REG - MHP SE - Q1 2023 Financial and Operational Results
18/05/2023 07:00
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RNS Number : 8606Z MHP SE 18 May 2023
18 May 2023, Limassol, Cyprus
MHP SE
Unaudited Financial Results for the First Quarter ended 31 March 2023
MHP SE (LSE:MHPC), the parent company of a leading international
agro-industrial group with headquarters in Ukraine, today announces its
unaudited results for the first quarter ended 31 March 2023. Hereinafter, MHP
SE and its subsidiaries are referred to as "MHP", "The Company" or "The
Group".
WAR IN UKRAINE
The War in Ukraine continues, with irregular but increasingly frequent attacks
across the country and widespread expectations of further escalation in the
coming weeks.
Nonetheless, as of today, all MHP's production facilities continue to operate
at close to full capacity.
The Company continues to export to over 70 countries, providing grain,
vegetable oils and poultry meat worldwide. However, since the beginning of Q2
2023 the operational environment has become more challenging as a result of
bans imposed by a number of EU neighbour countries affecting exports and
transit of agricultural produce. If these bans remain in place, MHP will
continue to use more complex and higher-cost logistics routes.
Extension of the Black Sea Grain Deal, which is due to expire on 18 May, is
still under discussion. Even if new terms are agreed, the operational
environment may remain disruptive due to longer than expected inspections
undertaken in the Bosphorus ports, which prevent ships coming to Ukrainian
ports and cause significant delays in sales.
In addition to the significant general uncertainties inherent in the War, any
substantive escalation of attacks could increase risks to MHP's Ukrainian
operations, potentially leading to disruption of production. An attack in
recent days in the Odessa region caused the destruction of a rented cold
storage facility where MHP stored poultry products for export. The loss of
stock is expected to be modest.
OPERATIONAL ENVIRONMENT
As of today, the Company has been able to continue operations in Ukraine and
its own facilities have not suffered any physical damage. In the event of any
future adverse impact to its operations, the Company has in place detailed
contingency plans, ensuring that it is ready to take all actions necessary to
rebuild, restore and re-start production in the shortest time possible.
MHP is adapting to the new operational environment - doing business during a
time of active War, while recognizing that risks have increased, and their
nature has changed substantially.
MHP is reporting good operational and financial results for Q1 2023 thanks to
strong demand, positive price movements and minimal disruption to production
as a result of the enormous amount of work undertaken by the MHP team since
the beginning of the War. It should be noted that operational and financial
results in Q1 2022 were more seriously affected by disruption in the early
stages of the War. Results for the next periods of 2023 may again be adversely
affected by War-related challenges that are not under MHP's control.
OPERATIONAL HIGHLIGHTS
· MHP poultry production volume in Ukraine was
broadly stable y/y at 177,642 tonnes (Q1 2022: 175,644 tonnes). Poultry
production volume of the European Operating Segment (PP) increased by 11% to
31,780 tonnes (Q1 2022: 28,550 tonnes).
· The average chicken meat price was stable at US$
1.86 per kg (Q1 2022: US$ 1.84 per kg) (excluding VAT). The average price of
chicken meat at PP increased by 21% to EUR 3.43 per kg (Q1 2022: EUR 2.83 per
kg).
· Chicken meat exports increased by 26% to 112,921
tonnes (Q1 2022: 89,340 tonnes).
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) Q1 2023 Q1 2022 Change y/y(1)) Q4 2022 Change q/q(1)
Revenue 746 553 35% 766 -3%
IAS 41 standard losses (37) (56) 34% (9) -311%
Gross profit 144 89 62% 210 -31%
Gross profit margin 19% 16% 3pps 27% -8 pps
War-related expenses (6) (26) -77% (24) -75%
Operating profit 84 9 833% 79 6%
Operating profit margin 11% 2% 9 pps 10% 1 pps
Adjusted EBITDA 124 50 148% 138 -10%
Adjusted EBITDA margin 17% 9% 8 pps 18% -1 pps
Adjusted EBITDA (net of IFRS 16) 117 43 172% 109 7%
Adjusted EBITDA margin (net of IFRS 16) 16% 8% 8 pps 14% 2 pps
Net (loss)/profit 49 (108) 145% 38 29%
Net (loss) profit margin 7% -20% 27 pps 5% 2 pps
( )
· (1)) pps - percentage points
· Average official FX rate for Q1: UAH/US$ 36.5686 in 2023 and
UAH/US$ 28.5545 in 2022.
FINANCIAL HIGHLIGHTS
· Revenue of US$ 746 million increased by 35% y/y (Q1
2022: US$ 553 million) and was down 3% q/q (Q4 2022: US$ 766 million).
· War-related expenses decreased by 77% to US$ 6
million (Q1 2022: US$ 26 million).
· Export revenue increased by 69% to US$ 522 million,
70% of total revenue (Q1 2022: US$ 308 million, 56% of total revenue), and
increased by 6% q/q (Q4 2022: US$ 491 million).
· Operating profit increased to US$ 84 million (Q1
2022: US$ 9 million); operating margin was 11%.
· Adjusted EBITDA (net of IFRS 16) increased y/y to
US$ 117 million from US$ 43 million and was 7% higher q/q (Q4 2022: US$ 109
million); adjusted EBITDA margin (net of IFRS 16) increased to 16% from 8% y/y
and from 14% in Q4 2022.
· Net income was US$ 49 million, compared to a net
loss of US$ 108 million for Q1 2022, including US$ 4 million of non-cash
foreign exchange translation gain in Q1 2023 compared to a foreign exchange
loss of US$ 95 million in Q1 2022.
DIAL-IN DETAILS
MHP's management will host a conference call for investors and analysts
followed by Q&A on the day of the results.
The dial-in details are:
Time: 14.00 London / 16.00
Kyiv / 09.00 New York
Title: Financial results
for Q1 2023
UK: +44 203 984 9844
Ukraine: +380 89 324 0624
USA: +1 718 866 4614
PIN code: 645982
To follow the presentation with the management team, please use the following
link:
https://mm.closir.com/slides?id=645982
(https://mm.closir.com/slides?id=645982)
For Investor Relations enquiries, please contact:
Anastasia Sobotiuk (Kyiv) +38 050 339
29 99
+357 99 76 71 26
a.sobotyuk@mhp.com.ua (mailto:a.sobotyuk@mhp.com.ua)
Segment Performance
Poultry and Related Operations Segment
Q1 2023 Q1 2022(1)) % change y/y(2)) Q4 2022 % change q/2(2))
Poultry
Sales volume(1)), third party tonnes 188,509 159,024 19% 188,907 0%
Export sales volume, tonnes 112,921 89,340 26% 111,130 2%
Domestic sales volume, tonnes 75,588 69,684 8% 77,777 -3%
Portion of export sales, % 60% 56% 4 pps 59% 1 pps
Average price per 1 kg net of VAT, USD 1.86 1.84 1% 1.87 -1%
Average price per 1 kg net of VAT, UAH (Ukraine) 52.63 45.62 15% 48.80 8%
Average price per 1 kg net of VAT, USD (Ukraine) 1.44 1.60 -10% 1.33 8%
Average price per 1 kg net of VAT, USD (export) 2.12 2.01 5% 2.22 -5%
Sunflower oil
Sales volume, third parties tonnes 77,201 32,981 134% 95,895 -19%
Soybeans oil
Sales volume, third parties tonnes 14,400 10,335 39% 13,583 6%
(1)) Total poultry sales include domestic sales, export sales and sales of
culinary products
(2)) pps - percentage points
Chicken meat
Aggregated volume of chicken meat sold to third parties increased by 19% to
188,509 tonnes (Q1 2022: 159,024 tonnes) mainly due to an increase in export
volumes. Domestic sales increased by 8% mainly due to higher demand in Ukraine
compared to Q1 2022 when the full effects of the War affected results in
March. In Q1 2023, export sales increased by 26% y/y to 112,921 tonnes, mainly
as a result of substantially decreased sales in March 2022 due to the effects
of the War.
Poultry export prices increased by 5% y/y mainly driven by product mix
optimization (higher volume of fillet sold) as well as the combined effect of
substantial international price increases across all markets (particularly
fillet prices in the EU and MENA and small bird prices in the MENA region)
from the middle of last year. From the beginning of September 2022, due to
changes in the economic environment in the EU and UK and increased competition
in the MENA region, poultry prices across all export markets (MENA, EU and
CIS) started to decline sharply, which resulted in an 5% q/q decrease in price
in Q1 2023.
In Q1 2023 poultry prices in the domestic market (in US$ terms) decreased by
10% y/y, predominantly driven by the significant depreciation of the UAH. In
UAH terms, in Q1 2023, poultry prices increased by 15% and 8% y/y and q/q
respectively.
Vegetable oil
In Q1 2023, sunflower oil sales volume was 77,201 tonnes, which is 134% higher
y/y mainly driven by an increase in production of sunflower cake due to both
additional crushing capacity and a change in the recipe as well as partial
restoration of logistic routes comparing to Q1 2022. In Q1 2023 MHP's sales of
soybean oil also increased by 39% compared to Q1 2022 to 14,400 tonnes.
Financial result and trends
(in mln. US$, unless indicated otherwise) Q1 2023 Q1 2022 % change y/y(1)) Q4 2022 % change q/q(1))
Revenue 519 379 37% 537 -3%
- Poultry and other 390 322 21% 382 2%
- Vegetable oil 129 57 126% 155 -17%
IAS 41 standard gain 3 6 -50% (11) 127%
Gross profit 110 61 80% 123 -11%
Gross margin 21% 16% 5 pps 23% -2 pps
War-related expenses (4) (21) -81% (3) 33%
Adjusted EBITDA 97 31 213% 86 13%
Adjusted EBITDA margin 19% 8% 11 pps 16% 3 pps
(1)) pps - percentage points
Revenue increased by 37% in Q1 2023 compared to Q1 2022, as a result of an
increase in prices and volumes of chicken meat on export markets in particular
as well as an increase in sales volumes of vegetable oil. A 3% decrease of
revenue q/q was mainly attributable to a decrease in sales volumes of
vegetable oil while vegetable oil prices on the market both in Q4 2022 and Q1
2023 remained stable.
IAS 41 standard gain in Q1 2023 amounted to US$ 3 million mainly as a result
of a slight increase in chicken meat price in Ukraine.
Gross profit of the segment for Q1 2023 increased by 80% compared to Q1 2022
to US$ 110 million. The increase was mainly driven by higher sales volumes of
chicken meat as well as by a significant increase from sales of vegetable oil
in Q1 2023.
In Q1 2023, adjusted EBITDA increased to US$ 97 million compared to US$ 31
million in Q1 2022, as a result of higher gross profit and lower War-related
expenses (US$ 4 million compared with US$ 21 million).
Grain Growing Segment
(in mln. US unless indicated otherwise) Q1 2023 Q1 2022 % change
Revenue 69 35 97%
IAS 41 standard loss (40) (65) -38%
Gross profit (2) (2) 0%
War-related expenses (1) (1) 0%
Adjusted EBITDA 10 9 11%
Adjusted EBITDA (net of IFRS 16) 3 2 50%
Grain growing segment's revenue for Q1 2023 amounted to US$ 69 million
compared to US$ 35 million in Q1 2022. Such a significant increase was mainly
attributable to higher exports of crops in Q1 2023, as a result of a partial
restoration of logistic routes compared to the operational environment at the
beginning of the full scale Russian invasion in Q1 2022.
IAS 41 standard loss for Q1 2023 amounted to US$ 40 million compared to US$ 65
million in Q1 2022. The loss represents a net change in effect of revaluation
of agricultural produce (sunflower, corn, wheat and soya) as a result of a
decrease of grain in stock due to internal consumption in line with the
harvest cycle and seasonality. The lower decrease in Q1 2023 compared to Q1
2022 mainly relates to higher revaluation of grain in 2021 comparing to 2022,
which resulted in a higher amount of revaluation derecognized on the balance
in Q1 2022 due to sales and consumption.
Meat Processing and Other Agricultural Segment
Meat processing products Q1 2023 Q1 2022 % change y/y Q4 2022 % change q/q
Sales volume, third parties tonnes 2,525 6,015 -58% 2,872 -12%
Price per 1 kg net VAT, UAH 133.30 87.65 52% 123.68 8%
Sales volume of meat processing products decreased by 58% y/y to 2,525 tonnes
in Q1 2023 driven by War-related challenges that resulted in the temporary
suspension of production facilities at "Ukrainian Bacon" in the Donetsk region
and the subsequent partial redeployment of its operations to Central Ukraine.
The average processed meat price increased by 52% year-over-year to
UAH 133.30 per kg in Q1 2023 driven mainly by an increase in raw material
prices (spices, packaging and other components) as well as by a positive
change in product mix.
Convenience food Q1 2023 Q1 2022 % change y/y Q4 2022 % change q/q
Sales volume, third parties tonnes 4,503 3,989 13% 5,327 -15%
Price per 1 kg net VAT, UAH 79.60 53.55 49% 70.05 14%
Sales volumes of convenience food in Q1 2023 increased by 13% to 4,503 tonnes.
The average price in Q1 2023 increased by 49% to UAH 79.60 per kg (excluding
VAT) mainly driven by raw material price increases as well as a focus on
increased sales of higher-margin products.
Financial result and trends
(in mln. US$, except margin data) Q1 2023 Q1 2022 % change y/y(1)) Q4 2022 % change q/q(1))
Revenue 32 36 -11% 39 -18%
- Meat processing and convenience food 24 28 -14% 30 -20%
- Other(2)) 8 8 0% 9 -11%
IAS 41 standard losses (1) 1 -200% (2) 50%
Gross profit 3 4 -25% 4 -25%
Gross margin 9% 11% -2 pps 10% -1 pps
War-related expenses - (3) -100% (1) 100%
Adjusted EBITDA 3 - 100% 4 -25%
Adjusted EBITDA margin 9% 0% 9 pps 10% -1 pps
(1)) pps - percentage points;
(2)) includes milk, cattle and feed grains.
Segment revenue in Q1 2023 decreased by 11% compared to Q1 2022 to US$ 32
million mainly due to lower sales of meat-processing products as a result of
production redeployment. The segment's adjusted EBITDA improved from breakeven
to US$ 3 million due to the significant War-related expenses incurred in Q1
2022.
European Operating Segment (PP)
Poultry Q1 2023 Q1 2022 % change y/y Q4 2022 % change q/q
Sales volume, third parties tonnes 19,114 17,744 8% 19,141 0%
Price per 1 kg net VAT, EUR 3.43 2.83 21% 3.38 1%
In Q1 2023, poultry sales of the European operating segment increased by 8% to
19,114 tonnes. This was driven by an increased production of chicken meat
following expansion of facilities in Croatia and Serbia. Average price
increased by 21% in Q1 2023 to EUR 3.43 (Q1 2022: EUR 2.83).
Meat processing products(1)) Q1 2023 Q1 2022 % change y/y Q4 2022 % change q/q
Sales volume, third parties tonnes 10,715 9,917 8% 11,162 -4%
Price per 1 kg net VAT, EUR 3.31 2.91 14% 3.19 4%
(1)) includes sausages and convenience foods
In Q1 2023, meat processing products sales of the European operating segment
constituted 10,715 tonnes, with an average price of EUR 3.31.
Financial result and trends
(in mln. US$, except margin data) Q1 2023 Q1 2022 % change y/y(1)) Q4 2022 % change q/q(1))
Revenue 125 103 21% 118 6%
IAS 41 standard gains 2 2 0% (2) 200%
Gross profit 32 27 19% 23 39%
Gross margin 26% 26% 0 pps 19% 7 pps
Adjusted EBITDA 20 15 33% 7 186%
Adjusted EBITDA margin 16% 15% 1 pps 6% 10 pps
Adjusted EBITDA (net of IFRS 16) 19 14 36% 7 171%
Adjusted EBITDA margin 15% 14% 1 pps 6% 9 pps
(net of IFRS 16)
(1)) pps - percentage points.
European operating segment's revenue in Q1 2023 increased by 21% to US$ 125
million (Q1 2022: US$ 103 million), mainly as a result of the increase in
poultry sales volume and price.
Adjusted EBITDA (net of IFRS 16) increased to US$ 19 million for Q1 2023 from
US$ 14 million for Q1 2022. The significant increase of Adjusted EBITDA q/q
from US$ 7 million to US$ 19 million resulted from lower energy and grain
prices in the EU as well as higher prices for meat processing products during
Q1 2023. Another driver of q/q growth of EBITDA was one-off expenses related
to disposal of non-current assets in Q4 2022.
Current Group cash flow
(in mln. US$) Q1 2023 Q1 2022
Cash from operations 98 121
Change in working capital (2) (67)
Net Cash from operating activities 96 54
Cash used in investing activities (36) (38)
Including:
CAPEX(1)) (39) (33)
Cash from financing activities (14) 22
Total change in cash(2)) 46 38
(1))Calculated as cash used for Purchases of property, plant and equipment
plus cash used for purchases of other non-current assets
(2))Calculated as Net Cash from operating activities plus Cash used in
investing activities plus Cash used in financing activities
Cash flow from operations before changes in working capital for Q1 2023
amounted to US$ 98 million (Q1 2022: US$ 121 million). Q1 2023 cashflow
included payment in February 2023 a part of the deferred interest payment
agreed with creditors at the end of Q1 2022.
Lower investments in working capital comparing to Q1 2022 are mostly related
to:
· Higher level of sales of chicken meat and grains as well as
increased cost of grains consumed and sold in Q1 2023 comparing to Q1 2022;
· Lower prepayments to suppliers for gas and diesel in 1Q 2023
comparing to 1Q 2022.
In Q1 2023 total CAPEX amounted to US$ 39 million mainly related to
modernization projects, new products development, the maintenance and
improvement of Perutnina Ptuj production facilities and purchase of diesel
generators to mitigate the impact of possible power outages.
Debt Structure and Liquidity
(in mln. US$) 31 March 2023 31 December 2022 31 March 2022
Total Debt(1) 2)) 1,534 1,537 1,516
LT Debt(1)) 1,509 1,507 1,499
ST Debt (1)) 176 182 141
Trade credit facilities(2)) (151) (152) (124)
Cash and bank deposits (351) (300) (308)
Net Debt(1)) 1,183 1,237 1,208
LTM Adjusted EBITDA(1)) 458 384 637
Net Debt / LTM Adjusted EBITDA(1)) 2.58 3.22 1.90
(1) ) Net of IFRS 16 adjustments: as if any lease that would have been
treated as an operating lease under IAS 17 as was in effect before the 1
January 2019, is treated as an operating lease for purposes of this
calculation. In accordance with covenants in MHP's bond and loan agreements,
these data exclude the effects of IFRS 16 on accounting for operating leases.
(2)) Indebtedness under trade credit facilities that is required to be
repaid within 12 months of drawdown should be excluded for purposes of this
calculation
As of 31 March 2023, the share of long-term debt in the total outstanding debt
remained unchanged at 98% of total debt. The weighted average interest rate is
around 7%.
As of 31 March 2023, MHP's cash and cash equivalents amounted to US$ 351
million. Net debt decreased to US$ 1,183 million, compared to US$ 1,237
million as at 31 December 2022.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 2.58 as of 31
March 2023, lower than the limit of 3.0 defined in the Eurobond agreement.
As a hedge for currency risks, revenues from the exports of grain, sunflower
and soybean oil, sunflower husks and chicken meat, which are denominated in US
Dollars and Euros, are more than sufficient to cover debt service expenses.
Export revenue for Q1 2023 amounted to US$ 522 million or 70% of total revenue
(US$ 308 million or 56% of total sales in Q1 2021).
Notes to Editors:
About MHP
MHP SE is the parent company of a leading international food & agrotech
group with headquarters in Ukraine and also in the Balkans (Perutnina Ptuj
Group).
Ukraine: MHP has the greatest market share and the highest brand recognition
for its products. MHP owns and operates each of the key stages of chicken
production processes, from feed grains and fodder production to egg hatching
and grow out to processing, marketing, distribution and sales (including
through MHP's franchise outlets). Vertical integration reduces MHP's
dependence on suppliers and its exposure to increases in raw material prices.
In addition to cost efficiency, vertical integration also allows MHP to
maintain strict biosecurity and to control the quality of its inputs and the
resulting quality and consistency of its products through to the point of
sale. To support its sales, MHP maintains a distribution network consisting of
nine distribution and logistical centers, within major Ukrainian cities. MHP
uses its trucks for the distribution of its products, which Management
believes reduces overall transportation costs and delivery times.
MHP also has a leading grain cultivation business growing corn to support the
vertical integration of its chicken production and increasingly other grains,
such as wheat and rape, for sale to third parties. MHP leases agricultural
land located primarily in the highly fertile black soil regions of Ukraine.
The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer
in the Balkans, has production assets in four Balkan countries: Slovenia,
Croatia, Serbia, Bosnia and Herzegovina; owns distribution companies in
Austria, North Macedonia and Romania and supplies products to 15 countries in
Europe. Perutnina Ptuj is a vertically integrated company across all stages of
chicken meat production - feed, hatching eggs production and hatching,
breeding, slaughtering, sausages and further poultry processing production.
MHP trades on the London Stock Exchange under the ticker symbol MHPC since
2008.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to
future events or forecast financial indicators for MHP SE. Such statements do
not guarantee that these are actions to be taken by MHP SE in the future, and
estimates can be inaccurate and uncertain. Actual final indicators and results
can considerably differ from those declared in any forward-looking statements.
MHP SE does not intend to change these statements to reflect actual results.
MHP SE AND ITS SUBSIDIARIES
Interim condensed consolidated Financial Statements
As of and for the three-month period ended 31 March 2023
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF
DIRECTORS............................................................... (a)
MANAGEMENT
REPORT......................................................................................................................
(b)
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
THREE-MONTH PERIOD ENDED 31 MARCH 2023
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE
INCOME..............................................................................................................................................................
5
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION..................................... 6
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY..................................... 7
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS................................................ 9
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................. 11
1. Corporate
information.....................................................................................................................
11
2. Basis of preparation and accounting
policies...................................................................................
12
3. Segment
information......................................................................................................................
14
4. Profit for the
period........................................................................................................................
15
5. Property, plant and
equipment........................................................................................................
15
6. Inventories and agricultural
produce................................................................................................
15
7. Shareholders'
equity.......................................................................................................................
15
8. Bank
borrowings............................................................................................................................
16
9. Bonds
issued.................................................................................................................................
17
10. Related party balances and
transactions.......................................................................................
19
11. Operating
environment.................................................................................................................
20
12. Contingencies and contractual
commitments.................................................................................
21
13. Fair value of financial
instruments.................................................................................................
22
14. Risk management
policy..............................................................................................................
22
15. Subsequent
events......................................................................................................................
23
16. Authorization of the interim condensed consolidated financial
statements....................................... 23
STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS
In accordance with Article 10 of the Transparency Requirements (Securities for
Trading on Regulated Market) Law 190(l)/2007 ("Law"), as amended, we the
members of the Board of Directors of MHP SE confirm that to the best of our
knowledge:
(a) The interim condensed consolidated financial statements for
the period from 1 January 2023 to
31 March 2023 that are presented on pages 5 to 23:
i. were prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union and in accordance with the provisions of
Article 10 (4) of the Law, and
ii. give a true and fair view of the assets and liabilities, the
financial position and the profits of MHP SE and the businesses that are
included in the interim condensed consolidated financial statements as a
whole, and
(b) the interim management report gives a fair review of the
information required under Article 10 (6) of the Law.
17 May 2023
Members of the Board of Directors:
Chief Executive
Officer
Yuriy
Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
Director
John Grant
Director
John Clifford Rich
Director
Philip J Wilkinson
Director
Andriy Bulakh
Director
Christakis Taoushanis
Director
Oscar Chemerinski
MANAGEMENT REPORT
Key financial highlights
During the three-month period ended 31 March 2023 consolidated revenue
increased by 35% to USD 745,602 thousand, compared to USD 553,328 thousand for
the three-month period ended 31 March 2022. Export sales of USD 521,945
thousand for the three-month period ended 31 March 2023 constituted 70% of
total revenue compared to USD 307,603 thousand, and 56% of total revenue for
the three-month period ended 31 March 2022.
Gross profit increased by 61% to USD 143,556 thousand for the three-month
period ended 31 March 2023 compared to USD 89,272 thousand for the
three-month period ended 31 March 2022. The increase was driven mainly by
higher gross profit in the poultry and related operations segment due to
increases in both volume and selling price of chicken meat as well as higher
volumes of vegetable oil sold.
Operating profit increased to USD 83,990 thousand for the three-month period
ended 31 March 2023 compared to USD 8,691 thousand for the three-month
period ended 31 March 2022, mainly as a result of the increase in gross profit
and non-recurrence of significant write-offs of inventories and donations to
communities in Ukraine following the Russian invasion in February 2022.
Profit for the three-month period ended 31 March 2023 amounted to USD 49,065
thousand, compared to a loss of USD 108,252 thousand for the three-month
period ended 31 March 2022. The increase is mainly due to higher operating
profit and stabilization of the Ukrainian Hryvnia against the US Dollar and
EURO, which resulted in a modest foreign exchange gain of USD 4,180 thousand
for the three-month period ended 31 March 2023 compared to a foreign exchange
loss of USD 95,323 thousand for the three-month period ended 31 March 2022.
Dividends
In view of continuing War-related uncertainties, and the resulting need to
preserve liquidity to support the Company's ongoing business operations, the
Directors decided not to declare a final dividend for the 2022 financial year.
Risks and uncertainties
Russian invasion
On February 24, 2022, Russian forces began a military invasion of Ukraine
resulting in a full-scale war across the Ukrainian State (the "War").
As a result of the War, MHP has experienced a number of significant
disruptions and operational issues within its business, which are described in
detail in Note 11 Operating environment. Detailed information on this matter
can also be found on pages 156 to 157 of the Annual Report which is available
at mhp.com.cy (https://mhp.com.cy/financial-reports/annual-reports/) .
Management believes that the Group has adequate resources to continue in
operational existence for the foreseeable future. However, due to the
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
Group's ability to continue as a going concern.
Other risks and uncertainties
There are a number of potential risks and uncertainties, which could have a
material impact on the Group's performance over the remaining nine months of
the financial year and could cause actual results to differ materially from
expected and historical results. The Directors do not consider that the
principal risks and uncertainties have changed since the publication of the
Annual Report for the year ended 31 December 2022. A detailed explanation of
the risks, and how the Group seeks to mitigate these risks, can be found on
pages 212 to 215 of the Annual Report.
17 May 2023
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
( ) Notes Three-month period ended 31 March 2023 Three-month period ended 31 March 2022
Revenue 3 745,602 553,328
Net change in fair value of biological assets and agricultural produce 3 (36,673) (55,958)
Cost of sales (565,373) (408,098)
Gross profit 4 143,556 89,272
Selling, general and administrative expenses (59,503) (54,273)
Other operating income 5,015 1,871
Other operating expenses (5,078) (28,179)
Operating profit 83,990 8,691
Finance income 2,206 1,168
Finance costs 8, 9 (40,006) (37,410)
Foreign exchange gain/(loss), net 4, 14 4,180 (95,323)
Profit/(loss) before tax 4 50,370 (122,874)
Income tax (expense)/benefit (1,305) 14,622
Profit/(loss) for the period 49,065 (108,252)
Other comprehensive profit/(loss)
Items that may be reclassified to profit or loss:
Cumulative translation difference 7,955 (88,439)
Deferred tax charged directly to revaluation reserve - (81,317)
Other comprehensive profit/(loss) for the period 7,955 (169,756)
Total comprehensive profit/(loss) for the period 57,020 (278,008)
Profit/(loss) attributable to:
Equity holders of the Parent 51,695 (107,190)
Non-controlling interests (2,630) (1,062)
49,065 (108,252)
Total comprehensive profit/(loss) attributable to:
Equity holders of the Parent 60,048 (275,076)
Non-controlling interests (3,028) (2,932)
57,020 (278,008)
Earnings/(loss) per share
Basic and diluted earnings/(loss) per share (USD per share) 0.48 (1.00)
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
Notes 31 March 2023 31 December 2022
ASSETS
Non-current assets
Property, plant and equipment 5 1,872,263 1,855,731
Right-of-use asset 225,031 222,917
Intangible assets 80,089 79,628
Goodwill 61,093 59,808
Non-current biological assets 20,121 21,206
Non-current financial assets 9,910 7,813
Long-term deposits - 3,105
Deferred tax assets 1,561 2,434
2,270,068 2,252,642
Current assets
Inventories 6 510,836 413,790
Biological assets 190,422 176,693
Agricultural produce 6 244,021 361,427
Prepayments 24,492 29,905
Other current financial assets 19,612 22,097
Taxes recoverable and prepaid 63,891 68,759
Trade accounts receivable 188,451 182,900
Cash and cash equivalents 350,917 300,489
1,592,642 1,556,060
TOTAL ASSETS 3,862,710 3,808,702
EQUITY AND LIABILITIES
Equity
Share capital 7 284,505 284,505
Treasury shares (44,593) (44,593)
Additional paid-in capital 174,022 174,022
Revaluation reserve 771,438 792,221
Retained earnings 1,631,304 1,558,826
Translation reserve (1,329,257) (1,337,610)
Equity attributable to equity holders of the Parent 1,487,419 1,427,371
Non-controlling interests 15,298 18,326
Total equity 1,502,717 1,445,697
Non-current liabilities
Bank borrowings 8 116,285 117,719
Bonds issued 9 1,384,721 1,382,981
Lease liabilities 162,964 164,071
Deferred income 36,711 36,912
Deferred tax liabilities 118,493 123,677
Other non-current liabilities 5,183 5,081
1,824,357 1,830,441
Current liabilities
Trade accounts payable 130,900 122,576
Other current financial liabilities 105,988 95,793
Contract liabilities 32,031 30,945
Bank borrowings 8 171,664 176,112
Interest payable 8,9 16,846 41,886
Lease liabilities 78,207 65,252
535,636 532,564
TOTAL LIABILITIES 2,359,993 2,363,005
TOTAL EQUITY AND LIABILITIES 3,862,710 3,808,702
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 January 2023 284,505 (44,593) 174,022 792,221 1,558,826 (1,337,610) 1,427,371 18,326 1,445,697
Profit for the period/(loss) - - - - 51,695 - 51,695 (2,630) 49,065
Other comprehensive profit/(loss) - - - - - 8,353 8,353 (398) 7,955
Total comprehensive income/(loss) for the period - - - - 51,695 8,353 60,048 (3,028) 57,020
Transfer from revaluation reserve to retained earnings - - - (20,945) 20,945 - - - -
Translation differences on revaluation reserve - - - 162 (162) - - - -
Balance as of 31 March 2023 284,505 (44,593) 174,022 771,438 1,631,304 (1,329,257) 1,487,419 15,298 1,502,717
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 January 2022 284,505 (44,593) 174,022 811,684 1,557,284 (1,018,514) 1,764,388 29,800 1,794,188
Loss for the period - - - - (107,190) - (107,190) (1,062) (108,252)
Other comprehensive loss - - - - - (167,886) (167,886) (1,870) (169,756)
Total comprehensive loss for the period - - - - (107,190) (167,886) (275,076) (2,932) (278,008)
Transfer from revaluation reserve to retained earnings - - - (13,601) 13,601 - - - -
Dividends declared by subsidiaries - - - - - - - (2,421) (2,421)
Translation differences on revaluation reserve - - - (54,707) 54,707 - - - -
Balance as of 31 March 2022 284,505 (44,593) 174,022 743,376 1,518,402 (1,186,400) 1,489,312 24,447 1,513,759
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise
indicated)
Notes Three-month period ended 31 March 2023 Three-month period ended 31 March 2022
Operating activities
Profit/(loss) before tax 50,370 (122,874)
Non-cash adjustments to reconcile profit before tax to net cash flows
Depreciation and amortization expense 3 40,372 41,490
Net change in fair value of biological assets and agricultural produce 3 36,673 55,958
Change in allowance for irrecoverable amounts and direct (1,789) 26,817
write-offs
Loss on disposal of property, plant and equipment and other non-current assets 78 362
Finance income (2,206) (1,168)
Finance costs 40,006 37,410
Released deferred income - (391)
Non-operating foreign exchange (gain)/loss, net (4,180) 95,323
Operating cash flows before movements in working capital 159,324 132,927
Working capital adjustments
Change in inventories 6 (80,718) (93,744)
Change in biological assets (18,647) (27,560)
Change in agricultural produce 6 74,901 27,444
Change in prepayments made 4,432 (20,025)
Change in other financial current assets (233) 313
Change in taxes recoverable and prepaid 5,265 (17,728)
Change in trade accounts receivable (3,419) 18,721
Change in contract liabilities 2,888 919
Change in other financial current liabilities 5,893 6,343
Change in trade accounts payable 7,602 38,272
Cash generated by operations 157,288 65,882
Interest received 1,865 576
Interest paid (59,531) (11,208)
Income taxes paid (4,013) (1,440)
Net cash flows from operating activities 95,609 53,810
Investing activities
Purchases of property, plant and equipment 5 (38,433) (31,382)
Purchases of other non-current assets (318) (1,606)
Purchases of other intangible assets (1,412) (1,354)
Proceeds from disposals of property, plant and equipment 854 295
Purchases of non-current biological assets (258) (1,374)
Prepayments and capitalized initial direct costs under lease contracts (1,035) (1,500)
Government grants received 218 -
Investments in deposits - (371)
Withdrawals of deposits 4,803 -
Loans provided to/(repaid by) employees, net 105 (250)
Loans and finance aid provided to related parties (45) (317)
Net cash flows used in investing activities (35,521) (37,859)
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
Notes Three-month period ended 31 March 2023 Three-month period ended 31 March 2022
Financing activities
Proceeds from bank borrowings 12,230 79,210
Repayment of bank borrowings (22,542) (52,864)
Repayment of lease liabilities (3,665) (4,049)
Dividends paid by subsidiaries to non-controlling shareholders (164) (140)
Net cash flows from financing activities (14,141) 22,157
Net decrease in cash and cash equivalents 45,947 38,108
Net foreign exchange difference 4,481 (5,652)
Cash and cash equivalents at 1 January 300,489 275,237
Cash and cash equivalents at 31 March 350,917 307,693
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoriia Kapeliushna
The accompanying notes on the pages 11 to 23 form an integral part of these
interim condensed consolidated financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
1. Corporate information
MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas
Europaea) registered under the laws of Cyprus, was formed on 30 May 2006.
Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group"
or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther
Street, Agia Triada, 3035 Limassol, Cyprus. The MHP SE shares are listed on
the London Stock Exchange ("LSE") in the form of global depositary receipts
("GDRs").
The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk ("Principal
Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"),
which is the immediate majority shareholder of MHP SE, which in turn directly
owns of 59,7% of the total outstanding share capital of MHP SE.
The principal business activities of the Group are poultry and related
operations, grain growing, as well as meat processing and other agricultural
operations. The Group's poultry and related operations integrate all functions
related to the production of chicken, including hatching, fodder
manufacturing, raising chickens to marketable age ("grow-out"), processing and
marketing of branded chilled products and include the production and sale of
chicken products, vegetable oil and mixed fodder. Grain growing comprises the
production and sale of grains. Meat processing and other agricultural
operations comprise the production and sale of cooked meat, sausages,
convenience food products, milk and feed grains. As at 31 March 2023 the Group
employed 31,978 people (31 December 2022: 31,701 people).
The primary subsidiaries, the principal activities of the companies forming
the Group and the Parent's effective ownership interest as of 31 March 2023
and 31 December 2022 were as follows:
Name Country of registration Year established/ Principal activities 31 March 2023 31 December 2022
acquired
MHP Lux S.A. Luxembourg 2018 Finance Company 100.0% 100.0%
MHP Ukraine 1998 Management, marketing and sales 99.9% 99.9%
Myronivsky Plant of Manufacturing Feeds and Groats Ukraine 1998 Fodder and vegetable 88.5% 88.5%
oil production
Vinnytska Ptakhofabryka Ukraine 2011 Chicken farm 100.0% 100.0%
Peremoga Nova Ukraine 1999 Breeder farm 99.9% 99.9%
Oril-Leader Ukraine 2003 Chicken farm 99.9% 99.9%
Myronivska Pticefabrika Ukraine 2004 Chicken farm 99.9% 99.9%
Starynska Ptakhofabryka Ukraine 2003 Breeder farm 100.0% 100.0%
Zernoprodukt MHP Ukraine 2005 Grain cultivation 99.9% 99.9%
Katerinopilskiy Elevator Ukraine 2005 Fodder production and grain storage, vegetable oil production 99.9% 99.9%
SPF Urozhay Ukraine 2006 Grain cultivation 99.9% 99.9%
Agrofort Ukraine 2006 Grain cultivation 99.9% 99.9%
MHP-Urozhayna Krayina Ukraine 2010 Grain cultivation 99.9% 99.9%
Ukrainian Bacon Ukraine 2008 Meat processing 79.9% 79.9%
MHP-AgroKryazh Ukraine 2013 Grain cultivation 51.0% 51.0%
MHP-Agro-S Ukraine 2013 Grain cultivation 51.0% 51.0%
Zakhid-Agro MHP Ukraine 2015 Grain cultivation 100.0% 100.0%
Perutnina Ptuj d.d. Slovenia 2019 Poultry production 100.0% 100.0%
MHP Food Trading United Arab Emirates 2016 Trading in vegetable oil and poultry meat 100.0% 100.0%
MHP B.V. Netherlands 2014 Trading in poultry meat 100.0% 100.0%
MHP Trade B.V. Netherlands 2018 Trading in poultry meat 100.0% 100.0%
MHP Saudi Arabia Traiding Saudi Arabia 2018 Trading in poultry meat 75.0% 75.0%
MHP Food UK Limited UK 2021 Trading in poultry meat 100.0% 100.0%
The Group's primary operational facilities are located in different regions of
Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia
and Bosnia and Herzegovina (represented by Perutnina Ptuj d.d. together with
its subsidiaries).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the three-month
period ended 31 March 2023 have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting".
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with International Financial
Reporting Standards ("IFRS") have been condensed or omitted. However, such
information reflects all adjustments (consisting of normal recurring
adjustments), which are, in the opinion of the Group management, necessary to
fairly state the results of interim periods. Interim results are not
necessarily indicative of the results to be expected for the full year.
The 31 December 2022 statement of financial position was derived from the
audited consolidated financial statements, which were prepared in accordance
with International Financial Reporting Standards ("IFRS") as adopted by the
European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.
Going concern
As a result of the Russian invasion, the Group has experienced a number of
significant disruptions and operational issues within its business, which are
described in Note 11 Operating Environment and on pages 156 to 157 of the
annual report which is available at mhp.com.cy
(https://mhp.com.cy/financial-reports/annual-reports/) .
Management have prepared adjusted financial forecasts, 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 indicate that, the Group has adequate resources to continue in
operational existence for the foreseeable future. The Directors have therefore
concluded that it is appropriate to apply the going concern basis of
accounting in preparing these consolidated financial statements. However, due
to the currently unpredictable effects of the ongoing War on the significant
assumptions underlying management forecasts, the Directors have concluded that
a material uncertainty exists, which may cast significant doubt about the
Group's ability to continue as a going concern, in which case the Group may be
unable to realize its assets and discharge its liabilities in the normal
course of business.
Adoption of new and revised International Financial Reporting Standards
The adoption of the new or revised Standards did not have any effect on the
financial position or performance of the Group and did not result in any
changes to the Group's accounting policies and the amounts reported in the
interim condensed consolidated financial statements of the Group.
Functional and presentation currencies
The functional currency of Ukrainian companies of the Group is the Ukrainian
Hryvnia ("UAH"); the functional currency of the Cyprus and Luxembourg
companies of the Group is the US Dollar ("USD"); the functional currency of
the European companies of the Group is the Euro ("EUR"); the functional
currency of the United Arab Emirates companies is the Dirham ("AED"), the
functional currency of the UK company is the British Pound ("GBP"); the
functional currency of the Saudi Arabia company is the Saudi Riyal ("SAR").
Transactions in currencies other than the functional currency of the entities
concerned are treated as transactions in foreign currencies. Such transactions
are initially recorded at the rates of exchange ruling at the dates of the
transactions. Monetary assets and liabilities denominated in such currencies
are translated at the rates prevailing on the reporting date. All realized and
unrealized gains and losses arising on exchange differences are recognised in
the consolidated statement of profit or loss and other comprehensive income
for the period. These consolidated financial statements are presented in US
Dollars ("USD"), which is the Group's presentation currency.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Functional and presentation currencies (continued)
The results and financial position of the Group are translated into the
presentation currency using the following procedures:
· Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate as of the
reporting date of that statement of financial position;
· Income and expenses for each consolidated statement of profit or
loss are translated at exchange rates at the dates of the transactions;
· Exchange differences arising on translation for consolidation are
recognised in other comprehensive income and presented as a separate component
of equity. On disposal of a foreign operation, the component of OCI relating
to that particular foreign operation is reclassified to profit or loss;
· All equity items, except for the revaluation reserve, are
translated at the historical exchange rate. The revaluation reserve is
translated at the closing rate as of the date of the statement of financial
position.
For practical reasons, the Group translates items of income and expenses for
each period presented in the financial statements using the quarterly average
exchange rates, if such translations reasonably approximate the results
translated at exchange rates prevailing at the dates of the transactions.
The following exchange rates were used:
Currency Closing rate as of 31 March 2023 Average for three months ended 31 March 2023 Closing rate as of 31 December 2022 Average for three months ended 31 March 2022
UAH/USD 36.5686 36.5686 36.5686 28.5545
UAH/EUR 39.7812 39.2233 38.9510 32.2788
USD/EUR 1.0879 1.0726 1.0651 1.1304
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 31
December 2022.
Seasonality of operations
Poultry and related operations, Europe operating segment and Meat processing
and other agricultural operations are not significantly exposed to seasonal
fluctuations.
Grain growing segment, due to seasonality and implications of IAS 41, in the
first half of the year mainly reflects sales of carried forward agricultural
produce and the effect of biological assets revaluation, while during the
second half of the year it reflects sales of crops and the effect of
revaluation of agricultural produce harvested during the year. Also, grain
growing segment has seasonal requirements for working capital increase from
November to May, due to the sowing campaign.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 31 March 2023:
Poultry Grain growing operations Meat processing and other agricultural operations Europe operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 519,306 69,246 32,232 124,818 745,602 - 745,602
Sales between business segments 29,781 85,080 169 - 115,030 (115,030) -
Total revenue 549,087 154,326 32,401 124,818 860,632 (115,030) 745,602
Segment result 77,448 (3,599) 1,699 15,082 90,630 - 90,630
Unallocated corporate expenses (6,640)
Other expenses, net (1)) (33,620)
Profit before tax from continuing operations 50,370
Other information:
Depreciation and amortization expense (2)) 20,063 13,477 1,432 4,679 39,651 - 39,651
Net change in fair value of biological assets and agricultural produce 3,267 (40,124) (1,363) 1,547 (36,673) - (36,673)
(1)) Includes finance income, finance costs, foreign exchange gain (net).
(2)) Depreciation and amortization for the three-month period ended 31 March
2023 does not include unallocated depreciation and amortization in the amount
of USD 721 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 31 March 2022:
Poultry Grain growing operations Meat processing and other agricultural operations Europe operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 378,675 35,158 36,130 103,365 553,328 - 553,328
Sales between business segments 16,136 117,509 86 - 133,731 (133,731) -
Total revenue 394,811 152,667 36,216 103,365 687,059 (133,731) 553,328
Segment result 11,685 (5,652) (2,038) 9,447 13,442 - 13,442
Unallocated corporate expenses (4,744)
Other expenses, net (1)) (131,565)
Loss before tax from continuing operations (122,874)
Other information:
Depreciation and amortization expense (2)) 19,646 14,584 1,859 5,193 41,282 - 41,282
Net change in fair value of biological assets and agricultural produce 6,232 (65,393) 732 2,471 (55,958) - (55,958)
(1)) Includes finance income, finance costs, foreign exchange loss (net).
(2)) Depreciation and amortization for the three-month period ended 31 March
2022 does not include unallocated depreciation and amortization in the amount
of USD 208 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
4. Profit for the period
The Group's gross profit for the three-month period ended 31 March 2023
increased compared to the three-month period ended 31 March 2022 and amounted
to USD 143,556 thousand and USD 89,272 thousand, respectively. The increase
was driven mainly by higher gross profit in the poultry and related operations
segment due to increase in both volume and selling price of chicken meat as
well as higher volumes of vegetable oil sold.
Profit for the three-month period ended 31 March 2023 amounted to USD 49,065
thousand, compared to loss of USD 108,252 thousand for the three-month period
ended 31 March 2022 mainly as a result of increase in gross profit and
significant write-offs of inventories and donations to communities in Ukraine
in 2022 due to Russian invasion. Another positive impact on profit is
stabilization of Ukrainian Hryvnia against US Dollar and EURO, which resulted
in modest foreign exchange gain of USD 4,180 thousand for the three-month
period ended 31 March 2023 compared to loss of USD 95,323 thousand for the
three-month period ended 31 March 2022.
5. Property, plant and equipment
During the three-month period ended 31 March 2023, the Group's additions to
property, plant and equipment amounted to USD 41,998 thousand (three-month
period ended 31 March 2022: USD 30,187 thousand) mainly related to
modernization projects, new products development and the maintenance and
improvement of Perutnina Ptuj production facilities. An increase is mainly due
to significant investments in diesel generators to mitigate impact of possible
power outages.
There were no significant disposals of property, plant and equipment during
the three-month period ended 31 March 2023.
6. Inventories and agricultural produce
An increase in inventory balance as of 31 March 2023 compared to 31 December
2022 is mainly attributable to costs incurred by grain growing entities in
respect of forthcoming spring sowing campaign, as well as higher volumes of
vegetable oils and corn.
A decrease of agricultural produce for three-month period ended 31 March 2023
was mainly a result of consumption of internally produced grains and lower
stocks of chicken meat.
7. Shareholders' equity
As of 31 March 2023 and 31 December 2022 the authorized, issued and fully paid
share capital of MHP SE comprised the following number of shares:
31 March 2023 31 December 2022
Number of shares issued and fully paid 110,770,000 110,770,000
Number of shares outstanding 107,038,208 107,038,208
The authorized share capital as of 31 March 2023 and 31 December 2022 was EUR
221,540 thousand represented by 110,770,000 shares with par value of EUR 2
each.
All shares have equal voting rights and rights to receive dividends, which are
payable at the discretion of the Group.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
8. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as
of 31 March 2023 and 31 December 2022:
2023 2022
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Non-current
EUR EURIBOR(2)) + 1.25% 116,285 EURIBOR(2)) + 1.35% 117,719
116,285 117,719
Current
UAH 20,00%(4)) 2,456 20.00%(4)) 2,456
USD SOFR(3)) + 2.20% 19,350 SOFR(3)) + 2.20% 10,550
USD 7.05% 44,788 6.06% 56,843
EUR EURIBOR(2)) + 2,3% 26,108 EURIBOR(2)) + 2,3% 25,564
EUR 6.32% 58,014 4.32% 56,802
Current portion of EUR EURIBOR(2)) + 1.25% 20,948 EURIBOR(2)) + 1.35% 23,897
long-term bank borrowings
171,664 176,112
Total bank borrowings 287,949 293,831
(1) ) WAIR represents the weighted average interest rate on
outstanding borrowings.
(2) ) According to the agreements terms, if market EURIBOR
becomes negative, it shall be deemed to be zero for calculation of interest
expense.
(3) ) The Secured Overnight Financing Rate (SOFR) is a broad
measure of the cost of borrowing cash overnight collateralized by Treasury
securities.
(4) ) Deduction interest amount equal to 3m UIRD+5% p.a. will
be applied as interest compensation from Government, where Ukrainian Index of
Retail Deposit Rates (UIRD) - indicative rate calculated at 15:00 Kyiv time of
each Banking Day in the Thomson Reuters system based on nominal rates on time
deposits of individuals in hryvnia for a period of 3 months with interest paid
upon the expiration of the deposit agreement, operating in 20 largest
Ukrainian banks in the size of the deposit portfolio of individuals. As of 31
March 2023 3m UIRD rate is equal 11.96% p.a.
The Group's borrowings are drawn from various banks as term loans, credit line
facilities. Repayment terms of principal amounts of bank borrowings vary from
monthly, quarterly and semi-annually repayment to repayment on maturity
depending on the agreement reached with each bank.
As of 31 March 2023 and 31 December 2022, the Group's bank term loans and
credit lines bear floating and fixed interest rates.
Bank borrowings and credit lines outstanding as of 31 March 2023 and 31
December 2022 were repayable as follows:
31 March 2023 31 December 2022
Within one year 171,664 176,112
In the second year 24,729 27,170
In the third to fifth year inclusive 84,908 84,041
After five years 6,648 6,508
287,949 293,831
As of 31 March 2023, the Group had undrawn facilities of USD 39,432 thousand
(31 December 2022: USD 36,819 thousand). These undrawn facilities expire
during the period until September 2028.
The Group, as well as particular subsidiaries of the Group, have to comply
with the following maintenance covenants imposed by the banks providing the
loans: EBITDA to interest expenses ratio, current ratio and liabilities to
equity ratio. Separately, there are negative covenants in respect of
restricted payments, comprising dividends, capital expenditures, additional
indebtedness and restrictions on mergers or consolidations, limitations on
liens and dispositions of assets and limitations on transactions with
affiliates in case of excess of Net Debt to EBITDA ratio (the Group's leverage
ratio).
As of 31 March 2023 the Group has complied with all bank covenants. As at 31
March 2023, the Group's leverage ratio decreased to 2.58 to 1, compared with
3.22 to 1 as at 31 December 2022, restrictions are no longer applicable to the
Group as from 18 May 2023, as stated in Note 9.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
8. Bank borrowings (continued)
The Group's bank borrowings are jointly and severally guaranteed by MHP,
Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga
Nova, Starynska Ptakhofabryka, Zernoproduct MHP, Katerinopilskiy Elevator,
Agrofort, SPF Urozhay, MHP SE, Scylla Capital Limited, Myronivska
Pticefabrika, Ptakhofabryka Snyatynska Nova, Vinnytska Ptakhofabryka,
Zakhid-Agro MHP, MHP-Urozhayna Krayina.
As of 31 March 2023, the Group had borrowings of USD 111,331 thousand that
were secured by property, plant and equipment with a collateral amount of USD
105,319 thousand (31 December 2022: USD 109,258 thousand and USD 100,789
thousand respectively).
As of 31 March 2023, the Group had borrowings of USD 31,306 thousand that
were secured by agricultural produce with a carrying amount of USD 38,795
thousand (31 December 2022: USD 30,608 thousand and USD 38,260 thousand
respectively).
As of 31 March 2023, the deposit with carrying amount of USD 20,191 thousand
(31 December 2022: USD 23,137 thousand) was restricted as collateral to
issued L/C.
As of 31 March 2023 and 31 December 2022, interest payable on bank borrowings
was USD 1,108 thousand and USD 774 thousand, respectively.
9. Bonds issued
Bonds issued and outstanding as of 31 March 2023 and 31 December 2022 were as
follows:
Carrying amount Nominal amount
31 March 2023 31 December 2022 31 March 2023 31 December 2022
7.75% Senior Notes due in 2024 495,447 494,416 500,000 500,000
6.95% Senior Notes due in 2026 541,353 540,707 550,000 550,000
6.25% Senior Notes due in 2029 347,921 347,858 350,000 350,000
Unamortized debt issuance cost - - (15,279) (17,019)
Total bonds issued 1,384,721 1,382,981 1,384,721 1,382,981
As of 31 March 2023 and 31 December 2022 amount of accrued interest on bonds
issued was USD 15,738 thousand and USD 41,112 thousand, respectively.
6.25% Senior Notes
On 19 September 2019, MHP Lux S.A., a public company with limited liability
(société anonyme) incorporated in 2018 under the laws of the Grand Duchy of
Luxembourg, issued USD 350,000 thousand 6.25% Senior Notes due in 2029 at par
value. The funds received were used to satisfy and discharge the 8.25% Senior
Notes due in April 2020, for debt refinancing and for general corporate
purposes.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, PrJSC "Oril - Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay"
LLC, "Starynska Ptakhofabryka" ALLC, "Vinnytska Ptakhofabryka" LLC, "Peremoga
Nova" SE, "Katerinopolskiy Elevator" LLC, PrJSC "MHP", PrJSC "Zernoprodukt
MHP" and PrJSC "Agrofort".
Interest on the Senior Notes is payable semi-annually in arrears in March and
September. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of outstanding Notes may, upon written
notice to the Group, declare all outstanding Senior Notes to be due and
payable immediately. If a change of control occurs, the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest and additional amounts, if
any.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
9. Bonds issued (continued)
6.95% Senior Notes
On 3 April 2018, MHP Lux S.A. issued USD 550,000 thousand 6.95% Senior Notes
due in 2026 at par value. Out of the total issue amount USD 416,183 thousand
were designated for redemption and exchange of the existing 8.25% Senior Notes
due in 2020.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats",
PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC
"Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC,
"Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator"
LLC, Scylla Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in April and
October. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of outstanding Notes may, upon written
notice to the Group, declare all outstanding Senior Notes to be due and
payable immediately. If a change of control occurs, the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in
2024 at par value. Out of the total issue the amount of USD 245,200 thousand
were designated for redemption and exchange of existing 8.25% Senior Notes due
in 2020.
The Senior Notes are jointly and severally guaranteed on a senior basis by
PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC
"Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC "Myronivska
Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, Vinnytska
Ptakhofabryka LLC, SE "Peremoga Nova", "Katerinopolskiy Elevator" LLC, Scylla
Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in May and
November. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may, upon
written notice to the Group, declare all outstanding Senior Notes to be due
and payable immediately. If a change of control occurs, the Group shall make
an offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
Covenants
Certain restrictions under the indebtedness agreements (e.g. incurrence of
additional indebtedness, restricted payments as defined above, dividends
payment) are dependent on the leverage ratio of the Group calculated as Net
Debt to EBITDA. Once the leverage ratio exceeds 3.0 to 1, it is not permitted
for the Group to make certain restricted payments, declare dividends exceeding
USD 30 million in any financial year, or incur additional debt except that
defined as a Permitted Debt. According to the indebtedness 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
March 2023 the leverage ratio of the Group is 2.58 to 1 (31 December 2022:
3.22 to 1), lower than the defined limit 3.0 to 1. The Group believes that
since, as at the interim reporting date, it improved the leverage ratio and
met the covenants imposed, the aforementioned restrictions are no longer
applicable to the Group as from 18 May 2023, the date of publication of
interim condensed consolidated financial statements for the three months ended
31 March 2023.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
9. Bonds issued (continued)
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 a total amount of USD 49,425 thousand, and postponed 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
a cumulative amount of USD 31,559 thousand were paid by Group on time. The
last deferred coupon payment due in February 2023 in the amount of USD 20,501
thousand was paid on time.
10. Related party balances and transactions
For the purposes of these financial statements, parties are considered to be
related if one party controls, is controlled by, or is under common control
with the other party, or exercises significant influence over the other party
in making financial or operational decisions. In considering each possible
related party relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not,
and transactions between related parties may not be effected on the same terms
and conditions as transactions between unrelated parties.
Transactions with related parties under common control
The Group, in the ordinary course of business, enters into transactions with
related parties that are companies under common control of the Principal
Shareholder of the Group (Note 1) for the purchase and sale of goods and
services and in relation to the provision of financing arrangements. Terms and
conditions of sales to related parties are determined based on arrangements
specific to each contract or transaction. The terms of the payables and
receivables related to trading activities of the Group do not vary
significantly from the terms of similar transactions with third parties.
Transactions with related parties during the three-month periods ended 31
March 2023 and 31 March 2022 were as follows:
2023 2022
Loans and finance aid provided to related parties 45 317
Interest charged on loans and finance aid provided 80 -
Sales of goods 26 -
Purchases from related parties 4 2
Key management personnel of the Group:
Loans provided 98 -
Loans repaid 90 176
The balances owed to and due from related parties were as follows as of 31
March 2023 and 31 December 2022:
2023 2022
Loans and finance aid receivable 3,717 3,601
Less: expected credit losses (2,277) (2,117)
1,440 1,484
Loans to key management personnel 3,713 3,656
Less: expected credit losses (333) (276)
3,380 3,380
Trade accounts receivable 131 106
Payables due to related parties 21 21
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
10. Related party balances and transactions (continued)
Loans and finance aid receivable
For loans and finance aid receivable, credit risk increased to the point where
it is considered credit-impaired. The expected credit loss for such loans
amounted to USD 2,063 thousand and USD 1,882 thousand as at 31 March 2023 and
31 December 2022 respectively.
Compensation of key management personnel
Total compensation of the Group's key management personnel included primarily
in selling, general and administrative expenses in the Consolidated Statements
of Profit and Loss and Other Comprehensive Income amounted to USD 2,610
thousand and USD 2,426 thousand for the periods ended 31 March 2023 and 2022,
respectively. Compensation of key management personnel consists of contractual
salary and performance bonuses.
11. Operating environment
On 24 February 2022, Russian forces commenced a military invasion of Ukraine
resulting in a full-scale war across the Ukrainian State. The ongoing military
attack has led, and continues to lead, to significant casualties, dislocation
of the population, damage to infrastructure and disruption to economic
activity in Ukraine. Sea ports and airports remain closed and some have been
damaged, and many roads and bridges have been damaged or destroyed, further
crippling transportation and logistics.
Economic activity started to recover due to the liberation of northern regions
and a decrease in the number of regions affected by active hostilities.
According to the National Bank of Ukraine (hereafter "NBU") most recent
forecast, the NBU expects growth in GDP to 2% in 2023, which is higher than
previously expected economic growth rate of 0.3%. In the years that follow,
economic growth rates are expected to accelerate to 4.3% in 2024 and to 6.4%
in 2025, however, the outlook could worsen sharply if the war lasts longer.
As of May 2023, the NBU has kept the key policy rate unchanged, at 25%, since
June 2022.The recent forecast envisages maintaining this unchanged at least
until Q1 2024. The exchange rate remained fixed at UAH 36.57 to the US Dollar.
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 deteriorating maturity structure of bank
deposits and higher spending on some durable goods, primarily imported goods.
In March 2023, consumer price growth slowed to 21.3% year to year. The easing
of inflationary pressure was facilitated by the sufficient supply of food
staples and fuels and by a rapid recovery of the energy system from the
consequences of Russia's terrorist attacks. According to the NBU recent
forecast inflation will decelerate to 14.8% in 2023 and will return to a
single-digit level in the years ahead.
International organizations (IMF, EBRD, EU, World Bank), along with individual
countries and charities, are providing Ukraine with financing, donations and
material support. According to the NBU recent forecast, inflows from
international partners could exceed USD 42 billion in 2023. International
assistance will remain an important source of financing to meet state budget
needs.
After months of Russia's blockade of Ukrainian sea ports, the "Grain deal" was
signed by Ukraine, the UN, Turkey and Russia on 22 July 2022, that allowed the
movement of cargo ships carrying grain in the Black Sea. The document spells
out a complex regime that establishes safe channels through the Black Sea and
inspections in Turkey. As of May 2023, 29.8 million tonnes of agricultural
produce have already been exported through the "grain corridor" (16.3 million
tonnes in 2022 and 13.5 million tonnes in 2023). The "Grain deal" was due to
expire on 18 March 2023 and had been extended for at least 60 days. In Q1
2023, 19.3 million tonnes of agricultural produce have already been exported
from Ukraine in total.
Overall, the economic consequences are already very serious, the situation
remains highly fluid and the outlook is subject to extraordinary uncertainty.
The Government has implemented 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.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
11. Operating environment (continued)
Since the start of the war the Group's poultry production facilities have not
suffered any physical damage. The Group ceased the operation of "Ukrainian
Bacon" in Donetsk region in 2022 and the production facilities continue to be
frozen in 2023. Production and movable machinery has been partly redeployed on
the Group's production sites in central Ukraine.
Since 24 February 2022, the Group has suffered significant losses as a result
of the continuous war in Ukraine. The Group considers the following expenses
incurred during the three-month periods ended 31 March 2023 and 31 March 2022
to be directly related to the war:
2023 2022
Community support donations(1)) 718 13,403
Write-off of inventories and biological assets(1)) 4 8,334
Salary to mobilized employees(2)) 4,242 1,196
Expected credit losses of trade accounts receivable and non-current financial - 2,005
assets(1))
Other war-related expenses(1)) 1,185 1,439
Total amount recognized in profit or loss 6,149 26,377
(1) ) These expenses are presented within other operating
expenses in the consolidated statement of profit or loss and other
comprehensive income
(2) ) These expenses are presented within cost of sales and
selling, general and administrative expenses in the consolidated statement of
profit or loss and other comprehensive income
The Group, working with volunteers, has been providing humanitarian aid
(mainly through food supply) to the people of Ukraine since the beginning of
the war, despite logistical challenges. Since the invasion began, MHP has
provided over 12,000 tonnes of poultry products pro bono.
12. Contingencies and contractual commitments
Taxation and legal issues
Ukrainian tax authorities are increasingly directing their attention to the
business community as a result of the overall Ukrainian economic environment.
The local and national tax environment is constantly changing and subject to
inconsistent application, interpretation and enforcement. Non-compliance with
Ukrainian laws and regulations can lead to the imposition of severe penalties
and fines. Future tax examinations could raise issues or assessments which are
contrary to the Group companies' tax filings. Such assessments could include
taxes, penalties and fines, and these amounts could be material. While the
Group believes it has complied with local tax legislation, significant changes
to the tax legislation may be introduced in the near future.
Management believes that the Group has been in compliance with all
requirements of effective tax legislation.
The Group exports vegetable oil, chicken meat and related products, and
performs intercompany transactions which may potentially be in the scope of
the Ukrainian transfer pricing ("TP") regulations. The Group has submitted the
controlled transaction report for the years ended 31 December 2020 and
31 December 2021 within the required deadlines.
As of 31 March 2023, the Group's management assessed its possible exposure to
tax risks for a total amount of USD 4,428 thousand related to corporate income
tax (31 December 2022: USD 4,428 thousand). No provision was recognised
relating to such possible tax exposure.
As of 31 March 2023, companies of the Group were engaged in ongoing litigation
with tax authorities for the amount of USD 22,076 thousand (31 December 2022:
USD 25,652 thousand), including USD 13,482 thousand (31 December 2022: USD
17,023 thousand) of litigations with the tax authorities related to
disallowance of certain amounts of VAT refunds and deductible expenses claimed
by the Group. Of this amount, USD 17,112 thousand as of 31 March 2023 (31
December 2022: USD 20,332 thousand) relates to cases where court hearings have
taken place and where the court in either the first or second instance has
already ruled in favour of the Group. Manage-ment believes that, based on the
past history of court resolutions of similar lawsuits by the Group, it is
unlikely that a significant settlement will arise out of such lawsuits and,
therefore, no respective provision is required in the Group's financial
statements as of the reporting date.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
12. Contingencies and contractual commitments (continued)
Contractual commitments on purchase of property, plant and equipment
During the three-month period ended 31 March 2023, the companies of the Group
entered into a number of contracts with foreign suppliers for the purchase of
property, plant and equipment for the development of agricultural operations.
As of 31 March 2023, purchase commitments amounted to USD 43,724 thousand (31
December 2022: USD 33,022 thousand).
13. Fair value of financial instruments
Fair value disclosures in respect of financial instruments are made in
accordance with the requirements of IFRS 7 "Financial Instruments: Disclosure"
and IFRS 13 "Fair value measurement". Fair value is defined as the amount at
which the instrument could be exchanged in a current transaction between
knowledgeable willing parties in an arm's length transaction, other than in
forced or liquidation sale. As no readily available market exists for a large
part of the Group's financial instruments, judgment is necessary in arriving
at fair value, based on current economic conditions and specific risks
attributable to the instrument. The estimates presented herein are not
necessarily indicative of the amounts the Group could realize in a market
exchange from the sale of its full holdings of a particular instrument.
The fair value is estimated to be the same as the carrying value for cash and
cash equivalents, short-term bank deposits, trade accounts receivables, other
current assets and trade accounts payable due to the short-term nature of the
financial instruments.
Set out below is the comparison by category of carrying amounts and fair
values of all the Group's financial instruments, excluding those discussed
above, that are carried in the consolidated statement of financial position:
Carrying amount Fair value
31 March 2023 31 December 2022 31 March 2023 31 December 2022
Financial liabilities
Bank borrowings (Note 8) 289,057 294,605 295,637 296,294
Senior Notes due in 2024, 2026, 2029 (Note 9) 1,400,459 1,424,093 721,215 692,616
The carrying amount of Bank borrowings and Senior Notes issued includes
interest payable at each of the respective dates.
The fair value of long-term bank borrowings was estimated by discounting the
expected future cash outflows by a market rate of interest long-term bank
borrowings 4.1% (31 December 2022: 3.4%), and is within Level 2 of the fair
value hierarchy.
The fair value of Senior Notes was estimated based on market quotations and is
within Level 1 of the fair value hierarchy.
In determining fair value of financial instruments, the impact of potential
climate-related matters, including legislation, climate change, and company
climate objectives which may affect the fair value measurement of financial
assets and liabilities has been considered. At present, the impact of
climate-related matters is not material to the Group's financial statements.
14. Risk management policy
During the three-month period ended 31 March 2023 there were no material
changes to the objectives, policies and process for credit risk, capital risk,
liquidity risk, currency risk, interest rate risk, livestock diseases risk and
commodity price and procurement risk managing.
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Group undertakes
certain transactions denominated in foreign currencies. The Group does not use
any derivatives to manage foreign currency risk exposure, but Management sets
limits on the level of exposure to foreign currency fluctuations in order to
manage currency risk.
The carrying amounts of the Group's foreign currency denominated monetary
assets and liabilities as of
31 March 2023 and 31 December 2022 were as follows:
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2023
(in thousands of US dollars, unless otherwise indicated)
14. Risk management policy (continued)
Currency risk (continued)
31 March 2023 31 December 2022
USD EUR USD EUR
Total assets 153,980 144,562 177,509 116,847
Total liabilities(1)) (1,471,407) (130,233) (1,498,217) (136,207)
Net assets/(liabilities) (1,317,427) 14,329 (1,320,708) (19,360)
( 1) ) Currency denominated liabilities consist
mostly of bonds issued and bank borrowings.
The table below illustrates the Group's sensitivity to a change in the
exchange rate of the Ukrainian Hryvnia against the US Dollar and EUR. The
sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the year end for possible
change in foreign currency rates.
Change in foreign currency exchange rates Effect on profit
before tax
2023
Increase in USD exchange rate 20% (263,485)
Increase in EUR exchange rate 20% 2,866
Decrease in USD exchange rate 2% 26,349
Decrease in EUR exchange rate 2% (287)
2022
Increase in USD exchange rate 20% (264,142)
Increase in EUR exchange rate 20% (3,872)
Decrease in USD exchange rate 2% 26,414
Decrease in EUR exchange rate 2% 387
During the three-month period ended 31 March 2023, the Ukrainian Hryvnia
depreciated against the EUR by 2.1% while was stable against the USD
(three-month period ended 31 March 2022: depreciated against the EUR and USD
by 5.1% and 6.8% respectively). As a result, during the three-month period
ended 31 March 2023 the Group recognized net foreign exchange gain in the
amount of USD 4,180 thousand (three-month period ended 31 March 2022: foreign
exchange loss in the amount of USD 95,323 thousand) in the consolidated
statement of profit or loss and other comprehensive income.
15. Subsequent events
Black Sea Grain Initiative
The Black Sea Grain Initiative (or the "Grain deal"), signed in Istanbul on 22
July 2022, was due to expire on 18 March 2023 and had been extended. The UN
did not specify the length of the renewal. Russia announced that it had agreed
to an extension for 60 days, Ukraine stated that the agreement had been
prolonged for another 120 days. The issue remains to be unsettled and the
future work of "grain corridor" remains to be uncertain.
Limitation of agricultural products import in EU
On 2 May 2023, European Commission adopted exceptional and temporary
preventive measures on imports of a limited number of products from Ukraine.
The measures entered into force on 2 May 2023 and will last until 5 June 2023
and concern four agricultural products - wheat, maize, rapeseed and sunflower
seed - originating in Ukraine. During the period, those products cannot
continue to be released for free circulation in Bulgaria, Hungary, Poland,
Romania and Slovakia. The products can continue to circulate in or transit via
these five Member States by means of a common customs transit procedure or go
to a country or territory outside the EU. The Commission is ready to reimpose
preventive measures beyond the expiry of the current Autonomous Trade Measures
Regulation on 5 June 2023 as long as the exceptional situation continues.
16. Authorization of the interim condensed consolidated financial statements
These interim condensed consolidated financial statements were authorized for
issue by the Board of Directors of MHP SE on 17 May 2023.
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