REG - MHP SE - Q1 2022 Financial Results
17/06/2022 08:00
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RNS Number : 2699P MHP SE 17 June 2022
17 June 2022, Limassol, Cyprus
MHP SE
Unaudited Financial Results for the First Quarter ended 31 March 2022
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 2022. Hereinafter, MHP
SE and its subsidiaries are referred to as "MHP", "the Company" or "the
Group".
WAR IN UKRAINE - UPDATE
The general business environment in Ukraine is little changed since the last
update provided on 24 May 2022. The Company's Ukrainian business continues to
operate at around 85% poultry capacity utilization.
Exports of chicken meat and vegetable oils continue to be challenging as the
Black Sea ports remain blocked and alternative routes open to MHP are longer
and significantly more complex; bottlenecks include numerous subcontractors
along the way to EU ports, complex logistics due to differing railway gauges
and long queues at the border.
The Group's facilities, infrastructure and produce (chicken meat, vegetable
oils and grains) in Ukraine have generally not suffered any significant damage
except for the destruction of a leased storage facility reported previously
(with loss of US$6 million of MHP chicken meat) and suspended operations of
Ukrainian Bacon in the Donetsk region.
Since 24 February 2022, the Group has suffered losses as a result of the war
in Ukraine following the Russian invasion. War-related expenses for the
three-month period ended 31 March 2022 were US$ 25 million, of which community
support donations were 53%, write-off of inventories and biological assets 33%
and other war-related expenses 14%.
Since the beginning of the war, 1,600 of the Company's employees were
mobilized to the Armed Forces of Ukraine or joined the Territorial Defense
Forces; however, the Company has been able to re-balance its resources and
does not face difficulties in operations as of today.
OPERATIONAL HIGHLIGHTS
· MHP poultry production volumes in Q1 2022 were 175,644 tonnes,
up 5% year-on-year (Q1 2021:166,623 tonnes). Poultry production volumes of
the European Operating Segment (PP) were up 16% at 28,550 tonnes (Q1 2021:
24,662 tonnes).
· The average price of MHP chicken meat increased by 29% to US$
1.84 per kg (Q1 2021: US$ 1.43 per kg) (excluding VAT). The average price of
chicken meat produced by PP increased by 14% to EUR 2.83 per kg (Q1 2021: EUR
2.48 per kg).
· Chicken meat exports increased by 9% to 89,340 tonnes (Q1 2021:
82,260 tonnes), with significant sales prior to the invasion on 24 February.
FINANCIAL HIGHLIGHTS
· Strong results in Q1 2022 were driven by strong operational and
financial performance in January and February 2022 (the pre-war period).
· Revenue of US$ 553 million increased by 24% year-on-year (Q1
2021: US$ 447 million).
· Export revenue, up 42% to US$ 308 million, comprised 56% of
total revenue (Q1 2021: US$ 217 million, 49% of total revenue).
· Adjusted EBITDA (net of IFRS 16) decreased to US$ 46 million,
after incurring US$ 25 million of war-related expenses, from US$ 57 million;
adjusted EBITDA margin (net of IFRS 16) decreased to 8% from 13%.
· Net loss is US$ 122 million, compared to gain of US$ 1 million
for Q1 2021, including US$ 95 million of non- cash foreign exchange
translation loss in Q1 2022 compared to a foreign exchange gain of US$ 20
million in Q1 2021. Net loss before foreign exchange differences for Q1 2022
was US$ 27 million compared to US$ 19 million loss for Q1 2021.
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) Q1 2022 Q1 2021 % change(1))
Revenue 553 447 24%
IAS 41 standard losses (53) (21) 152%
Gross profit 92 66 39%
Gross profit margin 17% 15% 2pps
War-related expenses (25) - 100%
Operating profit 12 16 -25%
Operating profit margin 2% 4% -2 pps
Adjusted EBITDA 53 63 -16%
Adjusted EBITDA margin 10% 14% -4 pps
Adjusted EBITDA (net of IFRS 16) 46 57 -19%
Adjusted EBITDA margin (net of IFRS 16) 8% 13% -5 pps
Net loss before foreign exchange differences (27) (19) 42%
Net loss margin before forex (loss)/gain -5% -4% -1 pps
Foreign exchange (loss)/gain (95) 20 121%
Net (loss)/profit (122) 1 101%
Net (loss) profit margin -22% 0% -22 pps
(1)) pps - percentage points
Average official FX rate for Q1: UAH/US$ 28.5545 in 2022 and UAH/US$ 27.9694
in 2021.
DIVIDEND
In view of the current uncertainties in Ukraine, and the resulting need to
conserve cash to support continuing operations, the Board has decided to
recommend to shareholders that no final dividend should be declared for 2021.
OUTLOOK
As reported in our 24 May Operational Update, since the beginning of the
Russian war in Ukraine the Company has been facing complex challenges and
disruptions which caused utilisation of poultry production capacity to be
reduced to 80-85% in Ukraine. In addition, due to port closures, exports of
poultry and vegetable oils were severely impacted. The Company has
subsequently had some success in developing alternative routes to resume
exports, although the necessary logistics are complex, costly and of limited
capacity. In the Ukrainian domestic market, the Company's efforts have focused
on improving poultry sales through optimization of logistics and sales
channels.
In the second quarter, we have been able to complete our Spring sowing
campaign on schedule and early growing conditions have been good.
We cannot predict how the war will develop in the coming months. Prices of
poultry and vegetable oils are likely to remain high at least into 2023
reflecting ongoing global supply constraints but substantial incremental costs
are involved in challenging and costly logistic arrangements and because of
global inflation pressures.
Taking into account current working environment and uncertainties it brings,
as of today it is quite challenging to predict how the financial and
operational results for the year of 2022 will look like.
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 2022
UK: +44 203 984 9844
Ukraine: +380 89 324 0624
USA: +1 718 866 4614
PIN code: 645982
In order to follow the presentation together with the management, 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) +38 044 207
99 58
+386 41 30 72 65
a.sobotyuk@mhp.com.ua (mailto:a.sobotyuk@mhp.com.ua)
SEGMENT PERFORMANCE
Poultry and Related Operations Segment
Q1 2022 Q1 2021(1)) % change y/y(2)) 4Q 2021 % change q/q(1))
Poultry
Sales volume, third parties tonnes 159,024 155,002 3% 180,028 -12%
Export sales volume, tonnes 89,340 82,260 9% 104,841 -15%
Domestic sales volume, tonnes 66,809 71,450 -6% 70,767 -6%
Portion of export sales, % 56% 53% 3 pps 58% -2 pps
Average price per 1 kg net of VAT, USD 1.84 1.43 29% 1.77 4%
Average price per 1 kg net of VAT, UAH (Ukraine) 45.62 41.23 11% 46.76 -2%
Average price per 1 kg net of VAT, USD (Ukraine) 1.60 1.47 9% 1.75 -9%
Average price per 1 kg net of VAT, USD (export) 2.01 1.38 46% 1.77 14%
Sunflower oil
Sales volume, third parties tonnes 32,981 55,958 -41% 79,480 -59%
Soybeans oil
Sales volume, third parties tonnes 10,335 11,146 -7% 9,622 7%
(1)) Total poultry sales include domestic sales, export sales and sales of
culinary products; data for Q1 2021 has been adjusted accordingly to this
approach
(2)) pps - percentage points
Chicken meat
Domestic sales decreased by 6% mainly due to lowered sales of fresh chicken as
a result of the logistical challenges and lower demand in Ukraine due to the
effects of the war. In Q1 2022, export sale volumes increased by 9% y/y to
89,340 tonnes, mainly driven by high sales volumes during January and February
2022 (pre-war period) with substantially decreased sales in March 2022 due the
war effect (insignificant export sales volumes from Ukraine, mainly sales from
storages outside of Ukraine).
Poultry export prices increased by 46% y/y mainly driven by strong prices of
breast and fillet in Europe and MENA as well as of quarters and small chicken
in the MENA region. Export price increased by 14% q/q as a result of products
mix change.
As a result of significant increase in grain and protein products prices as
well as a substantial price increase of utilities (mainly gas), market price
of chicken in Ukraine began to increase starting from H2 2021. In Q1 2022
poultry prices on the domestic market in USD terms remain stable q/q.
Vegetable oil
In Q1 2022, sunflower oil sales volume constituted 32,981 tonnes, which is 41%
lower y/y mainly as a result of a decrease in production of oil driven by a
decreased share of sunflower cake in fodder (change in recipe). This was
compounded by the additional significant decrease in production of oil in
March 2022 and the logistics challenges (port closure) in Ukraine because of
the war. In Q1 2022 MHP's sales of soybean oil decreased by 7% y/y to 10,335
tonnes adversely affected by the decreased production of oil in March 2022 and
the logistics challenges because of the war in Ukraine. An increase of soybean
oil sales by 7% q/q was mainly due to the soya cake share increase in fodder
recipe.
Financial result and trends
(in mln. US$, unless indicated otherwise) Q1 2022 Q1 2021 % change y/y(1)) 4Q 2021 % change q/q(1))
Revenue 379 315 20% 467 -19%
- Poultry and other 322 248 30% 276 17%
- Vegetable oil 57 67 -15% 191 -70%
IAS 41 standard gain 10 1 900% 7 30%
Gross profit 65 33 97% 66 -2%
Gross margin 17% 10% 7 pps 14% 3 pps
War-related expenses (21) - 100% - 100%
Adjusted EBITDA 35 32 9% 57 -39%
Adjusted EBITDA margin 9% 10% -1 pps 12% -3 pps
Adjusted EBITDA per 1 kg (net of IAS 41) 0.16 0.20 -20% 0.28 -43%
(1)) pps - percentage points
The revenue has increased by 20% y/y as a result of an increase in poultry and
vegetable oils prices on export market which was offset by a decrease in sales
volume of sunflower oil. Decrease of revenue by 19% q/q was mainly
attributable to substantial decrease in sales volume of vegetable oil due to
the effects of the war.
IAS 41 standard gain in Q1 2022 amounted to US$ 10 million mainly as a result
of product mix change and an increase in chicken meat price.
Gross profit of the poultry and related operations segment for Q1 2022
increased by 97% y/y to US$ 65 million mainly driven by exceptionally low
results in Q1 2021 due to poultry cost increase in Q1 2021 which was only
partially compensated by a gradual increase in meat prices as well as by the
adverse impact of avian influenza in Ukraine during Q1 2021 which led to a
temporary ban on exports from Ukraine to the EU.
In Q1 2022, adjusted EBITDA has increased by 9%, in lower rate compared to
gross profit mainly as a result of war-related expenses (donations, damages,
write-offs and other).
Grain Growing Segment
(in mln. US unless indicated otherwise) Q1 2022 Q1 2021 % change
Revenue 35 9 289%
IAS 41 standard loss (65) (22) 195%
Gross profit (2) 4 200%
War-related expenses (1) - 100%
Adjusted EBITDA 9 19 -53%
Adjusted EBITDA (net of IFRS 16) 2 13 -85%
Grain growing segment's revenue amounted to US$ 35 million compared to US$ 9
million in Q1 2021. The increase was mainly attributable to the higher amount
of crops in stock designated for sale as of 31 December 2021, compared to
stock for sale as of 31 December 2020 mainly as a result of higher yields in
2021.
In Q1 2022, adjusted EBITDA has decreased by 53%, mainly as a result of lower
margin earned from grain trading caused by lower export contract prices in Q1
2022 compared to Q4 2021. The additional adverse effect was caused by IAS 41
revaluation of crops in fields due to higher projected costs to be incurred
till the harvesting time in 2022.
As MHP announced recently, despite significant challenges with export
logistics, the Company is not substantially changing crop rotation as its
first priority is to produce crops for fodder production. Production in excess
of this requirement will be exported.
Meat processing and other agricultural operations
Meat processing products Q1 2022 Q1 2021 % change y/y 4Q 2021 % change q/q
Sales volume, third parties tonnes 6,015 7,607 -21% 8,507 -29%
Price per 1 kg net VAT, UAH 87.65 75.59 16% 88.29 -1%
Sales volume of meat processing products decreased by 21% y/y to 6,015 tonnes
driven by war-related challenges, namely disrupted deliveries of raw materials
and challenging logistics. The average processed meat price increased by 16%
year-over-year to UAH 87.65 per kg in Q1 2022, mainly in line with poultry
price increase.
Convenience food Q1 2022 Q1 2021 % change y/y 4Q 2021 % change q/q
Sales volume, third parties tonnes 3,989 4,180 -5% 4,750 -16%
Price per 1 kg net VAT, UAH 53.55 43.03 24% 52.58 2%
Financial result and trends
(in mln. US$, except margin data) Q1 2022 Q1 2021 % change y/y(1)) 4Q 2021 % change q/q(1))
Revenue 36 36 0% 49 -27%
- Meat processing and convenience food 28 27 4% 40 -30%
- Other(2)) 8 9 -11% 9 -11%
IAS 41 standard losses - - 0% (4) 100%
Gross profit 3 5 -40% - 100%
Gross margin 8% 14% -6 pps 0% 8 pps
War-related expenses (3) - 100% - 100%
Adjusted EBITDA (1) 4 -125% (1) 0%
Adjusted EBITDA margin -3% 11% -14 pps -2% -1 pps
(1)) pps - percentage points;
(2)) includes milk, cattle and feed grains.
European Operating Segment (PP)
Poultry Q1 2022 Q1 2021 % change y/y 4Q 2021 % change q/q
Sales volume, third parties tonnes 17,744 16,042 11% 17,924 -1%
Price per 1 kg net VAT, EUR 2.83 2.48 14% 2.70 5%
Poultry sales of the European Operating Segment increased by 11% y/y to 17,744
tonnes driven by an increased production of chicken meat following expansion
at facilities in Croatia and Serbia.
Meat processing products(1)) Q1 2022 Q1 2021 % change y/y 4Q 2021 % change q/q
Sales volume, third parties tonnes 9,917 9,148 8% 10,321 -4%
Price per 1 kg net VAT, EUR 2.91 2.71 7% 2.83 3%
(1)) includes sausages and convenience foods
Financial result and trends
(in mln. US$, except margin data) Q1 2022 Q1 2021 % change y/y(1)) 4Q 2021 % change q/q(1))
Revenue 103 87 18% 100 3%
IAS 41 standard gains 2 - 100% 2 0%
Gross profit 27 24 13% 21 29%
Gross margin 26% 28% -2 pps 21% 5 pps
Adjusted EBITDA 15 12 25% 13 15%
Adjusted EBITDA margin 15% 14% 1 pps 13% 2 pps
Adjusted EBITDA (net of IFRS 16) 14 12 17% 13 8%
Adjusted EBITDA margin 14% 14% 0 pps 13% 1 pps
(net of IFRS 16)
(1)) pps - percentage points.
Growth in the European Operating Segment's revenue and EBITDA is mainly driven
by the increase in poultry sales volume and price.
Current Group Cash Flow
(in mln. US$) Q1 2022 Q1 2021
Cash from operations 121 65
Change in working capital (67) (101)
Net Cash from operating activities 54 (36)
Cash used in investing activities (38) (14)
Including:
CAPEX(1)) (34) (23)
Cash from financing activities 22 (25)
Total change in cash(2)) 38 (75)
(1))Calculated as cash used for Purchases of property, plant and equipment
plus cash used for purchases of other non-current assets
(2))Calculated as Net Cash from operating activities plus Cash used in
investing activities plus Cash used in financing activities
Use of funds in working capital is mostly related to investment in
inventories, primarily attributable to grain growing entities in respect of
forthcoming spring sowing campaign (seeds, fertilizers, plant protection
products, fuel etc.).
In Q1 2022 total CAPEX amounted to US$ 34 million mainly related to
modernization projects, new products development and the maintenance and
improvement of Perutnina Ptuj production facilities.
Debt Structure and Liquidity
(in mln. US$) 31 March 2022 31 December 2021 31 March 2021
Total Debt(1) 2)) 1,516 1,505 1,455
LT Debt(1)) 1,499 1,489 1,437
ST Debt (1)) 141 126 33
Trade credit facilities(2)) (124) (110) (15)
Cash and bank deposits (308) (275) (140)
Net Debt(1)) 1,208 1,230 1,315
LTM Adjusted EBITDA(1)) 637 648 307
Net Debt / LTM Adjusted EBITDA(1)) 1.90 1.90 4.28
(1) ) Net of IFRS 16 adjustments: as if any lease that would have been
treated as an operating lease under IAS 17 as was in effect before the 1
January 2019, is treated as an operating lease for purposes of this
calculation. In accordance with covenants in MHP's bond and loan agreements,
these data exclude the effects of IFRS 16 on accounting for operating leases.
(2)) Indebtedness under trade credit facilities that is required to be
repaid within 12 months of drawdown should be excluded for purposes of this
calculation
As of 31 March 2022, the share of long-term debt in the total outstanding debt
remained unchanged and amounted to 99% of total debt. The weighted average
interest rate was around 7%.
As of 31 March 2022, MHP's cash and cash equivalents amounted to US$ 308
million. Net debt decreased to US$ 1,208 million, compared to US$ 1,230
million as at 31 December 2021.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 1.90 as of 31
March 2022, lower than the limit of 3.0 defined in the Eurobond agreement.
As a hedge for currency risks, revenue from the exports of grain, sunflower
and soybean oil, sunflower husks, and chicken meat are denominated in US
Dollars and Euros, are more than sufficient to cover debt service expenses.
Export revenue for Q1 2022 amounted to US$ 308 million or 56% of total revenue
(US$ 217 million or 49% of total sales in Q1 2021).
Notes to Editors:
About MHP
MHP is the leading producer of poultry products not only in Ukraine, but also
in the Balkans (Perutnina Ptuj Group).
Ukraine: MHP has the greatest market share and 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). Complete vertical integration practically
eliminates MHP's exposure to raw material price fluctuations since its grain
production exceeds internal consumption requirements, allowing the Company to
be an important participant in the international commodity trade. In
addition to cost efficiency, vertical integration also enables MHP to maintain
strict biosecurity and to control the quality of its inputs and the resulting
quality and consistency of its products all the way 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 own truck fleet to distribute its products, reducing overall
transportation costs and delivery times.
MHP also has a leading grain cultivation business growing corn, soya and
sunflower 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 (PP) is a leading poultry and meat-processing
producer in the Balkans, with production sites in four Balkan countries:
Slovenia, Croatia, Serbia, Bosnia and Herzegovina. PP owns distribution
companies in Austria, Macedonia and Romania and supplies products to fifteen
countries in Europe. PP is vertically integrated across all states of chicken
meat production - feed, hatching eggs production and hatching, breeding,
slaughtering, sausage production and further poultry processing.
MHP trades on the London Stock Exchange under the ticker symbol MHPC.
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 2022
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF
DIRECTORS................................................................. 3
MANAGEMENT
REPORT........................................................................................................................
4
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
THREE-MONTH PERIOD ENDED 31 MARCH 2021
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE
INCOME..............................................................................................................................................................
5
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION..................................... 7
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY..................................... 8
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS............................................... 10
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................. 12
1. Corporate
information.....................................................................................................................
12
2. Basis of preparation and accounting
policies...................................................................................
13
3. Segment
information......................................................................................................................
16
4. Profit for the
period........................................................................................................................
17
5. Deferred
income............................................................................................................................
17
6. Property, plant and
equipment........................................................................................................
17
7. Inventories and agricultural
produce................................................................................................
17
8. Shareholders'
equity.......................................................................................................................
17
9. Bank
borrowings............................................................................................................................
18
10. Bonds
issued..............................................................................................................................
19
11. Related party balances and
transactions.......................................................................................
22
12. Contingencies and contractual
commitments.................................................................................
23
13. Fair value of financial
instruments.................................................................................................
25
14. Risk management
policy..............................................................................................................
25
15. Subsequent
events......................................................................................................................
26
16. Authorization of the interim condensed consolidated financial
statements....................................... 27
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 2022 to
31 March 2022 that are presented on pages 5 to 27:
i. were prepared in accordance with the International Financial
Reporting Standards 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.
16 June 2022
Members of the Board of Directors:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria
Kapelyushnaya
Director
John Grant
Director
John
Clifford Rich
Director
Philip
J Wilkinson
Director
Andriy Bulakh
Director
Christakis Taoushanis
MANAGEMENT REPORT
Key financial highlights
During the three-month period ended 31 March 2022 consolidated revenue
increased to USD 553,328 thousand, compared to USD 447,009 thousand for the
three-month period ended 31 March 2021. Export sales for the three-month
period ended 31 March 2022 constituted 56% of total revenue and amounted to
USD 307,603 thousand, compared to USD 216,524 thousand, 49% of total revenue
for the three-month period ended 31 March 2021.
Gross profit increased by 40% and amounted to USD 92,253 thousand for the
three-month period ended 31 March 2021 compared to USD 65,821 thousand for
the three-month period ended 31 March 2021. 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.
Operating profit decreased by 27% to USD 11,675 thousand for the three-month
period ended 31 March 2022 compared to USD 15,997 thousand for the
three-month period ended 31 March 2021, mainly as a result of write-offs of
inventories and donations to communities in Ukraine as a result of Russian
invasion.
Loss for the three-month period ended 31 March 2022 amounted to USD 122,310
thousand, compared to profit of USD 872 thousand for the three-month period
ended 31 March 2021. The decline is mainly due to depreciation of Ukrainian
Hryvnia against US Dollar and EURO, which resulted in foreign exchange loss
of USD 95,323 thousand for the three-month period ended 31 March 2022
compared to gain of USD 19,896 thousand for the three-month period ended
31 March 2021.
Dividends
The Directors have decided not to declare a final dividend for the 2021
financial year.
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 2021. A detailed explanation of
the risks, and how the Group seeks to mitigate the risks, can be found on
pages 156 to 159 of the annual report which is available at mhp.com.cy
(https://mhp.com.cy/) .
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"). Focused
on continuity and sustainability of its business and the preservation of value
for all stakeholders, the Group has concentrated on two key areas: the safety
of its employees and the food security of the country by prioritizing a
continuous supply of food to the population of Ukraine.
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 15 Subsequent Events and Note 2 Basis of preparation and
accounting policies.
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 and, therefore, the Group may
be unable to realize its assets and discharge its liabilities in the normal
course of business.
16 June 2022
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
Continuing operations Notes Three-month period ended 31 March 2022 Three-month period ended 31 March 2021
Revenue 3 553,328 447,009
Net change in fair value of biological assets and agricultural produce 3 (52,977) (21,004)
Cost of sales (408,098) (360,184)
Gross profit 4 92,253 65,821
Selling, general and administrative expenses (54,273) (48,194)
Other operating income 1,841 1,375
Other operating expenses 12 (28,146) (3,005)
Operating profit 11,675 15,997
Finance income 1,168 3,123
Finance costs 9, 10 (37,410) (34,936)
Foreign exchange (loss)/gain , net 4, 14 (95,323) 19,896
Other expenses (3) (127)
(Loss)/Profit before tax 4 (119,893) 3,953
Income tax expense (2,417) (3,081)
(Loss)/Profit for the period (122,310) 872
The accompanying notes on the pages 12 to 27 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
Notes Three-month period ended 31 March 2022 Three-month period ended 31 March 2021
Other comprehensive loss
Items that may be reclassified to profit or loss:
Cumulative translation difference (93,526) (13,222)
Other comprehensive loss for the period (93,526) (13,222)
Total comprehensive loss for the period (215,836) (12,350)
(Loss)/Profit attributable to:
Equity holders of the Parent (121,248) 1,472
Non-controlling interests (1,062) (600)
(122,310) 872
Total comprehensive loss attributable to:
Equity holders of the Parent (212,904) (6,346)
Non-controlling interests (2,932) (6,004)
(215,836) (12,350)
(Loss)/Earnings per share from continuing and discontinued operations
Basic and diluted (loss)/earnings per share (USD per share) (1.13) 0.01
(Loss)/Earnings per share from continuing operations
Basic and diluted earnings/(loss) per share (USD per share) (1.13) 0.01
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 27 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
Notes 31 March 2022 31 December 2021
ASSETS
Non-current assets
Property, plant and equipment 6 1,815,129 1,939,607
Right-of-use asset 251,050 277,288
Intangible assets 93,005 97,791
Goodwill 65,051 66,382
Non-current biological assets 26,594 27,138
Non-current financial assets 27,307 28,764
Long-term bank deposits 9,733 9,904
Deferred tax assets 2,678 1,966
2,290,547 2,448,840
Current assets
Inventories 7 424,328 367,219
Biological assets 230,182 215,459
Agricultural produce 7 370,238 511,267
Prepayments 61,772 44,572
Other current financial assets 18,569 16,156
Taxes recoverable and prepaid 80,728 68,151
Trade accounts receivable 129,980 156,878
Cash and cash equivalents 307,693 275,237
1,623,490 1,654,939
TOTAL ASSETS 3,914,037 4,103,779
EQUITY AND LIABILITIES
Equity
Share capital 8 284,505 284,505
Treasury shares (44,593) (44,593)
Additional paid-in capital 174,022 174,022
Revaluation reserve 743,376 811,684
Retained earnings 1,504,344 1,557,284
Translation reserve (1,110,170) (1,018,514)
Equity attributable to equity holders of the Parent 1,551,484 1,764,388
Non-controlling interests 24,447 29,800
Total equity 1,575,931 1,794,188
Non-current liabilities
Bank borrowings 9 112,737 103,604
Bonds issued 10 1,378,427 1,376,820
Lease liabilities 192,099 204,139
Deferred income 5 41,470 44,593
Deferred tax liabilities 41,856 44,704
Other non-current liabilities 6,164 6,468
1,772,753 1,780,328
Current liabilities
Trade accounts payable 179,437 174,242
Other current financial liabilities 95,942 93,289
Advances received 39,886 41,983
Bank borrowings 9 136,639 121,458
Interest payable 9,10 45,758 21,180
Lease liabilities 67,691 77,111
565,353 529,263
TOTAL LIABILITIES 2,338,106 2,309,591
TOTAL EQUITY AND LIABILITIES 3,914,037 4,103,779
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 27 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
Profit for the period - - - - (121,248) - (121,248) (1,062) (122,310)
Other comprehensive loss - - - - - (91,656) (91,656) (1,870) (93,526)
Total comprehensive (loss)/income for the period - - - - (121,248) (91,656) (212,904) (2,932) (215,836)
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 1,504,344 (1,110,170) 1,551,484 24,447 1,575,931
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 27 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 2021
(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 2021 284,505 (44,593) 174,022 648,982 1,195,143 (1,020,229) 1,237,830 16,373 1,254,203
Profit/(Loss) for the period - - - - 1,472 - 1,472 (600) 872
Other comprehensive loss - - - - - (7,818) (7,818) (5,404) (13,222)
Total comprehensive profit/(loss) for the period - - - - 1,472 (7,818) (6,346) (6,004) (12,350)
Transfer from revaluation reserve to retained earnings - - - (24,780) 24,780 - - - -
Translation differences on revaluation reserve - - - 12,557 (12,557) - - - -
Balance as of 31 March 2021 284,505 (44,593) 174,022 636,759 1,208,838 (1,028,047) 1,231,484 10,369 1,241,853
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 27 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 2022
(in thousands of US dollars, unless otherwise
indicated)
Notes Three-month period ended 31 March 2022 Three-month period ended 31 March 2021
Operating activities
(Loss)/Profit before tax (119,893) 3,953
Non-cash adjustments to reconcile profit before tax to net cash flows
Depreciation and amortization expense 3 41,490 47,499
Net change in fair value of biological assets and agricultural produce 3 52,977 21,004
Change in allowance for irrecoverable amounts and direct 26,817 94
write-offs
Loss on disposal of property, plant and equipment and other non-current assets 362 876
Finance income (1,168) (3,123)
Finance costs 37,410 34,936
Released deferred income (391) (407)
Non-operating foreign exchange loss/(gain), net 95,323 (19,896)
Operating cash flows before movements in working capital 132,927 84,936
Working capital adjustments
Change in inventories 7 (93,744) (130,249)
Change in biological assets (27,560) (8,701)
Change in agricultural produce 7 27,444 29,206
Change in prepayments made (20,025) (2,401)
Change in other financial current assets 313 (4,071)
Change in taxes recoverable and prepaid (17,728) (16,312)
Change in trade accounts receivable 18,721 8,030
Change in advances received 919 708
Change in other financial current liabilities 6,343 (7,180)
Change in trade accounts payable 38,272 29,913
Cash generated by operations 65,882 (16,121)
Interest received 576 2,024
Interest paid (11,208) (20,529)
Income taxes paid (1,440) (1,875)
Net cash flows from operating activities 53,810 (36,501)
Investing activities
Purchases of property, plant and equipment 6 (31,382) (20,177)
Purchases of other non-current assets (1,606) (548)
Purchases of other intangible assets (1,354) (1,815)
Proceeds from disposals of property, plant and equipment 295 620
Purchases of non-current biological assets (1,374) (242)
Prepayments and capitalized initial direct costs under lease contracts (1,500) (997)
Investments in short-term deposits (371) (1,569)
Withdrawals of short-term deposits - 454
Loans provided to/(repaid by) employees, net (250) 128
Loans and finance aid provided to related parties (317) (1,008)
Loans and finance aid repaid by related parties - 11,000
Net cash flows used in investing activities (37,859) (14,123)
Financing activities
Proceeds from bank borrowings 79,210 15,000
Repayment of bank borrowings (52,864) (29,022)
Repayment of lease liabilities (4,049) (5,375)
Dividends paid by subsidiaries to non-controlling shareholders (140) (5,234)
Net cash flows from financing activities 22,157 (24,631)
Net decrease in cash and cash equivalents 38,108 (75,255)
Net foreign exchange difference (5,652) (1,880)
Cash and cash equivalents at 1 January 275,237 217,579
Cash and cash equivalents at 31 March 307,693 140,444
The accompanying notes on the pages 12 to 27 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 2022
(in thousands of US dollars, unless otherwise indicated)
Notes Three-month period ended 31 March 2022 Three-month period ended 31 March 2021
Non-cash transactions
Non-cash repayments of lease liabilities 700 659
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 27 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 2022
(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 2022 the Group
employed 29,978 people (31 December 2021: 30,890 people).
The primary subsidiaries, the principal activities of the companies forming
the Group and the Parent's effective ownership interest as of 31 March 2022
and 31 December 2021 were as follows:
Name Country of registration Year established/ Principal activities 31 March 2021 31 December 2020
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 2022
(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 2022 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 2021 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, including,
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 12 Contingencies and contractual commitments;
· 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;
· export sales reduced significantly due to closure of all
Ukrainian seaports. Only certain roads and railways are now available for
export;
· due to restricted sales, MHP decreased poultry capacity
utilization to 80-85%;
· 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;
· most of the Group's existing undrawn financing facilities are not
available (including USD 52 million) due to liquidity constraints in the
Ukrainian banking system.
In response to these matters, the Group has taken the following actions:
· optimized utilization of production facilities to meet domestic
demand and part of export orders; the Group is maintaining the level of
inventories necessary to allow it to return to normal production capacity as
soon as practically possible;
· delivering exports via alternative routes, including by road and
rail, although this is problematic due to logistical issues caused by
infrastructure damage and low capacity of these routes;
· the spring sowing campaign has already been finished; the Group
had sufficient seeds, fertilisers, fuel, pesticides and other inputs required
for the sowing season, as well as the necessary vehicles, agricultural
machinery and human resources. In total, the Group now plans to harvest around
345 thousand hectares of its Ukrainian landbank (spring and winter crops) in
2022;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Going concern (continued)
· selling, general and administrative and other operating expenses,
as well as CAPEX, have been reduced to the minimum required to meet the
primary needs of the Group's core business;
· 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;
· in response to non-availability of undrawn bank financing
facilities, and to protect working capital requirements, the Group has already
requested its bank lenders to agree to a general postponement of debt
servicing in the current environment for a period of up to 270 days on
conditions referred in Note 10;
· the Directors have decided not to declare a final dividend for
the 2021 financial year.
Management have prepared and reviewed with the Directors updated 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 were based on the following key assumptions:
· further development of the War and the military invasion of
Ukraine will enable utilization of at least 60% of MHP's poultry production
facilities;
· ability to run harvesting campaign on at least 290 thousand
hectares of the Company's land bank;
· 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;
· MHP will be able to successfully complete postponement of debt
servicing with its bank lenders referred above.
These forecasts indicate that, taking account of reasonably possible
downsides, the Group has adequate resources to continue in operational
existence for the foreseeable future. The Directors have therefore concluded
that it is appropriate to apply the going concern basis of accounting in
preparing these interim condensed consolidated financial statements. However,
due to the currently unpredictable effects of the ongoing War 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 and, therefore, 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").
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
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Functional and presentation currencies (continued)
date. All realized and unrealized gains and losses arising on exchange
differences are recognised in the consolidated statement of profit or loss and
other comprehensive income for the period.
These consolidated financial statements are presented in US Dollars ("USD"),
which is the Group's presentation currency.
The results and financial position of the Group are translated into the
presentation currency using the following procedures:
· Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate as of the
reporting date of that statement of financial position;
· Income and expenses for each consolidated statement of profit or
loss are translated at exchange rates at the dates of the transactions;
· 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 2022 Average for three months ended 31 March 2022 Closing rate as of 31 December 2021 Average for three months ended 31 March 2021
UAH/USD 29.2549 28.5545 27.2782 27.9694
UAH/EUR 32.5856 32.2788 30.9226 33.7569
USD/EUR 1.1139 1.1304 1.1336 1.2069
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 2021.
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 2022
(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 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 16,136 117,509 133,732 - 267,377 (267,377) -
Total revenue 394,811 152,667 169,862 103,365 820,705 (267,377) 553,328
Segment result 15,470 (5,652) (2,846) 9,447 16,419 - 16,419
Unallocated corporate expenses (4,744)
Other expenses, net (1)) (131,568)
Loss before tax from continuing operations (119,893)
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 10,020 (65,393) (76) 2,472 (52,977) - (52,977)
(1)) Includes finance income, finance costs, foreign exchange loss (net) and
other expenses (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.
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 31 March 2021:
Poultry Grain growing operations Meat processing and other agricultural operations Europe operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 315,343 8,936 36,027 86,703 447,009 - 447,009
Sales between business segments 9,594 72,310 73 - 81,977 (81,977) -
Total revenue 324,937 81,246 36,100 86,703 528,986 (81,977) 447,009
Segment result 8,581 1,530 1,870 7,981 19,962 - 19,962
Unallocated corporate expenses (3,965)
Other expenses, net (1)) (12,044)
Profit before tax from continuing operations 3,953
Other information:
Depreciation and amortization expense (2)) 23,520 17,554 1,500 4,388 46,962 - 46,962
Net change in fair value of biological assets and agricultural produce 793 (22,416) 274 345 (21,004) - (21,004)
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the three-month period ended 31 March
2021 does not include unallocated depreciation and amortization in the amount
of USD 537 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(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 2022
increased compared to the three-month period ended 31 March 2021 and amounted
to USD 92,253 thousand and USD 65,821 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.
Loss for the three-month period ended 31 March 2022 amounted to USD 122,310
thousand, compared to profit of USD 872 thousand for the three-month period
ended 31 March 2021. The decline is mainly due to depreciation of Ukrainian
Hryvnia against US Dollar and EURO, which resulted in foreign exchange loss
of USD 95,323 thousand for the three-month period ended 31 March 2022
compared to gain of USD 19,896 thousand for the three-month period ended
31 March 2021. Unrealized foreign exchange loss for the three-month period
ended 31 March 2022 was mostly attributable to bonds and bank borrowings
denominated in foreign currencies due to UAH depreciation against USD and EUR.
5. Deferred income
During the three-month periods ended 31 March 2022 and 2021, the Group
received government compensations in accordance with EU farming subsidies
policy and other compensations in accordance with the EU national programs of
employment, assigned contributions for employees, and refunds of excise duties
in amount of USD 1,988 thousand and USD 1,909 thousand respectively.
6. Property, plant and equipment
During the three-month period ended 31 March 2022, the Group's additions to
property, plant and equipment amounted to USD 30,187 thousand (three-month
period ended 31 March 2021: USD 20,177 thousand) mainly related to
modernization projects, new products development and the maintenance and
improvement of Perutnina Ptuj production facilities.
There were no significant disposals of property, plant and equipment during
the three-month period ended 31 March 2022.
Remaining part of the movement mainly relates to translation difference into
the presentation currency.
7. Inventories and agricultural produce
An increase in inventory balance as of 31 March 2022 compared to 31 December
2021 is mainly attributable to costs incurred by grain growing entities in
respect of forthcoming spring sowing campaign.
A decrease of agricultural produce for three-month period ended 31 March 2022
was mainly as a result of internal consumption of corn, wheat, soybeans and
sunflower.
8. Shareholders' equity
As of 31 March 2022 and 31 December 2021 the authorized, issued and fully paid
share capital of MHP SE comprised the following number of shares:
31 March 2022 31 December 2021
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 2021 and 31 December 2021 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 2022
(in thousands of US dollars, unless otherwise indicated)
9. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as
of 31 March 2022 and 31 December 2021:
2022 2021
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Non-current
EUR EURIBOR(2)) + 1.38% 112,737 EURIBOR(2)) + 1.23% 103,604
112,737 103,604
Current
USD 2.04% 123,238 SOFR(3)()) + 2.20% 10,550
EUR EURIBOR(2)) + 1.72% 842 2.00% 99,536
Current portion of EUR EURIBOR(2)) + 1.38% 12,559 EURIBOR(2)) + 1.23% 11,372
long-term bank borrowings
136,639 121,458
Total bank borrowings 249,376 225,062
(1) ) WAIR represents the weighted average interest rate on
outstanding borrowings;
(2) ) According to the terms of certain agreements, if market
EURIBOR becomes negative, it shall be deemed to be zero for calculation of
interest expense;
(3) ) The Secured Overnight Financing Rate (SOFR) is a broad
measure of the cost of borrowing cash overnight collateralized by Treasury
securities.
The Group's borrowings are drawn from various banks as term loans, credit line
facilities and overdrafts. Repayment terms of principal amounts of bank
borrowings vary from monthly repayment to repayment on maturity depending on
the agreement reached with each bank. Interest on borrowings drawn with
foreign banks is payable mostly semi-annually.
As of 31 March 2022 and 31 December 2021, all of 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 2022 and 31
December 2021 were repayable as follows:
31 March 2022 31 December 2021
Within one year 136,639 121,458
In the second year 15,926 13,233
In the third to fifth year inclusive 83,183 76,456
After five years 13,628 13,915
249,376 225,062
As of 31 March 2022, the Group had undrawn facilities of USD 117,614 thousand
(31 December 2021: USD 255,970 thousand), whereof USD 52,416 thousand
currently are unavailable for use. 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, including dividends, capital expenditures, additional
indebtedness and restrictions on mergers or consolidations, limitations on
liens and dispositions of assets and limitations on transactions with
affiliates in case of excess of Net Debt to EBITDA ratio. The Group
subsidiaries are also required to obtain approval from lenders regarding
property, plant and equipment to be used as collateral. During the three-month
period ended 31 March 2022 and year ended 31 December 2021 the Group has
complied with all covenants imposed by banks providing the borrowings.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
9. Bank borrowings (continued)
The Group's bank borrowings are jointly and severally guaranteed by MHP,
Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga
Nova, Starynska Ptakhofabryka, Zernoproduct MHP, Katerinopilskiy Elevator,
Agrofort, SPF Urozhay, MHP SE, Scylla Capital Limited, Myronivska
Pticefabrika, Ptakhofabryka Snyatynska Nova, Vinnytska Ptakhofabryka,
Zakhid-Agro MHP, MHP-Urozhayna Krayina, Raftan Holding Limited. But the bank
borrowings of Perutnina Ptuj - Pipo d.o.o., Perutnina Ptuj d.o.o., Perutnina
Ptuj - Topiko d.o.o. are guaranteed by Perutnina Ptuj.
As of 31 March 2022, the Group had borrowings of USD 90,064 thousand that were
secured by property, plant and equipment with a carrying amount of USD 106,481
thousand (31 December 2021: USD 75,084 thousand and USD 91,931 thousand
respectively).
As of 31 March 2022, the Group had borrowings of USD 30,550 thousand that
were secured by agricultural produce with a carrying amount of USD 38,188
thousand (31 December 2021: USD 30,550 thousand and USD 38,188 thousand
respectively).
As of 31 March 2022, the deposit with carrying amount of USD 2,510 thousand
(31 December 2021: USD 2,555 thousand) was restricted as collateral to secure
bank borrowings.
As of 31 March 2022 and 31 December 2021, interest payable on bank borrowings
was USD 268 thousand and USD 423 thousand, respectively.
10. Bonds issued
Bonds issued and outstanding as of 31 March 2022 and 31 December 2021 were as
follows:
Carrying amount Nominal amount
31 March 2022 31 December 2021 31 March 2022 31 December 2021
7.75% Senior Notes due in 2024 491,799 490,851 500,000 500,000
6.95% Senior Notes due in 2026 538,947 538,346 550,000 550,000
6.25% Senior Notes due in 2029 347,681 347,623 350,000 350,000
Unamortized debt issuance cost - - (21,573) (23,180)
Total bonds issued 1,378,427 1,376,820 1,378,427 1,376,820
As of 31 March 2022 and 31 December 2021 amount of accrued interest on bonds
issued was USD 45,490 thousand and USD 20,757 thousand, respectively.
6.25% Senior Notes
On 19 September 2019, MHP Lux S.A., a public company with limited liability
(société anonyme) incorporated in 2018 under the laws of the Grand Duchy of
Luxembourg, issued USD 350,000 thousand 6.25% Senior Notes due in 2029 at par
value. The funds received were used to satisfy and discharge the 8.25% Senior
Notes due in April 2020, for debt refinancing and for general corporate
purposes.
All expenses associated with the placement of the 6,25% Senior Notes amounted
to USD 2,888 thousand and were capitalized.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, 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".
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2021
(in thousands of US dollars, unless otherwise indicated)
10. Bonds issued (continued)
6.25% Senior Notes (continued)
Interest on the Senior Notes is payable semi-annually in arrears in March and
September. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of outstanding Notes may, upon written
notice to the Group, declare all outstanding Senior Notes to be due and
payable immediately. If a change of control occurs, the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest and additional amounts, if
any.
6.95% Senior Notes
On 3 April 2018, MHP Lux S.A. issued USD 550,000 thousand 6.95% Senior Notes
due in 2026 at par value. Out of the total issue amount USD 416,183 thousand
were designated for redemption and exchange of the existing 8.25% Senior Notes
due in 2020.
The part of expenses, connected with placement of the 6,95% Senior Notes
amounted to USD 11,564 thousand were capitalized, including USD 10,413
thousands related to the exchange. All other related expenses in the amount of
USD 32,915 thousand were expensed as incurred.
As a result of a non-substantial modification, the difference between the
present value of the cash flows under the original and modified terms
discounted at the original effective interest rate was recognised as a gain in
the amount of USD 4,733 thousand at the date of modification in the
consolidated profit or loss.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats",
PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC
"Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC,
"Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator"
LLC, Scylla Capital Limited.
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 101% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in
2024 at par value. Out of the total issue the amount of USD 245,200 thousand
were designated for redemption and exchange of existing 8.25% Senior Notes due
in 2020.
The carrying amount of the Senior Notes was adjusted on transition to IFRS 9.
Under IFRS 9, as a result of a non-substantial modification, the difference
between the present value of the cash flows under the original and modified
terms discounted at the original effective interest rate should be recognised
as a gain at the date of modification. The difference between the carrying
amount of the Senior Notes under IAS 39 and IFRS 9 was recognised in opening
retained earnings in the amount of USD 7,566 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2021
(in thousands of US dollars, unless otherwise indicated)
10. Bonds issued (continued)
7.75% Senior Notes (continued)
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, dividends payment) are dependent
on the leverage ratio of the Group. Once the leverage ratio exceeds 3.0 to 1,
it is not permitted for the Group to make certain restricted payments, declare
dividends exceeding USD 30 million in any financial year, incur additional
debt except that is defined as a Permitted Debt. According to the indebtedness
agreement, the consolidated leverage ratio is tested on the date of incurrence
of additional indebtedness or restricted payment and after giving pro forma
effect to such incurrence or restricted payment as if it had been incurred or
done at the beginning of the most recent four consecutive fiscal quarters for
which financial statements are publicly available (or are made available). The
Group has tested all the transactions occurred prior to publication of these
financial statements and has complied with all the covenants defined by
indebtedness agreement during the reporting periods ended 31 March 2022 and 31
December 2021.
As at 31 March 2022 the leverage ratio of the Group is 1.90 to 1 (31 December
2021: 1.90 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 9 September 2021, the date of publication of
reviewed interim condensed consolidated financial statements for the three and
six months ended 30 June 2021.
Consent solicitation
On 30 March 2022, the Group received consent from the 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"). The unpaid interest payments will continue accruing during
the Support Period.
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;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2021
(in thousands of US dollars, unless otherwise indicated)
10. Bonds issued (continued)
Consent solicitation (continued)
· 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 U.S.$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.
11. 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 2022 and 31 March 2021 were as follows:
2022 2021
Loans and finance aid provided to related parties 317 1,008
Loans and finance aid repaid by related parties - 11,000
Interest charged on loans and financial aid repaid - 1,121
Interest charged on loans and finance aid provided - 1,338
Purchases from related parties 2 2
Key management personnel of the Group:
Loans repaid 176 177
The balances owed to and due from related parties were as follows as of 31
March 2022 and 31 December 2021:
2022 2021
Loans and finance aid receivable 2,770 2,971
Less: expected credit losses (2,390) (2,521)
380 450
Loans to key management personnel 4,281 4,774
Less: expected credit losses (368) (397)
3,913 4 377
Trade accounts receivable 105 113
Payables due to related parties 23 25
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2021
(in thousands of US dollars, unless otherwise indicated)
11. Related party balances and transactions (continued)
Related party loans and finance aid receivable
On 21 January 2020, the Board approved a loan facility of up to USD 80,000
thousand to the company's principal shareholder, WTI Trading Limited ("WTI")
to meet WTI's general liquidity requirements and other corporate purposes for
a maximum of three years. As of 31 December 2021, loan has been fully repaid
to the Group by WTI.
The Group's Directors believe that the loans were issued at arm's length terms
and for fair market value, that they were in the best interests and for the
commercial benefit of the Group and did not violate the terms of the Senior
Notes (Note 11).
For other 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 2,343 thousand and USD 2,482 thousand as at 31 March
2022 and 31 December 2021 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 2,426
thousand and USD 2,573 thousand for the periods ended 31 March 2022 and 2021,
respectively. Compensation of key management personnel consists of contractual
salary and performance bonuses.
12. Contingencies and contractual commitments
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 are closed and have been damaged,
and many roads and bridges have been damaged or destroyed, further crippling
transportation and logistics.
The situation remains highly fluid and the outlook is subject to extraordinary
uncertainty. The economic consequences are already very serious.
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. Most Ukrainian companies are still paying taxes.
International organizations (IMF, EBRD, EU, World Bank), along with individual
countries and charities, have provided Ukraine with financing, donations and
material support. In total, international support has reached more than USD 15
billion.
In view of the large-scale armed assault in Ukraine by Russian forces, the
National Bank of Ukraine ('NBU') decided to postpone a decision on the
discount rate, leaving it unchanged at 10% and, when the war started, moved to
a fixed exchange rate of UAH 29.25 to the US Dollar. The NBU has also said
that once the economy and financial system return to operation, it will revert
to the traditional format of inflation targeting with a floating exchange
rate.
The Ukrainian government has introduced export licensing of key foodstuffs
including wheat, corn, poultry meat, and sunflower oil.
As of 15 March 2022, the Verkhovna Rada of Ukraine approved a set of taxation
amendments to support Ukrainian businesses under war conditions. The law
establishes a special economic regime during the period of martial law. The
key innovation is that all companies with annual turnover of up to UAH 10 bln
may now stop paying VAT and corporate profit tax (CPT), switching to a 2%
turnover tax. Physically lost goods are not subject to VAT. Reimbursement of
VAT for exporters is frozen. For car fuel, excise tax is zeroed and VAT rate
is decreased from 20% to 7%. Also, support of the national war effort is
relieved from taxation.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
12. Contingencies and contractual commitments (continued)
Operating environment (continued)
Ukraine's economy is expected to contract by 10% to 30% in 2022 as a result of
Russia's invasion, but the outlook could worsen sharply if the conflict lasts
longer.
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. The
Group considers that following expenses incrurred during three-month periods
ended 31 March 2022 directly related to the war:
2022 2021
Community support donations 13,403 -
Write-off of inventories and biological assets 8,334 -
Expected credit losses of trade accounts receivable 2,005 -
Other war-related expenses 1,439 -
25,181 -
These expenses are presented within other operating expenses in the
consolidated statement of profit or loss and other comprehensive income.
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, new 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 2019 and
31 December 2020 within the required deadlines.
As of 31 March 2022, the Group's management assessed its possible exposure to
tax risks for a total amount of USD 5,161 thousand related to corporate income
tax (31 December 2021: USD 5,658 thousand). No provision was recognised
relating to such possible tax exposure.
As of 31 March 2022, companies of the Group were engaged in ongoing litigation
with tax authorities for the amount of USD 68,385 thousand (31 December 2021:
USD 73,147 thousand), including USD 57,087 thousand (31 December 2021: USD
59,670 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 45,751 thousand as of 31 March 2022 (31
December 2021: USD 48,912 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.
Contractual commitments on purchase of property, plant and equipment
During the three-month period ended 31 March 2022, 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 2022, purchase commitments on such contracts were primarily
related to modernization projects, new products development and the
maintenance and improvement of Perutnina Ptuj production facilities and
amounted to USD 31,724 thousand (31 December 2021: USD 30,952 thousand).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
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 2022 31 December 2021 31 March 2022 31 December 2021
Financial liabilities
Bank borrowings (Note 10) 249,644 225,485 249,624 225,574
Senior Notes due in 2024, 2026, 2029 (Note 11) 1,423,917 1,397,577 659,910 1,389,024
The carrying amount of Bank borrowings and Senior Notes issued includes
interest payable at each of the respective dates.
The fair value of bank borrowings was estimated by discounting the expected
future cash outflows by a market rate of interest for bank borrowings 1.8% (31
December 2021: 1.8%), 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 2022 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, Group management sets limits on the level of exposure to foreign
currency fluctuations.
The carrying amounts of the Group's foreign currency denominated monetary
assets and liabilities as of
31 March 2022 and 31 December 2021 were as follows:
31 March 2022 31 December 2021
USD EUR USD EUR
Total assets 180,230 36,755 140,705 41,883
Total liabilities 1,552,668 52,301 1,513,825 42,395
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
14. Risk management policy (continued)
Currency risk (continued)
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
2022
Increase in USD exchange rate 15% (205,866)
Increase in EUR exchange rate 15% (2,332)
Decrease in USD exchange rate 15% 205,866
Decrease in EUR exchange rate 15% 2,332
2021
Increase in USD exchange rate 15% (205,968)
Increase in EUR exchange rate 15% (77)
Decrease in USD exchange rate 15% 205,968
Decrease in EUR exchange rate 15% 77
During the three-month period ended 31 March 2022, the Ukrainian Hryvnia
depreciated against the EUR by 5.1% and against the USD by 6.8% (three-month
period ended 31 March 2021: appreciated against the EUR and USD by 6.2% and
1.4% respectively). As a result, during the three-month period ended 31
March 2022 the Group recognized net foreign exchange loss in the amount of USD
95,323 thousand (three-month period ended 31 March 2021: foreign exchange gain
in the amount of USD 19,896 thousand) in the consolidated statement of profit
or loss and other comprehensive income.
15. Subsequent events
The situation in Ukraine continues to be severe as a result of Russian
Federation full-scale military invasion of Ukraine.
After more than a month of fighting, in April Russian forces failed to take or
surround Kyiv, and were forced to withdraw from northern Ukraine, abandoning
their immediate efforts to topple Ukraine's government. As a result, certain
areas in Kyiv, Kharkiv, Chernihiv, Sumy and Mykolaiv regions were liberated
from Russian invaders.
Despite this, Russia launched a renewed invasion across a front extending from
Kharkiv to Donetsk and Luhansk, with simultaneous missile attacks again
directed at the major cities of Ukraine. As of now intense fighting continues
in eastern Ukraine, especially in Luhansk and Donetsk regions, while
airstrikes and missile attacks are reported almost daily in several regions
across the country.
Due to this, the Group continues to experience a number of significant
disruptions and operational issues within its business, including, but not
limited to:
Production and Sales
While MHP continues commercial poultry sales in Ukraine, export sales have
significantly reduced due to the closure of Ukrainian seaport infrastructure.
MHP is evaluating remaining options to carry out export deliveries via
alternative routes, including by road and rail, although this is also
problematic due to logistical issues caused by infrastructure damage and low
capacity. In addition, domestic deliveries in some regions have been and
continue to be significantly disrupted due to active hostilities.
There have been significant supply chain disruptions due to logistical
challenges, including the supply of vitamins and minerals for production of
feed, plant protection materials, diesel and other inputs. Nonetheless, having
received substantial support from global agricultural companies, the Group's
production facilities are now able to run at close-to-normal utilization, with
production directed primarily to satisfy domestic needs with the balance to
partially meet export orders. The Group is taking all actions necessary to
enable a return to full-scale production as soon as practically possible.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the three-month period ended 31 March 2022
(in thousands of US dollars, unless otherwise indicated)
15. Subsequent events (continued)
Also, due to the continuing military activities and further escalation of the
situation in the Donetsk region, MHP has decided to temporarily suspend
operations of "Ukrainian Bacon" (a meat-processing operation with 34,000
tonnes annual capacity located in the Donetsk region). The Group has asked its
employees (over 1,900 people) and their families to move to safer regions of
Ukraine. Some employees were redeployed to other Group production facilities.
Group is working actively on the commissioning of similar production sites at
MHP facilities in order to continue production. However, such commissioning
will require additional time and resources.
Continuous humanitarian efforts
The Group, working with volunteers, has been providing humanitarian aid
(mainly through food supply) to the population 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.
Condition of assets
As of 16 June 2022, the Group's poultry production facilities have not
suffered any damage.
The Group has successfully finished its 2022 sowing campaign on all territory
of its land bank.
Impact on financial position and results of operations
The duration and impact of the war in Ukraine remains unclear at this time. It
is not possible to reliably estimate the duration and severity of these
consequences, as well as their impact on the financial position and results of
the Group for future periods.
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 16 June 2022.
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