTORS AND THE
COMMITTEES DURING 2020 AND THE BEGINNING OF 2021
• Philip J Wilkinson OBE was appointed to the Board in
March 2020. Please see his biography on page 71. He is an
Independent Non-Executive Director and his appointment
raised
four.
He joined the Nominations & Remuneration Committee and
the Audit Committee. John Rich stepped down simultaneously
as a member of
the Nominations and Remuneration
Committee.
independent directors
the number of
to
• A new International Government Relations and Public Affairs
(“IGR&PA”) Committee was formed in July 2020. Please see
the Committee’s report on page 71. Philip J Wilkinson OBE was
appointed as the Chair of this Committee. The other Board
members who joined this Committee were John Rich and
Roberto Banfi.
64
DIRECTORS AND OFFICERS LITIGATION STATEMENT
No member of the Board of Directors or of MHP’s senior
Management has, for at least five years:
• Any convictions relating to fraudulent offences;
• Been a senior manager or a member of the administrative
or supervisory bodies of any company at the time of, or
preceding, any bankruptcy, receivership or liquidation; or
• Been subject to any official public incrimination and/or
sanction by any
regulatory authority
statutory or
(including any designated professional body) nor ever been
disqualified by a court from acting as a member of the
administrative, management or supervisory bodies of
a company, or from acting in the management or conduct of
the affairs of a company.
DIRECTORS’ INTERESTS
The interests of Directors in MHP’s GDRs are shown in the table
below.
John Rich
Roberto Banfi
John Grant
GDRs
25,000
25,000
17,000
the Board
improve MHP’s governance practices.
and Committee
RELATED PARTY TRANSACTIONS
The Senior Independent Director is developing proposals to
further
In addition
changes mentioned
to
above, in July 2020 the Board approved a Related Party
Transactions Policy, which tightened controls over all related
party transactions. Please see also the Audit Committee Report
on pages 73 to 77 and the Nominations and Remuneration
Committee Report on pages 78 to 79.
Full information on loans made to WTI Trading Limited is disclosed
in the Management Report on pages 83 to 86 and in Note 32 to
the Consolidated Financial Statements on page 150.
• On 19 January 2021 Roger Wills resigned from the Board.
John Rich has been appointed as Interim Chairman of the
Nominations and Remuneration Committee.
• On 9 February 2021 Roberto Banfi retired from the Board. He
will continue to advise the Company on a consultancy basis
and is retained as an advisor to the Board.
In order to continue to satisfy the independence requirements of
the UK Corporate Governance Code in relation to overall Board
independence, further develop Board and Board Committee
independence and to ensure that the Company benefits from
the appropriate balance of skills, knowledge, independence,
experience and diversity, a search for a new Independent Non-
Executive Director was commenced in early 2021 using the
services of an experienced external recruitment agency. The
process is being supervised by the Senior Independent Director
and MHP expects to announce further developments shortly.
BOARD MEETINGS
The Board conducted five meetings during 2020. All the Non-
Executive Directors and Chairman attended these meetings with
the exception of one which Roberto Banfi was unable to attend.
Out of five Board meetings, the CFO attended four, the COO
attended three and the CEO attended none. In 2020, because
of the CEO’s need to focus on the transition and development of
the Company, Yuriy Kosyuk and John Rich agreed that the CEO
would transfer to John Rich all his board responsibilities for 12
months. This will revert to normal in 2021.
Taking into account COVID-19 restrictions, Directors attended the
majority ofmeetings via conference calls. The Board of Directors
also approved certain decisions through 14 circular resolutions.
At the end of each year, the Board and Committees undertake
an assessment of their own effectiveness. In parallel, the Non-
Executive Directors meet to discuss and evaluate the performance
of the Executive Chairman. The results are considered by the
Board at the first Board meeting of the following year.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
PRINCIPAL RESPONSIBILITIES OF THE BOARD
The Board is responsible for the overall conduct of the
Company’s business and has the powers, authorities and duties
vested in it by and pursuant to the relevant Cyprus laws and
regulations and the Articles of Association of the Company.
MHP’s Articles of Association can be viewed at the corporate
website (www.mhp.com.cy).
The Company has a unitary governance structure and the Board
is the ultimate decision-making body, except for the powers
reserved for the Shareholders’ Meeting by law or as specified
in the Articles of Association (see also Board of Directors on
pages 69 to 72).
The Board has a schedule of matters that are assigned to it for
discussion, debate and approval in line with the requirements of
the UK Corporate Governance Code. These include:
• MHP’s strategy, aims and objectives and review of
performance against those goals;
• Mergers and acquisitions strategy;
• Budgets, financial and operational targets;
• Annual, half yearly and quarterly financial results;
• Annual report and accounts;
• Dividend policy;
• Appointments to the Board and removal of Board members;
• Remuneration of Directors;
• Senior management appointments, removals and
remuneration arrangements;
• Appointments to Board committees;
• Board and senior management succession planning;
• Approval of major capital expenditure projects, acquisitions
and divestments;
• Significant variations in borrowings or borrowing
facilities;
• Financial and risk management policies and procedures; and
• Appointment and removal of the Company Secretary.
NON-EXECUTIVE INDEPENDENCE
The independence of each of the Non-Executive Directors is
considered on appointment. Each year, the Nominations and
Remuneration Committee (“NRC”) and the Board consider the
facts and circumstances relating to Director independence
(and throughout the year, as appropriate). This process includes
an assessment of whether each Non-Executive Director is
independent of Management and any business or other
relationships that could materially interfere with his or her
exercise of objective, unfettered and independent judgement or
his or her ability to act in the best interests of the shareholders.
In making its decision, the Board considers relationships with
Management, major shareholders, associated companies and
other parties with whom the Company conducts business.
At 31 December 2020, the Board had nine directors, four of
whom were independent.
John Grant has served as a Non-Executive Director of the
Company since 2006 and has been Senior Independent Director
since 2014. He has therefore served on the Board for more
than nine years from the date of his first appointment. He has
had extensive experience over many years as an independent
non-executive director of a wide range of public and private
companies covering a variety of business sectors. He has been
Senior Independent Director, and has chaired the Audit and/or
Remuneration Committees of several major public companies.
The Board values his broad business perspective and experience
and continues to be satisfied that he possesses the necessary
independence of character and judgement to be regarded as
independent. Christakis Taoushanis and Roger Wills were also
viewed as Independent Non-Executive Directors.
Philip J Wilkinson, who has extensive high-level experience in
the global poultry industry, was elected an Independent Non-
Executive Director in March 2020. Prior to becoming available
to join the MHP Board, he was retained by the Company for
several months on a part-time advisory basis, in part to enhance
his knowledge of the business. The NRC and Board are satisfied
that this in no way impaired his independence as a director.
Roberto Banfi is not regarded as independent due to his provision
of other paid services to the Company.
65
John Rich was viewed by the Board as independent on
appointment as Chairman in 2017 but is now not viewed as
independent because of his subsequent performance of certain
executive management functions. Accordingly, in March 2019, he
resigned from the Audit Committee and his role was designated
as Executive Chairman.
is responsible
for regular assessment of
BOARD EFFECTIVENESS
its
The Board
effectiveness.
In 2020, the Board conducted an annual
effectiveness review in order to evaluate its performance as well
as that of its Committees and individual Directors. The evaluation
process was initiated by a questionnaire. The conclusions were
considered by the Board at its first meeting in 2021.
CONFLICTS OF INTEREST
The Board has formal procedures in place to manage conflicts
of interest. Each Director is required to inform the Board of any
other directorship, office or responsibility, including executive
positions that are taken up outside the Company during the term
of 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 transactions involving
conflicts of interest (whether actual or potential) of:
• MHP’s Management team members, including Directors of
subsidiaries and branches (“key management”);
• MHP’s
line managers who have authority to authorise
transactions on behalf of MHP (“line managers”);
• other MHP employees who are authorised to internally
approve any decisions as to significant transactions based on
internal policies and instructions (“responsible employees”) or
who have power to influence such decisions.
OTHER PROFESSIONAL COMMITMENTS
Every Director is required to allocate the time and attention
required for the proper fulfillment of his or her duties. This
commitment includes limiting the number of other professional
commitments to the extent required.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
66
CONFIDENTIAL INFORMATION
All Board Directors are required to keep confidential information
received in their capacity as Directors and may not use it for any
other purpose than for fulfilling their remit.
overseen by the CFO and reported to the Audit Committee.
The Directors, Management and employees follow principles of
ethical business that are in line with the Company’s approved
Conflict of Interest Policy.
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 discharge
their responsibilities as Directors.
Board Committees are also provided with sufficient resources to
undertake their duties.
All Directors have access to the advice and services of the
Company Secretary, who is responsible 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 Directors may seek clarification or amplification
where necessary.
The Chairman ensures that Directors continually update their
skills, knowledge and understanding of the Company’s activities
in order to fulfil their role effectively both on the Board and on
Board Committees.
The Company provides the necessary means for developing and
updating its Directors’ knowledge and capabilities.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board of Directors is ultimately responsible for the Company’s
governance, risk management, internal control environment and
processes and reviews their effectiveness at least annually. Once
identified, risks are evaluated to establish their potential financial
or non-financial impact and the likelihood of their occurrence.
For risks assessed as significant, a mitigation action-plan is
determined by the relevant operational business management
team.
The summary of key risks is regularly discussed with MHP’s
Management team and reported at least annually to the Board
through the Audit Committee. The Company has an independent
risk and process management department whose activities are
A summary of the Company’s framework for managing risks, and
the Company’s key business risks together with the actions taken
to mitigate them can be found on pages 45 to 49 of this Report.
ENGAGEMENT WITH STAKEHOLDERS
The Board recognises the importance of regular, effective and
constructive communications with its shareholders and maintains
a dedicated investor relations department to facilitate this. The
principal opportunity for shareholders to engage with the Board
is at the Annual General Meeting.
MHP announces its financial results on a quarterly basis. This
information is released through the appropriate regulatory news
services and recorded on the Company’s website.
Each results announcement is accompanied by a conference
call with MHP’s finance and investor relations team during which
investors and analysts have the opportunity to discuss and ask
questions about MHP’s performance.
During the year the Board and investor relations team regularly
engaged with shareholders and financial analysts to discuss
matters relating to MHP’s strategy and financial performance.
The Company also conducted a survey of investor opinion
which enabled shareholders and bondholders to confidentially
report their opinions about matters such as MHP’s financial and
non-financial performance, strategy,
information disclosure,
investor relations and quality of management.
Further information can be found in the S172 Statement &
Stakeholder Engagement on pages 54 to 56.
WORKFORCE ENGAGEMENT
MHP works closely with its workforce who play an active role in
the management of the business through day-to-day dialogue
and engagement with the senior management team. One key
element of this process is the Company’s new HR Cornerstone
Digital management system.
This includes the provision of a two-way feedback mechanism
allowing employees to participate in the running of the business
and how it is managed. More information about MHP’s approach
to workforce engagement is included within the Corporate
Responsibility section on pages 57 and 60 and the People
section of the Non-Financial Report which is due to be published
later in 2021.
DIVERSITY AND INCLUSION
MHP values its distinctive culture and, in particular, its proactive
approach to creating senior management and development
opportunities for women. MHP believes that diversity and
inclusion support innovation, continuous improvement and
increase efficiency.
The Board and the Nominations and Remuneration Committee
considered diversity and inclusion matters as part of the regular
assessment of Board effectiveness and the appointments
process (see also the NRC report on pages 78 to 79). The Board
has determined that it will not set specific targets with respect to
Board diversity but recognises the benefits that this brings to its
effectiveness. It is committed to promoting diversity throughout
the business.
BOARD COMPOSITION AND ROLES
At 31 December 2020 the Board comprised the Executive
Chairman, Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and five Non-Executive Directors (four of whom
were considered by the Board to be independent). Details of the
Board’s composition are set out on pages 69 to 72 which contain
biographical details of the Directors.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
67
ROLE OF THE CHAIRMAN
The Board elects the Chairman from members that meet
the Board’s criteria
job
specification by the Nominations and Remuneration Committee.
The Company’s Corporate Governance Charter excludes the
CEO from becoming Chairman.
the preparation of a
following
The Chairman 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 receive
complete and accurate information and, to the extent appropriate,
a copy of any Management presentation to be made at the Board
meeting. The Chairman will also make sure that there is sufficient
time for making decisions.
The Chairman is also responsible for ensuring that new Directors
receive a complete and tailored 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.
The Chairman represents the Board to shareholders and the
public and chairs Shareholders’ Meetings. The Chairman serves
as the interface between the Board and major shareholders of
the Company on matters of corporate governance.
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 and vice versa except in extraordinary circumstances
limited to no more than 12 months. The Chairman is required
to maintain close relations with the CEO by giving him support
and advice while respecting the executive responsibilities of the
CEO. The CEO provides the Chairman with all the information he
requires to carry out his role.
ROLE OF THE CEO
The CEO reports directly to the Board. 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
APPOINTMENT AND RE-APPOINTMENT OF DIRECTORS
There is a formal and rigorous procedure for the appointment of
new Directors. The Board may appoint an individual as a Director
to either fill a vacancy or as an additional member of the Board.
The process for new appointments is led by the Nominations and
Remuneration Committee which makes a recommendation to the
Board.
The Board may appoint any Director to hold any employment or
executive office and may revoke or terminate such appointment.
In line with the UK Corporate Governance Code, all members
of the Board are subject to annual re-election by a majority of
shareholders at the Annual General Meeting.
Directors may be re-elected an unlimited number of times.
Shareholders may, by ordinary resolution, also appoint a person
as a Director or remove any Director before the expiration of
their period in office.
ANNUAL GENERAL MEETING
The next Annual General Meeting will take place on 15 June 2021
at 1pm at 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol,
Cyprus.
The 2021 AGM notice can be found within the investor relations
section at the Company’s website.
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’ Meetings.
The CEO can delegate authority for daily management to
subordinate executives but will retain ultimate accountability
to the Board for the actions which are conducted during the
performance of the role and the actions of delegates.
ROLE OF THE SENIOR INDEPENDENT DIRECTOR
John Grant has been designated as the Board’s Senior
Independent Director since 2011.
The Senior Independent Director acts as an advisor to the
Chairman, is responsible for the annual evaluation of the
Chairman and acts as an intermediary for the other Directors and
shareholders when required.
He provides an alternative point of contact for shareholders on
matters where the usual channels of communication are deemed
inappropriate. In 2020, the Senior Independent Director did not
receive any requests directly from shareholders/stakeholders.
ROLE OF THE NON-EXECUTIVE DIRECTORS
The Non-Executive Directors bring an external perspective to
Board discussions. They offer specialist advice, constructive
challenge and strategic guidance to the Executive Directors as
well as holding them to account.
MHP benefits from the broad range of skills and experience that
the Non-Executive Directors provide from different businesses
and fields.
ROLE OF THE COMPANY SECRETARY
The Company Secretary ensures that the Board receives
appropriate and timely information and provides advice and
support to the Chairman, the Board, Board Committees and
senior management on regulatory and governance matters.
All Directors have direct access to the advice and services of
the Company Secretary. Directors may also obtain independent
advice as required at the Company’s expense.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Corporate Governance Report
68
AUDIT COMMITTEE
Meetings attendance
John Grant, Chairman
Christakis Taoushanis
Roger Wills
Philip J Wilkinson OBE (appointed
June 2020)
Number
5/5
5/5
5/5
3/3
The Committee’s main tasks are disclosed in the updated 2018
Corporate Governance Charter (Annex C).
During 2020, the Committee held five meetings with attendance
as shown above. The Audit Committee Report is on page 73 to
77. Philip J Wilkinson OBE was appointed to the Committee in
June 2020. Roger Wills resigned from the Board in January 2021.
NOMINATIONS AND REMUMERATION COMMITTEE
Meetings attendance
Number
INTERNATIONAL GOVERNMENT RELATIONS AND PUBLIC
AFFAIRS COMMITTEE
Meetings attendance
Number
Philip J Wilkinson OBE (Chairman)
John Rich
Roberto Banfi
3/3
3/3
3/3
The Committee was formed by the Board in June 2020. Its main
tasks are disclosed in the updated 2021 Corporate Governance
Charter (Annex F) which is available for download at MHP’s
website.
the Committee held
During 2020,
three meetings with
attendance as shown above. The International Government
Relations and Public Affairs Committee Report
is on
page 80 to 82.
Roberto Banfi retired from the Board in February 2021.
Roger Wills (Chairman from April
2020 to January 2021)
John Rich (Chairman to April 2020,
Member to June 2020, Interim
Chairman from January 2021)
John Grant
Philip J Wilkinson OBE (appointed
June 2020)
6/6
2/6
6/6
4/6
The Committee’s main tasks are disclosed in the updated 2018
Corporate Governance Charter (Annex E) which is available for
download at MHP’s website.
During 2020, the Committee held six meetings with attendance
as shown above. The Nominations and Remuneration Committee
Report is on page 78 to 79.
Philip J Wilkinson OBE was appointed to the Committee in June
2020 and John Rich stepped down. Roger Wills resigned from
the Board in January 2021. John Rich simultaneously rejoined
and became Interim Chairman of the Committee.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Board of Directors
69
BOARD OF DIRECTORS
DR JOHN C RICH
Executive Chairman
John Rich is a highly experienced senior business executive
with a strong background in agribusiness operations,
development banking and investment.
Nationality: Australian
Joined the Board: 2006
Position:
Remuneration Committee
member of the IGR&PA Committee
Interim Chairman of the Nominations and
(since January 2021) and
Career and prior experience highlights:
• Member of the Australian College of Veterinary Science
and a registered financial member of the Australian
College of Veterinary Surgeons;
• 1990-2003: Executive Director, Austasia Pty Ltd (agri-
business conglomerate SE Asia);
• 1995-2002: Director AN-OSI Pty Ltd (supply chain
feedlot beef, poultry and dairy
management
operations SE Asia/China);
for
• 2006-2019 Senior Consulting Agribusiness Industry
Specialist IFC and Agribusiness consultant to IFC-
invested clients until 2020.
JOHN GRANT
Senior Independent Director
Mr Grant has extensive, board-level business management,
in
finance,
international businesses.
strategy and operational experience
Nationality: British
Joined the Board: 2006
Position: Chairman of the Audit Committee and member of
the Nominations and Remuneration Committee.
Career and prior experience highlights:
• Chairman, Gas Turbine Efficiency plc, Hasgo Group
Limited, Motor Sports Association Limited and Torotrak
plc;
• Senior Independent Director, Melrose plc, Pace plc and
Wolfson Microelectronics plc;
• Non-Executive Director, National Grid plc, Corac Group
plc and the Royal Automobile Club Limited;
• 1992-1996: Finance Director, Lucas
Industries plc,
LucasVarity plc;
• 1990-1992: Executive Deputy Chairman, Jaguar Cars;
• 1989: Director of Corporate Strategy, Ford Motor
Company.
Current roles:
• Managing Director of Australian Agricultural Nutrition
and Consulting Pty Ltd (AANC);
• Financial Board Advisor
to ADM Capital and
Independent Non-Executive Director at three other
poultry-related companies;
• Recently appointed to the Food and Agribusiness
Advisory Council of the London based Commonwealth
Development Corporation (CDC).
Current roles:
• Senior Independent Director, Augean plc and Chairman
of the British Racing Drivers’ Club Limited
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Board of Directors
70
ROGER WILLS
Non-Executive Director
Mr Wills is an experienced business executive and
investment banker with a focus on Eastern Europe and
emerging markets.
Nationality: New Zealander
Joined the Board: 2019, resigned January 2021.
Position: Member of the Audit Committee and Chairman
of the Nominations and Remuneration Committee (from
April 2020)
ROBERTO BANFI
Non-Executive Director
Mr Banfi is an experienced senior business manager
with considerable brand management and operational
experience working for companies based all over the
world.
Nationality: Italian
Joined the Board: 2018, retired February 2021.
Position: Non-Executive Director (previously an advisor
to MHP)
Career and prior experience highlights:
• Management consultant, Coopers & Lybrand Russia;
• Investment banking at Brunswick, including CEO at
Brunswick Capital;
• 2017-2018: Non-Executive Director, Cherkizovo Group.
Current roles:
• Managing own family office since 2007 focussing on
investment opportunities in private equity, venture
capital and public markets with a focus on Eastern
Europe and emerging markets;
• 2015-current: Non-Executive Director, T-Plus Group;
Non-Executive
• 2019-current:
Royal
Automobile Club Motor Sports Association Limited
(Motorsport UK).
Director,
Career and prior experience highlights:
• 2014-2016: General Manager for Europe and Eurasia
for BRF S.A. and also a Specialised Corporate
Consultant to the company;
Current roles:
• Independent Consultant in the Food sector covering
several geographic regions and specialising in animal
proteins.
• 1998-2009: various executive positions at Sadia S.A.
including Director of Sales and Marketing for Brazil
and Director of Global Sales and General Manager for
Russia, Middle East and Africa;
• Director of National Sales, Brazil, for Best Foods (now
part of Unilever) after previous brand management
experience (Knorr, Hellmann’s Mazola and Ades);
• Director, Swift Armor Brazil.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Board of Directors
71
CHRISTAKIS TAOUSHANIS
Independent Non-Executive Director
Mr Taoushanis
financier and senior manager.
is a highly experienced
international
Nationality: Cypriot
Joined the Board: 2018
Position: Member of the Audit Committee
Career and prior experience highlights:
• 30 years of banking experience including 4 years at
Continental Illinois National Bank of Chicago, 18 years at
HSBC Group in Hong Kong and Cyprus, and 8 years as
Chief Executive Officer at Cyprus Development Bank.
Current roles:
• Non-Executive Director of various regulated and listed
companies;
• Advisor to a number of companies through the private
firm, TTEG & Associates.
PHILIP J WILKINSON
Independent Non-Executive Director
Mr Wilkinson has considerable experience in international
poultry industries.
Nationality: British
Joined the Board: 2020
Position: Chairman of IGR&PA Committee, member of
the Nominations and Remuneration Committee and Audit
Committee.
Career and prior experience highlights:
• Commercial Director of Arla Foods;
• Poultry industry: Managing Director of Grampian Country
Food Group’s, in 2006 joined 2 Sisters Food Group; in
2015 joined Inghams, Australia.
• Dairy industry: awarded an OBE in 2003 for Services
to the Dairy Industry; Chairman of the National Dairy
Council and National Dairy Farm Assured Ltd.
Current roles:
• Director of Red Tractor Poultry Sector Board, the British
Poultry Council;
• Council Member of AVEC, Association of Poultry
processors and Poultry Trade in the EU;
• Advisor to the Board of Alltech;
• Advisor to the Board of eggXYt, Israel;
• Chairman of BetaBugs, Scotland.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020
Board of Directors
72
YURIY KOSYUK
Chief Executive Officer
Mr Kosyuk has been Chief Executive Officer of MHP since
he founded the Company in 1998.
Career and prior experience highlights:
• 1 992: graduated as a process engineer in meat and milk
production from the Kiev Institute of the Food Industry;
• 1995: founded the Business Centre for the Food Industry
Nationality: Ukrainian
in Kiev.
Joined the Board: 2006 (joined MHP in 1998)
YURIY MELNYK
Chief Operating Officer
Mr Melnyk is an experienced executive manager and
technical agricultural expert.
Career and prior experience highlights:
• 1985: graduated from Ukraine Academy of Agriculture
and is a Doctor of Agriculture;
• A correspondent member of the National Academy of
Nationality: Ukrainian
Sciences of Ukraine since 2002;
Joined the Board: 2010 (when appointed Deputy CEO)
• 2004: awarded the State Prize of Ukraine in science and
technology;
• Previously Agriculture Minister and Deputy Prime
Minister of Ukraine and also served as an advisor to the
Prime Minister of Ukraine.
VIKTORIA KAPELYUSHNAYA
Chief Financial Officer*
Ms Kapelyushnaya has considerable senior financial and
business management experience.
Career and prior experience highlights:
• Diplomas
in Processing Engineering
(1992) and
Financial Auditing (1998) from the Kiev Institute of the
Food Industry;
Nationality: Ukrainian
• Deputy and Chief Accountant at the Ukraine Business
Joined the Board: 2006 (joined MHP in 1998)
Centre for the Food Industry (BCFI).
*Ms Kapelyushnaya is also the Finance Director at PJSC MHP.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 73
AUDIT COMMITTEE
REPORT
in the Corporate Governance Charter
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
(Annex C).
website
The Committee accepts its responsibility 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 Interim Report, and
any formal announcements relating to financial performance;
• reviewing and reporting to the Board on significant reporting
issues and the judgements they contain;
• ensuring compliance with legal and regulatory requirements;
• keeping under review the effectiveness of the Company’s
financial reporting, risk management and internal control
systems;
• reviewing and assessing annually
independence,
objectivity and effectiveness of the external auditors, and
making
the
to
appointment, re-appointment and replacement of external
auditors and the terms of their engagement;
recommendations
the Board
regarding
the
• reviewing policy and practice regarding the provision of non-
audit services by the external auditor;
• monitoring and evaluating the effectiveness of the internal
audit function and approving the internal audit plan;
• ensuring compliance with accounting standards and
consistency of accounting policies;
• reviewing, challenging and reporting to the Board on the going
concern assumption and the basis of the longer-term viability
assessment;
• reviewing the Annual Report and financial statements to ensure
they are fair, balanced and understandable; and
• reviewing
and
employees
to raise concerns
Company’s whistle-blowing policy.
overseeing
the
arrangements
in accordance with
for
the
COMPOSITION
As of March 2019 onwards, the Committee has comprised a
minimum of three non-executive directors at all times, each
of whom is deemed by the Board to be independent. The
Chairman of the Committee is John Grant, who has significant
and relevant financial experience in a wide range of senior
executive and non-executive roles (see biography on page 69).
Philip J Wilkinson OBE joined the Committee in June 2020,
increasing the membership to four independent non-executive
directors (see biography on page 71). Roger Wills left the
Committee in January 2021 on his resignation from the Board,
reducing the membership to three independent non-executive
directors.
The Committee Chairman invites the Chief Financial Officer, the
Head of Internal Audit and senior representatives of the external
auditor to attend meetings as appropriate. The Committee
has the right to invite any other director or employee to attend
meetings as it considers appropriate.
The Committee meets with the external auditors at least once a
year in the absence of Management.
I AM PLEASED TO PRESENT THIS REPORT WHICH
DESCRIBES HOW THE AUDIT COMMITTEE
CARRIED OUT ITS RESPONSIBILITIES DURING
THE YEAR AND HOW IT ADDRESSED SIGNIF-
ICANT ISSUES RELATING TO THE FINANCIAL
STATEMENTS.“
Member
John Grant (Chairman)
Christakis Taoushanis
Roger Wills
Philip J Wilkinson OBE
(appointed June 2020)
No of meetings
5/5
5/5
5/5
3/3
GOVERNANCEAudit Committee ReportANNUAL REPORTAND ACCOUNTS 2020 least four times a year.
MEETINGS IN THE YEAR
The Committee meets at
The
scheduling of meetings is aligned with the financial reporting
timetable, enabling the Committee to review the annual and
quarterly financial statements, to agree the audit plan in advance
of the full year audit, and to maintain oversight of the Group’s
internal controls and processes. In 2020, the Committee met
five times; for timing reasons, an additional meeting was held in
December 2020 to consider and approve the 2020 external audit
plan. The attendance of members at these meetings is shown on
page 73.
74
SIGNIFICANT ISSUES RELATING TO THE FINANCIAL STATEMENTS
The Committee undertook the following recurring activities in
relation to the financial statements:
• reviewed and agreed the scope of work to be undertaken in
respect of the 2020 accounts by the external auditor;
• considered the external auditor’s report on their audit of the
full year results and their review of the interim financial report;
• reviewed the Annual Report and annual and quarterly
financial statements to ensure they were fair, balanced and
understandable and provided the
information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy, and advised the
Board accordingly;
• considered the processes in place for the valuation of assets,
including the reasonableness and consistency of assumptions;
and
• reviewed the effectiveness of the Company’s risk management
and internal controls.
In addition, the Committee considered the following significant issues in relation to the financial statements.
Significant issue considered
How the issue was addressed by the Committee
REVENUE RECOGNITION
There is а presumed risk of misstatement on revenue recognition
due to fraud.
VALUATION OF BIOLOGICAL ASSETS AND AGRICULTURAL
PRODUCE
Determining the fair value of biological assets and agricultural
produce requires extensive management judgements and the use
of complex models.
IMPAIRMENT OF GOODWILL
Testing of impairment of goodwill is inherently subjective as it
requires assumptions regarding future cashflows of the relevant
cash generating unit (“CGU”) and the appropriate discount rate.
LOANS TO RELATED PARTIES
As at 31 December 2020, the Group had extended loans of US$
67.4 million to its majority shareholder, WTI Trading Ltd.
The Committee confirmed that adequate processes and controls were in
place to manage the risk.
The Committee reviewed the assumptions and judgements applied by
Management and verified the reasonableness of input data and the accuracy
of calculations.
The Committee challenged Management’s assumptions and analysis
underlying their review of potential impairment in respect of Perutnina Ptuj,
acquired in February 2019, and discussed with Ernst & Young the audit work
they had undertaken. The Committee was satisfied that no impairment of
goodwill was required.
The Committee confirmed that the contractual terms as to security and timely
payments of interest have been met and noted that, subsequent to year-end,
US$ 10 million had been repaid in advance of the scheduled maturity date.
It noted also that the Group now has a Related Party Transactions Policy in
place that more tightly controls all related party transactions.
GOVERNANCEAudit Committee ReportANNUAL REPORTAND ACCOUNTS 2020 75
In addition, the Committee considered the following significant issues in relation to the financial statements.
(continued)
Significant issue considered
How the issue was addressed by the Committee
COMPLIANCE WITH BOND AND BANK COVENANTS
Continued compliance with covenants included in bond and bank
debt agreements is a prime ongoing focus for the Committee.
COVID-19 IMPACT
The unprecedented spread of the Coronavirus Pandemic has had
a serious and continuing effect on people’s lives and business
activities. Until the virus has been successfully contained, it is
difficult to assess the impact on future business activities.
GOING CONCERN AND VIABILITY
Assessment of the going concern assumptions and the basis of the
viability statement.
The Committee verified that as at 31 December 2020 the ratio of Net Debt
to LTM-adjusted EBITDA was 3.66, higher than the limit of 3.0 defined in the
Eurobond agreement, and higher than the ratio of 3.01 as at 31 December
2019. Although exceeding the ratio of 3.0 does not constitute a breach of
any covenant, this leads to the introduction of additional control measures
in relation to additional indebtedness, restricted payments (such as dividend
distributions and investments in third parties), mergers with third parties outside
the Group, and granting of any financing to third parties. These measures
became effective on publication of the 2019 audited consolidated financial
statements on 14 April 2020 and will remain in effect following publication of
the audited consolidated financial statements for the year ended 31 December
2020 on 24 March 2021.
With regard to future compliance, the Committee confirmed that Management
had performed appropriate stress tests, taking account of potential changes in
macro-economic conditions and the impact of external events including
COVID-19 and avian influenza, and that these tests had been satisfied.
The Committee examined the effect of COVID-19 on the Group’s operations
and results in 2020 and challenged Management’s assumptions and risk
scenarios regarding the potential impact in 2021.
Management reported to the Committee that, during 2020, the direct impact
of COVID-19 on the Company’s financial results had been limited in spite of
a material impact on demand in European poultry markets. The Committee
accepted Management’s assessment as to the effect in 2020.
The Committee also accepted Management’s conclusion that COVID-19 was
unlikely to have a material adverse effect on the Group in 2021.
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 Management, supported Management’s
recommendation that the financial statements be prepared on a going
concern basis.
The Committee also considered a paper prepared by Management in respect
of the longer-term viability statement to be included in the 2020 Annual
Report. The Committee concurred with the assumptions and judgements
made by Management and concluded that the longer-term viability statement
was appropriate.
GOVERNANCEAudit Committee ReportANNUAL REPORTAND ACCOUNTS 2020 76
Non-audit services
A policy is in place covering engagement of the external
auditor for the supply of non-audit services to ensure that its
impaired. This
independence and objectivity are not
requires the Audit Committee Chairman to approve all material
non-audit services in advance of the service being provided.
Cumulative non-audit fees are reviewed at scheduled meetings
of the Committee. A breakdown of fees earned by the external
auditor for audit and non-audit services can be found in Note 8 to
the financial statements.
EU audit legislation that became applicable in 2016 limits the cost
of non-audit services provided by the external auditor to 70% of
the average statutory audit fee for the previous three years. As no
cap applies during the first three years, the first year for which the
cap became relevant was 2020. The cap is not expected to have
a material impact on the Company. It is the Committee’s intention
to ensure future non-audit services 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.
Auditor objectivity and independence
The Committee has a policy and procedures in place to ensure that
auditor independence and objectivity are never compromised.
These include approval requirements for engagement of the
external auditor for non-audit services, periodic review of the
cost of non-audit services provided by the external auditor and
requirements for rotation of the audit partner every seven years.
Each year, the auditor is required to provide to the Committee
evidence of how it believes its independence and objectivity have
been maintained. Based on these requirements and procedures,
the Committee remains confident that auditor independence and
objectivity have been and will be maintained.
EXTERNAL AUDIT
Auditor rotation
In accordance with European regulatory requirements and
the guidance provided by the UK Competition and Markets
Authority regarding the statutory audit of public-interest entities,
the Company conducted a tender process in 2016 to select the
provider of the statutory audit with effect from the 2017 financial
year. As reported previously, at the conclusion of a comprehensive
its
selection process, the Committee decided, based on
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 (“Deloitte”) as the auditor of the Company. It was noted
that there had been no conflict with Deloitte S.a.r.l’s audit report.
In the fourth quarter of 2019, following the decision to appoint
a Deloitte partner to a senior executive position in MHP, the
Committee decided that Deloitte should be replaced as the
provider of the statutory audit with effect from the 2020 financial
year. The Deloitte partner concerned had no involvement in the
audit of MHP’s 2019 results. As in 2016, the Company conducted
a tender process, led by the Audit Committee, between the three
candidate audit firms (other than Deloitte) considered to have the
capability to audit MHP. At the conclusion of a comprehensive
selection process, the Committee recommended to the Board
that Ernst & Young Cyprus Limited was best equipped to
handle the responsibility and should be appointed as the auditor
of the Company with effect from the 2020 financial year.
Assessment of external auditor effectiveness
The Committee assessed the effectiveness of the previous
auditor (Deloitte) following completion of their audit of the 2019
accounts and concluded that it remained satisfied with the quality,
integrity and effectiveness of their work. A similar assessment will
be undertaken for Ernst & Young following completion of the audit
of the 2020 accounts.
GOVERNANCEAudit Committee ReportANNUAL REPORTAND ACCOUNTS 2020 INTERNAL AUDIT
The Company has an Internal Audit function whose primary
purpose 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 the Company’s operations, resources, services and
responsibilities to other bodies, with no department or business
unit of the Company being exempt from review.
Internal Audit responsibilities include:
• examining and evaluating the adequacy of the Company’s
system of internal control;
• assessing the reliability and accuracy of information provided
to stakeholders;
• assessing
compliance with
statutory and
regulatory
requirements;
• assessing compliance with Company policies and procedures;
• ensuring that the Company’s assets are properly accounted for
and safeguarded;
• assessing
the efficiency and effectiveness with which
resources are employed;
• liaising with external auditors in audit planning and assisting the
external auditors as required; and
• investigating any instances of fraud, irregularity or corruption.
The Internal Audit programme is approved annually by the
Committee and the Head of Internal Audit reports findings
periodically to the Committee.
At
least annually, the Committee considers the role and
effectiveness of the Internal Audit function, taking account of the
resources available and required, the experience and expertise
of personnel and the quality of service delivered. The Committee
concluded that the Internal Audit function is continuing to deliver
the level of service required.
77
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 management
process and risk matrix. Results are reported regularly to the
Board, which has overall responsibility for risk management.
The annual review covers key risks that could potentially impact
the achievement of MHP’s strategic and financial objectives. New
risks and changes in existing risks are identified on a continuous
basis. A risk scoring system is used to help quantify both the
probability and potential impact of each major risk before and
after the effect of mitigating actions, to assess residual risks
against the Company’s risk appetite and to prioritise further
risk management 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.
With effect from 23 March 2021, the Board has decided to
extend the Committee’s responsibilities to cover a broader range of
operational as well as financial risks and to change its name to the
Audit & Risk Committee.
John Grant
Chairman
Audit Committee
23 March 2021
GOVERNANCEAudit Committee ReportANNUAL REPORTAND ACCOUNTS 2020 Nominations and Remuneration Committee Report
78
NOMINATIONS AND
REMUNERATION
COMMITTEE REPORT
THE NOMINATIONS AND REMUNERATION COMMITTEE (“THE COMMITTEE”) IS RESPONSIBLE FOR
MAKING RECOMMENDATIONS TO THE BOARD ON THE APPOINTMENT OF DIRECTORS AND FOR
DETERMINING THE REMUNERATION OF EXECUTIVE DIRECTORS.
“
Member
THIS REPORT DESCRIBES HOW THE
NOMINATIONS AND REMUNERATION
COMMITTEE CARRIED OUT ITS
RESPONSIBILITIES DURING THE YEAR.
Roger Wills (Chairman from
April 2020 to January 2021)
John Rich (Chairman to April
2020, Member to June 2020,
Interim Chairman from January
2021)
John Grant
Philip J Wilkinson OBE
(appointed June 2020)
No of meetings
6/6
2/6
6/6
4/6
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 E).
Further details regarding the Committee’s composition, areas of
focus in 2020 and diversity policy are set out below.
its
reviewed
the Committee
ROLE AND RESPONSIBILITIES
During
role and
the year
responsibilities in line with good practice and the Corporate
Governance Charter was amended to reflect its revised and
enhanced principal responsibilities. These are to:
• review the structure, size and composition of the Board (with
particular regard to the balance of Executive and Independent
Non-Executive Directors) and make recommendations to the
Board on appointments so as to ensure that the Board and its
committees have the appropriate balance of skills, knowledge,
independence, experience and diversity to enable them to
discharge their duties and responsibilities effectively;
• ensure that plans are in place for orderly succession for
appointments to the Board and senior management;
• determine the remuneration of Executive Directors so as
to ensure they are competitively and fairly rewarded and
to deliver exceptional performance,
properly
with the objective of attracting, retaining and motivating executive
management of the quality required without paying more than is
necessary; and
incentivised
• set the general principles and parameters of remuneration
policy across the Company to ensure that the interests of
all employees are aligned with the Company’s goals and
objectives.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Nominations and Remuneration Committee Report
COMPOSITION
The Committee comprises a minimum of three Independent Non-
Executive Directors. The Chairman of the Company may also
serve as a member.
To comply with the UK Corporate Governance Code, Roger Wills,
an Independent Non-Executive Director, replaced John Rich
as Chairman of the Committee on 13 April 2020, having served
12 months on the Committee. Philip J Wilkinson OBE, also an
Independent Non-Executive Director, was appointed to the
Committee in June 2020. Following Mr Wills’ resignation from the
Board in January 2021, John Rich was appointed Interim Chairman
of the Committee pending the appointment of a qualified
Independent Non-Executive Director as Chairman.
The Company Secretary acts as secretary to the Committee. On
occasion, the Committee invites the Chief Executive, the Chief
Financial Officer or Deputy CEO, People to attend discussions
where their input is required.
MEETINGS
The Committee meets not less than twice a year. During 2020,
the Committee met six times. Members’ attendance is shown on
page 78.
AREAS OF FOCUS IN 2020
The principal matters considered by the Committee during 2020
were as follows:
• the Committee considered the composition and balance of
the Board and recommended that an additional Independent
Non-Executive Director should be appointed to bring additional
industry experience and improve the balance of the Board;
for
• the Committee considered candidates
this position
following which it recommended that Philip J Wilkinson OBE
should be invited to join the Board in April 2020 (no search
consultancy was used in this recruitment). Mr Wilkinson brings
significant experience in large poultry companies and has
a deep understanding of international food and agriculture
industries;
• the Committee recommended to the Board that, with effect from
the 2020 Annual General Meeting, all directors should stand for
re-election by shareholders each year;
• the Committee recommended to the Board that a new
International Government Relations and Public Affairs
Committee be formed with the objective of enhancing the
Company’s capabilities in campaign management, lobbying,
79
message development and strategic engagement. This
Committee was established on 1 June 2020;
• the Committee was kept informed of, and agreed with, a
proposed realignment of the senior management structure
within
to better support planned strategic
developments;
the Group
• the Committee discussed with Management a shift towards a
more performance-related compensation philosophy for the
Group, and changes to the annual management bonus scheme
to better recognise and reward performance. The first step
in this plan, based on an OKR (Objectives and Key Results)
process, was implemented in 2020;
• the Committee appointed a remuneration consultant (Deloitte)
to conduct a comparative review of compensation of the
Executive Directors and Senior Management. The results
were used to support implementation of the change to a more
performance-related bonus scheme;
• the Committee recommended to the Board that a new policy
on related party transactions should be implemented. A Related
Party Transactions Policy was established in July 2020; and
• the Committee agreed a plan for the continuing education of
selected Senior Management executives, including courses
at top-level institutions in the UK and the USA. In addition, the
Committee considered and approved the continuing education
programme for Non-Executive Directors for 2020.
DIVERSITY
The Company recognises the importance and value of diversity
throughout its workforce, be it geographical, cultural or market-
aligned, and encompassing, amongst other factors, ethnicity,
gender, experience and age. The Board is committed to equality
of opportunity for all employees.
The Committee takes into account a variety of factors before
recommending any new appointments to the Board, including
skills relevant to performing the role, experience and knowledge,
in addition to aiming to achieve an appropriate diversity balance.
The most important priority, however, has been and will continue
to be to ensure that the best candidate is selected.
John Rich
Interim Chairman
Nominations and Remuneration Committee
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 80
INTERNATIONAL GOVERNMENT
RELATIONS AND PUBLIC
AFFAIRS COMMITTEE
ROLES & RESPONSIBILITIES
The Committee was created during 2020 with its first meeting
in August. Its role and responsibilities are set out in its Terms
of Reference, which can be viewed on the Company’s website:
96abf5b0.pdf (mhp.com.ua). This Report describes how the
International Government Relations and Public Affairs (“IGR and
PA”) Committee carried out its responsibilities during the year and
how it addressed political and industry concerns relating to the
poultry sector.
The Committee is specifically responsible for:
• reflecting the changing business and political environment
in which the Company operates and,
in particular, the
increasing importance of its internal and external audiences
and stakeholders
the
governments of countries with which the Company trades
or may wish to trade with, customers, suppliers, employees,
sector associations, neighbours and communitiesf;
including host governments and
• developing
the Company’s approach
international
government relations and public affairs and enhancing MHP’s
related reporting and communications with a focus on clarity of
message and timeliness;
to
• working with MHP’s stakeholders, its in-house teams and
advisors to achieve the Company’s long-term objectives and
support MHP in further domestic and international success.
• anticipating and preparing the reaction of the Company to any
potential crisis management situations relating to political and
operational issues (e.g. Avian Influenza outbreaks and Brexit);
• developing processes for responding fully and in a timely
manner in corporate communications to mitigate or diffuse
crises resulting from market dynamics, including competitor
behaviour or political issues which may threaten the Company’s
reputation and results;
• determining short-, medium- and long-term objectives in
relation to key areas that require lobbying activities and to
identify the targets of the lobbying policy;
• reviewing and recommending changes as appropriate to the
Company’s policies to ensure that the Company’s standards of
business behaviour are up-to-date and reflect best business
practice. This includes the following codes and policies:
Share Dealing Code; Inside Information Disclosure policy;
Health & Safety policy; Sustainable Environmental policy;
Corporate Social Responsibility policy; Charitable Donations
policy; Anti-bribery and Corruption policy; Related Party
Transactions policy; Risk Management policy; Human
Resources policy; and, in conjunction with the Audit Committee,
the Internal Audit policy and the Whistle Blowing policy;
• reviewing and providing input to the Company on the
management of current and emerging
sustainability
matters affecting the Company; and providing external and
independent oversight and guidance on the environmental and
social impact of how the Company conducts its business;
• reviewing on behalf of senior management and relevant
external parties those reports, minutes and recommendations
which fall within the Committee’s areas of responsibility.
THE INTERNATIONAL GOVERNMENT
RELATIONS AND PUBLIC AFFAIRS COMMITTEE
(THE “COMMITTEE”) IS RESPONSIBLE FOR
SETTING THE STRATEGY AND OBJECTIVES OF
THE COMPANY’S GOVERNMENT RELATIONS
AND PUBLIC AFFAIRS EFFORTS.
Member
No of meetings
Philip J Wilkinson OBE
(Chairman)
John Rich
Roberto Banfi
3/3
3/3
3/3
GOVERNANCEIGR&PA Committee reportANNUAL REPORTAND ACCOUNTS 2020“ 81
COMPOSITION
The Committee comprises at least three Board members. The
Chairman of the Committee is Philip J Wilkinson OBE who has
significant and relevant experience in international agricultural
politics, has historically chaired agricultural sector boards
and holds several non-executive directorships and advisory
positions in global agri-businesses (see biography on page 71).
The other members of the Committee are John Rich (see biography
on page 69), and Roberto Banfi (see biography on page 70).
Roberto Banfi stepped down from the Board on 9 February and
will be replaced on the Committee by an appropriate candidate.
As the Company transitions itself strategically, not only do
traditional communications channels and audiences remain
highly relevant but it is also important that MHP adopts a
broader and even more sophisticated approach to outreach and
comunications, bringing key audiences along so they have
accurate and up to date perceptions of the Company. This
approach embraces what the Company should be saying about
itself, its values, sustainability policy, welfare, environment and
so forth, to whom and why; our messaging needs to be clear and
concise and communicated to the appropriate audience at the
right time.
The Committee has a wealth of experience in working with
politicians, the media, policy makers, trade bodies, NGOs and
opinion formers. The IGR and PA Committee has a first-class
combination of strategic counsel and practical expertise. Its
objective is to bring its skills in campaign management, lobbying,
message development and strategic engagement to help lead
the Company to further domestic and international success.
The Committee has the right to invite any other director or
employee to attend meetings as it considers appropriate. In this
context, from time-to-time the Committee Chairman invites the
Director of Investor Relations, Anastasiya Sobotyuk, to attend
meetings.
MEETINGS IN THE YEAR
The Committee meets at least twice a year. A meeting may be
convened at any time by the Chairman of the Committee, the
Chairman of the Board or the Chief Executive Officer to consider
any matters falling within the Committee’s terms of reference.
Three meetings were held during the year, all of which were held
by video conference due to COVID-19 restrictions.
WORK OF THE COMMITTEE TO DATE
The first meeting of this newly formed Committee took place in
August 2020 during which the Chairman set out the backdrop
against which this Committee operates.
The political landscape of the global food arena is highly dynamic
with abundent opportunities and the playing field is becoming
more open and transparent; at the same time business and
politics are beginning to converge with Brexit being a prime
example. Smart multi-national companies need to be engaged,
to listen to their customers and to understand that the world
does not require a “one size fits all” approach ; an understanding
and appreciation of what works where and why is of paramount
importance to their global success.
GOVERNANCEIGR&PA Committee reportANNUAL REPORTAND ACCOUNTS 2020 INTERNATIONAL GOVERNMENT RELATIONS PROGRESS
Discussions have taken place between the United Kingdom’s
(“UK”) and Ukraine’s International Trade Departments resulting
in tariff-free access for a volume of Ukranian poultry meat to
be exported to the UK. Discussions are currently underway to
recognise Regionalisation insofar as Avian Influenza is concerned
between the two countries.
Two separate meetings took place with AVEC, the voice of the
European poultry meat sector. The first meeting included MHP
executives and focussed upon the animal welfare policies
implemented by the Company in order to confirm compliance
with AVEC members’ practices within MHP’s operations. The
second meeting included Ukrainian officials from the Department
of Agriculture and took place with a view to incorporating
broiler breast cap volume into the overall EU quota. Both of these
initiatives reached a successful conclusion.
82
the
recognises
PUBLIC AFFAIRS PROGRESS
The Committee
importance of having
corporate Animal Welfare and Sustainable Environmental Policies
in place which may be viewed by interested parties to provide
the necessary comfort that MHP’s practices are consistent with
the best in the world. To this end the Committee has scrutinised
policies from around the world and, with the help of international
advisors from reputable global organisations, is in the process of
incorporating best practices from them into MHP’s own Policy.
MHP has also made a pledge to achieve carbon neutrality as
a Company by 2030. A working relationship has been forged
with a global provider in this arena and three meetings have
taken place between the two teams to set out the road map to
achievement.
The Company is committed to be at the forefront of efforts to
reduce the usage of antibiotics in broiler meat production whilst
at the same time being ever mindful of the health and welfare
of the birds. This work in progress is being conducted by MHP’s
own internal teams supported by external expert providers as
and when required.
Philip J Wilkinson OBE
Chairman
IGR and PA Committee
23 March 2021
GOVERNANCEIGR&PA Committee reportANNUAL REPORTAND ACCOUNTS 2020 Management Report
83
MANAGEMENT
REPORT
THE INFORMATION WITHIN THIS REPORT IS ALIGNED WITH THE REPORTING REQUIREMENTS OF
THE UK COMPANIES ACT 2006, THE UK DISCLOSURE AND TRANSPARENCY RULES, THE LISTING
RULES OF THE UK AND CYPRUS COMPANIES LAW CAP. 113.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
MHP is a leading international protein agribusiness and the
largest producer of chicken in Ukraine. MHP Ukraine and
Perutnina Ptuj (“PP”) operate vertically-integrated business
models, owning and operating each of the key stages of chicken
production processes (see Our Business Model on pages
14). MHP’s objectives are to maximise efficiency in production
costs, increase profitability by consolidating multiple steps in the
value-chain and follow the strategy of sales diversification taking
into account market availability and challenges, local customer
preferences as well as the profitability that diversification brings.
Detailed information on the Group’s financial and operational
performance, including KPIs, can be found in the Business
Review on pages 25 to 40.
The business is organised into and operates through four
business segments: Poultry and Related Operations; Grain
Growing Operations; Meat-processing & Other Agricultural
Operations; and the European Operating Segment. Detailed
information on each of the four Segments may be found in the
Group Overview on pages 4 - 12.
Key to the Company’s approach to managing waste is MHP’s
biogas programme, which enables the recycling of waste
(including husks and manure). Further information on this aspect
of the Group’s business may be found in the Group Overview
on pages 4 to 12 and will also be reported on in detail in the
forthcoming Non-Financial Report.
(MHP,
POULTRY AND RELATED OPERATIONS SEGMENT
EXCLUDING PERUTNINA PTUJ)
The Poultry and Related Operations Segment produces,
processes and sells chicken meat (fresh and frozen), vegetable
oils (sunflower and soybean) and mixed fodder. It incorporates
three chicken meat complexes and two breeding farms, three
sunflower oil plants, one soybean crushing plant, three feed mills
and two biogas complexes. For more detailed information see
the Group Overview on pages 4 to 12.
GRAIN GROWING SEGMENT
The Grain Growing Segment grows crops for fodder production
and for sale to third parties. In 2020 MHP’s total landbank
constituted 356.046 hectares (“ha”) of land of which the majority
was used for grain cultivation. The landbank comprises a number
of enterprises in Ukraine. For more detailed information see the
Group Overview on pages 4 to 12.
MEAT-PROCESSING & OTHER AGRICULTURAL OPERATIONS
SEGMENT
The Meat-Processing & Other Agricultural Operations Segment
produces and sells sausage and cooked meat, convenience
foods and produce from cattle and milk operations. It incorporates
two facilities for the production of prepared meat products and
a number of cattle farms. For more detailed information see the
Group Overview on pages 4 to 12.
EUROPEAN OPERATING SEGMENT – PERUTNINA PTUJ
The European Operating Segment comprises 100% of Perutnina
Ptuj (“PP”), a leading poultry and processed-meat producer in
the Balkans with production assets in Slovenia, Croatia, Serbia,
Bosnia and Herzegovina and distribution companies in Austria,
North Macedonia and Romania. PP supplies products to 15
European countries. For more detailed information see the Group
Overview on pages 4 to 12.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 FUTURE DEVELOPMENTS
The Executive Management team believes there are
ample opportunities for growth both internationally and
within Ukraine and the Balkans. In Ukraine, customers
tend to buy domestically produced chicken, choosing
from the wide range of poultry products – fresh chicken
and processed meat products - that MHP develops and
offers to its customers. These products are both more
affordable than pork and beef and fresher than imported
meat. Exports of chicken meat have increased MHP’s total
sales and the available markets in recent years. Typically,
chicken meat exports have provided higher margins
than sales within Ukraine. In addition, and in line with the
transformation to become a culinary company, the Group
is increasingly providing solutions to consumers, retailers
and food service with ready-to-cook and ready-to-eat
food products. Further information on the evolution of the
Group’s strategy may be found in the Chairman’s Statement
on pages 16 to 20 and the Group Overview on pages 4 to
12.
COMPANY’S MISSION
The Company’s mission is to provide its customers with
high-quality, sustainable, animal-welfare friendly and safe
food products, anticipating and meeting their evolving
priorities and requirements.
THE STRATEGY TO ACHIEVE THE COMPANY’S MISSION:
84
01 Transform the Company into a culinary company
TRANSFORMATION INTO A CULINARY COMPANY
through the managed and careful development
of cooperation with the franchise network, retail,
HoReCa, the Nasha Ryaba antibiotic-free range,
packed poultry, the culinary kitchen and other
initiatives. This includes increasing the Company’s
presence in value-added food products such as
the
processed meat, convenience
Commercial Kitchen concept;
food and
02
EFFICIENCY
Constant increase in production efficiency through
modernisation and
in
cost and quality control; and the use of up-to-date
technology across all business segments, including
PP;
improvement
innovation;
03
CAPACITY
Expand poultry production capacity during the period
2020-2023e at PP and, in the medium term, at MHP
(Phase 2 of the Vinnytsia poultry complex, Line 4);
07
MARKETS
Develop and remodel the markets where MHP is
present, changing trading channels;
08
CONTINUOUS IMPROVEMENT
“continuous
Maintain
improvement” approach
including optimising human productivity, high
biosecurity standards, environmental standards,
health and safety and animal welfare practices
(including, but not limited to, the antibiotic-free
programme);
09
BRAND PROMOTION AND DEVELOPMENT
Promote and develop the Company’s strong brands
through consumer-driven
the
introduction of new products;
innovation and
04
M&A OPPORTUNITIES
10
ALTERNATIVE ENERGY PROJECTS
Explore M&A opportunitied and potentially acquire
further meat-processing and/or poultry production
companies internationally;
05Continue export expansion through sales
diversification and market targeting;
EXPORT EXPANSION
06
INTERNATIONAL SALES AND DISTRIBUTION
Expand alternative energy projects (e.g. biogas); and
11
APPROACH TO PEOPLE & WORKFORCE
the Company’s approach
Develop
to people,
including providing a healthy and safe workplace
and an environment that enables every employee to
develop their skills to their maximum potential.
Continue
distribution offices and potentially joint ventures;
international sales and
to establish
GOVERNANCEManagement ReportANNUAL REPORTAND ACCOUNTS 2020 Management Report
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. Taking into account the
current challenging market dynamics, and with a Net Debt to
EBITDA ratio of 3.66 at 31 December 2020 (above 3.0, beyond
which certain restrictions become effective, please see Note
29), the Board felt it prudent to continue to conserve cash and,
subject to shareholder approval, to pay an unchanged dividend
of US$ 0.2803 per share (approximately US$ 30 million) for
2020, payable in April 2021 (approximately US$ 30 million for
2019, paid April 2020).
LOANS TO RELATED PARTIES
On 21 January 2020, the Board approved a loan facility of up
to US$ 80 million to the Company’s principal shareholder, WTI
liquidity
Trading Limited
requirements and other corporate purposes for a maximum of
three years.
to meet WTI’s general
(“WTI”)
in
As of 31 December 2020, the Group had advanced loans
the aggregate amount of US$ 67.4 million
to WTI
(31 December 2019: US$ 20.4 million). The loans, with maturities
in July - December 2021, bear interest at a rate of 8.25% to
9.25% and are secured by a personal guarantee of WTI’s ultimate
beneficial owner.
The Directors believe that the loans were issued at arm’s length
terms and for fair market value, that they were in the best interests
and for the commercial benefit of the Group and do not violate
the terms of the Senior Notes (Note 29, p. 145).
RESEARCH AND DEVELOPMENT
Sustaining significant investment in R&D as well as innovation is
fundamental to the Company’s long-term growth strategy. Our
target is to sustain MHP’s position as a world leader in efficient
poultry production at the same time as adopting a sustainable
and responsible approach to society, our employees, the
environment and animal welfare.
1 NEDs - four in 2020 and three in 2019
85
BRANCHES
MHP does not have any branches.
SHARE CAPITAL
There is no change in share capital (Note 26, p. 144).
CHANGES TO THE BOARD
All changes to the Board of Directors are disclosed in the
Corporate Governance Report, p. 62-68.
COMPENSATION OF KEY MANAGEMENT PERSONNEL
Total compensation of
the Group’s key management
personnel included primarily in selling, general and administrative
expenses in the accompanying consolidated statements of
profit and loss and other comprehensive income amounted to
US$ 15.1 million and US$ 18.7 million for the years ended
31 December 2020 and 2019, respectively. Compensation of
key management personnel consists of salary and performance
related bonuses.
Key management personnel totalled 22 and 43 individuals as
of 31 December 2020 and 2019 respectively, including 4 and 3
independent non-executive directors as of 31 December 2020
and 2019, respectively.
The table below shows the total of remuneration of the Board
members.
Executive Chairman
NEDs1
Executive Directors
2020
622
958
5,421
2019
609
679
5,643
BUSINESS REVIEW AND RISKS
A review of the Group’s performance and the key risks and
uncertainties which face the business as well as details on likely
developments can be found in the Chairman’s Statement on
page 16 and Risk Management on page 43 of this Report.
ESG
CORPORATE RESPONSIBILITY REPORTING AND
DIALOGUE
The Group initiated corporate responsibility reporting in 2015
and issues a separate Corporate Responsibility Report (Non-
Financial Report) annually. This Report includes information for
MHP’s material stakeholders and applies the latest applicable
Global Reporting Initiative’s (“GRI”) reporting framework. The
latest Non-Financial Report is for 2019 and can be found in the
“Sustainable Development” section of the Company’s website,
Core Compliance. MHP expects the 2020 Report to be available
in June 2021. Summary Corporate Responsibility information is
also included on pages 57 to 60 within this Annual Report.
MHP also participates in a number of ESG research exercises
conducted by specialist
investor research agencies and
readily responds to questions and information requests from
shareholders concerning this aspect of its activities.
FINANCIAL REPORTING PROCESS
MHP has in place a comprehensive financial review cycle
which includes a detailed annual budgeting process. The
annual budget and the business plan, upon which the budget
is based, is reviewed and approved by the Board of Directors.
Major commercial and financial risks are assessed as part of the
business planning process. There is a comprehensive system of
financial reporting, with monthly performance reports presented
to the Board of Directors.
At a Group level, MHP has in place common accounting policies
and procedures on financial reporting and closing. Management
monitors the publication of new reporting standards and works
closely with the external auditors in evaluating in advance the
potential impact of these standards.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 Management Report
SUBSEQUENT EVENTS
At the extraordinary general meeting of the Shareholders of
MHP SE, which was held on 18 March 2021, the Shareholders
have approved the merger of MHP SE with Raftan Holding
Limited (“Raftan”), Hemiak Investments Limited (“Hemiak”) and
Eledem Investments Limited (“Eledem”), being its wholly owned
subsidiary companies (Note 39, p. 155).
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 Directors, members of MHP’s senior Management or
employees.
AUDITOR ROTATION
Details of the rotation are disclosed in the Audit Committee
Report on p. 73.
to
for
AUDITORS’ REMUNERATION
the external auditors amounted
to
Remuneration
US$ 1 million
the year ended 31 December 2020
(2019: US$ 1.831 million). This includes both audit and non-
audit services; with the statutory audit fees amounting to
US$ 0.758 million (2019: US$ 0.990 million) and fees for other
assurance services US$ nill million (2019: US$ 0.309 million),
for tax advisory services US$ 0.070 million (2019: US$ 0.023
million) and for other non-audit services US$ 0.172 million
(2019: US$ 0.509 million).
The Company has rules and processes in place to ensure the
independence of the auditors, including non-audit fee limitations
set by the Board, and prior approvals by the Audit Committee
to ensure any services provided are compatible with the
independence of the auditors.
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. Further details can be found in the Audit
Committee Report on pages 73 to 77.
GOING CONCERN
After reviewing the 2021 budget and longer-term plans, the
Directors are satisfied that, at the time of the approval of the
financial statements, it was appropriate to adopt the going
concern basis in preparing the financial statements of the Group.
POLITICAL DONATIONS
The Group did not make any political donations or incur any
political expenditure during the year.
APPROVAL
Approved by the Board and signed on its behalf by:
86
John Rich
Executive Chairman
23 March 2021
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
Director in order to make himself/herself aware of any relevant
audit information and to establish that the Group’s auditors are
aware of that information.
ADDITIONAL DISCLOSURES
According to the terms of the Senior Notes, the Company may
be required to offer to repurchase the Senior Notes from holders
if a change in control occurs as a result of a takeover bid. At the
date of this Annual Report, no takeover bids have been made for
the Company’s shares.
There are no agreements between the Company and its
Directors or employees providing
for compensation on
loss of office or employment (whether through resignation,
that would occur
purported
because of a takeover bid.
redundancy or otherwise)
Other information that is relevant to the Management Report,
and which is incorporated by reference into this Report, can be
located as follows:
Group Overview
Our Business Model
Corporate Governance Report
Stakeholder Engagement
Pages
4-12
13-15
62-68
54-56
The Company has chosen, in accordance with Section 414 C(11)
of the Companies Act 2006, and as noted in this Management
Report, to include certain matters in its Strategic Report that
would otherwise be required to be disclosed in this Management
Report. The Strategic Report can be found on pages 3 to 24.
GOVERNANCEANNUAL REPORTAND ACCOUNTS 2020 FINANCIAL
STATEMENTS
89 Statement of The Board
of Directors
90 Independent Auditor’s
Report
98 Consolidated Financial
Statements
103 Notes
Contents
88
CONTENTS
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 2020 .................................................................................................88
INDEPENDENT AUDITOR’S REPORT .................................................................................................................90
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER
2020
Consolidated statement of profit or loss and other comprehensive income .........................................98
Consolidated statement of financial position ..................................................................................................99
Consolidated statement of changes in equity ............................................................................................... 100
Consolidated statement of cash flows ............................................................................................................. 101
Notes to the Consolidated financial statements ........................................................................................... 103
1. Corporate information ...................................................................................................................................... 103
2. Summary of significant accounting policies .............................................................................................. 105
3. Changes in the group structure ..................................................................................................................... 119
4. Critical accounting judgments and key sources of estimation uncertainty........................................ 121
5. Segment information ........................................................................................................................................123
6. Revenue .............................................................................................................................................................. 125
7. Cost of sales ....................................................................................................................................................... 126
8. Selling, general and administrative expenses .......................................................................................... 126
9. Other operating income .................................................................................................................................. 126
10. Other operating expenses ............................................................................................................................ 126
11. Deferred income ...............................................................................................................................................127
12. Finance costs ....................................................................................................................................................127
13. Income tax ..........................................................................................................................................................127
14. Property, plant and equipment .................................................................................................................... 129
15. Right-of-use asset ............................................................................................................................................133
16. Intangible assets ..............................................................................................................................................134
17. Goodwill ..............................................................................................................................................................136
18. Non-current financial assets ..........................................................................................................................137
19. Biological assets ...............................................................................................................................................139
20. Inventories ....................................................................................................................................................... 140
21. Agricultural produce ....................................................................................................................................... 140
22. Taxes recoverable and prepaid .................................................................................................................. 140
23. Trade accounts receivable ............................................................................................................................141
24. Other current financial assets ......................................................................................................................144
25. Cash and cash equivalents ..........................................................................................................................144
26. Shareholders’ equity ......................................................................................................................................144
27. Non-controlling interests ...............................................................................................................................145
28. Bank borrowings .............................................................................................................................................147
29. Bonds issued ....................................................................................................................................................148
30. Lease liabilities ................................................................................................................................................ 150
31. Other current financial liabilities .................................................................................................................. 150
32. Related party balances and transactions ................................................................................................. 150
33. Contingencies and contractual commitments ......................................................................................... 151
34. Dividends .......................................................................................................................................................... 152
35. Fair value of financial instruments ............................................................................................................. 152
36. Risk management policies ............................................................................................................................154
37. Pensions and retirement plans .................................................................................................................... 158
38. Earnings per share ......................................................................................................................................... 158
39. Subsequent events ........................................................................................................................................ 158
40. Authorization of the consolidated financial statements ....................................................................... 158
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Statement of The Board of Directors’
89
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 2020
The Board of Directors is responsible for the preparation of the
consolidated 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 2020 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.
In preparing the consolidated financial statements,
the Board of Directors is responsible for:
• properly selecting and applying accounting policies;
• presenting information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• providing additional disclosures when compliance with the
specific requirements in the International Financial Reporting
Standards
to
understand the impact of particular transactions, other events
and conditions on the Group’s consolidated financial position
and financial performance;
to enable users
(“IFRS”) are
insufficient
• 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 over financial reporting,
throughout the Group;
• maintaining adequate accounting records that are sufficient to
show and explain the Group’s transactions and disclose with
reasonable accuracy at any time the consolidated financial
position of the Group, and which enable them to ensure that the
consolidated financial statements of the Group comply with IFRS;
• maintaining statutory accounting records in compliance with
local legislation and accounting standards in the respective
jurisdictions;
• taking such steps as are reasonably available to them to
On behalf of the Board:
safeguard the assets of the Group; and
• preventing and detecting fraud and other irregularities.
The consolidated financial statements of the Group as of and for
the year ended 31 December 2020 were authorized for issue by
the Board of Directors on 23 March 2021.
Board of Directors’ responsibility statement
In accordance with Article 9 sections (3c) and (7) of the
Transparency Requirements (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
2020, on the basis of our knowledge, declare that:
Director
Director
Director
Yuriy Kosyuk
John Grant
Viktoria
Kapelyushnaya
a) the consolidated financial statements which are presented on
Director
John Clifford Rich
pages 98 to 158:
(i) have been prepared in accordance with the applicable
International Financial Reporting Standards as adopted by the
European Union and the provisions of article 9 section (4) of
the law, and
(ii) provide a true and fair view of the assets and liabilities, the
financial position and the profit or loss of the Company’s and
subsidiary companies, consolidated financial statements as a
whole and
b) the Management report provides a fair review of the
developments and the performance of the business and the
financial position of the Group included in the consolidated
accounts taken as a whole, together with a description of the
main risks and uncertainties which they face.
Director
Director
Director
Philip J Wilkinson
OBE
Yuriy Melnyk
Christakis
Taoushianis
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Independent Auditor’s Report
Ernst & Young Cyprus Ltd
Tel: +357 22209999
Jean Nouvel Tower
Fax: +357 22209998
6 Stasinou Avenue
ey.com
1060 Nicosia
P.O. Box 21656
1511 Nicosia, Cyprus
90
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MHP SE
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
We have audited the consolidated financial statements of MHP
SE (the “Company”), and its subsidiaries (the “Group”), which
comprise the consolidated statement of financial position as at
31 December 2020, and 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.
the accompanying consolidated financial
In our opinion,
statements give a true and fair view of the consolidated financial
position of the Group as at 31 December 2020, and of its
consolidated 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.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards 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 throughout
the period of our appointment in accordance with the International
Ethics Standards Board for Accountants’ International Code
of Ethics for Professional Accountants (including International
Independence Standards) (IESBA Code) together with the ethical
requirements that are relevant to our audit of the consolidated
financial statements in Cyprus, and we have fulfilled 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 provide a basis for our
opinion.
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. For each matter below, our description of how our
audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s
responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks
of material misstatement of the consolidated financial statements.
The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for
our audit opinion on the accompanying consolidated financial
statements.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Independent Auditor’s Report
Ernst & Young Cyprus Ltd
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INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
Revenue recognition
The total amount of revenue recognised in 2020 was USD 1,911,137 thousand. Revenue recognition was one
of the matters of most significance in our audit since the amount of revenue is material to the consolidated
financial statements and due to a large number of transactions and management judgment involved in the
interpretation of contract terms, identification of performance obligations, timing of revenue recognition and
in the determination of whether the Group is a principal or an agent in its sales arrangements.
Information on the accounting policy for revenue recognition is disclosed in Note 2 of the consolidated
financial statements and disclosures related to revenue are included in Note 6 of the consolidated financial
statements.
We considered the Group’s accounting policy in respect of revenue recognition.
We assessed the design and operating effectiveness of relevant internal controls over revenue recognition
process, including IT-dependent manual controls.
We analysed sales contracts terms and assessed the moment of transfer of control over goods and services.
On a sample basis, we compared the date of transfer of control over goods and services with the date of
revenue recognition. We also tested, on a sample basis, data of transaction records in the system to their
respective customer contracts, underlying invoices and cash receipts.
On a sample basis, we obtained confirmations of sales and accounts receivable balances from customers.
We tested a sample of revenue transactions recognised shortly before and after the year end and assessed
the period these transactions relate to.
We performed analytical procedures in respect of revenue that included, among others, the analysis of monthly
sales to detect unusual fluctuations and reconciliation with comparative information for prior periods.
We analysed sales contracts terms in respect of indicators of whether the Group is a principal or an agent under
these sales arrangements.
We assessed disclosures in respect of revenue included in the notes to the consolidated financial statements
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Independent Auditor’s Report
Ernst & Young Cyprus Ltd
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INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
Valuation of biological assets and agricultural produce
The Group measures biological assets at fair value less costs to sell in accordance with IAS 41 Agriculture
and IFRS 13 Fair Value Measurement. As at 31 December 2020, the carrying value of biological assets was
USD 200,669 thousand, out of which USD 175,085 thousand was classified within current assets and USD
25,584 thousand within non-current assets.
Agricultural produce harvested from biological assets is measured at fair value less costs to sell at the point
of harvest in accordance with IAS 41 Agriculture and IFRS 13 Fair Value Measurement. As at 31 December
2020, the carrying value of agricultural produce was USD 269,045 thousand.
The Group assesses the fair value of the biological assets based on the discounted cash flow technique.
The key assumptions and inputs used in the measurement are average meat output, average productive
life, expected yields, expected market prices, estimated future production costs and costs to sell and
discount rates.
The fair value of agricultural produce is determined by reference to market prices at the point of harvest.
The valuation of biological assets and agricultural produce is one of the matters of most significance in our
audit since the assessment of fair value requires assumptions and management judgement.
Information on the accounting policy for biological assets and agricultural produce is disclosed in Note 2
of the consolidated financial statements and disclosures related to the biological assets are included in
Note 19 of the consolidated financial statements.
We analysed the Group’s accounting policy in respect of biological assets and agricultural produce in
accordance with the requirements of IFRS.
We obtained an understanding of the internal controls surrounding the valuation process for biological assets
and agricultural produce and assessed their design and implementation.
For biological assets, we analysed the valuation methods used by management. Further, we compared
management’s assumptions to the Group’s historical data, the Group’s actual data and, where applicable, to
market data and external benchmarks. We considered the discount rate used, with the support of our internal
valuation specialists.
For agricultural produce, we analysed management’s identification of the principal market, we compared the
prices used by management to the market data. We analysed costs required to sell agricultural produce and
analysed how they are taken into consideration in calculation of fair value less cost to sell.
We tested the mathematical accuracy of the models prepared by management.
We assessed the disclosures in respect of biological assets and agricultural produce made in the consolidated
financial statements.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Independent Auditor’s Report
Ernst & Young Cyprus Ltd
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INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
Loans to related parties
As described in Note 32 to the consolidated financial statements, the Group provided loans to related
parties. As of 31 December 2020, the balance of “loans and finance aid receivable” from related parties
amounted to USD 68,695 thousand and the balance of “loans to key management personnel” amounted
to USD 4,480 thousand.
These transactions with related parties was one of the matters of most significance in our audit due to the
following:
• Significant judgment is exercised by the Board of Directors in determining whether transactions are made
on an arm’s length basis;
• Significant judgement involved by management in the assessing the recoverability of the loans receivable
and estimation of allowance for expected credit losses in accordance with IFRS 9;
• Disclosures of transactions with related parties are fundamental for the users of financial statements.
Management disclosed more details in relation to the above in Note 4 “Critical accounting judgments and
key sources of estimation uncertainty” as well as Note 32 “Related party balances and transactions” to the
consolidated financial statements.
We obtained an understanding of the Group’s policies and procedures in respect of the identification of related
party transactions and disclosure of such transactions and balances in the consolidated financial statement.
We obtained from management the list of all known related parties.
On a sample basis, we reconciled the balances of loans to amounts per confirmations received from the related
parties and traced individual related party transactions to supporting documentation.
We read underlying contracts to understand the terms of related party loans and assessed the Board of
Directors’ considerations in respect of the application of the arm’s length principle.
We reviewed the cash movements during 2020 and reconciled all interest accrued and repaid to schedules
per loan agreements.
We analysed the financial position of counterparties and available forecast of their future cash flows. We also
considered whether credit risk of the financial instruments increased from the date of its initial recognition.
We evaluated the related disclosures provided in the consolidated financial statements.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Independent Auditor’s Report
Ernst & Young Cyprus Ltd
Tel: +357 22209999
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Fax: +357 22209998
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INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and intangible assets with indefinite useful life
As at 31 December 2020, the Group had significant balance of goodwill and intangible assets with indefinite
useful life of USD 70,614 thousand and USD 34,505 thousand respectively.
An impairment assessment of goodwill and intangible assets with indefinite useful life is a key audit matter
due to the range of judgements and assumptions used in the impairment model for each CGU, as well as the
significance of the carrying amount of goodwill and intangible assets with indefinite useful life.
Disclosure relating to the impairment of goodwill and intangible assets with indefinite useful life is presented
in Note 17 and Note 16 to the consolidated financial statements.
Our procedures included assessment of the assumptions and methodologies used by the Group in its value-in-
use calculation of cash-generating units.
We compared the Group’s assumptions to externally derived data and our internal information on key inputs
such as projected economic growth, sales volumes, inflation and discount rates.
We analysed, for each cash generating unit, the excess of the recoverable amount over carrying amount.
We tested sensitivity of the value in use to key assumptions. We have involved our internal valuation experts to
analyze the scope of appraisal, the data, application of methods, and the methodology used in the valuation
process and the assumptions made by the Group’s management specialists and management.
We also tested mathematical accuracy of management’s impairment analyses and sensitivity calculations.
We also analysed the disclosures related to impairment of goodwill and intangible assets with indefinite useful
life presented in the Notes to the consolidated financial statements.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Independent Auditor’s Report
Ernst & Young Cyprus Ltd
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95
INDEPENDENT AUDITOR’S REPORT
REPORTING ON OTHER INFORMATION
The Board of Directors is responsible for the other information. The
other information comprises information included in Group’s 2020
Annual Report, but does not include the consolidated financial
statements and our auditor’s report thereon. The Board of Directors
is also required pursuant to article 151 of the Cyprus Companies Law
Cap.113 to prepare and publish a Non-Financial Information Report
by 30 June 2021. This report has not been issued by the date of this
report.
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
statements, our responsibility is to read the other information
in doing so, consider whether the
identified above and,
otherinformation 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.
RESPONSIBILITIES OF THE BOARD OF DIRECTORS
AND THOSE CHARGED WITH GOVERNANCE
FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors is responsible for the preparation of
consolidated 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 Cyprus
Companies Law, Cap. 113, and for such internal control as the Board
of Directors determines is necessary to enable the preparation
of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group’s ability to continue
as a going concern, 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.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
OF THE CONSOLIDATED FINANCIAL STATEMENTS
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 assurance is a high
level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs will always detect a material 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 consolidated financial statements.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Independent Auditor’s Report
Ernst & Young Cyprus Ltd
Tel: +357 22209999
Jean Nouvel Tower
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INDEPENDENT AUDITOR’S REPORT
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As part of an audit in accordance with ISAs, we exercise professional
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 auditor’s report. However,
future events or conditions may cause the Group to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves a
true and fair view.
• Obtain sufficient and appropriate audit evidence regarding the
financial 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 responsible 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 deficiencies 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 regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with those charged with governance,
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.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Pursuant to the requirements of Article 10(2) of the EU Regulation
537/2014 we provide the following 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 18 June 2020
at the Company’s Annual General Meeting. This is our first period of
engagement appointment.
Consistency of the Additional Report to the Audit Committee
We confirm that our audit opinion on the consolidated financial
statements expressed in this report is consistent with the additional
report to the Audit Committee of the Company, which we issued on
23 March 2021 in accordance with Article 11 of the EU Regulation
537/2014.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Independent Auditor’s Report
Ernst & Young Cyprus Ltd
Tel: +357 22209999
Jean Nouvel Tower
Fax: +357 22209998
6 Stasinou Avenue
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P.O. Box 21656
1511 Nicosia, Cyprus
97
INDEPENDENT AUDITOR’S REPORT
Provision of Non-audit Services
We declare that no prohibited non-audit services referred to in Article
5 of the EU Regulation 537/2014 and Section 72 of the Auditors Law
of 2017 were provided. In addition, there are no non-audit 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.
Other Legal Requirements
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 consistent with the
consolidated financial statements.
• In light of the knowledge and understanding of the Group and its
environment obtained in the course of the audit, we are required
to report if we have identified material misstatements in the
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 governance
statement in accordance with the requirements of subparagraphs
(iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies
Law, Cap. 113, and which is included as a specific section of the
Annual Report, have been prepared in accordance with the
requirements of the Cyprus Companies Law, Cap, 113, and is
consistent with the consolidated financial statements.
• In our opinion, based on the work undertaken in the course
of our audit, the corporate governance statement includes all
information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii)
of paragraph 2(a) of Article 151 of the Cyprus Companies Law,
Cap. 113. In respect of subparagraphs ((ii) and (iii), the corporate
governance statement included in the Annual Report (page 62)
sets out the exceptions and the explanations thereon in the
application of the UK Corporate Governance Code, which the
Group applies, including the provision on the independence of
the Audit Committee Chairman.
• In light of the knowledge and understanding of the Group and its
environment obtained in the course of the audit, we are required to
report if we have identified material misstatements in the corporate
governance statement in relation to the information disclosed for
items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus
Companies Law, Cap. 113. We have nothing to report in this respect.
Other Matters
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.
Comparative figures
The consolidated financial statements of MHP SE for the year ended
31 December 2019, were audited by another auditor who expressed
an unmodified opinion on those statements on 13 April 2020.
The engagement partner on the audit resulting in this independent
auditor’s report is Andreas Avraamides.
Certified Public Accountant and Registered Auditor
Andreas Avraamides
for and on behalf of
Ernst & Young Cyprus Limited
Certified Public Accountants and Registered
Auditors
Nicosia, 23 March 2021
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Consolidated statement of profit or loss and other comprehensive income
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
98
For the year ended 31 December 2020
(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
Other operating income
Other operating expenses
Loss on impairment of property, plant and
equipment
Operating profit
Finance income
Finance costs
Foreign exchange (loss)/gain, net
Other expenses
(Loss)/Profit before tax
Income tax benefit/(expense)
(Loss)/Profit for the year from continuing
operations
Discontinued operations
Notes
2020
2019
Notes
2020
2019
6
5
7
8
9
10
14
12
36
13
Other comprehensive income
1,911,137
2,055,943
Items that will not be reclassified to profit or loss:
30,502
(39,515)
(1,544,101)
(1,618,596)
397,538
(187,801)
16,526
(23,412)
397,832
(179,156)
11,230
(8,159)
Effect of revaluation of property, plant and equipment
Deferred tax on revaluation of property, plant and
equipment charged directly to other comprehensive
income as result of revaluation
Deferred tax on revaluation of property, plant and
equipment charged directly to other comprehensive
income as result of intercompany sales
Items that may be reclassified to profit or loss:
(1,730)
(6,244)
Cumulative translation difference
201,121
13,584
(144,257)
(203,664)
(3,491)
(136,707)
5,132
215,503
8,034
(147,552)
185,291
(8,064)
253,212
(32,107)
Other comprehensive (loss)/income
Total comprehensive (loss)/income for the year
(Loss)/Profit attributable to:
Equity holders of the Parent
Non-controlling interests
Total comprehensive (Loss)/income attributable to:
(131,575)
221,105
Equity holders of the Parent
Non-controlling interests
14
13
13
-
-
-
199,437
(17,053)
15,162
(180,213)
175,928
(180,213)
373,474
(313,270)
588,757
(136,506)
218,441
27
3,449
(3,158)
(133,057)
215,283
(314,547)
585,943
1,277
2,814
(313,270)
588,757
Loss for the year from discontinued operations
3
(Loss)/Profit for the year
(1,482)
(133,057)
(5,822)
215,283
(Loss)/Earnings per share from continuing and
discontinued operations
On behalf of the Board:
Basic and diluted (loss)/earnings per share (USD per share)
(1.28)
2.04
(Loss)/Earnings per share from continuing
operations
Chief Executive Officer
Yuriy Kosyuk
Basic and diluted (loss)/earnings per share (USD per share)
38
(1.26)
2.10
The accompanying notes on the pages 103 to 158 form an integral part of these consolidated financial statements
Chief Financial Officer
Viktoria Kapelyushnaya
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Consolidated statement of profit or loss and other comprehensive income
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
Notes
31 December
2020
31 December
2019
EQUITY AND LIABILITIES
Equity
Share capital
Treasury shares
1,678,917
2,055,395
Additional paid-in capital
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Goodwill
Non-current biological assets
Non-current financial assets
Long-term bank deposits
Deferred tax assets
Current assets
Inventories
Biological assets
Agricultural produce
Prepayments
Other current financial assets
Taxes recoverable and prepaid
Trade accounts receivable
Cash and cash equivalents
Assets classified as held for sale
TOTAL ASSETS
On behalf of the Board:
14
15
16
17, 3
19
18
13
20
19
21
24
22
23
25
3
207,001
96,841
70,614
25,584
23,083
4,612
1,822
229,244
106,522
64,843
29,652
17,616
3,298
2,284
2,108,474
2,508,854
240,715
175,085
269,045
16,776
81,314
54,647
119,187
217,579
-
208,389
205,747
215,816
23,236
29,337
30,030
124,474
340,735
3,877
1,174,348
1,181,641
3,282,822
3,690,495
Revaluation reserve
Retained earnings
Translation reserve
Equity attributable to equity holders
of the Parent
Non-controlling interests
Total equity
Non-current liabilities
Bank borrowings
Bonds issued
Lease liabilities
Deferred income
Deferred tax liabilities
Other non-current liabilities
Current liabilities
Trade accounts payable
Other current financial liabilities
Advances received
Bank borrowings
Interest payable
Lease liabilities
Liabilities directly associated with assets classified
as held for sale
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
99
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Notes
31 December
2020
31 December
2019
26
27
28
29
30
11
13
31
28
28, 29
30
3
284,505
(44,593)
174,022
648,982
1,195,143
(1,020,229)
284,505
(44,593)
174,022
862,435
1,148,113
(842,188)
1,237,830
1,582,294
16,373
1,254,203
13,572
1,595,866
64,608
1,370,999
136,495
44,505
29,867
7,233
75,880
1,365,669
151,789
49,933
55,305
5,872
1,653,707
1,704,448
149,768
86,638
15,227
39,788
21,487
62,004
-
147,334
70,701
61,293
24,945
21,789
64,074
45
374,912
2,028,619
3,282,822
390,181
2,094,629
3,690,495
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 103 to 158 form an integral part of these consolidated financial statements
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Consolidated statement of changes in equity
100
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
ASSETS
Share
capital
Treasury
shares
Additional
paid-in capital
Revaluation
reserve
Retained
earnings
Translation
reserve
Total
Non-controlling
interests
Total
equity
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
Profit/(loss) 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 34)
Dividends declared by subsidiaries
Non-controlling interests arising in a business combination
Increase of Group’s effective ownership interest in subsidiaries (Note 3)
Translation differences on revaluation reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
218,441
-
218,441
194,099
-
173,403
367,502
194,099
218,441
173,403
585,943
(80,271)
80,271
-
-
-
(80,000)
-
-
-
(5,119)
105,807
(105,807)
-
-
-
-
-
-
-
(80,000)
-
-
(5,119)
-
(3,158)
5,972
2,814
-
-
(6,082)
15,526
(15,222)
-
215,283
373,474
588,757
-
(80,000)
(6,082)
15,526
(20,341)
-
Balance at 31 December 2019
284,505
(44,593)
174,022
862,435
1,148,113
(842,188)
1,582,294
13,572
1,595,866
Profit/(loss) 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 34)
Non-controlling interests arising in a business combination
Translation differences on revaluation reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(136,506)
-
(136,506)
3,449
(133,057)
-
(178,041)
(178,041)
(136,506)
(178,041)
(314,547)
(77,972)
77,972
-
-
(30,000)
83
(135,481)
135,481
-
-
-
-
-
(30,000)
83
-
(2,172)
1,277
-
-
(180,213)
(313,270)
-
(30,000)
1,524
1,607
-
-
Balance at 31 December 2020
284,505
(44,593)
174,022
648,982
1,195,143
(1,020,229)
1,237,830
16,373
1,254,203
The accompanying notes on the pages 103 to 158 form an integral part of these consolidated financial statements
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Consolidated statement of cash flows
101
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Notes
2020
2019
Notes
2020
2019
Operating activities
(Loss)/Profit before tax
Loss before tax from discontinued operations
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
Change in allowance for unrecoverable amounts and direct
write-offs
Interest received
(136,707)
253,212
Interest paid
(1,482)
(5,822)
Income taxes paid
Net cash flows from operating activities
Investing activities
9,803
7,789
(144,926)
(142,894)
(15,274)
(11,543)
70,685
501,771
192,103
206,195
Purchases of property, plant and equipment
(72,793)
(111,766)
(30,502)
39,515
Purchases of other non-current assets
Proceeds from disposals of property, plant and equipment
16,912
3,858
Proceeds from disposals of assets held for sale
Purchases of non-current biological assets
(6,102)
3,545
2,700
(769)
(743)
2,476
-
(284)
Loss on impairment of property, plant and equipment
14
1,730
6,244
Government grants received
11
2,052
12,935
Loss on disposal of property, plant and equipment and
other non-current assets
Finance income
Finance costs
Released deferred income
42
512
(13,584)
(8,034)
Prepayments and capitalized initial direct costs under lease
contracts
(7,185)
(8,618)
Acquisition of subsidiaries, net of cash acquired
-
(205,724)
12
144,257
147,552
(1,739)
(1,862)
Investments in short-term deposits
Withdrawals of short-term deposits
Non-operating foreign exchange gain/(loss), net
203,664
(185,291)
Loans provided to employees, net
Operating cash flows before movements in working capital
374,694
456,079
Loans and finance aid provided to related parties
(1,798)
390
(1,547)
(57,106)
10,000
-
-
(3,408)
(28,004)
10,115
32
32
Working capital adjustments
Change in inventories
Change in biological assets
Change in agricultural produce
Change in prepayments made
Change in other financial current assets
Change in taxes recoverable and prepaid
Change in trade accounts receivable
Change in advances received
Change in other financial current liabilities
Change in trade accounts payable
Cash generated by operations
Loans and finance aid repaid by related parties
(55,580)
125,887
Net cash flows used in investing activities
(128,613)
(333,021)
The accompanying notes on the pages 103 to 158 form an integral part of these consolidated financial statements
(19,429)
20,109
(36,975)
8,474
(4,160)
1,695
11,365
(3,559)
(32,469)
21,954
(4,310)
(19,420)
(37,306)
23,625
28,514
(32,894)
6,408
36,799
221,082
648,419
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Consolidated statement of cash flows
102
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Financing activities
Proceeds from bank borrowings
Repayment of bank borrowings
Proceeds from bonds issued
Repayment of bonds
Repayment of lease liabilities
Dividends paid
Dividends paid by subsidiaries to non-controlling
shareholders
Acquisition of non-controlling interest
Transaction costs related to corporate bonds issued
Transaction costs related to bank loans received
Net cash flows used in financing activities
Net (decrease)/increase in cash and cash equivalents
Net foreign exchange difference on cash and cash
equivalents
Cash and cash equivalents at 1 January
Notes
2020
2019
29
113,154
213,809
(118,387)
(405,749)
-
-
350,000
(79,417)
(15,524)
(15,806)
34
(30,000)
(80,000)
(930)
(5,249)
-
-
-
(20,341)
(4,751)
(697)
(51,687)
(48,201)
(109,615)
120,549
(13,541)
8,418
340,735
211,768
Cash and cash equivalents at 31 December
25
217,579
340,735
Non-cash transactions
Additions of property, plant and equipment financed through
direct bank-lender payments to the vendor
Revaluation of property, plant and equipment
Non-cash repayments of lease liabilities
-
-
1,318
199,437
(9,134)
(10,842)
14
30
The accompanying notes on the pages 103 to 158 form an integral part of these consolidated financial statements
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
1. CORPORATE INFORMATION
MHP SE (the “Parent” or “MHP SE”), a limited liability company
(Societas Europaea) registered under the laws of Cyprus, was
formed on 30 May 2006. Hereinafter, MHP SE and its subsidiaries
are referred to as the “MHP SE Group” or the “Group”. The
registered address of MHP SE is 16-18 Zinas Kanther Street, Agia
Triada, 3035 Limassol, Cyprus. The MHP SE shares are listed
on the London Stock Exchange (“LSE”) in the form of global
depositary receipts (“GDRs”).
The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk
(“Principal Shareholder”), who owns 100% of the shares of
WTI Trading Limited (“WTI”), which is the immediate majority
shareholder of MHP SE, 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 meat processing
and other agricultural operations. The Group’s poultry and
related operations
the
production of chicken, including hatching, fodder manufacturing,
raising chickens to marketable age (“grow-out”), processing and
marketing of branded chilled products and include the production
and sale of chicken products, vegetable oil, mixed fodder. Grain
functions related
integrate all
to
growing comprises the production and sale of grains. Meat
processing and other agricultural operations comprise the
production and sale of cooked meat, sausages, convenience
food products, milk and feed grains. As of 31 December 2020
the Group employed 30,471 people (31 December 2019: 31,427
people).
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
1. CORPORATE INFORMATION (continued)
The primary subsidiaries, the principal activities of the companies forming the Group and the Parent’s effective ownership interest as of 31 December 2020 and 2019 were as follows:
Year
established/
acquired
2006
Sub-holding Company
Principal activities
31 December
2020
31 December
2019
Name
Country of registration
Raftan Holding Limited
Hemiak Investments Limited
MHP Lux S.A.
MHP (formerly known as Myronivsky Hliboproduct)
Myronivsky Plant of Manufacturing Feeds and Groats
Vinnytska Ptakhofabryka
Peremoga Nova
Oril-Leader
Myronivska Pticefabrika
Starynska Ptakhofabryka
Zernoprodukt MHP
Katerinopilskiy Elevator
SPF Urozhay
Agrofort
MHP-Urozhayna Krayina
Ukrainian Bacon
MHP-AgroKryazh
MHP-Agro-S
Zakhid-Agro MHP
Perutnina Ptuj d.d.
MHP Trading FZE
MHP Food Trading
MHP B.V.
MHP Trade B.V.
Cyprus
Cyprus
Luxembourg
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Slovenia
United Arab Emirates
United Arab Emirates
Netherlands
Netherlands
2018
2018
1998
1998
2011
1999
2003
2004
2003
2005
2005
2006
2006
2010
2008
2013
2013
2015
2019
2018
2016
2014
2018
Sub-holding Company
Finance Company
Management, marketing and sales
Fodder and vegetable oil production
Chicken farm
Breeder farm
Chicken farm
Chicken farm
Breeder farm
Grain cultivation
Fodder production and grain storage, vegetable oil production
Grain cultivation
Grain cultivation
Grain cultivation
Meat processing
Grain cultivation
Grain cultivation
Grain cultivation
Poultry production
Trading in vegetable oil and poultry meat
Trading in vegetable oil and poultry meat
Trading in poultry meat
Trading in poultry meat
The Group’s primary operational facilities are located in different regions of Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia and Bosnia and Herzegovina.
100.0%
100.0%
100.0%
99.9%
88.5%
100.0%
99.9%
99.9%
99.9%
100.0%
99.9%
99.9%
99.9%
99.9%
99.9%
79.9%
51.0%
51.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.9%
88.5%
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%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Amendments to IAS 1 and IAS 8: Definition of Material
The amendments provide a new definition of material that states,
“information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary
users of general purpose financial statements make on the basis
of those financial statements, which provide financial information
about a specific reporting entity.” The amendments clarify that
materiality will depend on the nature or magnitude of information,
either individually or in combination with other information, in the
context of the financial statements. A misstatement of information
is material if it could reasonably be expected to influence
decisions made by the primary users. These amendments had no
impact on the consolidated financial statements of, nor is there
expected to be any future impact to the Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and accounting
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union and the requirements
of the Cyprus Companies Law Cap 113. The operating subsidiaries
of the Group maintain their accounting records under local
accounting standards.
Local principles and procedures may differ from those generally
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
machinery, vehicles and agricultural machinery, biological assets,
agricultural produce, and certain financial instruments, which are
carried at revalued amounts. Historical cost is generally based on
the fair value of the consideration given in exchange for goods
and services at the date of intitail recognition of an item.
Adoption of new and revised International Financial
Reporting Standards
The Group applied for the first-time certain standards and
amendments, which are effective for annual periods beginning
on or after 1 January 2020. The Group has not early adopted
any other standard, interpretation or amendment that has been
issued but is not yet effective.
The following standards were adopted by the Group on 1 January
2020:
• Amendments to IFRS 3: Business Combinations: Definition of
a Business;
• Amendments to IAS 1 and IAS 8: Definition of Material;
• Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate
Benchmark Reform;
• Amendments to references to the Conceptual Framework in
IFRS standards;
• Amendments to IFRS 16: Covid-19 Related Rent Concessions.
Amendments to IFRS 3: Business Combinations:
Definition of a Business
The amendment to IFRS 3 Business Combinations clarifies that
to be considered a business, an integrated set of activities and
assets must include, at a minimum, an input and a substantive
process that, together, significantly contribute to the ability to
create output. Furthermore, it clarifies that a business can exist
without including all of the inputs and processes needed to create
outputs. These amendments had no impact on the consolidated
financial statements of the Group, but may impact future periods
should the Group enter into any business combinations.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Amendments to IFRS 16: Covid-19 Related Rent Concessions
On 28 May 2020, the IASB issued Covid-19-Related Rent
Concessions - amendment to IFRS 16 Leases The amendments
provide relief to lessees from applying IFRS 16 guidance on lease
modification accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a practical expedient,
a lessee may elect not to assess whether a Covid-19 related rent
concession from a lessor is a lease modification. A lessee that
makes this election accounts for any change in lease payments
resulting from the Covid-19 related rent concession the same way
it would account for the change under IFRS 16, if the change were
not a lease modification.
The amendment applies to annual reporting periods beginning
on or after 1 June 2020. Earlier application is permitted. This
impact on the consolidated financial
amendment had no
statements of the Group.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Adoption of new and revised International Financial
Reporting Standards (continued)
Amendments to IFRS 9, IAS 39 and IFRS 7:
Interest Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial Instruments:
Recognition and Measurement provide a number of reliefs, which
apply to all hedging relationships that are directly affected by
interest rate benchmark reform. A hedging relationship is affected
if the reform gives rise to uncertainty about the timing and/or
amount of benchmark-based cash flows of the hedged item or
the hedging instrument. These amendments have no impact on
the consolidated financial statements of the Group as it does not
have any interest rate hedge relationships.
Amendments to references to the Conceptual Framework
in IFRS standards
The Conceptual Framework is not a standard, and none of
the concepts contained therein override the concepts or
requirements in any standard. The purpose of the Conceptual
Framework is to assist the IASB in developing standards, to
help preparers develop consistent accounting policies where
there is no applicable standard in place and to assist all parties
to understand and interpret the standards. This will affect those
entities which developed their accounting policies based on the
Conceptual Framework. The revised Conceptual Framework
includes some new concepts, updated definitions and recognition
criteria for assets and liabilities and clarifies some important
concepts. These amendments had no impact on the consolidated
financial statements of the Group.
Standards and Interpretations in issue but not effective
At the date of authorization of these consolidated financial
statements, the following Standards and Interpretations, as
well as amendments to the Standards were in issue but not yet
effective:
Standards and Interpretations
Effective for annual period
beginning on or after
A IFRS 17 Insurance Contracts
1 January 2023
Amendments to IAS 1 Presentation
of Financial Statements: Classification
of Liabilities as Current or Non-current
Amendments to IAS 16 Property,
Plant and Equipment: Proceeds
before Intended Use
Amendments to IAS 37 Provisions,
Contingent Liabilities and Contingent
Assets: Onerous Contracts —
Cost of Fulfilling a Contract
Amendments to IFRS 3 Business
Combinations: Reference to the
Conceptual Framework
Amendment to IFRS 4 Insurance
Contracts – deferral of IFRS 9
Annual Improvements to IFRS
Standards 2018–2020
1 January 2023
1 January 2022
1 January 2022
1 January 2022
1 January 2021
1 January 2022
For these Standards and Interpretations management anticipates
that their adoption will not have a material effect on the
consolidated financial statements of the Group in future periods.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The relevant exchange rates were:
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 and Luxembourg company of the Group is US
Dollars (“USD”), the functional currency of the european companies of the Group is EURO (“EUR”),
the functional currency of the United Arab Emirates companies is Dirham (“AED”). Transactions in
currencies other than the functional currency of the entities concerned are treated as transactions
in foreign currencies.
Currency
UAH/USD
UAH/EUR
USD/EUR
Closing rate as of
31 December 2020
Average for 2020
Closing rate as of
31 December 2019
Average for 2019
28.2746
34.7396
1.2287
26.9639
30.8013
1.1423
23.6862
26.4220
1.1155
25.8373
28.9406
1.1201
Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions.
Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing
on the reporting date. All realized and unrealized gains and losses arising on exchange differences
are recognised in the consolidated statement of profit or loss and other comprehensive income for
the period.
These consolidated financial statements are presented in US Dollars (“USD”), which is the Group’s
presentation currency.
The results and financial position of the Group are translated into the presentation currency using
the following procedures:
• Assets and liabilities for each consolidated statement of financial position presented are translated
at the closing rate as of the reporting date of that statement of financial position;
• Income and expenses for each consolidated statement of profit or loss are translated at exchange
rates at the dates of the transactions;
• The exchange differences arising on translation for consolidation are recognised in other
comprehensive income and presented as a separate component of equity. On disposal of a
foreign operation, the component of OCI relating to that particular foreign operation is reclassified
to profit or loss;
• All equity items, except for the revaluation reserve, are translated at the historical exchange rate.
The revaluation reserve is translated at the closing rate as of the date of the statement of financial
position.
For practical reasons, the Group translates items of income and expenses for each period presented
in the financial statements using the quarterly average exchange rates, if such translations reasonably
approximate the results translated at exchange rates prevailing at the dates of the transactions.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the MHP SE and its
subsidiaries. Control is achieved when the Company:
• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above. Consolidation
of a subsidiary begins when the Company obtains control over the subsidiary and ceases when
the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of profit or
loss and other comprehensive income from the date the Company gains control until the date
when the Company ceases to control the subsidiary. Profit or loss and each component of other
comprehensive income are attributed to the owners of the Company and to the non-controlling
interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company
and to the non-controlling interests even if this results in the non-controlling interests having a
deficit balance.
All significant intercompany transactions, balances and unrealized gains or losses on transactions
are eliminated on consolidation, except when the intragroup losses indicate an impairment that
requires recognition in the consolidated financial statements.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies used in line with those adopted by the Group.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in
its highest and best use.
The Group uses valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are accounted
for using the acquisition method. On acquisition, the assets,
liabilities and contingent liabilities of a subsidiary are measured
at their fair values.
The consideration transferred by the Group is measured at fair
value, which is the sum of the acquisition-date fair values of the
assets transferred by the Group, liabilities incurred by the Group
to the former owners of the acquired subsidiary and the equity
interests issued by the Group in exchange for control of the
subsidiary. Acquisition-related costs are generally recognised in
the consolidated statement of profit or loss as incurred.
includes assets and
When the consideration transferred by the Group in a business
liabilities resulting from
combination
a contingent consideration arrangement,
the contingent
consideration is measured at its acquisition-date fair value
and is included as part of the consideration transferred. Any
contingent consideration to be transferred by the acquirer will
be recognised at fair value at the acquisition date. Contingent
consideration that is classified as equity is not remeasured
and subsequent settlement is accounted for within equity.
Contingent consideration classified as an asset or liability that is
a financial instrument and within the scope of IFRS 9 Financial
Instruments, is measured at fair value with changes in fair value
recognised in the statement of profit or loss in accordance with
IFRS 9. Other contingent consideration that is not within the
scope of IFRS 9 is measured at fair value at each reporting date
with changes in fair value recognised in profit or loss.
Non-controlling interests that are present ownership interests and
entitle their holders to a proportionate share of the subsidiary’s
net assets in the event of liquidation may be initially measured
either at fair value or at the non-controlling interests’ proportionate
share of the recognised amounts of the subsidiary’s identifiable
net assets. The choice of measurement basis is made on a
transaction-by-transaction basis. Other types of non-controlling
interests, if any, are measured at fair value or, when applicable,
on the basis specified in other IFRS standards.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquired subsidiary, and the fair value of the Group’s previously
held equity interest in the acquired subsidiary (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed exceeds the sum of the
consideration transferred, the amount of non-controlling interests
in the subsidiary and the fair value of the Group’s previously-held
interest in the subsidiary (if any), the excess is recognised in the
consolidated statement of profit or loss, as a bargain purchase
gain.
Changes in the Group’s ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group’s interests and the non-controlling interests are adjusted
to reflect the changes in their relative interests in subsidiaries.
Any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to
owners of the Parent.
In acquisition of a legal entity that does not constitute a business,
the cost of the group of assets is allocated between the individual
identifiable assets in the group based on their relative fair values.
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.
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.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement (continued)
All assets and liabilities for which fair value is measured or
disclosed 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 whether
transfers have occurred between Levels in the hierarchy by re-
assessing categorization (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end
of each reporting period.
Borrowing costs
Borrowing costs include interest expense, finance charges on
leases and other interest-bearing long-term payables and debt
servicing costs.
Borrowing costs directly attributable to the acquisition, construction
or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use
or sale, are added to the cost of those assets, until such time as the
assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying assets
is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognised in the statement of
profit or loss and other comprehensive income in the period in
which they are incurred.
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;
• Meat processing and other agricultural operations;
• European operating segment.
Contingent liabilities and assets
Contingent liabilities are not recognised in the consolidated
financial statements. Rather, they are disclosed in the notes to
the consolidated financial statements unless the possibility of an
outflow of resources embodying economic benefits is remote.
Contingent assets are recognised only when the contingency is
resolved.
Segment information
Segment reporting is presented on the basis of management’s
perspective and relates to the parts of the Group that are defined
as operating segments. Operating segments are identified
on the basis of internal reports provided to the Group’s chief
operating decision maker (“CODM”). The Group has identified
its top management team as its CODM and the internal reports
used by the top management team to oversee operations and
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
considering oil extraction as a part of mixed fodder production
rather than a separate line of business as primarily quality and
effectiveness of mixed fodder production prevails over oil output.
Grain growing operations include sale of grain other than feed
grains and green-fodder. Meat processing and other agricultural
operations segment primarily includes sales of other than poultry
meat and meat processing products, feed grains and milk. The
Europe operating segment include sales of meat processing and
chicken meat products in Southeast Europe.
The Group does not present information on segment assets and
liabilities as the CODM does not review such information for
decision-making purposes.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Non-monetary exchanges or swaps of goods which are of similar
nature and value are not treated as transactions which generate
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 at a point in time 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 major
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 unconditional.
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
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 disposal
group) is available for immediate sale in its present condition
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 control of a subsidiary, all of the assets and liabilities of
that subsidiary are classified as held for sale when the criteria
described above are met, regardless of whether the Group will
retain a non-controlling 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.
Revenue recognition
The Group generates revenue primarily from the sale of
agricultural 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.
Revenue is adjusted for estimates of known or expected
variable consideration, which includes consumer incentives,
trade promotions, and allowances, such as rebates, volume-
based incentives and other programs. Variable consideration
related to these programs is recorded as a reduction to revenue
based on amounts we expect to pay. These estimates are based
on current performance, historical utilization, and projected
redemption rates of each program. The Group reviews and
updates these estimates regularly until the incentives are
realized and the impact of any adjustments are recognized in
the period the adjustments are identified.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Government grants
Government grants are recognised as income over the periods
necessary to match them with the related costs, or as an
offset against finance costs when received as compensation
for the finance costs for agricultural producers. To the extent
the conditions attached to the grants are not met at the
reporting date, the received funds are recorded in the Group’s
consolidated financial statements as deferred income, which is
recognised in profit or loss on a systematic basis over the useful
life of the related assets.
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Property, plant and equipment
All groups of property, plant and equipment are carried at revalued
amounts, being their fair value at the date of the revaluation less
any subsequent depreciation and impairment losses, except land
and other fixed assets that are carried at historical cost less (for
the other fixed assets) 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
removing the item and restoring the site on which it is located,
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 (d) for qualifying assets, borrowing costs
capitalized in accordance with the Group’s accounting policy.
from revaluation reserve directly to retained earnings over the
assets useful life. On the subsequent sale or retirement of a
revalued asset, the attributable revaluation surplus remaining in
the revaluation reserve is transferred directly to retained earnings.
Subsequently capitalized costs include major expenditures for
improvements and replacements that extend the useful lives of
the assets or increase their revenue generating capacity. Repairs
and maintenance expenditures that do not meet the foregoing
criteria for capitalization are charged to the consolidated
statement of profit or loss as incurred.
For all groups of property, plant and equipment carried at revalued
amounts, the revaluations are performed with sufficient regularity
such that the carrying amount does not differ materially from that
which would be determined using fair values at the reporting
date. If the asset’s carrying amount is increased as a result of
a revaluation, the increase is credited to equity through other
comprehensive income as a revaluation reserve. However, such
increase is recognised in the consolidated statement of profit or
loss to the extent that it reverses a revaluation decrease of the
same asset previously recognised in the consolidated statement
of profit or loss. If the asset’s carrying amount is decreased
as a result of a revaluation, the decrease is recognised in the
consolidated statement of profit or loss.
However, such decrease is debited to the revaluation reserve
through other comprehensive income to the extent of any credit
balance existing in the revaluation reserve in respect of that asset.
Depreciation on revalued assets is charged to the consolidated
statement of profit or loss. 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
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Subsequent to initial recognition, intangible assets assessed as
having finite useful lives are reported at cost less accumulated
amortization and accumulated impairment losses. Amortization
of intangible assets is recognised on a straight line basis over
their estimated useful lives. The period of estimated useful life of
intangibles is as follows:
Land lease rights
Customer relations
Trademarks
Other intangible assets
3 - 15 years
20 years
not amortised
3 - 10 years
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment (continued)
Depreciation of property, plant and equipment is charged so as to
write off the depreciable amount over the useful life of an asset
and is calculated using a straight line method. Useful lives of the
groups of property, plant and equipment are as follows:
Buildings and structures
Grain storage facilities
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 residual
value is the estimated amount that the Group would currently obtain
from disposal of the item of property, plant and equipment, after
deducting the estimated costs of disposal, if the asset was already
of the age and in the condition expected at the end of its useful life.
The residual value, the useful lives and depreciation method are
reviewed at each financial year-end. The effect of any changes
from previous estimates is accounted for prospectively as a
change in an accounting estimate.
The gain or loss arising on sale or disposal of an item of property,
plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and is
recognised in the consolidated statement of profit or loss.
Construction in progress comprises costs directly related to
the construction of property, plant and equipment including
an appropriate allocation of directly attributable variable
overheads that are incurred in construction. Construction in
progress is not depreciated. Depreciation of construction
in progress commences when completed consruction
in
progress transferred to the relevant class of property, plant and
equipment.
Intangible assets
Intangible assets consist primarily of land lease rights, trademarks
and customer relationship which are acquired in a business
combination.
Intangible assets acquired in a business combination are
identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset. The cost of such
intangible assets is their fair value at the acquisition date.
Intangible assets assessed as having an indefinite useful life are
not amortised and are examined for impairment annually or more
frequently where there is an indication of impairment. Where the
carrying amount of an asset is greater than the amount that it is
estimated to be recoverable, it is written down to its recoverable
amount. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable.
If not, the change in useful life from indefinite to finite is made on
prospective basis.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets (continued)
The amortization period and the amortization method for
intangible assets with finite useful lives are reviewed at least at
the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds
and the carrying amount of the asset, are recognised in profit or
loss when the asset is derecognised.
Right-of-use assets
Right-of-use assets mainly represents rent of land from individuals
(Ukrainian citizens) for agricultural purposes. The Group recognises
right-of-use assets at the commencement date of the lease (i.e., the
date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease
liabilities.
The cost of right-of-use assets includes the amount of lease
liabilities recognized, initial direct costs incurred and lease
payments made at or before the commencement date lessany
lease incentives received. Right-of-use assets are depreciated
over the period of lease term. The depreciation starts at the
commencement date of
recognises
depreciation of right-of-use assets based on the lease term,
presented within cost of goods sold in the consolidated statement
of profit or loss. The average maturity of land lease agreements is
7 years.
lease.The Group
the
recognised for the asset (cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately
in the consolidated profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase through other
comprehensive income.
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocated to
each of the Group’s cash generating units (or groups of cash-
generating units) that is expected to benefit from the synergies
of the combination.
A cash-generating unit to which goodwill has been allocated is
tested for impairment annually, or more frequently when there
is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than its carrying
amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro rata based on the carrying
amount of each asset in the unit. Any impairment loss for
goodwill is recognised directly in the consolidated profit or loss.
An impairment loss recognised on goodwill is not reversed in
subsequent periods.
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 with definite useful lives
to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Intangible
assets with indefinite useful lives are tested for impairment
annually or more frequently when there is an indication that they
might be impared.
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows (cash-generating units). Recoverable amount is the higher of
fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in the
consolidated profit or loss unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated
as a revaluation decrease through other comprehensive income.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Biological assets and agricultural produce
Agricultural activity is defined as a biological transformation of
biological assets for sale into agricultural produce or into
additional biological assets. The Group classifies hatchery eggs,
live poultry and other animals and plantations as biological
assets.
The Group recognizes a biological asset or agricultural produce when
the Group controls the asset as a result of past events, it is probable
that future economic benefits associated with the asset will flow to the
Group, and the fair value 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 profit or loss.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
Income taxes have been computed in accordance with the laws
currently enacted or substantially enacted in jurisdictions where
operating entities are located. Income tax is calculated based
on the results for the year as adjusted for items that are non-
assessable or non-tax deductible. It is calculated using tax rates
that have been enacted by the reporting date.
Deferred tax is accounted for using the balance sheet
liability method in respect of temporary differences arising
from differences between the carrying amount of assets and
liabilities in the consolidated financial statements and the
corresponding tax basis used in the computation of taxable
profit. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the
end of each reporting period and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates
that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of
the reporting period. The measurement of deferred tax liabilities
and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the
reporting period, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax is charged or credited to the consolidated
statement of profit or loss, except when it relates to items
credited or charged directly to equity or other comprehensive
income, in which case the deferred tax is also dealt with in
equity or other comprehensive income.
Deferred tax assets and liabilities are offset when:
• The Group has a legally enforceable right to set off the
recognised amounts of current tax assets and current tax
liabilities;
• The Group has an intention to settle on a net basis, or to
realize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabilities relate
to income taxes levied by the same taxation authority in each
future period in which significant amounts of deferred tax
liabilities and assets are expected to be settled or recovered.
The majority of the Group companies that are involved in
agricultural production (poultry farms and other entities
engaged in agricultural production) benefit substantially from
the status of an agricultural producer. These companies are
exempt from income taxes and pay the Fixed Agricultural Tax
instead (Note 13).
Inventories
Inventories are stated at the lower of cost and net realizable
value. Costs comprise raw materials and, where applicable, direct
labour costs and those overheads that have been incurred in
bringing the inventories to their present locations and condition.
Cost is calculated using the FIFO (first-in, first-out) method. Net
realizable value is determined as the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution. Agriculture related production
process results in production of joint products: main and by-
products. A by-product arising from the process is measured at
net realizable value and this value is deducted from the cost of the
main product.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
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, milk cows and breeding bulls.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Biological Assets
Biological assets and agricultural produce (continued)
Costs to sell include all costs that would be necessary to sell the
assets, including costs necessary to get the assets to market.
The difference between fair value less costs to sell and total
production costs is allocated to biological assets as of each
reporting date as a fair value adjustment.
The change in this adjustment from one period to another is
recognised as “Net change in fair value of biological assets and
agricultural produce” in the consolidated profit or loss.
Agricultural produce harvested
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 consolidated profit
or loss.
from biological assets
Based on the above policy, the principal groups of biological
assets and agricultural produce are stated as follows:
(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 held for hatchery eggs production
The fair value of breeders is determined using the discounted
cash flow approach based on hatchery eggs’ market prices.
(iii) Cattle and pigs
Cattle and pigs comprise cattle held for regeneration of livestock
population and animals raised for milk and beef and pork meat
production. The fair value of livestock is determined based on
market prices of livestock of similar age, breed and genetic
merit. Cattle, for which market-determined prices or values are
not available and for which alternative estimates of fair value
are determined to be clearly unreliable, are measured using
the present value of expected net cash flows from the asset
discounted at a current market-determined pre-tax rate.
(iv) 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
(i) Dressed poultry, beef and pork
The fair value of dressed poultry, beef and pork is determined by
reference to market prices at the point of harvest.
(ii) Grain
The fair value of fodder grain is determined by reference to
market prices at the point of harvest.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
represented by cash and cash equivalents, trade accounts
receivable, bank borrowings, bonds issued, trade accounts
payable and other financial liabilities. The accounting policies
for initial recognition and subsequent measurement of financial
instruments are disclosed in the respective accounting policies
set out below in this Note.
Financial assets and financial liabilities are initially recognised at
fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the fair
value of the financial assets or financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
• the financial asset is held within a business model whose
objective is achieved by both collecting contractual cash flows
and selling the financial assets; and
• the contractual terms of the financial asset give rise on specified
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 subsequently
at FVTPL.
Financial assets at amortised cost are subsequently measured
using 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
principal repayments, plus the cumulative amortisation using the
effective 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.
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 measured
subsequently at amortised cost (this category is the most relevant
to the Group):
• the financial asset is held within a business model whose
objective is to hold financial assets in order to collect contractual
cash flows; and
• the contractual terms of the financial asset give rise on
specified 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 measured
subsequently at FVTOCI:
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or 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
applies a simplified approach in calculating ECLs. Therefore, the
Group does not track changes in credit risk, but instead recognises
a loss allowance based on ECLs at each reporting date. The
Group has established a provision matrix that is based on its
historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment.
For all other financial instruments, the Group recognises lifetime
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
financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result
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.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets (continued)
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the Group
compares the risk of a default occurring on the financial
instrument at the reporting date with the risk of a default occurring
on the financial instrument at the date of initial recognition. In
making this assessment, the Group considers both quantitative
and qualitative information that is reasonable and supportable,
including historical experience and forward-looking information
that is available without undue cost or effort. Forward-looking
information considered 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 information 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 reasonable
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
initial 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
(3) Adverse changes in economic and business conditions in the
longer term may, but will not necessarily, reduce the ability of
the borrower to fulfil its contractual cash flow obligations.
Default definition
The Group considers that default has occurred when a financial
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 financial 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, having
granted to the borrower a concession(s) that the lender(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
The Group writes off a financial asset 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 in the case of trade accounts receivable, when the
amounts are over three years past due, whichever occurs sooner.
Financial assets written off may still be subject to enforcement
activities under the Group’s recovery procedures, taking into
account legal advice where appropriate. Any recoveries made
are recognised in profit or loss.
Inputs, assumptions and estimation
techniques used by
measurement and recognition of expected credit losses are
disclosed in respective Notes 18 and 23 on financial assets.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Derivative financial instruments
The Group enters into derivative financial instruments to purchase
sunflower seeds and sales of grains. 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 value,
and are subsequently measured at amortised cost using the
effective interest rate method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial liabilities
Initial recognition and measurement
The Group’s financial liabilities include trade and other payables,
loans and borrowings, leases and derivative financial instruments.
Financial liabilities are recognised initially at fair value and are
measured subsequently at amortised cost using the effective
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
integral 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.
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 recognition of a new liability. It is assumed that the terms are
substantially 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.
Trade accounts receivable
Trade accounts receivable is recognised if an amount of
consideration that is unconditional is due from the customer.
Trade accounts receivable that do not contain a significant
financing component are measured at the transaction price.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash with
banks, deposits and government bonds with maturity of less than
three months from the date of acquisition.
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.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
3. CHANGES IN THE GROUP STRUCTURE
Discontinued operation
During the year ended 31 December 2020, according to
management’s plan, the Group disposed of the Snyatynska poultry
farm, which was located in Ukraine and carried out goose meat
and foie gras operations, and was previously presented within
Meat processing and other agricultural operations segment.
As at 31 December 2019 the Snyatynska poultry farm has been
classified and accounted for as a disposal group held for sale.
Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount
as profit or loss after tax from discontinued operations in the
consolidated statement of profit or loss. All other notes to the
financial statements include amounts for continuing operations,
unless otherwise mentioned.
The net assets as of the date of disposal amounted to USD 3,303
thousand. The total cash consideration amounted to USD 2,700
thousand, which was received during this reporting period.
A lease contract is modified and the lease modification is not
accounted for as a separate lease, in which case the lease liability
is remeasured by discounting the revised lease payments using a
revised discount rate.
In the statement of cash flows the Group separates the total
amount of cash paid into a principal portion (presented within
financing activities) and interest (presented within operating
activities).
Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation (either based on legal regulations
or implied) as a result of past events, and it is probable that an
outflow of resources will be required to settle the obligation and
a reliable estimate of the obligation can be made.
Reclassifications and revisions
Certain comparative information presented in the consolidated
financial statements for the year ended 31 December 2019
has been revised in order to achieve comparability with the
presentation used in the consolidated financial statements
for the year ended 31 December 2020. The Group presented
separately Other non-current financial assets, Prepayments to
suppliers, Other financial assets and Advances received in the
consolidated statement of financial position as of 31 December
2019. The Group also presented separately Other operating
income and Other operating expenses in the consolidated
statement of profit or loss and other comprehensive income for
the year ended 31 December 2019.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Lease liabilities
The Group assesses whether a contract is or contains a lease, at
inception of the contract.
The Group recognises lease liabilities in the consolidated
statement of financial position, initially measured at the present
value of future lease payments. The Group does not apply the
short term and low-value lease exemptions.
The Group measures the lease liability at the present value of the
lease payments that are not paid at the commencement date,
discounted by using the incremental borrowing rate, because the
interest rate implicit in the lease is not readily determinable. The
incremental borrowing rate is defined as the rate of interest that the
lessee would have to pay to borrow over a similar term, and with a
similar security the funds necessary to obtain an asset of a similar
value to the right of use asset in a similar economic environment.
The lease liability is presented as a separate line in the
consolidated statement of financial position. The lease liability
is subsequently measured by increasing the carrying amount
to reflect interest on the lease liability and by reducing the
carrying amount to reflect the lease payments made. The Group
recognises interest on lease liabilities and presents it within
interest expenses in the consolidated profit or loss.
The Group remeasures the
(and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
liability
lease
• The lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case the
lease liability is remeasured by discounting the revised lease
payments using a revised discount rate.
• The lease payments change due to changes in an index or rate
or market rate, in which cases the lease liability is remeasured
by discounting the revised lease payments using the initial
discount rate (unless the lease payments change is due to
a change in a floating interest rate, in which case a revised
discount rate is used).
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
3. CHANGES IN THE GROUP STRUCTURE (continued)
Acquisitions
On 21 February 2019, the Group acquired 90.69% of the issued
share capital and thereby obtained control of Perutnina Ptuj, a
Slovenian based international meat-processing company, who
is a producer of poultry meat and poultry meat products in
Southeast Europe. Perutnina Ptuj together with its subsidiaries
has a production capacity of 55,000 tonnes per annum of poultry
meat and more than 35,000 tonnes per annum of value-added
meat products. Perutnina Ptuj was acquired in line with MHP’s
strategy and will provide a platform for further development and
opportunities in the EU with further capacity expansion planned
over the next 3 to 5 years.
The final fair values of identifiable assets acquired and liabilities
assumed and any non-controlling interests are as set out in the
table below.
The consideration was paid as follows: USD 23,302 thousand
in 2018 as a prepayment and USD 226,710 thousand in 2019.
Inventories
Biological assets
Trade accounts receivable
Cash and cash equivalents
Other current liabilities less other current assets
Property, plant and equipment
Right-of-use asset
Identifiable intangible assets
Trade accounts payable
Deferred tax liabilities net of deferred tax assets
Other non-current liabilities less other non-current assets
Bank borrowings and lease liabilities 1
Contingent liabilities
Total identifiable assets
Goodwill
Non-controlling interest of in 7.61 % of Perutnina Ptuj 2
Total consideration due and payable
Net cash outflow arising on acquisition:
Cash consideration paid
Less: amount paid in 2018
Less: cash and cash equivalent balances acquired
21 February 2019
35,371
8,721
36,198
20,986
(8,103)
179,581
14,564
53,448
(34,283)
(18,338)
(6,073)
(74,960)
(3,092)
204,020
61,518
(15,526)
250,012
250,012
(23,302)
(20,986)
205,724
Acquisition-related costs amounted to USD 2,689 thousand.
The fair value of the trade receivables is USD 36,198 thousand
and a gross contractual value of USD 38,474 thousand. The
best estimate at acquisition date of the contractual cash flows
not to be collected is USD 2,276 thousand.
The goodwill of USD 61,518 thousand arising from the
acquisition attributed to the expected synergies and other
benefits from combining the assets and activities of Perutnina
Ptuj with those of the Group:
• the acquisition was in line with the Group’s strategy to extend
a presence in EU markets. Perutnina Ptuj has production
assets in four Balkan countries: Slovenia, Croatia, Serbia,
Bosnia and Herzegovina; owns distribution companies
in Austria, North Macedonia and Romania and supplies
products to 15 countries in Europe. Perutnina has strong
brands and customer base;
• Perutnina Ptuj has the ability to increase production of
poultry products using existing production capacities. As a
leading cost-efficient poultry producer, the Group has solid
expertise in cost optimization and the management expects
to improve the profitability of Perutnina Ptuj;
• Perutnina Ptuj will provide the Group a platform for further
production capacity expansion in Europe.
None of the goodwill is expected to be deductible for income
tax purposes.
The non-controlling interest (7.61% ownership interest Perutnina
Ptuj) recognized at the acquisition date was measured as a
proportionate share of the acquired entity’s net identifiable
assets and amounted to USD 15,526 thousand.
1 includes USD 16,466 thousand of lease liabilities recognised in accordance
with the adoption of IFRS 16.
2 At the date of acquisition, there were 200,488 treasury shares
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future,
and other key sources of estimation uncertainty at the end of the
reporting period that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
3. CHANGES IN THE GROUP STRUCTURE (continued)
Changes in non-controlling interests in subsidiaries
Since acquisition date and up to 31 of December 2019, the
Group increased its effective ownership interest in Perutnina Ptuj
to 100% through the purchase of a non-controlling interest for
the amount USD 20,341 thousand. The difference between the
carrying value of the net assets acquired and the consideration
paid was recognised as an adjustment to retained earnings in the
amount of USD 5,119 thousand.
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which
are described in Note 2, management is required to make
judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects
both current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those
involving estimations (see below), that management has made in
the process of applying the Group’s accounting policies and that
have the most significant effect on the amounts recognised in the
consolidated financial statements.
Determination of variable lease payments
As described in Note 2, the Group measures lease liabilities at
the present value of future lease payments, discounted using
the lessee’s incremental borrowing rate. Future lease payments
consist of both fixed payments (including in-substance fixed
payments) and variable lease payments that depends on an
index or rate, including payments that vary to reflect changes in
market rental rates. Management of the Group make significant
judgement in determination of whether variable lease payments
depend on an index or rate. Regardless of the lease payments
stated in the lease contracts, customary business practices
complement the contractual terms in a way that at each particular
date the rate is a market rate. Since the entire market operates
on the basis of expectations of a periodic revision of rates (based
on current market rates), management has concluded that the
rates are determined by the market mechanism. In substance
non-contractual changes in lease payments are driven by the
competitive forces and payments change is based on the
average changes of lease payments in the region, which means
that variable component of a lease paymnets depends on a
market index.
Revaluation of property, plant and equipment
As described in Note 2, the Group applies the revaluation
model to the measurement of all groups of property, plant and
equipment, except land and other fixed assets (Note 14). 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 determine whether the carrying
amount differs materially from fair value.
When determining whether to perform a fair value assessment
in a given period, the management of the Group considers
development of 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 2020.
Loans to related parties
As described in Note 32, as of 31 December 2020, the Group had
advanced loans to its majority shareholder, WTI Trading Limited
(“WTI”), in the aggregate amount of USD 67,400 thousand. The
Board had considered that the loans are permitted investments as
they were issued at arm’s length terms and for fair market value,
and that they were in the best interests and for the commercial
benefit of the Group and does not violate the terms of the Senior
Notes (Note 29).
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Deferred tax assets
Deferred tax assets, including those arising from unused tax losses
are recognised to the extent that it is probable that they will be
recovered, which is dependent on the generation of sufficient
future taxable profit. Based on management’s assessment the
Group determined it was appropriate to recognize deferred tax
assets on unused tax losses, which will be utilized in future against
existing deferred tax liabilities and available future tax profits.
The estimation uncertainty therefore pertains to the level of
deferred tax assets to be recognised.
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY (continued)
Impairment of goodwill and intangibles not amortised
As disclosed in Notes 16 and 17, the Group determines at least
on an annual basis whether indefinite life intangible assets and
goodwill have been impaired. This requires an estimate of an
asset’s recoverable amount which is the higher of an asset’s or
cash generating unit’s (CGU’s) fair value less costs of disposal
and its value in use and it is determined for an individual asset,
unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets.
Estimating a value-in-use amount requires management to make
an estimate of the expected future cash flows from the cash
generating unit and also to choose a suitable discount rate and
growth rates in order to calculate the present value of those cash
flows.
Fair value measurement on business combinations and
identification of cash generating units
As disclosed in Note 3, the Group acquired Perutnina Ptuj during
2019 and based on IFRS 3 recognised the underlying assets
and liabilities and consideration given at fair value. The fair
value has been determined by adopting variety of techniques
that are appropriate for the respective assets and liabilities and
are normally assessed by market valuation practitioner. The fair
value estimates and techniques used as well as the identification
of cash generating units, requires significant judgement to be
exercised by management.
Determination of incremental borrowing rate
As described in Note 2, the Group uses incremental borrowing
rate as discounting factor for the purpose of calculation of lease
liability, if rate implicit in the lease is not readily determinable.
Incremental borrowing rate is determined as available rate for the
Group adjusted for specifics of particular lease contracts.
Fair value less costs to sell of biological assets and agricultural
produce
Biological assets are recorded at fair values less costs to sell. The
Group estimates the fair values of biological assets based on the
following key assumptions:
• Average meat output for broilers and livestock
for meat production;
• Average productive life of breeders and cattle held
for regeneration and milk production;
• Expected crops output;
• Estimated changes in future sales prices;
• Projected production costs and costs to sell; and,
• Discount rate.
During the year ended 31 December 2020 the fair value of
biological assets was estimated using discount factors of 11.2%
and 11.5% (31 December 2019: 12.0% and 12.0%) for non-current
and current assets, respectively.
Although some of these assumptions are obtained from published
market data, the majority of these assumptions are estimated
based on the Group’s historical and projected results (Note 19 ).
Useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and
equipment is a matter of management estimate based upon
experience with similar assets. In determining the useful life of
an asset, management considers the expected usage, estimated
technical obsolescence, physical wear and tear and the physical
environment in which the asset is operated. Changes in any of
these conditions or estimates may result in adjustments for future
depreciation rates.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
5. SEGMENT INFORMATION
The Group’s business is managed on a worldwide basis, but
operates manufacturing facilities and sales offices primarily in
Ukraine and Europe.
Reportable segments are presented in a manner consistent with
the internal reporting to the Group’s chief operating decision
maker (“CODM”).
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
Meat processing and other agricultural operations segment:
• sales of meat processing products and other meat
• other agricultural operations (milk, feed grains and other)
European operating segment:
• sales of meat processing and chicken meat products in
Southeast Europe
The accounting policies of the reportable segments are the
same as the Group’s accounting policies described in Note 2.
Sales between 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 CODM for the
purposes of resource allocation and assessment of segment
performance.
European operating segment primarily includes sales of chicken meat
and meat processing products, produced in the facilities of Perutnina
Ptuj. However, the CODM manages this as a single segment, on the
basis that each of research, development, manufacture, distribution
and selling of chicken meat and meat processing products requires
single marketing strategies, centralised budgeting process and
centralised management of production operations.
As of 31 December 2020 and for the year then ended the Group’s
segmental information from continuing operations was as follows:
Year ended 31 December 2020
External sales
Sales between segments
Total revenue
Segment result
Unallocated corporate expenses
Poultry
and related
operations
1,297,904
41,642
1,339,546
95,797
Grain growing
operations
Meat-processing
and other agricultural
operations
133,713
213,419
347,132
80,866
144,472
387
144,859
13,284
European
operating
segment
335,048
-
Total reportable
segments
Eliminations
Consolidated
1,911,137
255,448
-
1,911,137
(255,448)
-
335,048
2,166,585
(255,448)
1,911,137
37,718
227,665
Loss on impairment of property, plant and equipment
-
-
-
(1,730)
(1,730)
Other expenses, net 1
Loss before tax from continuing operations
Other information:
Additions to property, plant and equipment 2
Depreciation and amortization expense 3
Net change in fair value of biological assets and agricultural
produce
41,192
98,138
3,283
68,778
(16,534)
46,078
743
6,755
(97)
20,854
17,316
66,072
190,987
1,055
30,502
1 Include finance income, finance costs, foreign exchange loss, net and other expenses, net.
2 Additions to property, plant and equipment in 2020 do not include unallocated additions in the amount of USD 11,274 thousand.
3 Depreciation and amortization for the year ended 31 December 2020 does not include unallocated depreciation and amortization in the amount of USD 1,116 thousand.
-
-
-
-
-
227,665
(24,814)
(1,730)
(337,828)
(136,707)
66,072
190,987
30,502
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
5. SEGMENT INFORMATION (continued)
As of 31 December 2019 and for the year then ended the Group’s segmental information from continuing operations was as follows:
Year ended 31 December 2019
External sales
Sales between segments
Total revenue
Segment result
Unallocated corporate expenses
Poultry
and related
operations
1,367,554
49,633
Grain growing
operations
268,419
246,477
1,417,187
514,896
182,778
28,972
Meat-processing
and other agricultural
operations
European
operating
segment
Total reportable
segments
Eliminations
Consolidated
148,673
949
149,622
12,820
271,297
2,055,943
-
2,055,943
-
297,059
(297,059)
-
271,297
2,353,002
(297,059)
2,055,943
25,196
249,766
-
Loss on impairment of property, plant and equipment 4
(2,653)
(3,004)
(163)
-
(5,820)
Other expenses, net 1
Profit before tax from continuing operations
Other information:
Additions to property, plant and equipment 2
Depreciation and amortization expense 3
Net change in fair value of biological assets and agricultural
produce
92,836
98,526
4,116
80,115
8,732
(49,875)
2,985
7,544
1,577
10,547
18,523
110,484
204,708
51
(39,515)
-
-
-
1 Include finance income, finance costs, foreign exchange gain, net and other expenses, net.
2 Additions to property, plant and equipment in 2019 do not include unallocated additions in the amount of USD 9,744 thousand and additions due to acquisitions of subsidiaries in the amount of USD 179,581 thousand.
3 Depreciation and amortization for the year ended 31 December 2019 does not include unallocated depreciation and amortization in the amount of USD 983 thousand.
4 Loss on impairment of property, plant and equipment for the year ended 31 December 2019 includes unallocated loss in amount of USD 424 thousand.
249,766
(28,019)
(6,244)
37,709
253,212
110,484
204,708
(39,515)
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
The geographic structure of revenue for the years ended
31 December 2020 and 2019 was as follows:
Export
Domestic
2020
2019
1,015,755
1,185,701
895,382
870,242
1,911,137
2,055,943
Advances received from third parties as of 31 December 2019 in
the amount of USD 61,293 were recognized as revenue during
the year ended 31 December 2020.
5. SEGMENT INFORMATION (continued)
6. REVENUE
The Group’s export sales to external customers by major product types
were as follows during the years ended 31 December 2020 and 2019:
Revenue for the years ended 31 December 2020 and 2019 was
as follows:
2020
2019
2020
2019
Chicken meat and related products
577,255
588,903
Poultry and related operations segment
Vegetable oil and related products
274,979
302,600
Chicken meat
970,183
1,024,889
Grain
114,304
251,836
Vegetable oil and related products
281,566
305,885
Other agricultural segment products
49,217
42,362
Other poultry related sales
46,155
36,780
1,015,755
1,185,701
1,297,904
1,367,554
Export sales includes revenue from shipping and handling
services in the amount of USD 56,586 thousand as for the year
ended 31 December 2020 (2019: USD 68,543 thousand).
Export sales of vegetable oil and related products and export
sales of grains are primarily made to global trading companies.
The sales of chicken meat to major markets of the Group -
MENA and EU amounted to 40% and 22% of total export sales
respectively (2019: 32% and 31%).
Non-current assets based on the geographic location of the
manufacturing facilities were as follows as of 31 December 2020
and 31 December 2019:
Grain growing operations
segment
Grain
133,713
268,419
133,713
268,419
Meat-processing and other agricultural operations
segment
Meat-processing products
114,474
118,169
Other agricultural sales
29,998
30,504
144,472
148,673
European operating segment
Ukraine
Europe
2020
2019
Meat-processing products
117,149
91,679
Chicken meat
191,207
153,146
1,816,045
2,251,447
Other agricultural sales
262,912
234,209
2,078,957
2,485,656
26,692
26,472
335,048
271,297
1,911,137
2,055,943
Non-current assets excluding deferred tax assets, long-term
deposits and non-current financial assets.
There is no single customer who contributed more than 10%
amount to the Group’s revenue in either 2020 or 2019.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
7. COST OF SALES
Cost of sales for the years ended 31 December 2020 and 2019
was as follows:
Social security contributions, included in Payroll and related
expenses above, amounted to USD 39,419 thousand for the year
ended 31 December 2020 (2019: USD 38,645 thousand).
9. OTHER OPERATING INCOME
Other operating income for the years ended 31 December 2020
and 2019 was as follows:
Poultry and related operations segment
1,017,223
1,050,849
Grain growing operations segment
158,655
241,917
2020
2019
8. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended
31 December 2020 and 2019 were as follows:
Meat-processing and other
agricultural operations segment
125,148
131,723
Payroll and related expenses
84,910
72,986
2020
2019
Governement grants
Insurance compensation
Gain on write-off of trade accounts
payable
European operating segment
243,075
194,107
Services
52,633
45,868
Other income
2020
7,951
5,466
1,015
2019
6,997
496
374
2,094
3,363
16,526
11,230
Cost of sales includes shipping and handling expenses and were
for the years ended 31 December 2020 and 2019 as follows:
Advertising expense
12,581
13,957
Representative costs and business trips
8,185
14,392
1,544,101
1,618,596
Depreciation and amortization expense
17,693
18,914
Poultry and related operations segment
70,465
Grain growing operations segment
8,672
2020
2019
56,199
33,324
Fuel and other materials used
Insurance expense
Bank services and conversion fees
Other
4,742
1,453
966
4,638
5,638
1,381
1,290
4,730
187,801
179,156
Meat-processing and other
agricultural operations segment
European operating segment
4,572
5,583
8,417
92,126
2,690
97,796
Revenue includes shipping and handling costs in the price of the
product.
For the years ended 31 December 2020 and 2019 cost of sales
comprised the following:
Costs of raw materials and other
inventory used
2020
2019
1,029,260
1,041,184
Payroll and related expenses
243,533
236,788
Depreciation and amortization expense
Other costs
174,410
96,898
186,777
153,847
1,544,101
1,618,596
Payroll and related expenses includes social security contributions
amounted to USD 8,862 thousand for the year ended 31
December 2020 (2019: USD 7,773 thousand).
Remuneration to the auditors, included in Services above,
amounted to USD 1,000 thousand for the year ended 31 December
2020 (2019: USD 1,831 thousand). Such remuneration includes
both audit and non-audit services, with the statutory audit fees
component amounted to USD 758 thousand for the year ended
31 December 2020 (2019: USD 990 thousand) and fees for other
assurance services component of USD nill thousand (2019: USD
309 thousand), for tax advisory services component approximating
USD 70 thousand (2019: USD 23 thousand) and for other non-audit
services component approximating USD 172 thousand for the year
ended 31 December 2020 (2019: USD 509 thousand).
10. OTHER OPERATING EXPENSES
Other operating expenses for the years ended 31 December
2020 and 2019 were as follows:
Provision for claims, penalties
and indemnification
Expected credit losses and write-off
of trade accounts receivable
Other expenses
2020
2019
12,369
-
3,858
5,477
7,185
23,412
2,682
8,159
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
11. DEFERRED INCOME
The Ukrainian Government supports domestic agricultural
producers and attracts investments into the agricultural sector.
Also, during the years ended 31 December 2020 and 2019,
the Group received government compensations in accordance
with EU farming subsidies policy and other compensations in
accordance with the EU national programs of employment,
assigned contributions for employees, and refunds of excise
duties.
For the years ended 31 December 2020 and 2019 following
government grants were received:
Compensation of construction and
reconstruction of livestock farms
Compensation received in EU
Compensation of the cost of
machinery and equipment
Other compensations
2020
1,730
6,771
135
187
2019
7,554
4,063
395
923
8,823
12,935
Government grants
for compensation of construction and
reconstruction of livestock farms and compensation of cost of
machinery and equipment are presented in the statement of the
financial position as deferred income, which is recognised in profit
or loss on a systematic basis over the useful life of the related
assets. All other compensations received were recognised in
consolidated statement of profit or loss and other comprehensive
income in full.
12. FINANCE COSTS
Finance costs for the years ended 31 December 2020 and 2019
were as follows:
2020
2019
Interest on corporate bonds
105,187
94,970
Interest on obligations under leases
37,692
37,784
Interest on bank borrowings
Bank commissions and other charges
Costs related to corporate bonds
(Note 29)
3,291
2,640
12,951
6,827
-
2,164
Total finance costs
148,810
154,696
Less:
Finance costs included in the cost of
qualifying assets
(4,553)
(7,144)
144,257
147,552
For qualifying assets, the weighted average capitalization rate on
funds borrowed during the year ended 31 December 2020 was
7.70% (2019: 8.10%).
Interest on corporate bonds for the years ended 31 December
2020 and 2019 includes the amortization of premium and debt
issue costs on bonds issued in the amounts of USD 5,331 thousand
and USD 6,885 thousand, respectively.
to be applied to the period when the temporary differences are
expected to reverse.The majority of the Group companies that
are involved in agricultural production (poultry farms and other
entities engaged in agricultural production) benefit substantially
from the status of an agricultural producer. The tax rates for
agricultural producers 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:
• The share of the entity’s revenue from agricultural production
(i.e. sale of the entity’s cultivated and processed products) to
the total share of its income equals or exceeds 75 per cent; and
land that such
agricultural manufacturers own or lease, and the ownership
title and leases have been duly registered.
• These agriproducts were cultivated on
The components of income tax (benefit)/expense were as follows
for the years ended 31 December 2020 and 2019:
Current income tax expense
Withholding tax
Deferred tax (benefit)/expense
Income tax (benefit)/expense
2020
5,408
9,241
(19,781)
(5,132)
2019
5,171
7,073
19,863
32,107
13. INCOME TAX
The majority of the Group’s operating entities are located in
Ukraine, therefore the effective tax rate reconciliation is completed
based on Ukrainian statutory rates.
During the year ended 31 December 2020, the Group’s companies
that have the status of Corporate Income Tax (the “CIT”) payers
in Ukraine were subject to income tax. The Tax Code of Ukraine
introduced an 18% income tax rate effective from 1 January 2014.
The deferred income tax assets and liabilities as of 31 December
2020 and 2019 are measured based on the tax rates expected
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
13. INCOME TAX (continued)
reconciliation between
The
from
continuing operations multiplied by the statutory tax rate and
the tax expense for the years ended 31 December 2020 and 2019
was as follows:
(loss)/profit before
tax
Accounting (loss)/profit before tax
from continuing operations
Loss before tax from a discontinued
operation
Income tax (benefit)/expense
calculated at rates effective during the
year ended in respective jurisdictions
Tax effect of:
(Loss)/income generated by FAT payers
and other exempt from income tax
Effect on income tax generated by EU
companies
Derecognition and utilisation of
previously recognised tax losses/
assets
Withholding tax
Non-deductible expenses
Translation (gain)/loss
Income tax (benefit)/expense
(5,132)
32,107
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 2020 and 2019 deferred tax assets and
liabilities recognised the following:
Deferred tax assets arising from:
Other current liabilities
Inventories
Tax losses
2020
2019
2,486
3,083
3,244
432
24,893
26,423
Total deferred tax assets
30,462
30,099
Deferred tax liabilities arising
from:
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 expiration 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 2020 and 2019 were as follows:
2020
2019
(136,707)
253,212
(1,482)
(5,822)
2020
2019
(53,021)
(12,953)
(23,080)
45,954
Property, plant and equipment
(56,594)
(78,906)
Inventories
-
(159)
Net deferred tax liabilities as of
beginning of the year
Total deferred tax liabilities
(56,594)
(79,065)
Deferred tax benefit /(expense)
19,781
(19,866)
10,215
(11,982)
Net deferred tax liabilities
(26,132)
(48,966)
Deferred tax liabilities acquired from the
acquisition of subsidiaries
-
(18,338)
1,604
(1,479)
(4,540)
(17,734)
9,241
2,919
(1,491)
7,073
3,915
6,360
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 2020 and 2019:
Deferred tax assets
Deferred tax liabilities
2020
3,735
2019
6,640
Deferred tax on revaluation of
property, plant and equipment
charged directly to other
comprehensive income as result of
revaluation
Deferred tax on revaluation of
property, plant and equipment charged
directly to other comprehensive
income as result of intercompany sales
-
(17,053)
-
15,162
(29,867)
(55,305)
Translation difference
5,195
27
Deferred tax assets not recognised
(1,913)
(4,356)
(28,045)
(53,021)
Net deferred tax liabilities as of
end of the year
(28,045)
(53,021)
During the years ended 31 December 2020 and 2019 the Group
did not recognize tax losses in the amount of USD 10,629 (USD
1,913 thousand of deferred tax assets), USD 23,086 thousand
(USD 4,356 thousand of deferred tax asset), respectively, as the
Group did not intend to deduct the relevant expenses for tax
Deferred tax benefit on revaluation of property, plant and
equipment 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 STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
14. PROPERTY, PLANT AND EQUIPMENT
The following table represents movements in property, plant and equipment for the year ended 31 December 2020:
Land
Buildings and
structures
Grain storage
facilities
Production
machinery
Auxiliary and other
machinery
Utilities and
infrastructure
Vehicles and
agricultural
machinery
Other fixed
assets1
Construction
in progress2
Total
Cost or fair value:
At 31 December 2019
39,175
1,046,726
108,122
459,238
65,311
155,029
203,948
28,346
108,818
2,214,713
Additions
Transfers
Disposals
Reclassified as held for sale
Impairment loss
309
(1,715)
11,714
12,071
(1,043)
(5,292)
-
(468)
(528)
(96)
668
4,355
(4)
-
-
Translation difference
1,333
(141,620)
(17,502)
At 31 December 2020
37,591
922,975
95,639
Accumulated depreciation:
At 31 December 2019
-
16,728
2,553
Depreciation charge for the year
Elimination upon disposal
Reclassified as held for sale
Transfers
Translation difference
-
-
-
-
-
35,710
(184)
(528)
(163)
(3,222)
At 31 December 2020
-
48,341
7,181
(36)
-
-
(991)
8,707
Net book value
9,672
14,594
(1,770)
(13)
-
(67,809)
413,912
94,664
43,252
(875)
-
(3,680)
(15,007)
118,354
1,284
8,306
(594)
(73)
-
(11,665)
62,569
3,594
7,986
(109)
(12)
330
(2,058)
9,731
1,086
6,177
(36)
-
(65)
(25,238)
136,953
2,400
7,478
(8)
(1)
388
(725)
894
19,921
(7,853)
-
-
1,932
7,149
(427)
(1)
(1,101)
49,787
77,346
(70,858)
-
(1,161)
(17,910)
(24)
-
(639)
(1,730)
(37,120)
(4,250)
(15,215)
(319,086)
180,060
31,648
71,347
1,952,694
20,690
45,355
(1,171)
-
1,604
(7,997)
18,689
3,545
(414)
-
1,521
(2,710)
-
-
-
-
-
-
159,318
150,507
(2,797)
(541)
-
(32,710)
9,532
58,481
20,631
-
273,777
At 31 December 2019
39,175
1,029,998
105,569
364,574
At 31 December 2020
37,591
874,634
86,932
295,558
61,717
52,838
152,629
127,421
183,258
121,579
9,657
108,818
2,055,395
11,017
71,347
1,678,917
1 Other fixed assets include bearer plants, office furniture and equipment.
2 Construction in progress include advances for property plant and equipment, machinery and equipment not in use, construction materials and spare parts, projects in progress.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
14. PROPERTY, PLANT AND EQUIPMENT (continued)
The following table represents movements in property, plant and equipment for the year ended 31 December 2019:
Land
Buildings and
Grain storage
structures
facilities
Production
machinery
Auxiliary and other
machinery
Utilities and
infrastructure
Cost or fair value:
At 31 December 2018
4,363
670,095
78,376
332,493
51,387
105,540
-
-
-
-
-
-
4,363
670,095
78,376
332,493
51,387
105,540
Adoption of IFRS 16
At 1 January 2019
Additions
1,044
19,841
Acquisitions of subsidiaries (Note 3)
29,689
114,757
Transfers
Disposals
Reclassified as held for sale
Revaluations
Translation difference
3,551
63,934
(2)
-
-
530
(758)
(320)
60,099
119,078
5,954
1,193
-
(3)
-
11,886
10,716
9,057
26,794
37,065
(957)
(1,854)
(6,476)
63,116
At 31 December 2019
39,175
1,046,726
108,122
459,238
Accumulated depreciation:
At 31 December 2018
-
23,915
5,498
34,704
Adoption of IFRS 16
At 1 January 2019
Depreciation charge for the year
Elimination upon disposal
Reclassified as held for sale
Elimination on revaluation
Impairment loss
Translation difference
-
-
-
-
-
-
-
-
-
23,915
31,750
(356)
296
(45,216)
949
5,390
At 31 December 2019
-
16,728
Net book value
-
5,498
6,447
(2)
-
(11,038)
323
1,325
2,553
-
34,704
50,811
(235)
(183)
(2)
2
9,567
94,664
7,694
1,388
-
(142)
(113)
(3,368)
8,465
65,311
6,696
-
6,696
7,450
(28)
(54)
(13,615)
1,496
1,649
3,594
Vehicles and
agricultural
machinery
235,845
(23,857)
211,988
6,541
405
2,779
(2,973)
(1,110)
(50,483)
36,801
Other fixed
assets1
Construction
in progress2
Total
9,803
146,494
1,634,396
-
-
(23,857)
9,803
146,494
1,610,539
596
3,051
513
(255)
(33)
-
63,409
120,228
1,672
179,581
(121,384)
-
(18)
(18)
-
(5,142)
(3,836)
21,540
1,666
18,663
278,798
6,092
632
13,542
(34)
(388)
9,882
19,763
155,029
203,948
15,341
108,818
2,201,708
5,851
-
5,851
6,940
(4)
(32)
(11,462)
70
1,037
2,400
52,144
(2,408)
49,736
53,147
(1,395)
(238)
(96,564)
3,404
12,600
20,690
7,058
-
7,058
3,466
(134)
(26)
-
-
1,417
11,781
-
135,866
-
-
-
-
-
-
-
-
-
(2,408)
133,458
160,011
(2,154)
(237)
(177,897)
6,244
32,985
152,410
At 31 December 2018
4,363
646,180
72,878
297,789
At 31 December 2019
39,175
1,029,998
105,569
364,574
44,691
61,717
99,689
152,629
183,701
183,258
2,745
3,560
146,494
1,498,530
108,818
2,049,298
1 Other fixed assets include bearer plants, office furniture and equipment.
2 Construction in progress include advances for property plant and equipment, machinery and equipment not in use, construction materials and spare parts, projects in progress.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
Revaluation of Auxiliary and other machinery
During the year ended 31 December 2019, the Group engaged an
independent appraiser to determine the fair value of its Auxiliary
and other machinery as of 30 September 2019. The valuation,
which conformed to the International Valuation Standards, was
determined using the market comparable approach adjusted
based on age and condition of the machinery or for items of
specialized nature depreciated replacement cost method. During
the year ended and as of 31 December 2020, 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.
14. PROPERTY, PLANT AND EQUIPMENT (continued)
As of 31 December 2020, included within construction in
progress were prepayments for property, plant and equipment in
the amount of USD 8,052 thousand (2019: USD 12,083 thousand).
As of 31 December 2020, included within property, plant and
equipment were fully depreciated assets with the original cost of
USD 25,875 thousand (2019: USD 11,096 thousand).
As of 31 December 2020, certain of the Group’s property, plant
and equipment with the carrying amount of USD 83,837 thousand
(2019: USD 99,878 thousand) were pledged as collateral to
secure its bank borrowings.
Impairment assessment
The Group reviews its property, plant and equipment each period
to determine if any indication of impairment exists. Based on
these reviews, there were no indicators of impairment as of 31
December 2020 and 2019, except for the impairment of certain
assets in the amount of USD 1,730 thousand and USD 6,244
thousand as of 31 December 2020 and 2019, respectively.
Revaluation of vehicles and agricultural machinery
During the year ended 31 December 2019, the Group engaged
independent appraisers to revalue its vehicles and agricultural
machinery. The effective date of revaluation were 30 September
2019. The valuation, which conformed to the International
Valuation Standards, was determined using market comparable
approach adjusted based on age and condition of the machinery.
During the year ended and as of 31 December 2020, the Group
evaluated whether the fair value of vehicles and agricultural
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, Management assessed the fair
value of vehicles and agricultural machinery not to be materially
different from the reported book values.
Revaluation of production machinery
During years ended and as of 31 December 2020 and 31
December 2019, 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, Management assessed
the fair value of such production machinery not to be materially
different from the reported book values.
Revaluation of buildings and structures
During the year ended 31 December 2019, the Group engaged
independent appraisers to revalue its buildings and structures.
The effective date of revaluation was 30 September 2019.
The valuation, which conformed to the International Valuation
Standards, was determined using depreciated replacement
cost method by reference to observable prices in an active
market adjusted based on age and condition of the buildings
and structures. During the year ended and as of 31 December
2020, the Group evaluated if the fair value of buildings and
structures was materially different from the reported book values.
Based on analysis of the fluctuations of the cumulative index of
inflation of construction works and index of physical depreciation,
Management assessed 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 2019, the Group engaged
independent appraisers to revalue its grain storage facilities
as of 30 September 2019. The valuation, which conformed to
the International Valuation Standards, was determined using
depreciated 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 2020,
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,
Management assessed the fair value of grain storage facilities
not to be materially different from the reported book values.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
14. PROPERTY, PLANT AND EQUIPMENT (continued)
Revaluation of Utilities and infrastructure
During the year ended 31 December 2019, the Group engaged independent appraisers to revalue its utilities and infrastructure as
of 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using depreciated
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 2020, 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
Net book value under
revaluation model
Net book value
if carried at cost
Buildings and structures
Production machinery
Utilities and infrastructure
Vehicles and agricultural machinery
Grain storage facilities
Level 3
Level 2, 3
Level 3
Level 2
Level 3
Auxiliary and other machinery
Level 2, 3
52,838
61,717
1,558,962
1,897,745
There are no restrictions on the distribution of the revaluation surplus to the shareholders (Note 4).
2020
2019
2020
2019
874,634
1,029,998
417,665
451,618
295,558
364,574
205,077
260,606
127,421
152,629
121,579
183,258
86,932
105,569
69,684
68,928
33,892
36,555
831,801
70,669
90,043
40,554
35,842
949,332
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
15. RIGHT-OF-USE ASSETS
The following table represents movements in right-of-use assets
for the year ended 31 December 2020:
The following table represents movements in right-of-use assets
for the year ended 31 December 2019:
Land
Vehicles
Total
Land
Vehicles
Total
Cost:
Cost:
As of 31 December 2019
230,434
36,794
267,228
As of 31 December 2018
Additions
Termination of the lease
Reassessment of the lease liabitity
Translation difference
As of 31 December 2020
Accumulated amortization:
As of 31 December 2019
Amortization charge for the year
Termination of the lease
Translation difference
As of 31 December 2020
Net book value:
As of 31 December 2019
As of 31 December 2020
19,198
-
14,586
(37,458)
7,977
(3,025)
5,263
(3,193)
27,175
(3,025)
19,849
(40,651)
Effect of adoption of IFRS 16
As of 1 January 2019
Additions
Termination of the lease
226,760
43,816
270,576
Change in terms
31,723
27,945
-
(6,191)
53,477
6,261
5,111
(986)
(288)
37,984
33,056
(986)
(6,479)
Acquisitions of subsidiaries (Note 3)
Translation difference
As of 31 December 2019
Accumulated amortization:
As of 31 December 2018
10,098
63,575
Effect of adoption of IFRS 16
198,711
173,283
30,533
33,718
229,244
207,001
As of 1 January 2019
Amortization charge for the year
Termination of the lease
Translation difference
As of 31 December 2019
Net book value:
As of 1 January 2019
As of 31 December 2019
-
163,993
163,993
18,693
(756)
12,273
5,677
30,554
-
23,857
23,857
914
(756)
-
8,887
3,892
-
187,850
187,850
19,607
(1,512)
12,273
14,564
34,446
230,434
36,794
267,228
-
-
-
29,885
(756)
2,594
31,723
-
2,408
2,408
3,365
(105)
593
6,261
-
2,408
2,408
33,250
(861)
3,187
37,984
163,993
198,711
21,449
30,533
185,442
229,244
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
16. INTANGIBLE ASSETS
The following table represents movements in intangible assets for the year ended 31 December 2020:
Land lease rights
Trademarks
Customer relations
Other intangible
assets
Total
Cost:
As of 31 December 2019
82,783
31,327
19,503
12,666
146,279
Additions
Disposals
Translation difference
As of 31 December 2020
Accumulated amortization:
-
-
(13,434)
69,349
-
-
3,178
34,505
As of 31 December 2019
33,206
Amortization charge for the
year
Translation difference
As of 31 December 2020
Net book value:
As of 31 December 2019
As of 31 December 2020
6,409
(5,686)
33,929
49,577
35,420
-
-
-
-
-
-
1,978
21,481
812
998
158
1,968
31,327
34,505
18,691
19,513
4,064
(94)
(1,799)
14,837
5,739
2,509
(814)
7,434
6,927
7,403
4,064
(94)
(10,077)
140,172
39,757
9,916
(6,342)
43,331
106,522
96,841
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
16. INTANGIBLE ASSETS (continued)
The following table represents movements in intangible assets for the year ended 31 December 2019:
Land lease rights
Trademarks
Customer relations
Other intangible
assets
Total
Cost:
As of 31 December 2018
70,704
Additions
Disposals
Acquisition of subsidiary (Note 3)
Translation difference
As of 31 December 2019
Accumulated amortization:
As of 1 December 2018
Amortization charge for the year
Disposals
Translation difference
As of 31 December 2019
Net book value:
As of 31 December 2018
As of 31 December 2019
-
-
-
12,079
82,783
21,895
6,977
-
4,334
33,206
48,809
49,577
-
-
-
31,975
(648)
31,327
-
-
-
-
-
-
-
-
-
19,907
(404)
19,503
-
815
-
(3)
812
-
31,327
18,691
6,125
3,701
(53)
1,566
1,327
76,829
3,701
(53)
53,448
12,354
12,666
146,279
2,875
2,263
(27)
628
5,739
3,250
6,927
24,770
10,055
(27)
4,959
39,757
52,059
106,522
Through the acquisition of subsidiaries (Note 3) the Group has recognised certain trademarks and customer relations as a part of intangible
assets. Customer relations were identified among customers of the core products portfolio of acquired subsidiaries. The remaining useful
life of customer relations was estimated at 20 years.
The trademarks acquired by the Group mainly consist of poultry meat brands – PP and Topiko, meat processing products brand – Poli. The
Group believes that, since trademarks are well-positioned and recognizable within a stable and mature industry, there are no technical
barriers that would limit their lifetime, and as a result of further promotion of the trademarks, the Group will obtain economic benefits from
them for an indefinite period of time. Accordingly, the trademarks that belong to the Group are considered to have an indefinite useful life
and thus are not amortized but tested for impairment by comparing their recoverable amount with their carrying amount annually.
The Group allocates trademarks to individual entities as separate
cash-generating units (CGU). A summary of the allocation of
trademarks values to separate CGUs is presented below:
Segment
Cash-generating unit
Trademarks carrying value
European
operating
Slovenia
Serbia
Bosnia and
Herzegovina
Croatia
2020
19,707
2,490
6,349
5,959
34,505
2019
17,892
2,261
5,764
5,410
31,327
The impairment testing of the value of trademarks was performed
internally. The recoverable amount of trademarks of all cash-
generating units is determined based on value in use method which
uses cash flow projections covering a five-year period.
Discount rates represent the current market assessment of the risks
specific to each CGU, taking into consideration the time value of
money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate calculation
is based on the specific circumstances of the Group and its operating
segments and is derived from its weighted average cost of capital
(WACC). The WACC takes into account both debt and equity. The cost
of equity is derived from the expected return on investment by the
Group’s investors. The cost of debt is based on the interest-bearing
borrowings the Group is obliged to service. Segment-specific risk is
incorporated by applying individual beta factors. The weighted average
discount of 12.3% (2019: 14.2%) was used. The directors believe that
any reasonably possible change in the discount rate on which the
recoverable amount is based would not cause the aggregate carrying
amount to exceed the aggregate recoverable amount of the related
CGUs.
The revenue within five-year period was extrapolated using a weighted
average 2.9% sales growth rate and 2.0% terminal growth rate for revenue
beyond this period (2019: 3.8% and 1.5% respectively). A reduction by 963
basic points in the budgeted sales growth would result in impairment.
Weighted average royalty rate used in calculation of cash flows was
set at a level of 2.4% (2019: 2.4%). A reduction by 96 basic points in
the weighted average growth rate would result in impairment.
As of 31 December 2020 and 2019, no impairment of trademarks
was identified.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
17. GOODWILL
The following table represents movements in goodwill for the
years ended 31 December 2020 and 2019:
The Group allocates goodwill to individual entities as to separate cash-generating units (CGU). A summary of goodwill allocation to
separate CGUs is presented below:
Cost:
2020
2019
Segment
Cash-Generating Unit
Goodwill carrying value
2020
2019
Methodology assumptions and methods used for goodwill
As of 1 January
64,843
2,509
Acquisitions of subsidiaries
(Note 3)
Translation difference
-
5,771
61,518
816
As of 31 December
70,614
64,843
Net book value:
As of 1 January
As of 31 December
64,843
70,614
2,509
64,843
The recoverable amount of cash-generating units is determined
based on a value in use calculation which uses cash flow
projections based on financial budgets approved by the directors.
The discount rate calculation is based on the specific circumstances
of the Group and its operating segments and is derived from its
weighted average cost of capital (WACC), adjusted on segment-
specific risk by applying individual beta factors. The directors believe
that any reasonably possible change in the discount rate on which the
recoverable amount is based would not cause the aggregate carrying
amount to exceed the aggregate recoverable amount of the related
CGUs.
The growth rates and gross margins used for cash flows
extrapolations are supported by industry trends such as consumer
prosperity and dietary trends. These inputs were estimated by the
directors of the Group based on past performance of the cash-
generating unit and their expectations of market development.
A reduction by 1321 basic points in the budgeted sales growth
or reduction in gross margin by 728 basic points would result in
impairment.
As of 31 December 2020 and 2019, no impairment of goodwill
was identified.
Ukraine
Grain Ukraine
2,425
2,933
Slovenia
42,755
38,818
Serbia
4,432
4,024
European
operating
Bosnia and
Herzegovina
12,343
11,206
Croatia
8,659
7,862
70,614
64,843
Average sales growth: 5.4% (5.1%)
Terminal sales growth: 5.0% (4.7%)
Discount rate: 11.2% (12.0%)
Projection period: 5 years (5 years)
Average sales growth: 2.6% (3.4%)
Terminal sales growth: 2.0% (1.5%)
Discount rate: 8.1% (7.1%)
Projection period: 5 years (8 years)
Average sales growth: 3.3% (3.3%)
Terminal sales growth: 2.0% (1.5%)
Discount rate: 10.4% (9.8%)
Projection period: 5 years (8 years)
Average sales growth: 3.8% (3.4%)
Terminal sales growth: 2.0% (1.5%)
Discount rate: 13.2% (12.1%)
Projection period: 5 years (8 years)
Average sales growth: 3.2% (3.3%)
Terminal sales growth: 2.0% (1.5%)
Discount rate: 9.3% (7.8%)
Projection period: 5 years (8 years)
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
18. NON-CURRENT FINANCIAL ASSETS
19. BIOLOGICAL ASSETS
The balances of non-current financial assets were as follows as of
31 December 2020 and 2019:
The balances of non-current biological assets were as follows as of 31 December 2020 and 2019:
Loan receivables
Other financial assets
2020
18,611
4,472
23,083
2019
15,345
2,271
17,616
Loan receivables are represented by loans with fixed interest at
2.5% (EIR of 4.5%) with maturity as of 31 January 2022 and 31
January 2023. Total gross carrying amount of loans granted as
of 31 December 2020 and 2019 is USD 19,161 thousand and USD
19,161 thousand respectively.
The Group determines the expected credit loss of other non-
current loan receivables and other financial assets based on
different scenarios of probability of default and expected loss
applicable to each of the material underlying balances. The
movement in loss allowance for loan receivables and other
financial assets classified at amortised cost is detailed below:
Thousand units
Carrying amount
Thousand units
Carrying amount
2020
2019
Milk cows, 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
15.1
2.0
21,947
32
21,979
3,605
3,605
25,584
16.2
1.9
25,967
8
25,975
3,677
3,677
29,652
The balances of current biological assets were as follows as of 31 December 2020 and 2019:
Thousand units
Carrying amount
Thousand units
Carrying amount
2020
2019
Breeders held for hatchery eggs production, units
4,706
Total bearer current biological assets
1 January
Charged during the year
31 December
2020
(3,816)
(452)
(4,268)
2019
(2,786)
(1,030)
(3,816)
Broiler chickens, units
Hatchery eggs, units
Crops in fields, hectare
Cattle and pigs, units
48,523
64,978
60
6
Other current consumable biological assets
Total consumable current biological
assets
Total current biological assets
68,798
68,798
67,481
12,313
24,846
1,619
28
106,287
175,085
4,891
51,343
57,747
74
6
78,063
78,063
79,382
10,328
35,036
1,273
1,665
127,684
205,747
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
19. BIOLOGICAL ASSETS (continued)
The following table represents movements in major biological assets for the years ended 31 December 2020 and 2019:
Milk cows, boars, sows
Breeders held for hatchery eggs
production
Broiler chickens
Crops in fields
As of 31 December 2018
Costs incurred
Business acquisition (Note 3)
Gain arising from change in fair value of biological assets less costs to sell
Transfer to consumable biological assets
Increase due to birth and weight increase
Decrease due to sale
Decrease due to harvest
Translation difference
As of 31 December 2019
Costs incurred
Gain arising from change in fair value of biological assets less costs to sell
Transfer to consumable biological assets
Increase due to birth and weight increase
Decrease due to sale
Decrease due to harvest
Translation difference
As of 31 December 2020
20,041
11,209
510
8,339
-
6,063
(818)
(22,925)
3,548
25,967
10,096
8,386
-
6,996
(41)
(25,356)
(4,101)
21,947
66,509
161,345
2,966
(19,919)
(123,100)
-
-
(20,601)
10,863
78,063
167,925
9,900
(157,481)
-
-
(17,886)
(11,723)
68,798
64,519
720,366
3,689
374,537
123,100
-
-
(1,218,042)
11,213
79,382
745,651
221,889
157,481
-
-
(1,126,488)
(10,434)
67,481
37,416
318,535
-
17,154
-
-
-
(343,345)
5,276
35,036
281,755
89,186
-
-
-
(375,721)
(5,410)
24,846
Information on movements in hatchery eggs and cattle and pigs groups have been considered immaterial for disclosure.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
19. 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
Valuation
technique
Significant unobservableinputs
Relationship of unobservable inputs to fair value
Range of unobservable
inputs (average)
Sensitivity of the input to fair value
increase/ (decrease) USD thousand
Input 5% higher
Input 5% lower
Crops yield - tonnes per hectare
The higher the crops yield, the higher the fair value
Crops in fields
DCF method
Crops price – per tonne
The higher the market price, the higher the fair value
Discount rate
The higher the discount rate, the lower the fair value
Number of hatchery eggs produced
by one breeder
The higher the number, the higher the fair value
DCF method
Hatchery egg price – per egg
The higher the market price, the higher the fair value
Breeders held for
hatchery eggs
production
Discount rate
The higher the discount rate, the lower the fair value
Average weight of one broiler – kg
The higher the weight, the higher the fair value
Broiler chickens
Cash flows
method
Poultry meat price – per kg
The higher the market price, the higher the fair value
Daily milk yield – litre per cow
The higher the milk yield, the higher the fair value
Weight of the cow – kg per cow
The higher the weight, the higher the fair value
Milk cows
DCF method
Milk price – per litre
The higher the market price, the higher the fair value
Meat price – per kg
The higher the market price, the higher the fair value
Discount rate
The higher the discount rate, the lower the fair value
1 data of European operating segment.
2020: 3.0 – 5.8 (4.4)
2019: 3.3 – 6.3 (4.5)
2020: USD 185 – 446 (316)
2019: USD 134 – 405 (235)
2020: 11.5%
2019: 12.0%
2020: 165
2019: 165
2020: USD 0.24
2019: USD 0.25
2020: 11.2%
2019: 12.0%
2020: 2.33
2019: 2.45
2020: UAH 31.08
0.77 EUR1
2019: UAH 26.38
0.79 EUR1
2020: 12.70 – 18.61 (16.54)
2019: 12.25 – 17.89 (15.81)
2020: 523 – 570 (553)
2019: 545 – 571 (557)
2020: UAH 11.31 – 12.17 (11.64)
2019: UAH 8.70 – 9.31 (8.93)
2020: UAH 16.30 – 25.91 (21.22)
2019: UAH 18.91 – 26.46 (23.08)
2020: 11.2%
2019: 12.0%
3,190
4,485
3,190
4,485
(67)
(100)
3,611
4,080
4,682
5,460
(25)
(42)
5,583
5,254
6,174
5,380
1,015
979
206
299
4,794
3,657
206
299
(341)
(410)
(3,190)
(4,485)
(3,190)
(4,485)
68
100
(3,611)
(4,080)
(4,682)
(5,460)
25
42
(5,583)
(5,254)
(6,174)
(5,380)
(1,015)
(979)
(206)
(299)
(4,794)
(3,657)
(206)
(299)
349
421
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
20. INVENTORIES
21. AGRICULTURAL PRODUCE
22. TAXES RECOVERABLE AND PREPAID
The balances of inventories were as follows as of 31 December
2020 and 2019:
The balances of agricultural produce were as follows as of
31 December 2020 and 2019:
Taxes recoverable and prepaid were as follows as of 31 December
2020 and 2019:
Components for mixed fodder
production
Work in progress
Other raw materials
Spare parts
Mixed fodder
Sunflower oil
Meat processing products
Packaging materials
Other inventories
2020
130,124
29,213
31,552
18,042
8,801
6,115
6,110
7,106
3,652
2019
70,481
43,205
42,105
20,079
7,398
7,365
6,774
6,679
4,303
240,715
208,389
Thousand
tonnes
Carrying
amount
Thousand
tonnes
Carrying
amount
VAT recoverable
2020
2019
Miscellaneous taxes prepaid
Grain
716
161,150
714
118,879
2020
52,201
2,446
2019
24,527
5,503
54,647
30,030
Chicken
meat
Other
various
crops
Other
various
meat
70.5
100,453
62.5
86,208
6,515
9,438
927
1,291
269,045
215,816
As of 31 December 2020 and 2019 work in progress in the
amount of USD 29,213 thousand and USD 43,205 thousand was
mainly comprised of expenses incurred in cultivating fields to be
planted in the years 2021 and 2020, respectively. Inventory is
measured at net realizable value and no impairmens or reversals
were made as of 31 December 2020 and 2019.
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 2020, agricultural produce in amount of
USD 18,750 thousand was pledged as collateral to secure bank
borrowings (2019: nill).
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
23. TRADE ACCOUNTS RECEIVABLE
The balances of trade accounts receivable were as follows as of
31 December 2020 and 2019:
Chicken meat
89,020
95,824
2020
2019
Meat-processing
and convenience food
Sunflower oil sales
Grain
Due from related parties
(Note 32)
21,331
19,109
3,197
1,283
1,482
9,056
109
197
Other agriculture operations
18,769
12,278
Less: expected credit losses
(14,522)
(13,472)
119,187
124,474
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 provision matrix. It discloses
chicken meat Ukraine, chicken meat export and agricultural
Ukraine, agricultural export sales and European operating
segment 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 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 expected credit
losses on trade accounts receivable are estimated on a collective
basis using a provision matrix 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 against all trade
accounts receivable over 270 days past due, which are assessed
on a collective basis, because historical experience has indicated
that these trade accounts receivable are generally not recoverable.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
23. TRADE ACCOUNTS RECEIVABLE (continued)
The following table illustrates the use of a provision matrix as a risk profile disclosure under the simplified approach as at 31 December 2020:
31 December 2020
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
European operating segment
ECL rate, %
Estimated total gross carrying amount at default
Lifetime ECL
Estimated total gross carrying amount at default
Total lifetime ECL
Individual assessment:
ECL rate, %
Estimated total gross carrying amount at default
Lifetime ECL
Estimated total gross carrying amount at default
Total lifetime ECL
Not past due
< 30
31-90
91-270
>270
Total
Trade accounts receivable – days past due
0.01%
21,088
(2)
0.16%
11,676
(19)
0.08%
12,733
(10)
0.13%
1,360
(2)
0.03%
31,811
(10)
0%
2,710
-
0.11%
1,347
(1)
0.35%
8,824
(31)
0.26%
3,417
(9)
0,28%
3,143
(9)
0.18%
5,826
(10)
100%
13
(13)
0.49%
172
(1)
0.86%
6,664
(57)
0.53%
1,170
(6)
3.71%
120
(4)
1.12%
818
(9)
100%
49
(49)
0.70%
45
-
2.46%
1,239
(30)
0.93%
364
(3)
100%
283
(283)
100%
399
(399)
100%
1,484
(1,484)
7.49%
100%
-
-
10.33%
92
(10)
-
-
100%
146
(146)
23.22%
6,240
(1,449)
100%
10,476
(10,476)
22,935
(287)
28,802
(536)
19,168
(1,512)
4,623
(15)
38,693
(185)
114,221
(2,535)
19,488
(11,987)
133,709
(14,522)
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
23. TRADE ACCOUNTS RECEIVABLE (continued)
The following table illustrates the use of a provision matrix as a risk profile disclosure under the simplified approach as at 31 December 2019:
The following table shows the movement in lifetime ECL that has
been recognised for trade and other accounts receivable in accor-
dance with the simplified approach set out in IFRS 9.
Collectively
assessed
Individually
assessed
1 January 2019
Charged during the year
2,392
621
9,989
470
31 December 2019
3,013
10,459
Charged/(reversed)
during the year
(478)
1,528
31 December 2020
2,535
11,987
31 December 2019
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
European operating segment
ECL rate, %
Estimated total gross carrying amount at default
Lifetime ECL
Estimated total gross carrying amount at default
Total lifetime ECL
Individual assessment:
ECL rate, %
Estimated total gross carrying amount at default
Lifetime ECL
Estimated total gross carrying amount at default
Total lifetime ECL
Trade accounts receivable – days past due
Not past due
< 30
31-90
91-270
>270
Total
0.01%
25,502
(2)
0.20%
13,993
(28)
0.26%
22,442
(59)
0.13%
8,033
(10)
0.64%
28,666
(185)
0.02%
2,259
(1)
0.39%
8,218
(32)
0.28%
2,961
(8)
0.37%
89
-
1.03%
4,690
(48)
0.51%
31
-
1.16%
250
(3)
4.93%
609
(30)
0.89%
1,373
(12)
100%
147
(147)
100%
722
(722)
100%
1,014
(1,014)
3.08%
10.39%
13.49%
100%
54
(2)
1.14%
4,907
(56)
29
(3)
13
(2)
5.64%
13.91%
732
(41)
168
(23)
-
-
100%
585
(585)
100%
100%
-
-
-
-
100%
385
(385)
100%
277
(277)
100%
9,797
(9,797)
28,247
(153)
28,232
(860)
27,821
(1,093)
8,129
(17)
35,058
(890)
127,487
(3,013)
10,459
(10,459)
137,946
(13,472)
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
24. OTHER CURRENT FINANCIAL ASSETS
25. CASH AND CASH EQUIVALENTS
The balances of other current assets were as follows as of
31 December 2020 and 2019:
The balances of cash and cash equivalents were as follows as of
31 December 2020 and 2019:
In accordance with the international rating agency of Moody’s,
credit ratings of the banks with which the Group had the accounts
opened as of 31 December 2020 and 2019 were as follows:
Loans and finance aid provided to
related parties (Note 32)
Other financial assets
Short-term bank deposits
2020
68,695
12,157
462
2019
21,717
7,620
-
81,314
29,337
The Group determines the expected credit loss of loans and
finance aid receivable from related parties and other financial
assets based on different scenarios of probability of default
and expected loss applicable to each of the material underly-
ing balances.
The movement in loss is detailed below:
1 January
Charged during the year
31 December
2020
(3,128)
(1,212)
(4,340)
2019
-
(3,128)
(3,128)
2020
2019
Deposit
rates
USD’
000
Deposit
rates
USD’
000
Cash and cash equivalents at banks and on hand in:
Ukrainian Hryvnia
Euro
US Dollars
Other currencies
23,649
42,498
16,547
10,784
Short-term deposits with an original maturity
of less than 90 days:
Ukrainian Hryvnia
5,5%-8%
29,001
US Dollars
0,02%-
1,8%
85,002
Euro
0%
6,545
11.75-
16.50%
1.56-
3.50%
17,269
37,304
125,348
1,328
61,006
98,480
Government bonds:
Ukrainian Hryvnia
Total cash and
equivalents
3,553
217,579
-
340,735
2020
2019
International banks with A rating
75,891
214,159
International banks with B rating
5,975
249
Subsidiaries of international banks
with A rating
Subsidiaries of international banks
with B rating
56,789
38,669
38,666
34,284
Ukrainian banks with B rating
36,684
36,419
Domestic government bonds
(OVDPs) of Ukraine
3,553
-
Other banks without ratings
21
16,955
217,579
340,735
26. SHAREHOLDERS’ EQUITY
Share capital
As of 31 December 2020 and 2019 the authorized, issued and
fully paid share capital of MHP SE comprised the following
number of shares:
Number of shares issued
and fully paid
Number of shares
outstanding
2020
2019
110,770,000
110,770,000
107,038,208
107,038,208
The authorized share capital as of 31 December 2020 and 2019
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 dividends,
which are payable at the discretion of the Group.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
27. NON-CONTROLLING INTERESTS
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
Summarised financial information in respect of each of the Group’s subsidiaries that has material non-controlling interests is set out below.
Name of subsidiary
Agro-S
AgroKryazh
Myronivsky Plant of
Manufacturing Feeds and Groats
Other subsidiaries with immaterial
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
2020
2019
2020
2019
2020
2019
49.0%
49.0%
11.5%
n/a
n/a
49.0%
49.0%
11.5%
n/a
n/a
4,399
981
(2,444)
(348)
6,566
4,689
2,761
4,587
(2,271)
(524)
2,288
5,234
340
158
2,830
990
3,449
(3,158)
16,373
13,572
The summarised financial information below represents amounts before intragroup eliminations.
Summarised statement of financial position as of 31 December 2020 and 2019:
Agro-S
AgroKryazh
2019
55,476
30,044
2020
15,962
17,518
2019
44,482
18,441
Myronivsky Plant of
Manufacturing Feeds and
Groats
2020
62,353
94,134
2019
91,051
121,956
(69,032)
(20,852)
(50,250)
(59,088)
(134,610)
(4,531)
11,957
9,196
2,761
(6,729)
5,899
1,210
4,689
(3,505)
(84,894)
(43,544)
9,168
12,505
34,853
4,581
4,587
10,217
2,288
29,619
5,234
2020
37,357
21,765
(33,821)
(10,212)
15,089
8,523
6,566
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Total equity
Attributable to:
Owners of the Group
Non-controlling interest
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
27. NON-CONTROLLING INTERESTS (continued)
Summarised statements of profit or loss and other comprehensive income for the years ended 31 December 2020 and 2019:
Agro-S
AgroKryazh
Myronivsky Plant
of Manufacturing Feeds
and Groats
Revenue
Expenses
Profit/(loss) for the year
Profit/(loss) attributable to:
Owners of the Group
Non-controlling interests
Total profit/(loss)
OCI attributable to:
Owners of the Group
Non-controlling interests
Total OCI
Comprehensive income attributable to:
Owners of the Group
Non-controlling interests
Total comprehensive income/
(loss) for the year
Dividends paid
to non-controlling interest
2020
18,730
(9,756)
8,974
4,575
4,399
8,974
(618)
(594)
(1,212)
3,957
3,805
7,762
2019
35,658
(40,646)
(4,988)
(2,544)
(2,444)
(4,988)
1,889
1,815
3,704
(655)
(629)
(1,284)
2020
2019
2020
2019
17,965
(15,962)
2,003
1,022
981
2,003
(916)
(879)
(1,795)
106
102
208
22,569
(23,279)
(710)
(362)
(348)
(710)
1,539
1,478
3,017
1,177
1,130
67,366
(87,160)
(19,794)
(17,523)
(2,271)
(19,794)
(5,197)
(675)
(5,872)
(22,720)
(2,946)
118,186
(122,743)
(4,557)
(4,033)
(524)
(4,557)
14,944
1,942
16,886
10,911
1,418
2,307
(25,666)
12,329
–
(3,154)
–
(1,559)
–
–
Summarised cash inflow/(outflow) for the years ended 31 December 2020 and 2019:
Operating activities
Investing activities
Financing activities
Agro-S
AgroKryazh
Myronivsky Plant
of Manufacturing Feeds
and Groats
2020
1,738
(717)
(1,010)
2019
(1,889)
(587)
(5,500)
2020
2,037
(434)
(1,598)
2019
8,017
(440)
(7,568)
2020
8,475
(1,969)
(6,612)
2019
485
(855)
-
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
28. BANK BORROWINGS
The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2020 and 2019:
Term loans and credit line facilities were as follows as of 31
December 2020 and 2019:
Currency
2020
2019
WAIR1
USD’ 000
WAIR1
USD’ 000
Credit lines
Term loans
2020
27,137
2019
3,348
77,259
97,477
104,396
100,825
Non-current
Current
Current portion of long-term bank borrowings
Total bank borrowings
EUR
EUR
UAH
USD
EUR
EUR
EURIBOR2 +
2.62%
2.54%
6.25%
LIBOR +
3.25%
2.30%
EURIBOR2 +
2.62%
63,142
1,466
64,608
3,537
15,000
EURIBOR2+
2.84%
-
-
-
75,880
-
75,880
-
-
8,601
2.72%
4,406
EURIBOR2+
2.84%
12,650
39,788
104,396
20,539
24,945
100,825
The Group’s borrowings are drawn from various banks as term loans, credit line facilities and overdrafts. Repayment terms of principal
amounts of bank borrowings vary from monthly repayment to repayment on maturity depending on the agreement reached with each
bank. Interest on borrowings drawn with foreign banks is payable mostly semi-annually.
As of 31 December 2020 and 31 December 2019, the Group’s bank term loans and credit lines bear floating and fixed interest rates.
1 WAIR represents the weighted average interest rate on outstanding borrowings.
2 According to the agreements terms, if market EURIBOR becomes negative, it shall be deemed to be zero for calculation of interest expenses.
Bank borrowings and credit lines outstanding as of 31 December
2020 and 2019 were repayable as follows:
Within one year
In the second year
2020
2019
39,788
24,945
17,196
17,484
In the third to fifth year inclusive
47,412
27,837
After five years
-
30,559
104,396
100,825
As of 31 December 2020, the Group had available undrawn facilities
of USD 304,910 thousand (2019: USD 224,683 thousand). These
undrawn facilities expire during the period until February 2024.
The Group, as well as particular subsidiaries of the Group have to
comply with certain covenants imposed by the banks providing the
loans. The Group shall ensure the ongoing compliance with the
following maintenance covenants: EBITDA to interest expenses
ratio, current ratio and liabilities to equity ratio. Separately, there
are negative covenants in respect of restricted payments, including
dividends, capital expenditures, additional indebtedness and
restrictions on mergers or consolidations, limitations on liens
and dispositions of assets and limitations on transactions with
affiliates in case of excess of Net Debt to EBITDA ratio. The Group
subsidiaries are also required to obtain approval from lenders
regarding property, plant and equipment to be used as collateral.
During the years ended 31 December 2020 and 2019 the Group
has complied with all covenants imposed by banks providing the
borrowings.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
28. BANK BORROWINGS (continued)
The Group’s bank borrowings are jointly and severally guaranteed
by MHP, Myronivsky Plant of Manufacturing Feeds and Groats, Oril-
Leader, Peremoga Nova, Starynska Ptakhofabryka, Zernoproduct
MHP, Katerinopilskiy Elevator, Agrofort, SPF Urozhay, MHP SE,
Scylla Capital Limited, Myronivska Pticefabrika, Ptakhofabryka
Snyatynska Nova, Vinnytska Ptakhofabryka, Zakhid-Agro MHP,
MHP-Urozhayna Krayina, Raftan Holding Limited.
As of 31 December 2020, the Group had borrowings of
USD 60,958 thousand that were secured by property, plant and
equipment and agroproduce with a carrying amount of USD
102,587 thousand (31 December 2019: USD 49,731 thousand and
USD 99,978 thousand respectively).
As of 31 December 2020, the deposit with carrying amount of
USD 3,632 thousand (31 December 2019: USD 3,298 thousand)
was restricted as collateral to secure bank borrowings.
As of 31 December 2020 and 31 December 2019, interest payable
on bank borrowings was USD 730 thousand and USD 1,033
thousand, respectively.
29. BONDS ISSUED
Bonds issued and outstanding as of 31 December 2020 and 2019 were as follows:
7.75% Senior Notes due in 2024
6.95% Senior Notes due in 2026
6.25% Senior Notes due in 2029
Unamortized debt issuance cost
Carrying amount
Nominal amount
31 December 2020
31 December 2019
31 December 2020
31 December 2019
487,480
536,153
347,366
-
484,469
534,042
347,158
-
500,000
550,000
350,000
(29,001)
500,000
550,000
350,000
(34,331)
Total bonds issued
1,370,999
1,365,669
1,370,999
1,365,669
As of 31 December 2020 and 2019 accrued interest on bonds
issued was USD 20,757 thousand and USD 20,756 thousand,
respectively.
6.25% Senior Notes
On 19 September 2019, 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 350,000 thousand
6.25% Senior Notes due in 2029 at par value. The funds received
were used to satisfy and discharge the 8.25% Senior Notes due in
April 2020, for debt refinancing and for general corporate purposes.
All expenses associated with the placement of the 6,25% Senior
Notes amounted to USD 2,888 thousand and were capitalized.
The Senior Notes are jointly and severally guaranteed on a senior
basis by MHP SE, Raftan Holding Limited, PrJSC “Oril – Leader”,
PrJSC “Myronivska Pticefabrika”, “SPF “Urozhay” LLC, “Starynska
Ptakhofabryka” ALLC, “Vinnytska Ptakhofabryka” LLC, “Peremoga
Nova” SE, “Katerinopolskiy Elevator” LLC, PrJSC “MHP”, PrJSC
“Zernoprodukt MHP” and PrJSC “Agrofort”.
Interest on the Senior Notes is payable semi-annually in arrears. These
Senior Notes are subject to certain restrictive covenants including, but
not limited to, limitations on the incurrence of additional indebtedness
in excess of Net Debt to EBITDA ratio as defined by the indenture,
restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. 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. 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 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and additional amounts, if any
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
29. BONDS ISSUED (continued)
6.95% Senior Notes
On 3 April 2018, MHP Lux S.A. 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 the existing 8.25% Senior Notes due in 2020.
Early redemption of the 8.25% Senior Notes due in 2020 from the 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 the 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 consolidated profit or loss.
The Senior Notes are jointly and severally guaranteed on a
senior basis by MHP SE, PrJSC “MHP”, PJSC “Myronivsky Plant of
Manufacturing Feeds and Groats”, PrJSC “Zernoprodukt 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
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on
liens and dispositions of assets and limitations on transactions with
affiliates. 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. 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 the
amount of USD 245,200 thousand were designated for redemption
and exchange of existing 8.25% Senior Notes due in 2020.
Early redemption of the 8.25% Senior Notes due in 2020 from the issue
of the 7.75% Senior Notes due in 2024, which were placed with the same
holders and where the change in the net present value of the future cash
flows discounted using the original effective interest rate was less than
10% was accounted as an exchange and thus, all the related expenses,
including part of the 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 the 7.75% Senior
Notes amounted to USD 9,830 thousand were capitalized, including
USD 7,318 thousands related to the exchange. All other related
expenses, including part of the consent fees, in the amount of USD
4,599 thousand were expensed as incurred.
The carrying amount of the Senior Notes was adjusted on transition
to IFRS 9. Under IFRS 9, as a result of a non-substantial modification,
the difference between the present value of the cash flows under the
original and modified terms discounted at the original effective interest
rate should be 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
The Senior Notes are jointly and severally guaranteed on a senior
basis by PrJSC “MHP”, PJSC “Myronivsky Plant of Manufacturing
Feeds and Groats”, PrJSC “Zernoprodukt MHP”, PrJSC “Agrofort”,
PrJSC “Oril-Leader”, PrJSC “Myronivska Pticefabrika”, “SPF “Urozhay”
LLC, “Starynska Ptakhofabryka” ALLC, Vinnytska Ptakhofabryka LLC,
SE “Peremoga 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 additional indebtedness
in excess of Net Debt to EBITDA ratio as defined by the indenture,
restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If
the Group fails to comply with the covenants imposed, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Notes may, upon written notice to the Group, declare all outstanding
Senior Notes to be due and payable immediately. If a change of
control occurs, the Group shall make an offer to each holder of the
Senior Notes to purchase such Senior Notes at a purchase price in
cash in an amount equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and additional amounts, if any.
the
indebtedness agreements
Covenants
Certain restrictions under
(e.g.
incurrence of additional indebtedness, restricted payments, dividends
payment) are dependent on the leverage ratio of the Group. Once
the leverage ratio exceeds 3.0 to 1, it is not permitted for the Group
to make certain restricted payments, declare dividends exceeding
USD 30 million in any financial year, incur additional debt except
that is defined as a Permitted Debt. According to the indebtedness
agreement, the consolidated leverage ratio is tested on the date of
incurrence of additional indebtedness or restricted payment and after
giving pro forma effect to such incurrence or restricted payment as
if it had been incurred or done at the beginning of the most recent
four consecutive fiscal quarters for which financial statements are
publicly available (or are made available). The Group has tested all the
transactions occurred prior to publication of these financial statements
and has complied with all the covenants defined by indebtedness
agreement during the reporting periods ended 31 December 2020
and 31 December 2019.
As at 31 December 2020 the leverage ratio of the Group is 3.66 to 1 (31
December 2019: 3.01 to 1), higher than the defined limit 3.0 to 1. Thus,
from 14 April 2020, the date of publication of audited consolidated
financial statements as of and for the year ended 31 December 2019,
and as at 24 March 2021 the aforementioned restrictions are binding
on the Group.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
150
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
30. LEASE LIABILITIES
Long-term lease obligations represent amounts due under
agreements for the leasing of agricultural land, trucks, agricultural
machinery and equipment. As of 31 December 2020, the
weighted average interest rates on lease obligations were 3.32%
(2019: 4.97%) and 19.20% (2019: 20.2%) for lease obligations
denominated in EUR and UAH respectively.
Amount of interest expense on lease liabilities for the year ended
31 December 2020 was USD 37,692 thousand (2019: USD 37,784
thousand). The total cash outflow for leases for the year ended 31
December 2019 was USD 53,215 thousand (2019: USD 53,590
thousand).
Amount of depreciation charge for right-of-use assets and
additions to right-of-use assets for the year ended 31 December
2020 was USD 33,056 thousand and USD 27,175 respectively
(2019: USD 33,250 thousand and USD 19,607 thousand ).
The carrying amount of lease liabilities as at 31 December 2020
includes USD 176,840 thousand of land lease liabilities (2019:
USD 199,233 thousand).
The following are maturity analysis of lease payments under the
lease agreements as of 31 December 2020 and 2019:
As at 1 January
Effect of adoption IFRS 16
As at 1 January
Cash repayments of lease liabilities
Foreign exchange movements
Acquisition of subsidiaries (Note 3)
Non-cash additions and change in terms
Non-cash repayments of lease liabilities 1
Interest charged
Translation difference
As at 31 December
Current portion of lease liabilities
Long-term portion of lease liabilities
2020
2019
215,863
13,442
-
163,651
215,863
177,093
(53,215)
2,442
-
36,373
(9,134)
37,692
(31,522)
198,499
62,004
136,495
(53,590)
(1,945)
16,446
23,278
(10,842)
37,784
27,639
215,863
64,074
151,789
1 Non-cash repayments are represented by grains and other agriculture produce
provided to lessors of land as settlement of lease liabilities.
31. OTHER CURRENT FINANCIAL LIABILITIES
Other current financial
31 December 2020 and 2019:
liabilities were as
follows as of
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.
Accrued payroll and related taxes
Provision for claims, penalties and
indemnification
VAT payable
Amounts payable for property, plant and
equipment
Other financial liabilities
2020
47,925
2019
47,151
12,440
-
11,315
736
8,646
14,478
6,312
8,336
86,638
70,701
32. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of these financial statements, parties are
considered to be related if one party controls, is controlled by, or is
under common control with the other party, or exercises significant
influence over the other party in making financial or operational
decisions. In considering each possible related party relationship,
attention is directed to the substance of the relationship, not merely
the legal form.
Related parties may enter into transactions which unrelated
parties might not, and transactions between related parties may
not be effected on the same terms and conditions as transactions
between unrelated parties.
Transactions with related parties under common control
The Group enters into transactions with related parties that are the
companies under common control of the Principal Shareholder
of the Group (Note 1) in the ordinary course of business for the
purchase and sale of goods and services and in relation to the
provision of financing arrangements.
Terms and conditions of sales to related parties are determined
based on arrangements specific to each contract or transaction.
The transactions with the related parties during the years ended
31 December 2020 and 2019 were as follows:
2020
2019
Loans and finance aid provided
57,106
35,204
Loans and finance aid repaid
10,000
17,315
Interest charged on loans and financial aid
repaid
2,476
854
Interest charged on loans and finance aid
provided
4,028
4,274
Loans provided to key management
personnel
Loans repaid by key management
personnel
Sales of goods
Purchases from related parties
Less allowance against loans and finance
aid provided
1,582
4,895
721
157
76
16
10
10
1,212
3,128
The balances owed to and due from related parties were as
follows as of 31 December 2020 and 2019:
Loans and finance aid receivable
73,035
24,845
2020
2019
Less: allowance for unrecoverable
amounts
(4,340)
(3,128)
68,695
21,717
Loans to key management personnel
4,480
4,945
Trade accounts receivable (Note 23)
Payables due to related parties
109
17
197
19
Loans and finance aid receivable
On 21 January 2020, the Board approved a loan facility of up to
USD 80,000 thousand to the company’s principal shareholder, WTI
Trading Limited (“WTI”) to meet WTI’s general liquidity requirements
and other corporate purposes for a maximum of three years.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
32. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
Loans and finance aid receivable (continued)
As of 31 December 2020, the Group had advanced loans
to WTI in the aggregate amount of USD 67,400 thousand
(31 December 2019: USD 20,400 thousand). During the year
ended 31 December 2020 the Group provided loans to WTI
in gross amount of USD 57,000 thousand (31 December 2019:
USD 35,000 thousand) and received repayments from WTI
in the amount of USD 10,000 thousand (31 December 2019:
USD 17,200 thousand). The loans, with a maturity in July -
December 2021, bear interest at a rate of 8.25% to 9.25% and
are secured by a personal guarantee of WTI’s ultimate beneficial
owner.
The Group’s Directors believe that the loans were issued at arm’s
length terms and for fair market value, and that they were in the
best interests and for the commercial benefit of the Group and do
not violate the terms of the Senior Notes (Note 29).
Compensation of key management personnel
Key management personnel totalled 22 and 43 individuals as
of 31 December 2020 and 2019, respectively, including 4 and 3
independent non-executive directors as of 31 December 2020
and 2019, respectively.
Total compensation of the Group’s key management personnel
included primarily in selling, general and administrative expenses in
the accompanying consolidated statements of profit and loss and
other comprehensive income amounted to USD 15,141 thousand
and USD 18,654 thousand for the years ended 31 December
2020 and 2019, respectively. Compensation of key management
personnel consists of contractual salary and performance bonuses.
Total compensation of the Group’s non-executive directors, which
consists of contractual salary, amounted to USD 958 thousand
and USD 679 thousand in 2020 and 2019, respectively.
Total compensation of the Group’s Chairman, which consists
of contractual salary, amounted to US$ 622 thousand in 2020
(2019: US$ 609 thousand).
Loans to key management personnel
The Group has provided several of its key management
personnel with unsecured loans. The loans to key management
personnel provided during 2020 and 2019 mainly include loans
made by the Ukraininan subsidiaries to the Group’s directors
which amounted to USD 1,465 thousand and USD 4,253 thousand,
respectively.
Further economic growth depends, to a large extent, upon
the success of the Ukrainian government in realization of the
planned structural reforms and effective cooperation with the
International Monetary Fund (the “IMF”) as well as the ability of
the government to cope with the macroeconomic challenges
posed by the confinement measures introduced to contain the
spread of COVID-19.
33. CONTINGENCIES AND CONTRACTUAL COMMITMENTS
Operating Environment
Since 2016, the Ukrainian economy, which represents the core
operating environment of the Group, has been demonstrating
signs of stabilization after the years of political and economic
tensions. Until the break-out of the coronavirus (COVID 19)
pandemic in the first quarter 2020, the real GDP has been steadily
growing, however it decreased by around 4.2% for year ended 31
December 2020 (2019: growth 3.6%). Annual inflation is modest
during 2020 at 5.0% (2019: 4.1%).
Ukraine continues to limit its political and economic ties with
Russia, in view of the annexation of Crimea, an autonomous
republic of Ukraine, and an armed conflict with separatists
continuing in certain parts of Luhanska and Donetska regions.
As a result, the Ukrainian economy is refocusing on the EU
market by realizing the potential of the established Deep and
Comprehensive Free Trade Area with the EU.
To further facilitate business activities in Ukraine, the National Bank
of Ukraine (the “NBU”) has lifted the foreign currency proceeds
surrender requirement from 20 June 2019, cancelled all limits on
repatriation of dividends from July 2019 and gradually decreased
its discount rate, from 18.0% in January 2019 to 6.5% in March 2021.
The degree of macroeconomic uncertainty in Ukraine in 2021 still
remains high due to a significant amount of public debt scheduled
for repayment in 2021, which requires mobilizing substantial
domestic and external financing in an increasingly challenging
financing environment for the emerging markets. At the same time,
the Ukrainian authorities have demonstrated their commitment
to introduce reforms in order to boost economic growth, while
maintaining macro-fiscal stability and
liberalizing economic
environment.
The responses put in place by many countries, including Ukraine
and the EU, to contain the spread of COVID-19 resulted in
significant operational disruption for many companies and have
significant impact on global financial markets. While food supply
chains proved to be largely resilient during the pandemic and
the confinement measures are now being progressively lifted
or adapted in Ukraine and other countries, many uncertainties
yet remain around the economic recovery, and thus around the
evolution of the consumer demand and the supply chain stability.
In particular, the forecast magnitude of the recession is such that
it is expected to lead to a sharp increase in unemployment in
the EU, negatively impacting private consumption and limiting the
Group’s ability to enjoy benefits from export supplies to the EU
and other key markets.
The Group’s earnings in Q2 2020 had been adversely impacted
by the aftereffects of the pandemic such as the decrease in
market prices and exported volumes, while in H2 2020 situation
has stabilised temporarily. Such trends might be expected to
continue in the foreseeable future, depending on the duration
and the incidence of the next waves of pandemic effects on the
Ukrainian and world economy.
Management has considered all available information about
the future, including the impact of the COVID-19 outbreak on
customers, suppliers and staff, as well as actual and projected
foreseeable impact from various other factors. Management
will continue to monitor the situation closely and will assess the
need for additional measures in case the period of disruption
prolongs or escalates further.
The Group reviews its non-financial assets to determine if any
external or internal indicators of impairment exists. Based on
these reviews, there were no indicators of impairment as of 31
December 2020.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
152
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
33. CONTINGENCIES AND CONTRACTUAL COMMITMENTS
(continued)
Taxation and legal issues
Ukrainian tax authorities are increasingly directing their attention
to the business community as a result of the overall Ukrainian
economic environment. The local and national tax environment
is constantly changing and subject to inconsistent application,
interpretation and enforcement. Non-compliance with Ukrainian
laws and regulations can lead to the imposition of severe
penalties and fines. Future tax examinations could raise issues
or assessments which are contrary to the Group companies’ tax
filings. Such assessments could include taxes, penalties and
fines, and these amounts could be material. While the Group
believes it has complied with local tax legislation, there are new
significant changes to the tax legislation that may be introduced
in the near future.
Management believes that the Group has been in compliance
with all requirements of effective tax legislation.
The Group exports vegetable oil, chicken meat and related
products, and performs intercompany transactions, which may
potentially be in the scope of the Ukrainian transfer pricing
(“TP”) regulations. The Group has submitted the controlled
transaction report for the years ended 31 December 2018 and
31 December 2019 within the required deadlines.
As of 31 December 2020, the Group’s management assessed
its possible exposure to tax risks for a total amount of
USD 5,459
tax
(31 December 2019: USD 6,516 thousand). No provision was
recognised relating to such possible tax exposure.
to corporate
thousand
income
related
As of 31 December 2020, companies of the Group were engaged
in ongoing litigation with tax authorities for the amount of USD
36,616 thousand (2019: USD 23,201 thousand), including USD
26,153 thousand (2019: USD 11,016 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 289 thousand as of 31 December 2020 (2019: USD
1,241 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
presented herein are not necessarily indicative of the amounts
the Group could realize in a market exchange from the sale of its
full holdings of a particular instrument.
The fair value is estimated to be the same as the carrying value
for cash and cash equivalents, short-term bank deposits, trade
accounts receivables, other current assets and trade accounts
payable due to the short-term nature of the financial instruments.
Set out below is the comparison by category of carrying amounts
and fair values of all the Group’s financial instruments, excluding
those discussed above, that are carried in the consolidated
statement of financial position:
Carrying amount
Fair value
2020
2019
2020
2019
Financial liabilities
Bank
borrowings
(Note 28)
Senior Notes
due in 2024,
2026, 2029
(Note 29)
105,126
101,858
103,737
99,417
1,391,756
1,386,425
1,515,005
1,468,144
The fair value of bank borrowings was estimated by discounting
the expected future cash outflows by a market rate of interest for
bank borrowings 5.5% (31 December 2019: 5.4%), 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.
that based on the past history of court resolutions of similar
lawsuits by the Group, it is unlikely that a significant settlement
will arise out of such lawsuits and, therefore, no respective
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 2020 and 2019, the
companies of the Group entered into a number of contracts
with foreign suppliers for the purchase of property, plant and
equipment for development of agricultural operations. As of 31
December 2020, purchase commitments amounted to USD
15,396 thousand (2019: USD 10,340 thousand).
34. DIVIDENDS
On 13 April 2020, the Board of Directors approved payment
of an interim dividend of USD 0.2803 per share, equivalent to
USD 30,000 thousand to shareholders on the register as of 24
April 2020. The Board of Directors approved that no dividend
will be paid on the Company’s shares held in treasury. As at 31
Deceember 2020 dividends had been fully paid to shareholders.
On 21 March 2019, the Board of Directors of MHP SE approved
a payment of the interim dividends of USD 0.7474 per share,
equivalent to USD 80,000 thousand, which were paid to
shareholders during the year ended 31 December 2019.
35. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value disclosures in respect of financial instruments are
made in accordance with the requirements of IFRS 7 “Financial
Instruments: Disclosure” and IFRS 13 “Fair value measurement”.
Fair value is defined as the amount at which the instrument could
be exchanged in a current transaction between knowledgeable
willing parties in an arm’s length transaction, other than in forced
or liquidation sale. As no readily available market exists for a large
part of the Group’s financial instruments, judgment is necessary
in arriving at fair value, based on current economic conditions
and specific risks attributable to the instrument. The estimates
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
35. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Reconciliation of liabilities arising from financing activities
The tables below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows
were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.
As of 31 December 2019
100,825
1,365,669
215,863
1,682,357
As of 31 December 2018
238,498
1,090,935
13,442
1,342,875
Bank
borrowings
Bonds
issued
Lease
obligations
Total
Bank
borrowings
Bonds
issued
Lease
obligations
Total
Cash flow from proceeds / (repayments)
(5,233)
Non-cash movements
Foreign exchange movements
11,827
Non-cash additions and change in terms
Non-cash repayments of lease liabilities1
Finance costs
Reclassification to interest payable
Translation difference
-
-
3,813
(3,291)
(3,545)
-
-
-
-
(53,215)
(58,448)
Effect of adoption IFRS 16
-
-
163,651
163,651
2,442
36,373
(9,134)
14,269
36,373
(9,134)
As at 1 January 2019
238,498
1,090,935
177,093
1,506,526
Cash flow from proceeds / (repayments)
(191,940)
270,583
(53,590)
Transaction costs payments
(697)
(4,751)
-
25,053
(5,448)
Non-cash movements
105,967
37,692
147,472
Foreign exchange movements
(100,631)
-
(103,922)
Acquisition of subsidiaries
(45,419)
58,514
(6)
(31,522)
(35,073)
Non-cash additions and change in terms
1,318
As of 31 December 2020
104,396
1,370,999
198,499
1,673,894
Non-cash repayments of lease liabilities 1
-
Finance costs
Reclassification to interest payable
Translation difference
14,789
(12,950)
38,712
As of 31 December 2019
100,825
1,365,669
215,863
1,682,357
1 Non-cash repaiments are represented by grains and other agriculture produce provided to lessors of land as settlement of lease liabilities.
(303)
-
-
-
106,339
(97,134)
(1,945)
16,446
(47,667)
74,960
23,278
24,596
(10,842)
(10,842)
37,784
-
158,912
(110,084)
-
27,639
66,351
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
154
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
36. RISK MANAGEMENT POLICIES
Major categories of financial instruments
During the years ended 31 December 2020 and 2019 there were
no material changes to the objectives, policies and process for
credit risk, capital risk, liquidity risk, currency risk, interest rate risk,
livestock diseases risk and commodity price and procurement
risk managing.
Capital management
The Group manages its capital to ensure that entities of the Group
will be able to continue as a going concern while maximising the
return to the equity holders through maintaining a balance between
the higher returns that might be possible with higher levels of
borrowings and the security afforded by a sound capital position. The
management of the Group reviews the capital structure on a regular
basis. Based on the results of this review, the Group takes steps to
balance its overall capital structure through new share issues and
through the issue of new debt or the redemption of existing debt.
The Group’s target is to achieve a gearing ratio of not higher than
2.5. The Group defines its gearing ratio as the proportion of total
liabilities to total equity.
As of 31 December 2020 and 2019 the gearing ratio was as follows:
Total Liabilities
Total Equity
2020
2019
2,028,619
2,094,629
1,254,203
1,595,866
Total liabilities to Equity
1.62
1.31
2020
2019
Financial assets:
Cash and cash equivalents (Note 25)
217,579
340,735
Trade accounts receivable (Note 23)
119,187
124,474
Other current financial assets (Note 24)
81,314
29,337
Non-current financial assets (Note 18 )
23,083
17,616
Long-term bank deposits
4,612
3,298
Financial liabilities:
Bonds issued (Note 29)
445,775
515,460
1,370,999
1,365,669
Lease obligations (Note 30)
198,499
215,863
Trade accounts payable
Bank borrowings (Note 28)
Accrued payroll and related taxes
(Note 31)
149,768
147,334
104,396
100,825
47,925
47,151
Interest payable (Note 28,29)
21,487
21,789
8,646
14,478
Amounts payable for property,
plant and equipment (Note 31)
Provision for claims, penalties and
indemnification (Note 31)
VAT patable (Note 31)
Other financial liabilities (Note 31)
6,312
8,336
1,931,787
1,922,181
The main risks inherent to the Group’s operations are those
related to credit risk, liquidity risk, currency risk, interest rate and
commodity price 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. The
carrying amount of financial assets disclosed in the table “Major
categories of financial instruments” represent the maximum
credit exposure.
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
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 2020 about 17% (2019:
19%) of trade accounts receivable comprise amounts due from
12 large supermarket chains, which have the shortest contractual
receivable settlement period among customers.
12,440
11,315
-
736
The credit risk on liquid funds is limited because the counterparties
are banks with high credit-ratings assigned by international
credit-rating agencies.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
36. RISK MANAGEMENT POLICIES (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all
liabilities as they are due. The Group’s liquidity position is carefully
monitored and managed. The Group has in place a detailed
budgeting and cash forecasting process to help ensure that it has
adequate cash available to meet its payment obligations.
The following table details the Group’s remaining contractual
maturity for its 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 2020 and 2019. 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.
All other financial liabilities (excluding those disclosed above) are
repayable within one year.
The Group’s target is to maintain its current ratio, defined as the
proportion of current assets to current liabilities, at the level of
not less than 1.2. As of 31 December 2020 and 2019, the current
ratio was as follows:
Carrying
amount
Contractual
Amounts
Less than
1 year
From 2nd
to 5th year
After
5th year
Current assets
Current liabilities
Year ended 31 December 2020
Bank borrowings
Bonds issued
Lease liabilities
Total
Year ended 31 December 2019
Bank borrowings
Bonds issued
Lease liabilities
Total
105,126
109,620
1,391,756
1,942,738
198,499
405,127
42,150
98,850
57,204
67,470
837,275
184,699
-
1,006,613
163,224
1,695,381
2,457,485
198,204
1,089,444
1,169,837
101,858
108,128
1,386,425
2,041,588
215,863
445,430
1,704,146
2,595,146
27,698
98,850
64,074
190,622
80,430
876,025
205,137
-
1,066,713
176,219
1,161,592
1,242,932
2020
2019
1,174,348
1,181,641
374,912
390,181
3.13
3.03
Currency risk
Currency risk is the risk that the value of a financial instrument
will fluctuate due to changes in foreign exchange rates. The
Group undertakes certain transactions denominated in foreign
currencies. The Group does not use any derivatives to manage
foreign currency risk exposure, but the management of the Group
sets limits on the level of exposure to foreign currency fluctuations
in order to manage currency risk.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
156
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
The table below illustrates the Group’s sensitivity to a change in
the exchange rate of the Ukrainian Hryvnia against the US Dollar
and EUR. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the year end for possible change in foreign currency rates.
36. 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:
2020
2019
ASSETS
Long-term bank deposits
Non-current financial assets
Trade accounts receivable
Other current financial assets
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade accounts payable
Other current financial liabilities
Interest payable
Short-term bank borrowings
Short-term lease liabilities
Non-current liabilities
Long-term bank borrowings
Bonds issued1
Long-term lease liabilities
Net liability
USD
-
18,162
20,906
68,681
101,549
209,298
6,691
3,165
20,770
15,000
-
EUR
4,612
-
12,584
8
14,208
31,412
9,031
1,865
462
14,821
3,512
USD
-
16,381
23,635
15,998
106,658
162,672
2,101
5
20,758
-
74
45,626
29,691
22,938
97
1,370,999
-
1,371,096
1,207,424
24,983
-
5,230
30,213
28,492
57
1,365,669
-
1,365,726
1,225,992
EUR
3,298
-
9,431
-
1,461
14,190
7,211
2,327
720
16,683
4,238
31,179
34,224
-
5,565
39,789
56,778
1 Bonds were issued by MHP Lux S.A. and MHP SE, which functional currency is USD. Proceeds from bonds issue were transferred in the form of USD denominated intra-
group loans to Ukrainian subsidiaries of the Group, which functional currency is UAH, therefore the Group treats bonds issued balance as foreign currency denominated
balance. Foreign exchange gain/loss on such intragroup loans is recognized in the consolidated statement of profit or loss, while loan balances themselves are eliminated
on consolidation.
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020 Notes to the Consolidated financial statements
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
36. RISK MANAGEMENT POLICIES (continued)
Currency risk (continued)
Change
in foreign
currency
exchange
rates
Effect
on profit
before tax,
gain/(loss)
2020
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange
rate
Decrease in EUR exchange rate
2019
Increase in USD exchange rate
Increase in EUR exchange rate
Decrease in USD exchange
rate
Decrease in EUR exchange rate
15%
15%
15%
15%
10%
10%
5%
5%
(181,114)
(4,274)
181,114
4,274
(122,599)
(5,678)
61,300
2,839
During the year ended 31 December 2020 the Ukrainian Hryvnia
depreciated against the EUR and USD by 23.94% and 16.23%
respectively (2019: appreciated against the EUR by 20.03% and
16.90% against the USD). As a result, during the year ended 31
December 2020 the Group recognised net foreign exchange loss
in the amount of USD 203,664 thousand (2019: foreign exchange
gain in the amount of USD 185,291 thousand) in the consolidated
statement of profit or loss and other comprehensive income.
The currency risk is mitigated by the existence of USD-
denominated proceeds from sales of sunflower oil, grain and
chicken meat, which are sufficient for servicing the Group’s
foreign currency denominated liabilities and were as follows
during the years, ended 31 December 2020 and 2019:
2020
2019
Chicken meat and related products
577,255
588,903
Vegetable oil and related products
274,979
302,600
Grain
114,304
251,836
Other agricultural segment products
49,217
42,362
1,015,755
1,185,701
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect primarily borrowings by changing future
cash flows. 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%. The analysis was applied to
interest bearing liabilities (bank borrowings and lease obligations)
based on the assumption 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 consolidated statement of profit or loss.
Livestock diseases risk
The Group’s agro-industrial business is subject to risks of
outbreaks of various diseases. The Group faces the risk
of outbreaks of diseases, which are highly contagious and
destructive to susceptible livestock, such as avian influenza or
bird flu for its poultry operations. These and other diseases could
result in mortality losses. Disease control measures were adopted
by the Group to minimize and manage this risk. The Group’s
management is satisfied that its current existing risk management
and quality control processes are effective and sufficient to
prevent any outbreak of livestock diseases and related losses.
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect
on current or future earnings from fluctuations in the prices of
commodities. To mitigate this risk the Group continues expansion
of its grain growing segment, as part of vertical integration strategy,
and also accumulates sufficient commodity stock to meet its
production needs.
2020
LIBOR
LIBOR
EURIBOR
EURIBOR
2019
LIBOR
LIBOR
EURIBOR
EURIBOR
Increase/
(decrease)
of floating rate
Effect on profit
before tax,
gain/(loss)
1%
-1%
1%
-1%
1%
-1%
1%
-1%
(150)
150
(817)
59
(1)
1
(1,062)
98
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
Notes to the Consolidated financial statements
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
(in thousands of US dollars, unless otherwise indicated)
37. PENSIONS AND RETIREMENT PLANS
The employees of the Group receive pension benefits from
the government in accordance with the laws and regulations of
respective jurisdictions.
The Group’s contributions to the State Pension Fund for the year
ended 31 December 2020 was USD 51,465 thousand and is
recorded in the consolidated statement of profit or loss and other
comprehensive income on an accrual basis (2019: USD 48,702
thousand). The Ukrainian companies are not liable for any other
supplementary pensions, post-retirement health care, insurance
benefits or retirement indemnities to its current or former employees,
other than pay-as-you-go expenses.
In accordance with the legislative regulations, collective contract,
and internal rules, the companies of the European operating
segment are committed to the payment of loyalty bonuses to
employees and the severance payments upon their retirement for
which long-term provisions are made. Provisions are recognized in
other operating expenses in the consolidated statement of profit
or loss and other comprehensive income and in other non-current
liabilities in the statement of financial position.
The balances of provisions for employee benefits were as follows
as of 31 December 2020 and 2019:
Provisions for severance payments
Provisions for loyalty bonuses
2020
4,932
1,328
6,260
2019
4,059
1,129
5,188
The following table represents movements in provisions for
employee benefits for the year ended 31 December 2020:
Provisions
for severance
payments
Provisions
for loyalty
bonuses
31 December 2019
4,059
1,129
Formation
Expenditure
Translation Differences
31 December 2020
448
(17)
442
82
-
117
4,932
1,328
38. EARNINGS PER SHARE
The earnings and weighted average number of ordinary shares
used in calculation of earnings per share are as follows:
From continued operations
2020
2019
Profit for the year attributable to
equity holders of the Parent
Earnings used in calculation of
earnings per share
Weighted average number of shares
outstanding
Basic and diluted earnings per
share (USD per share)
(135,024)
224,263
(135,024)
224,263
107,038,208
107,038,208
(1.26)
2.10
The Group has neither potentially dilutive ordinary shares nor
other dilutive instruments; therefore, the diluted earnings per
share equal basic earnings per share. The denominators used
are the same as those detailed above for both basic and diluted
earnings per share from discontinued operations presented in
Note 3.
39. SUBSEQUENT EVENTS
At the extraordinary general meeting of the Shareholders of
MHP SE, which was held on 18 March 2021, the Shareholders
have approved the merger of MHP SE with Raftan Holding
Limited (“Raftan”), Hemiak Investments Limited (“Hemiak”) and
Eledem Investments Limited (“Eledem”), being its wholly owned
subsidiary companies. All the undertakings, properties and
assets of Raftan, Hemiak and Eledem, as reflected in the audited
financial statements of each of Raftan, Hemiak and Eledem, for
the year ended 31 December 2020, shall be transferred to and
vest in MHP SE, subject to all existing encumbrances thereon,
and all the debts and liabilities of Raftan, Hemiak and Eledem, as
reflected in the audited financial statements of each of Raftan,
Hemiak and Eledem, for the year ended 31 December 2020,
shall be transferred to, assumed by and become the debts and
liabilities of MHP SE.
MHP SE shall be the entity resulting from the merger and Raftan,
Hemiak and Eledem, would be dissolved without winding up.
Taking into account the current challenging market dynamics,
and with a Net Debt to EBITDA ratio of 3.66 at 31 December 2020
(above 3.0, beyond which certain restrictions become effective,
please see Note 29), the Board felt it prudent to continue to
conserve cash and, subject to shareholder approval, to pay an
unchanged dividend of US$ 0.2803 per share (approximately
US$ 30 million) for 2020, payable in April 2021 (approximately
US$ 30 million for 2019, paid April 2020).
40.
AUTHORIZATION
FINANCIAL STATEMENTS
These consolidated financial statements were authorized for
issue by the Board of Directors of MHP SE on 23 March 2021.
CONSOLIDATED
THE
OF
FINANCIAL STATEMENTSANNUAL REPORTAND ACCOUNTS 2020
159
SHAREHOLDER
INFORMATION
160 Financial Calendar
160 Key Contacts & Advisors
161 Glossary of Terms
GOVERNANCEIGR&PA Committee reportANNUAL REPORTAND ACCOUNTS 2020 160
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 websites:
www.mhp.ua and www.mhp.com.cy, 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
Auditor
Ernst & Young Cyprus Limited,
Jean Nouvel Tower,
6 Stasinou Avenue,
1511 Nicosia,
Cyprus
Company Office
EB 1, Nicolaides Sea View City Block AB, 3-7 Archbishop Makarios
III Avenue,
6017 Larnaca,
Cyprus
Registrar
Citigroup Global Markets Deutschland AG Reuterweg 16 60323
Frankfurt Germany
Director of Investor Relations
Anastasiya Sobotyuk
Email: a.sobotyuk@mhp.com.ua
+38 050 339 29 99
SHAREHOLDER INFORMATIONShareholder InformationANNUAL REPORTAND ACCOUNTS 2020 Glossary of Terms
161
AС
Audit Committee
AGM
Annual general meeting
AI
Artificial Intelligence
B2B Business to Business
Broiler
A young chicken raised for meat
CAPEX
Capital expenditure
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CIS
Commonwealth of Independent States
Company
MHP SE
COSO
Committee of Sponsoring Organisations
CO2
Carbon Dioxide
CO2e
Carbon Dioxide Equivalent
COVID-19 Coronavirus Disease 2019
CSR
DAP Delivered At Place
EBITDA
Corporate Social Responsibility
Earnings before interest, tax, depreciation
and amortisation
European Bank for Reconstruction and Development
Extraordinary general meeting
European Operating Segment
Environmental, Social and Governance
European Union
EBRD
EGM
EOS
ERP Enterprise Кesource Planning
ESG
EU
EUR Euro
FOB Free On Board
Fodder
Food for livestock
FX
Foreign Exchange
GCC
Gulf Cooperation Council
GDP Gross Domestic Product
GFSI Global Food Safety Initiative
GDR
GMO Genetically Modified Organisms
Greenfield
GRI
Group
Grow-out
GWP Global warming potential
Global depositary receipt
Relating to previously undeveloped sites
Global Reporting Initiative
MHP SE and its subsidiaries
The period during which the broilers are raised
Hectares
Human resources
International Accounting Standards
Ha
HR
IAS
IEA International Energy Agency
IFC
IFI
IFRS
IR
JV
Kg
KPIs
KSA
LHS
LTM
M&A
MENA
MW
NBU
NED
NGO
NBC
OECD
International Finance Corporation
International financial institution
International Financial Reporting Standards
Investor relations
Joint venture
Kilograms
Key performance indicators
Kingdom of Saudi Arabia
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
Nominations and Remuneration Committee
Organisation for Economic Co-operation
and Development
Perutnina Ptuj, acquired during 2019
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
PP
pps
R&D
RHS
SE
SKU
SPOT
UAE
UAH
UK
UNIC
US
US$ /USD
y/y
VAT
SHAREHOLDER INFORMATIONANNUAL REPORTAND ACCOUNTS 2020
162
SHAREHOLDER INFORMATIONShareholder InformationANNUAL REPORTAND ACCOUNTS 2020