REG - MHP SE - Financial Statement Q2 2023
25/09/2023 09:15
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RNS Number : 5159N MHP SE 25 September 2023
25 September 2023, Limassol, Cyprus
MHP SE
Financial Results for the Second Quarter and Six Months ended 30 June 2023
MHP SE (LSE:MHPC), the parent company of a leading international food &
agrotech group with headquarters in Ukraine, today announces its unaudited
results for the second quarter ended 30 June 2023. Hereinafter, MHP SE and its
subsidiaries are referred to as "MHP", "The Company" or "The Group".
MHP is reporting good operational and financial results for H1 2023 thanks to
a recovery in global export levels, continued demand, a stable international
poultry price environment, supported by new culinary products launched in
Ukraine and the extraordinary efforts of the MHP team to minimize the
disruption caused by the War. It should be noted that operational and
financial results in H1 2022 were severely impacted by the onset of the War,
making year-on-year comparison difficult. Results for the second half of 2023
may again be adversely affected by War-related challenges that are not under
MHP's control.
WAR IN UKRAINE - UPDATE
The War in Ukraine continues, with intensive fighting in the South and East of
the country and irregular but frequent rocket and drone attacks against
civilian infrastructure across Ukraine. The bombing campaign aimed at
undermining the country's economic capability shows no sign of abating.
On July 18, 2023, Russia unilaterally decided not to extend the Black Sea
Grain Initiative, originally signed by Ukraine, the UN, Turkey and Russia on
22 July 2022. Known as the 'Grain Deal', the agreement allowed for export of
Ukrainian grain and vegetable oil through the "grain corridor" from designated
Ukrainian ports to the Bosphorus. This has significantly restricted the
capacity for seaborn trade for Ukrainian agricultural produce which, combined
with the heightened costs of alternative export channels, may have a
substantive impact on the Company's logistics on vegetable oils and related
products in the coming months.
As the Grain Deal expired, Russian military forces intensified rocket attacks
against Ukrainian seaports specifically aiming to degrade the country's export
infrastructure. Recent attacks in the Odessa region targeted port
infrastructure, grain depots and other storage facilities, resulting in major
damage to Reni, Chernomorsk and Pivdeny which are key hubs for Ukrainian
agriculture exports. The situation remains highly fluid, and the outlook is
subject to extraordinary levels of uncertainty. Any substantive escalation of
attacks could increase risks to MHP's Ukrainian operations, potentially
leading to disruption of production and distribution.
Due to the War, MHP is experiencing a severe shortage of vegetable oil storage
capacity, currently covering just 50% of production. Lack of storage has
forced the Company to increase exports. This is a significant challenge, as
it limits the Company's ability to manage pricing cyclicality, directly
impacting the profitability of its vegetable oil production.
On 2 May 2023, the European Commission adopted exceptional and temporary
preventive measures on imports of a defined number of products from Ukraine to
five member states. The preventive measures applied to four agricultural
products - wheat, maize, rapeseed and sunflower seed - originating in Ukraine.
Under the measures set by the European Commission, these products could only
transit via these five member states by means of a common customs transit
procedure or en route to a territory outside the EU. The European Commission
lifted the restrictions on 15 September 2023, given that Ukraine agreed to
tighten control over its agricultural exports. Despite this, market access
conditions in the relevant member states, in particular, Poland, Hungary and
Slovakia, for the affected Ukrainian products are uncertain and remain subject
to on-going developments. Furthermore, MHP's exports to the EU continue to be
reliant on poultry quotas and any changes to the current regime could pose a
significant risk to the Company.
MHP notes the recent comments by the Ukrainian Energy Minister expecting
further electricity shortages in winter due to continued infrastructure
challenges. While MHP has made provisions of alternative energy sources for
its main operations, significant energy outages may lead to an increase in the
cost base and/or a decrease in production across the Company's main products.
MHP continues to focus on the welfare of its employees in the face of
increased challenges arising from the War, with more than 2,300 employees
currently mobilized. Since the beginning of the War, support to the mobilized
employees and their families, as well as those that have returned to civilian
life, has been provided and is provided on a regular basis. It is very sad to
report that 92 MHP employees have lost their lives or are missing in action in
the service of their country. The Company is extending its sympathies and
support to their families, friends and colleagues.
A re-skilling campaign is underway at the Company's operational facilities, as
- due to the mobilization - the average age of available employees has
increased, and the ratio of women to men has increased.
The Company continues to support Victory for Ukraine, a Ukraine based charity
project, different kind of support and aid, having already contributed 12,000
tons of MHP products donated and delivered to people of Ukraine since the
beginning of the War in Ukraine.
In addition to the specific challenges outlined above, the Company faces
significant general uncertainties inherent in the War, where substantive
escalation of attacks could increase risks to MHP's Ukrainian operations,
potentially leading to further disruption in production.
Nonetheless, as of today, MHP's production facilities continue to operate at
close to full capacity, as they have been throughout the first half of 2023.
The Company continues to export to over 70 countries, providing grain,
vegetable oils and poultry meat to global markets.
OPERATIONAL ENVIRONMENT
As of today, the Company has been dynamically adapting to the evolving
operational environment, and has been able to continue operations in Ukraine.
MHP's own facilities have not suffered significant physical damage. In the
event of any future adverse impact to its operations, the Company has in place
detailed contingency plans, ensuring that it is ready to take all actions
necessary to rebuild, restore and re-start production in the shortest time
possible. The Company sees its readiness to act on contingencies as a key
strategic priority, including access to adequate liquidity to enact emergency
measures.
The global market environment for non-poultry products remains challenging,
with depressed prices for wheat and rapeseed products including vegetable oils
putting pressure on profit margins.
OPERATIONAL HIGHLIGHTS
Q2 2023
· Poultry production volume in Ukraine was up 7% at
181,690 tonnes (Q2 2022: 170,395 tonnes). Poultry production volumes of the
European Operating Segment (PP) increased by 7% to 33,306 tonnes (Q2 2022:
31,259 tonnes).
· MHP Ukraine's average chicken meat price remained
almost unchanged at US$ 1.95 per kg (Q2 2022: US$ 2.03 per kg) excluding VAT.
The average price of chicken meat produced by PP was stable at EUR 3.34 per kg
(Q2 2022: EUR 3.36 per kg).
· Chicken meat exports from Ukraine increased by 46% to
100,234 tonnes (Q2 2022: 68,552 tonnes).
H1 2023
· Poultry production volume in Ukraine increased by 4% to
359,332 tonnes (H1 2022: 346,039 tonnes). Poultry production volumes of the PP
increased by 9% to 65,087 tonnes (H1 2022: 59,809 tonnes).
· MHP Ukraine's average chicken meat price was stable at
US$ 1.90 per kg (H1 2022: US$ 1.93 per kg) excluding VAT. The average price of
poultry meat produced by PP increased by 12% to EUR 3.48 per kg (H1 2022: EUR
3.11 per kg).
· Chicken meat exports from Ukraine increased by 34% to
212,165 tonnes (H1 2022: 157,892 tonnes).
-
FINANCIAL HIGHLIGHTS
Q2 2023
· Revenue of US$ 809 million, increased by 36% y/y (Q2
2022: US$ 595 million).
· Export revenue of US$ 508 million, 63% of total revenue
(Q2 2022: US$ 333 million, 56% of total revenue).
· Operating profit of US$ 68 million was stable while
operating margin decreased to 8% (Q2 2022:US$ 67 million and 11%
respectively).
· Adjusted EBITDA (net of IFRS 16) decreased to US$ 101
million from US$ 111 million; adjusted EBITDA margin (net of IFRS 16)
decreased to 12% from 19%.
· Net profit has slightly decreased to US$ 18 million,
compared to US$ 20 million for Q2 2022.
H1 2023
· Revenue increased to US$ 1,555 million, up by 35% y/y
(H1 2022: US$ 1,149 million).
· Export revenue increased to US$ 973 million, 52% higher
y/y, representing 63% of total revenue (H1 2022: US$ 640 million, 56% of total
revenue).
· Operating profit increased to US$ 152 million, up by
100% y/y (H1 2022: US$ 76 million) and operating margin increased from 7% to
10%.
· Adjusted EBITDA (net of IFRS 16) increased by 42% to
US$ 218 million (H1 2022: US$ 154 million); adjusted EBITDA margin (net of
IFRS 16) increased from 13% to 14%.
· Net income amounted to US$ 67 million, compared to a
loss of US$ 89 million in H1 2022, primarily reflecting a US$ 4 million
non-cash foreign exchange gain in H1 2023 compared with a US$ 92 million
foreign exchange loss in H1 2022.
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) Q2 2023 Q2 2022 % change(1)) H1 2023 H1 2022 % change(1))
Revenue 809 595 36% 1,555 1,149 35%
IAS 41 standard losses (40) (37) -8% (76) (93) 18%
Gross profit 150 152 -1% 294 241 22%
Gross profit margin 19% 26% -7 pps 19% 21% -2 pps
War-related expenses (7) (13) -46% (13) (38) -66%
Operating profit 68 67 1% 152 76 100%
Operating profit margin 8% 11% -3 pps 10% 7% 3 pps
Adjusted EBITDA 109 119 -8% 233 169 38%
Adjusted EBITDA margin 13% 20% -7 pps 15% 15% 0 pps
Adjusted EBITDA (net of IFRS 16) 101 111 -9% 218 154 42%
Adjusted EBITDA margin (net of IFRS 16) 12% 19% -7 pps 14% 13% 1 pps
Net profit /(loss) 18 20 -10% 67 (89) 175%
Net profit/(loss) margin 2% 3% -1 pps 4% -8% 12 pps
(1)) pps - percentage points
Average official FX rate for Q2: UAH/US$ 36.57 in 2023 and UAH/US$ 29.25 in
2022.
Average official FX rate for H1 2023 UAH/US$ 36.57 and for H1 2022 UAH/US$
28.91.
DIAL-IN DETAILS
MHP's management will host a conference call for investors and analysts
followed by Q&A on the day of the results.
The dial-in details are:
Time: 14.00 London / 16.00
Kyiv / 09.00 New York
Title: Financial results
for Q2 2023 and H1 2023
UK: +44 203 984 9844
Ukraine: +380 89 324 0624
USA: +1 718 866 4614
PIN code: 645982
To follow the presentation with the management team, please use the following
link:
https://mm.closir.com/slides?id=645982
(https://mm.closir.com/slides?id=645982)
For Investor Relations enquiries, please contact:
Anastasia Sobotiuk (Kyiv) +38 050 339
29 99
+357 99 76 71 26
a.sobotyuk@mhp.com.ua (mailto:a.sobotyuk@mhp.com.ua)
Segment Performance
Poultry and Related Operations Segment
Q2 2023 Q2 2022(1)) % change y/y(2)) Q1 2023 % change q/q(2)) H1 2023 H1 2022 % change(2))
Poultry
Sales volume(1)), third party tonnes 178,122 140,549 27% 187,519 -5% 365,641 299,573 22%
Export sales volume, tonnes 100,234 68,552 46% 111,931 -10% 212,165 157,892 34%
Domestic sales volume, tonnes 77,888 71,997 8% 75,588 3% 153,476 141,681 8%
Portion of export sales, % 56% 49% 7 pps 60% -4 pps 58% 53% 5 pps
Average price per 1 kg net of VAT, USD 1.95 2.03 -4% 1.85 5% 1.90 1.93 -2%
Average price per 1 kg net of VAT, UAH (Ukraine) 56.89 41.77 36% 52.62 8% 54.78 43.86 25%
Average price per 1 kg net of VAT, USD (Ukraine) 1.56 1.43 9% 1.44 8% 1.50 1.51 -1%
Average price per 1 kg net of VAT, USD (export) 2.22 2.63 -16% 2.11 5% 2.16 2.28 -5%
Sunflower oil
Sales volume, third parties tonnes 168,677 48,495 248% 77,201 118% 245,878 81,476 202%
Soybeans oil
Sales volume, third parties tonnes 13,630 9,191 48% 14,400 -5% 19,547 43%
28,030
(1)) Total poultry sales include domestic sales, export sales and sales of
culinary products
(2)) pps - percentage points
Chicken meat
The total volume of chicken meat sold to third parties in H1 2023 increased by
22% to 365,641 tonnes (H1 2022: 299,573 tonnes). Domestic sales in H1 2023
increased by 8% mainly due to higher demand in Ukraine compared to H1 2022
when the full effects of the War affected results from March. Export sales in
H1 2023 increased by 34% y/y to 212,165 tonnes, mainly as a result of
substantially decreased sales in H1 2022 due to the effects of the War.
Poultry export prices in Q2 2023 decreased by 16% y/y, mainly driven by
relative stabilization of prices on international markets compared to their
pick levels achieved in Q2 2022. At the same time prices increased by 5% q/q,
as a result of an increase in prices for filet and breast cup in the EU and UK
channels.
In Q2 2023 poultry prices on the domestic market in USD terms increased by 9%
y/y, and by 8% q/q, driven by increase in sales volume of high-margin product
- fillet as well as increased share of sales of other relatively expensive
culinary products.
Vegetable oil
In Q2 2023, sunflower oil sales volume amounted to 168,677 tonnes, up 248%
y/y. In H1 2023 MHP's sales of sunflower oil increased by 202% compared to H1
2022 to 245,878 tonnes, mainly driven by an increase in production of
sunflower cake due to both additional crushing capacity and a change in the
recipe as well as partial restoration of logistic routes comparing to H1 2022.
Sales of soybean oil amounted to 13,630 tonnes in Q2 2023 also increased by
48% y/y, and by 43% to 28,030 tonnes in H1 2023, compared with 19,547 tonnes
in H1 2022.
At the same time, international vegetable oil prices decreased substantially
and the downward trend continues. Moreover, expensive and disruptive logistics
from Ukraine made vegetable oils exports less profitable compared to sales in
H1 2022.
Financial result and trends
(in mln. US$, unless indicated otherwise) Q2 2023 Q2 2022 % change y/y(1)) Q1 2023 % change q/q(1)) H1 2023 H1 2022 % change(1))
Revenue 608 430 41% 519 17% 1,127 809 39%
- Poultry and other 392 330 19% 390 1% 782 652 20%
- Vegetable oil 216 100 116% 129 67% 345 157 120%
IAS 41 standard gain 10 9 11% 3 233% 13 15 -13%
Gross profit 144 87 66% 110 31% 254 148 72%
Gross margin 24% 20% 4 pps 21% 3 pps 23% 18% 5 pps
War-related expenses (4) (10) -60% (4) 0% (8) (31) -74%
Adjusted EBITDA 124 68 82% 97 28% 221 100 121%
Adjusted EBITDA margin 20% 16% 4 pps 19% 1 pps 20% 12% 8 pps
(1)) pps - percentage points
In H1 2023, revenue increased by 39% y/y as a result of sales volume increase
of both vegetable oil and chicken meat that was partly set off by lower oil
and meat price on export markets.
IAS 41 standard gain in H1 2023 decreased to US$ 13 million y/y mainly as a
result of a lower chicken meat price and optimization of meat stocks volumes
comparing to H1 2022.
Gross profit in H1 2023 increased to US$ 254 million mainly driven by higher
sales volumes of chicken meat on export markets and by a significant increase
from sales of vegetable oil.
In H1 2023, adjusted EBITDA increased to US$ 221 million, mainly as a result
of higher gross profit and lower War-related expenses.
Grain Growing Segment
Winter crops (wheat, rapeseeds and other) harvesting is complete on around
94,200 ha of land:
- rapeseeds - around 33,000 ha with around 3.7 t/ha yield;
- wheat - around 40,300 ha with around 6.6 t/ha yield.
Yields of spring crops are expected to be better than in 2022 due to favorable
weather conditions in Ukraine. In 2023, MHP is planning to harvest around
348,300 ha of land.
A decrease in domestic grain prices (in line with international grain prices)
and limited export capabilities as a result of continuous missiles strikes on
the Ukrainian ports infrastructure and termination of the Grain deal by Russia
had a negative effect on segment performance. The trend of international grain
price remains unfavorable as of the date of this report.
It should be noted that these events will have limited impact on the overall
Group performance, as almost all grains and oilseeds (except for rapeseeds and
some wheat) are/will be consumed internally.
Financial result and trends
(in mln. US$ unless indicated otherwise) H1 2023 H1 2022 % change
Revenue 93 53 75%
IAS 41 standard loss (81) (113) 28%
Gross profit (30) 25 -220%
War-related expenses - (1) -100%
Adjusted EBITDA (13) 48 -127%
Adjusted EBITDA (net of IFRS 16) (27) 34 -179%
Grain growing segment's revenue in H1 2023 amounted to US$ 93 million compared
to US$ 53 million in H1 2022. The increase was mainly attributable to the
higher volume of sales of corn purchased from farmers in Ukraine and sales of
rapeseeds in 1H2023 which were harvested in 2022, while usually they are
realized in the second half of the year, just after the harvest.
The reduction in Adjusted EBITDA (net of IFRS 16) to US$ (27) million in H1
2023 from US$ 34 million in 2022 was caused by lower revaluation of biological
assets (both winter and spring crops) as a result of the decrease in domestic
prices due to limited export capabilities.
A significant decrease in international grain prices, as well as increased
logistic costs due to the War impact, led to poor results in the Grain
Segment. The Company expects Grain Segment EBITDA for 2023 to be significantly
lower than in 2022.
Meat Processing and Other Agricultural Segment
Meat processing products Q2 2023 Q2 2022 % change y/y Q1 2023 % change q/q H1 2023 H1 2022 % change
Sales volume, third parties tonnes 2,965 2,289 30% 2,525 17% 5,490 8,304 -34%
Price per 1 kg net VAT, UAH 128.47 88.34 45% 133.28 -4% 130.68 87.84 49%
Sales volume of meat processing products decreased by 34% y/y to 5,490 tonnes
in H1 2023 driven by War-related challenges that resulted in temporary
suspension of production facilities of "Ukrainian Bacon" in the Donetsk region
in Q2 2022 and subsequent partial redeployment of its operations in Central
Ukraine.
The average price increased by 49% y/y to UAH 130.68 per kg in H1 2023. This
change took place during H2 2022 and was driven mainly by higher raw material
prices (spices, packaging, and other components) as well as by a positive
change in product mix.
Convenience food Q2 2023 Q2 2022 % change y/y Q1 2023 % change q/q H1 2023 H1 2022 % change
Sales volume, third parties tonnes 5,899 3,421 72% 5,538 7% 11,437 7,410 54%
Price per 1 kg net VAT, UAH 83.32 58.94 41% 85.66 -3% 85.71 56.04 53%
Sales volumes of convenience food in H1 2023 increased by 54% to 11,437
tonnes.
The average price in H1 2023 increased by 53% to UAH 85.71 per kg (excluding
VAT). This change took place during Q4 2022 and Q1 2023 and was driven mainly
by raw material price increases as well as a focus on increased sales of
higher-margin products.
Financial result and trends
(in mln. US$, except margin data) Q2 2023 Q2 2022 % change y/y(1)) Q1 2023 % change q/q(1)) H1 2023 H1 2022 % change(1))
Revenue 35 27 30% 32 9% 67 63 6%
- Meat processing and convenience food 25 20 25% 24 4% 49 48 2%
- Other(2)) 10 7 43% 8 25% 18 15 20%
IAS 41 standard losses (4) - -100% (1) -300% (5) 1 -600%
Gross profit 2 2 0% 3 -33% 5 6 -17%
Gross margin 6% 7% -1 pps 9% -3 pps 7% 10% -3 pps
War-related expenses - (1) -100% - 0% - (4) -100%
Adjusted EBITDA 1 - 100% 3 -67% 4 - 100%
Adjusted EBITDA margin 3% 0% 3 pps 9% -6 pps 6% 0% 6 pps
(1)) pps - percentage points;
(2)) includes milk, cattle and feed grains.
The segment's revenue in H1 2023 increased by 6% to US$ 67 million. Adjusted
EBITDA in H1 2023 was US$ 4 million compared to US$ nil in H1 2022 mainly due
to significant War-related expenses incurred in H1 2022.
European Operating Segment (PP)
Poultry Q2 2023 Q2 2022 % change y/y Q1 2023 % change q/q H1 2023 H1 2022 % change
Sales volume, third parties tonnes 21,956 19,619 12% 19,114 15% 41,070 37,363 10%
Price per 1 kg net VAT, EUR 3.34 3.36 -1% 3.53 -5% 3.48 3.11 12%
In Q2 2023, poultry sales of the European operating segment increased to
21,956 tonnes, and by 15% compared with Q1. This was driven by an increased
production of chicken meat following expansion of facilities in Croatia and
Serbia. Average price decreased by 1% in Q2 2023 to EUR 3.34 (Q2 2022: EUR
3.36).
Meat processing products(1)) Q2 2023 Q2 2022 % change y/y Q1 2023 % change q/q H1 2023 H1 2022 % change
Sales volume, third parties tonnes 11,289 10,238 10% 10,715 5% 22,004 20,155 9%
Price per 1 kg net VAT, EUR 3.54 3.12 13% 3.33 6% 3.32 3.02 10%
(1)) includes sausages and convenience foods
Meat processing product sales were up by 10% y/y to 11,289 tonnes in Q2 2023
(Q2 2022: 10,238 tonnes), at the same time increased by 5% compared with Q1.
Average price in Q2 2023 increased by 13% to EUR 3.54.
Financial result and trends
(in mln. US$, except margin data) Q2 2023 Q2 2022 % change y/y(1)) Q1 2023 % change q/q(1)) H1 2023 H1 2022 % change(1))
Revenue 142 120 18% 125 14% 267 224 19%
IAS 41 standard gains (5) 3 -267% 2 -350% (3) 5 -160%
Gross profit 33 35 -6% 32 3% 65 62 5%
Gross margin 23% 29% -6 pps 26% -3 pps 24% 28% -4 pps
Adjusted EBITDA 19 22 -14% 20 -5% 39 37 5%
Adjusted EBITDA margin 13% 18% -5 pps 16% -3 pps 15% 17% -2 pps
Adjusted EBITDA (net of IFRS 16) 19 22 -14% 19 0% 38 36 6%
Adjusted EBITDA margin 13% 18% -5 pps 15% -2 pps 14% 16% -2 pps
(net of IFRS 16)
(1)) pps - percentage points.
European operating segment's revenue in H1 2023 increased by 19% to US$ 267
million (H1 2022: US$ 224 million), mainly as a result of the increase in
poultry sales volume and price.
Adjusted EBITDA (net of IFRS 16) amounted to US$ 38 million for H1 2023
compared with US$ 36 million for H1 2022. Adjusted EBITDA margin (net of IFRS
16) decreased from 16% to 14%.
Current Group cash flow
(in mln. US$) Q2 2023 Q2 2022 H1 2023 H1 2022
Cash from operations 108 133 206 254
Change in working capital 70 (179) 68 (246)
Net Cash from operating activities 178 (46) 274 8
Cash used in investing activities (66) (35) (102) (73)
Including:
CAPEX(1)) (53) (30) (92) (63)
Cash from financing activities 32 - 18 22
Total change in cash(2)) 144 (81) 190 (43)
(1))Calculated as cash used for Purchases of property, plant and equipment
plus cash used for purchases of other non-current assets
(2))Calculated as Net Cash from operating activities plus Cash used in
investing activities plus Cash used in financing activities
Cash flow from operations before changes in working capital for H1 2023
amounted to US$ 206 million (H1 2022: US$ 254 million), mainly as a result
of interest payments of US$ 96 million in H1 2023 compared to US$ 18 million
in H1 2022.
The differences between H1 2023 and Q2 2023 compared to H1 2022 and Q2 2022
respectively were mainly attributable to:
· return of stocks of chicken meat and vegetable oil to normal
levels at the end of H1 2023 from the unusually high amounts at the end of H1
2022, caused by disrupted logistics due to War activities, that has partly
recovered afterward due to the Grain deal and diversification of delivery
routes by the Group;
· higher volumes of grains exported in H1 2023 compared to H1 2022
as a result of partial recovery of sea routes due to the Grain deal;
· higher stocks of sunflower seeds at the beginning of 2023
compared to 2022 and increased internal consumption in 1H 2023 compared to
same period of the previous year;
· stable amounts of trade accounts receivable compared to
significant growth in sunflower oil receivables in H1 2022;
However, it should be noted that, investments in working capital will
substantially increase in H2 2023, resulting in substantial cash outflow for
2023 due to future required purchases of sunflower seeds, fertilizers and
plant protection materials as well as termination of the Grain deal by Russia
that causing significant restrictions in the capacity for seaborn trade for
Ukrainian agricultural exports.
In H1 2023 total CAPEX amounted to US$ 92 million mainly related to
maintenance and modernization projects, new products development of Ukrainian
operations and expansion of Perutnina Ptuj production facilities. The increase
from US$ 63 million in H1 2022 is mainly due to higher investments in cost
optimization and culinary strategy projects as well as purchases of diesel
generators for mitigation of possible power outages impact.
Debt Structure and Liquidity
(in mln. US$) 30 June 2023 31 December 2022 30 June 2022
Total Debt(1) 2)) 1,539 1,537 1,511
LT Debt(1)) 1,007 1,507 1,491
ST Debt (1)) 725 182 144
Trade credit facilities(2)) (193) (152) (125)
Cash and bank deposits (502) (300) (222)
Net Debt(1)) 1,037 1,237 1,289
LTM Adjusted EBITDA(1)) 449 384 468
Net Debt / LTM Adjusted EBITDA(1)) 2.31 3.22 2.75
(1) ) Net of IFRS 16 adjustments: as if any lease that would have been
treated as an operating lease under IAS 17 as was in effect before the 1
January 2019, is treated as an operating lease for purposes of this
calculation. In accordance with covenants in MHP's bond and loan agreements,
these data exclude the effects of IFRS 16 on accounting for operating leases.
(2)) Indebtedness under trade credit facilities that is required to be
repaid within 12 months of drawdown should be excluded for purposes of this
calculation
As of 30 June 2023, MHP's cash and cash equivalents amounted to US$ 502
million, of which US$ 277 million was held by the Group's subsidiaries outside
Ukraine. Under the repatriation rules instituted by the National Bank of
Ukraine, the equivalent amounts of such cash and cash equivalents would need
to be repatriated to Ukraine within six months of recognition of foreign
currency proceeds from exports from Ukraine, which limits the Group's ability
to utilize such cash and cash equivalents for repayment of indebtedness.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 2.31 as of 30
June 2023, well below the limit of 3.0 defined in the Eurobond agreement.
As of 30 June 2023, the share of long-term debt in the total outstanding debt
decreased to 65% as the first US$ 500 million Eurobond, which is due for
repayment in May 2024, is now classified as short-term.
The Group has reached agreement in principle with a number of international
and development financial institutions to enter into facilities agreements
providing up to US$ 400 million in aggregate (collectively the "IFI
Facilities"). When entered into, disbursements under the IFI Facilities are
expected to be made in one or more tranches pursuant to utilization requests
by the Company, subject to the satisfaction of terms and certain conditions
precedent, including the absence of a material adverse change in the Group's
business, operations, property, financial condition or prospects, and the
maintenance of certain financial ratios consistent with the Group's
obligations under its Eurobonds. The Group expects to use the proceeds
received pursuant to initial utilization requests to finance a portion of its
tender for any and all of its US$500 million aggregate principal amount
outstanding 7.75% notes due 2024 announced on 25 September 2023. The Company
intends to deliver all notes acquired pursuant to the tender offer to the
Trustee for prompt cancellation.
Subsequent Events
Investments in Joint Venture in Saudi Arabia
On 7 September 2023, the Company signed a shareholder agreement with Desert
Hills Veterinary Services Company Limited, subsidiary of Tanmiah Food Company,
a publicly listed company on the Saudi stock market, with intention to
establish a joint venture in poultry farming in the Kingdom of Saudi Arabia.
The Company will have 45% of the share capital of this entity upon its
incorporation, and an initial investment by the Company is planned in amount
of around SAR 27 million (or equivalent of around US$ 7 million).
Outlook
The outlook for the agricultural sector in Ukraine continues to be subject to
extreme operational uncertainty due to War-related risks, including frequent
missile and drone attacks on Ukrainian infrastructure and other targets. In
addition to the risk of physical damage, the Company faces continued logistics
disruptions and increased logistics costs as a result of the ongoing conflict.
Grain prices in Ukraine and internationally are expected to remain depressed
in the second half of the year. Combined with the logistics difficulties in
Ukraine, and despite good harvest yields, the Company expects a weak financial
performance in the grain segment. While poultry prices in Ukraine have largely
stabilised, international prices are expected to continue to fluctuate around
a generally negative trend. Risks remain on the downside if international
poultry prices correlate further with the downward trend in the grain markets.
Notes to Editors:
About MHP
MHP SE is the parent company of a leading international food & agrotech
group with headquarters in Ukraine and also in the Balkans (Perutnina Ptuj
Group).
Ukraine: MHP has the greatest market share and the highest brand recognition
for its products. MHP owns and operates each of the key stages of chicken
production processes, from feed grains and fodder production to egg hatching
and grow out to processing, marketing, distribution and sales (including
through MHP's franchise outlets). Vertical integration reduces MHP's
dependence on suppliers and its exposure to increases in raw material prices.
In addition to cost efficiency, vertical integration also allows MHP to
maintain strict biosecurity and to control the quality of its inputs and the
resulting quality and consistency of its products through to the point of
sale. To support its sales, MHP maintains a distribution network consisting of
nine distribution and logistical centers, within major Ukrainian cities. MHP
uses its trucks for the distribution of its products, which Management
believes reduces overall transportation costs and delivery times.
MHP also has a leading grain cultivation business growing corn to support the
vertical integration of its chicken production and increasingly other grains,
such as wheat and rape, for sale to third parties. MHP leases agricultural
land located primarily in the highly fertile black soil regions of Ukraine.
The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer
in the Balkans, 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 Ptuj is a vertically integrated company across all stages of
chicken meat production - feed, hatching eggs production and hatching,
breeding, slaughtering, sausages and further poultry processing production.
MHP trades on the London Stock Exchange under the ticker symbol MHPC since
2008.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to
future events or forecast financial indicators for MHP SE. Such statements do
not guarantee that these are actions to be taken by MHP SE in the future, and
estimates can be inaccurate and uncertain. Actual final indicators and results
can considerably differ from those declared in any forward-looking statements.
MHP SE does not intend to change these statements to reflect actual results.
MHP SE AND ITS SUBSIDIARIES
Interim condensed consolidated Financial Statements
As of and for the three-month and six-month period
ended 30 June 2023
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF
DIRECTORS................................................................. 3
MANAGEMENT
REPORT..............................................................................................................................
4
REPORT ON REVIEW OF INTERIM condensed consolidated FINANCIAL
INFORMATION..................................................................................................................................................6
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
THREE-MONTH AND SIX-MONTH PERIOD ENDED 30 JUNE 2023
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE
INCOME..............................................................................................................................................................
7
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION...................................... 8
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY....................................... 9
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS.................................................. 11
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................. 13
1. Corporate
information...............................................................................................................................
13
2. Basis of preparation and accounting
policies...........................................................................................
14
3. Segment
information................................................................................................................................
17
4.
Revenue...................................................................................................................................................
20
5. Cost of
sales.............................................................................................................................................
21
6. Selling, general and administrative
expenses..........................................................................................
21
7. Profit for the
period..................................................................................................................................
21
8. Property, plant and
equipment................................................................................................................
21
9. Agricultural
produce................................................................................................................................
22
10.
Inventories...........................................................................................................................................
22
11. Biological
assets..................................................................................................................................
22
12. Shareholders'
equity............................................................................................................................
22
13. Bank
borrowings.................................................................................................................................
22
14. Bonds
issued......................................................................................................................................
24
15. Related party balances and
transactions...........................................................................................
26
16. Operating
environment.......................................................................................................................
27
17. Contingencies and contractual
commitments.....................................................................................
28
18. Fair value of financial
instruments......................................................................................................
29
19. Risk management
policy....................................................................................................................
30
20. Subsequent
events............................................................................................................................
31
21. Authorization of the interim condensed consolidated financial
statements....................................... 31
STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS
In accordance with Article 10 of the Transparency Requirements (Securities for
Trading on Regulated Market) Law 190(l)/2007 ("Law"), as amended, we the
members of the Board of Directors of MHP SE confirm that to the best of our
knowledge:
(a) The interim condensed consolidated financial statements for
the period from 1 January 2023 to
30 June 2023 that are presented on pages 7 to 31:
i. were prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union and in accordance with the provisions of
Article 10 (4) of the Law, and
ii. give a true and fair view of the assets and liabilities, the
financial position and the profits of MHP SE and the businesses that are
included in the interim condensed consolidated financial statements as a
whole, and
(b) the interim management report gives a fair review of the
information required under Article 10 (6) of the Law.
25 September 2023
Members of the Board of Directors:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoriia
Kapeliushna
Director
John Grant
Director
John
Clifford Rich
Director
Philip J Wilkinson
Director
Andriy
Bulakh
Director
Christakis Taoushanis
Director
Oscar
Chemerinski
MANAGEMENT REPORT
Key financial highlights
During the six-month period ended 30 June 2023 consolidated revenue increased
by 35% to USD 1,554,966 thousand, compared to USD 1,148,741 thousand for the
six-month period ended 30 June 2022. Export sales for the six-month period
ended 30 June 2023 constituted 63% of total revenue at USD 973,078 thousand,
compared to USD 640,137 thousand, and 56% of total revenue for the six-month
period ended 30 June 2022. The increase in revenue was mainly attributable to
an increase in the volume of chicken meat and vegetable oil sold partly offset
by a decline in the export prices. The significant increase in volumes
reflects unusually low sales in H1 2022, when exports were adversely affected
by disruption in logistics caused by the Russian military invasion of Ukraine
resulting in a full-scale war (the "War"). Volumes had mostly recovered in H2
of 2022.
Gross profit increased by 22% to USD 293,792 thousand for the six-month period
ended
30 June 2023 compared to USD 240,775 thousand for the six-month period ended
30 June 2022. The increase was driven mainly by higher revenue in the poultry
and related operations segment due to an increase in the volume of chicken
meat and vegetable oil sold. At the same time increased production costs and a
decrease in grain prices have led to the negative revaluation of biological
assets of the Grain operating segments, that partly reduced the positive
effect from poultry operations.
Operating profit increased by 100% to USD 151,644 thousand for the six-month
period ended 30 June 2023 compared to USD 75,708 thousand for the six-month
period ended 30 June 2022. In March-June 2022, following the Russian invasion
in February 2022, the Group incurred significant expenses related to the War
(including write-offs of inventories, donations to communities in Ukraine and
the impairment of certain property, plant and equipment), which were
significantly lower during six-month period ended 30 June 2023. This factor
together with an improvement in gross profit resulted in the increase in
operating profit.
Profit for the six-month period ended 30 June 2023 amounted to USD 66,569
thousand, compared to a loss of USD 88,519 thousand for the six-month period
ended 30 June 2022. The increase is mainly due to higher operating profit and
the fixed exchange rate of the Ukrainian Hryvnia against the US Dollar as
established by the National Bank of Ukraine, which resulted in a foreign
exchange gain of USD 4,486 thousand for the six-month period ended 30 June
2023 compared to a loss of USD 92,192 thousand for the six-month period ended
30 June 2022.
Having regard to the activities of the Group, management believes that the
above measures are frequently used by investors, analysts and stakeholders to
evaluate the efficiency of the Group's operations.
Dividends
In view of continuing War-related uncertainties, and the resulting need to
preserve liquidity to support the Company's ongoing business operations, no
final dividend was declared for the 2022 financial year. The Directors have
decided not to declare an interim dividend for the six-month period ended 30
June 2023.
Risks and uncertainties
Russian invasion
On February 24, 2022, Russian forces began a military invasion of Ukraine
resulting in a full-scale war across the Ukrainian State (the "War").
As a result of the War, MHP has experienced a number of significant
disruptions and operational issues within its business, which are described in
detail in Note 16 Operating environment. Detailed information on this matter
can also be found on pages 156 to 157 of the 2022 Annual Report which is
available at mhp.com.cy (https://mhp.com.cy/financial-reports/annual-reports/)
.
Management believes that the Group has adequate resources to continue in
operational existence for the foreseeable future. However, due to the
unpredictable effects of the ongoing War on the key assumptions underlying
management forecasts, Management concludes that a material uncertainty exists,
which may cast significant doubt about the Group's ability to continue as a
going concern.
Risks and uncertainties (continued)
Other risks and uncertainties
There are a number of potential risks and uncertainties, which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
expected and historical results. The Directors do not consider that the
principal risks and uncertainties have changed since the publication of the
Annual Report for the year ended 31 December 2022. A detailed explanation of
these risks, and how the Group seeks to mitigate them, can be found on pages
212 to 215 of the 2022 Annual Report.
25 September 2023
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the members of MHP SE
Introduction
We have reviewed the interim condensed consolidated financial statements of
MHP SE (the "Company"), and its subsidiaries (collectively referred to as "the
Group") on pages 7 to 31, which comprise the interim condensed consolidated
statement of financial position as at 30 June 2023, and the interim condensed
consolidated statement of profit or loss and other comprehensive income for
the three-month and six-month periods then ended, and the interim condensed
consolidated statements of changes in equity and cash flows for the six-month
period then ended and selected explanatory notes. Management is responsible
for the preparation and presentation of these interim condensed consolidated
financial statements in accordance with International Financial Reporting
Standard IAS 34 Interim Financial Reporting as adopted by the European Union.
Our responsibility is to express a conclusion on these interim condensed
consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410 "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity". A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying interim condensed consolidated financial
statements are not prepared, in all material respects, in accordance with
International Financial Reporting Standard IAS 34 Interim Financial Reporting
as adopted by the European Union.
Emphasis of Matter - Material Uncertainty Related to Going Concern
We draw attention to Note 2 to the interim condensed consolidated financial
statements, indicates that the Group's operations are negatively affected by
the Russian Federation`s military invasion of Ukraine, with the magnitude of
further developments or the timing of their cessation being uncertain. These
conditions, along with other matters as set forth in Notes 2 and 16 indicate
the existence of a material uncertainty that may cast significant doubt on the
Group's ability to continue as a going concern. Our conclusion is not modified
in respect of this matter.
Andreas Avraamides
Certified Public Accountant and Registered Auditor
for and on behalf of
Ernst & Young Cyprus Limited
Certified Public Accountants and Registered Auditors
Nicosia, Cyprus
25 September 2023
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the three-month and six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Six-month period Three-month period
ended 30 June
ended 30 June
Notes 2023 2022 2023 2022
Revenue 3, 4 1,554,966 1,148,741 809,364 595,413
Net change in fair value of biological assets and agricultural produce 3 (76,183) (92,549) (39,510) (36,591)
Cost of sales 5 (1,184,991) (815,417) (619,618) (407,319)
Gross profit 7 293,792 240,775 150,236 151,503
Selling, general and administrative expenses 6 (134,124) (112,888) (74,621) (58,615)
Other operating income 6,236 6,205 1,221 4,334
Other operating expenses 16 (14,260) (47,270) (9,182) (19,091)
Loss on impairment of property, plant and equipment 8 - (11,114) - (11,114)
Operating profit 7 151,644 75,708 67,654 67,017
Finance income 6,460 2,176 4,254 1,008
Finance costs 13, 14 (79,728) (78,845) (39,722) (41,435)
Foreign exchange gain/(loss), net 4,486 (92,192) 306 3,131
Profit/(Loss) before tax 82,862 (93,153) 32,492 29,721
Income tax (expenses)/benefit (16,293) 4,634 (14,988) (9,988)
Profit/(Loss) for the period 7 66,569 (88,519) 17,504 19,733
Other comprehensive income/(loss)
Items that will not be reclassified to profit or loss:
Decrease in revaluation reserve as a result of impairment of property, plant 8 - (9,489) - (9,489)
and equipment
Deferred tax on decrease in revaluation reserve as a result of impairment of - 1,708 - 1,708
property, plant and equipment
Deferred tax charged directly to revaluation reserve - (81,317) - -
Items that may be reclassified to profit or loss:
Cumulative translation difference 11,527 (111,382) 3,572 (22,943)
Other comprehensive income/(loss) for the period 11,527 (200,480) 3,572 (30,724)
Total comprehensive income/(loss) for the period 78,096 (288,999) 21,076 (10,991)
Profit/(Loss) attributable to:
Equity holders of the Parent 70,665 (83,461) 18,970 23,729
Non-controlling interests (4,096) (5,058) (1,466) (3,996)
66,569 (88,519) 17,504 19,733
Total comprehensive income/(loss) attributable to:
Equity holders of the Parent 82,447 (280,362) 22,399 (5,286)
Non-controlling interests (4,351) (8,637) (1,323) (5,705)
78,096 (288,999) 21,076 (10,991)
Earnings/(Loss) per share
Basic and diluted earnings/(loss) per share (USD per share) 0.66 (0.78) 0.18 0.22
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Notes 30 June 2023 31 December 2022
ASSETS
Non-current assets
Property, plant and equipment 8 1,892,185 1,855,731
Right-of-use asset 228,622 222,917
Intangible assets 79,320 79,628
Goodwill 61,425 59,808
Non-current biological assets 17,213 21,206
Non-current financial assets 9,179 7,813
Long-term deposits 2,504 3,105
Deferred tax assets 1,397 2,434
2,291,845 2,252,642
Current assets
Inventories 10 272,677 413,790
Biological assets 11 368,751 176,693
Agricultural produce 9 177,698 361,427
Prepayments 30,405 29,905
Other current financial assets 31,545 22,097
Taxes recoverable and prepaid 57,272 68,759
Trade accounts receivable 202,422 182,900
Cash and cash equivalents 502,049 300,489
1,642,819 1,556,060
TOTAL ASSETS 3,934,664 3,808,702
EQUITY AND LIABILITIES
Equity
Share capital 12 284,505 284,505
Treasury shares (44,593) (44,593)
Additional paid-in capital 174,022 174,022
Revaluation reserve 761,498 792,221
Retained earnings 1,660,214 1,558,826
Translation reserve (1,325,828) (1,337,610)
Equity attributable to equity holders of the Parent 1,509,818 1,427,371
Non-controlling interests 13,975 18,326
Total equity 1,523,793 1,445,697
Non-current liabilities
Bank borrowings 13 105,386 117,719
Bonds issued 14 889,984 1,382,981
Lease liabilities 19 169,982 164,071
Deferred income 36,391 36,912
Deferred tax liabilities 2 129,011 123,677
Other non-current liabilities 5,201 5,081
1,335,955 1,830,441
Current liabilities
Trade accounts payable 127,224 122,576
Other current liabilities 102,969 95,793
Contract liabilities 25,489 30,945
Bonds issued 14 496,478 -
Bank borrowings 13 223,538 176,112
Interest payable 13,14 21,923 41,886
Lease liabilities 19 77,295 65,252
1,074,916 532,564
TOTAL LIABILITIES 2,410,871 2,363,005
TOTAL EQUITY AND LIABILITIES 3,934,664 3,808,702
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 January 2023 284,505 (44,593) 174,022 792,221 1,558,826 (1,337,610) 1,427,371 18,326 1,445,697
Profit for the period - - - - 70,665 - 70,665 (4,096) 66,569
Other comprehensive income/(loss) - - - - - 11,782 11,782 (255) 11,527
Total comprehensive (loss)/profit for the period - - - - 70,665 11,782 82,447 (4,351) 78,096
Transfer from revaluation reserve to retained earnings - - - (30,723) 30,723 - - - -
Balance as of 30 June 2023 284,505 (44,593) 174,022 761,498 1,660,214 (1,325,828) 1,509,818 13,975 1,523,793
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 January 2022 284,505 (44,593) 174,022 811,684 1,557,284 (1,018,514) 1,764,388 29,800 1,794,188
Loss for the period - - - - (83,461) - (83,461) (5,058) (88,519)
Other comprehensive loss - - - (88,798) - (108,103) (196,901) (3,579) (200,480)
Total comprehensive loss for the period - - - (88,798) (83,461) (108,103) (280,362) (8,637) (288,999)
Transfer from revaluation reserve to retained earnings - - - (27,802) 27,802 - - - -
Dividends declared by subsidiaries - - - - - - - (2,363) (2,363)
Translation differences on revaluation reserve - - - (49,212) 49,212 - - - -
Balance as of 30 June 2022 284,505 (44,593) 174,022 645,872 1,550,837 (1,126,617) 1,484,026 18,800 1,502,826
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise
indicated)
Notes Six-month period ended 30 June 2023 Six-month period ended 30 June 2022
Operating activities
Profit/(Loss) before tax 82,862 (93,153)
Non-cash adjustments to reconcile profit or loss before tax to net cash flows
Depreciation and amortization expense 3 81,725 81,884
Loss on impairment of property, plant and equipment 8, 16 - 11,114
Net change in fair value of biological assets and agricultural produce 3 76,183 92,549
Change in allowance for expected credit losses and direct 668 15,466
write-offs
(Gain)/Loss on disposal of property, plant and equipment and other non-current (471) 630
assets
Finance income (6,460) (2,176)
Finance costs 13, 14 79,728 78,845
Released deferred income (435) (733)
Foreign exchange loss/(gain), net (4,486) 92,192
Operating cash flows before movements in working capital 309,314 276,618
Working capital adjustments
Change in inventories 141,612 (22,768)
Change in biological assets (193,790) (169,146)
Change in agricultural produce 121,626 49,546
Change in prepayments made (47) (26,163)
Change in other current financial assets (3,180) (3,122)
Change in taxes recoverable and prepaid 11,508 (22,547)
Change in trade accounts receivable (17,788) (59,936)
Change in contract liabilities (5,364) 442
Change in other current liabilities 9,861 1,261
Change in trade accounts payable 3,356 6,800
Cash generated by operations 377,108 30,985
Interest received 4,774 786
Interest paid (96,457) (18,463)
Income taxes paid (11,453) (5,090)
Net cash flows from operating activities 273,972 8,218
Investing activities
Purchases of property, plant and equipment 8 (92,022) (60,763)
Purchases of other non-current assets (402) (2,233)
Purchase of intangible assets (2,701) (2,444)
Proceeds from disposals of property, plant and equipment 2,505 1,558
Purchases of non-current biological assets (800) (2,287)
Prepayments and capitalized initial direct costs under lease contracts (3,197) (6,673)
Government grants received 233 -
Investments in government bonds (6,438) -
Investments in other current financial assets (3,047) -
Investments in deposits (676) (9)
Withdrawals of deposits 4,803 -
Loans provided to/(repaid by) employees, net 190 303
Loans provided to related parties 15 (46) (313)
Net cash flows used in investing activities (101,598) (72,861)
Financing activities
Proceeds from bank borrowings 52,231 81,265
Repayment of bank borrowings (26,298) (53,135)
Repayment of lease liabilities (5,852) (5,520)
Consent payment - (499)
Dividends paid by subsidiaries to non-controlling shareholders (1,781) (392)
Net cash flows from financing activities 18,300 21,719
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Notes Six-month period ended 30 June 2023 Six-month period ended 30 June 2022
Net decrease in cash and cash equivalents 190,674 (42,924)
Net foreign exchange difference on cash and cash equivalents 10,886 (9,926)
Cash and cash equivalents at 1 January 300,489 275,237
Cash and cash equivalents at 30 June 502,049 222,387
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these
interim condensed consolidated financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six-month period ended 30 June 2023
(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, owning 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 integrate all functions
related to the production of chicken, including hatching, fodder
manufacturing, raising chickens to marketable age ("grow-out"), processing and
marketing of branded chilled products and include the production and sale of
chicken products, vegetable oil and mixed fodder. Grain 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 at 30 June 2023 the Group
employed 32,336 people (31 December 2022: 31,701 people).
The primary subsidiaries, the principal activities of the companies forming
the Group and the Parent's effective ownership interest as of 30 June 2023 and
31 December 2022 were as follows:
Name Country of registration Year established/ Principal activities 30 June 2023 31 December 2022
acquired
MHP Lux S.A. Luxembourg 2018 Finance Company 100.0% 100.0%
MHP Ukraine 1998 Management, marketing and sales 99.9% 99.9%
Myronivsky Plant of Manufacturing Feeds and Groats Ukraine 1998 Fodder and vegetable 88.5% 88.5%
oil production
Vinnytska Ptakhofabryka Ukraine 2011 Chicken farm 100.0% 100.0%
Peremoga Nova Ukraine 1999 Breeder farm 99.9% 99.9%
Oril-Leader Ukraine 2003 Chicken farm 99.9% 99.9%
Myronivska Pticefabrika Ukraine 2004 Chicken farm 99.9% 99.9%
Starynska Ptakhofabryka Ukraine 2003 Breeder farm 100.0% 100.0%
Zernoprodukt MHP Ukraine 2005 Grain cultivation 99.9% 99.9%
Katerinopilskiy Elevator Ukraine 2005 Fodder production and grain storage, vegetable oil production 99.9% 99.9%
SPF Urozhay Ukraine 2006 Grain cultivation 99.9% 99.9%
Agrofort Ukraine 2006 Grain cultivation 99.9% 99.9%
MHP-Urozhayna Krayina Ukraine 2010 Grain cultivation 99.9% 99.9%
Ukrainian Bacon Ukraine 2008 Meat processing 79.9% 79.9%
MHP-AgroKryazh Ukraine 2013 Grain cultivation 51.0% 51.0%
MHP-Agro-S Ukraine 2013 Grain cultivation 51.0% 51.0%
Zakhid-Agro MHP Ukraine 2015 Grain cultivation 100.0% 100.0%
Perutnina Ptuj d.d. Slovenia 2019 Poultry production 100.0% 100.0%
MHP Food Trading United Arab Emirates 2016 Trading in vegetable oil and poultry meat 100.0% 100.0%
MHP B.V. Netherlands 2014 Trading in poultry meat 100.0% 100.0%
MHP Trade B.V. Netherlands 2018 Trading in poultry meat 100.0% 100.0%
MHP Saudi Arabia Trading Saudi Arabia 2018 Trading in poultry meat 75.0% 75.0%
MHP Food UK Limited United Kingdom 2021 Trading in poultry meat 100.0% 100.0%
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 (represented by Perutnina Ptuj d.d. together with
its subsidiaries).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the six-month
period ended 30 June 2023 have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by the
European Union (EU). The interim condensed consolidated financial statements
do not include all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the Group's
annual consolidated financial statements as at 31 December 2022, 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.
Going concern
In 2023, the Group has continued its operations in an environment severely
impacted by the Russian invasion of Ukraine since 24 February 2022. In its
analysis of the observable impact of the War and other factors on its business
during the six months period ended 30 June 2023 and up to the date of
authorization to issue these interim condensed consolidated financial
statements, the Group considered, not limited to, the following key events and
conditions:
· the Group's poultry production facilities have not suffered any
physical damage;
· certain inventories and biological assets were damaged and
written-off as a result of the military actions of the Russian invasion (Note
16. Operating environment);
· the Group continued to provide a substantial range of poultry
products as humanitarian aid to the people of Ukraine (Note 16. Operating
environment);
· both export and domestic sales returned to pre-War levels in H2
2022, despite limited capacity of existing delivery routes and active
hostilities in the southern and eastern regions of Ukraine. As a result,
during H1 2023 the Group operated at its normal capacity utilization after the
lower production levels during H1 2022;
· from November 2022 to February 2023, Russia's attacks on
Ukrainian power generation and distribution infrastructure led to severe power
outages in Ukraine. These caused temporary disruption of oilseed processing,
poultry and silo operations during this period;
· since the beginning of the Russian invasion, more than 2,300
employees of the Group have joined the Ukrainian military forces and
territorial defense;
· termination of The Black Sea Grain Initiative ("Grain deal") by
Russia on 18 July 2023 and intensification of attacks on the Ukrainian ports
infrastructure, grain depots and other storage facilities has led to
suspension of shipping routes for export of grains and vegetable oil from
Ukraine. As the Group continuously develops and advances its logistic routes,
this escalation did not have a direct impact on the overall Group performance:
the majority of the crops (sunflower and soybean seeds, corn) are consumed
internally, while the Group exports poultry products and oils using its
own-established delivery routes;
· the Group has in its debt portfolio (Note 14) bonds with a
nominal value of USD 500 million maturing in May 2024 which may impact its
liquidity position in the upcoming twelve months;
· the Group's European operations at Perutnina Ptuj have not been
directly affected by events in Ukraine as they are largely independent and
self-sufficient from an operational and supply chain perspective, and continue
operating at full capacity.
In 2023, in response to the above challenges, the Group has:
· optimized utilization of production facilities to meet domestic
and export demand;
· established alternative export routes, including by road and
rail, to address the logistical issues caused by the War;
· equipped its key sites with diesel generators and continued to
operate two biogas facilities to produce electricity, industrial steam and
heating, to mitigate the impact of power outages on its business;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Going concern (continued)
· secured 2023 harvesting campaign by building up the required
level of inventories in advance. The Group plans to harvest more than 348,000
hectares of grains and oilseeds in 2023 (73,000 hectares of winter rapeseeds
and wheat have already been harvested);
· because of the War, no dividends were declared for the 2021 and
2022 financial years. The Directors have decided not to declare an interim
dividend for the first half of 2023;
· taking into account its debt maturity profile, the Group shapes
its debt management process in such a way to ensure timely servicing of its
bonds and other borrowings as they fall due. The Group analyses various
scenarios to service the bonds, focusing in particular on those USD 500
million maturing in May 2024, and has developed a plan, which, in management's
view, should provide for a mutually beneficial solution to both the Group
and the bondholders (Note 20).
Management has prepared adjusted financial forecasts, including cash flow
projections, for the twelve month period starting on the date of approval of
these interim condensed consolidated financial statements. The adjusted
forecasts take into consideration potential likely and downside scenarios for
the operations resulting from the War and other factors described above. The
Group manages its operations by continuously monitoring the Group`s
obligations under the existing debt agreements and taking required measures to
service its debts on time and in full.
These forecasts indicate that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Directors have therefore
concluded that it is appropriate to apply the going concern basis of
accounting in preparing these interim condensed consolidated financial
statements. However, due to the currently unpredictable effects of the ongoing
War, in combination with the influence of other described factors on the
significant assumptions used in management forecasts, the Directors have
concluded that a material uncertainty exists, which may cast significant doubt
about the Group's ability to continue as a going concern, in which case the
Group may be unable to realize its assets and discharge its liabilities in the
normal course of business.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2022, except for the adoption of new standards
effective as of 1 January 2023. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
The following standards were adopted by the Group on 1 January 2023:
· Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2: Disclosure of Accounting policies;
· Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors: Definition of Accounting Estimates;
· IFRS 17 Insurance Contracts;
· Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets
and Liabilities arising from a Single Transaction.
The adoption of the new or revised Standards did not have any effect on the
financial position or performance of the Group and did not result in any
changes to the Group's accounting policies and the amounts reported in the
interim condensed consolidated financial statements of the Group.
Standards and interpretations in issue, but not effective
At the date of authorization of these interim condensed 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
Lease Liability in a Sale and Leaseback - Amendments to IFRS 16 1 January 2024
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Standards and interpretations in issue, but not effective (continued)
Standards and Interpretations Effective for annual period beginning on or after
Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 1 January 2024
International Tax Reform - Pillar Two Model Rules - Amendments to IAS 12 1 January 2024
Sale or Contribution of Assets between an Investor and its Associate or Joint Postponed indefinitely
Venture - Amendments to IFRS 10 and IAS 28
Classification of Liabilities as Current or Non-current and Non-current 1 January 2024
Liabilities with Covenants - Amendments to IAS 1
The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability - 1 January 2025
Amendments to IAS 21
These amendments have not yet been endorsed by the European Union. The Group
is currently assessing the impact of these amendments to IAS 21 on the
consolidated financial statements. For other amendments management anticipates
that their adoption will not have a material effect on the consolidated
financial statements of the Group in future periods.
Functional and presentation currencies
The functional currency of Ukrainian companies of the Group is the Ukrainian
Hryvnia ("UAH"); the functional currency of the Cyprus and Luxembourg
companies of the Group is the US Dollar ("USD"); the functional currency of
other European companies of the Group is the Euro ("EUR"); the functional
currency of the United Arab Emirates companies is the Dirham ("AED"); the
functional currency of the UK companies is the British Pound ("GBP"); the
functional currency of the Saudi Arabia company is the Saudi Riyal ("SAR").
Transactions in currencies other than the functional currency of the entities
concerned are treated as transactions in foreign currencies. Such transactions
are initially recorded at the rates of exchange ruling at the dates of the
transactions. Monetary assets and liabilities denominated in such currencies
are translated at the rates prevailing on the reporting date. All realized and
unrealized gains and losses arising on exchange differences are recognised in
the consolidated statement of profit or loss and other comprehensive income
for the period. These interim condensed 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;
· 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.
The following exchange rates were used:
Currency Closing rate as of 30 June 2023 Average for six months ended 30 June 2023 Average for three months ended 30 June 2023 Closing rate as of 31 December 2022 Average for six months ended 30 June 2022 Average for three months ended 30 June 2022
UAH/USD 36.5686 36.5686 36.5686 36.5686 28.9066 29.2549
UAH/EUR 40.0006 39.5236 39.8205 38.9510 31.7356 31.1984
USD/EUR 1.0939 1.0808 1.0889 1.0651 1.0979 1.0664
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2022.
Seasonality of operations
Poultry and related operations, European operating segment and Meat processing
and other agricultural operations are not significantly exposed to seasonal
fluctuations.
Grain growing segment, due to seasonality and implications of IAS 41, in the
first half of the year mainly reflects sales of carried forward agricultural
produce and the effect of biological assets revaluation, while during the
second half of the year it reflects sales of crops and the effect of
revaluation of agricultural produce harvested during the year. Also, grain
growing segment has seasonal requirements for working capital increase from
November to May, due to the sowing campaign.
3. 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 analyzed on the basis of the types of goods supplied by
the Group's operating divisions. The Group's reportable segments under IFRS 8
are as follows:
Poultry and related operations segment: • sales of chicken meat
• sales of vegetable oil and related products
• culinary products and 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 Basis of preparation and accounting
policies. 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, centralized
budgeting process and centralized management of production operations.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
The following table presents revenue and profit information regarding the
Group's operating segments for the six-month period ended 30 June 2023:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 1,127,018 93,436 67,240 267,272 1,554,966 - 1,554,966
Sales between business segments 22,584 98,341 170 - 121,095 (121,095) -
Total revenue 1,149,602 191,777 67,410 267,272 1,676,061 (121,095) 1,554,966
Segment results 179,983 (36,557) 1,397 27,175 171,998 - 171,998
Unallocated corporate expenses (20,354)
Other expenses, net (1)) (68,782)
Profit before tax from continuing operations 82,862
Other information:
Depreciation and amortization expense (2)) 41,350 23,670 2,994 12,264 80,278 - 80,278
Net change in fair value of biological assets and agricultural produce 13,277 (81,390) (4,811) (3,259) (76,183) - (76,183)
(1)) Includes finance income, finance costs, foreign exchange gain (net);
(2)) Depreciation and amortization for the six-month period ended 30 June 2023
does not include unallocated depreciation and amortization in the amount of
USD 1,447 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the six-month period ended 30 June 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 808,739 53,276 63,193 223,533 1,148,741 - 1,148,741
Sales between business segments 25,015 195,004 150 - 220,169 (220,169) -
Total revenue 833,754 248,280 63,343 223,533 1,368,910 (220,169) 1,148,741
Segment results 60,765 18,513 (2,267) 26,681 103,692 - 103,692
Unallocated corporate expenses (16,870)
Loss on impairment of property, plant and equipment - - (11,114) - (11,114) - (11,114)
Other expenses, net (1)) (168,861)
Loss before tax from continuing operations (93,153)
Other information:
Depreciation and amortization expense (2)) 38,906 29,436 2,438 10,317 81,097 - 81,097
Net change in fair value of biological assets and agricultural produce 14,932 (113,339) 860 4,998 (92,549) - (92,549)
(1)) Includes finance income, finance costs, foreign exchange loss (net);
(2)) Depreciation and amortization for the six-month period ended 30 June 2022
does not include unallocated depreciation and amortization in the amount of
USD 787 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 30 June 2023:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 607,712 24,190 35,008 142,454 809,364 - 809,364
Sales between business segments 11,236 54,952 86 - 66,274 (66,274) -
Total revenue 618,948 79,142 35,094 142,454 875,638 (66,274) 809,364
Segment results 102,535 (32,958) (302) 12,093 81,368 - 81,368
Unallocated corporate expenses (13,714)
Other expenses, net (1)) (35,162)
Profit before tax from continuing operations 32,492
Other information:
Depreciation and amortization expense (2)) 21,287 10,193 1,562 7,585 40,627 - 40,627
Net change in fair value of biological assets and agricultural produce 10,009 (41,266) (3,448) (4,805) (39,510) - (39,510)
(1)) Includes finance income, finance costs, foreign exchange gain (net);
(2)) Depreciation and amortization for the three-month period ended 30 June
2023 does not include unallocated depreciation and amortization in the amount
of USD 726 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 30 June 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 430,064 18,118 27,063 120,168 595,413 - 595,413
Sales between business segments 8,879 77,495 64 - 86,438 (86,438) -
Total revenue 438,943 95,613 27,127 120,168 681,851 (86,438) 595,413
Segment results 49,080 24,165 (229) 17,234 90,250 - 90,250
Unallocated corporate expenses (12,119)
Loss on impairment of property, plant and equipment - - (11,114) - (11,114) - (11,114)
Other expenses, net (1)) (37,296)
Profit before tax from continuing operations 29,721
Other information:
Depreciation and amortization expense (2)) 19,260 14,852 579 5,124 39,815 - 39,815
Net change in fair value of biological assets and agricultural produce 8,700 (47,946) 128 2,527 (36,591) - (36,591)
( 1)) Includes finance income, finance costs, foreign exchange gain (net);
(2)) Depreciation and amortization for the three-month period ended 30 June
2022 does not include unallocated depreciation and amortization in the amount
of USD 579 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
Non-current assets based on the geographic location of the manufacturing
facilities were as follows as of
30 June 2023 and 31 December 2022:
2023 2022
Ukraine 1,879,476 1,922,334
Europe 396,998 314,620
The Middle East and North Africa (MENA) 2,291 2,336
2,278,765 2,239,290
(1)) Non-current assets excluding deferred tax assets and non-current
financial assets.
4. Revenue
Revenue from the contracts with customers for the six-month and three-month
periods ended 30 June 2023 and 2022 was as follows:
Six-month period Three-month period
ended 30 June
ended 30 June
2023 2022 2023 2022
Poultry and related operations segment
Chicken meat 718,984 607,418 359,039 302,445
Vegetable oil and related products 345,213 161,342 216,293 103,058
Other poultry related sales 62,821 39,979 32,380 24,561
1,127,018 808,739 607,712 430,064
Grain growing operations segment
Grain 93,436 53,276 24,190 18,118
93,436 53,276 24,190 18,118
Meat processing and other agricultural operations segment
Other meat 48,930 47,662 24,550 19,685
Other agricultural sales 18,310 15,531 10,458 7,378
67,240 63,193 35,008 27,063
European operating segment
Chicken meat 171,028 129,050 93,152 64,465
Other meat 69,744 66,924 34,742 35,794
Other agricultural sales 26,500 27,559 14,560 19,909
267,272 223,533 142,454 120,168
1,554,966 1,148,741 809,364 595,413
The geographic structure of revenue for the six-month and three-month periods
ended 30 June 2023 and 2022 was as follows:
Six-month period Three-month period
ended 30 June
ended 30 June
2023 2022 2023 2022
Export 973,078 640,137 507,855 332,534
Domestic 581,888 508,604 301,509 262,879
1,554,966 1,148,741 809,364 595,413
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
5. Cost of sales
Cost of sales for the six-month and three-month periods ended 30 June 2023 and
2022 comprised of following:
Six-month period Three-month period
ended 30 June
ended 30 June
2023 2022 2023 2022
Costs of raw materials and other inventory used 873,292 571,587 446,660 288,053
Payroll and related expenses 141,842 131,837 84,979 63,532
Depreciation and amortization expense 67,788 72,768 32,581 36,013
Other costs 102,069 39,225 55,398 19,721
1,184,991 815,417 619,618 407,319
6. Selling, general and administrative expenses
Selling, general and administrative expenses for the six-month and three-month
periods ended 30 June 2023 and 2022 was as follows:
Six-month period Three-month period
ended 30 June
ended 30 June
2023 2022 2023 2022
Payroll and related expenses 65,463 52,325 38,167 25,127
Services 34,169 32,399 17,634 18,463
Depreciation and amortization expense 13,937 9,061 8,769 4,329
Advertising expense 6,133 6,209 2,798 3,202
Fuel and other materials used 5,522 4,470 3,530 3,106
Representative costs and business trips 3,969 4,449 1,556 2,808
Insurance expense 1,771 1,220 647 286
Bank services and conversion fees 507 549 245 273
Other 2,653 2,206 1,275 1,021
134,124 112,888 74,621 58,615
7. Profit for the period
The Group's gross profit for the six-month period ended 30 June 2023 increased
compared to the six-month period ended 30 June 2022 to USD 293,792 thousand
(30 June 2022: USD 240,775 thousand). The increase was driven mainly by
higher revenue in the poultry and related operations segment due to an
increase in the volume of chicken meat and vegetable oil sold. At the same
time increased production costs and the reduction of grain prices has led to
the negative revaluation of biological assets of Grain operating segments,
that partly reduced the positive effect from poultry operations.
Operating profit increased by 100% to USD 151,644 thousand for the six-month
period ended 30 June 2023 compared to USD 75,708 thousand for the six-month
period ended 30 June 2022. In March-June 2022, following the Russian invasion
in February 2022, the Group incurred significant expenses related to the war
(including write-offs of inventories, donations to communities in Ukraine and
the impairment of certain property, plant and equipment), which were
significantly lower during six-month period ended 30 June 2023. This factor
together with improvement in gross profit resulted in the increase in
operating profit.
Profit for the six-month period ended 30 June 2023 amounted to USD 66,569
thousand, compared to a loss of USD 88,519 thousand for the six-month period
ended 30 June 2022. The increase is mainly due to the higher operating profit
and the stabilization of the Ukrainian Hryvnia against the US Dollar and
EURO, which resulted in a foreign exchange gain of USD 4,486 thousand for the
six-month period ended 30 June 2023 compared to a loss of USD 92,192 thousand
for the six-month period ended 30 June 2022 (mainly arisen on the Group's
borrowings in foreign currencies).
8. Property, plant and equipment
During the six-month period ended 30 June 2023, the Group's additions to
property, plant and equipment amounted to USD 95,046 thousand (six-month
period ended 30 June 2022: USD 60,763 thousand) related to maintenance and
modernization projects, new products development of Ukrainian operations and
expansion of Perutnina Ptuj production facilities. An increase in additions is
higher mainly due to increased investments in cost optimization and culinary
strategy projects as well as purchases of diesel generators for
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
8. Property, plant and equipment (continued)
mitigation of possible power outages impact. There were no significant
disposals of property, plant and equipment during the six-month periods ended
30 June 2023 and 30 June 2022.
During the six-month period ended 30 June 2022, the Group identified
indicators of impairment of property, plant and equipment of its subsidiary
"Ukrainian Bacon", which was located in Donetsk region. As a result, as at 30
June 2022, the Group has recognized an impairment loss of USD 20,603 thousand
in respect of property, plant and equipment, of which USD 11,114 thousand
was recorded as Loss on impairment of property, plant and equipment within
profit or loss and USD 9,489 thousand as Decrease in revaluation reserve
within other comprehensive income.
The remaining part of the movement mainly relates to depreciation charge over
the period and translation difference into the presentation currency.
9. Agricultural produce
A decrease of agricultural produce balances for the six-month period ended 30
June 2023 was mainly as a result of internal consumption of grains and
oilseeds as well as a decrease in stocks of chicken meat due to optimization
of working capital.
10. Inventories
A decrease of inventories for the six-month period ended 30 June 2023 was
mainly due to seasonal reclassification of investments in fields to biological
assets as well as a decrease of vegetable oil and sunflower seeds balances due
to sales and internal consumption respectively.
11. Biological assets
The increase in current biological assets as compared to 31 December 2022 is
primarily related to crops in fields balance growth, represented mainly by
spring crops seeded. The increase is partially offset by the negative IAS 41
revaluation adjustment as a result of lower sales prices.
12. Shareholders' equity
As of 30 June 2023 and 31 December 2022 the authorized, issued and fully paid
share capital of MHP SE comprised the following number of shares:
30 June 2023 31 December 2022
Number of shares issued and fully paid 110,770,000 110,770,000
Number of shares outstanding 107,038,208 107,038,208
The authorized share capital as of 30 June 2023 and 31 December 2022 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.
13. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as
of 30 June 2023 and 31 December 2022:
30 June 2023 31 December 2022
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Non-current
EUR EURIBOR(2)) + 1,21% 105,386 EURIBOR(2)) + 1.35% 117,719
105,386 117,719
Current
UAH 20.00%(4)) 2,456 20.00%(4)) 2,456
USD SOFR(3)) + 2,39% 59,350 SOFR(3)) + 2.20% 10,550
USD 7.48% 42,787 6.06% 56,843
EUR EURIBOR(2)) + 2,22% 29,725 EURIBOR(2)) + 2,3% 25,564
EUR 6.67% 58,333 4.32% 56,802
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
13. Bank borrowings (continued)
30 June 2023 31 December 2022
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Current portion of EUR EURIBOR(2)) + 1,21 % 30,887 EURIBOR(2)) + 1.35% 23,897
long-term bank borrowings
223,538 176,112
Total bank borrowings 328,924 293,831
(1) ) WAIR represents the weighted average interest rate on
outstanding borrowings
(2) ) According to the terms of certain agreements, if market
EURIBOR becomes negative, it shall be deemed to be zero for calculation of
interest expense
(3) ) The Secured Overnight Financing Rate (SOFR) is a broad
measure of the cost of borrowing cash overnight collateralized by Treasury
securities.
(4) ) Deduction interest amount equal to 3m UIRD will be
applied as interest compensation from Government, where Ukrainian Index of
Retail Deposit Rates (UIRD) - indicative rate calculated at 15:00 Kyiv time of
each Banking Day in the Thomson Reuters system based on nominal rates on time
deposits of individuals in hryvnia for a period of 3 months with interest paid
upon the expiration of the deposit agreement, operating in 20 largest
Ukrainian banks in the size of the deposit portfolio of individuals. As of 30
June 2023 3m UIRD rate is equal 12.39% p.a. (31 December 2022: 11.18% p.a.)
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.
As of 30 June 2023 and 31 December 2022, the Group's bank term loans and
credit lines bear either floating or fixed interest rates.
Bank borrowings and credit lines outstanding as of 30 June 2023 and 31
December 2022 were repayable as follows:
30 June 2023 31 December 2022
Within one year 223,538 176,112
In the second year 24,866 27,170
In the third to fifth year inclusive 73,017 84,041
After five years 7,503 6,508
328,924 293,831
As of 30 June 2023, the Group had undrawn facilities of USD 93,374 thousand
(31 December 2022: USD 36,819 thousand). These undrawn facilities expire
during the period until September 2028.
The Group, as well as particular subsidiaries of the Group, have to comply
with the following maintenance covenants imposed by the banks providing the
loans: EBITDA to interest expenses ratio, current ratio and liabilities to
equity ratio. Separately, in case of excess of Net Debt to EBITDA ratio (the
Group's leverage ratio), 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.
As of 30 June 2023 the Group complied with all covenants. As at 30 June 2023,
the Group's leverage ratio decreased to 2.31 to 1, compared with 2.58 and
3.22 to 1 as at 31 March 2023 and 31 December 2022 respectively. As a result,
restrictions are no longer applicable to the Group as from 18 May 2023, the
date of publication of interim condensed consolidated financial statements for
the period from 1 January 2023 to 31 March 2023.
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, Vinnytska Ptakhofabryka.
As of 30 June 2023, the Group had borrowings of USD 111,718 thousand that were
secured by property, plant and equipment with a collateral amount of USD
105,739 thousand (31 December 2022: USD 109,258 thousand and USD 100,789
thousand respectively).
As of 30 June 2023, the Group had borrowings of USD 79,949 thousand that were
secured by agricultural produce with a carrying amount of USD 92,364 thousand
(31 December 2022: borrowings of USD 30,608 thousand were secured by
agricultural produce with carrying amount of USD 38,260 thousand).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
13. Bank borrowings (continued)
As of 30 June 2023, a deposit with carrying amount of USD 19,847 thousand (31
December 2022: USD 23,137 thousand) was restricted as collateral to issued
letters of credit.
As of 30 June 2023 and 31 December 2022, interest payable on bank borrowings
was USD 1,166 thousand and USD 774 thousand, respectively.
14. Bonds issued
Bonds issued and outstanding as of 30 June 2023 and 31 December 2022 were as
follows:
Carrying amount Nominal amount
30 June 2023 31 December 2022 30 June 2023 31 December 2022
Non-current
7.75% Senior Notes due in 2024 - 494,416 - 500,000
6.25% Senior Notes due in 2029 347,984 347,858 350,000 350,000
6.95% Senior Notes due in 2026 542,000 540,707 550,000 550,000
889,984 1,382,981 900,000 1,400,000
Current
7.75% Senior Notes due in 2024 496,478 - 500,000 -
496,478 - 500,000 -
Unamortized debt issuance cost - - (13,538) (17,019)
Total bonds issued 1,386,462 1,382,981 1,386,462 1,382,981
As of 30 June 2023 and 31 December 2022, the amount of interest payable on
bonds issued was USD 20,757 thousand and USD 41,112 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.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, 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 in March and
September. 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.
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.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
14. Bonds issued (continued)
6.95% Senior Notes (continued)
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.
Interest on the Senior Notes is payable semi-annually in arrears in April and
October. 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 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.
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.
Interest on the Senior Notes is payable semi-annually in arrears in May and
November. 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.
Covenants
Certain restrictions under the indebtedness agreements (e.g. incurrence of
additional indebtedness, restricted payments as defined above, dividends
payment) are dependent on the leverage ratio of the Group calculated as Net
Debt to EBITDA. 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, or incur additional debt except that
defined as a Permitted Debt. According to the indebtedness agreements, 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). As at 30
June 2023 the leverage ratio of the Group is 2.31 to 1 (31 March 2023 and
31 December 2022: 2.58 and 3.22 to 1 respectively), lower than the defined
limit 3.0 to 1. The Group believes that since, as at the interim reporting
dates, it improved the leverage ratio and met the covenants imposed, the
aforementioned restrictions are no longer applicable to the Group as from 18
May 2023, the date of publication of interim condensed consolidated financial
statements for the three months ended 31 March 2023.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
14. Bonds issued (continued)
Consent solicitation in 2022
On 30 March 2022, the Group received consent from Holders to postpone the
semi-annual interest payments on each of the 2024 Notes, the 2026 Notes and
the 2029 Notes scheduled for Spring 2022 for a period up to 270 days (the
"Support Period"). As a result, the Group postponed bonds` interest payments
for a total amount of USD 49,425 thousand, and interest on postponed payments
continued to accrue during the Support Period. As of 31 December 2022 two
deferred semi-annual interest amounts of the 2026 Notes and the 2029 Notes in
a cumulative amount of USD 31,559 thousand were paid by Group on time. The
last deferred coupon payment due in February 2023 in the amount of USD 20,501
thousand was paid on time.
15. Related party balances and transactions
For the purposes of these interim condensed consolidated 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, in the ordinary course of business, enters into transactions with
related parties that are companies under common control of the Principal
Shareholder of the Group (Note 1) 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 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.
Transactions with related parties during the six-month periods ended 30 June
2023 and 30 June 2022 were as follows:
Six-month period ended 30 June 2023 Six-month period ended 30 June 2022
Loans and finance aid provided to related parties 46 313
Interest charged on loans and finance aid provided 162 -
Sales to related parties 121 -
Purchases from related parties 215 7
Key management personnel of the Group:
Loans provided 98 294
Loans repaid 226 355
The balances owed to and due from related parties were as follows as of 30
June 2023 and 31 December 2022:
30 June 2023 31 December 2022
Loans and finance aid receivable 3,947 3,601
Less: expected credit losses (2,176) (2,117)
1,771 1,484
Loans to key management personnel 3,529 3,656
Less: expected credit losses (379) (276)
3,150 3,380
Trade accounts receivable 141 106
Payables due to related parties 13 21
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
15. Related party balances and transactions (continued)
Loans and finance aid receivable
For loans and finance aid receivable, credit risk increased to the point where
it is considered credit-impaired. The expected credit loss for such loans
amounted to USD 2,063 thousand and USD 1,882 thousand as at 30 June 2023 and
31 December 2022 respectively.
Compensation of key management personnel
Total compensation of the Group's key management personnel included primarily
in selling, general and administrative expenses in the Consolidated Statements
of Profit and Loss and Other Comprehensive Income amounted to USD 9,932
thousand and USD 4,680 thousand for the six-month periods ended 30 June 2023
and 2022, respectively. Compensation of key management personnel consists of
contractual salary and performance bonuses paid.
16. Operating environment
On 24 February 2022, Russian forces commenced a military invasion of Ukraine
resulting in a full-scale war across the Ukrainian State. The ongoing military
attack has led, and continues to lead, to significant casualties, dislocation
of the population, damage to infrastructure and disruption to economic
activity in Ukraine and temporary occupation of some territories. Sea ports
and airports remain closed and some have been damaged, and many roads and
bridges have been damaged or destroyed, further crippling transportation and
logistics.
In 2023, Ukrainian entities have continued their business activity in this
challenging economic environment, facing disruption of supply chains, higher
business costs, physical destruction of production facilities and
infrastructure (in the energy sector in particular).
In June 2023 the consumer inflation decelerated to 12.8% y/y, down from more
than 26% in 2022, according to the inflation report of the National Bank of
Ukraine (hereafter "NBU"). The easing of inflationary pressure was facilitated
by the sufficient supply of food staples and fuels, by recovery of the energy
system from the consequences of Russian missile attacks and by decrease in
global energy prices. According to the NBU recent forecasts, inflation will
decelerate to 10.6% in 2023 and will decline to 8.5% in 2024 and to 6% in
2025.
The NBU forecasts real GDP growth to 2.9% in 2023 with further economic growth
of real GDP by 3.5% in 2024 and by 6.8% in 2025.
The NBU cut the key policy rate from 25% p.a. (as set in July 2022) to 20%
p.a. effective 15 September 2023. The NBU also decreased the interest rate on
overnight certificates of deposit by 4 pp, to 16%, and by 5 pp, to 22% on
refinancing loans. During the six-months period ended 30 June 2023 and up to
the date of authorization of these interim condensed consolidated financial
statements, the exchange rate remained fixed at UAH 36.57 to the US Dollar. At
the same time, in late June 2023, the NBU have approved the Strategy for
easing foreign currency restrictions, transitioning to a more flexible
exchange rate, and returning to inflation targeting.
On 2 May 2023, the European Commission adopted exceptional and temporary
preventive measures on imports of a defined number of products from Ukraine.
The measures concern four agricultural products - wheat, maize, rapeseed and
sunflower seed - originating in Ukraine, which cannot continue to be released
for free circulation in Bulgaria, Hungary, Poland, Romania and Slovakia. These
products can continue to circulate in or transit via these five Member States
by means of a common customs transit procedure or go to a country or territory
outside the EU. The European Commission lifted the restrictions on 15
September 2023, after Ukraine agreed to tighten control over its agricultural
exports. Despite this, market access conditions in the relevant member states,
in particular, Poland, Hungary and Slovakia, for the affected Ukrainian
products are uncertain and remain subject to on-going developments.
The "Grain deal" or Black Sea Grain Initiative, which was signed by Ukraine,
the UN, Turkey and Russia on 22 July 2022, was suspended on 18 July 2023 since
Russia had refused to extend the deal. The deal has allowed to export
Ukrainian grain and vegetable oil through the "grain corridor" since it first
began in July 2022. The intensity of Russian attacks on the Ukrainian ports
has significantly increased since the second half of July 2023. These attacks
have targeted ports infrastructure, grain depots and other storage facilities.
The situation remains highly fluid and the outlook is subject to extraordinary
uncertainty.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
16. Operating environment (continued)
The Government continues to implement measures to stabilize markets and the
economy. International organizations (such as the IMF, EBRD, EU, World Bank),
along with individual countries and charities, are providing Ukraine with
financing, donations and material support. International assistance remains an
important source of financing to meet state budget needs.
Since 24 February 2022, the Group has suffered losses as a result of the
continuous War in Ukraine, caused by the full-scale Russian invasion. The
Group considers the following expenses incurred during the six-month periods
ended 30 June 2023 and 2022 to be directly related to the War:
2023 2022
Loss on impairment of property, plant and equipment - 11,114
Community support donations(1)) 2,175 16,674
Write-off of inventories and biological assets(1)) 196 9,815
Salary to mobilized employees(2)) 8,925 5,043
Expected credit losses of trade accounts receivable and non-current financial - 4,873
assets(1))
Other war-related expenses(1)) 2,058 1,952
Total amount recognized in profit or loss 13,354 49,471
Decrease in revaluation reserve - 9,489
13,354 58,960
(1) ) These expenses are presented within other operating
expenses in the consolidated statement of profit or loss and other
comprehensive income
(2) ) These expenses are presented within cost of sales and
selling, general and administrative expenses in the consolidated statement of
profit or loss and other comprehensive income
The Group, working with volunteers, has been providing humanitarian aid
(mainly through food supply) to the people of Ukraine since the beginning of
the war, despite logistical challenges. Since the invasion began, the Group
has provided over 12,000 tonnes of poultry products pro bono.
17. Contingencies and contractual commitments
Taxation and legal matters
The Group carries out its operations in various jurisdictions, with a
significant number of operations in Ukraine, which are subject to tax
legislation. Ukrainian legislation regarding taxation and other regulatory
matters, including currency exchange control and custom regulations, is
regularly changing and revisited. Non-compliance with tax laws and regulations
can lead to the imposition of severe penalties and fines.
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 regulations. The Group has submitted the
controlled transaction report for the years ended 31 December 2020 and
31 December 2021 within the required deadlines.
As of 30 June 2023, the Group's management assessed its possible exposure to
tax risks to be a total amount of USD 4,428 thousand related to corporate
income tax (31 December 2022: USD 4,428 thousand). No provision was recognised
relating to such possible tax exposure.
As of 30 June 2023, companies of the Group were engaged in ongoing litigation
with tax authorities for the amount of USD 14,861 thousand (31 December 2022:
USD 25,652 thousand), including USD 6,268 thousand (31 December 2022: USD
17,023 thousand) of litigations with the tax authorities related to
disallowance of certain amounts of VAT refunds and deductible expenses claimed
by the Group. Out of the total amount above, USD 9,896 thousand as of 30 June
2023 (31 December 2022: USD 20,332 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 favor of the Group. Manage-ment believes that,
based on the past history of court resolutions of similar lawsuits by the
Group, it is unlikely that a significant settlement will arise out of such
lawsuits and, therefore, no respective provision is required in the Group's
financial statements as of the reporting date.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
17. Contingencies and contractual commitments (continued)
Contractual commitments on purchase of property, plant and equipment
During the six-month period ended 30 June 2023, companies of the Group entered
into a number of contracts with foreign suppliers for the purchase of
property, plant and equipment. These agreements are mainly related to
maintenance and modernization projects, new products development in Ukraine
and expansion of Perutnina Ptuj production facilities. As of 30 June 2023,
purchase commitments amounted to USD 51,001 thousand (31 December 2022: USD
33,022 thousand).
18. 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 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 receivable, other
current assets and trade accounts payable due to the short-term nature of the
financial instruments. The fair value of non-current financial assets is
measured by discounting the estimated future cash outflows, with reference to
market interest rates, and it approximates the carrying value of non-current
financial assets.
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
30 June 2023 31 December 2022 30 June 2023 31 December 2022
Financial liabilities
Bank borrowings (Note 11) 330,090 294,605 335,853 296,294
Senior Notes due in 2024, 2026, 2029 (Note 12) 1,407,219 1,424,093 837,763 692,616
The carrying amount of Bank borrowings and Senior Notes issued includes
interest payable at each of the respective dates.
The fair value of bank borrowings was estimated by discounting the expected
future cash outflows by a market rate of interest for bank borrowings of 4.1%
(31 December 2022: 3.4%), 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.
In determining fair value of financial instruments, the impact of potential
climate-related matters, including legislation, climate change, and company
climate objectives which may affect the fair value measurement of financial
assets and liabilities has been considered. At present, the impact of
climate-related matters is not material to the Group's financial statements.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
19. Risk management policy
During the six-month period ended 30 June 2023 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.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all
liabilities as they are due. The Group's liquidity position is carefully
monitored and managed. The Group has in place a detailed budgeting and cash
forecasting process to help ensure that it has adequate cash available to meet
its payment obligations.
The following table details the Group's remaining contractual maturity for its
non-derivative financial liabilities and other current liabilities, which are
considered by the Group from a risk management perspective. 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 30 June 2023 and 31
December 2022. 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.
Carrying Contractual Less than From 2nd to 5th year After
1 year
amount Amounts 5th year
30 June 2023
Bank borrowings 330,090 437,166 322,532 106,882 7,752
Bonds issued 1,407,219 1,695,613 598,850 713,950 382,813
Lease liabilities 247,277 477,375 78,917 205,749 192,709
Trade accounts payable 127,224 127,224 127,224 - -
Other current financial liabilities 102,969 102,969 102,969 - -
Total 2,214,779 2,840,347 1,230,492 1,026,581 583,274
31 December 2022
Bank borrowings 294,605 309,690 182,794 120,227 6,669
Bonds issued 1,424,093 1,765,539 119,351 1,252,438 393,750
Lease liabilities 229,323 439,320 65,067 192,698 181,555
Trade accounts payable 122,576 122,576 122,576 - -
Other current liabilities 95,793 95,793 95,793 - -
Total 2,166,390 2,732,918 585,581 1,565,363 581,974
As of 30 June 2023, although part of the Group's existing undrawn financing
facilities in certain banks in amount of USD 37 million were not available (31
December 2022: USD 37 million), this has not influenced the overall liquidity
of the Group.
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
various transactions denominated in foreign currencies.
The Group does not use any derivatives to manage foreign currency risk
exposure; Group management sets limits on the level of exposure to foreign
currency fluctuations.
The carrying amounts of the Group's foreign currency denominated monetary
assets and liabilities as of
30 June 2023 and 31 December 2022 were as follows:
30 June 2023 31 December 2022
USD EUR USD EUR
Total assets 307,923 121,259 177,509 116,847
Total liabilities(1)) 1,519,515 134,438 1,498,217 136,207
Net liabilities 1,211,592 13,179 1,320,708 19,360
(1) ) Currency denominated liabilities consist mostly of bonds
issued and bank borrowings.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
19. Risk management policy (continued)
Currency risk (continued)
The table below details the Group's sensitivity to strengthening/(weakening)
of the UAH against USD and EUR. This sensitivity range represents management's
assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the period end for possible
change in foreign currency rates.
Change in foreign currency exchange rates Effect on profit
before tax
2023
Increase in USD exchange rate 20% (242,318)
Increase in EUR exchange rate 20% (2,636)
Decrease in USD exchange rate 2% 24,232
Decrease in EUR exchange rate 2% 264
2022
Increase in USD exchange rate 20% (264,142)
Increase in EUR exchange rate 20% (3,872)
Decrease in USD exchange rate 2% 26,414
Decrease in EUR exchange rate 2% 387
During the six-month period ended 30 June 2023, the Ukrainian Hryvnia
depreciated against the EUR by 2.6% while the official exchange rate of the
Ukrainian Hryvnia against the USD remained unchanged (six-month period ended
30 June 2022: appreciated against the EUR and depreciated against USD by 0.5%
and 6.8% respectively). As a result, during the six-month period ended 30 June
2023 the Group recognized a net foreign exchange gain in the amount of USD
4,486 thousand (six-month period ended 30 June 2022: net foreign exchange loss
in the amount of USD 92,192 thousand) in the interim condensed consolidated
statement of profit or loss and other comprehensive income.
20. Subsequent events
Loan agreement with international financial institutions
The Group has reached agreement in principle with a number of international
and development financial institutions to enter into facilities agreements
providing up to USD 400 million in aggregate (collectively the "IFI
Facilities"). When entered into, disbursements under the IFI Facilities are
expected to be made in various tranches pursuant to utilization requests by
the Company, subject to the satisfaction of terms and certain conditions
precedent, including the absence of a material adverse change in the Group's
business, operations, property, financial condition or prospects, and the
maintenance of certain financial ratios consistent with the Group's
obligations under its Eurobonds. The Group expects to use the proceeds
received pursuant to initial utilization requests to finance a portion of the
tender offer announced on 25 September 2023 for any and all of its US$500
million aggregate principal amount outstanding 7.75% notes due 2024. The
Company intends to deliver all notes acquired pursuant to the tender offer to
the Trustee for prompt cancellation.
Investments in joint venture in Saudi Arabia
On 7 September 2023, the Company signed a shareholder agreement with Desert
Hills Veterinary Services Company Limited, subsidiary of Tanmiah Food Company,
a publicly listed company on the Saudi stock market, with intention to
establish a joint venture in poultry farming in the Kingdom of Saudi Arabia.
The Company will have 45% of the share capital of this entity upon its
incorporation, and an initial investment by the Company is planned in amount
of SAR 26,810 thousand (or equivalent of USD 7,239 thousand).
21. Authorization of the interim condensed consolidated financial statements
These interim condensed consolidated financial statements were authorized for
issue by the Board of Directors of MHP SE on 25 September 2023.
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