REG - MHP SE - Q3 and 9M 2022 Financial and Operational Results
16/11/2022 07:00
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RNS Number : 5931G MHP SE 16 November 2022
16 November 2022, Limassol, Cyprus
MHP SE
Financial Results for the Third Quarter and Nine Months ended 30 September
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 third quarter ended 30 September 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 (September 2022) the war in Ukraine has escalated. Since
October, the Kremlin has been conducting massive missile strikes on the
territory of Ukraine, fiercely attacking the county's energy infrastructure.
This has led to the complete destruction of around 40% of Ukraine's energy
infrastructure. Although the recent recovery of Kherson has been encouraging,
the overall situation remains highly fluid and the outlook is subject to
extraordinary uncertainty.
MHP faced complex challenges and disruptions to operations in the middle of
October, when a number of the country's electricity generation stations were
hit by missile attacks. Operations at some MHP facilities had to shut down for
a short period of time after these missile hits. As of today, MHP is again
operating close to full capacity, using a combination of state grids,
electricity generated at MHP's biogas stations and diesel generators. However,
events have shown that the situation can deteriorate seriously, quickly and
without notice.
Frequent and prolonged disruptions in electricity supply continue to have a
severe detrimental effect both on business operations and the lives of all
employees based in Ukraine. Management is taking every possible step to ease
the impact of the disruptions.
The UN-brokered grain deal remains in place, despite some challenging
discussions which took place at the end of October. Agricultural companies
continue to export from Ukraine animal feed, grain and vegetable oils to a
number of African, MENA and EU countries. So far, according to the UN's Black
Sea Grain Initiative's (BSGI) joint coordination center, 10.1 million tonnes
of agricultural produce have been shipped on 482 vessels.
The Group has incurred substantial war-related costs since the Russian
invasion on 24 February. For the period ended 30 September 2022 these amounted
to almost US$ 45 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 the free
supply of 13,000 tonnes of poultry products to the population of Ukraine since
the beginning of the war.
MHP Team would like to thank the Defense Forces of Ukraine, which, since
February 2022, have de-occupied a total of 52.5% of the territories captured
by the Russian Federation - almost 78,000 square kilometers.
OPERATIONAL HIGHLIGHTS
Q3 2022
· Poultry production volume in Ukraine was down 13% at
169,448 tonnes (Q3 2021: 194,199 tonnes). Poultry production volumes of the
European Operating Segment (Perutnina Ptuj, or PP) increased by 11% to 33,084
tonnes (Q3 2021: 29,812 tonnes).
· MHP average chicken meat price increased by 12% to US$
2.00 per kg (Q3 2021: US$ 1.79 per kg) excluding VAT. The average price of
chicken meat produced by PP increased by 26% to EUR 3.34 per kg (Q3 2021: EUR
2.65 per kg).
· Chicken meat exports from Ukraine declined by 9% to
99,250 tonnes (Q3 2021 - 108,963 tonnes).
9M 2022
· Poultry production volume in Ukraine decreased by 7% to
515,488 tonnes (9M 2021: 551,729 tonnes). Poultry production volumes of PP
increased by 11% to 92,892 tonnes (9M 2021: 83,930 tonnes).
· MHP average chicken meat price increased by 20% y/y to
US$ 1.97 per kg (9M 2021: US$ 1.64 per kg) excluding VAT. The average price of
poultry meat produced by PP increased by 25% to EUR 3.19 per kg (9M 2021: EUR
2.56 per kg).
· Chicken meat exports from Ukraine declined by 14% to
257,250 tonnes (9M 2021: 300,278 tonnes).
-
FINANCIAL HIGHLIGHTS
Q3 2022
· Revenue of US$ 727 million, increased by 10% y/y (Q3
2021: US$ 658 million).
· Export revenue of US$ 470 million, 65% of total revenue
(Q3 2021: US$ 341 million, 52% of total revenue).
· Operating profit of US$ 100 million, decreased by 37%
y/y; operating margin decreased to 14% (Q3 2021: 24%).
· Adjusted EBITDA (net of IFRS 16) decreased to US$ 121
million from US$ 186 million; adjusted EBITDA margin (net of IFRS 16)
decreased to 17% from 28%.
· Net loss amounted to US$ 181 million, compared to a
profit of US$ 145 million in Q3 2021, primarily reflecting US$ 275 million of
non-cash foreign exchange translation loss in Q3 2022 compared to gain of US$
24 million in Q3 2021.
9M 2022
· Revenue increased to US$ 1,876 million, up by 14% y/y
(9M 2021: US$ 1,647 million).
· Export revenue increased to US$ 1,110 million, 32%
higher y/y, representing 59% of total revenue (9M 2021: US$ 843 million, 51%
of total revenue).
· Operating profit decreased to US$ 176 million, down by
57% y/y (9M 2021: US$ 413 million) and operating margin decreased from 25% to
9%.
· Adjusted EBITDA (net of IFRS 16) decreased by 47% to
US$ 275 million (9M 2021: US$ 519 million); adjusted EBITDA margin (net of
IFRS 16) decreased from 32% to 15%.
· Net loss amounted to US$ 269 million, compared to a
profit of US$ 377 million in 9M 2021, primarily reflecting a US$ 367 million
non-cash foreign exchange loss in 9M 2022 compared with a US$ 75 million
foreign exchange gain in 9M 2021.
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) Q3 2022 Q3 2021 % change(1)) 9M 2022 9M 2021 % change(1))
Revenue 727 658 10% 1,876 1,647 14%
IAS 41 standard losses (26) 51 -151% (119) 176 -168%
Gross profit 158 215 -27% 398 573 -31%
Gross profit margin 22% 33% -11 pps 21% 35% -14 pps
War-related expenses (7) - 100% (45) - 100%
Operating profit 100 158 -37% 176 413 -57%
Operating profit margin 14% 24% -10 pps 9% 25% -16 pps
Adjusted EBITDA 136 208 -35% 304 552 -45%
Adjusted EBITDA margin 19% 32% -13 pps 16% 34% -18 pps
Adjusted EBITDA (net of IFRS 16) 121 186 -35% 275 519 -47%
Adjusted EBITDA margin (net of IFRS 16) 17% 28% -11 pps 15% 32% -17 pps
Net profit /(loss) (181) 145 -225% (269) 377 -171%
Net profit/(loss) margin -25% 22% -47 pps -14% 23% -37 pps
(1)) pps - percentage points
Average official FX rate for Q3: UAH/US$ 34.98 in 2022 and UAH/US$ 26.91 in
2021.
Average official FX rate for 9M 2022 UAH/US$ 30.95 and for 9M 2021 UAH/US$
27.49.
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 Q3 and H3 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
Q3 2022 Q3 2021(1)) % change y/y(2)) Q2 2022 % change q/q(1)) 9M 2022 9M 2021 % change(1))
Poultry
Sales volume, third parties tonnes 177,387 185,364 -4% 140,549 26% 477,068 521,538 -9%
Export sales volume, tonnes 99,250 108,963 -9% 68,552 45% 257,250 300,278 -14%
Domestic sales volume, tonnes 78,137 76,401 2% 71,997 9% 219,818 221,260 -1%
Portion of export sales, % 56% 59% -3 pps 49% 7 pps 54% 58% -4 pps
Average price per 1 kg net of VAT, USD 2.00 1.79 12% 2.03 -1% 1.97 1.64 20%
Average price per 1 kg net of VAT, UAH (Ukraine) 47.30 48.73 -3% 41.77 13% 44.97 45.16 0%
Average price per 1 kg net of VAT, USD (Ukraine) 1.35 1.81 -25% 1.43 -6% 1.45 1.64 -12%
Average price per 1 kg net of VAT, USD (export) 2.49 1.77 41% 2.63 -5% 2.38 1.63 46%
Sunflower oil
Sales volume, third parties tonnes 95,436 36,620 161% 48,495 97% 176,912 127,760 38%
Soybeans oil
Sales volume, third parties tonnes 7,716 12,571 -39% 9,191 -16% 35,587 -23%
27,263
(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 9M 2022 decreased by
9% to 477,068 tonnes (9M 2021: 521,538 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 Q3 2022 increased by 41% y/y, while decreased by 5%
q/q, mainly driven by product mix optimization 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).
Driven by war-related news and challenges as well as seasonality, in Q2 2022,
poultry prices increased significantly. Towards the end of Q3 2022, as a
result of a change in the economic environment in the EU and UK and increased
competition in the MENA region, export price trends have changed to negative.
Poultry prices across all export markets (MENA, EU and CIS) from September
2022 started to go down sharply, with current prices being substantially lower
than in Q3 2022. Moreover, MHP has been facing a triple increase in its
logistic costs y/y since March 2022, while our competitors from worldwide have
experienced considerably lower logistics cost increases.
In Q3 2022 poultry prices on the domestic market in USD terms decreased by 25%
y/y, and by 6% q/q, predominantly driven by significant depreciation of
currency. In UAH terms, in Q3 2022, poultry prices remained stable y/y.
However, prices increased by 13% q/q driven mainly by increased share of fresh
chicken meat sales compared with Q2 2022.
Vegetable oil
In Q3 2022, sunflower oil sales volume amounted to 95,436 tonnes, up 161% y/y.
In 9M 2022 MHP's sales of sunflower oil increased by 38% compared to 9M 2021
to 176,912 tonnes, mainly driven by an increase in production of sunflower
cake (change in the recipe), which was substantially lower in Q3 2021 (when
the fodder recipe was based more on soyabean cake) as well as a positive
change (higher ships' turnover) in logistics.
Sales of soybean oil amounted to 7,716 tonnes in Q3 2022, 39% lower y/y, and
27,263 tonnes in 9M 2022, 23% lower y/y, mainly as a result of lower
production volume of soyabean cake required for the fodder recipe substituted
by sunflower cake (since Q2 2022) and challenges associated with export
logistics because of the war in Ukraine.
Financial result and trends
(in mln. US$, unless indicated otherwise) Q3 2022 Q3 2021 % change y/y(1)) Q2 2022 % change q/q(1)) 9M 2022 9M 2021 % change(1))
Revenue 541 433 25% 430 26% 1,350 1,140 18%
- Poultry and other 392 366 7% 330 19% 1,043 948 10%
- Vegetable oil 149 67 122% 100 49% 307 192 60%
IAS 41 standard gain 9 (11) -182% 9 0% 24 7 243%
Gross profit 105 76 38% 87 21% 252 219 15%
Gross margin 19% 18% 1 pps 20% -1 pps 19% 19% 0 pps
War-related expenses (4) - 100% (10) -64% (35) - 100%
Adjusted EBITDA 84 70 20% 68 24% 184 210 -12%
Adjusted EBITDA margin 16% 16% 0 pps 16% 0 pps 14% 18% -4 pps
Adjusted EBITDA per 1 kg (net of IAS 41) 0.42 0.44 -5% 0.42 0% 0.34 0.39 -13%
(1)) pps - percentage points
In 9M 2022, revenue increased by 18% y/y as a result of price increase on
export markets which was offset by lower sales volume of meat. An increase of
revenue by 26% q/q was primary attributable to a substantial increase in sales
volume of vegetable oil due to change in fodder recipe.
IAS 41 standard gain in Q3 2022 amounted to US$ 9 million mainly as a result
of an increase in quantity of chicken meat held on stock abroad.
Gross profit in 9M 2022 increased by 15% y/y to US$ 252 million. The increase
was mainly driven by increase in price of chicken meat and higher sales volume
of sunflower oil.
In 9M 2022, adjusted EBITDA decreased by 12%, mainly as a result of
war-related expenses (including donations, damages and assets write-offs).
Grain growing operations
In 2022 the Company expects to harvest around 345,000 hectares of land.
As of today, MHP's harvesting campaign of sunflower is almost complete, corn
harvesting is 60% complete and soya harvesting is around 85% complete.
Sowing campaign of winter crops is almost 90% complete on around 74,300 ha of
land (around 55% of land is under winter wheat, around 45% of land is under
winter rapeseed).
Crops current yields are as follows:
2022(1)) 2021(3))
MHP's Ukraine's average MHP's Ukraine's average
average average
tonnes per hectare tonnes per hectare
Corn 7.6 5.5 10.0 8.0
Wheat 5.5 (2)) 4.1 5.9 4.6
Sunflower 2.9 2.2 3.2 2.5
Rapeseed 3.8 (2)()) 2.9 3.3 3.0
Soya 2.6 2.4 2.5 2.7
(1) Ukraine - bunker weight, MHP: corn, sunflower, soya - bunker weight.)
(2) MHP: wheat, rapeseed - net yields.)
(3) MHP and Ukraine - net yields.)
Financial result and trends
(in mln. US unless indicated otherwise) 9M 2022 9M 2021 % change
Revenue 86 79 9%
IAS 41 standard loss (147) 165 -189%
Gross profit 44 252 -83%
War-related expenses (2) - 100%
Adjusted EBITDA 77 292 -74%
Adjusted EBITDA (net of IFRS 16) 50 261 -81%
Grain growing segment's revenue in 9M 2022 amounted to US$ 86 million compared
to US$ 79 million in 9M 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 9M 2022 amounted to US$ 147 million compared to a gain
of US$ 165 million in 9M 2021. The loss represents the net change in the
effect of revaluation of agricultural produce (sunflower, corn, wheat and
soya) as well as a fall in revaluation of crops in fields due to lower
expected yields and prices from spring crops.
Meat processing and other agricultural operations segment
Meat processing products Q3 2022 Q3 2021 % change y/y Q2 2022 % change q/q 9M 2022 9M 2021 % change
Sales volume, third parties tonnes 3,108 9,378 -67% 2,289 36% 11,412 25,447 -55%
Price per 1 kg net VAT, UAH 106.27 83.37 27% 88.34 20% 92.86 80.02 16%
Sales volume of meat processing products decreased by 55% y/y to 11,412 tonnes
in 9M 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 in Central
Ukraine. The average price increased by 16% y/y to UAH 92.86 per kg in 9M
2022, driven mainly by an increase in raw material price (poultry meat).
Convenience food Q3 2022 Q3 2021 % change y/y Q2 2022 % change q/q 9M 2022 9M 2021 % change
Sales volume, third parties tonnes 5,442 5,442 0% 3,421 59% 12,831 14,107 -9%
Price per 1 kg net VAT, UAH 61.91 47.58 30% 58.94 5% 58.52 47.29 24%
Sales volumes of convenience food in 9M 2022 decreased by 9% to 12,831 tonnes,
mainly driven by significant disruptions in HoReCa (both KFC and McDonalds had
to cease operations in Ukraine because of the war). The average price in 9M
2022 increased by 24% to UAH 58.52 per kg (excluding VAT) mainly driven by raw
material price increase as well as focus on more marginal products sales
increase.
Financial result and trends
(in mln. US$, except margin data) Q3 2022 Q3 2021 % change y/y(1)) Q2 2022 % change q/q(1)) 9M 2022 9M 2021 % change
Revenue 32 49 -35% 27 19% 95 126 -25%
- Meat processing and convenience food 24 41 -41% 20 20% 72 102 -29%
- Other(2)) 8 8 0% 7 14% 23 24 -4%
IAS 41 standard losses - - 100% - 0% 1 3 -67%
Gross profit 5 3 67% 2 150% 11 16 -31%
Gross margin 16% 6% 10 pps 7% 9 pps 12% 13% -1 pps
War-related expenses - - 100% (1) -100% (4) - 100%
Adjusted EBITDA 4 1 300% - - 4 11 -64%
Adjusted EBITDA margin 13% 2% 11 pps 0% 13 pps 4% 9% -5 pps
(1)) pps - percentage points;
(2)) includes milk, cattle and feed grains.
The segment's revenue in 9M 2022 decreased by 25% to US$ 95 million. Adjusted
EBITDA in 9M 2022 was US$ 4 million compared to US$ 11 million in 9M 2021
mainly due to the effects of the war and significant disruptions in demand for
HoReCa segment.
European operating segment (PP)
Poultry Q3 2022 Q3 2021 % change y/y Q2 2022 % change q/q 9M 2022 9M 2021 % change
Sales volume, third parties tonnes 21,263 19,367 10% 19,619 8% 58,626 54,917 7%
Price per 1 kg net VAT, EUR 3.34 2.65 26% 3.36 -1% 3.19 2.56 25%
In Q3 2022, poultry sales of the European operating segment increased by 10%
y/y to 21,263 tonnes, while increasing by 8% compared with Q2. This was driven
by an increased production of chicken meat following expansion of facilities
in Croatia and Serbia. Average price increased by 26% in Q3 2022 to EUR 3.34
(Q3 2021: EUR 2.65).
Meat processing products(1)) Q3 2022 Q3 2021 % change y/y Q2 2022 % change q/q 9M 2022 9M 2021 % change
Sales volume, third parties tonnes 11,960 11,030 8% 10,238 17% 32,116 30,046 7%
Price per 1 kg net VAT, EUR 3.11 2.76 13% 3.12 0% 3.05 2.76 11%
(1)) includes sausages and convenience foods
Meat processing product sales were up by 8% y/y to 11,960 tonnes in Q3 2022
(Q3 2021: 11,030 tonnes), at the same time increased by 17% compared with Q2.
Average price in Q3 2022 increased by 13% to EUR 3.11.
Financial result and trends
(in mln. US$, except margin data) Q3 2022 Q3 2021 % change y/y(1)) Q2 2022 % change q/q(1)) 9M 2022 9M 2021 % change
Revenue 121 110 10% 120 1% 345 301 15%
IAS 41 standard gains (1) - -100% 3 -133% 4 2 100%
Gross profit 29 31 -6% 35 -17% 91 86 6%
Gross margin 24% 28% -4 pps 29% -5 pps 26% 29% -3 pps
Adjusted EBITDA 21 19 11% 22 -5% 58 52 12%
Adjusted EBITDA margin 17% 17% 0 pps 18% -1 pps 17% 17% 0 pps
Adjusted EBITDA (net of IFRS 16) 20 18 11% 22 -9% 56 50 12%
Adjusted EBITDA margin 17% 16% 1 pps 18% -1 pps 16% 17% -1 pps
(net of IFRS 16)
(1)) pps - percentage points.
European operating segment's revenue in 9M 2022 increased by 15% to US$ 345
million (9M 2021: US$ 301 million), mainly as a result of the increase in
poultry sales volume and price.
Adjusted EBITDA (net of IFRS 16) amounted to US$ 56 million for 9M 2022
compared with US$ 50 million for 9M 2021. Adjusted EBITDA margin (net of IFRS
16) remains almost on the same level at 16%.
Current Group cash flow
(in mln. US$) Q3 2022 Q3 2021 9M 2022 9M 2021
Cash from operations 124 128 378 278
Change in working capital (2) 81 (248) (20)
Net Cash from operating activities 122 209 130 258
Cash used in investing activities (52) (41) (125) (96)
Including:
CAPEX(1)) (43) (38) (106) (92)
Cash from financing activities 21 (44) 43 (96)
Total change in cash(2)) 91 124 48 66
(1))Calculated as cash used for Purchases of property, plant and equipment
plus cash used for purchases of other non-current assets
(2))Calculated as Net Cash from operating activities plus Cash used in
investing activities plus Cash used in financing activities
Cash obtained from operations in 9M 2022 was mainly invested in working
capital, mostly related to:
· An increase in trade accounts receivable for sunflower oil due to
longer settlement periods as a result of increased delivery periods;
· An increase of VAT receivables;
· A fall in trade accounts payable for plant protection products
and seeds and an increase in advances made for fuel to be used in the
forthcoming harvesting and sowing campaigns;
· Higher amounts of chicken meat as at the end of 9M 2022
designated for sale and;
· An increase in investments in biological assets during the crop
sowing campaign, due to higher cost per ha comparing to previous year;
· Higher investments in energy supplies and fertilizers as well as
higher amount of sunflower oil in inventories as at the end reporting period.
Due to unfavorable weather conditions that led to a shift of the harvesting
campaign, MHP made lower investments in sunflower seeds as of 30 September
2022 compared to the same period last year. This will result in more
substantial investment requirements in sunflower seeds in Q4 2022.
In 9M 2022 total CAPEX amounted to US$ 106 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$) 30 September 2022 31 December 2021 30 September 2021
Total Debt(1) 2)) 1,503 1,505 1,451
LT Debt(1)) 1,480 1,489 1,431
ST Debt (1)) 167 126 20
Trade credit facilities(2)) (145) (110) -
Cash and bank deposits (317) (275) (287)
Net Debt(1)) 1,186 1,230 1,164
LTM Adjusted EBITDA(1)) 404 648 558
Net Debt / LTM Adjusted EBITDA(1)) 2.94 1.90 2.09
(1) ) Net of IFRS 16 adjustments: as if any lease that would have been
treated as an operating lease under IAS 17 as was in effect before the 1
January 2019, is treated as an operating lease for purposes of this
calculation. In accordance with covenants in MHP's bond and loan agreements,
these data exclude the effects of IFRS 16 on accounting for operating leases.
(2)) Indebtedness under trade credit facilities that is required to be
repaid within 12 months of drawdown should be excluded for purposes of this
calculation
As of 30 September 2022, the share of long-term debt in the total outstanding
debt remained unchanged at 98%. The weighted average interest rate is
unchanged at around 7%.
As of 30 September 2022, MHP's cash and cash equivalents amounted to US$ 317
million. Net debt decreased to US$ 1,186 million, compared to US$ 1,230
million as at 31 December 2021, but was almost unchanged compared to US$ 1,164
as at 30 September 2021.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 2.94 as of 30
September 2022, lower than the limit of 3.0 defined in the Eurobond agreement.
As a hedge for currency risks, revenue from the exports of grain, sunflower
and soybean oil, sunflower husks and chicken meat, which are denominated in US
Dollars and Euros, are more than sufficient to cover debt service expenses.
Export revenue for 9M 2022 amounted to US$ 1,110 million or 59% of total
revenue (US$ 843 million or 51% of total sales in 9M 2021).
Outlook
Although the recent recovery of Kherson has been encouraging, the overall
situation in Ukraine remains highly fluid and the outlook continues to be
subject to extraordinary uncertainty. Nonetheless, MHP has been successful
in maintaining operations at close to full capacity and, barring unexpected
developments, expects to be able to continue to do so.As far as normal trading
is concerned, prices in several export markets (including the Middle East and
EU) have softened substantially, and are expected to remain weak, due to
excess supply and increased competition. The significant incremental costs
incurred in recent months due to global inflationary pressures as well as
increased logistics costs are expected to continue into 2023.
Grain and vegetable oil prices are likely to remain stable and high at least
into 2023, reflecting ongoing global supply constraints, compounded by the
ongoing effects of the war in Ukraine.
Following the strong support demonstrated in March 2022 by holders of our
Eurobonds and our bankers, the Group expects to pay in full and on time all
bond coupons deferred from March-May 2022.
Notes to Editors:
About MHP
MHP SE is the parent company of a leading international food & agrotech
group with headquarters in Ukraine and also in the Balkans (Perutnina Ptuj
Group).
Ukraine: MHP has the greatest market share and the highest brand recognition
for its products. MHP owns and operates each of the key stages of chicken
production processes, from feed grains and fodder production to egg hatching
and grow out to processing, marketing, distribution and sales (including
through MHP's franchise outlets). Vertical integration reduces MHP's
dependence on suppliers and its exposure to increases in raw material prices.
In addition to cost efficiency, vertical integration also allows MHP to
maintain strict biosecurity and to control the quality of its inputs and the
resulting quality and consistency of its products through to the point of
sale. To support its sales, MHP maintains a distribution network consisting of
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 nine-month period ended 30 September 2022
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF
DIRECTORS................................................................. 3
MANAGEMENT
REPORT..............................................................................................................................
4
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2022
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE
INCOME..............................................................................................................................................................
6
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION..................................... 8
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY..................................... 9
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS............................................... 11
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................. 13
1. Corporate
information.....................................................................................................................
13
2. Basis of preparation and accounting
policies.................................................................................
14
3. Changes in the group
structure......................................................................................................
18
4. Segment
information......................................................................................................................
19
5.
Revenue........................................................................................................................................
22
6. Profit for the
period........................................................................................................................
22
7. Property, plant and
equipment........................................................................................................
23
8. Agricultural
produce.......................................................................................................................
23
9. Biological
assets............................................................................................................................
23
10. Share
capital...............................................................................................................................
23
11. Bank
borrowings..........................................................................................................................
24
12. Bonds
issued..............................................................................................................................
25
13. Related party balances and
transactions.......................................................................................
28
14. Operating
environment.................................................................................................................
29
15. Contingencies and contractual
commitments.................................................................................
30
16. Fair value of financial
instruments.................................................................................................
31
17. Risk management
policy..............................................................................................................
32
18.
Dividends....................................................................................................................................
33
19. Subsequent
events......................................................................................................................
33
20. Authorization of the interim condensed consolidated financial
statements....................................... 34
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 September 2022 that are presented on pages 6 to 34:
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.
15 November 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 nine-month period ended 30 September 2022 consolidated revenue
increased by 14% to USD 1,876,118 thousand, compared to USD 1,646,586 thousand
for the nine-month period ended 30 September 2021. Export sales for the
nine-month period ended 30 September 2022 constituted 59% of total revenue at
USD 1,109,912 thousand, compared to USD 842,948 thousand, and 51% of total
revenue for the nine-month period ended 30 September 2021. The increase in
revenue was mainly attributable to higher price and quantity of sunflower oil
exported as a result of change in fodder recipe, as well as an increase in
chicken export prices partly offset by a fall volumes adversely effected by
difficult and disrupted logistics caused by the War from 24 February 2022.
Gross profit decreased by 30% to USD 398,478 thousand for the nine-month
period ended
30 September 2022 compared to USD 572,991 thousand for the nine-month period
ended 30 September 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 57% to USD 175,550 thousand for the nine-month
period ended 30 September 2022 compared to USD 412,927 thousand for the
nine-month period ended 30 September 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).
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 9 of the interim condensed
consolidated financial statements for the nine-month period ended 30 September
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 nine-month period ended 30
September 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 September 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 three 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/) .
15 November 2022
On behalf of the Board:
Chief Executive
Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
Nine-month period Three-month period
ended 30 September
ended 30 September
Notes 2022 2021 2022 2021
Revenue 4, 5 1,876,118 1,646,586 727,377 658,011
Net change in fair value of biological assets and agricultural produce 4 (119,034) 176,279 (26,485) 50,953
Cost of sales (1,358,606) (1,249,874) (543,189) (494,058)
Gross profit 6 398,478 572,991 157,703 214,906
Selling, general and administrative expenses (170,867) (159,734) (57,979) (54,338)
Other operating income 13,084 10,169 6,879 2,856
Other operating expenses 14 (54,031) (10,499) (6,761) (5,578)
Loss on impairment of property, plant and equipment 7 (11,114) - - -
Operating profit 6 175,550 412,927 99,842 157,846
Finance income 3,557 8,409 1,381 2,102
Finance costs 11, 12 (116,896) (109,347) (38,051) (37,581)
Foreign exchange (loss)/gain, net (366,748) 74,680 (274,556) 24,177
(Loss)/Profit before tax (304,537) 386,669 (211,384) 146,544
Income tax benefit/ (expenses) 35,263 (9,822) 30,629 (2,003)
(Loss)/Profit for the period from continuing operations 6 (269,274) 376,847 (180,755) 144,541
Discontinued operations
Profit for the year from discontinued operations - 179 - -
(Loss)/Profit for the period (269,274) 377,026 (180,755) 144,541
The accompanying notes on the pages 16 to 37 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 nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
Nine-month period Three-month period
ended 30 September
ended 30 September
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) (3,944) - 161
and equipment
Deferred tax on decrease in revaluation reserve as a result of impairment of 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 (355,258) 45,508 (243,876) 20,048
currency
Other comprehensive (loss)/income for the period (444,356) 41,564 (243,876) 20,209
Total comprehensive (loss)/income for the period (713,630) 418,590 (424,631) 164,750
(Loss)/Profit attributable to:
Equity holders of the Parent (257,867) 360,463 (174,406) 134,886
Non-controlling interests (11,407) 16,563 (6,349) 9,655
(269,274) 377,026 (180,755) 144,541
Total comprehensive (loss)/income attributable to:
Equity holders of the Parent (694,468) 403,067 (414,106) 154,893
Non-controlling interests (19,162) 15,523 (10,525) 9,857
(713,630) 418,590 (424,631) 164,750
(Loss)/Earnings per share from continuing and discontinued operations
Basic and diluted (loss)/earnings per share (USD per share) (2.41) 3.37 (1.63) 1.26
(Loss)/Earnings per share from continuing operations
Basic and diluted (loss)/earnings per share (USD per share) (2.41) 3.37 (1.63) 1.26
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 13 to 34 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
Notes 30 September 2022 31 December 2021
ASSETS
Non-current assets
Property, plant and equipment 7 1,471,163 1,939,607
Right-of-use asset 224,081 277,288
Intangible assets 75,078 97,791
Goodwill 56,537 66,382
Non-current biological assets 23,470 27,138
Non-current financial assets 16,517 28,764
Long-term bank deposits 2,633 9,904
Deferred tax assets 2,348 1,966
1,871,827 2,448,840
Current assets
Inventories 254,698 367,219
Biological assets 9 294,416 215,459
Agricultural produce 8 255,569 511,267
Prepayments 39,804 44,572
Other current financial assets 26,837 16,156
Taxes recoverable and prepaid 71,056 68,151
Trade accounts receivable 191,730 156,878
Cash and cash equivalents 316,895 275,237
1,451,005 1,654,939
TOTAL ASSETS 3,322,832 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 506,422 811,684
Retained earnings 1,517,544 1,557,284
Translation reserve (1,367,980) (1,018,514)
Equity attributable to equity holders of the Parent 1,069,920 1,764,388
Non-controlling interests 8,275 29,800
Total equity 1,078,195 1,794,188
Non-current liabilities
Bank borrowings 11 91,768 103,604
Bonds issued 12 1,381,508 1,376,820
Lease liabilities 17 172,435 204,139
Deferred income 33,876 44,593
Deferred tax liabilities 2 54,149 44,704
Other non-current liabilities 5,350 6,468
1,739,086 1,780,328
Current liabilities
Trade accounts payable 104,919 162,641
Other current financial liabilities 60,967 93,289
Contract liabilities 42,464 53,584
Bank borrowings 11 163,383 121,458
Interest payable 11,12 67,019 21,180
Lease liabilities 17 66,799 77,111
505,551 529,263
TOTAL LIABILITIES 2,244,637 2,309,591
TOTAL EQUITY AND LIABILITIES 3,322,832 4,103,779
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 13 to 34 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent
Share Treasury shares Additional paid-in capital Revaluation reserve Retained earnings Translation reserve Total Non-controlling interests Total equity
capital
Balance as of 1 January 2022 284,505 (44,593) 174,022 811,684 1,557,284 (1,018,514) 1,764,388 29,800 1,794,188
Loss for the period - - - - (257,867) - (257,867) (11,407) (269,274)
Other comprehensive loss - - - (87,135) - (349,466) (436,601) (7,755) (444,356)
Total comprehensive loss for the period - - - (87,135) (257,867) (349,466) (694,468) (19,162) (713,630)
Transfer from revaluation reserve to retained earnings - - - (38,719) 38,719 - - - -
Dividends declared by subsidiaries - - - - - - - (2,363) (2,363)
Translation differences on revaluation reserve - - - (179,408) 179,408 - - - -
Balance as of 30 284,505 (44,593) 174,022 506,422 1,517,544 (1,367,980) 1,069,920 8,275 1,078,195
September 2022
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 13 to 34 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the nine-month period ended 30 September 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 - - - - 360,463 - 360,463 16,563 377,026
Other comprehensive profit - - - (2,337) - 44,941 42,604 (1,040) 41,564
Total comprehensive profit for the period - - - (2,337) 360,463 44,941 403,067 15,523 418,590
Transfer from revaluation reserve to retained earnings - - - (52,198) 52,198 - - - -
Dividends declared by the Parent (Note 18) - - - - (30,000) - (30,000) - (30,000)
Dividends declared by subsidiaries - - - - - - - (9,072) (9,072)
Non-controlling interests arising in a business combination - - - - - - - 888 888
Translation differences on revaluation reserve - - - 39,595 (39,595) - - - -
Balance as of 30 284,505 (44,593) 174,022 634,042 1,538,209 (975,288) 1,610,897 23,712 1,634,609
September 2021
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial
Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 13 to 34 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise
indicated)
Notes Nine-month period ended 30 September 2022 Nine-month period ended 30 September 2021
Operating activities
(Loss)/Profit before tax (304,537) 386,669
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 4 117,743 136,259
Loss on impairment of property, plant and equipment 7, 14 11,114 -
Net change in fair value of biological assets and agricultural produce 4 119,034 (176,279)
Change in allowance for expected credit losses and direct 17,370 (400)
write-offs
Loss on disposal of property, plant and equipment and other non-current assets 931 725
Finance income (3,557) (8,409)
Finance costs 11, 12 116,896 109,347
Released deferred income (875) 1,806
Non-operating foreign exchange loss/(gain), net 366,748 (74,680)
Operating cash flows before movements in working capital 440,867 375,217
Working capital adjustments
Change in inventories (4,678) 65,069
Change in biological assets (150,478) (121,468)
Change in agricultural produce 38,457 40,836
Change in prepayments made (16,273) (20,077)
Change in other current assets (2,548) (1,566)
Change in taxes recoverable and prepaid (24,911) 3,309
Change in trade accounts receivable (74,638) (40,154)
Change in contract liabilities 2,683 34,713
Change in other current liabilities (15,657) (32,823)
Change in trade accounts payable (412) 51,799
Cash generated by operations 192,412 354,855
Interest received 1,369 5,802
Interest paid (56,993) (94,991)
Income taxes paid (6,690) (7,585)
Net cash flows from operating activities 130,098 258,081
Investing activities
Purchases of property, plant and equipment 7 (105,795) (85,137)
Purchases of other non-current assets (556) (4,196)
Purchase of intangible assets (3,492) (2,332)
Proceeds from disposals of property, plant and equipment 2,788 5,209
Proceeds from disposals of subsidiary 3 - 671
Purchases of non-current biological assets (2,773) (1,201)
Acquisition of subsidiaries, net of cash acquired 3 - (1,840)
Government grants received 1,039 -
Prepayments and capitalized initial direct costs under lease contracts (10,866) (4,856)
Investments in short-term deposits (9,483) (10,304)
Withdrawals of short-term deposits 4,030 442
Loans repaid by employees, net 620 (136)
Loans provided to related parties 13 (294) (3,683)
Loans repaid by related parties 13 - 11,000
Net cash flows used in investing activities (124,782) (96,363)
Financing activities
Proceeds from bank borrowings 161,594 79,533
Repayment of bank borrowings (109,409) (116,962)
Repayment of lease liabilities (7,190) (19,787)
Consent payment (1,222) -
Dividends paid 18 - (30,000)
Dividends paid by subsidiaries to non-controlling shareholders (392) (8,398)
Net cash flows received from/(used in) financing activities 43,381 (95,614)
The accompanying notes on the pages 16 to 37 form an integral part of these
interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
Notes Nine-month period ended 30 September 2022 Nine-month period ended 30 September 2021
Net decrease in cash and cash equivalents 48,697 66,104
Net foreign exchange difference on cash and cash equivalents (7,039) 2,976
Cash and cash equivalents at 1 January 275,237 217,579
Cash and cash equivalents at 30 September 316,895 286,659
Non-cash transactions
Non-cash repayments of lease liabilities 6,905 6,000
On behalf of the Board:
Chief Executive Officer
Yuriy Kosyuk
Chief Financial Officer
Viktoria Kapelyushnaya
The accompanying notes on the pages 13 to 34 form an integral part of these
interim condensed consolidated financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the nine-month period ended 30 September 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 September 2022 the
Group employed 31,246 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 September
2022 and 31 December 2021 were as follows:
Name Country of registration Year established/ Principal activities 30 September 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 nine-month period ended 30 September 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 nine-month
period ended 30 September 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;
· During first half of 2022, export sales reduced significantly due
to closure of all Ukrainian seaports. Only certain roads and railways were
available for export. However, beginning from 22 July, the date of signing of
grain agreement between UN, Ukraine, Russia and Turkey, the large-scale
demining of Ukraine's ports was performed and movement of cargo ships carrying
grain in the Black Sea was allowed. As a result of this, more than 10 million
tonnes of corn, rapeseeds, wheat, sunflower oil and other grains were exported
from Ukraine. The initiative is expected to be prolonged automatically on 19
November, if no party objects;
· due to lower sales, MHP has slightly decreased poultry production
comparing to pre-war level, but as at 30 September 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 USD 42 million undrawn financing
facilities 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;
· established alternative export routes, including by road and
rail, although this is problematic due to logistical issues caused by
infrastructure damage and low capacity of these routes;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Going concern (continued)
· 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;
· the harvesting campaign is in progress, and the Group has already
harvested 35% of planned 345 thousand hectares of its Ukrainian landbank
(spring and winter crops) in 2022. The Group is now performing a sowing of
winter crops, mainly wheat and rapeseeds. MHP has sufficient seeds,
fertilizers, fuel, pesticides and other inputs required for mentioned sowing
and harvesting campaigns, 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 (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 September 2022,
Management already signed legally binding agreements for relevant bank loans
with the total amount of USD 136 million, where principal payments were
rescheduled to February 2023 (Note 11);
· the Directors have decided not to declare a final dividend for
the 2021 financial year and interim dividends for nine-month period ended 30
September 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;
· 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.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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
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.
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)) 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
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Functional and presentation currencies (continued)
on exchange differences are recognised in the consolidated statement of profit
or loss and other comprehensive income for the period.
These consolidated financial statements are presented in US Dollars ("USD"),
which is the Group's presentation currency.
The results and financial position of the Group are translated into the
presentation currency using the following procedures:
· Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate as of the
reporting date of that statement of financial position;
· Income and expenses for each consolidated statement of profit or
loss 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 September 2022 Average for nine months ended 30 September 2022 Average for three months ended 30 September 2022 Closing rate as of 31 December 2021 Average for nine months ended 30 September 2021 Average for three months ended 30 September 2021
UAH/USD 36.5686 30.9529 34.9787 27.2782 27.4866 26.9110
UAH/EUR 35.5611 32.8978 35.1843 30.9226 32.9022 31.7388
USD/EUR 0.9724 1.0628 1.0059 1.1336 1.1970 1.1794
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 nine-month period ended 30 September 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 nine-month period ended 30 September 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 nine-month period ended 30 September 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 nine-month period ended 30 September 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 nine-month period ended 30 September 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 1,349,913 86,348 94,756 345,101 1,876,118 - 1,876,118
Sales between business segments 33,736 268,488 246 - 302,470 (302,470) -
Total revenue 1,383,649 354,836 95,002 345,101 2,178,588 (302,470) 1,876,118
Segment results 127,839 34,541 771 42,607 205,758 - 205,758
Unallocated corporate expenses (19,094)
Loss on impairment of property, plant and equipment - - (11,114) - (11,114) - (11,114)
Other expenses, net (1)) (480,087)
Loss before tax from continuing operations (304,537)
Other information:
Depreciation and amortization expense (2)) 55,751 42,803 3,166 14,901 116,621 - 116,621
Net change in fair value of biological assets and agricultural produce 23,557 (147,197) 1,106 3,500 (119,034) - (119,034)
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the nine-month period ended 30
September 2022 does not include unallocated depreciation and amortization in
the amount of USD 1,122 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the nine-month period ended 30 September 2021:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 1,140,327 79,245 126,158 300,856 1,646,586 - 1,646,586
Sales between business segments 33,532 134,539 267 - 168,338 (168,338) -
Total revenue 1,173,859 213,784 126,425 300,856 1,814,924 (168,338) 1,646,586
Segment results 139,107 245,855 6,795 39,058 430,815 - 430,815
Unallocated corporate expenses (17,888)
Other expenses, net (1)) (29,258)
Profit before tax from continuing operations 386,669
Other information:
Depreciation and amortization expense (2)) 71,343 45,932 4,685 13,258 135,218 - 135,218
Net change in fair value of biological assets and agricultural produce 7,010 164,812 2,774 1,683 176,279 - 176,279
(1)) Includes finance income, finance costs, foreign exchange gain (net) and
other expenses (net).
(2)) Depreciation and amortization for the nine-month period ended 30
September 2021 does not include unallocated depreciation and amortization in
the amount of USD 1,041 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 September 2022:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 541,174 33,072 31,563 121,568 727,377 - 727,377
Sales between business segments 8,721 73,484 96 - 82,301 (82,301) -
Total revenue 549,895 106,556 31,659 121,568 809,678 (82,301) 727,377
Segment results 67,074 16,028 3,038 15,926 102,066 - 102,066
Unallocated corporate expenses (2,224)
Other expenses, net (1)) (311,226)
Profit before tax from continuing operations (211,384)
Other information:
Depreciation and amortization expense (2)) 16,845 13,367 728 4,584 35,524 - 35,524
Net change in fair value of biological assets and agricultural produce 8,625 (33,858) 246 (1,497) (26,484) - (26,484)
(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
September 2022 does not include unallocated depreciation and amortization in
the amount of USD 335 thousand.
The following table presents revenue and profit information regarding the
Group's operating segments for the three-month period ended 30 September 2021:
Poultry Grain growing operations Meat processing and other agricultural operations European operating segment Total reportable segments Eliminations Consolidated
and related operations
External sales 432,975 66,756 48,536 109,744 658,011 - 658,011
Sales between business segments 13,487 14,935 119 - 28,541 (28,541) -
Total revenue 446,462 81,691 48,655 109,744 686,552 (28,541) 658,011
Segment results 46,144 103,646 (169) 15,139 164,760 - 164,760
Unallocated corporate expenses (6,914)
Other expenses, net (1)) (11,302)
Profit before tax from continuing operations 146,544
Other information:
Depreciation and amortization expense (2)) 24,181 17,131 1,321 4,175 46,808 - 46,808
Net change in fair value of biological assets and agricultural produce (11,416) 62,658 (208) (81) 50,953 - 50,953
( )(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
September 2021 does not include unallocated depreciation and amortization in
the amount of USD 385 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 September 2022 and 31 December 2021:
2022 2021
Ukraine 1,590,615 2,148,821
Europe 255,246 257,967
MENA 4,468 1,418
1,850,329 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 nine-month and three-month
periods ended 30 September 2022 and 2021 was as follows:
Nine-month period Three-month period
ended 30 September
ended 30 September
2022 2021 2022 2021
Poultry and related operations segment
Chicken meat 968,914 891,990 361,496 345,523
Vegetable oil and related products 314,567 195,383 153,225 68,099
Other poultry related sales 66,432 52,955 26,453 19,353
1,349,913 1,140,328 541,174 432,975
Grain growing operations segment
Grain 86,348 79,245 33,072 66,756
86,348 79,245 33,072 66,756
Meat processing and other agricultural operations segment
Other meat 71,903 101,860 24,241 40,563
Other agricultural sales 22,853 24,298 7,322 7,973
94,756 126,158 31,563 48,536
European operating segment
Chicken meat 229,872 196,567 84,918 76,835
Other meat 90,466 80,036 28,792 23,858
Other agricultural sales 24,763 24,252 7,858 9,051
345,101 300,855 121,568 109,744
1,876,118 1,646,586 727,377 658,011
The geographic structure of revenue for the nine-month and three-month periods
ended 30 September 2022 and 2021 was as follows:
Nine-month period Three-month period
ended 30 September
ended 30 September
2022 2021 2022 2021
Export 1,109,912 842,948 469,775 341,384
Domestic 766,206 803,638 257,602 316,627
1,876,118 1,646,586 727,377 658,011
6. Profit for the period
The Group's gross profit for the nine-month period ended 30 September 2022
decreased compared to the nine-month period ended 30 September 2021 to USD
398,478 thousand (30 September 2021: USD 572,991 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 nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
6. Profit for the period (continued)
Operating profit decreased by 57% to USD 175,550 thousand for the nine-month
period ended 30 September 2022 compared to USD 412,927 thousand for the
nine-month period ended 30 September 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 9,833 thousand, impairment of property,
plant and equipment in the amount of USD 11,114 thousand and donations to
Ukrainian communities in amount of USD 17,484 thousand affected by the Russian
invasion (as described in Note 14).
Loss from continuing operations for the nine-month period ended 30 September
2022 amounted to USD 269,274 thousand, compared to a profit of USD 376,847
thousand for the nine-month period ended 30 September 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 366,748 thousand for the nine-month period ended 30 September 2022
compared to gain of USD 74,680 thousand for the nine-month period ended 30
September 2021.
7. Property, plant and equipment
During the nine-month period ended 30 September 2022, the Group's additions to
property, plant and equipment amounted to USD 102,380 thousand (nine-month
period ended 30 September 2021: USD 85,137 thousand) mainly related to
modernization projects, development of new products and the maintenance and
improvement of Perutnina Ptuj production facilities as well as construction of
production facilities in KSA.
There were no significant disposals of property, plant and equipment during
the nine-month periods ended 30 September 2022 and 30 September 2021.
During the nine-month period ended 30 September 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
September 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 nine-month period ended 30
September 2022 was mainly as a result of internal consumption of corn,
sunflower, wheat and soya, partly offset by harvesting of rapeseeds and winter
wheat.
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 September 2022 and 31 December 2021 the authorized, issued and fully
paid share capital of MHP SE comprised the following number of shares:
30 September 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 September 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 nine-month period ended 30 September 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 September 2022 and 31 December 2021:
30 September 2022 31 December 2021
Currency WAIR (1)) USD' 000 WAIR (1)) USD' 000
Non-current
EUR EURIBOR(2)) + 2.31% 91,768 EURIBOR(2)) + 1.23% 103,604
91,768 103,604
Current
USD SOFR(3)) + 2.20% 10,550 SOFR(3)) + 2.20% 10,550
USD 4.32% 57,088 2.00% 99,536
EUR EURIBOR(2)) + 2.30% 23,339 -
EUR 3.52% 52,649 -
UAH UIRD(4)) + 5.0% 1,641 -
Current portion of EUR EURIBOR(2)) + 2.31% 18,116 EURIBOR(2)) + 1.23% 11,372
long-term bank borrowings
163,383 121,458
Total bank borrowings 255,151 225,062
(1) ) WAIR represents the weighted average interest rate on
outstanding borrowings
(2) ) According to the terms of certain agreements, if market
EURIBOR becomes negative for respective interest period, 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 September 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 September 2022 and 31
December 2021 were repayable as follows:
30 September 2022 31 December 2021
Within one year 163,383 121,458
In the second year 18,368 13,233
In the third to fifth year inclusive 73,400 76,456
After five years - 13,915
255,151 225,062
As of 30 September 2022, the Group had undrawn facilities of USD 99,134
thousand (31 December 2021: USD 255,970 thousand), whereof USD 57,322 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: Net Debt to EBITDA ratio, 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 nine-month period ended 30 September 2022 and year ended 31
December 2021 the Group has complied with all covenants imposed by banks
providing the borrowings.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
11. Bank borrowings (continued)
The Group's bank borrowings are jointly and severally guaranteed by MHP,
Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga
Nova, Starynska Ptakhofabryka, Zernoproduct MHP, Katerinopilskiy Elevator,
Agrofort, SPF Urozhay, MHP SE, Scylla Capital Limited, Myronivska
Pticefabrika, Ptakhofabryka Snyatynska Nova, Vinnytska Ptakhofabryka,
Zakhid-Agro MHP, MHP-Urozhayna Krayina, Raftan Holding Limited. But the bank
borrowings of Perutnina Ptuj - Pipo d.o.o., Perutnina Ptuj d.o.o., Perutnina
Ptuj - Topiko d.o.o. are guaranteed by Perutnina Ptuj.
As of 30 September 2022, the Group had borrowings of USD 79,866 thousand that
were secured by property, plant and equipment with a carrying amount of USD
91,365 thousand (31 December 2021: USD 75,084 thousand and USD 91,931 thousand
respectively).
As of 30 September 2022, the Group had borrowings of USD 29,390 thousand that
were secured by agricultural produce with a carrying amount of USD 34,627
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 September 2022, a deposit with carrying amount of USD 3,254 thousand
(31 December 2021: USD 2,555 thousand) was restricted as collateral to secure
bank borrowings.
As of 30 September 2022 and 31 December 2021, interest payable on bank
borrowings was USD 544 thousand and USD 423 thousand, respectively.
Prolongation of bank borrowings
During the nine-month period ended 30 September 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$ 136 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 nine-month period ended 30
September 2022, Management signed legally-binding agreements for the
above-mentioned bank borrowings. According to these agreements, principal
payments were rescheduled to February 2023.
12. Bonds issued
Bonds issued and outstanding as of 30 September 2022 and 31 December 2021 were
as follows:
Carrying amount Nominal amount
30 September 2022 31 December 2021 30 September 2022 31 December 2021
7.75% Senior Notes due in 2024 493,581 490,851 500,000 500,000
6.95% Senior Notes due in 2026 540,127 538,346 550,000 550,000
6.25% Senior Notes due in 2029 347,800 347,623 350,000 350,000
Unamortized debt issuance cost - - (18,492) (23,180)
Total bonds issued 1,381,508 1,376,820 1,381,508 1,376,820
As of 30 September 2022 and 31 December 2021, the amount of interest payable
on bonds issued was USD 66,475 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 nine-month period ended 30 September 2022
(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 nine-month period ended 30 September 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 September 2022 and 31 December 2021.
As at 30 September 2022, the leverage ratio of the Group was 2.94 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 USD 10 million in aggregate principal amount;
· the Company and its Restricted Subsidiaries will be prohibited
from incurring new Liens on existing Indebtedness for borrowed money, other
than Permitted Refinancing Indebtedness relating to existing secured
Indebtedness;
· the Company and its Restricted Subsidiaries will be prohibited
from making Restricted Payments other than payments constituting Permitted
Investments;
· the Permitted Investments "general basket" shall not be
available;
· the threshold at which an Affiliate Transaction must be approved
by a majority of the disinterested members of the Board of Directors shall be
reduced to USD 1 million;
· the Group is committed to paying no more than U.S.$12.5 million
in the aggregate in satisfaction of any debt service payments in respect of
any Indebtedness of the Group, excluding any interest payment in respect of
any of the 2024 Notes, the 2026 Notes during the Support Period;
· within 25 days of each calendar month end, the Company will
provide a trading update detailing operational data relating to the Group's
business segments.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 nine-month periods ended 30
September 2022 and 30 September 2021 were as follows:
2022 2021
Loans and finance aid provided to related parties 319 3,683
Loans and finance aid repaid by related parties - 11,000
Interest charged on loans and finance aid provided - 3,890
Interest on loans and financial aid repaid - 4,418
Purchases from related parties 412 -
Sales of goods and services 16 -
391
Key management personnel of the Group:
Loans provided 527 631
Loans repaid 830 576
The balances owed to and due from related parties were as follows as of 30
September 2022 and 31 December 2021:
30 September 2022 31 December 2021
Loans and finance aid receivable 2,219 2,971
Less: expected credit losses (1,922) (2,521)
297 450
Loans to key management personnel 3,319 4,774
Less: expected credit losses (281) (397)
3,038 4 377
Trade accounts receivable 90 113
Payables due to related parties 20 25
Loans and finance aid receivable
For loans and finance aid receivable, credit risk increased to the point where
it is considered credit impaired. The expected credit loss for such loans
amounted to USD 1,885 thousand and USD 2,482 thousand as of 30 September 2022
and 31 December 2021 respectively.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 13,278
thousand and USD 15,853 thousand for the nine-month periods ended 30 September
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 falling by 37,2% in
Q2 2022 (compared to Q2 2021) according to the flash estimate of the State
Statistics Service of Ukraine (SSSU), which is proved to be better than the
forecast published in July 2022. 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 (hereafter "NBU") most recent forecast, real
GDP is expected to fall by nearly 31.5% for the whole of 2022, but the outlook
could worsen sharply if the conflict lasts longer. A large negative
contribution to real GDP change came from agriculture - due to both this
year's lower yields and considerably smaller sown areas.
The War caused a disruption of supply chains, a decrease in supply of some
goods, higher business costs, physical destruction of production facilities
and infrastructure (in the energy sector in particular), and temporary
occupation of some territories. Persistently high energy prices and
record-high inflation in partner countries also fueled price pressures in
Ukraine. Inflation expectations of businesses and households increased
markedly. This was reflected in deteriorated maturity structure of bank
deposits and higher spending on some durable goods, primarily imported goods.
As a result, the consumer inflation has been growing rapidly over recent
months, reaching 24.6% in September, and core inflation exceeded 20%.
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
allowed the movement of cargo ships carrying grain in the Black Sea. The
document spells out a complex regime that establishes safe channels through
the Black Sea and inspections in Turkey. As of November 2022 10 million
tonnes of agriculture produce have been already exported through the "grain
corridor". According to current forecasts, Ukraine can export approximately 1
million tonnes of grain weekly.
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. Official financing has already exceeded 22 billion USD since
the start of the full-scale invasion (the main part was received in Q3 2022 -
USD 9.4 billion).
After several months of retaining the discount rate unchanged at 10%, the
National Bank of Ukraine decided to increase it to 25% from June 2022. The
updated forecast envisages maintaining it unchanged at least until Q2 2024.
The exchange rate remained fixed at UAH 29.25 to the US Dollar until 21 July,
when it was increased to 36.57 by the NBU. The NBU has said that, 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.
In Q1 2022 the Government has imposed export licensing of key foodstuffs
including wheat, corn, poultry meat, and sunflower oil. The export licensing
for corn and sunflower oil was cancelled later in Q1 2022, and wheat in Q3
2022.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 nine-month period
ended 30 September 2022 to be directly related to the war:
2022
Loss on impairment of property, plant and equipment 11,114
Community support donations(1)) 17,484
Write-off of inventories and biological assets(1)) 9,833
Salary to mobilized employees(2)) 9,094
Expected credit losses of trade accounts receivable(1)) 5,535
Other war-related expenses(1)) 3,033
Total amount recognized in profit or loss 56,093
Decrease in revaluation reserve 9,489
65,582
(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 September 2022, the Group's management assessed its possible exposure
to tax risks to be a total amount of USD 4,428 thousand related to corporate
income tax (31 December 2021: USD 5,535 thousand). No provision was recognised
relating to such possible tax exposure.
As of 30 September 2022, companies of the Group were engaged in ongoing
litigation with tax authorities for the amount of USD 25,781 thousand (31
December 2021: USD 73,147 thousand), including USD 17,145 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 19,391 thousand as of
30 September 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 91 thousand,
which had not been brought to Court as of 30 September 2022.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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 nine-month period ended 30 September 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 September 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 26,225 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 September 31 December 2021 30 September 2022 31 December 2021
2022
Financial liabilities
Bank borrowings (Note 11) 255,695 225,485 256,967 225,574
Senior Notes due in 2024, 2026, 2029 (Note 12) 1,447,983 1,397,577 721,700 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 2.6%
(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 nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
17. Risk management policy
During the nine-month period ended 30 September 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 September 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 September 2022
Bank borrowings 255,695 254,573 166,350 88,223 -
Bonds issued 1,447,983 1,835,585 150,910 1,290,925 393,750
Lease liabilities 239,234 447,882 66,983 194,309 186,590
Trade accounts payable 104,919 104,919 104,919 - -
Contract liabilities 9,203 9,203 9,203 - -
Other current financial liabilities 60,967 60,967 60,967 - -
Total 2,118,001 2,713,129 559,332 1,573,457 580,340
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 September 2022 part of the Group's existing undrawn financing
facilities in certain banks in amount of USD 42 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 September 2022 and 31 December 2021 were as follows:
30 September 2022 31 December 2021
USD EUR USD EUR
Total assets 144,567 122,702 140,705 41,883
Total liabilities 1,520,487 127,276 1,513,825 42,395
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 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% (550,368)
Increase in EUR exchange rate 40% (1,830)
Decrease in USD exchange rate 10% 137,592
Decrease in EUR exchange rate 10% 457
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 nine-month period ended 30 September 2022, the Ukrainian Hryvnia
depreciated against the EUR and USD by 13.0% and 25.4% (nine-month period
ended 30 September 2021: appreciated against the EUR and USD by 7.5% and 4.0 %
respectively). As a result, during the nine-month period ended 30 September
2022 the Group recognized a net foreign exchange loss in the amount of USD
366,748 thousand (nine-month period ended 30 September 2021: foreign exchange
gain in the amount of USD 74,680 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 nine-month period ended 30
September 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 September 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.
Condition of assets
As of 15 November 2022, the Group's poultry production facilities have not
suffered any damage.
As of today, MHP's harvesting campaign of sunflower is almost complete, corn
harvesting is 60% complete and soya harvesting is around 85% complete. Sowing
campaign of winter crops is almost 90% complete on around 74,300 ha of land
(around 55% of land is under winter wheat, around 45% of land is under winter
rapeseed).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the nine-month period ended 30 September 2022
(in thousands of US dollars, unless otherwise indicated)
19. Subsequent events (continued)
Russian attacks on energy infrastructure
Since October, the Kremlin has been conducting massive missile strikes on the
territory of Ukraine, fiercely attacking the county's energy infrastructure.
This has led to the complete destruction of around 40% of Ukraine's energy
infrastructure. The situation remains highly fluid and the outlook is subject
to extraordinary uncertainty.
MHP faced complex challenges and disruptions to operations in the middle of
October, when a number of the country's electricity generation stations were
hit by missile attacks. Operations at some MHP facilities did not work for a
short period of time after the missiles' hits. As of today, MHP continues to
operate close to full capacity, using both state grids, electricity generated
at MHP's biogas stations and diesel generators. However, events have shown
that the situation can deteriorate seriously, quickly and without notice.
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 15 November 2022.
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. END QRTQQLBFLFLXFBKRecent news on MHP SE
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