REG - MHP SE - MHP SE Standalone 2022
11/04/2023 09:00
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RNS Number : 7923V MHP SE 11 April 2023
MHP SE
Parent's Separate Financial Statements
31 December 2022
Contents
BOARD OF DIRECTORS AND OTHER
OFFICERS
1 (#_bookmark0)
MANAGEMENT
REPORT
2 (#_bookmark1)
BOARD OF DIRECTORS' RESPONSIBILITY STATEMENT (#_bookmark2)
(#_bookmark2) (#_bookmark2) 5 (#_bookmark2)
INDEPENDENT AUDITOR'S REPORT (#_bookmark3)
(#_bookmark3) (#_bookmark3) 6 (#_bookmark3)
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
12 (#_bookmark4)
STATEMENT OF FINANCIAL
POSITION
13 (#_bookmark5)
STATEMENT OF CHANGES IN
EQUITY
14 (#_bookmark6)
STATEMENT OF CASH
FLOWS
15 (#_bookmark7)
NOTES TO THE FINANCIAL
STATEMENTS
16 (#_bookmark8)
1. Incorporation and principal
activities
16 (#_bookmark9)
2. Significant accounting
policies
17 (#_bookmark10)
3. Financial risk
factors
26 (#_bookmark11)
4. Critical accounting estimates and
judgements
34 (#_bookmark12)
5. Administrative
expenses
37 (#_bookmark13)
6. Finance
cost
37 (#_bookmark14)
7. Other
income
38 (#_bookmark15)
8.
Taxation
38 (#_bookmark16)
9.
Dividends
38 (#_bookmark17)
10. Investments in
subsidiaries
38 (#_bookmark18)
11. Investments in
associates
40 (#_bookmark19)
12. Loans
receivable
41 (#_bookmark20)
13. Other
receivables
42 (#_bookmark21)
14. Cash at
bank
42 (#_bookmark22)
15. Other financial assets measured at amortized
cost
42 (#_bookmark23)
16. Financial assets at fair value through profit and
loss
43 (#_bookmark24)
17. Property, plant and
equipment
43 (#_bookmark25)
18. Shareholder's equity (#_bookmark26)
(#_bookmark26) (#_bookmark26) 43 (#_bookmark26)
19. Bonds
issued
45 (#_bookmark27)
20. Loans
payable
46 (#_bookmark28)
21. Interest
payable
47 (#_bookmark29)
22. Financial
guarantees
47 (#_bookmark30)
23. Related party
transactions
48 (#_bookmark31)
24. Operating environment of the
Company
50 (#_bookmark32)
25. Commitments and contingent
liabilities
51 (#_bookmark33)
26. Events after the reporting
period
51 (#_bookmark34)
BOARD OF DIRECTORS AND OTHER OFFICERS
Board of
Directors:
John Grant (appointed 27 December 2017)
Viktoria Kapelyushnaya (appointed 27 December 2017)
Yuriy Kosyuk (appointed 27 December 2017)
Andriy Bulakh (appointed 28 December 2021) John Clifford Rich (appointed 27
December 2017) Christakis Taoushanis (appointed 26 August 2018) Philip J
Wilkinson (appointed 24 March 2020) Oscar Chemerinski (appointed 7 March 2023)
Company
Secretary:
Confitrust Limited
Independent
Auditors:
Ernst & Young Cyprus Limited
Registered
office:
16-18 Zinas Kanther Street Ayia Triada
3035 Limassol Cyprus
MANAGEMENT REPORT
The Board of Directors presents its report and audited separate financial
statements of MHP SE ("the Company") for the year ended 31 December 2022.
Incorporation
The Company is registered under the laws of Cyprus, was formed in Luxembourg
on 30 May 2006 under the name MHP S.A. It was converted from a public limited
liability company ("Société anonyme") into a European company ("Societas
Europaea") with effect from 7 August 2017.
On 27 December 2017, the Company transferred its registered office (the "Seat
Transfer") under the provisions of the Cyprus Companies Law, Cap. 113, from 5,
rue Guillaume Kroll, L-1882 Luxembourg, Grand Duchy of Luxembourg, to 16-18
Zinas Kanther Street, Ayia Triada, 3035 Limassol, Cyprus.
Principal activity
The principal activities of the Company, which are unchanged from last year,
are holding of participations in any form in foreign companies, acquisition by
purchase, subscription, and exchange of stock, bonds, debentures, deposits and
provision of finance to group companies as well as consultancy services. The
principal business activities of the Company and its subsidiaries (the
"Group") are mainly in Ukraine and Europe and are in poultry and related
operations, grain growing, as well as other agricultural operations (meat
processing and meat products ready for consumption).
Review of current position, future developments and significant risks
In 2022, the Company realized a total comprehensive income for the year of US$
23,257,586 compared to a total comprehensive income of US$128,843,775 in 2021.
The financial position of the Company as presented in the financial statements
is a net asset position of US$ 487,819,619 (2021: US$ 464,562,033) and net
current asset position of US$ 111,807,275 * (2021: in a net current asset
US$43,997,716). Furthermore, out of the total current liabilities of the
Company as at 31 December 2022 of US$ 85,345,407 and amount of US$ 55,753,146
related to amount due to related parties (Note 23.5 to the separate financial
statements). The Company's development to date, financial results and position
as presented in the financial statements are considered satisfactory.
Management has considered the Company's cash flow forecasts for the
foreseeable future, which take into account the current and expected economic
situation in Ukraine (Note 4 and 26 to the separate financial statements), the
Company's financial position, available borrowing facilities and loan covenant
compliance.
Despite the single material uncertainty relating to the war in Ukraine,
management is continuing taking actions to minimise the impact on the Company
and its subsidiaries and believes that application of the going concern
assumption for the preparation of these parent separate financial statements
is appropriate (Note 4 to the separate financial statements).
There were no changes during the financial year in the nature of the
operations of the Company.
The Company is exposed to market risk, credit risk and liquidity risk. The
Company's senior management oversees the management of these risks. The Board
of Directors reviews and agrees policies for managing each of these risks.
The principal financial risks and uncertainties faced by the Company are
disclosed in Note 3 to the separate financial statements.
(*) Current assets less current liabilities
MANAGEMENT REPORT (continued) Results and Dividends
The Company's results for the year are set on page 12.
No dividends have been approved during 2022 by the Board of Directors of the
Company (US$2021: 60,005,616).
Significant events after the reporting date
Any significant events that occurred after the reporting date are described in
Note 26 to the separate financial statements.
Branches
During the year ended 31 December 2022 the Company did not operate any
branches.
Share capital
As of 31 December 2022 and 31 December 2021, the authorised share
capital of the Company was EUR 221,540,000 divided into 110,770,000 ordinary
shares, each having a nominal value of EUR 2 each. The authorised share
capital of the Company is fully issued and all the shares are fully paid up.
As at 31 December 2022 and 31 December 2021, the Company has a direct holding
of treasury shares(ordinary shares, represented by an equal amount of global
depositary receipts "GDRs") in the amount of 3,731,792 shares .The amount of
3,564,568 shares were held directly by the Company and 167,244 shares were
held by the Company's subsidiary PrJSC MHP.
There were no changes in the share capital of the Company during the year
ended 31 December 2022.
Significant shareholders and related party transactions
Significant shareholders and related party transactions are disclosed in Note
23 to the separate financial statements.
Board of Directors
The members of the Company's Board of Directors as at 31 December 2022and at
the date of this report are presented on page1.Oscar Chemerinski was appointed
on 7 March 2023.
There were no other changes and up to the date of this report. More
information on the Board of Directors is stated in the Governance section of
the Annual Report.
Key management personnel compensation is disclosed in Note 23 to the separate
financial statements .
Independent auditors
The Independent Auditors, Ernst & Young Cyprus Limited, have expressed
their willingness to continue in office. A resolution giving authority to the
Board of Directors to fix their remuneration will be proposed at the Annual
General Meeting of the Company.
MANAGEMENT REPORT (continued) Other Information
Other information that is relevant to the Management Report, and which is
incorporated within the Group's 2022 Annual Report which can be obtained from
https://mhp.com.cy/ can be located in the Annual Report as follows:
· Business review
· Future developments
· Risk management
· Corporate Governance Report
· Interests of Directors in the Company's shares
· Non-financial issues
On behalf of the Directors as authorised by the Board of Directors:
Yuriy Kosyuk Director John Grant Director Viktoria Kapelyushnaya Director John Clifford Rich Director
Andriy Bulakh Director Christakis Taoushanis Director Philip J Wilkinson Director Oscar Chemerinski Director
Board of Directors' responsibility statement
The Board of Directors is responsible for the preparation of the separate
financial statements that give a true and fair view of the financial position
of MHP SE (the "Company") as of 31 December 2022 and of the statements of
profit or loss and other comprehensive income, changes in equity and cash
flows for the year then ended, and notes to the separate financial statements,
including a summary of significant accounting policies.
In preparing the separate financial statements, the Board of Directors is
responsible for:
· properly selecting consistently and applying accounting policies;
· presenting information, including accounting policies, in a
manner that provides relevant, reliable, comparable and understandable
information;
· providing additional disclosures when compliance with the
specific requirements in the International Financial Reporting Standards
("IFRS") are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Company's
financial position and financial performance;
· making an assessment of the Company's ability to continue as a
going concern. The Board of Directors, within its competencies, is also
responsible for:
· designing, implementing and maintaining an effective and sound
system of internal controls over financial reporting, throughout the Company;
· maintaining adequate accounting records that are sufficient to
show and explain the Company's transactions and disclose with reasonable
accuracy at any time the consolidated financial position of the Company, and
which enable them to ensure that the consolidated financial statements of the
Company comply with IFRS;
· maintaining statutory accounting records in compliance with local
legislation and accounting standards in the respective jurisdictions;
· taking such steps as are reasonably available to them to
safeguard the assets of the Company; and
· preventing and detecting fraud and other irregularities.
In accordance with DTR4.1 on Annual Financial Reporting, providing for the
disclosure and transparency requirements for issuers whose transferable
securities are admitted to trading on a UK Recognised Investment Exchange, we,
the members of the Board of Directors, responsible for the preparation of the
annual parent separate financial statements of MHP SE for year ended 31
December 2022, hereby declare that to the best of our knowledge:
(a) the parent separate financial statements, prepared in
accordance with International Financial Reporting Standards (IFRS) adopted by
the EU, give a true and fair view of the assets, liabilities, financial
position and profit of the Company taken as a whole; and
(b) the management report includes a fair review of the
development and performance of the business and the position of the Company
taken as a whole, together with a description of the principal risks and
uncertainties it faces.
The separate financial statements of the Company as of and for the year ended
31 December 2022 were authorized for issue by the Board of Directors on 11
April 2023.
On behalf of the Board:
Yuriy Kosyuk Director John Grant Director Viktoria Kapelyushnaya Director John Clifford Rich Director
Andriy Bulakh Director Christakis Taoushanis Director Philip J Wilkinson Director Oscar Chemerinski Director
SEPARATE FINANCIAL STATEMENTS
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the year ended 31 December 2022
2022 2021
Note US$ US$
Interest revenue 23.1 44,936,473 43,183,096
Dividend revenue 10,23.1 38,250,602 140,019,032
83,187,075 183,202,128
Administrative expenses 5 (5,319,832) (2,404,863)
Expected credit losses 3.2,12 (9,973,792) (943,093)
Loss on change in fair value of financial assets at fair value through profit
or loss
16 (358,881) -
Other operating income on investments 10 925,565 -
Other operating expenses (154,137) -
Operating profit 68,305,998 179,854,172
Finance costs 6 (45,258,407) (45,193,516)
Other income 7 843,121 1,538,537
Profit before tax 23,890,712 136,199,193
Income tax expenses 8 (633,126) (7,355,418)
Net profit for the year 23,257,586 128,843,775
Other comprehensive income - -
Total comprehensive income for the year 23,257,586 128,843,775
The notes on pages 16 to 51 from integral of these financial statements
SEPARATE FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
as of 31 December 2022
2022 2021
Note US$ US$
Non-current assets
Investments in subsidiaries 10 407,727,249 407,794,080
Investments in associates 11 1,251,571 1,251,571
Property, plant and equipment 17 30,519 36,405
Loans receivable 12 512,088,255 519,001,992
Other financial assets at amortized cost 15 - 2,552,525
921,097,594 930,636,573
Current assets
Loans receivable 12 152,252,909 57,792,250
Financial assets at fair value through profit and loss 16 1,421,119 1,780,000
Other receivables 13 1,068,108 188,756
Other financial assets measured at amortized cost 15 2,403,780 -
Cash at bank 14 38,300,312 31,880,136
195,446,228 91,641,142
Total assets 1,116,543,822 1,022,277,715
EQUITY AND LIABILITIES
Equity
Share capital 18 284,505,000 284,505,000
Additional paid-in capital 18 118,133,404 118,133,404
Treasury shares 18 (42,594,759) (42,594,759)
Retained earnings 339,888,812 316,631,226
Other reserves 18 10,843,145 10,843,145
Merger reserve 18 (222,955,983) (222,955,983)
Total Equity 487,819,619 464,562,033
Non-current liabilities
Bonds issued 19 494,415,861 490,850,961
Loans payable 20 48,000,000 19,221,295
Financial guarantees 22 2,669,389 -
545,085,250 510,072,256
Current liabilities
Loans payable 20 52,182,125 37,849,365
Interest payable 21 29,094,437 6,622,605
Financial guarantees 22 1,004,674 614,002
Other payables and accruals 1,357,717 2,557,454
83,638,953 47,643,426
Total liabilities 628,724,203 557,715,682
Total equity and liabilities 1,116,543,822 1,022,277,715
On 11 April 2023, the Board of Directors of MHP SE authorized these financial
statements for issue. On behalf of the Board of Directors
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The notes on pages 16 to 51 form an integral part of these financial
statements.
MHP SE
SEPARATE FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Additional
Share capital paid-in capital Treasury shares Other reserve Merger reserve Retained earnings
Total
US$ US$ US$ US$ US$ US$ US$
Balance at 1 January 2021
284,505,000 118,133,404 - 10,843,145 - 247,793,067 661,274,616
Net profit for the year - - - - - 128,843,775 128,843,775
Other comprehensive
income for the year - - - - - - -
Total
comprehensive income for the year
- - - - - 128,843,775 128,843,775
Result of merger with subsidiaries (Note 18)
- - (42,594,759) - (222,955,983) - (265,550,742)
Dividends (Note 9) - - - - - (60,005,616) (60,005,616)
Balance at 31 December 2021/1 January 2022
284,505,000 118,133,404 (42,594,759) 10,843,145 (222,955,983) 316,631,226 464,562,033
Net profit for the year - - - - - 23,257,586 23,257,586
Other comprehensive
income for the year - - - - - - -
Total comprehensive income for the year
- - - - - 23,257,586 23,257,586
Balance at 31
December 2022 284,505,000 118,133,404 (42,594,759) 10,843,145 (222,955,983) 339,888,812 487,819,619
Companies which do not distribute 70% of their profits after tax, as defined
by the relevant tax law, within two years after the end of the relevant tax
year, will be deemed to have distributed as dividends 70% of these profits.
Special contribution for defence at the rate of 17% will be payable on such
deemed dividend to the extent that the shareholders for deemed dividend
distribution purposes at the end of the period of two years from the end of
the year of assessment to which the profits refer, are Cyprus tax residents
and domiciled. From 1 March 2019, the deemed dividend distribution is subject
to a 1,70% contribution to the General Healthcare System, increased to 2,65%
from 1 March 2020, with the exception of April 2020 until June 2020 when the
1,70% rate was applicable. The amount of deemed distribution is reduced by any
actual dividends paid out of the profits of the relevant year at any time.
This special contribution for defence is payable by the Company for the
account of the shareholders.
The notes on pages 16 to 51 form an integral part of these financial
statements
SEPARATE FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
2022 2021
Note US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 23,890,713 136,199,193
Adjustments for:
Foreign exchange (gain)/loss 6 (916,106) 1,173,592
Expected credit losses 3.2,12 9,973,792 943,093
Loss on change in fair value of financial assets at fair
value through profit or loss 16 358,881 -
Interest revenue 23.1 (44,936,473) (43,183,096)
Interest expense and other finance costs 6 46,174,514 44,019,924
Other operating income on investments 10 (925,565) -
Dividend revenue 10,23.1 (38,250,602) (140,019,032)
Depreciation 6,077 8,103
Operating cash flows before working capital changes (4,624,769) (858,223)
(Increase)/decrease in other receivables (1,302,606) 933,876
(Decrease)/increase in other payables and accruals (1,399,365) 1,005,171
Cash from operations (7,326,740) 1,080,824
Dividends received 37,184,002 130,546,704
Interest received - 41,759,283
Income tax paid (61,706) -
Interest paid (19,517,977) (39,752,955)
Net cash generated from operating activities 10,277,579 133,633,856
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (4,970) (607)
Loans granted (49,946,355) (50,000,000)
Repayments of loans granted - 7,988,857
Distribution of assets paid in cash as result of liquidation of subsidiaries
1,007,365 -
Net cash used in investing activities (48,943,960) (42,011,750)
CASH FLOW FROM FINANCING ACTIVITIES
Loans proceeds 156,518,565 43,199,952
Loans repaid (111,432,008) (45,953,909)
Dividends paid - (60,005,619)
Net cash from/(used in) financing activities 45,086,557 (62,759,576)
Net increase in cash and cash equivalents 6,420,176 28,862,530
Cash and cash equivalents transferred as a result of the
merger 18 - 2,026,040
Cash and cash equivalents at the beginning of the year 31,880,136 991,566
Cash and cash equivalents at the end of the year 14 38,300,312 31,880,136
Non-cash transactions are disclosed in notes:10; 11; 12; 16; 18 .
The notes on pages 16 to 51 form an integral part of these financial
statements
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Incorporation and principal activities Country of incorporation
MHP SE ("the Company"), a limited liability company (Societas Europaea (SE))
registered under the laws of Cyprus, was formed in Luxembourg on 30 May 2006
under the name MHP S.A.. It was converted from a public limited liability
company ("société anonyme") into a European company ("Societas Europaea")
with effect from 7 August 2017.
On 27 December 2017, the Company transferred its registered office (the "Seat
Transfer") from 5, rue Guillaume Kroll, L-1882 Luxembourg, Grand Duchy of
Luxembourg, to 16-18 Zinas Kanther Street, Ayia Triada, 3035 Limassol, Cyprus.
The Seat Transfer was made pursuant to the provisions of the SE European
Regulation and provisions of the laws of Cyprus and was registered in the
Cyprus Companies Registry for SE companies under number SE 27. As of the date
of transfer the Company has adopted a new Memorandum and Articles of
Association in compliance with the laws applicable to SE companies and with
the Cyprus Companies Law Cap.113.
The Company holds shares in subsidiaries (hereinafter, MHP SE and its
subsidiaries are referred to as the "MHP SE Group" or the "Group") registered
and operating mainly in Ukraine and Europe which is disclosed in the note 10
of the Financial Statements. The Company's shares are listed on the London
Stock Exchange ("LSE") in the form of global depositary receipts ("GDRs").
The ultimate controlling party of the Company is Mr. Yuriy Kosyuk, who owns
100% of the shares of WTI Trading Limited, which is the immediate majority
shareholder of the Company, which in turn directly owns of 59,7% of the total
outstanding share capital of MHP SE.
Reorganization through merger
On 19 April 2021 the Company' subsidiaries Raftan Holding Limited, Eledem
Investments Limited and Hemiak investments Limited were merged into the
Company pursuant to the Order of the District Court of Limassol. According to
the Merger Agreement dated 18 March 2021, the total assets and liabilities of
Raftan Holding Limited, Eledem Investments Limited and Hemiak investments
Limited are reflected in the books of the Company for accounting and taxation
purposes at the values as of 1 January 2021. Raftan Holding Limited, Eledem
Investments Limited and Hemiak investments Limited were dissolved without a
liquidation in accordance with Cyprus law. The accounting effect of the
reorganization is presented in the Note 18.
As a result of the merger, the Company acquired the shares in the following
investments:
Name Country of registration Principal activities %
Starynska Ptahofabryka Ukraine Breeder farm 100.00
Urozhay NVF Ukraine Grain cultivation 95.00
MHP East Europe s.r.o Slovakia Provision of finance to related companies 99.99
MHP PJSC Ukraine Management, marketing and sales 95.36
MHP Trading FZE United Arab Emirates Trading in sunflower oil, grains and poultry meat 100.00
Scylla Capital Limited British Virgin islands Trading activity 100.00
Vinnytska Poultry Farm Ukraine Chicken farm 100.00
MHP Saudi Arabia Trading
Company Saudi Arabia Wholesale of agricultural products 75.00
MHP Food Trading LLC Emirate of Dubai Trading I poultry meat 100.00
MHP EU Gmbh Germany Production and trading in poultry meat 100.00
Nile Food Distribution LLC Egypt Trading in poultry meat 100.00
Podillya-Kolodno Ukraine Framing asset holding and operating entity 50.81
Poultry brreding, feed production, poultry and meat products retail and
services
Perutnina PTUJ Slovenia 100.00
Agrofort Ukraine Grain cultivation 13.85
LK Ukraine Group LLC Ukraine Framing asset holding and operating entity 47.93
Zakhid Agro MHP Ukraine Grain cultivation 0.26
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Incorporation and principal activities(Cont'd)
Principal activities and nature of operations of the Company and the Group
The principal activities of the Company are holding of participations in any
form in foreign companies, acquisition by purchase, subscription, and exchange
of stock, bonds, debentures, deposits and provision of finance to group
companies as well as consultancy services.The principal business activities of
the Group are in Ukraine and Europe are in poultry and related operations,
grain growing, as well as other agricultural operations (meat processing and
meat products ready for consumption).
2. Significant accounting policies Basis of preparation
These financial statements have been prepared on the assumption that the
Company is a going concern (Note 4) and will continue in operation for the
foreseeable future.
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all years presented in these financial statements unless otherwise
stated.
These separate financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union (EU) and the requirements of the Cyprus Companies Law,
Cap.113.
The Company has also prepared consolidated financial statements in accordance
with International Financial Reporting Standards as adopted by the European
Union (EU) and the requirements of the Cyprus Companies Law, Cap.113 and the
consolidated financial statements can be obtained from https://mhp.com.cy/.
Users of these parent's separate financial statements should read them
together with the Group's consolidated financial statements for the year ended
31 December 2022 in order to obtain a proper understanding of the financial
position, performance and cash flows of the Company and the Group.
The preparation of financial statements in conformity with IFRSs requires the
use of certain critical accounting estimates and requires Management to
exercise its judgment in the process of applying the Company's accounting
policies. It also requires the use of assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Although these estimates
are based on Management's best knowledge of current events and actions, actual
results may ultimately differ from those estimates.
Adoption of new and revised IFRSs
The Company applied for the first-time certain standards and amendments which
are effective for annual periods beginning on or after 1 January 2022. The
Company has not early adopted any other standard, interpretation or amendment
that has been issued but is not yet effective.
· The following standards were adopted by the Company on 1 January
2022:
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37;
· Reference to the Conceptual Framework - Amendments to IFRS 3;
· Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16 Leases;
· IFRS 1 First-time Adoption of International Financial Reporting
Standards - Subsidiary as a first-time
· adopter;
· IFRS 9 Financial Instruments - Fees in the '10 per cent' test for
derecognition of financial liabilities;
· IAS 41 Agriculture - Taxation in fair value measurements.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Adoption of new and revised IFRSs (Cont'd)
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
The amendments specify that when assessing whether a contract is onerous or
loss-making, an entity needs to include costs that relate directly to a
contract to provide goods or services including both incremental costs (e.g.,
the costs of direct labour and materials) and an allocation of costs directly
related to contract activities (e.g., depreciation of equipment used to fulfil
the contract and costs of contract management and supervision). General and
administrative costs do not relate directly to a contract and are excluded
unless they are explicitly chargeable to the counterparty under the contract.
These amendments had no impact on the financial statements of the Company as
there were no onerous contracts within the scope of these amendments during
the reporting period.
· Property, Plant and Equipment: Amendments to IAS 16
The amendment prohibit a company from deducting from the cost of property,
plant and equipment any proceeds from the sale of items produced while
bringing the asset to the location and condition necessary for it be capable
of operating in the manner intended by management. Instead, a company
recognizes such sales proceeds and related cost in profit or loss.
These amendments had no impact on the financial statements of the Company as
there were no sales of such items produced by property, plant and equipment
made available for use on or after the beginning of the earliest period
presented.
· IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a first time adopter
The amendment permits a subsidiary that elects to apply paragraph D16(a) of
IFRS 1 to measure cumulative translation differences using the amounts
reported in the parent's consolidated financial statements, based on the
parent's date of transition to IFRS, if no adjustments were made for
consolidation procedures and for the effects of the business combination in
which the parent acquired the subsidiary. This amendment is also applied to an
associate or joint venture that elects to apply paragraph D16(a) of IFRS 1.
These amendments had no impact on the financial statements of the Company as
it is not a first-time adopter.
· IFRS 9 Financial Instruments - Fees in the '10 per cent' test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing
whether the terms of a new or modified financial liability are substantially
different from the terms of the original financial liability. These fees
include only those paid or received between the borrower and the lender,
including fees paid or received by either the borrower or lender on the
other's behalf.
This amendment had no impact on the financial statements of the Company.
· IAS 41 Agriculture - Taxation in fair value measurements
The amendment removes the requirement in paragraph 22 of IAS 41 that entities
exclude cash flows for taxation when measuring the fair value of assets within
the scope of IAS 41.
This amendment had no impact on the financial statements of the Company.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Adoption of new and revised IFRSs (Cont'd)
Standards and Interpretations in issue but not effective
At the date of authorization of these financial statements, the following
Standards and Interpretations, as well as amendments to the Standards were in
issue but not yet effective:
Standards and Interpretations Effective for annual period
beginning on or after
A IFRS 17 Insurance Contracts1) 1 January 2023
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: 1 January 2023
Disclosure of Accounting policies (Amendments)
IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: 1 January 2023
Definition of Accounting Estimates (Amendments)
IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (Amendments)
1 January 2023
IAS 1 Presentation of Financial Statements: Classification of Liabilities as
Current or Non-current (Amendments)
1 January 2024
IFRS 16 Leases: Lease Liability in a Sale and Leaseback (amendments) 1 January 2024
Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments The amendments have not yet been endorsed by the
in Associates and Joint Ventures: Sale or Contribution of Assets between an
Investor and
EU
its Associate or Joint
Venture
1) Standards have been already endorsed for use in the European Union
For these Standards and Interpretations management anticipates that their
adoption will not have a material effect on the consolidated financial
statements of the Company in future periods.
Investments in subsidiary companies
Subsidiaries are undertakings over which the Company has control and achieved
when the Company:
· has power over the investee;
· is exposed, or has rights to variable returns
from its involvement with the investee; and
· has the ability to use its power to affect its
returns
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that that there are changes to one or more of the three
elements of control listed above.
Investments in subsidiary companies are stated at cost less provision for
impairment in value, which is recognised as an expense in the period in which
the impairment is identified. An impairment loss is recognised through profit
or loss for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's fair
value less costs to sell and value in use. An impairment loss recognised in
prior years is reversed where appropriate if there has been a change in the
estimates used to determine the recoverable amount.
Investments in associates
An associate is an entity over which the investor has significant influence,
but not control, generally holds, directly or indirectly (eg through
subsidiaries), between 20% and 50% of the voting power of the investee.
Investments in associates are measured at cost less impairment. Investments in
associates are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised through profit or loss for the amount by which
the asset's carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell and value in
use. An impairment loss recognised in prior years is reversed where
appropriate if there has been a change in the estimates used to determine the
recoverable amount.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Property, plant and equipment
All property, plant and equipment are accounted at historical cost less
accumulated depreciation.
The historical cost of an item of property, plant and equipment comprises (a)
its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates; (b) any costs directly
attributable to bringing the item to the location and condition necessary for
it to be capable of operating in the manner intended by the management of the
Company; (c) the initial estimate of the costs of dismantling and removing the
item and restoring the site on which it is located, (d) the obligation for
which the Company incurs either when the item is acquired or as a consequence
of having used the item during a particular period for purposes other than to
produce inventories during that period; and (e) for qualifying assets,
borrowing costs capitalized in accordance with the Company's accounting
policy.
Depreciation of property, plant and equipment is charged so as to write off
the depreciable amount over the useful life of an asset and is calculated
using a straight line method. Useful lives of property, plant and equipment
are as follows:
· Furniture and fittings 10 years
·
Computers 4 years
·
Renovations 3 years
Depreciable amount is the cost of an item of property, plant and equipment, or
revalued amount, less its residual value. The residual value is the estimated
amount that the Company would currently obtain from disposal of the item of
property, plant and equipment, after deducting the estimated costs of
disposal, if the asset was already of the age and in the condition expected at
the end of its useful life.
The residual value, the useful lives and depreciation method are reviewed at
each financial year-end. The effect of any changes from previous estimates is
accounted for prospectively as a change in an accounting estimate.
The gain or loss arising on sale or disposal of an item of property, plant and
equipment is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognized within profit or loss in the
statement of comprehensive income.
Revenue recognition
Revenue comprises interest received on loans granted and dividends received as
well as revenue earned from providing consultancy and administrative services.
Revenues earned by the Company are recognised on the following bases:
(i) Dividend revenue
Dividend revenue is recognized when the right to receive payment is
established.
(ii) Interest Revenue
Interest revenue is recognized using the effective interest rate method in
IFRS 9.
(iii) Consultancy and administrative services
The Company earns income from consultancy and administrative services it
provided to its customers. Revenue is measured based on the consideration to
which the Company expects to be entitled in exchange of providing services.
The Company recognises revenue at a point in time upon satisfaction of a
service provided or at the end of the contract period for a service provided
over time. The Company has generally concluded that it is the principal in its
revenue arrangements because it typically controls the services before
transferring them to a customer.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Employee benefits
The Company and its employees contribute to the Government Social Insurance
Fund based on employees'
salaries. The Company's contributions are expensed as incurred and are
included in Administrative expenses in accordance with their nature. The
Company has no legal or constructive obligations to pay further contributions
if the scheme does not hold sufficient assets to pay all employees benefits
relating to employee service in the current and prior periods.
Foreign currency translation
(1) Functional and presentation currency
Items included in the Company's financial statements are measured using the
currency of the primary economic environment in which the entity operates
('the functional currency'). The financial statements are presented in United
States Dollars (US$), which is the Company's functional and presentation
currency.
(2) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in profit or
loss.
Tax
Income tax expense represents the sum of the tax currently payable and
deferred tax. Current tax liabilities and assets are measured at the amount
expected to be paid to or recovered from the taxation authorities, using the
tax rates and laws that have been enacted, or substantively enacted, by the
reporting date.
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can
be utilized.
Dividends
Proposed dividends are recognised as a liability in the financial statements
in the period in which they are approved by the shareholders. Any interim
dividends approved for distribution by the Board of Directors are recognised
within equity in the period in which the decision is made.
Provisions and contingencies
Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation, and the obligation can be reliably estimated.
Financial instruments
Financial assets and financial liabilities are recognised in the Company's
statement of financial position when the Company becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities of the Company are represented by
loans granted, cash and cash equivalents, other receivables, financial assets
measured at fair value through profit or loss, other financial assets measured
at amortized costs, corporate bonds issued, loans payable and other payables.
The accounting policies for initial recognition and subsequent measurement of
financial instruments are disclosed in the respective accounting policies set
out below in this Note.
Financial assets and financial liabilities are initially recognized at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in
profit or loss.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd)
Financial assets
All recognised financial assets are measured subsequently in their entirety at
either amortised cost or fair value, depending on the classification of the
financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently
at amortised cost (this category is the most relevant to the Group):
-the financial asset is held within a business model whose objective is to
hold financial assets in order to collect contractual cash flows; and
-the contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Debt instruments that meet the following conditions are measured subsequently
at Fair value through other comprehensive income (FVTOCI):
-the financial asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling the financial
assets; and
-the contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.
By default, all other financial assets are measured subsequently at Fair value
through profit or loss (FVTPL). (i)Amortised cost and effective interest
method
The effective interest method is a method of calculating the amortised cost of
a debt instrument and of allocating interest revenue over the relevant period.
For financial assets, the effective interest rate is the rate that exactly
discounts estimated future cash receipts (including all fees and points paid
or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) excluding expected credit
losses, through the expected life of the debt instrument, or, where
appropriate, a shorter period, to the gross carrying amount of the debt
instrument on initial recognition.
The amortised cost of a financial asset is the amount at which the financial
asset is measured at initial recognition minus the principal repayments, plus
the cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount, adjusted for
any loss allowance. The gross carrying amount of a financial asset is the
amortised cost of a financial asset before adjusting for any loss allowance.
Interest revenue is recognised using the effective interest rate method for
debt instruments measured subsequently at amortised cost. For financial assets
interest revenue is calculated by applying the effective interest rate to the
gross carrying amount of a financial asset, except for financial assets that
have subsequently become credit-impaired (see below).
For financial assets that have subsequently become credit-impaired, interest
revenue is recognised by applying the effective interest rate to the amortised
cost of the financial asset. If, in subsequent reporting periods, the credit
risk on the credit-impaired financial instrument improves so that the
financial asset is no longer credit- impaired, interest revenue is recognised
by applying the effective interest rate to the gross carrying amount of the
financial asset.
Interest revenue is recognised in profit or loss and separately presented in
the statement of comprehensive income as "Interest revenue" line item.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Financial instruments (Cont'd)
Financial assets (Cont'd)
Impairment of financial assets
The Company recognises a loss allowance for expected credit losses (ECL) on
loans receivable, dividends receivable, cash and equivalents and other
financial assets, as well as on the issued financial guarantee contracts.
ECLs are estimated as the difference between all contractual cash flows that
are due to the Company in accordance with the contract and all the cash flows
that the Company expects to receive, discounted at the original effective
interest rate.
The amount of expected credit losses is updated at each reporting date to
reflect changes in credit risk since initial recognition of the respective
financial instrument.
The Company recognises lifetime ECL when there has been a significant increase
in credit risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Company measures the loss allowance for that financial
instrument at an amount based on 12- month ECL.
Lifetime ECL represents the expected credit losses that will result from all
possible default events over the expected life of a financial instrument. In
contrast, 12‑month ECL represents the portion of lifetime ECL that is
expected to result from default events on a financial instrument that are
possible within 12 months after the reporting date.
Both lifetime ECL and 12-months ECL are calculated on either an individual
basis or a collective basis, depending on the nature of particular financial
instruments.
The Company has established a policy to perform an assessment, at the end of
each reporting period, of whether a financial instrument's credit risk has
increased significantly since initial recognition, by considering the change
in the risk of default occurring over the remaining life of the financial
instrument.
The Company calculates ECL for loans receivable based on three
probability-weighted scenarios (2021:two probability-weighted scenarios) to
measure the expected cash shortfalls, discounted at an approximation to the
effective interest (EIR).
The inputs and models used for calculating ECL may not always capture all
characteristics of the market at the date of the financial statements. To
reflect this, qualitative adjustments or overlays are occasionally made as
temporary adjustments when such differences are significantly material.
The mechanics of the ECL calculations are outlined below and the key elements
are, as follows:
· The Probability of default (PD) constitutes a key input in
measuring ECL. Probability of default is an estimate of the likelihood of
default over a given time horizon, the calculation of which includes
historical data, assumptions and expectations of future conditions.
· The Exposure at Default (EAD) is an estimate of the exposure at a
future default date, taking into account expected changes in the exposure
after the reporting date, including repayments of principal and interest,
whether scheduled by contract or otherwise, expected drawdowns on committed
facilities, and accrued interest from missed payments.
· The Loss given default (LGD) is an estimate of the loss arising
on default. It is based on the difference between the contractual cash flows
due and those that the lender would expect to receive, taking into account
cash flows from collateral and integral credit enhancements.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Financial instruments (Cont'd)
Financial assets (Cont'd)
Impairment losses and releases are accounted for and disclosed separately from
modification losses or gains that are accounted for as an adjustment of the
financial asset's gross carrying value.
Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased
significantly since initial recognition, the Company compares the risk of a
default occurring on the financial instrument at the reporting date with the
risk of a default occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Company considers both
quantitative and qualitative information that is reasonable and supportable,
including historical experience and forward‑looking information that is
available without undue cost or effort. Forward‑looking information
considered includes economic situation of countries and the future prospects
of the industries in which the Company's debtors operate, obtained from
economic expert reports, financial analysts, governmental bodies, as well as
consideration of various external sources of actual and forecast economic
information that relate to the Company's core operations.
Low credit risk financial instruments
Despite the foregoing, Company assumes that the credit risk on a financial
instrument has not increased significantly since initial recognition if the
financial instrument is determined to have low credit risk at the reporting
date. A financial instrument is determined to have low credit risk if:
(1) The financial instrument has a low risk of default,
(2) The debtor has a strong capacity to meet its contractual cash flow
obligations in the near term, and
(3) Adverse changes in economic and business conditions in the longer term
may, but will not necessarily, reduce the ability of the borrower to fulfil
its contractual cash flow obligations
Default definition
The Company considers that default has occurred when a financial asset is more
than 90 days past due unless the Company has reasonable and supportable
information to demonstrate that a more lagging default criterion is more
appropriate.
Credit impaired financial assets
A financial asset is credit‑impaired when one or more events that have a
detrimental impact on the estimated future cash flows of that financial asset
have occurred. Evidence that a financial asset is credit‑impaired includes
observable data about the following events:
(a) significant financial difficulty of the issuer or the borrower;
(b) a breach of contract, such as a default or past due event;
(c) the lender(s) of the borrower, for economic or contractual reasons
relating to the borrower's financial difficulty, having granted to the
borrower a concession(s) that the lender(s) would not otherwise consider;
(d) it is becoming probable that the borrower will enter bankruptcy or other
financial reorganisation; or
(e) the disappearance of an active market for that financial asset because of
financial difficulties.
Write-off policy
The Company writes off a financial asset when there is information indicating
that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g. when the debtor has been placed under liquidation
or has entered into bankruptcy proceedings. Financial assets written off may
still be subject to enforcement activities under the Company's recovery
procedures, taking into account legal advice where appropriate. Any recoveries
made are recognised in statement of profit or loss.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Financial instruments (Cont'd)
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and are
measured subsequently at amortised cost using the effective interest method.
The effective interest rate method is a method of calculating the amortised
cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all fees and points paid
or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life
of the financial liability, or (where appropriate) a shorter period, to the
amortised cost of a financial liability.
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or have expired. The
difference between the carrying amount of the financial liability derecognised
and the consideration paid and payable is recognised in profit or loss.
When the Company exchanges with the existing lender one debt instrument into
another one with the substantially different terms, such exchange is accounted
for as an extinguishment of the original financial liability and the
recognition of a new financial liability. Similarly, the Company accounts for
substantial modification of terms of an existing liability or part of it as an
extinguishment of the original financial liability and the recognition of a
new liability. It is assumed that the terms are substantially different if the
discounted present value of the cash flows under the new terms, including any
fees paid net of any fees received and discounted using the original effective
rate is at least 10 per cent different from the discounted present value of
the remaining cash flows of the original financial liability. If the
modification is not substantial, the difference between: (1) the carrying
amount of the liability before the modification; and (2) the present value of
the cash flows after modification should be recognised in profit or loss as
the modification gain or loss.
Financial guarantees
A financial guarantee contract is a contract that requires the Company to make
specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payments when due in accordance with the terms
of a debt instrument.
Financial guarantee contract liabilities are measured initially at their fair
values and, if not designated as at FVTPL and do not arise from a transfer of
an asset, are measured subsequently at the higher of:
· the amount of the loss allowance determined in accordance with IFRS 9 (see
financial assets above); and
· the amount recognised initially less, where appropriate, cumulative
amortisation recognised in accordance with the revenue recognition policies
set out above.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents
comprise from cash at bank.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is
reported in the statement of financial position if there is a currently
enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to relalise the assets and settle the
liabilities simultaneously.
Share capital
Ordinary shares are classified as equity.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
2. Significant accounting policies (Cont'd) Treasury shares
Treasury shares are GDRs which were bought back by the Company reducing the
number of outstanding shares on the open market. Repurchased GDRs are
classified as treasury shares under a separate reserve within equity. When
shares recognised as equity are repurchased, the amount of the consideration
paid, which includes directly attributable costs, net of any tax effects, is
recognised as a deduction from treasury shares reserve. When treasury shares
are sold or reissued subsequently, the amount received is recognised as an
increase in equity and the resulting surplus or deficit on the transaction is
presented within other reserves.
Treasury shares acquired as a result of the merger with subsidiaries are
recognized at historical cost, at which they have been repurchased from the
free-float market. Difference between historical cost and carrying cost in the
books of merging subsidiary is recognized in the merger reserve.
Merger reserve
For accounting of the merger of the subsidiaries the Company considers whether
the legal merger is in substance the redemption of shares in the subsidiary,
in exchange for the underlying assets of the subsidiary. If such case, giving
up the shares for the underlying assets is essentially a change in perspective
of the parent of its investment, from an 'indirect equity interest' to a
'direct equity interest'. Hence, the values recognised in the financial
statements become the cost of these assets for the parent. The acquired assets
(including investments in subsidiaries, associates, or joint ventures held by
the merged subsidiary) and assumed liabilities are recognised at the carrying
amounts in the financial statements of the subsidiary as of the date of the
legal merger.
Based on the nature of transferred assets and liabilities, the difference
between the amounts assigned to the assets and liabilities in the parent's
separate financial statements after the legal merger and the carrying amount
of the investment in the merged subsidiary before the legal merger is
recognised directly in equity as merger reserve.
The financial position and results of operations of the merged subsidiaries
are reflected in the separate financial statements only from the date on which
the merger occurred.
3. Financial risk factors
The Company is exposed to interest rate risk, credit risk, liquidity risk and,
currency risk and arising from the financial instruments it holds. The risk
management policies employed by the Company to manage these risks are
discussed below:
3.1 Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates.
The Company's interest rate risk arises from loans granted to and loans
received from its subsidiary and indirect subsidiary companies. All loans are
in fixed rates and the Company is not exposed to cash flow interest rate risk.
3.2 Credit risk
The Company's exposure to credit risk for each class of financial instruments
subject to the expected credit loss model is set out below:
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3.2 Credit risk (Cont'd)
Loans receivable and other receivables
The Company assesses, on an individual basis, its exposure to credit risk
arising from loans and other receivables. This assessment takes into account,
amongst others, the period the loan receivable or other receivable balance is
past due (in days), expectations around changes in business, financial or
economic conditions as well as expectations around the performance of the
counterparty.
The following table contains an analysis of the credit risk exposure for loans
receivable and other receivables by reference to the Company's internal credit
risk rating grades. The gross carrying amounts below represent the Company's
maximum exposure to credit risk on these assets:
Gross carrying amount
Internal credit risk rating grade
Company definition of category
Loans receivable Other receivables Financial guarantees*
2022 2021 2022 2021 2022 2021
US$ US$ US$ US$ US$ US$
Stage 1 - Counterparties have a low risk of default and a strong capacity to
meet contractual cash
flows
Performing - 547,492,461 1,068,108 188,756 - 34,018,742
Stage 2 - Counterparties for which there is a significant increase in credit
risk; as significant increase in credit risk is presumed if interest and/or
principal repayments
are 30 days past due
Under- performing
686,381,789 - - - 1,100,807,050 -
* granted amount
The gross carrying amounts, as per above, represent the Company's maximum
exposure to credit risk on these assets as at 31 December 2021, without taking
account of any collateral held. The Company does not hold any collateral as
security for any loans receivable or other receivable balances.
The Company continuously monitors all assets subject to expected credit
losses. The Company reassesses whether there has been a significant increase
in credit risk, since the initial recognition of the financial instruments, by
considering the change in the risk of default occurring over the remaining
life of the financial instrument. The change in operating environment in
Ukraine due to the war and significant downgrade in credit ratings of Ukraine,
where the Group operates, have been taken into consideration for the
reassessment of staging as at 31 December 2022, and as such the loans issued
and financial guarantees moved from Stage 1 to Stage 2 in 2022.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.2 Credit risk (Cont'd)
Reconciliation of loans receivable
Loans Receivable Loans Receivable
2022 2021
US$ US$
As of 1 January 576,794,242 533,773,343
Loans granted, net 49,946,355 42,011,143
Transfer as a result of merger (Note 18) - 404,571,959
Interest revenue 44,936,473 43,183,096
Interest received - (41,759,283)
Overseas tax suffered at source (422,175) (467,234)
Expected credit losses (6,913,731) (1,407,776)
Eliminated through merger (Note 18) - (403,111,005)
As of 31 December 664,341,164 576,794,243
Expected credit losses
The Company determines the 12 months expected credit loss of non-current loan
receivables based on different scenarios of probability of default and
expected credit loss applicable to each of the material underlying balances.
The movement in expected credit loss allowance for loan receivables classified
at amortised cost is detailed below:
2022 2021
US$ US$
Opening balance as at 1 January 15,126,894 13,719,118
Transfer as result of the merger - 318,036
Charged 6,913,731 1,089,740
At 31 December 22,040,625 15,126,894
The estimated expected credit loss allowance on other receivable balances as
at 31 December 2021 and 31 December 2022 was not material.
The Company continuously monitors all assets subject to expected credit
losses. The Company reassesses whether there has been a significant increase
in credit risk (as described in Note 3.2 above), since the initial recognition
of the financial instruments, by considering the change in the risk of default
occurring over the remaining life of the financial instrument in order assess
whether 12 month expected credit losses should be applied or life-time
expected credit losses.
The expected credit losses allowance on loans issued as the year ended 31
December 2022 related to Stage 2 instruments and as at 31 December 2021 to
Stage 1 (as described in Note 3.2 above).
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.2 Credit risk (Cont'd)
Cash and cash equivalents
The Company assesses, on an individual basis, its exposure to credit risk
arising from cash at bank based on ratings from external credit rating
institutions and internal reviews, if external ratings are not available.
The estimated expected credit loss allowance on cash and cash equivalents as
at 31 December 2021 and 31 December 2022, based on the general approach of
IFRS 9, was immaterial. All cash and cash equivalents were performing (Stage
1) as at 31 December 2021 and 31 December 2022.
In accordance with the international rating agency of Moody's, credit ratings
of the banks with which the Company had the accounts opened as of 31 December
2022 and 2021 were as follows:
2022 2021
US$ US$
International banks with A ratings 38,280,572 31,784,388
International banks with B ratings 19,740 95,748
38,300,312 31,880,136
Financial guarantees
IFRS 9 Financial instruments requires that financial guarantees are initially
recognized at fair value and subsequently measured as the "higher of":
• Expected credit loss allowance
• The amount initially recognized less any cumulative
amount of income/amortization recognized. The estimated provision represents
expected credit loss allowance.
The primary purpose of these instruments is to ensure that funds are available
to a borrower as required. Guarantees which represent irrevocable assurances
that the Company will make payments in the event that a counterparty cannot
meet its obligations to third parties, carry the same credit risk as loans
receivable.
The Company has issued financial guarantees on the borrowings of its
subsidiaries and quoted bonds issued by its subsidiaries (Note 19 and Note
22). As a result, the Company is exposed to credit risk arising from potential
risk of default of the Company's subsidiaries on their external debt.
During the year ended 31 December 2022, the Company's subsidiaries agreed with
its bank lenders a general postponement of debt servicing in respect of
several bank borrowings. This agreement was made in order to comply with the
restrictions on debt servicing as established by the consent solicitation
obtained from the bondholders. In particular - during the 270-day support
period for semi-annual interest payments on 2024 Notes, the 2026 Notes and the
2029 Notes agreed on 30 March 2022 the Group is committed to pay not more than
US$ 12.5 million in the aggregate in satisfaction of any debt service payments
in respect of any indebtedness of the Group, excluding any interest payment in
respect of any of the 2024 Notes, the 2026 Notes and the 2029 Notes and the
repayment of Indebtedness with the net proceeds of Permitted Refinancing
Indebtedness. During the year ended 31 December 2022, Management signed
legally -binding agreements for the above-mentioned bank borrowings.
As of 31 December 2022 and 31 December 2021, none of the Company's
subsidiaries had defaulted on or breached any covenants on their
borrowings/bonds, , however the deferral of the repayment was negotiated with
the lender as described above due to the war in Ukraine.
The following table presents the estimated provision as at 31 December 2022
and 31 December 2021 for free of charge financial guarantees issued by the
Company for unsecured or under-pledged obligations of its subsidiaries in
accordance with loan agreements with financial institutions and quoted bonds
issued by subsidiaries (Note 23).
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.2 Credit risk (Cont'd)
2022 2021
US$ US$
Opening balance as at 1 January 614,002 760,650
Charged/(Reversed) during the period 3,060,061 (146,648)
At 31 December 3,674,063 614,002
The expected credit losses allowance on financial guarantee instruments as the
year ended 31 December 2022 related to Stage 2 instruments and as at 31
December 2021 to Stage 1 (as described in Note 3.2 above).
Financial assets and fair value through profit or loss
The maximum exposure to the credit risk of the financial assets at fair value
through profit is represented by the carrying amount (Note 16).
3.3 Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and
liabilities does not match. An unmatched position potentially enhances
profitability, but can also increase the risk of losses. The Company has
procedures with the object of minimising such losses such as maintaining
sufficient cash and other highly liquid current assets and by having available
an adequate amount of committed credit facilities.
The following tables provide a summary of the Company's remaining contractual
maturity for its financial liabilities. The tables have been drawn up based on
the undiscounted cash flows of financial liabilities based on the earliest
date on which the Company can be required to pay. The tables include both
interest and principal cash flows.
2022
Average effective interest rate
Less than 1 year or on
demand Between
2-5 years or
on demand After 5 years
Contractual
amount Carrying amount
(168,836,482) (723,333,988) (477,239,583) (1,369,410,053) (1,060,158,309)
US$ US$ US$ US$ US$
Bonds issued 7.77% (65,613,302) (558,125,000) - (623,738,302) (520,152,992)
Loans payable,
including interest 2.52%
payments (20,731,791) (91,968,327) - (112,700,118) (103,539,431)
Financial -
guarantees (i) (235,671,578) (668,084,768) (477,239,583) (1,380,995,929) (1,100,807,050)
Loans receivable, including interest 7.09%
153,180,189 594,844,107 - 748,024,296 664,341,164
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.3 Liquidity risk (Cont'd)
Average effective interest rate Less than 1
year or on demand Between
2021 2-5 years or on demand After 5 years Contractual
amount Carrying
amount
US$ US$ US$ US$ US$
Bonds issued 7.77% (44,131,956) (558,125,000) - (602,256,956) (496,232,917)
Loans payable, including interest payments 2.17%
(39,771,966) (19,835,578) - (59,607,544) (58,311,309)
Financial guarantees (i) - (111,394,401) (24,395,800) - (135,790,201) (134,235,629)
Loans receivable, including interest 7.53%
8,756,139 688,263,811 - 697,019,950 576,794,242
(186,542,184) 85,907,433 - (100,634,751) (111,985,613)
(i) No cash outflows may be required if the guarantee would not called.
3.4 Currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
an exposure will fluctuate because of changes in foreign exchange rates. The
Company's exposure to the risk of changes in foreign exchange rates relates
primarily to the Company's operating activities (when revenue or expense is
denominated in a foreign currency). The following table demonstrate the
sensitivity to a reasonably possible change in EUR exchange rates, with all
other variables held constant. The impact on the Company's profit before tax
is due to changes in the fair value of monetary assets and liabilities. The
Company's exposure to foreign currency changes for all other currencies is not
material.
Change in foreign currency exchange Effect on profit
rates
before tax
2022
Increase in EUR exchange rate +5% 885,820
Decrease in EUR exchange rate (5%) (885,820)
2021
Increase in EUR exchange rate +5% (863,764)
Decrease in EUR exchange rate (5%) 863,764
3.5 Capital risk management
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximizing the return to shareholders through the
optimization between debt and equity.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.5 Capital risk management (Cont'd)
The Company's net debt as of 31 December 2022 and 2021 was as follows:
2022 2021
US$ US$
Loans payable 103,539,431 58,311,309
Bonds issued 520,152,992 496,232,917
Total debt 623,692,423 554,544,226
Less:
Cash and cash equivalents (38,300,312) (31,880,136)
Net debt 585,392,111 522,664,090
Operating profit 68,305,998 179,854,173
Net debt to operating profit 8.57 2.91
3.6 Fair value
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 - the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
Due to their short-term nature, the fair value is estimated to approximate the
carrying value for the following categories of financial instruments: cash and
cash equivalents, other receivables and other payables.
Set out below is the comparison by category of carrying amounts and fair
values of all the Company's financial instruments, excluding those discussed
above, that are carried in the statement of financial position:
Carrying amount Fair value
2022 2021 2022 2021
US$ US$ US$ US$
Financial assets
Loans receivable 664,341,164 576,794,242 657,994,196 565,079,990
Restricted cash 2,403,780 2,552,525 2,245,249 2,226,946
Financial liabilities
Loans due to related parties (103,539,431) (58,311,309) (92,689,738) (55,365,978)
Bonds (520,152,992) (496,232,917) (254,840,000) (511,330,000)
The carrying amount of loans receivable, loans payable and bonds includes
interest accrued at each of the respective dates.
The fair value of Bonds was estimated based on market quotations and is within
Level 1 of the fair value hierarchy.
The fair value of loans receivable and loans payable was estimated by
discounting the expected future cash outflows by a market rate of interest:
7.06% and 4,76% respectively (2021:7.06% and 5,19% and is within Level 2 of
the fair value hierarchy.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
3. Financial risk factors (Cont'd)
3.7 Reconciliation of liabilities arising from financing activities
The table below details changes in the Company's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Company's statement of cash flows
as cash flows from financing activities.
Changes in liabilities arising from financing activities
Loans payable Bonds issued Total
US$ US$ US$
As of 1 January 2022 57,070,661 490,850,961 547,921,622
Cash flow from proceeds, net 45,086,557 - 45,086,557
Non-cash movements (1,066,600) - (1,066,600)
Finance costs
2,265,837 43,295,075 45,560,912
Reclassification to accrued interest payable (2,265,837) (39,730,175) (41,996,012)
Foreign exchange movements (908,493) - (908,493)
As of 31 December 2022 100,182,125 494,415,861 594,597,986
The cash flows from bank loans, loans from related parties and Bonds make up
the net amount of proceeds from borrowings and repayments of borrowings in the
cash flow statement.
Loans payable Bonds issued Total
US$ US$ US$
As of 1 January 2021 59,758,750 487,480,259 547,239,009
Cash flow from proceeds / (repayments), net (2,753,957) - (2,753,957)
Non-cash movements - - -
Transfer as a result of the merger 2,000,000 - 2,000,000
Finance costs
1,742,624 42,120,706 43,863,330
Reclassification to accrued interest payable (1,742,624) (38,750,004) (40,492,628)
Foreign exchange movements (1,934,132) - (1,934,132)
As of 31 December 2021 57,070,661 490,850,961 547,921,622
The cash flows from bank loans, loans from related parties and Bonds make up
the net amount of proceeds from borrowings and repayments of borrowings in the
cash flow statement.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
4. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below:
Going concern
As the Company is serving as the parent company to a number of subsidiaries
(hereinafter Company and its subsidiaries referred to as the "Group"), while
preparing the financial statements and relevant disclosures the Company
assesses it operating environment as well as that of its subsidiaries to
assess going concern. Given that the Group carries business activities in
Ukraine and in Europe (Note 10 Investments in subsidiaries), where the
production facilities of the Group are located, the Russian invasion of
Ukraine since 24 February 2022 has negative impact on the Group`s operations.
As a result of the Russian invasion, the Group has experienced a number of
significant disruptions and operational issues within its business which
described in detail in Note 24 Operating environment of the Group and Company.
The Group incurred net loss of USD 221,533 thousand in 2022.The Company and
the Group have analyzed the observable impact of the War on its business as
described below, but not limited to:
· the Group's poultry production facilities have not suffered any
physical damage;
· certain inventories and biological assets were damaged and
written-off. Moreover, substantial amount of assets was provided as
humanitarian aid to the population of Ukraine; For details please refer to
Note 24 Operating environment of Group and Company;
· MHP continues commercial poultry sales in Ukraine almost at the
pre-War level, despite domestic deliveries in some regions having been and
continuing to be significantly disrupted due to active hostilities;
· during first half of 2022, export sales reduced significantly due
to closure of all Ukrainian seaports. Only certain roads and railways were
available for export. However, beginning from 22 July, the date of signing of
grain agreement between the United Nations, Ukraine, Russia and Turkey, the
large-scale demining of Ukraine's ports was performed and movement of cargo
ships carrying grain in the Black Sea was partially renewed. This allowed the
Group to facilitate optimization of certain export sales of vegetable oils and
grain;
· due to lower sales, MHP has slightly decreased poultry production
comparing to pre-war level, but as at 31 December 2022 has already returned to
normal capacity utilization;
· operations of "Ukrainian Bacon" (a meat-processing operation with
34,000 tonnes annual capacity located in the Donetsk region) were temporarily
suspended due to continuing military attacks and further escalation of the
situation in the Donetsk region;
· during the 4Q 2022, there were severe power outages in Ukraine
caused by Russia's attacks on Ukrainian power generation and distribution
infrastructure. These outages caused temporary instability of oilseed
processing, poultry and silo operations;
· the Group's European operations at Perutnina Ptuj have not been
affected in any way by events in Ukraine as they are fully independent and
self-sufficient from an operational and supply chain perspective, and continue
to produce at full capacity;
· for the period after the Russian invasion of Ukraine 1,800
employees joined Ukrainian military forces and territorial defence;
· as a result of disruptions described above, the Group's ability
to service debt was limited, and negotiations with creditors regarding
postponement of debts repayment were held;
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
4. Critical accounting estimates and judgements (Cont'd) Going concern (Cont'd)
In response to these matters, the Company and the Group has taken the
following actions:
· optimized utilization of production facilities to meet domestic
demand and export orders; and has been maintaining the normal level of
inventories during the year. As a result of these actions, as well as relative
stabilization of economic and political situation in the Ukraine, the Group
has returned to normal production capacity;
· established alternative export routes, including by road and
rail, to address the logistical issues caused by the war and optimized
transport costs in the existing circumstance;
· the Group has asked its employees (over 1,900 people) of
"Ukrainian Bacon" and their families to move to safer regions of Ukraine. Some
employees were redeployed to other Group production facilities. Production has
been partly redeployed on the production sites in central Ukraine. Full
commissioning of all production will require additional time and resources,
and is planned to be finished till the end of 2023;
· to mitigate the impact of power outages on its business, the
Group equipped its key assets with diesel generators as well as continued to
operate two biogas facilities to produce electricity, industrial steam and
heating;
· MHP has accumulated sufficient seeds, fertilizers, fuel,
pesticides and other inputs required for 2022 sowing and harvesting campaigns,
as well as the necessary vehicles, agricultural machinery and human resources.
As a result, the harvesting campaign was 98% complete as at 31 December 2022,
while insignificant amount of corn fields was collected in January 2023;
· the Group has secured the performing of forthcoming sowing
campaign by building up a needed level of inventories. It is planned to sow
and harvest more than 350,000 hectares of grains and oilseeds in 2023 (73,000
hectares are represented by already planted winter crops);
· to preserve cash for operational priorities, on 30 March 2022 the
Group received consent from holders of its Eurobonds to postpone the
semi-annual interest payments due in spring 2022 on each of its 2024, 2026 and
2029 Notes for a period up to 270 days. As at publication date all postponed
amounts were timely repaid;
· to comply with consent solicitation restrictions, the Group has
agreed general postponement of debt servicing under the loan agreements with
the bank lenders, where the payments were initially scheduled during the
270-days support period as mentioned above. As at 31 December 2022, Management
already signed legally binding agreements for relevant bank loans with the
total amount of USD 137 million to comply with consent solicitation
requirements;
· the Directors have decided not to declare a dividends for the
2021 and 2022 financial years.
Management have prepared adjusted financial forecasts for the Group, including
cash flow projections, for the twelve months from the date of approval of
these financial statements, taking into consideration most likely and possible
downside scenarios for the ongoing business impacts of the War.
These forecasts were based on the following key assumptions:
· the impact of the War on business will continue for the next 12
months;
· further development of War and a military invasion of Ukraine
will not severely affect the Group's assets and will enable the Group to have
85% utilization of poultry production facilities;
· all of the Group's assets remain safe and in good condition;
· remaining logistic routes (rail and road) will continue to be
available;
· MHP will be able to procure sufficient levels of vitamins and
minerals for production of feed as well as the required volume of plant
protection materials, fuel and other inputs for grain growing;
· the Group will be able to run the sowing and harvesting campaign
on its entire landbank.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
4. Critical accounting estimates and judgements (Cont'd) Going concern (Cont'd)
These forecasts indicate that, the Company and 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 financial statements. However,
due to the currently unpredictable effects of the ongoing War on the
significant assumptions underlying management forecasts, Management concludes
that a material uncertainty exists, which may cast significant doubt about the
Company's and the Group's ability to continue as a going concern and,
therefore, the Company and the Group may be unable to realize its assets and
discharge its liabilities in the normal course of business.
Significant increase in credit risk
As explained in Note 2, ECL are measured as an allowance equal to 12 month ECL
for stage 1 assets, or lifetime ECL for stage 2 or stage 3 assets. An asset
moves to stage 2 when its credit risk has increased significantly since
initial recognition. IFRS 9 does not define what constitutes a significant
increase in credit risk. In assessing whether the credit risk of an asset has
significantly increased the Company takes into account qualitative and
quantitative reasonable and supportable forward looking information.
The Company continuously monitors all assets subject to expected credit
losses. The Company reassesses whether there has been a significant increase
in credit risk, since the initial recognition of the financial instruments, by
considering the change in the risk of default occurring over the remaining
life of the financial instrument in order assess whether 12 month expected
credit losses should be applied or life-time expected credit losses. The
change in operating environment in Ukraine due to the war and significant
downgrade in credit ratings of Ukraine, where the Group operates, have been
taken into consideration for the reassessment of staging as at 31 December
2022, and as such the loans issued and financial guarantees moved from Stage 1
to Stage 2 in 2022 (Note 3.2).
Given the uncertainties arose due to the war in Ukraine, the Company used
three probability-weighted scenarios for calculation of ECL allowance as at
the year ended 31 December 2022 (2021: two probability - weighted scenarios).
Expected credit losses on loans issued and financial guarantee contracts
IFRS 9 requires entities to recognise expected credit losses for financial
instruments. The Company follows the general approach as described in Note 3.
In order to assess the probability default rate, management is considering
whether there has been an actual or expected significant change in the
operating results of the debtor since the receivable was first recognised.
This included considering whether there were any actual or expected declining
revenues or margins, increasing operating risks, working capital deficiencies,
decreasing asset quality, increased balance sheet leverage, liquidity,
management problems, or changes in the scope of business or organisational
structure (such as the discontinuance of a segment of the business) that would
result in a significant change in the debtor's ability to meet its debtor's
obligations.
The Probability of default constitutes a key input in measuring ECL.
Probability of default is an estimate of the likelihood of default over a
given time horizon, the calculation of which includes historical data,
assumptions and expectations of future conditions.
The Exposure at Default is an estimate of the exposure at a future default
date, taking into account expected changes in the exposure after the reporting
date, including repayments of principal and interest, whether scheduled by
contract or otherwise, expected drawdowns on committed facilities, and accrued
interest from missed payments.
The Loss Given Default is an estimate of the loss arising on default. It is
based on the difference between the contractual cash flows due and those that
the lender would expect to receive, taking into account cash flows from
collateral and integral credit enhancements.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
4. Critical accounting estimates and judgements (Cont'd) Impairment of investments in subsidiaries and associates
• The Company periodically evaluates the recoverability
of investments in subsidiaries and associates whenever indicators of
impairment are present. Indicators of impairment include such items as
declines in revenues, earnings or cash flows or material adverse changes in
the economic or political stability of a particular country, which may
indicate that the carrying amount of an asset is not recoverable. If facts and
circumstances indicate that investment in subsidiaries and associates may be
impaired, the estimated recoverable amounts of these subsidiaries and
associates (higher of their value in use or fair value les costs to sell)
would be compared to their carrying amounts. If the recoverable amount in
lower than the carrying amount of a particular investment, a write-down to the
recoverable amount is made. Please refer to the impairment assessment
performed to Note 10.
5. Administrative expenses
2022 2021
US$ US$
Legal and other professional fees (ii) 1,230,868 623,885
Directors fees and bonuses (i) (Note 23.2) 3,396,521 1,334,399
Salaries 56,538 52,878
Social Insurances and other contributions 44,910 31,357
Non-recoverable VAT 201,569 53,005
Auditors' remuneration (ii) 135,587 130,287
Other administrative expenses 247,762 170,950
Depreciation 6,077 8,102
5,319,832 2,404,863
(i) Directors' fees comprise of amounts attributable to the
directors of the Company. As at 31 December 2022 and 2021, there were 3
directors.
(ii) Auditor's remuneration includes statutory audit fees
amounting to US$ 135,587 (2021: US$ 130,287). Legal and other professional
fees includes tax advisory services to US$ 7,143 (2021: US$ 17,638), other
non- audit services US$ 0 (2021: US$ 2020).
The average number of employees for the year ended 31 December 2022 was 3
(2021: 2).
6. Finance cost
2022 2021
US$ US$
Interest on bonds (39,730,175) (38,750,004)
Bond issuance cost (i) (3,564,900) (3,370,702)
Other finance expenses (613,602) (156,594)
Interest expense on loan payable (Note 21; 23.3) (2,265,837) (1,742,624)
(46,174,514) (44,019,924)
Foreign exchange gain/(loss) 916,106 (1,173,592)
(45,258,408) (45,193,516)
This presents the amortization of premium and debt issue costs on bonds.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
7. Other income
2022 2021
US$ US$
Other finance income (i) 843,121 1,538,537
843,121 1,538,537
(i) Other income includes an amount of US$710,293 (2021:
US$1,420,544) which was reimbursed from the depositary of GDRs.
8. Taxation
2022 2021
US$ US$
Profit before income tax 23,890,713 136,199,193
Income tax calculated at the applicable tax rates 2,986,339 17,024,899
Tax effect of expenses not deductible for tax purposes 2,280,879 903,785
Tax effect of allowances and income not subject to income tax (5,118,574) (17,942,426)
Under-provision of prior years Income tax 61,706 -
Overseas tax suffered at source 422,175 7,354,779
Income tax paid at source 601 639
Tax effect of tax loss of the year - 13,742
Tax charge 633,126 7,355,418
The corporation tax rate is 12,5%.
In Cyprus under certain conditions, interest income may be subject to defence
contribution at the rate of 30% (2021: 30%). In such cases, this interest will
be exempt from corporation tax. In certain cases, dividends received from
abroad may be subject to defence contribution at the rate of 17% for tax year
2014 and thereafter.
Special defence contribution is imposed on dividend income, 'passive' interest
income and 'passive' rental income earned by companies tax resident in Cyprus.
Gains on disposal of qualifying titles (including shares, bonds, debentures,
rights thereon etc) are exempt from Cyprus income tax.
9. Dividends
No dividends have been approved during 2022 by the Board of Directors of the
Company (US$2021: 60,005,616).
10. Investments in subsidiaries
2022 2021
US$ US$
Balance as at 1 January 407,794,080 677,065,226
Additions (iii)(v) 4,970 118,680
Disposals (ii) (81,801) (110)
Reorganizations (iv) 10,000 -
Transfer as a result of merger (i), (Note 18) - 401,111,973
Absorption as a result of merger (i) - (670,501,689)
Balance as at 31 December 407,727,249 407,794,080
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
10. Investments in subsidiaries (Cont'd)
The details of subsidiaries are as follows:
Country of incorporation 2022 2021
Name Principal activities Holding Holding
% %
MHP B.V.(v) Netherlands Chicken meat processing 100.00 100.00
MHP Lux S.A. Luxemburg Provision of finance to related companies 100.00 100.00
Urozhay NVF(*) Ukraine Grain cultivation 95.50 95.50
Starynska Ptahofabryka Ukraine Breeder farm 100.00 100.00
MHP East Europe s.r.o (*)(vi) Slovakia Provision of finance to related companies 100.00 100.00
Zernoproduct (*) Ukraine Grain cultivation 0.32 0.32
MHP Trade B.V. Netherlands Trading in poultry meat 100.00 100.00
- 100.00
EU Meatex B.V.(iii) Netherlands Trading in poultry meat
MHP PJSC (i) Ukraine Management, marketing and sales 95.36 95.36
United Arab Trading in sunflower oil,grains and poultry
MHP Trading FZE (i)(iii) Emirates meat - 100.00
British Virgin
Scylla Capital Limited (i) islands Trading activity 100.00 100.00
Vinnytska Poultry Farm (i) Ukraine Chicken farm 100.00 100.00
MHP Saudi Arabia Trading Company (i)(iv)
Saudi Arabia Wholesale of agricultural products 75.00 75.00
Emirate of
MHP Food Trading LLC (i) Dubai Trading I poultry meat 100.00 100.00
MHP EU Gmbh (i) Germany Production and trading in poultry meat 100.00 100.00
Nile Food Distribution LLC (i)(iii)
Egypt Trading in poultry meat - 100.00
Podillya-Kolodno (i) (*) Ukraine Framing assetholding and operating entity 50.81 50.81
Poultry brreding, feed production,poultry and meat products retail and
services
Perutnina PTUJ (i) Slovenia 100.00 100.00
Agrofort (i)(*) Ukraine Grain cultivation 13.85 13.85
United Kingdom
MHP FOOD UK LIMITED (ii) Processing and preserving of meat 100.00 100.00
LK Ukraine Group LLC (i) (*) Ukraine Framing assetholding and operating entity 47.93 47.93
Zakhid Agro MHP (i)(*) Ukraine Grain cultivation 0.26 0.26
MHP EUROPE LIMITED(v) Cyprus Holding of investments 100.00 -
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
10. Investments in subsidiaries (Cont'd)
(*) Investments are directly and indirectly 100% owned by the
Company.
(i) On 20 April 2021 the Company's subsidiaries Raftan Holding
Limited, Eledem Investments Limited and Hemiak investments Limited were merged
with the Company pursuant to the Order of the District Court of Limassol.
Investment in Perutnina PTUJ wes transferred from Hemiak Investments Limited .
Investments in MHP PJSC, MHP Trading FZE, Scylla Capital Limited, Vinnytska
Poultry Farm, MHP Saudi Arabia Trading Company, MHP Food Trading LLC, MHP EU
Gmbh, Nile Food Distribution LLC, Podillya-Kolodno, Agrofort, LK Ukraine Group
LLC and Zakhid Agro MHP were transferred from Raftan Holding Limited.
(ii) During the year ended 31 December 2021, Company purchased
100% of share capital of MHP FOOD UK LIMITED (formerly known Braintree Meats
Limited).
(iii) EU Meatex B.V., MHP Trading FZE and Nile Food Distribution
LLC have been liquidated during the year ended 31 December 2022. As results of
liquidation an assets distribution was done in the form of cash and it has
been transferred to the Company's bank account. The net result of liquidation
was recognized as Other income on investments a total amount of US$ 925,566 in
the Statement of comprehensive income for the year ended 31 December 2022.
(iv) During the year ended 31 December 2022 MHP Saudi Arabia
Trading increased its share capital for the amount of SR 37,504 (US$ 10,000).
The transaction was shown in the financial statements of the subsidiary as
payment of the additional paid to capital amount.
(v) During the year ended 31 December 2022, Company
established MHP EUROPE LIMITED, an entity registered in Cyprus, with 100%
shares owned by the Company.
(vi) During 2022, the Company as a sole shareholder of MHP East
Europe s.r.o. approved a share capital reduction by EUR1,000,000
(US$1,066,600) from the current registered capital. The distribution of
capital was recognized as dividend revenue in the statement of comprehensive
income for the year ended 31 December 2022.The respective balance was set-off
with loans payable principal balance from the subsidiary as per mutual claims
set-off agreement dated 27 June 2022. There were no changes in shareholding as
a result of this reduction.
The Company's management performed also the assessment of the impairment
indicators of investments in subsidiaries and associates (Note 10 and 11),
given that the Group carries business activities in Ukraine and in Europe,
where the production facilities of the Group are located, the Russian invasion
of Ukraine since 24 February 2022 has negative impact on the Group`s
operations as described in Notes 4 and 24. Based on the analysis performed by
the Company's management concluded that there no impairment has been
identified as at 31 December 2022.
11. Investments in associates
2022 2021
US$ US$
Balance as at 1 January 1,251,571 -
Additions - 1,251,571
Balance as at 31 December 1,251,571 1,251,571
The details of the associates are as follows:
Country of incorporation
Name Principal activities 2022 Holding 2021 Holding
% %
Holding of investments, provision of finance to other related companies
Foodz Holding Limited Cyprus 34.66 34.66
During the year 2021 Foodz Holding Limited issued to the Company 34,66% of its
share capital which has been paid by the rights of claim assigned from PrJSC
"MHP". There are no changes during 2022.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
12. Loans receivable
2022 2021
US$ US$
Gross carrying loans receivable from subsidiary companies (Note 23.4) (i)(ii) 686,381,789 591,921,137
Expected credit losses allowance (22,040,625) (15,126,894)
664,341,164 576,794,242
(i) The loans granted to the subsidiary companies are
denominated in United States Dollars, bear interest at rates ranging from 2%
to 8.30% per annum and are due for repayment between 2022 and 2026. The loans
granted are unsecured.
(ii) As a result of the merger in 2021 with the Company's
subsidiaries, the rights and obligations to the loans issued to the
subsidiaries and sub-subsidiaries in the amount of US404,569,603 (including
principal and interest) were transferred to the Company.
The balances on loans issued to Eledem Holdings Limited in the total amount of
US$403,111,066 (including principal and interest) were eliminated through
merger in 2021.
As at 31 December 2022 and 2021 classification of the balances of loans
receivable were as follows:
2022 2021
US$ US$
Current borrowings
Loans receivable from subsidiaries 152,252,909 57,792,250
Non-current borrowings
Loans receivable from subsidiaries 512,088,255 519,001,992
Total 664,341,164 576,794,242
Expected credit losses
Given the significant increase in credit risk since the initial recognition of
financial instruments due to changes in the operating environment in Ukraine
(as described in Note 24), the Company calculated life-time expected credit
losses for the year ended 31 December 2022 (as describes in Note 3.2).The
Company determines the lifetime expected credit loss of other non-current loan
receivables based on different scenarios of probability of default and
expected loss applicable to each of the material underlying balances. The
movement in loss allowance for loan receivables classified at amortised cost
is detailed below:
US$
As at 1 January 2021 13,719,118
Charged during the period 1,407,776
As at 1 January 2022 15,126,894
Transfer as result of merger -
Charge during the period 6,913,731
As at 31 December 2022 22,040,625
Fair values
The fair values of loans receivable as at 31 December 2022 are disclosed in
Note 3.
The exposure of the Company to credit risk and impairment losses in relation
to loans receivable is reported in Note 3 of the financial statements.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
13. Other receivables
31 December 31 December
2022 2021
US$ US$
Dividend receivable (Note 23.4) - 10,000
Other receivables (i) 1,068,108 178,756
1,068,108 188,756
(i) Balance of other receivables includes balances with relates
parties as shown in (Note 23.4) The fair values of other receivables as at 31
December 2022 are disclosed in Note 3.
The exposure of the Company to credit risk and impairment losses, in relation
to other receivables is reported in Note 3 of the financial statements.
14. Cash at bank
For the purposes of the statement of cash flows, cash and cash equivalents
include the following:
31 December 31 December
2022 2021
US$ US$
Cash at bank 38,300,312 31,880,136
38,300,312 31,880,136
The exposure of the Company to credit risk and impairment losses in relation
to cash and cash equivalents is reported in Note 3 to the financial
statements.
15. Other financial assets measured at amortized cost
31 December 31 December
2022 2021
US$ US$
Restricted cash at bank current portion 2,403,780 -
Restricted cash at bank non-current portion - 2,552,525
2,403,780 2,552,525
As of 31 December 2021, the Company held cash at bank in the amount of US$
2,403,780 (2021: US$ 2,552,525) that were blocked serving as collateral to
secure bank borrowings of subsidiaries of the Company.
The Company opened Reserve Accounts with Coöperatieve Rabobank U.A. in
accordance with Loan Agreement dated March 29, 2016, Loan Agreements dated
December 23, 2015, Loan Agreements dated July 05, 2016, Loan Agreements dated
August 04, 2017, Loan Agreement dated October 31, 2017, Loan Agreement dated
December 06, 2018 and made respectively between PrJSC "MHP" (formerly known as
PJSC "Myronivsky Hliboproduct")as Borrower and Coöperatieve Rabobank U.A. as
Lender.
As of 31 December 2022, the balance of the reserve accounts amounted to US$
2,403,780 (2021: US$ 2,552,525).
The exposure of the Company to credit risk and impairment losses, if any, is
reported in Note 3 of the financial statements.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
16. Financial assets at fair value through profit and loss
2022 2021
US$ US$
Balance at 1 January 1,780,000 -
Loss on change in fair value (358,881) -
Transfer as a result of the merger (Note 18) - 1,780,000
Balance at 31 December 1,421,119 1,780,000
As a result of the merger in 2021 with Raftan Holding Limited, all rights and
obligations under the agreement 3 July 2018 with a third party, as a borrower,
were transferred to the Company as a lender. The principal amount transferred
was US$1,780,000 as at the date of merger.
As per terms of the agreement, the borrower shall repay the outstanding
balance of the loan based on the performance of an entity established together
with a borrower (MHP Saudi Arabia Trading, the Company's subsidiary) until the
loan is repaid in full. No interest is prescribed by the agreement.
The fair value of financial assets mentioned above represents to their
carrying amount.
17. Property, plant and equipment
Furniture
Renovations and Fittings Computers Total
US$ US$ US$ US$
Cost
At 1 January 2021 103,460 60,583 7,130 171,173
Additions - - - -
At 31 December 2021/1 January 2022 103,460 60,583 7,130 171,173
Additions - 191 - 191
At 31 December 2022 103,460 60,774 7,130 171,364
Depreciation:
At 1 January 2021 103,460 18,120 5,085 126,665
Additions - 6,058 2,045 8,103
At 31 December 2021/1 January 2022 103,460 24,178 7,130 134,768
Additions - 6,077 0 6,077
At 31 December 2022 103,460 30,255 7,130 140,845
Net book value
At 31 December 2022 - 30,519 - 30,519
At 1 January 2022 - 36,405 - 36,405
18. Shareholder's equity
Share capital and share premium
As of 31 December 2022 and 2021, the authorized, issued and fully paid share
capital of MHP SE comprised the following number of shares:
2022 2021
Number of ordinary shares - authorised share capital 110,770,000 110,770,000
Number of ordinary shares - issued and fully paid 110,770,000 110,770,000
SEPARATE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
18. Shareholder's equity (Cont'd)
As of 31 December 2022 and 31 December 2021 the authorised share capital of
the Company was EUR 221,540,000 divided into 110,770,000 ordinary shares, each
having a nominal value of EUR 2 each. The authorised share capital of the
Company is fully issued and all the shares are fully paid up.
As at 31 December 2022, the Company had a direct holding of treasury shares
(ordinary shares, represented by an equal amount of global depositary receipts
"GDRs") in the amount of 3,731,792 shares . The amount of 3,564,568 shares
were held directly by the Company and 167,244 shares were held by the
Company's subsidiary PrJSC MHP.
Other reserves
Other reserves mainly comprise of the following items:
(i) Bond issuance costs in the amount of US$ 13,196,088
settlement of which was assumed by subsidiary companies without any recharge.
(ii) Effect of acquisition of additional interest in
subsidiary company in the amount of US$ 2,900,660. The effect is represented
by the difference between the fair value of GDRs held as treasury shares
transferred as a consideration and their acquisition price previously recorded
as deduction in equity.
Merger reserve
The carrying amount of the shares held by the Company in Raftan Holding
Limited, Hemiak Investments Limited, Eledem Investments Limited amounting to
US$ 670,501,689 was netted with total assets in the amount of US$ 832,500,929,
total liabilities in the amount of US$ 406,133,479 transferred to the Company
and intercompany balances in the amount of US$ 42,196. The difference in the
amount of US$ 244,092,043 was recognized as a reorganization loss in equity as
a merger reserve.
Recognition of treasury shares at cost as a result of the merger with Raftan
Holding Limited resulted in the merger reserve in the amount of US$21,136,060
giving the total merger reserve amounting to US$222,955,983.
The assets and liabilities transferred as a result of the merger during the
year ended 31 December 2021 and calculation of the related merger reserve are
as follows:
US$
Loans issued less ECL (Note 12) 404,251,567
Investments in subsidiaries (Note 10) 401,111,972
Financial assets at fair value through profit and loss (Note 16) 1,780,000
Cash and cash equivalents 2,026,040
Treasury shares at fair value (Note 18) 21,458,699
Other receivables 1,872,562
Total Assets 832,500,930
Loans payable - eliminated intercompany balances (Note 3.2) (403,111,005)
Loans payable (Note 20) (2,018,219)
Other payables and accruals (1,004,255)
Total Liabilities (406,133,479)
Net assets transferred as a result of the merger 426,367,451
Other intercompany elimination 42,195
Carrying value of the investments in merged subsidiaries (Note 10) (670,501,689)
Merger reserve 244,092,043
Treasury shares adjusted to cost to the Group (Note 18) (21,136,060)
Merger reserve 222,955,983
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
19. Bonds issued (Note 3.7)
Carrying amount Nominal amount
31 December 31 December 31 December 31 December
2022 2021 2022 2021
7.75% Senior Notes due in 2024 494,415,861 490,850,961 500,000,000 500,000,000
Total bonds issued 494,415,861 490,850,961 500,000,000 500,000,000
As of 31 December 2022 and 31 December 2021, interest payable on bonds issued
was US$ 25,737,131 and US$ 5,381,956 respectively (see Note 21).
The Senior Notes are listed for trading on the Global Exchange Market of the
Irish Stock Exchange.
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 agreement, the
consolidated leverage ratio is tested on the date of incurrence of additional
indebtedness or restricted payment and after giving pro forma effect to such
incurrence or restricted payment as if it had been incurred or done at the
beginning of the most recent four consecutive fiscal quarters for which
financial statements are publicly available (or are made available). As at 31
December 2022 the leverage ratio of the Group is 3.22 to 1 (31 December 2021:
1.90 to 1), higher than the defined limit 3.0 to 1. The Group has tested all
the transactions that occurred prior to publication of these financial
statements and has complied with all the covenants defined by the indebtedness
agreement during the reporting periods ended 31 December 2022 and 31 December
2021.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
19. Bonds issued (Cont'd)
Covenants (Cont'd)
Consent solicitation
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 total amount of USD 49,425 thousand, and unpaid interest 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
cumulative amount of USD 31,559 thousand were paid by Group on time. The
latest deferred coupon payment due in February 2023 in amount of USD 20,501
thousand was timely repaid after the reporting date.
As defined by the Consent Solicitation Memorandum, the Group will undertake
the following restrictions during the Support Period:
· the Company and its Restricted Subsidiaries shall not be able to
incur Indebtedness pursuant to the ratio-based permission for the Incurrence
of Indebtedness;
· the "general basket" for the incurrence of Permitted Debt shall
be reduced to U.S.$10 million in aggregate principal amount;
· the Company and its Restricted Subsidiaries will be prohibited
from incurring new Liens on existing Indebtedness for borrowed money, other
than Permitted Refinancing Indebtedness relating to existing secured
Indebtedness;
· the Company and its Restricted Subsidiaries will be prohibited
from making Restricted Payments other than payments constituting Permitted
Investments;
· the Permitted Investments "general basket" shall not be
available;
· the threshold at which an Affiliate Transaction must be approved
by a majority of the disinterested members of the Board of Directors shall be
reduced to USD 1 million;
· the Group is committed to paying no more than U.S.$12.5 million
in the aggregate in satisfaction of any debt service payments in respect of
any Indebtedness of the Group, excluding any interest payment in respect of
any of the 2024 Notes, the 2026 Notes during the Support Period;
· within 25 days of each calendar month end, the Company will
provide a trading update detailing operational data relating to the Group's
business segments.
20. Loans payable (Note 3.7)
31 December 31 December
2022 2021
US$ US$
Loans payable to subsidiary and indirect subsidiary companies (Note 23.5)(i)
Current portion 52,182,125 37,849,365
Non-current portion 48,000,000 19,221,295
100,182,125 57,070,660
The loans payable are denominated in United States Dollars and in Euro, bear
interest ranging from 1,5% to 4% and 1,5% to 3% per annum for the year ended
31 December 2022 and 2021 respectively and are
repayable during 2022.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
20. Loans payable (Note 3.7) (Cont'd)
(i) As a result of merger in 2021 with Raftan Holding
Limited, all rights and obligations under the loan agreement with the
Company's subsidiary in the amount of US$2,018,219 (including principal and
interest). 2.5% p.a. and maturity date in June 2024 are prescribed in the
agreement.
Fair values
The fair values of loans payable as at 31 December 2022 are disclosed in Note
3.
21. Interest payable
31 December 31 December
2022 2021
US$ US$
Interest payable on bonds issued (Note 19) 25,737,131 5,381,956
Interest payable on loans payable to subsidiary and indirect subsidiary
companies
3,357,306 1,240,648
(Note 23.5)
29,094,437 6,622,604
22. Financial guarantees
31 December 31 December
2022 2021
US$ US$
Expected credit losses for free of charge financial guarantees issued (Note
3.2)
3,674,063 614,002
The Company has issued financial guarantees on the borrowings of its
subsidiaries and quoted bonds issued by its subsidiaries (Note 19).
Securities on the bank borrowings
The Company has provided guarantees in relation to the following outstanding
indebtedness under the bank loan agreements entered into by the Company's
direct or indirect subsidiaries:
• Rabobank for an amount of EUR 6,767,412(2021: EUR
7,053,881)
• Credit Agricole bank for an amount of EUR 25,080,827
(2021: EUR nil)
• EBRD for an amount EUR 35,111,111 (2021:EUR
13,888,889)
• Pravexbank US$ 4,255,000 (2021: EUR 4,485,712)
• Citibank US$ 20,350,000 (2021: US$ 20,350,000)
• JSC UKRSIBBANK EUR 28,247,244 (2021: US$ 30,000,000)
• JSC OTP BANK US$ 22,000,000 (2021: US$ 22,000,000)
• Raiffeisen Bank JSC EUR 15,000,000 and US$ 20,788,000
(2021: US$ 33,250,000)
The Company has provided guarantees in relation to the following outstanding
indebtedness under the bonds issued by the Company's wholly owned subsidiary
MHP Lux S.A., a public company with limited liability (société anonyme)
incorporated under the laws of the Grand Duchy of Luxembourg:
- US$ 550,000,000 6.95% Senior Notes due in 2026 at par value issued on 3
April 2018.
The Senior Notes are jointly and severally guaranteed on a senior basis by the
Company and the following direct and indirect subsidiaries of the Company:
PrJSC "MHP", PrJSC "ZERNOPRODUKT MHP", PrJSC "AGROFORT", PrJSC "ORIL-LEADER",
PrJSC "MYRONIVSKA PTICEFABRIKA", "SPF "UROZHAY" LLC, "STARYNSKA PTAKHOFABRYKA"
ALLC, "VINNYTSKA PTAKHOFABRYKA" LLC, "PEREMOGA NOVA" SE,
and "KATERINOPOLSKIY ELEVATOR" LLC, and Scylla Capital Limited.
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
22. Financial guarantees (Cont'd)
- US$ 350,000,000 6.25% Senior Notes due in 2029 at par value issued on 19
September 2019.
The Senior Notes are jointly and severally guaranteed on a senior basis by the
Company and the following direct and indirect subsidiaries of the Company:
PrJSC "MHP", PrJSC "ZERNOPRODUKT MHP", PrJSC "AGROFORT", PrJSC "ORIL-LEADER",
PrJSC "MYRONIVSKA PTICEFABRIKA", "SPF "UROZHAY" LLC, "STARYNSKA PTAKHOFABRYKA"
ALLC, "VINNYTSKA PTAKHOFABRYKA" LLC, "PEREMOGA NOVA" SE, and "KATERINOPOLSKIY
ELEVATOR" LLC.
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 indebtedness agreement,
restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. The
debt covenants are calculated by reference to Group financial statements.
If the Group fails to comply with the covenants imposed, the Trustee or the
Holders of at least 25% in principal amount of the outstanding Notes may, upon
written notice to the Group, declare all outstanding Senior Notes to be due
and payable immediately. If a change of control occurs the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
Interest on the Senior Notes is payable semi-annually in arrears. These Senior
Notes are subject to certain restrictive covenants including, but not limited
to, limitations on the incurrence of additional indebtedness in excess of Net
Debt to Adjusted EBITDA ratio as defined by the indebtedness agreement,
restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. The
debt covenants are calculated by reference to Group financial statements.
If the Group fails to comply with the covenants imposed, the Trustee or the
Holders of at least 25% in principal amount of the outstanding Notes may, upon
written notice to the Group, declare all outstanding Senior Notes to be due
and payable immediately. If a change of control occurs the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
23. Related party transactions
The ultimate controlling party 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, directly ownings of
59,7% of the total outstanding share capital of MHP SE.
Details of related party transactions and balances between the Company and its
related parties are disclosed below.
23.1 Income from direct and indirect subsidiaries
2022 2021
US$ US$
Dividend revenue 38,250,602 140,019,032
Interest revenue (i) 44,936,473 43,183,096
83,187,075 183,202,128
(i) Interest revenue constitutes interest on loans issued and calculated using
the effective interest method.
(*) EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization)
calculated as loss before income tax benefit plus finance costs, depreciation
and amortization expenses and impairment losses
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
23. Related party transactions (Cont'd)
23.2 Directors' fees (Note 5)
2022 2021
US$ US$
Directors' fees and bonuses 3,396,521 1,334,399
3,396,521 1,334,399
23.3 Expenses on transactions with direct and indirect subsidiaries (Note 6)
2022 2021
US$ US$
Interest expense 2,265,837 1,742,624
2,265,837 1,742,624
23.4 Receivables from related companies (Notes 12 and 13)
31 December 31 December
2022 2021
US$ US$
Loans receivable from subsidiary and indirect subsidiary companies 612,034,616 569,001,992
Interest receivable on loans issued to subsidiary and indirect subsidiary 52,306,547 7,792,250
companies
Dividends receivable from subsidiary companies - 10,000
Other receivables from related parties 868,748 24,485
665,209,911 576,828,727
Expected credit losses allowance on loans issued to relates companies was
US$22,040,265 as at 31 December 2022 (2021:US$15,126,894) as described in Note
12.
23.5 Payables to related companies (Notes 20 and 21)
31 December 31 December
2022 2021
US$ US$
Loans payable to subsidiary and indirect subsidiary companies 100,182,125 57,070,661
Interest payable on loans from subsidiary and indirect subsidiary companies 3,357,306 1,240,648
Other payables to subsidiaries 147,768 2,043,159
Directors' fee payable 65,947 69,763
103,753,146 60,424,231
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
24. Operating environment of the Company
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. Sea ports and airports are closed and have been damaged,
and many roads and bridges have been damaged or destroyed, further crippling
transportation and logistics. Economic activity started to recover due to the
liberation of northern regions and a decrease in the number of regions
affected by active hostilities. Thanks to the rapid adaptation of a part of
businesses and households to the new conditions and improved results of Q3
2022, estimates of the decline in real GDP for the whole 2022 were to 30.3%.
According to the National Bank of Ukraine's (hereafter "NBU") most recent
forecast, the NBU expects growth in real GDP to be weak in 2023 at 0.3%, in
2024 real GBP will increase by 4.1%, and in 2025 economic growth will
accelerate to 6.4%, but the outlook could worsen sharply if the conflict lasts
longer.
The War caused a disruption of supply chains, a decrease in supply of some
goods, higher business costs, physical destruction of production facilities
and infrastructure (in the energy sector in particular), and temporary
occupation of some territories. Persistently high energy prices and
record-high inflation in partner countries also fueled price pressures in
Ukraine. Inflation expectations of businesses and households increased
markedly. This was reflected in deteriorated maturity structure of bank
deposits and higher spending on some durable goods, primarily imported goods.
In Q3 2022 and Q4 2022 inflation has stabilized, although it remains at a high
level, reaching to 26.6% as of the end of 2022, according to the NBU recent
forecast it will decrease to 18.7% in 2023.
After months of Russia's blockade of Ukrainian sea ports, the "Grain corridor"
was signed by Ukraine, UN, Turkey and Russia on 22 July 2022, that allowed the
movement of cargo ships carrying grain in the Black Sea. This agreement
establishes safe channels through the Black Sea and inspections in Turkey. As
of March 2023
24.6 million tonnes of agriculture produce have been already exported through
the "grain corridor", and overall
44.4 million tonnes of agriculture produce have been exported from Ukraine
during 11 month of war (including
9.9 million tonnes of wheat, 18.2 million tonnes of corn).
The economic consequences are already very serious, the situation remains
highly fluid and the outlook is subject to extraordinary uncertainty.
The Government has implemented appropriate emergency measures to stabilize
markets and the economy, but the country faces large fiscal and external
financing gaps. Ukrainian authorities have continued to service their external
debt obligations and the country's payment system remains operational, with
banks open and mostly liquid.
International organizations (IMF, EBRD, EU, World Bank), along with individual
countries and charities, are providing Ukraine with financing, donations and
material support. In 2022, Ukraine received over USD 32 billion in
international assistance, of which over USD 14 billion was in the form of
grants. This enabled the country to finance a larger portion of the
consolidated budget deficit (over 27% of GDP, excluding grants), and to
increase international reserves, to USD 28.5 billion by the end of the year.
In view of the already announced international aid the overall official
financing in 2023 could exceed USD 38 billion.
In June 2022, the NBU has established the key policy rate at 25% p.a. while
its previous level was 10%p.a.The NBU has kept the key policy rate unchanged,
at 25%, since June 2022.The updated forecast envisages maintaining it
unchanged at least until Q1 2024.The exchange rate remained fixed at UAH 29.25
to the US Dollar until 21 July, when it was increased to 36.57 by the NBU. The
NBU has said that fixed exchange rate remains an anchor for ensuring the
financial stability so the tight monetary conditions will be kept. Once the
economy and financial system return to normal operation, it will revert to the
traditional format of inflation targeting with a floating exchange .
SEPARATE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2022
24. Operating environment in Ukraine (Cont'd)
In Q1 2022 the Government has imposed export licensing of key foodstuffs
including wheat, corn, poultry meat, and sunflower oil. The export licensing
for corn and sunflower oil was cancelled later in Q1 2022, and wheat in Q3
2022.
Since 24 February 2022, the Group has suffered significant losses as a result
of the continuous war in Ukraine, caused by full-scale Russian invasion of
Ukraine.
The Group, working with volunteers, has been providing humanitarian aid
(mainly through food supply) to the people in Ukraine since the beginning of
the war, despite logistical challenges.
This operating environment may have a significant impact on the Group's and
the Company's operations and financial position. Management is taking
necessary measures to ensure sustainability of the Group's and Company's
operations. However, the future effects of the current economic situation are
difficult to predict, and Management's current expectations and estimates
could differ from actual results.
Management will continue to monitor the situation closely and will assess the
need for additional measures in case the period of disruption prolongs or
escalates further.
25. Commitments and contingent liabilities
Taxation and legal issues
Management believes that the Company has been in compliance with all
requirements of effective Cyprus tax legislation.
The Company performs intercompany transactions, which may potentially be in
the scope of the Cyprus transfer pricing ("TP") regulations. The Company has
prepared the controlled transaction report up to the year ended 31 December
2021 within the required deadlines.
Contractual commitments on purchase of property, plant and equipment
During the years ended 31 December 2022 and 2021, the companies of the Group
entered into a number of contracts with foreign suppliers for the purchase of
property, plant and equipment for development of agricultural operations. As
of 31 December 2022, purchase commitments amounted to USD 33,022 thousand
(2021: USD 30,952 thousand).
26. Events after the reporting period
In February 2023, the Group entered into a facility agreement with the
European Bank for Reconstruction and Development (EBRD) in the amount of USD
100 million (EBRD of USD 90 million and a B lender of USD 10 million). MHP SE
is the guarantor in this facility agreement. The loan is for the purpose of
financing of needs of the Group's Poultry and related operations segment. This
is a seasonal loan, secured by sunflower seeds and oil stocks with maturity in
August 2023 and will be used to finance the purchase of sunflower seeds and
other operational expenses associated with production of sunflower oil and
related products. The loan includes a number of covenants and other terms and
conditions, including a requirement that the Group maintain certain financial
ratios in-line with Bonds.
There were no other material events after the reporting period, which have a
bearing on the understanding of the financial statements.
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