REG - MHP SE - Q2 and H1 2022 Financial Results
14/09/2022 07:00
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RNS Number : 4053Z MHP SE 14 September 2022
14 September 2022, Limassol, Cyprus
MHP SE
Financial Results for the Second Quarter and Six Months ended 30 June 2022
MHP SE (LSE:MHPC), the parent company of a leading international food &
agrotech group with headquarters in Ukraine, today announces its unaudited
results for the second quarter ended 30 June 2022. Hereinafter, MHP SE and its
subsidiaries are referred to as "MHP", "The Company" or "The Group".
WAR IN UKRAINE - UPDATE
Since the last update provided on 19 August 2022, the war situation in Ukraine
has stabilized to some extent, although the situation remains highly fluid and
the outlook is subject to extraordinary uncertainty.
Although MHP continues to face complex challenges and disruptions in
operations, sales and logistics, the Company has now been able to restore
poultry production in its Ukrainian facilities to almost 100% of capacity.
New, albeit more complex and costly, logistics routes have been established in
recent months and export volumes are increasing. We expect to complete the
grain harvest on virtually all our land in the second half of the year.
Due to the agreement signed on 22 July by Ukraine, the Russian Federation,
Turkey and the United Nations to resume grain exports, agricultural companies
are now able to export from Ukraine and more than 100 ships have delivered
animal feed, grain and vegetable oils to a number of MENA and EU countries.
MHP is planning to use this route to export grain later this year.
As reported previously, the Group has not suffered any material damage to its
facilities, infrastructure and produce in Ukraine except for the destruction
of a leased storage facility (with loss of around US$ 6 million of produce) in
March and suspension of Ukrainian Bacon operations in the Donetsk region which
have now been relocated to other locations in Ukraine.
The Group has incurred substantial war-related costs since the Russian
invasion on 24 February. For the period ended 30 June 2022 these amounted to
almost US$ 50 million, including community support donations, write-off of
inventories and biological assets and other war-related expenses. Working with
volunteers, the Group has provided humanitarian aid including free supply of
around 13,000 tonnes of poultry products to the population of Ukraine since
the beginning of the war.
OPERATIONAL HIGHLIGHTS
Q2 2022
· Poultry production volume in Ukraine was down 11% at
170,395 tonnes (Q2 2021: 190,908 tonnes). Poultry production volumes of the
European Operating Segment (PP) increased by 6% to 31,259 tonnes (Q2 2021:
29,455 tonnes).
· MHP Ukraine's average chicken meat price increased by
22% to US$ 2.03 per kg (Q2 2021: US$ 1.67 per kg) excluding VAT. The average
price of chicken meat produced by PP increased by 33% to EUR 3.36 per kg
(Q2 2021: EUR 2.53 per kg).
· As a result of war-related logistics challenges,
chicken meat exports from Ukraine declined by 37% to 68,552 tonnes (Q2 2021:
109,055 tonnes).
H1 2022
· Poultry production volume in Ukraine decreased by 3% to
346,039 tonnes (H1 2021: 357,531 tonnes). PP's poultry production volumes of
the PP increased by 11% to 59,809 tonnes (H1 2021: 54,117 tonnes).
· MHP Ukraine's average chicken meat price increased by
24% to US$ 1.93 per kg (H1 2021: US$ 1.56 per kg) excluding VAT. The average
price of poultry meat produced by PP also increased by 24%, to EUR 3.11 per kg
(H1 2021: EUR 2.51 per kg).
· As a result of logistics challenges following the
Russian invasion on 24 February, chicken meat exports from Ukraine declined by
17% to 157,892 tonnes (H1 2021: 191,315 tonnes).
FINANCIAL HIGHLIGHTS
Q2 2022
· Revenue of US$ 595 million, increased by 10% y/y (Q2
2021: US$ 542 million).
· Export revenue of US$ 333 million, 56% of total revenue
(Q2 2021: US$ 285 million, 53% of total revenue).
· Operating profit of US$ 67 million, decreased by 72%
y/y; operating margin decreased to 11% (Q2 2021: 44%).
· Adjusted EBITDA (net of IFRS 16) decreased to US$ 111
million from US$ 277 million; adjusted EBITDA margin (net of IFRS 16)
decreased to 19% from 51%.
· Net profit decreased to US$ 20 million, compared to US$
232 million for Q2 2021, including US$ 3 million of non-cash foreign exchange
translation gain in Q2 2022 compared to gain of US$ 31 million in Q2 2021. Net
profit before foreign exchange differences for Q2 2022 amounted to US$ 17
million, 91% lower compared to US$ 201 million of profit in Q2 2021.
H1 2022
· Revenue increased by 16% to US$ 1,149 million (H1 2021:
US$ 989 million).
· Export revenue increased to US$ 640 million, 27% higher
y/y, representing 56% of total revenue (H1 2021: US$ 502 million, 51% of total
revenue).
· Operating profit decreased to US$ 76 million, down by
70% y/y (H1 2021: US$ 255 million) and operating margin decreased from 26% to
7%.
· Adjusted EBITDA (net of IFRS 16) decreased by 54% to
US$ 154 million (H1 2021: US$ 334 million); adjusted EBITDA margin (net of
IFRS 16) decreased from 34% to 13%.
· Net loss amounted to US$ 89 million, compared to a
profit of US$ 232 million in H1 2021, primarily reflecting a US$ 92 million
non-cash foreign exchange loss in H1 2022 compared with a US$ 51 million
foreign exchange gain in H1 2021. Net profit before foreign exchange
differences amounted to US$ 3 million compared to US$ 182 million in H1 2021.
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) Q2 2022 Q2 2021 % change(1)) H1 2022 H1 2021 % change(1))
Revenue 595 542 10% 1,149 989 16%
IAS 41 standard losses (37) 146 -125% (93) 125 -174%
Gross profit 152 292 -48% 241 358 -33%
Gross profit margin 26% 54% -28 pps 21% 36% -15 pps
War-related expenses (13) - 100% (38) - 100%
Operating profit 67 239 -72% 76 255 -70%
Operating profit margin 11% 44% -33 pps 7% 26% -19 pps
Adjusted EBITDA 119 281 -58% 169 344 -51%
Adjusted EBITDA margin 20% 52% -32 pps 15% 35% -20 pps
Adjusted EBITDA (net of IFRS 16) 111 277 -60% 154 334 -54%
Adjusted EBITDA margin (net of IFRS 16) 19% 51% -32 pps 13% 34% -21 pps
Net profit before foreign exchange differences 17 201 -92% 3 182 -98%
Net profit margin before forex (loss)/gain 3% 37% -34 pps 0% 18% -18 pps
Foreign exchange gain/(loss) 3 31 -90% (92) 51 -280%
Net profit/(loss) 20 232 -91% (89) 232 -138%
Net profit/(loss) margin 3% 43% -40 pps -8% 23% -31 pps
(1)) pps - percentage points
Average official FX rate for Q2: UAH/US$ 29.25 in 2022 and UAH/US$ 27.59 in
2021.
Average official FX rate for H1 2022 UAH/US$ 28.91 and for H1 2021 UAH/US$
27.78.
DIAL-IN DETAILS
MHP's management will host a conference call for investors and analysts
followed by Q&A on the day of the results.
The dial-in details are:
Time: 14.00 London / 16.00
Kyiv / 09.00 New York
Title: Financial results
for Q2 and H1 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) +38 050 339
29 99
+357 99 76 71 26
a.sobotyuk@mhp.com.ua (mailto:a.sobotyuk@mhp.com.ua)
Segment Performance
Poultry and related operations segment
Q2 2022 Q2 2021(1)) % change y/y(2)) Q1 2022 % change q/q(1)) H1 2022 H1 2021 % change(1))
Poultry
Sales volume, third parties tonnes 140,549 183,592 -23% 159,024 -12% 299,573 338,593 -12%
Export sales volume, tonnes 68,552 109,055 -37% 89,340 -23% 157,892 191,315 -17%
Domestic sales volume, tonnes 67,897 71,876 -6% 66,809 2% 134,706 143,326 -6%
Portion of export sales, % 49% 59% -10 pps 56% -7 pps 53% 57% -4 pps
Average price per 1 kg net of VAT, USD 2.03 1.67 22% 1.84 10% 1.93 1.56 24%
Average price per 1 kg net of VAT, UAH (Ukraine) 41.77 44.88 -7% 45.62 -8% 43.86 43.06 2%
Average price per 1 kg net of VAT, USD (Ukraine) 1.43 1.63 -12% 1.60 -10% 1.51 1.55 -3%
Average price per 1 kg net of VAT, USD (export) 2.63 1.69 56% 2.01 31% 2.28 1.56 46%
Sunflower oil
Sales volume, third parties tonnes 48,495 35,192 38% 32,981 47% 81,476 91,140 -11%
Soybeans oil
Sales volume, third parties tonnes 9,191 11,871 -23% 10,355 -11% 23,017 -15%
19,547
(1)) Total poultry sales include domestic sales, export sales and sales of
culinary products; data for 2021 has been adjusted accordingly to this
approach
(2)) pps - percentage points
Chicken meat
The total volume of chicken meat sold to third parties in H1 2022 decreased by
12% to 299,573 tonnes (H1 2021: 338,593 tonnes) mainly as a result of
logistical challenges for export sales and lower demand in Ukraine due to the
effects of the war.
Poultry export prices in Q2 2022 increased by 56% y/y, and by 31% q/q, mainly
driven by product mix optimization of sales as well as by substantial
international price increases across all markets (particularly fillet prices
in the EU and MENA and small bird prices in the MENA region).
In Q2 2022 poultry prices on the domestic market in USD terms decreased by 12%
y/y, and by 10% q/q, mainly driven by lower share in sales of chilled meat as
well as product mix structure.
Vegetable oil
In Q2 2022, sunflower oil sales volume amounted to 48,495 tonnes, up 38% y/y.
In H1 2022 MHP's sales of sunflower oil decreased by 11% compared to H1 2021
to 81,476 tonnes, mainly driven by changes in delivery terms because of the
challenging logistics (since March), but partially offset by an increase in
production of sunflower oil in Q2 2022.
Sales of soybean oil amounted to 9,191 tonnes in Q2 2022, 23% lower y/y, and
19,546 tonnes in H1 2022, 15% lower y/y, mainly as a result of soyabean cake
being partly replaced by sunflower cake in the fodder recipe (mainly in Q2
2022) and challenges associated with export logistics because of the war in
Ukraine.
Financial result and trends
(in mln. US$, unless indicated otherwise) Q2 2022 Q2 2021 % change y/y(1)) Q1 2022 % change q/q(1)) H1 2022 H1 2021 % change(1))
Revenue 430 392 10% 379 13% 809 707 14%
- Poultry and other 330 334 -1% 322 2% 652 582 12%
- Vegetable oil 100 58 72% 57 75% 157 125 26%
IAS 41 standard gain 9 18 -50% 6 50% 15 18 -17%
Gross profit 87 110 -21% 61 43% 148 143 3%
Gross margin 20% 28% -8 pps 17% 3 pps 18% 20% -2 pps
War-related expenses (10) - 100% (21) -52% (31) - 100%
Adjusted EBITDA 68 108 -37% 32 113% 100 140 -29%
Adjusted EBITDA margin 16% 28% -12 pps 9% 7 pps 12% 20% -8 pps
Adjusted EBITDA per 1 kg (net of IAS 41) 0.42 0.50 -16% 0.16 163% 0.28 0.36 -22%
(1)) pps - percentage points
In H1 2022, revenue increased by 14% y/y as a result of price increases on
export markets which were offset by lower sales volumes of meat and vegetable
oil. An increase of revenue by 13% q/q was primary attributable to a
substantial increase in the sales volume of vegetable oil due to the effects
of the war and change in the fodder recipe.
IAS 41 standard gain in Q2 2022 amounted to US$ 9 million mainly as a result
of an increase in price and quantity of chicken meat, which was offset by an
increase in poultry production costs.
Gross profit in H1 2022 increased by 3% y/y to US$ 148 million. The increase
was mainly driven by unusually low results in Q1 2021 due to high poultry
production costs and the adverse impact of avian influenza in Ukraine during
that period. The decrease in total poultry sales volume was offset by
increases in prices.
In H1 2022, adjusted EBITDA decreased by 29%, mainly as a result of
war-related expenses (including donations, damages and asset write-offs).
Grain growing operations
Winter crops (wheat, rapeseeds and other) harvesting has been completed on
around 69,700 ha of land:
- rapeseeds - around 27,500 ha with around 3.8 t/ha yield;
- wheat - around 40,700 ha with around 5.5 t/ha yield.
Spring crops are in good conditions. Weather conditions are also relatively
good, although there are some regions in Ukraine with extreme weather
conditions, where it is hot and very dry.
In 2022, MHP is planning to harvest around 335,000 ha of land.
Financial result and trends
(in mln. US unless indicated otherwise) H1 2022 H1 2021 % change
Revenue 53 12 342%
IAS 41 standard loss (113) 102 -211%
Gross profit 25 147 -83%
War-related expenses (1) 0 100%
Adjusted EBITDA 48 171 -72%
Adjusted EBITDA (net of IFRS 16) 34 161 -79%
Grain growing segment's revenue in H1 2022 amounted to US$ 53 million compared
to US$ 12 million in H1 2021. The increase was mainly attributable to the
higher volume 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.
IAS 41 standard loss in H1 2022 amounted to US$ 113 million compared to a gain
of US$ 102 million in H1 2021. The loss represents the net change in the
effect of revaluation of agricultural produce (sunflower, corn, wheat and
soya) as well as a lower valuation of crops in fields due to lower prices.
Meat processing and other agricultural operations segment
Meat processing products Q2 2022 Q2 2021 % change y/y Q1 2022 % change q/q H1 2022 H1 2021 % change
Sales volume, third parties tonnes 2,289 8,462 -73% 6,015 -62% 8,304 16,069 -48%
Price per 1 kg net VAT, UAH 88.34 80.72 9% 87.65 1% 87.84 78.29 12%
Sales volume of meat processing products decreased by 48% y/y to 8,304 tonnes
in H1 2022 driven by war-related challenges that resulted in temporary
suspension of production facilities of the "Ukrainian Bacon" in the Donetsk
region and subsequent partial redeployment of its operations to Central
Ukraine. The average price increased by 12% y/y to UAH 87.84 per kg in H1
2022, mainly in line with the poultry price increase.
Convenience food Q2 2022 Q2 2021 % change y/y Q1 2022 % change q/q H1 2022 H1 2021 % change
Sales volume, third parties tonnes 3,421 4,485 -24% 3,989 -14% 7,410 8,665 -14%
Price per 1 kg net VAT, UAH 58.94 50.91 16% 53.55 10% 56.04 47.11 19%
Sales volumes of convenience food in H1 2022 decreased by 14% to 7,410 tonnes,
mainly driven by significant disruptions in HoReCa (both KFC and McDonalds had
to cease its operations in Ukraine because of the war). The average price in
H1 2022 increased by 19% to UAH 56.04 per kg (excluding VAT).
Financial result and trends
(in mln. US$, except margin data) Q2 2022 Q2 2021 % change y/y(1)) Q1 2022 % change q/q(1)) H1 2022 H1 2021 % change
Revenue 27 42 -36% 36 -25% 63 78 -19%
- Meat processing and convenience food 20 34 -41% 28 -29% 48 61 -21%
- Other(2)) 7 8 -13% 8 -13% 15 17 -12%
IAS 41 standard losses - 3 -100% 1 -100% 1 3 -67%
Gross profit 2 8 -75% 4 -50% 6 13 -54%
Gross margin 7% 19% -12 pps 8% -1 pps 10% 17% -7 pps
War-related expenses (1) - 100% (3) 267% (4) - 100%
Adjusted EBITDA - 7 -100% - - - 10 -100%
Adjusted EBITDA margin 0% 17% -17 pps 0% 0 pps 0% 13% -13 pps
(1)) pps - percentage points;
(2)) includes milk, cattle and feed grains.
The segment's revenue in H1 2022 decreased by 19% to US$ 27 million. Adjusted
EBITDA in H1 2022 was nil compared to US$ 10 million in H1 2021 mainly due to
the effects of the war and significant disruptions in demand for the HoReCa
segment.
European operating segment (PP)
Poultry Q2 2022 Q2 2021 % change y/y Q1 2022 % change q/q H1 2022 H1 2021 % change
Sales volume, third parties tonnes 19,619 19,508 1% 17,744 11% 37,363 35,550 5%
Price per 1 kg net VAT, EUR 3.36 2.53 33% 2.83 19% 3.11 2.51 24%
In Q2 2022, poultry sales of the European operating segment remained stable
y/y at 19,619 tonnes, while increasing by 11% compared with Q1. This was
driven by increased production of chicken meat following expansion of
facilities in Croatia and Serbia. Average price increased by 33% y/y in Q2
2022 to EUR 3.36 (Q2 2021: EUR 2.53).
Meat processing products(1)) Q2 2022 Q2 2021 % change y/y Q1 2022 % change q/q H1 2022 H1 2021 % change
Sales volume, third parties tonnes 10,238 9,868 4% 9,917 3% 20,155 19,016 6%
Price per 1 kg net VAT, EUR 3.12 2.80 11% 2.91 7% 3.02 2.76 9%
(1)) includes sausages and convenience foods
Meat processing product sales were up by 4% y/y to 10,238 tonnes in Q2 2022
(Q2 2021: 9,868 tonnes), at the same time increasing by 3% compared with Q1.
Average price in Q2 2022 increased by 11% to EUR 3.12.
Financial result and trends
(in mln. US$, except margin data) Q2 2022 Q2 2021 % change y/y(1)) Q1 2022 % change q/q(1)) H1 2022 H1 2021 % change
Revenue 120 104 15% 104 15% 224 191 17%
IAS 41 standard gains 3 1 200% 2 50% 5 2 150%
Gross profit 35 31 13% 27 30% 62 55 13%
Gross margin 29% 30% -1 pps 26% 3 pps 28% 29% -1 pps
Adjusted EBITDA 22 21 5% 15 47% 37 33 12%
Adjusted EBITDA margin 18% 20% -2 pps 15% 3 pps 17% 17% 0 pps
Adjusted EBITDA (net of IFRS 16) 22 21 5% 14 57% 36 32 13%
Adjusted EBITDA margin 18% 20% -2 pps 14% 4 pps 16% 17% -1 pps
(net of IFRS 16)
(1)) pps - percentage points.
European operating segment's revenue in H1 2022 increased by 17% to US$ 224
million (H1 2021: US$ 191 million), mainly as a result of the increase in
poultry sales volume and price.
Adjusted EBITDA (net of IFRS 16) amounted to US$ 36 million for H1 2022
compared with US$ 32 million for H1 2021. Adjusted EBITDA margin (net of IFRS
16) remains almost on the same level at 16%.
Current Group cash flow
(in mln. US$) Q2 2022 Q2 2021 H1 2022 H1 2021
Cash from operations 133 86 254 151
Change in working capital (179) (1) (246) (102)
Net Cash from operating activities (46) 85 8 49
Cash used in investing activities (35) (41) (73) (55)
Including:
CAPEX(1)) (30) (31) (63) (54)
Cash from financing activities - (27) 22 (52)
Total change in cash(2)) (81) 17 (43) (58)
(1))Calculated as cash used for Purchases of property, plant and equipment
plus cash used for purchases of other non-current assets
(2))Calculated as Net Cash from operating activities plus Cash used in
investing activities plus Cash used in financing activities
Use of funds in working capital in H1 2022 was mostly related to investments
in crops in the fields to be harvested as well as an increase in trade
accounts receivable.
The differences between changes in working capital in H1 2022 and Q2 2022
compared to H1 2021 and Q2 2021 respectively were mainly attributable to:
· An increase in trade accounts receivable for sunflower oil and
poultry meat due to longer settlement periods as a result of increased
delivery periods;
· An increase of VAT receivables balances during both periods of
2022;
· A fall in trade accounts payable for plant protection products
and seeds and an increase in advances made for fuel to be used in the
forthcoming harvesting and sowing campaigns;
· Higher amounts of chicken meat and grains in agriculture produce
as at the end of H1 2022 designated for sale and internal consumption
respectively;
· An increase in investments in biological assets during the crop
sowing campaign, due to higher cost per ha comparing to previous year.
In H1 2022 total CAPEX amounted to US$ 63 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$) 30 June 2022 31 December 2021 30 June 2021
Total Debt(1) 2)) 1,511 1,505 1,453
LT Debt(1)) 1,491 1,489 1,435
ST Debt (1)) 144 126 53
Trade credit facilities(2)) (125) (110) (35)
Cash and bank deposits (222) (275) (162)
Net Debt(1)) 1,289 1,230 1,291
LTM Adjusted EBITDA(1)) 468 648 458
Net Debt / LTM Adjusted EBITDA(1)) 2.75 1.90 2.82
(1) ) Net of IFRS 16 adjustments: as if any lease that would have been
treated as an operating lease under IAS 17 as was in effect before the 1
January 2019, is treated as an operating lease for purposes of this
calculation. In accordance with covenants in MHP's bond and loan agreements,
these data exclude the effects of IFRS 16 on accounting for operating leases.
(2)) Indebtedness under trade credit facilities that is required to be
repaid within 12 months of drawdown should be excluded for purposes of this
calculation
As of 30 June 2022, the share of long-term debt in the total outstanding debt
remained unchanged at 99%. The weighted average interest rate is unchanged at
around 7%.
As of 30 June 2022, MHP's cash and cash equivalents amounted to US$ 222
million. Net debt increased to US$ 1,289 million, compared to US$ 1,230
million as at 31 December 2021 but was virtually unchanged compared to US$
1,291 as at 30 June 2021.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 2.75 as of 30
June 2022, lower than the limit of 3.0 defined in the Eurobond agreement.
As a hedge for currency risks, revenues from the exports of grain, sunflower
and soybean oil, sunflower husks, and chicken meat, which are denominated in
US Dollars and Euros, are more than sufficient to cover debt service expenses.
Export revenue for H1 2022 amounted to US$ 640 million or 56% of total revenue
(US$ 502 million or 51% of total sales in H1 2021).
Outlook
Although the situation in Ukraine will remain fluid and highly uncertain while
the war is ongoing, we expect the Group's Ukrainian operations and exports to
continue to return gradually towards normal levels of activity. Barring
unexpected developments, results in the second half of the year should
therefore be influenced primarily by customary market factors.
We expect some further downward correction in global poultry prices in the
coming months, although these may be influenced by varying market factors in
different regions, such as avian-influenza related supply constraints in the
EU but possible excess supply to some Middle East markets. While MHP's
vertical supply chain has protected it to some extent from global inflationary
pressures, increased logistics costs are expected to continue into 2023.
International grain prices are likely to remain high at least into 2023,
reflecting ongoing global supply constraints due to climate change effects
(drought and high temperatures) in China, the EU and mid-West USA. We expect
prices for grains in Ukraine at lower levels compared to international prices
due to the ongoing effects of war.
Following the strong support demonstrated in March 2022 by holders of our
Eurobonds and our bankers, the Group is funded to maintain operations and
business continuity and expects to pay its forthcoming semiannual bond coupons
in full and on time. Taking into account the uncertainties of the war, it
should be noted that any potential further actions by the National Bank of
Ukraine could affect MHP's future bond coupon payments.
Notes to Editors:
About MHP
MHP SE is the parent company of a leading international food & agrotech
group with headquarters in Ukraine and also in the Balkans (Perutnina Ptuj
Group).
Ukraine: MHP has the greatest market share (over 30% of poultry consumption)
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). Vertical integration
reduces MHP's dependence on suppliers and its exposure to increases in raw
material prices. In addition to cost efficiency, vertical integration also
allows MHP to maintain strict biosecurity and to control the quality of its
inputs and the resulting quality and consistency of its products through to
the point of sale. To support its sales, MHP maintains a distribution network
consisting of 9 distribution and logistical centers, within major Ukrainian
cities. MHP uses its trucks for the distribution of its products, which
Management believes reduces overall transportation costs and delivery times.
MHP also has a leading grain cultivation business growing corn to support the
vertical integration of its chicken production and increasingly other grains,
such as wheat and rape, for sale to third parties. MHP leases agricultural
land located primarily in the highly fertile black soil regions of Ukraine.
The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer
in the Balkans, has production assets in four Balkan countries: Slovenia,
Croatia, Serbia, Bosnia and Herzegovina; owns distribution companies in
Austria, Macedonia and Romania and supply products to 15 countries in Europe.
Perutnina Ptuj is a vertically integrated company across all states of chicken
meat production - feed, hatching eggs production and hatching, breeding,
slaughtering, sausages and further poultry processing production.
MHP trades on the London Stock Exchange under the ticker symbol MHPC.
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 six-month period ended 30 June 2022
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF
DIRECTORS................................................................. 3
MANAGEMENT
REPORT........................................................................................................................
4
REVIEW REPORT OF INTERIM condensed consolidated FINANCIAL
INFORMATION....................6
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
SIX-MONTH PERIOD ENDED 30 JUNE 2022
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE
INCOME..............................................................................................................................................................
7
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION..................................... 9
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY................................... 10
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS............................................... 12
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................. 14
1. Corporate
information.....................................................................................................................
14
2. Basis of preparation and accounting
policies...................................................................................
15
3. Changes in the group
structure........................................................................................................
19
4. Segment
information......................................................................................................................
20
5.
Revenue........................................................................................................................................
23
6. Profit for the
period........................................................................................................................
23
7. Property, plant and
equipment........................................................................................................
24
8. Agricultural
produce.......................................................................................................................
24
9. Biological
assets............................................................................................................................
24
10. Share
capital...............................................................................................................................
24
11. Bank
borrowings..........................................................................................................................
25
12. Bonds
issued..............................................................................................................................
26
13. Related party balances and
transactions.......................................................................................
29
14. Operating
environment.................................................................................................................
30
15. Contingencies and contractual
commitments.................................................................................
31
16. Fair value of financial
instruments.................................................................................................
32
17. Risk management
policy..............................................................................................................
33
18.
Dividends....................................................................................................................................
34
19. Subsequent
events......................................................................................................................
34
20. Authorization of the interim condensed consolidated financial
statements....................................... 35
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
30 June 2022 that are presented on pages 7 to 35:
i. were prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union and in accordance with the provisions of
Article 10 (4) of the Law, and
ii. give a true and fair view of the assets and liabilities, the
financial position and the profits of MHP SE and the businesses that are
included in the interim condensed consolidated financial statements as a
whole, and
(b) the interim management report gives a fair review of the
information required under Article 10 (6) of the Law.
13 September 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 six-month period ended 30 June 2022 consolidated revenue increased
by 16% to USD 1,148,741 thousand, compared to USD 988,575 thousand for the
six-month period ended 30 June 2021. Export sales for the six-month period
ended 30 June 2022 constituted 56% of total revenue at USD 640,137 thousand,
compared to USD 501,564 thousand, and 51% of total revenue for the six-month
period ended 30 June 2021. The increase in revenue was mainly attributable to
an increase in export prices partly offset by a fall in the volume of chicken
meat sold, with export volumes adversely effected by difficult and disrupted
logistics caused by the War from 24 February 2022.
Gross profit decreased by 33% to USD 240,775 thousand for the six-month period
ended
30 June 2022 compared to USD 358,085 thousand for the six-month period ended
30 June 2021. The decrease was driven mainly by lower gross profit of the
grain growing segment due to higher costs of production and lower grain
prices, which resulted in a lower valuation of biological assets.
Operating profit decreased by 70% to USD 75,708 thousand for the six-month
period ended 30 June 2022 compared to USD 255,081 thousand for the six-month
period ended 30 June 2021, mainly as a result of the reduction in gross profit
and a significant increase in write-offs of inventories and biological assets,
impairment of property, plant and equipment and other war-related expenses
such as donations to Ukrainian communities affected by the Russian invasion
(Note 14).
Loss from continuing operations for the six-month period ended 30 June 2022
amounted to USD 88,519 thousand, compared to profit of USD 232,306 thousand
for the six-month period ended 30 June 2021. This was mainly due to the lower
operating profit as well as depreciation of the Ukrainian Hryvnia against the
US Dollar and Euro, which resulted in foreign exchange loss of USD 92,192
thousand for the six-month period ended 30 June 2022 compared to gain of USD
50,503 thousand for the six-month period ended 30 June 2021.
Having regard to the activities of the Group, management believes that the
above measures are frequently used by investors, analysts and stakeholders to
evaluate the efficiency of the Group's operations. For further information on
the above measures, please refer to page 7 of the interim condensed
consolidated financial statements for the six-month period ended 30 June 2022.
Dividends
In view of the uncertainties created by the Russian invasion, the Directors
have decided not to declare a final dividend for the 2021 financial year. No
interim dividend has been declared for the six-month period ended 30 June
2022.
At the annual general meeting held on 28 April 2021, the Shareholders of MHP
SE approved payment of an annual dividend from profits of 2020 of USD 0.2803
per share, equivalent to USD 30,000 thousand. As at 30 June 2021 dividends
were fully paid to shareholders.
Risks and uncertainties
Russian invasion
On February 24, 2022, Russian forces began a military invasion of Ukraine
resulting in a full-scale war across the Ukrainian State (the "War"). Since
that time, focused on the continuity and sustainability of its business and
the preservation of value for all stakeholders, the Group has concentrated on
two key priorities: the safety of its employees and the food security Ukraine
by prioritizing a continuous supply of food to the population.
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 2 Basis of preparation and accounting policies and Note 14
Operating environment.
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 has concluded that a
material uncertainty exists, which may cast significant doubt on the Group's
ability to continue as a going concern and, therefore, on its ability to
realize its assets and discharge its liabilities in the normal course of
business.
Risks and uncertainties (continued)
Other risks and uncertainties
There are a number of potential risks and uncertainties, which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
expected and historical results. Apart from the War, 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/) .
13 September 2022
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
To the members of MHP SE
Introduction
We have reviewed the interim condensed consolidated financial statements of
MHP SE (the "Company"), and its subsidiaries (collectively referred to as
"the Group") on pages 7 to 35, which comprise the interim condensed
consolidated statement of financial position as at 30 June 2022 and the
interim condensed consolidated statements of profit or loss and other
comprehensive income, changes in equity and cash flows for the six-month
period then ended and selected explanatory notes. Management is responsible
for the preparation and presentation of these interim condensed consolidated
financial statements in accordance with International Financial Reporting
Standard IAS 34 Interim Financial Reporting as adopted by the European Union.
Our responsibility is to express a conclusion on these interim condensed
consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410 "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity". A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying interim condensed consolidated financial
statements are not prepared, in all material respects, in accordance with
International Financial Reporting Standard IAS 34 Interim Financial Reporting
as adopted by the European Union.
Emphasis of Matter - Material Uncertainty Related to Going Concern
We draw attention to Note 2 to the interim condensed consolidated financial
statements, which indicates that since 24 February 2022 the Group's
operations are negatively affected by the ongoing military invasion of
Ukraine, with the magnitude of further developments or the timing of their
cessation being uncertain. These conditions, along with other matters as set
forth in Notes 2 and 14 indicate the existence of a material uncertainties
that may cast significant doubt on the Group's ability to continue as a going
concern. Our conclusion is not modified in respect of this matter.
Andreas Avraamides
Certified Public Accountant and Registered Auditor
for and on behalf of
Ernst & Young Cyprus Limited
Certified Public Accountants and Registered Auditors
Nicosia, Cyprus
13 September 2022
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Six-month period Three-month period
ended 30 June
ended 30 June
Notes 2022 2021 2022 2021
Revenue 4, 5 1,148,741 988,575 595,413 541,566
Net change in fair value of biological assets and agricultural produce 4 (92,549) 125,326 (36,591) 146,330
Cost of sales (815,417) (755,816) (407,319) (395,632)
Gross profit 6 240,775 358,085 151,503 292,264
Selling, general and administrative expenses (112,888) (105,396) (58,615) (57,202)
Other operating income 6,205 7,313 4,334 5,992
Other operating expenses 14 (47,270) (4,921) (19,091) (1,843)
Loss on impairment of property, plant and equipment 7 (11,114) - (11,114) -
Operating profit 6 75,708 255,081 67,017 239,211
Finance income 2,176 6,307 1,008 3,184
Finance costs 11, 12 (78,845) (71,766) (41,435) (36,830)
Foreign exchange (loss)/gain, net (92,192) 50,503 3,131 30,607
(Loss)/Profit before tax (93,153) 240,125 29,721 236,172
Income tax benefit/ (expenses) 4,634 (7,819) (9,988) (4,738)
(Loss)/Profit for the period from continuing operations 6 (88,519) 232,306 19,733 231,434
Discontinued operations
Profit for the year from discontinued operations - 179 - 179
(Loss)/Profit for the period (88,519) 232,485 19,733 231,613
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME (continued)
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Six-month period Three-month period
ended 30 June
ended 30 June
Notes 2022 2021 2022 2021
Other comprehensive income
Items that will not be reclassified to profit or loss:
Decrease in revaluation reserve as a result of impairment of property, plant 7 (9,489) (4,105) (9,489) (4,105)
and equipment
Deferred tax on decrease in revaluation reserve as a result of impairment of 1,708 - 1,708 -
property, plant and equipment
Deferred tax charged directly to revaluation reserve 2 (81,317) - - -
Items that may be reclassified to profit or loss:
Cumulative translation difference on retranslation to group's presentation (111,382) 25,460 (22,943) 38,682
currency
Other comprehensive (loss)/income for the period (200,480) 21,355 (30,724) 34,577
Total comprehensive (loss)/income for the period (288,999) 253,840 (10,991) 266,190
(Loss)/Profit attributable to:
Equity holders of the Parent (83,461) 225,577 23,729 224,105
Non-controlling interests (5,058) 6,908 (3,996) 7,508
(88,519) 232,485 19,733 231,613
Total comprehensive (loss)/income attributable to:
Equity holders of the Parent (280,362) 248,174 (5,286) 254,520
Non-controlling interests (8,637) 5,666 (5,705) 11,670
(288,999) 253,840 (10,991) 266,190
(Loss)/Earnings per share from continuing and discontinued operations
Basic and diluted (loss)/earnings per share (USD per share) (0.78) 2.11 0.22 2.09
(Loss)/Earnings per share from continuing operations
Basic and diluted (loss)/earnings per share (USD per share) (0.78) 2.11 0.22 2.09
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Notes 30 June 2022 31 December 2021
ASSETS
Non-current assets
Property, plant and equipment 7 1,791,294 1,939,607
Right-of-use asset 276,986 277,288
Intangible assets 88,359 97,791
Goodwill 61,597 66,382
Non-current biological assets 28,399 27,138
Non-current financial assets 17,443 28,764
Long-term bank deposits 9,132 9,904
Deferred tax assets 2,518 1,966
2,275,728 2,448,840
Current assets
Inventories 333,085 367,219
Biological assets 9 424,463 215,459
Agricultural produce 8 288,485 511,267
Prepayments 60,714 44,572
Other current financial assets 22,585 16,156
Taxes recoverable and prepaid 85,661 68,151
Trade accounts receivable 201,930 156,878
Cash and cash equivalents 222,387 275,237
1,639,310 1,654,939
TOTAL ASSETS 3,915,038 4,103,779
EQUITY AND LIABILITIES
Equity
Share capital 10 284,505 284,505
Treasury shares (44,593) (44,593)
Additional paid-in capital 174,022 174,022
Revaluation reserve 645,872 811,684
Retained earnings 1,550,837 1,557,284
Translation reserve (1,126,617) (1,018,514)
Equity attributable to equity holders of the Parent 1,484,026 1,764,388
Non-controlling interests 18,800 29,800
Total equity 1,502,826 1,794,188
Non-current liabilities
Bank borrowings 11 103,926 103,604
Bonds issued 12 1,380,035 1,376,820
Lease liabilities 17 205,604 204,139
Deferred income 40,893 44,593
Deferred tax liabilities 2 105,848 44,704
Other non-current liabilities 5,818 6,468
1,842,124 1,780,328
Current liabilities
Trade accounts payable 129,312 162,641
Other current financial liabilities 90,013 93,289
Contract liabilities 50,418 53,584
Bank borrowings 11 140,340 121,458
Interest payable 11,12 71,399 21,180
Lease liabilities 17 88,606 77,111
570,088 529,263
TOTAL LIABILITIES 2,412,212 2,309,591
TOTAL EQUITY AND LIABILITIES 3,915,038 4,103,779
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 284,505 (44,593) 174,022 811,684 1,557,284 (1,018,514) 1,764,388 29,800 1,794,188
January 2022
Loss for the period - - - - (83,461) - (83,461) (5,058) (88,519)
Other comprehensive loss - - - (88,798) - (108,103) (196,901) (3,579) (200,480)
Total comprehensive loss for the period - - - (88,798) (83,461) (108,103) (280,362) (8,637) (288,999)
Transfer from revaluation reserve to retained earnings - - - (27,802) 27,802 - - - -
Dividends declared by subsidiaries - - - - - - - (2,363) (2,363)
Translation differences on revaluation reserve - - - (49,212) 49,212 - - - -
Balance as of 30 June 284,505 (44,593) 174,022 645,872 1,550,837 (1,126,617) 1,484,026 18,800 1,502,826
2022
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 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 1 284,505 (44,593) 174,022 648,982 1,195,143 (1,020,229) 1,237,830 16,373 1,254,203
January 2021
Profit for the period - - - - 225,577 - 225,577 6,908 232,485
Other comprehensive (loss)/profit - - - (2,490) - 25,087 22,597 (1,242) 21,355
Total comprehensive (loss)/profit for the period - - - (2,490) 225,577 25,087 248,174 5,666 253,840
Transfer from revaluation reserve to retained earnings - - - (34,695) 34,695 - - - -
Dividends declared by the Parent (Note 18) - - - - (30,000) - (30,000) - (30,000)
Dividends declared by subsidiaries - - - - - - - (7,985) (7,985)
Non-controlling interests arising in a business combination - - - - - - - 749 749
Translation differences on revaluation reserve - - - 25,372 (25,372) - - - -
Balance as of 30 June 284,505 (44,593) 174,022 637,169 1,400,043 (995,142) 1,456,004 14,803 1,470,807
2021
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise
indicated)
Notes Six-month period ended 30 June 2022 Six-month period ended 30 June 2021
Operating activities
(Loss)/Profit before tax (93,153) 240,125
Profit before tax from discontinued operations - 179
Non-cash adjustments to reconcile profit or loss before tax to net cash flows
Depreciation and amortization expense 4 81,884 89,066
Loss on impairment of property, plant and equipment 7, 14 11,114 -
Net change in fair value of biological assets and agricultural produce 4 92,549 (125,326)
Change in allowance for expected credit losses and direct 15,466 2,099
write-offs
Loss on disposal of property, plant and equipment and other non-current assets 630 909
Finance income (2,176) (6,307)
Finance costs 11, 12 78,845 71,766
Released deferred income (733) (758)
Non-operating foreign exchange loss/(gain), net 92,192 (50,503)
Operating cash flows before movements in working capital 276,618 221,250
Working capital adjustments
Change in inventories (22,768) (28,123)
Change in biological assets (169,146) (134,047)
Change in agricultural produce 49,546 68,962
Change in prepayments made (26,163) (7,342)
Change in other current assets (3,122) (3,717)
Change in taxes recoverable and prepaid (22,547) (2,346)
Change in trade accounts receivable (59,936) (31,974)
Change in contract liabilities 442 14,788
Change in other current liabilities 1,261 (26,653)
Change in trade accounts payable 6,800 48,783
Cash generated by operations 30,985 119,581
Interest received 786 2,409
Interest paid (18,463) (69,697)
Income taxes paid (5,090) (3,269)
Net cash flows from operating activities 8,218 49,024
Investing activities
Purchases of property, plant and equipment 7 (60,763) (52,393)
Purchases of other non-current assets (2,233) (1,447)
Purchase of intangible assets (2,444) (258)
Proceeds from disposals of property, plant and equipment 1,558 3,142
Proceeds from disposals of subsidiary 3 - 671
Purchases of non-current biological assets (2,287) (963)
Acquisition of subsidiaries, net of cash acquired 3 - (1,569)
Prepayments and capitalized initial direct costs under lease contracts (6,673) (2,198)
Investments in short-term deposits (9) (10,792)
Withdrawals of short-term deposits - 450
Loans repaid by employees, net 303 387
Loans provided to related parties 13 (313) (1,044)
Loans repaid by related parties 13 - 11,000
Net cash flows used in investing activities (72,861) (55,014)
Financing activities
Proceeds from bank borrowings 81,265 79,000
Repayment of bank borrowings (53,135) (78,771)
Repayment of lease liabilities (5,520) (14,227)
Consent payment (499) -
Dividends paid 18 - (30,000)
Dividends paid by subsidiaries to non-controlling shareholders (392) (7,819)
Net cash flows received from/(used in) financing activities 21,719 (51,817)
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
Notes Six-month period ended 30 June 2022 Six-month period ended 30 June 2021
Net decrease in cash and cash equivalents (42,924) (57,807)
Net foreign exchange difference on cash and cash equivalents (9,926) 2,102
Cash and cash equivalents at 1 January 275,237 217,579
Cash and cash equivalents at 30 June 222,387 161,874
Non-cash transactions
Non-cash repayments of lease liabilities 1,584 752
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 14 to 35 form an integral part of these
interim condensed consolidated financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six-month period ended 30 June 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 30 June 2022 the Group
employed 30,760 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 30 June 2022 and
31 December 2021 were as follows:
Name Country of registration Year established/ Principal activities 30 June 2022 31 December 2021
acquired
MHP Lux S.A. Luxembourg 2018 Finance Company 100.0% 100.0%
MHP Ukraine 1998 Management, marketing and sales 99.9% 99.9%
Myronivsky Plant of Manufacturing Feeds and Groats Ukraine 1998 Fodder and vegetable 88.5% 88.5%
oil production
Vinnytska Ptakhofabryka Ukraine 2011 Chicken farm 100.0% 100.0%
Peremoga Nova Ukraine 1999 Breeder farm 99.9% 99.9%
Oril-Leader Ukraine 2003 Chicken farm 99.9% 99.9%
Myronivska Pticefabrika Ukraine 2004 Chicken farm 99.9% 99.9%
Starynska Ptakhofabryka Ukraine 2003 Breeder farm 100.0% 100.0%
Zernoprodukt MHP Ukraine 2005 Grain cultivation 99.9% 99.9%
Katerinopilskiy Elevator Ukraine 2005 Fodder production and grain storage, vegetable oil production 99.9% 99.9%
SPF Urozhay Ukraine 2006 Grain cultivation 99.9% 99.9%
Agrofort Ukraine 2006 Grain cultivation 99.9% 99.9%
MHP-Urozhayna Krayina Ukraine 2010 Grain cultivation 99.9% 99.9%
Ukrainian Bacon Ukraine 2008 Meat processing 79.9% 79.9%
MHP-AgroKryazh Ukraine 2013 Grain cultivation 51.0% 51.0%
MHP-Agro-S Ukraine 2013 Grain cultivation 51.0% 51.0%
Zakhid-Agro MHP Ukraine 2015 Grain cultivation 100.0% 100.0%
Perutnina Ptuj d.d. Slovenia 2019 Poultry production 100.0% 100.0%
MHP Food Trading United Arab Emirates 2016 Trading in vegetable oil and poultry meat 100.0% 100.0%
MHP B.V. Netherlands 2014 Trading in poultry meat 100.0% 100.0%
MHP Trade B.V. Netherlands 2018 Trading in poultry meat 100.0% 100.0%
MHP Saudi Arabia Trading Saudi Arabia 2018 Trading in poultry meat 75.0% 75.0%
MHP Food UK Limited United Kingdom 2021 Trading in poultry meat 100.0% 100.0%
The Group's primary operational facilities are located in different regions of
Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia
and Bosnia and Herzegovina (represented by Perutnina Ptuj d.d. together with
its subsidiaries).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 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 six-month
period ended 30 June 2022 have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by the
European Union.
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. The Group
has analyzed the observable impact of the War on its business as described
below, but not limited to:
· the Group's poultry production facilities have not suffered any
physical damage;
· certain inventories and biological assets were damaged and
written-off. Moreover, substantial amount of assets was provided as
humanitarian aid to the population of Ukraine; for details please refer to
Note 14 Operating environment;
· 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 lower sales, MHP has slightly decreased poultry production
comparing to pre-war level, but as at 30 June 2022 has already returned to
normal capacity utilization;
· Operations of "Ukrainian Bacon" (a meat-processing operation with
34,000 tonnes annual capacity located in the Donetsk region) were temporarily
suspended due to continuing military attacks and further escalation of the
situation in the Donetsk region;
· 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;
· part of the Group's existing undrawn financing facilities in
amount of USD 38 million are not available 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 Group has asked its employees (over 1,900 people) of
"Ukrainian Bacon" and their families to move to safer regions of Ukraine. Some
employees were redeployed to other Group production facilities. Production has
been partly redeployed on the production sites in central Ukraine. Full
commissioning of all production will require additional time and resources;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Going concern (continued)
· the harvesting campaign has already started, and the Group has
already harvested 20% of planned 345 thousand hectares of its Ukrainian
landbank (spring and winter crops) in 2022. The Group has sufficient seeds,
fertilizers, fuel, pesticides and other inputs required for the forthcoming
sowing season, as well as the necessary vehicles, agricultural machinery and
human resources;
· 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, for details refer to Note 12;
· to comply with consent solicitation restrictions, the Group has
agreed general postponement of debt servicing under the loan agreements with
the bank lenders, where the payments were initially scheduled during the
270-days support period as mentioned above. As at 30 June 2022, Management
already signed legally binding agreements for relevant bank loans with the
total amount of USD 106 million, where principal payments were rescheduled to
February 2023 and other bank borrowings with the amount of US$ 30 million were
prolonged on monthly basis within term of Loan facilities (Note 11);
· the Directors have decided not to declare a final dividend for
the 2021 financial year and interim dividends for six-month period ended 30
June 2022.
Management have prepared adjusted financial forecasts, including cash flow
projections, for the twelve months from the date of approval of these
financial statements, taking into consideration most likely and possible
downside scenarios for the ongoing business impacts of the War.
These forecasts were based on the following key assumptions:
· the impact of the War on business will continue for the next 12
months;
· further development of War and a military invasion of Ukraine
will not severely affect the Group's assets and will enable the Group to have
85% utilization of poultry production facilities to satisfy domestic
consumption;
· all of the Group's assets remain safe and in good condition;
· remaining logistic routes (rail and road) will continue to be
available;
· MHP will be able to procure sufficient levels of vitamins and
minerals for production of feed as well as the required volume of plant
protection materials, fuel and other inputs for grain growing;
· The Group will be able to run the sowing and harvesting campaign
on its entire landbank.
These forecasts indicate that, the Group has adequate resources to continue in
operational existence for the foreseeable future. The Directors have therefore
concluded that it is appropriate to apply the going concern basis of
accounting in preparing these interim condensed consolidated financial
statements. However, due to the currently unpredictable effects of the ongoing
War 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 accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2021, except for the adoption of new standards
effective as of 1 January 2022. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Adoption of new and revised International Financial Reporting Standards
(continued)
The following standards were adopted by the Group on 1 January 2022:
· Amendments to IAS 16 Property, Plant and Equipment: Proceeds
before Intended Use
· Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets: Onerous Contracts - Cost of Fulfilling a Contract
· Amendments to IFRS 3 Business Combinations: Reference to the
Conceptual Framework
· Annual Improvements to IFRS Standards 2018-2020
The adoption of the new or revised Standards did not have any effect on the
financial position or performance of the Group and did not result in any
changes to the Group's accounting policies and the amounts reported in the
interim condensed consolidated financial statements of the Group.
Standards and interpretations in issue, but not effective
At the date of authorization of these interim condensed consolidated financial
statements, the following Standards and Interpretations, as well as amendments
to the Standards were in issue but not yet effective:
Standards and Interpretations Effective for annual period beginning on or after
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice 1 January 2023
Statement 2: Disclosure of Accounting policies (issued on 12 February 2021)
(1)
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and 1 January 2023
Errors: Definition of Accounting Estimates (issued on 12 February 2021) (1))
IFRS 17 Insurance Contracts (issued on 18 May 2017); including Amendments to 1 January 2023
IFRS 17 (issued on 25 June 2020) (1))
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and 1 January 2023
Liabilities arising from a Single Transaction (issued on 7 May 2021) (1))
Amendments to IAS 1 Presentation of Financial Statements: Classification of 1 January 2023
Liabilities as Current or Non-current and Classification of Liabilities as
Current or Non-current - Deferral of Effective Date (issued on 23 January 2020
and 15 July 2020 respectively)
Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and 1 January 2023
IFRS 9 - Comparative Information (issued on 9 December 2021) (1))
(1)) Standards have been already endorsed for use in the European Union
For these Standards and Interpretations management anticipates that their
adoption will not have a material effect on the consolidated financial
statements of the Group in future periods.
Functional and presentation currencies
The functional currency of Ukrainian companies of the Group is the Ukrainian
Hryvnia ("UAH"); the functional currency of the Cyprus and Luxembourg
companies of the Group is the US Dollar ("USD"); the functional currency of
the European companies of the Group is the Euro ("EUR"); the functional
currency of the United Arab Emirates companies is the Dirham ("AED"); the
functional currency of the UK companies is the British Pound ("GBP").
Transactions in currencies other than the functional currency of the entities
concerned are treated as transactions in foreign currencies. Such transactions
are initially recorded at the rates of exchange ruling at the dates of the
transactions. Monetary assets and liabilities denominated in such currencies
are translated at the rates prevailing on the reporting date. All realized and
unrealized gains and losses arising on exchange differences are recognised in
the consolidated statement of profit or loss and other comprehensive income
for the period.
These consolidated financial statements are presented in US Dollars ("USD"),
which is the Group's presentation currency.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Functional and presentation currencies (continued)
The results and financial position of the Group are translated into the
presentation currency using the following procedures:
· Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate as of the
reporting date of that statement of financial position;
· Income and expenses for each consolidated statement of profit or
loss and other comprehensive income are translated at exchange rates at the
dates of the transactions;
· The exchange differences arising on translation for consolidation
are recognised in other comprehensive income and presented as a separate
component of equity. On disposal of a foreign operation, the component of OCI
relating to that particular foreign operation is reclassified to profit or
loss;
· All equity items, except for the revaluation reserve, are
translated at the historical exchange rate. The revaluation reserve is
translated at the closing rate as of the date of the statement of financial
position.
For practical reasons, the Group translates items of income and expenses for
each period presented in the financial statements using the quarterly average
exchange rates, if such translations reasonably approximate the results
translated at exchange rates prevailing at the dates of the transactions.
The following exchange rates were used:
Currency Closing rate as of 30 June 2022 Average for six months ended 30 June 2022 Average for three months ended 30 June 2022 Closing rate as of 31 December 2021 Average for six months ended 30 June 2021 Average for three months ended 30 June 2021
UAH/USD 29.2549 28.9066 29.2549 27.2782 27.7792 27.5910
UAH/EUR 30.7776 31.7356 31.1984 30.9226 33.4936 33.2332
USD/EUR 1.0520 1.0979 1.0664 1.1336 1.2057 1.2045
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, European operating segment and Meat processing
and other agricultural operations are not significantly exposed to seasonal
fluctuations.
Grain growing segment, due to seasonality and implications of IAS 41, in the
first half of the year mainly reflects sales of carried forward agricultural
produce and the effect of biological assets revaluation, while during the
second half of the year it reflects sales of crops and the effect of
revaluation of agricultural produce harvested during the year. Also, grain
growing segment has seasonal requirements for working capital increase from
November to May, due to the sowing campaign.
Change in income tax status of certain Group's subsidiaries
Starting from 1 January 2022, the change in tax status of poultry producers
has become effective as the respective amendments to the Ukrainian Tax Code
came into force. As a result, starting from 1 January 2022, profits of the
agricultural producers engaged in rearing chickens, chicken meat and eggs
production, are subjected to regular 18% income tax. Until 31 December 2021,
profits of the chicken and egg producers were non-taxable as these entities
had exempt status for corporate income tax purpose and were subject to the
fixed agricultural tax, similar to other agribusinesses.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Change in income tax status of certain Group's subsidiaries (continued)
Management has applied significant judgment to consider that the new tax law
effected a change in tax status for the Group`s subsidiaries rather than a
change in tax law or tax rates, and given that there is no specific guidance
in IAS 12 Income tax for when to account for a change in tax status,
significant judgment was applied in considering the timing of deferred tax
recognition. As the above has caused a change to the tax status, for certain
subsidiaries of the Group, from non-tax payer to tax payer by becoming income
taxpayers from 1 January 2022, the Group has recognized deferred tax
liabilities in the amount of USD 81,317 thousand as of this date. These
deferred tax liabilities of the Group`s poultry farms arise on temporary tax
differences from property, plant and equipment measured using the revaluation
model. Accordingly, the resulting deferred tax liability at 1 January 2022
were recognized through other comprehensive income and presented in a separate
line as Deferred tax charged directly to revaluation reserve.
3. Changes in the group structure
Discontinued operation
During the six-month period ended 30 June 2021, the Group disposed of the
assets of its subsidiary Dobropilskyi GPP PrJSC, which was located in Ukraine
and carried out grain storage operations, and was previously presented within
Poultry and Related Operations Segment. The net assets as of the date of
disposal amounted to USD 620 thousand. Before sale the property plant and
equipment included in the net assets disposed were impaired by USD 4,105
thousand. Impairment was recognized as a decrease in revaluation reserve
related to those property, plant and equipment. The total cash consideration
amounted to USD 671 thousand, which was received during this reporting period.
Discontinued operations are excluded from the results of continuing operations
and are presented as a single amount as profit or loss after tax from
discontinued operations in the consolidated statement of profit or loss. All
other notes to the financial statements include amounts for continuing
operations, unless otherwise mentioned.
Acquisitions
On 1 June 2021, the Group acquired a 51% share in the company Lubnym`yaso LLC,
a Ukrainian meat production plant, whose main economic activity is the
production and sale of beef meat under the trade-mark Scott Smeat. As of the
date of acquisition, the net assets of the acquired meat production plant
amounted to USD 1,800 thousand. Purchase consideration of the acquired share
amounted to USD 1,840 thousand and was paid in cash. Goodwill in the amount of
USD 921 thousand is attributable to the expectation that this acquisition will
support strategic transformation to a culinary company through launch of
additional products.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
4. Segment information
The Group's business is managed on a worldwide basis, but operates
manufacturing facilities and sales offices primarily in Ukraine and Europe.
Reportable segments are presented in a manner consistent with the internal
reporting to the Group's chief operating decision maker ("CODM").
Segment information is analyzed on the basis of the types of goods supplied by
the Group's operating divisions. The Group's reportable segments under IFRS 8
are as follows:
Poultry and related operations segment: • sales of chicken meat
• sales of vegetable oil and related products
• culinary products and other poultry related sales
Grain growing operations segment: • sales of grain
Meat processing and other agricultural operations segment: • sales of meat processing products and other meat
• other agricultural operations (milk, feed grains and other)
European operating segment: • sales of meat processing and chicken meat products in Southeast
Europe
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in Note 2 Basis of preparation and accounting
policies. Sales between segments are carried out at market prices. The segment
result represents operating profit under IFRS before unallocated corporate
expenses and loss on impairment of property, plant and equipment. Unallocated
corporate expenses include management remuneration, representative expenses,
and expenses incurred in respect of the maintenance of office premises. This
is the measure reported to the CODM for the purposes of resource allocation
and assessment of segment performance.
European Operating Segment primarily includes sales of chicken meat and meat
processing products, produced in the facilities of Perutnina Ptuj. However,
the CODM manages this as a single segment, on the basis that each of research,
development, manufacture, distribution and selling of chicken meat and meat
processing products requires single marketing strategies, centralized
budgeting process and centralized management of production operations.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
4. Segment information (continued)
The following table presents revenue and profit information regarding the
Group's operating segments for the six-month period ended 30 June 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 808,739 53,276 63,193 223,533 1,148,741 - 1,148,741
Sales between business segments 25,015 195,004 150 - 220,169 (220,169) -
Total revenue 833,754 248,280 63,343 223,533 1,368,910 (220,169) 1,148,741
Segment results 60,765 18,513 (2,267) 26,681 103,692 - 103,692
Unallocated corporate expenses (16,870)
Loss on impairment of property, plant and equipment - - (11,114) - (11,114) - (11,114)
Other expenses, net (1)) (168,861)
Loss before tax from continuing operations (93,153)
Other information:
Depreciation and amortization expense (2)) 38,906 29,436 2,438 10,317 81,097 - 81,097
Net change in fair value of biological assets and agricultural produce 14,932 (113,339) 860 4,998 (92,549) - (92,549)
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the six-month period ended 30 June 2022
does not include unallocated depreciation and amortization in the amount of
USD 787 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the six-month period ended 30 June 2021:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 707,352 12,489 77,622 191,112 988,575 - 988,575
Sales between business segments 20,045 119,604 148 - 139,797 (139,797) -
Total revenue 727,397 132,093 77,770 191,112 1,128,372 (139,797) 988,575
Segment results 92,963 142,209 6,964 23,919 266,055 - 266,055
Unallocated corporate expenses (10,974)
Other expenses, net (1)) (14,956)
Profit before tax from continuing operations 240,125
Other information:
Depreciation and amortization expense (2)) 47,162 28,801 3,364 9,083 88,410 - 88,410
Net change in fair value of biological assets and agricultural produce 18,426 102,154 2,982 1,764 125,326 - 125,326
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the six-month period ended 30 June 2021
does not include unallocated depreciation and amortization in the amount of
USD 656 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
4. Segment information (continued)
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 30 June 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 430,064 18,118 27,063 120,168 595,413 - 595,413
Sales between business segments 8,879 77,495 64 - 86,438 (86,438) -
Total revenue 438,943 95,613 27,127 120,168 681,851 (86,438) 595,413
Segment results 49,080 24,165 (229) 17,234 90,250 - 90,250
Unallocated corporate expenses (12,119)
Loss on impairment of property, plant and equipment - - (11,114) - (11,114) - (11,114)
Other expenses, net (1)) (37,296)
Profit before tax from continuing operations 29,721
Other information:
Depreciation and amortization expense (2)) 19,260 14,852 579 5,124 39,815 - 39,815
Net change in fair value of biological assets and agricultural produce 8,700 (47,946) 128 2,527 (36,591) - (36,591)
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the three-month period ended 30 June
2022 does not include unallocated depreciation and amortization in the amount
of USD 579 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 30 June 2021:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 392,009 3,553 41,595 104,409 541,566 - 541,566
Sales between business segments 10,451 47,294 75 - 57,820 (57,820) -
Total revenue 402,460 50,847 41,670 104,409 599,386 (57,820) 541,566
Segment results 84,382 140,679 5,094 15,938 246,093 - 246,093
Unallocated corporate expenses (6,882)
Other expenses, net (1)) (3,039)
Profit before tax from continuing operations 236,172
Other information:
Depreciation and amortization expense (2)) 23,642 11,247 1,864 4,695 41,448 - 41,448
Net change in fair value of biological assets and agricultural produce 17,633 124,570 2,708 1,419 146,330 - 146,330
( )(1)) Includes finance income, finance costs, foreign exchange gain (net)
and other expenses (net).
(2)) Depreciation and amortization for the three-month period ended 30 June
2021 does not include unallocated depreciation and amortization in the amount
of USD 119 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
4. Segment information (continued)
Non-current assets based on the geographic location of the manufacturing
facilities were as follows as of
30 June 2022 and 31 December 2021:
2022 2021
Ukraine 1,999,053 2,146,434
Europe 247,582 261,772
2,246,635 2,408,206
(1)) Non-current assets excluding deferred tax assets and non-current
financial assets.
5. Revenue
Revenue from the contracts with customers for the six-month and three-month
periods ended 30 June 2022 and 2021 was as follows:
Six-month period Three-month period
ended 30 June
ended 30 June
2022 2021 2022 2021
Poultry and related operations segment
Chicken meat 607,418 546,467 302,445 314,854
Vegetable oil and related products 161,342 127,284 103,058 59,251
Other poultry related sales 39,979 33,601 24,561 17,904
808,739 707,352 430,064 392,009
Grain growing operations segment
Grain 53,276 12,489 18,118 3,553
53,276 12,489 18,118 3,553
Meat processing and other agricultural operations segment
Other meat 47,662 61,297 19,685 34,224
Other agricultural sales 15,531 16,325 7,378 7,371
63,193 77,622 27,063 41,595
European operating segment
Chicken meat 129,050 119,732 64,465 65,383
Other meat 66,924 56,178 35,794 30,715
Other agricultural sales 27,559 15,202 19,909 8,311
223,533 191,112 120,168 104,409
1,148,741 988,575 595,413 541,566
The geographic structure of revenue for the six-month and three-month periods
ended 30 June 2022 and 2021 was as follows:
Six-month period Three-month period
ended 30 June
ended 30 June
2022 2021 2022 2021
Export 640,137 501,564 332,534 285,040
Domestic 508,604 487,011 262,879 256,526
1,148,741 988,575 595,413 541,566
6. Profit for the period
The Group's gross profit for the six-month period ended 30 June 2022 decreased
compared to the six-month period ended 30 June 2021 to USD 240,775 thousand
(30 June 2021: USD 358,085 thousand). The decrease was driven mainly by lower
gross profit of the grain growing segment due to higher costs of production
and lower grain prices, which resulted in a lower valuation of biological
assets.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
6. Profit for the period (continued)
Operating profit decreased by 70% to USD 75,708 thousand for the six-month
period ended 30 June 2022 compared to USD 255,081 thousand for the six-month
period ended 30 June 2021, mainly as a result of the reduction in gross
profit, a significant increase in write-offs of inventories and biological
assets in the amount of USD 9,815 thousand, impairment of property, plant and
equipment in the amount of USD 11,114 thousand and donations to Ukrainian
communities in amount of USD 16,674 thousand affected by the Russian invasion
(as described in Note 14).
Loss from continuing operations for the six-month period ended 30 June 2022
amounted to USD 88,519 thousand, compared to a profit of USD 232,306 thousand
for the six-month period ended 30 June 2021. This was mainly due to the lower
operating profit as well as depreciation of Ukrainian Hryvnia against the US
Dollar and Euro, which resulted in a foreign exchange loss of USD 92,192
thousand for the six-month period ended 30 June 2022 compared to gain of USD
50,503 thousand for the six-month period ended 30 June 2021.
7. Property, plant and equipment
During the six-month period ended 30 June 2022, the Group's additions to
property, plant and equipment amounted to USD 60,763 thousand (six-month
period ended 30 June 2021: USD 52,393 thousand) mainly related to
modernization projects, development of new products and the maintenance and
improvement of Perutnina Ptuj production facilities.
There were no significant disposals of property, plant and equipment during
the six-month periods ended 30 June 2022 and 30 June 2021.
During the six-month period ended 30 June 2022, the Group identified
indicators of impairment of property, plant and equipment of its subsidiary
"Ukrainian Bacon", which was located in Donetsk region. As a result, as at 30
June 2022, the Group has recognized an impairment loss of USD 20,603
thousand in respect of property, plant and equipment, which were not
relocated to the safer areas, of which USD 11,114 thousand was recorded as
Loss on impairment of property, plant and equipment within profits or loss and
USD 9,489 thousand as Decrease in revaluation reserve within other
comprehensive income.
The remaining part of the movement mainly relates to translation difference
into the presentation currency.
8. Agricultural produce
A decrease of agricultural produce balances for six-month period ended 30 June
2022 was mainly as a result of internal consumption of corn, sunflower, wheat
and soya.
9. Biological assets
The increase in current biological assets as compared to 31 December 2021 is
primarily related to crops in fields balance. The increase in crops in fields
balance mainly relates to spring crops seeded in the first half of 2022
classified as biological assets.
10. Share capital
As of 30 June 2022 and 31 December 2021 the authorized, issued and fully paid
share capital of MHP SE comprised the following number of shares:
30 June 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 30 June 2022 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 six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
11. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as
of 30 June 2022 and 31 December 2021:
30 June 2022 31 December 2021
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Non-current
EUR EURIBOR(2)) + 1.39% 103,926 EURIBOR(2)) + 1.23% 103,604
103,926 103,604
Current
USD SOFR(3)) + 2.20% 10,550 SOFR(3)) + 2.20% 10,550
USD 3.02% 112,688 2.00% 99,536
UAH UIRD(4)) +5.0% 2,051 -
Current portion of EUR EURIBOR(2)) + 1.39% 15,051 EURIBOR(2)) + 1.23% 11,372
long-term bank borrowings
140,340 121,458
Total bank borrowings 244,266 225,062
(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
(4) ) Ukrainian Index of Retail Deposit Rates (UIRD) -
indicative rate calculated based on nominal rates on time deposits of
individuals in hryvnia for a period of 12 months with interest paid upon the
expiration of the deposit agreement
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 30 June 2022 and 31 December 2021, the Group's bank term loans and
credit lines bear floating and fixed interest rates.
Bank borrowings and credit lines outstanding as of 30 June 2022 and 31
December 2021 were repayable as follows:
30 June 2022 31 December 2021
Within one year 140,340 121,458
In the second year 23,639 13,233
In the third to fifth year inclusive 80,287 76,456
After five years - 13,915
244,266 225,062
As of 30 June 2022, the Group had undrawn facilities of USD 125,304 thousand
(31 December 2021: USD 255,970 thousand), whereof USD 87,322 thousand
currently are available 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's
subsidiaries are also required to obtain approval from lenders regarding
property, plant and equipment to be used as collateral. During the six-month
period ended 30 June 2022 and year ended 31 December 2021 the Group has
complied with all covenants imposed by banks providing the borrowings.
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
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
11. Bank borrowings (continued)
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 30 June 2022, the Group had borrowings of USD 86,866 thousand that were
secured by property, plant and equipment with a carrying amount of USD 101,936
thousand (31 December 2021: USD 75,084 thousand and USD 91,931 thousand
respectively).
As of 30 June 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: borrowings of USD 30,550 thousand were secured by
agricultural produce with carrying amount of USD 38,188 thousand).
As of 30 June 2022, a deposit with carrying amount of USD 2,371 thousand (31
December 2021: USD 2,555 thousand) was restricted as collateral to secure
bank borrowings.
As of 30 June 2022 and 31 December 2021, interest payable on bank borrowings
was USD 484 thousand and USD 423 thousand, respectively.
Prolongation of bank borrowings
During the six-month period ended 30 June 2022, the Group agreed with its bank
lenders a general postponement of debt servicing in respect of bank borrowings
in the total amount of US$ 106 million. This agreement was made in order to
comply with the restrictions on debt servicing as established by the consent
solicitation (as described in Note 12). In particular - during the 270-day
support period from 30 March 2022 the Group is committed to pay not more than
USD 12.5 million in the aggregate in satisfaction of any debt service payments
in respect of any indebtedness of the Group, excluding any interest payment
in respect of any of the 2024 Notes, the 2026 Notes and the 2029 Notes and the
repayment of Indebtedness with the net proceeds of Permitted Refinancing
Indebtedness. During the six-month period ended 30 June 2022, Management
signed legally-binding agreements for the above-mentioned bank borrowings.
According to these agreements, principal payments were rescheduled to February
2023 and other bank borrowings with the amount of USD 30 million were
prolonged on a monthly basis within the term of the Loan facilities.
12. Bonds issued
Bonds issued and outstanding as of 30 June 2022 and 31 December 2021 were as
follows:
Carrying amount Nominal amount
30 June 2022 31 December 2021 30 June 2022 31 December 2021
7.75% Senior Notes due in 2024 492,747 490,851 500,000 500,000
6.95% Senior Notes due in 2026 539,547 538,346 550,000 550,000
6.25% Senior Notes due in 2029 347,741 347,623 350,000 350,000
Unamortized debt issuance cost - - (19,965) (23,180)
Total bonds issued 1,380,035 1,376,820 1,380,035 1,376,820
As of 30 June 2022 and 31 December 2021, the amount of interest payable on
bonds issued was USD 70,915 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.
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 six-month period ended 30 June 2019
(in thousands of US dollars, unless otherwise indicated)
12. 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 Senior Notes are jointly and severally guaranteed on a senior basis by MHP
SE, PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats",
PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC
"Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC,
"Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator"
LLC, Scylla Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in April and
October. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of outstanding Notes may, upon written
notice to the Group, declare all outstanding Senior Notes to be due and
payable immediately. If a change of control occurs, the Group shall make an
offer to each holder of the Senior Notes to purchase such Senior Notes at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest and additional amounts, if any.
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in
2024 at par value. Out of the total issue the amount of USD 245,200 thousand
were designated for redemption and exchange of existing 8.25% Senior Notes due
in 2020.
The Senior Notes are jointly and severally guaranteed on a senior basis by
PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC
"Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril- Leader", PrJSC "Myronivska
Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, Vinnytska
Ptakhofabryka LLC, SE "Peremoga Nova", "Katerinopolskiy Elevator" LLC, Scylla
Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in May and
November. These Senior Notes are subject to certain restrictive covenants
including, but not limited to, limitations on the incurrence of additional
indebtedness in excess of Net Debt to EBITDA ratio as defined by the
indenture, restrictions on mergers or consolidations, limitations on liens and
dispositions of assets and limitations on transactions with affiliates. If the
Group fails to comply with the covenants imposed, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may, upon
written notice to the Group, declare all outstanding Senior Notes to be due
and payable immediately.
If a change of control occurs, the Group shall make an offer to each holder of
the Senior Notes to purchase such Senior Notes at a purchase price in cash in
an amount equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and additional amounts, if any.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
12. Bonds issued (continued)
Covenants
Certain restrictions under the indebtedness agreements (for example:
incurrence of additional indebtedness; restricted payments; dividends
payments) 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 30 June 2022 and 31 December 2021.
As at 30 June 2022, the leverage ratio of the Group was 2.75 to 1 (31 December
2021: 1.90 to 1), lower than the defined limit 3.0 to 1.
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 a result, the Group postponed bonds` interest payments
for total amount of USD 49,425 thousand, which were initially due during 30
March 2022 and until 30 June 2022.
As defined by the Consent Solicitation Memorandum, the Group will undertake
the following restrictions during the Support Period:
· the Company and its Restricted Subsidiaries shall not be able to
incur Indebtedness pursuant to the ratio-based permission for the Incurrence
of Indebtedness;
· the "general basket" for the incurrence of Permitted Debt shall
be reduced to U.S.$10 million in aggregate principal amount;
· the Company and its Restricted Subsidiaries will be prohibited
from incurring new Liens on existing Indebtedness for borrowed money, other
than Permitted Refinancing Indebtedness relating to existing secured
Indebtedness;
· the Company and its Restricted Subsidiaries will be prohibited
from making Restricted Payments other than payments constituting Permitted
Investments;
· the Permitted Investments "general basket" shall not be
available;
· the threshold at which an Affiliate Transaction must be approved
by a majority of the disinterested members of the Board of Directors shall be
reduced to 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
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
13. 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 affected on the same terms
and conditions as transactions between unrelated parties.
Transactions with related parties under common control
The Group, in the ordinary course of business, enters into transactions with
related parties that are companies under common control of the Principal
Shareholder of the Group (Note 1) for the purchase and sale of goods and
services and in relation to the provision of financing arrangements. Terms and
conditions of sales to related parties are determined based on arrangements
specific to each contract or transaction. The terms of the payables and
receivables related to trading activities of the Group do not vary
significantly from the terms of similar transactions with third parties.
Transactions with related parties during the six-month periods ended 30 June
2022 and 30 June 2021 were as follows:
2022 2021
Loans and finance aid provided to related parties 313 1,044
Loans and finance aid repaid by related parties - 11,000
Interest charged on loans and finance aid provided - 2,636
Interest on loans and financial aid repaid - 1,121
Purchases from related parties 7 390
Key management personnel of the Group:
Loans provided 294 -
Loans repaid 355 387
The balances owed to and due from related parties were as follows as of 30
June 2022 and 31 December 2021:
30 June 2022 31 December 2021
Loans and finance aid receivable 2,770 2,971
Less: expected credit losses (2,396) (2,521)
374 450
Loans to key management personnel 4,401 4,774
Less: expected credit losses (360) (397)
4,041 4 377
Trade accounts receivable 105 113
Payables due to related parties 26 25
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, all loans made under this
facility had 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 12).
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 2,350 thousand and USD 2,482 thousand as of 30 June 2022
and 31 December 2021 respectively.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
13. Related party balances and transactions (continued)
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 4,680
thousand and USD 12,143 thousand for the six-month periods ended 30 June 2022
and 2021, respectively. Compensation of key management personnel consists of
contractual salary and performance bonuses.
14. 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. As a result, Ukraine's GDP plunged in March,
falling by 15.1% in annual terms for Q1 as a whole, according to the flash
estimate of the State Statistics Service of Ukraine (SSSU). Economic activity
started to recover in April, and businesses and households have gradually
adapted to the new conditions. This was also due to the liberation of northern
regions and a decrease in the number of regions affected by active
hostilities. According to The National Bank of Ukraine's most recent forecast,
real GDP is expected to fall by nearly 33% for the whole of 2022, but the
outlook could worsen sharply if the conflict lasts longer.
The War caused a disruption of supply chains, a decrease in supply of some
goods, higher business costs, physical destruction of production facilities
and infrastructure, and temporary occupation of some territories. Persistently
high energy prices and record-high inflation in partner countries also fueled
price pressures in Ukraine. Inflation expectations of businesses and
households increased markedly. This was reflected in deteriorated maturity
structure of bank deposits and higher spending on some durable goods,
primarily imported goods. As a result, inflation has been growing rapidly over
recent months, reaching 21.5% in June.
The economic consequences are already very serious, the situation remains
highly fluid and the outlook is subject to extraordinary uncertainty
The Government has implemented appropriate emergency measures to stabilize
markets and the economy, but the country faces large fiscal and external
financing gaps. Ukrainian authorities have continued to service their external
debt obligations and the country's payment system remains operational, with
banks open and mostly liquid. Most Ukrainian companies are still paying taxes.
International organizations (IMF, EBRD, EU, World Bank), along with individual
countries and charities, are providing Ukraine with financing, donations and
material support. In total, international support is expected to reach nearly
USD 27 billion.
After several months of retaining the discount rate unchanged at 10%, the
National Bank of Ukraine ('NBU') decided to increase it to 25% from June 2022.
The exchange rate remained fixed at UAH 29.25 to the US Dollar until 21 July,
when it was increased to 36.57 by the NBU. The NBU has said that, once the
economy and financial system return to normal operation, it will revert to the
traditional format of inflation targeting with a floating exchange rate.
The Government has introduced export licensing of key foodstuffs including
wheat, corn, poultry meat, and sunflower oil.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
14. Operating environment (continued)
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 the following expenses incurred during the six-month period
ended 30 June 2022 to be directly related to the war:
2022
Loss on impairment of property, plant and equipment 11,114
Community support donations(1)) 16,674
Write-off of inventories and biological assets(1)) 9,815
Salary to mobilized employees(2)) 5,043
Expected credit losses of trade accounts receivable(1)) 4,873
Other war-related expenses(1)) 1,952
Total amount recognized in profit or loss 49,471
Decrease in revaluation reserve 9,489
58,960
(1) ) These expenses are presented within other operating
expenses in the consolidated statement of profit or loss and other
comprehensive income
(2) ) These expenses are presented within cost of sales and
selling, general and administrative expenses in the consolidated statement of
profit or loss and other comprehensive income
The Group, working with volunteers, has been providing humanitarian aid
(mainly through food supply) to the 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.
15. Contingencies and contractual commitments
Taxation and legal matters
Ukrainian tax authorities are increasingly directing their attention to the
business community. 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 submitted the
controlled transaction report for the years ended 31 December 2019 and
31 December 2020 within the required deadlines.
As of 30 June 2022, the Group's management assessed its possible exposure to
tax risks to be a total amount of USD 5,569 thousand related to corporate
income tax (31 December 2021: USD 5,535 thousand). No provision was recognised
relating to such possible tax exposure.
As of 30 June 2022, companies of the Group were engaged in ongoing litigation
with tax authorities for the amount of USD 54,793 thousand (31 December 2021:
USD 73,147 thousand), including USD 43,574 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. Out of this amount, USD 31,906 thousand as of 30 June 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 favor of the Group. Manage-ment believes that, based on the
past history of court resolutions of similar lawsuits by the Group, it is
unlikely that a significant settlement will arise out of such lawsuits and,
therefore, no respective provision is required in the Group's financial
statements as of the reporting date. In addition, the Group maintains disputes
with tax authorities in the amount USD 253 thousand, which had not been
brought to Court as of 30 June 2022.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
15. Contingencies and contractual commitments (continued)
Contractual commitments on purchase of property, plant and equipment
During the six-month period ended 30 June 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 30 June 2022, purchase commitments on such contracts were primarily
related to modernization projects, development of new products and the
maintenance and improvement of Perutnina Ptuj production facilities and
amounted to USD 37,903 thousand (31 December 2021: USD 30,952 thousand).
16. 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
30 June 31 December 2021 30 June 2022 31 December 2021
2022
Financial liabilities
Bank borrowings (Note 11) 244,750 225,485 244,500 225,574
Senior Notes due in 2024, 2026, 2029 (Note 12) 1,450,950 1,397,577 720,059 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 of 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.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
17. Risk management policy
During the six-month period ended 30 June 2022 there were no changes to
objectives, policies and processes for credit risk, capital risk, interest
rate risk, livestock diseases risk and commodity price and procurement risk
managing.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all
liabilities as they are due. The Group's liquidity position is carefully
monitored and managed. The Group has in place a detailed budgeting and cash
forecasting process to help ensure that it has adequate cash available to meet
its payment obligations.
The following table details the Group's remaining contractual maturity for its
non-derivative financial liabilities. The table has been drawn up based on the
undiscounted cash flows of financial liabilities using the earliest date on
which the Group can be required to pay. The table includes both interest and
principal cash flows as of 30 June 2022 and 31 December 2021. The amounts in
the table may not be equal to the statement of financial position carrying
amounts since the table includes all cash outflows on an undiscounted basis.
Carrying Contractual Less than From 2nd to 5th year After
1 year
amount Amounts 5th year
30 June 2022
Bank borrowings 244,750 249,960 142,975 106,985 -
Bonds issued 1,450,950 1,846,522 150,910 1,290,925 404,687
Lease liabilities 294,210 544,556 89,421 235,330 219,805
Trade accounts payable 129,312 129,312 129,312 - -
Contract liabilities 12,360 12,360 12,360 - -
Other current financial liabilities 90,013 90,013 90,013 - -
Total 2,221,595 2,872,723 614,991 1,633,240 624,492
31 December 2021
Bank borrowings 225,485 229,766 123,615 92,188 13,963
Bonds issued 1,397,577 1,843,888 98,850 1,329,413 415,625
Lease liabilities 281,250 529,678 77,954 233,731 217,993
Trade accounts payable 162,641 162,641 162,641 - -
Contract liabilities 11,601 11,601 11,601 - -
Other current financial liabilities 93,289 93,290 93,290 - -
Total 2,171,843 2,870,864 567,951 1,655,332 647,581
As of 30 June 2022 part of the Group's existing undrawn financing facilities
in certain banks in amount of USD 13 million are not available, however this
fact has not influenced overall liquidity of the Group.
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Group undertakes
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
30 June 2022 and 31 December 2021 were as follows:
30 June 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 six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
17. Risk management policy (continued)
Currency risk (continued)
The table below details the Group's sensitivity to strengthening/(weakening)
of the UAH against USD and EUR. This sensitivity range represents management's
assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the period end for possible
change in foreign currency rates.
Change in foreign currency exchange rates Effect on profit
before tax
2022
Increase in USD exchange rate 40% (548,975)
Increase in EUR exchange rate 40% (6,218)
Decrease in USD exchange rate 10% 137,244
Decrease in EUR exchange rate 10% 1,555
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 six-month period ended 30 June 2022, the Ukrainian Hryvnia
appreciated against the EUR by 0.5% and depreciated against the USD by 6.8%
(six-month period ended 30 June 2021: appreciated against the EUR and USD by
7.5% and 4.0 % respectively). As a result, during the six-month period ended
30 June 2022 the Group recognized a net foreign exchange loss in the amount of
USD 92,192 thousand (six-month period ended 30 June 2021: foreign exchange
gain in the amount of USD 50,503 thousand) in the interim condensed
consolidated statement of profit or loss and other comprehensive income.
18. Dividends
In view of the uncertainties created by the Russian invasion, the Directors
have decided not to declare a final dividend for the 2021 financial year. No
interim dividend has been declared for the six-month period ended 30 June
2022.
At the annual general meeting held on 28 April 2021, the Shareholders of MHP
SE approved payment of an annual dividend from profits of 2020 of USD 0.2803
per share, equivalent to USD 30,000 thousand. As at 30 June 2021 dividends
were fully paid to shareholders.
19. Subsequent events
The situation in Ukraine continues to be severe as a result of the Russian
Federation's full-scale military invasion of Ukraine.
Grain export agreement
After months of Russia's blockade of Ukrainian sea ports, the "Grain
agreement" was signed by Ukraine, UN, Turkey and Russia on 22 July 2022, that
will allow the movement of cargo ships carrying grain in the Black Sea. The
document spells out a complex regime that establishes safe channels through
the Black Sea and inspections in Turkey. There is to be no large-scale
demining of Ukraine's ports, but Ukrainian pilots will guide commercial
vessels from the ports. According to current forecasts, this agreement will
allow export of more than 3 million tonnes of grain monthly.
Condition of assets
As of 13 September 2022, the Group's poultry production facilities have not
suffered any damage.
The Group has already finished harvesting of winter crops, while harvesting of
spring crops is in progress on the entire territory of its landbank.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2022
(in thousands of US dollars, unless otherwise indicated)
19. Subsequent events (continued)
Impact on financial position and results of operations
As 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 the
consequences, or their impact on the financial position and results of the
Group for future periods.
20. 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 13 September 2022.
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