PRESS RELEASE
15 March 2017 , Kyiv, Ukraine
MHP S.A.
Financial Results for the Fourth Quarter and
Twelve Months Ended 31 December 2016
MHP S.A. (LSE:MHPC), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and cultivation of grain, today announces its results for the twelve months and fourth quarter ended 31 December 2016.
In view of management's intention to dispose of the MHP companies located in the Autonomous Republic of Crimea (ARC), these assets were classified as discontinued operations. As previously announced, the sale of all these companies was completed on 17 February 2017. The profit or loss after tax from discontinued operations is shown as a single amount in the statement of comprehensive income. Comparative figures have been adjusted to represent results of continuing operations only.
OPERATIONAL HIGHLIGHTS
Q4 2016 highlights
· Poultry production volumes reached 148,039 tonnes, up by 11% year-on-year (Q4 2015: 133,878 tonnes)
· The average chicken meat price increased by 9% year-on-year to UAH 31.80 per kg (Q4 2015: UAH 29.20 per kg) (excluding VAT)
· Chicken meat exports increased by 65% to 48,034 tonnes (Q4 2015: 29,043 tonnes) as a result of increased exports to the MENA countries, the EU and Africa
12M 2016 highlights
· Poultry production volumes reached 573,003 tonnes, up by 10% year-on-year (12M 2015: 519,495 tonnes)
· The average chicken meat price increased by 10% year-on-year to UAH 29.81 per kg (12M 2015: UAH 27.19 per kg) (excluding VAT)
· Chicken meat exports increased by 52% to 189,939 tonnes (12M 2015: 124,604 tonnes) as a result of increased exports to the MENA countries, the EU and Africa
· Starting from July 2016, following expansion of its breeding farms, MHP became self-sufficient in hatching eggs
· The Company established a processing plant in the EU and a sales office in the Middle East as part of its export strategy
FINANCIAL HIGHLIGHTS
Q4 2016 highlights
· Revenue of US$ 313 million, increased by 24% year-on-year (Q4 2015: US$ 253 million)
· Export revenue amounted to US$ 180 million, 58% of total revenue (Q4 2015: US$ 118 million, 47% of total revenue)
· EBITDA margin decreased to 23% from 27%; EBITDA increased to US$ 72 million from US$ 68 million
· Net loss for the period is US$ 28 million, compared to loss of US$ 83 million for Q4 2015, including US$ 55 million (Q4 2015: US$ 122 million) of non-cash foreign exchange translation loss
12M 2016 highlights
· Revenue of US$ 1,135 million, increased by 7% year-on-year (12M 2015: US$ 1,062 million)
· Export revenue amounted to US$ 635 million, 56% of total revenue (12M 2015: US$ 524 million, 49% of total revenue)
· EBITDA margin decreased to 37% from 41%; EBITDA decreased to US$ 415 million from US$ 436 million
· Net profit for the period is US$ 69 million, compared to loss of US$ 113 million for 12M 2015, including US$ 145 million (12M 2015: US$ 390 million) of non-cash foreign exchange translation loss
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) |
|
Q4 2016 |
|
Q4 2015 |
% change* |
|
12M 2016 |
|
12M 2015 |
% change* |
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
313 |
|
253 |
24% |
|
1,135 |
|
1,062 |
7% |
IAS 41 standard gains/(losses) |
|
(48) |
|
(34 ) |
41% |
|
39 |
|
20 |
95% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
51 |
|
42 |
21% |
|
362 |
|
342 |
6% |
Gross profit margin |
|
16% |
|
17% |
-1 pps |
|
32% |
|
32% |
0 pps |
|
|
|
|
|
|
|
|
|
|
|
Operating profit** |
|
41 |
|
45 |
-9% |
|
317 |
|
347 |
-9% |
Operating profit margin |
|
13% |
|
18% |
-5 pps |
|
28% |
|
33% |
-5 pps |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
72 |
|
68 |
6% |
|
415 |
|
436 |
-5% |
EBITDA margin |
|
23% |
|
27% |
-4 pps |
|
37% |
|
41 % |
-4 pps |
|
|
|
|
|
|
|
|
|
|
|
Net profit before foreign exchange differences |
|
27 |
|
39 |
-31% |
|
214 |
|
277 |
-23% |
Net profit margin before forex gain/(loss) |
|
9% |
|
15% |
-6 pps |
|
19% |
|
26% |
-7 pps |
Foreign exchange gain/(loss) |
|
(55) |
|
(122) |
-55% |
|
( 145) |
|
(390) |
-63% |
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
(28 ) |
|
(83 ) |
-66% |
|
69 |
|
(113) |
161% |
Net profit margin |
|
-9% |
|
-33% |
24 pps |
|
6% |
|
-11% |
17 pps |
* pps - percentage points
** Operating profit from continuing operations before loss on impairment of property, plant and equipment
Average official FX rate for Q4: UAH/US$ 25.8896 in 2016 and UAH/US$ 22.8491 in 2015
Average official FX rate for 12 months: UAH/US$ 25.5458 in 2016 and UAH/US$ 21.8290 in 2015
Chief Executive Officer, Yuriy Kosyuk, commented:
"Our Company has continued to deliver its strategy of consistent growth in poultry, grain and meat processing operations, despite all the challenges in Ukraine.
Financial results are in line with management's expectations, with EBITDA of US$ 415 million and EBITDA margin of 37%.
During the year, we completed a number of poultry production projects, increased poultry exports and optimized costs by achieving self-sufficiency in hatching eggs. We also achieved close to record yields from our land and, as is customary, far exceeded national averages for Ukraine.
While sustaining our leading market position in Ukraine, we continued to develop export opportunities worldwide, establishing new partnerships in the EU and MENA and introducing market targeting for specific products. To improve access to the EU markets, in the first quarter of 2016 the Company invested US$ 3.5 million to commission a chicken processing operation in the Netherlands. This will enable MHP to increase the level of service to European customers by offering both commodity and packaged products for food service channels, and will allow better control of export volumes. Later in the year, we opened a distribution and sales office in UAE.
In 2016, we exceeded our own expectations for poultry exports, with a 53% increase to almost 190,000 tonnes. Taken together, exports of poultry, oils and grains generated a significant increase in hard currency revenues, from 49% to 56% of total revenue.
In line with a Dividend Policy and based on the performance of the Company, we have a clear target to maintain a responsible annual dividend payment.
Our targets for 2017 are:
- to start the construction of Phase 2 (Line1) of the Vinnytsia project with the ultimate aim of elevating production to around 730,000 tonnes per year by 2020;
- to continue our focus on exports, cementing our position in existing territories and investigating new opportunities;
- to maintain our investment in people and build on our reputation as a high-quality, responsible and transparent employer;
- to promote sustainable development of the business, with a particular focus on environmental impact (including alternative energy projects), animal welfare and social responsibility.
I am confident that our strategy of consistent growth of the Company will continue to deliver strong operational and financial performance in 2017 and beyond."
CONFERENCE CALL 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: 09.00 New York / 14.00 London / 16.00 Kyiv / 17.00 Moscow
Title: Q4 and 12M 2016 Consolidated Financial Results
International/UK Dial in: +44 2030432440
USA free call: 1 8778874163
Russia free call +7 4952216523
Conference ID EV00053642
Participant PIN code 81386508#
In order to follow the presentation together with the management, please register using the following link:
http://event.onlineseminarsolutions.com/r.htm?e=1378081&s=1&k=9769CEE1A29D337E63F3DC7A2C89651D
For Investor Relations enquiries, please contact:
Anastasia Sobotiuk (Kyiv) +38 044 207 99 58 a.sobotyuk@mhp.com.ua
For Analysts enquiries, please contact:
Iryna Bublyk (Kyiv) +38 044 207 00 04 i.bublik@mhp.com.ua
Segment Performance
Poultry and related operations
|
|
Q4 2016 |
Q4 2015 |
% change |
12M 2016 |
12M 2015 |
% change |
|
|||||||
|
|
|
|
|
|
|
|
Poultry |
|
|
|
|
|
|
|
Sales volume, third parties tonnes |
|
132,346 |
117,751 |
12% |
534,977 |
489,816 |
9% |
Export sales volume, third parties tonnes |
|
48,034 |
29,043 |
65% |
189,939 |
124,604 |
52% |
Price per 1 kg net of VAT, UAH |
|
31.80 |
29.20 |
9% |
29.81 |
27.19 |
10% |
|
|
|
|
|
|
|
|
Sunflower oil |
|
|
|
|
|
|
|
Sales volume, third parties tonnes |
|
88,201 |
69,035 |
28% |
342,240 |
286,745 |
19% |
Soybeans oil |
|
|
|
|
|
|
|
Sales volume, third parties tonnes |
|
9,809 |
3,710 |
164% |
34,150 |
13,950 |
145% |
|
|
|
|
|
|
|
|
As a result of increased production, the aggregate volume of chicken meat sold to third parties increased by 12% in Q4 2016 and by 9% during 12M 2016. Export sales of Q4 2016 increased by 65% to 48,034 tonnes (Q4 2015: 29,043 tonnes) and in 12M 2016 increased by 52% to 189,939 tonnes, constituting 36% of total poultry sales. During the reporting period (12M 2016), in line with our export diversification strategy, sales to the Middle East countries increased year-over-year by 67%, in the EU by 29%, and in Africa by more than 4 times. As a result of higher exports, domestic sales decreased slightly to 84,312 tonnes in Q4 2016 (Q4 2015: 88,708 tonnes) and 345,038 tonnes in 12M 2016 (12M 2015: 365,212 tonnes)..
Through Q4 2016 and 12M 2016, the aggregate average chicken meat price was UAH 31.80 and UAH 29.81 respectively, 9% and 10% higher compared to Q4 2015 and 12M 2015 in Hryvnia terms. The average chicken meat price on the domestic market increased by 14% during 12M 2016 compared to 12M 2015. At the same time the US$ denominated export price for chicken meat decreased by 16% during 12M 2016 compared to 12M 2015, in line with global commodity trends.
During 12M 2016 MHP's sales of sunflower oil increased by 19% compared to 12M 2015 and reached 342,240 tonnes mainly as a result of increased sale of sunflower cake to third parties as well as an increased percentage of oil extraction. Sales of soybean oil have increased substantially in line with increased production of our soybean crushing plant.
(in mln. US$, unless indicated otherwise) |
|
Q4 2016 |
|
Q4 2015 |
|
% change* |
12M 2016 |
12M 2015 |
% change* |
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
Revenue |
|
251 |
|
218 |
|
15% |
970 |
878 |
10% |
- Poultry and other |
|
176 |
|
163 |
|
8% |
678 |
644 |
5% |
- Vegetable oil |
|
75 |
|
55 |
|
36% |
292 |
234 |
25% |
|
|
|
|
|
|
|
|
|
|
IAS 41 standard gains/(losses) |
|
(12 ) |
|
- |
|
n/ a |
5 |
20 |
-75% |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
38 |
|
50 |
|
-24% |
242 |
275 |
-12% |
Gross margin |
|
15% |
|
23% |
|
-8 pps |
25% |
31% |
-6 pps |
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
46 |
|
67 |
|
-31% |
270 |
343 |
-21% |
EBITDA margin |
|
18% |
|
31% |
|
-13 pps |
28% |
39% |
-11 pps |
EBITDA per 1 kg (net of IAS 41) |
|
0.44 |
|
0.57 |
|
-23% |
0.50 |
0.66 |
-24% |
* pps - percentage points
In Q4 2016, revenue increased by 15% as a result of the increase in sales volumes of chicken meat and vegetable oil, partly offset by a decrease in international export prices for chicken.
IAS 41 standard gain/(loss) reflects the net change in the fair value of biological assets and agricultural produce. IAS 41 standard loss for Q4 2016 amounted to US$ 12 million mainly as a result of a decrease in the fair value of parent stock due to lower global market prices for hatchery eggs.
Gross profit of the poultry and related operations segment for 12M 2016 decreased by 12% compared to 12M 2015 mainly as a result of the decrease in sales price (in dollar terms) and the fair value adjustment to parent stock.
EBITDA for 12M 2016 and Q4 2016 has decreased by 21% and 31% respectively, mainly due to decrease in gross profit as a result of lower export prices as well as due to reduction in VAT refunds due to changes in the Ukraine Tax Code that became effective on 1 January 2016.
Grain growing operations
In 2016 MHP harvested 355,000 hectares of land in Ukraine. MHP's harvest yielded around 2.3 million tons of crops, 24% more than in 2015, mainly as a result of higher yields of corn, soya and wheat due to favorable weather conditions during 2016 as well as operational efficiency and employment of best practices.
|
2016 [1] |
|
2015 [1] |
||
|
Production volume |
Cropped land |
|
Production volume |
Cropped land |
|
|||||
|
in tonnes |
in hectares |
|
in tonnes |
in hectares |
Corn |
1,056,887 |
123,350 |
|
841,745 |
125,994 |
Wheat |
379,693 |
58,813 |
|
322,055 |
53,752 |
Sunflower |
218,049 |
67,399 |
|
176,170 |
57,541 |
Rapeseed |
68,325 |
20,069 |
|
76,385 |
22,653 |
Soya |
98,607 |
40,771 |
|
56,650 |
35,831 |
Other [2] |
529,930 |
44,598 |
|
418,690 |
44,229 |
Total |
2,351,491 |
355,000 |
|
1,891,695 |
340,000 |
[1] Only land of grain growing segment;
[2] Including barley, rye, sugar beet, sorghum and other and excluding land left fallow as part of crop rotation;
|
201 6 |
|
201 5 |
||
|
MHP's average [1] |
Ukraine's average [1] |
|
MHP's average [1] |
Ukraine's average[1] |
|
tonnes per hectare |
|
tonnes per hectare |
||
|
|
|
|
|
|
Corn |
8.6 |
6.6 |
|
6.7 |
5.7 |
Wheat |
6.5 |
4.6 |
|
6.0 |
3.9 |
Sunflower |
3.2 |
2.2 |
|
3.1 |
2.2 |
Rapeseed |
3.4 |
2.6 |
|
3.4 |
2.6 |
Soya |
2.4 |
2.3 |
|
1.6 |
1.9 |
[1] MHP yields are net weight, Ukraine - bunker weight;
(in mln. US unless indicated otherwise) |
|
12M 2016 |
|
12M 2015 |
|
% change |
|
|
|
||||
|
|
|
|
|
|
|
Revenue |
|
85 |
|
117 |
|
-27% |
|
|
|
|
|
|
|
IAS 41 standard gains |
|
32 |
|
(3) |
|
n/a |
|
|
|
|
|
|
|
Gross profit |
|
107 |
|
55 |
|
95% |
|
|
|
|
|
|
|
EBITDA |
|
150 |
|
94 |
|
60% |
EBITDA per 1 hectare |
|
423 |
|
276 |
|
53% |
Grain growing segment's revenue for 12M 2016 amounted to US$ 85 million compared to US$ 117 million in 12M 2015. The decrease is mainly attributable to lower amounts of crops in stock designated for sale as of 31 December 2015 as a result of low yields in 2015.
IAS 41 standard gain for 12M 2016 amounted to US$ 32 million.
The gain represents the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) remaining in stock as of
31 December 2016. The increase in IAS 41 gains is mainly related to higher stocks as of 31 December 2016 compared to 2015 (due to higher yields and production volume in 2016) as well as higher prices on the domestic market caused by the return of a zero VAT regime for grain exports in 2016.
Grain segment EBITDA for the 12M 2016 increased by 60% compared to 12M 2015 due to higher yields and higher domestic grain prices (compared to 2015) effected by VAT refunds decreased as a result of changes in tax legislation, although this was partly offset by an increase in grain prices on the domestic market due to the return of the zero VAT regime for grain exports.
Other agricultural operations
The main driver of the segment is meat processing operations.
Meat processing products |
|
Q4 2016 |
Q4 2015 |
% change |
12M 2016 |
12M 2015 |
% change |
||
|
|||||||||
|
|
|
|
|
|
|
|
||
Sales volume, third parties tonnes |
|
9 , 098 |
7 , 764 |
1 7 % |
3 3 , 896 |
24 , 520 |
3 8 % |
||
Price per 1 kg net VAT, UAH |
|
4 3 . 87 |
4 1 . 2 4 |
6 % |
4 2 . 4 0 |
39 . 28 |
8% |
||
Sales volume of meat processing products substantially increased by 38% year-on-year to 33,896 tonnes in 12M 2016, mainly as a result of a new product promotion strategy and advertisement campaign not only for the product range, but also for the brand.
The average processed meat price increased by 8% year-over-year to UAH 42.40 per kg in 12M 2016, mostly in line with the increase in the price of poultry.
(in mln. US$, except margin data) |
|
Q4 2016 |
Q4 2015 |
% change* |
|
12M 2016 |
12M 2015 |
% change |
||||
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
22 |
20 |
10% |
|
80 |
66 |
21% |
||||
- Meat processing |
|
15 |
13 |
15% |
|
55 |
44 |
25% |
||||
- Other |
|
7 |
7 |
0% |
|
25 |
22 |
14% |
||||
|
|
|
|
|
|
|
|
|
||||
IAS 41 standard gains |
|
2 |
3 |
-33% |
|
2 |
3 |
-33% |
||||
|
|
|
|
|
|
|||||||
Gross profit |
|
5 |
4 |
25% |
|
13 |
12 |
8% |
||||
Gross margin |
|
23% |
20% |
3 pps |
|
16% |
18% |
-2 pps |
||||
|
|
|
|
|
|
|
|
|
||||
EBITDA |
|
5 |
5 |
0% |
|
12 |
11 |
9% |
||||
EBITDA margin |
|
23% |
25% |
-2 pps |
|
15% |
17% |
-2 pps |
||||
* pps - percentage points
Segment revenue for 12M 2016 increased by 21% year-on-year, in line with the increase in sales volume and price in meat processing, to US$ 80 million. The segment's EBITDA increased to US$ 12 million in 12M 2016 compared to US$ 11million in 12M 2015, an increase by 9% year-on-year, mostly in line with the increase in gross profit.
Current Group financial position and cash flow
(in mln. US$) |
|
Q4 2016 |
|
Q4 2015 |
|
12M 2016 |
|
12M 2015 |
|
|
|
|
|
|
|
|
|
|
|
Cash from operations |
|
122 |
|
70 |
|
273 |
|
335 |
|
Change in working capital |
|
15 |
|
(67 ) |
|
52 |
|
(144) |
|
inc. PXF finance |
|
30 |
|
58 |
|
(24) |
|
80 |
|
Net Cash from operating activities |
|
137 |
|
3 |
|
325 |
|
191 |
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
(36 ) |
|
(57) |
|
(108) |
|
(163) |
|
Non-cash financing |
|
4 |
|
1 |
|
(4) |
|
(7 ) |
|
CAPEX |
|
(32) |
|
(56) |
|
(112) |
|
(170) |
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
(24) |
|
(3) |
|
(120) |
|
(65) |
|
Incl. Dividends |
|
- |
|
- |
|
(84) |
|
(50) |
|
Non-cash financing |
|
(4) |
|
(1 ) |
|
4 |
|
7 |
|
Deposits |
|
- |
|
- |
|
0 |
|
- |
|
Total financial activities |
|
(28) |
|
(4) |
|
(116) |
|
(58) |
|
|
|
|
|
|
|
|
|
|
|
Total change in cash |
|
77 |
|
(57 ) |
|
97 |
|
(37 ) |
|
Cash flow from operations before changes in working capital for 12M 2016 amounted to US$ 273 million (12M 2015: US$ 335 million). T he lower cash generation compared to EBITDA is mainly attributable to a non-cash IAS 41 gain on revaluation of crops that will be realized in 2017.
Positive cash flow from changes in working capital during 12M 2016 compared to 12M 2015 is mostly related to lower investment in sunflower seed used for poultry feed during 12M 2016 compared to 12M 2015 and reimbursement of VAT receivable in 2016.
During 12M 2016 total CAPEX amounted to US$ 112 million mainly related to expansion of the Starynska breeding farm as well as rearing sites expansion at Vinnitsa, Myronivka and Oril Leader poultry complexes and purchases of agricultural machinery.
Debt Structure and Liquidity
(in mln. US$) |
|
31 December 2016 |
|
30 September 2016 |
|
31 December 2015 |
|
|
|
|
|
|
|
|
|
Total Debt |
|
1,236 |
|
1,238 |
|
1,279 |
|
LT Debt |
|
991 |
|
968 |
|
1,016 |
|
ST Debt |
|
245 |
|
270 |
|
263 |
|
Cash and bank deposits |
|
(155) |
|
(78) |
|
(59) |
|
Net Debt |
|
1,081 |
|
1,160 |
|
1,220 |
|
|
|
|
|
|
|
|
|
LTM EBITDA |
|
415 |
|
409 |
|
436 |
|
Net Debt / LTM EBITDA |
|
2.60 |
|
2.84 |
|
2.80 |
|
As of 31 December 2016, the Group's Net Debt / LTM EBITDA ratio improved to 2.60 compared with 2.80 as of 31 December 2015, well within the Eurobond covenant limit of 3.0.
Net debt decreased to US$ 1,081 million compared with US$ 1,220 million as at 31 December 2015, with cash and bank deposits of US$ 155 million compared with US$ 59 million as at 31 December 2015.
Debt structure remained relatively unchanged compared to 31 December 2015, with long-term debt representing about 80% of the total outstanding. The weighted average interest rate was around 8%.
As a hedge for currency risks, revenues from the export of grain, sunflower and soybean oil, sunflower husks and chicken meat are denominated in US Dollars, more than covering debt service expenses. Export revenues for 12M 2016 amounted to US$ 635 million or 56% of total revenue (US$ 524 million or 49% of total sales for 12M 2015).
DIVIDENDS
On 16 March 2016, the Board of Directors of MHP S.A. approved payment of an interim dividend of US$0.7529 per share for 2015, equivalent to approximately US$ 80 million. This was paid to shareholders in March 2016.
On 14 March 2017, the Board of Directors of MHP S.A. approved payment of an interim dividend of US$0.7492 per share for 2016, equivalent to approximately US$ 80 million. According to press release on www.mhp.com.ua (IR section), this will be paid to shareholders on 29 March 2017.
CHAIRMAN RESIGNATION/APPOINTMENT
On 19 July, 2016, Mr. Charles Adriaenssen, Chairman of the Board of Directors of MHP S.A. and Chairman of the Nomination and Remuneration Committee, resigned for personal reasons. Dr. John Rich has been named interim Chairman of the Board of Directors of MHP S.A. and Chairman of the Nomination and Remuneration Committee. On 14 March 2017, the Board confirmed Dr John Rich as Chairman of the Board of Directors of MHP S.A. on a permanent basis.
Outlook
MHP's outlook for the 2016 harvest of winter wheat and winter rapeseeds is positive.
The main developments in 2017 will be:
- Start of construction of Phase 2, Line 1 of the Vinnytsia complex, to provide 130,000 tonnes additional capacity;
- An increase in export sales of chicken meat across all regions to an expected 220,000 tonnes;
- Market targeting in export sales to ensure the right product mix combined with the optimal geographic allocation;
- Start of construction of an alternative energy project at Vinnytsia.
We are confident that, with our vertically integrated business model, we will continue to deliver strong financial results, supported by a significant and growing share of hard currency revenues from exports of chicken, oils and grain.
Notes to Editors:
About MHP
MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). 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 11 distribution and logistical centres, 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.
Since May 15, 2008, MHP has traded 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 S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. 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 S.A. does not intend to change these statements to reflect actual results.
MHP S.A. AND ITS SUBSIDIARIES
Consolidated Financial Statements
As of and for the year ended 31 December 2016
CONTENT S
STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION
AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 December 2016 ..................................................................................................................................................... (a)
INDEPENDENT AUDITOR'S REPORT...................................................................................................... (i)
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2016
Consolidated statement of comprehensive income...................................................................................... 6
Consolidated statement of financial position............................................................................................... 8
Consolidated statement of changes in equity.............................................................................................. 9
Consolidated statement of cash flows...................................................................................................... 10
Notes to the Consolidated financial statements......................................................................................... 12
1. Corporate information...................................................................................................................... 12
2. Changes in the group structure......................................................................................................... 13
3. Summary of significant accounting policies....................................................................................... 16
4. Critical accounting judgments and key sources of estimation uncertainty............................................. 29
5. Segment information....................................................................................................................... 33
6. Revenue......................................................................................................................................... 35
7. Cost of sales.................................................................................................................................. 35
8. Selling, general and administrative expenses..................................................................................... 36
9. VAT refunds and other government grants income.............................................................................. 36
10. Finance costs.............................................................................................................................. 37
11. Income tax................................................................................................................................... 37
12. Property, plant and equipment....................................................................................................... 40
13. Land lease rights.......................................................................................................................... 43
14. Biological assets.......................................................................................................................... 43
15. Inventories................................................................................................................................... 47
16. Agricultural produce...................................................................................................................... 47
17. Taxes recoverable and prepaid....................................................................................................... 47
18. Trade accounts receivable, net....................................................................................................... 47
19. Cash and cash equivalents............................................................................................................ 48
20. Assets classified as held for sale................................................................................................... 49
21. Shareholders' equity..................................................................................................................... 50
22. Non-controlling interests................................................................................................................ 50
23. Bank borrowings........................................................................................................................... 52
24. Bonds issued............................................................................................................................... 53
25. Finance lease obligations.............................................................................................................. 55
26. Trade accounts payable................................................................................................................ 55
27. Other current liabilities.................................................................................................................. 55
28. Related party balances and transactions........................................................................................ 56
29. Contingencies and contractual commitments.................................................................................. 57
30. Dividends..................................................................................................................................... 58
31. Fair value of financial instruments................................................................................................... 59
32. Risk management policies............................................................................................................ 60
33. Pensions and retirement plans....................................................................................................... 65
34. Earnings per share....................................................................................................................... 65
35. Subsequent events....................................................................................................................... 65
36. Authorization of the consolidated financial statements..................................................................... 65
STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016
The Board of Directors is responsible for the preparation of the consolidated financial statements that present fairly the financial position of MHP S.A. and its subsidiaries (the "Group" or the "Company") as of
31 December 2016 and the results of its operations, cash flows and changes in equity for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
In preparing the consolidated financial statements, the Board of Directors is responsible for:
· properly selecting and applying accounting policies;
· presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance; and
· making an assessment of the Group's ability to continue as a going concern.
The Board of Directors, within its competencies, is also responsible for:
· designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group;
· maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS;
· maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions;
· taking such steps as are reasonably available to them to safeguard the assets of the Group; and
· preventing and detecting fraud and other irregularities.
The consolidated financial statements of the Group as of and for the year ended 31 December 2016 were authorized for issue by the Board of Directors on 14 March 2017.
Board of Directors' responsibility statement
We confirm that, to the best of our knowledge, the Consolidated Financial Statements as of and for the year ended 31 December 2016 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and results of the Company and the undertakings included in the consolidation taken as a whole. We also confirm that, to the best of our knowledge, the 2016 Director's Report and Consolidated Financial Statements include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
MHP S.A.
5, rue Guillaume Kroll
L- 1882 Luxembourg
REPORT OF THE REVISEUR D'ENTREPRISES AGREE
Report on the consolidated financial statements
Following our appointment by the General Meeting of the Shareholders, we have audited the accompanying consolidated financial statements of MHP S.A. and its subsidiaries, which comprise the consolidated statement of financial position as of December 31, 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Responsibility of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted in the European Union, and for such internal control the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Responsibility of the Réviseur d'Entreprises Agréé
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the Réviseur d'Entreprises Agréé's judgement including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d'Entreprises Agréé considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of MHP S.A. and its subsidiaries as of December 31, 2016, and of its consolidated financial performance and its consolidated statement of cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted in the European Union.
Other information
The Board of Directors is responsible for the other information. The other information comprises the information included in the annual report, including the Corporate Governance section of the management report, but does not include the consolidated financial statements, the annual accounts of the parent company, and our reports of Réviseur d'Entreprises Agréé thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.
Other matter
The Corporate Governance overview of the director`s report includes the information required by Article 68bis paragraph (1) of the law of December 19, 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended.
Report on other legal and regulatory requirements
The director`s report is consistent with the consolidated financial statements and has been prepared in accordance with the applicable legal requirements.
The information required by Article 68bis paragraph (1) letters c) and d) of the law of December 19, 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended and included in the Corporate Governance overview of the director`s report is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal requirements.
For Deloitte Audit , Cabinet de Révision Agréé
John Psaila, Réviseur d'Entreprises Agréé
Partner
March 14, 2017
Consolidated statement of comprehensive income
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
|
|
|
|
|
|
Continuing operations |
Notes |
2016 |
|
2015 |
|
|
|
|
|
|
|
Revenue |
6 |
1,135,462 |
|
1,061,915 |
|
Net change in fair value of biological assets and agricultural produce |
|
38,894 |
|
19,851 |
|
Cost of sales |
7 |
(812,250) |
|
(739,436) |
|
Gross profit |
|
362,106 |
|
342,330 |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
8 |
(78,773) |
|
(72,329) |
|
VAT refunds and other government grants income |
9 |
34,056 |
|
75,435 |
|
Other operating (expense)/income, net |
|
(1,125) |
|
1,315 |
|
Impairment of property, plant and equipment |
12 |
(1,443) |
|
- |
|
Operating profit |
|
314,821 |
|
346,751 |
|
|
|
|
|
|
|
Finance income |
|
2,234 |
|
2,567 |
|
Finance costs |
10 |
(106,843) |
|
(105,571) |
|
|
|
|
|
|
|
Loss on disposal of subsidiaries |
2 |
- |
|
(4,725) |
|
Foreign exchange loss, net |
32 |
(145,217) |
|
(389,557) |
|
Other expenses, net |
|
(9,289) |
|
(3,346) |
|
Other expenses, net |
|
(259,115) |
|
(500,632) |
|
Profit/(Loss) before tax |
|
55,706 |
|
(153,881) |
|
Income tax benefit |
11 |
13,080 |
|
41,142 |
|
Profit/(Loss) for the period from continuing operations |
|
68,786 |
|
(112,739) |
|
Discontinued operations |
|
|
|
|
|
Loss for the period from discontinued operations |
2 |
(9,538) |
|
(12,987) |
|
Profit/(Loss) for the period |
|
59,248 |
|
(125,726) |
|
|
|
|
|
|
|
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
|
Notes |
2016 |
|
2015 |
|
Other comprehensive income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to profit or loss: |
|
|
|
|
|
Effect of revaluation of property, plant and equipment |
12 |
113,317 |
|
224,142 |
|
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income |
11 |
(16,143) |
|
(30,842) |
|
|
|
|
|
|
|
Items that may be reclassified to profit or loss: |
|
|
|
|
|
Cumulative translation difference |
|
(51,918) |
|
(292,103) |
|
Other comprehensive income/(loss) |
|
45,256 |
|
(98,803) |
|
Total comprehensive income/(loss) for the year |
|
104,504 |
|
(224,529) |
|
|
|
|
|
|
|
Profit/(Loss) attributable to: |
|
|
|
|
|
Equity holders of the Parent |
|
53,452 |
|
(133,399) |
|
Non-controlling interests |
22 |
5,796 |
|
7,673 |
|
|
|
59,248 |
|
(125,726) |
|
Total comprehensive income/(loss) attributable to: |
|
|
|
|
|
Equity holders of the Parent |
|
97,302 |
|
(212,847) |
|
Non-controlling interests |
|
7,202 |
|
(11,682) |
|
|
|
104,504 |
|
(224,529) |
|
Earnings/(loss) per share from continuing and discontinued operations |
|
|
|
|
|
Basic and diluted earnings/(loss) per share (USD per share) |
|
0.50 |
|
(1.26) |
|
Earnings/(loss) per share from continuing operations |
|
|
|
|
Basic and diluted earnings/(loss) per share (USD per share) |
34 |
0.60 |
|
(1.13) |
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
Consolidated statement of financial position
as of 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
|
Notes |
31 December 2016 |
|
31 December 2015 |
|
ASSETS |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment |
12 |
1,180,334 |
|
1,258,250 |
|
Land lease rights |
13 |
43,845 |
|
46,252 |
|
Deferred tax assets |
11 |
1,561 |
|
5,740 |
|
Non-current biological assets |
14 |
14,558 |
|
15,204 |
|
Long-term bank deposits |
|
577 |
|
4,125 |
|
Other non-current assets |
|
13,554 |
|
9,241 |
|
|
|
1,254,429 |
|
1,338,812 |
|
Current assets |
|
|
|
|
|
Inventories |
15 |
187,332 |
|
279,028 |
|
Biological assets |
14 |
116,214 |
|
139,800 |
|
Agricultural produce |
16 |
167,389 |
|
120,574 |
|
Other current assets, net |
|
25,424 |
|
27,345 |
|
Taxes recoverable and prepaid |
17 |
31,235 |
|
72,031 |
|
Trade accounts receivable, net |
18 |
50,868 |
|
38,800 |
|
Cash and cash equivalents |
19 |
154,570 |
|
59,343 |
|
Assets classified as held for sale |
20 |
88,396 |
|
- |
|
|
|
821,428 |
|
736,921 |
|
TOTAL ASSETS |
|
2,075,857 |
|
2,075,733 |
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
21 |
284,505 |
|
284,505 |
|
Treasury shares |
2 |
(48,503) |
|
(56,053) |
|
Additional paid-in capital |
|
175,291 |
|
178,192 |
|
Revaluation reserve |
12 |
570,649 |
|
567,525 |
|
Retained earnings |
|
719,340 |
|
645,020 |
|
Translation reserve |
|
(1,024,916) |
|
(974,467) |
|
Equity attributable to equity holders of the Parent |
|
676,366 |
|
644,722 |
|
Non-controlling interests |
22 |
16,698 |
|
28,127 |
|
Total equity |
|
693,064 |
|
672,849 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Bank borrowings |
23 |
259,567 |
|
278,131 |
|
Bonds issued |
24 |
725,361 |
|
728,530 |
|
Finance lease obligations |
25 |
5,581 |
|
9,595 |
|
Deferred tax liabilities |
11 |
11,264 |
|
13,227 |
|
|
|
1,001,773 |
|
1,029,483 |
|
Current liabilities |
|
|
|
|
|
Trade accounts payable |
26 |
46,508 |
|
47,669 |
|
Other current liabilities |
27 |
61,766 |
|
39,320 |
|
Bank borrowings |
23 |
236,807 |
|
249,057 |
|
Accrued interest |
23 , 24 |
22,731 |
|
23,328 |
|
Finance lease obligations |
25 |
8,044 |
|
14,027 |
|
Liabilities directly associated with assets classified as held for sale |
20 |
5,164 |
|
- |
|
|
|
381,020 |
|
373,401 |
|
TOTAL LIABILITIES |
|
1,382,793 |
|
1,402,884 |
|
TOTAL EQUITY AND LIABILITIES |
|
2,075,857 |
|
2,075,733 |
|
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
|
Attributable to equity holders of the Parent |
|
|
|
|
|
|
||||||||||
|
Share capital |
|
Treasury shares |
|
Additional paid-in capital |
|
Revaluation reserve |
|
Retained earnings |
|
Translation reserve |
|
Total |
|
Non-controlling interests |
|
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2014 |
284,505 |
|
(67,741) |
|
181,982 |
|
646,049 |
|
547,994 |
|
(710,372) |
|
882,417 |
|
63,105 |
|
945,522 |
(Loss)/profit for the year |
- |
|
- |
|
- |
|
- |
|
(133,399) |
|
- |
|
(133,399) |
|
7,673 |
|
(125,726) |
Other comprehensive income/(loss) |
- |
|
- |
|
- |
|
187,914 |
|
- |
|
(267,362) |
|
(79,448 ) |
|
(19,355 ) |
|
(98,803 ) |
Total comprehensive income/(loss) for the year |
- |
|
- |
|
- |
|
187,914 |
|
(133,399) |
|
(267,362) |
|
(212,847) |
|
(11,682) |
|
(224,529) |
Transfer from revaluation reserve to retained earnings |
- |
|
- |
|
- |
|
(36,825) |
|
36,825 |
|
- |
|
- |
|
- |
|
- |
Dividends declared by the Parent |
- |
|
- |
|
- |
|
- |
|
(50,000) |
|
- |
|
(50,000) |
|
- |
|
(50,000) |
Dividends declared by subsidiaries |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(408) |
|
(408) |
Non-controlling interests acquired (Note 2) |
- |
|
11,688 |
|
(3,790) |
|
|
|
13,987 |
|
|
|
21,885 |
|
(21,885) |
|
- |
Derecognition of interests in subsidiaries (Note 2) |
- |
|
- |
|
- |
|
(9,738) |
|
9,738 |
|
3,267 |
|
3,267 |
|
(1,003) |
|
2,264 |
Translation differences on revaluation reserve |
- |
|
- |
|
- |
|
(219,875) |
|
219,875 |
|
- |
|
- |
|
- |
|
- |
Balance at 31 December 2015 |
284,505 |
|
(56,053) |
|
178,192 |
|
567,525 |
|
645,020 |
|
(974,467) |
|
644,722 |
|
28,127 |
|
672,849 |
(Loss)/profit for the year |
- |
|
- |
|
- |
|
- |
|
53,452 |
|
- |
|
53,452 |
|
5,796 |
|
59,248 |
Other comprehensive income/(loss) |
- |
|
- |
|
- |
|
94,299 |
|
- |
|
(50,449) |
|
43,850 |
|
1,406 |
|
45,256 |
Total comprehensive income/(loss) for the year |
- |
|
- |
|
- |
|
94,299 |
|
53,452 |
|
(50,449) |
|
97,302 |
|
7,202 |
|
104,504 |
Transfer from revaluation reserve to retained earnings |
- |
|
- |
|
- |
|
(44,627) |
|
44,627 |
|
- |
|
- |
|
- |
|
- |
Dividends declared by the Parent (Note 30) |
- |
|
- |
|
- |
|
- |
|
(80,000) |
|
- |
|
(80,000) |
|
- |
|
(80,000) |
Dividends declared by subsidiaries |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(4,289) |
|
(4,289) |
Non-controlling interests acquired (Note 2) |
- |
|
7,550 |
|
(2,901) |
|
- |
|
9,693 |
|
- |
|
14,342 |
|
(14,342) |
|
- |
Translation differences on revaluation reserve |
- |
|
- |
|
- |
|
(46,548) |
|
46,548 |
|
- |
|
- |
|
- |
|
- |
Balance at 31 December 2016 |
284,505 |
|
(48,503) |
|
175,291 |
|
570,649 |
|
719,340 |
|
(1,024,916) |
|
676,366 |
|
16,698 |
|
693,064 |
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
x
Chief Financial Officer Viktoria Kapelyushna
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
Consolidated statement of cash flows
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
|
Notes |
2016 |
|
2015 |
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
Profit /(loss) before tax |
|
46,582 |
|
(166,091) |
|
Non-cash adjustments to reconcile profit before tax to net cash flows |
|
|
|
|
|
Depreciation and amortization expense |
5, 12 |
105,865 |
|
94,665 |
|
Net change in fair value of biological assets and agricultural produce |
5 |
(36,067) |
|
(21,786) |
|
Loss on disposal/(Gain) from acquisition of subsidiaries |
2 |
- |
|
4,725 |
|
Change in allowance for irrecoverable amounts and direct write-offs |
|
(167) |
|
157 |
|
Loss/(reversal) of impairment of property, plant and equipment, net |
|
8,308 |
|
- |
|
Loss on disposal of property, plant and equipment and other non-current assets |
|
1,521 |
|
461 |
|
Finance income |
|
(2,281) |
|
(2,567) |
|
Finance costs |
10 |
106,666 |
|
105,571 |
|
Withholding tax related to interest and payment of dividends |
|
5,478 |
|
1,294 |
|
Non-operating foreign exchange loss, net |
|
142,162 |
|
418,926 |
|
Operating cash flows before movements in working capital |
|
378,067 |
|
435,355 |
|
|
|
|
|
|
|
Working capital adjustments |
|
|
|
|
|
|
|
|
|
|
|
Change in inventories |
|
57,327 |
|
(154,396) |
|
Change in biological assets |
|
(4,029) |
|
(38,324) |
|
Change in agricultural produce |
|
(36,050) |
|
(9,279) |
|
Change in other current assets, net |
|
(822) |
|
(9,464) |
|
Change in taxes recoverable and prepaid, net |
|
32,443 |
|
(46,592) |
|
Change in trade accounts receivable, net |
|
(18,415) |
|
8,802 |
|
Change in other liabilities |
|
37,301 |
|
7,321 |
|
Change in trade accounts payable |
|
9,020 |
|
16,473 |
|
Cash generated by operations |
|
454,842 |
|
209,896 |
|
|
|
|
|
|
|
Interest received |
|
2,234 |
|
2,314 |
|
Interest paid |
|
(105,139) |
|
(99,182) |
|
Withholding tax related to interest paid |
|
(2,073) |
|
(1,294) |
|
Income taxes paid |
|
(334) |
|
(1,589) |
|
Net cash flows from operating activities |
|
349,530 |
|
110,145 |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
(91,651) |
|
(145,255) |
|
Purchases of other non-current assets |
|
(6,021) |
|
(1,004) |
|
Purchase of land lease rights |
|
(7,755) |
|
(6,644) |
|
Acquisition of subsidiaries, net of cash acquired |
|
- |
|
(8,633) |
|
Proceeds from disposals of property, plant and equipment |
|
1,196 |
|
779 |
|
Purchases of non-current biological assets |
|
(1,704) |
|
(1,588) |
|
Withdrawals of short-term and long-term deposits |
|
418 |
|
252 |
|
Investments in short-term deposits |
|
(408) |
|
(43) |
|
Loans provided to employees, net |
|
(55) |
|
(641) |
|
Loans provided to related parties, net |
|
(1,818) |
|
(73) |
|
Net cash flows used in investing activities |
|
(107,798) |
|
(162,850) |
|
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the year ended 31 December 2016
(in thousands of US dollars, unless otherwise indicated)
|
Notes |
2016 |
|
2015 |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings |
|
208,396 |
|
556,335 |
|
Repayment of bank borrowings |
|
(240,926) |
|
(251,547) |
|
Repayment of bonds |
|
- |
|
(219,567) |
|
Transaction costs related to bank loans received |
|
- |
|
(1,051) |
|
Repayment of finance lease obligations |
|
(14,651) |
|
(18,327) |
|
Dividends paid to shareholders |
28, 30 |
(80,000) |
|
(49,996) |
|
Dividends paid by subsidiaries to non-controlling shareholders |
|
(4,289) |
|
(408) |
|
Withholding tax related to dividends paid |
|
(3,403) |
|
-. |
|
Consent payment related to corporate bonds |
24 |
(9,148) |
|
- |
|
Net cash flows from/(used in) financing activities |
|
(144,021) |
|
15,439 |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
97,711 |
|
(37,266) |
|
Net foreign exchange difference |
|
(3,974) |
|
(3,062) |
|
Cash and cash equivalents at 1 January |
|
59,343 |
|
99,628 |
|
Cash and cash equivalents attributable to disposal group classified as held for sale |
|
(2,098) |
|
- |
|
Cash and cash equivalents at 31 December |
19 |
150,982 |
|
59,300 |
|
|
|
|
|
|
|
Non-cash transactions |
|
|
|
|
|
|
|
|
|
|
|
Effect of revaluation of property, plant and equipment |
12 |
105,009 |
|
224,142 |
|
Additions of property, plant and equipment under finance leases |
|
3,907 |
|
3,059 |
|
|
|
|
|
|
|
Property, plant and equipment purchased for credit |
|
- |
|
4,383 |
|
|
|
|
|
|
|
During the year ended 31 December 2016, other non-cash transactions included acquisitions and disposals of subsidiaries as well as change in non-controlling interest (Note 2).
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 12 to 65 form an integral part of these consolidated financial statements
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
1. Corporate information
MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company (société anonyme) registered under the laws of Luxembourg, was formed on 30 May 2006. MHP S.A. was formed to serve as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the "MHP S.A. Group" or the "Group". The registered address of MHP S.A. is 5, rue Guillaume Kroll, L-1882 Luxembourg.
The controlling shareholder of MHP S.A. is the Chief Executive Officer of MHP S.A. Mr. Yuriy Kosyuk (the "Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP S.A.
The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing, cultivation and selling fruits and producing beef and meat products ready for consumption). 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, sunflower oil, mixed fodder and convenience food products. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, beef, milk, goose meat, foie gras, fruits and feed grains. During the year ended 31 December 2016 the Group employed about 31,000 people (2015: 30,900 people).
The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 December 2016 and 2015 were as follows:
Name |
Country of registration |
Year established/ |
Principal activities |
2016 |
2015 |
|
|
|
|
|
|
Raftan Holding Limited |
Cyprus |
2006 |
Sub-holding Company |
100.0% |
100.0% |
Larontas Limited |
Cyprus |
2015 |
Sub-holding Company |
100.0% |
100.0% |
MHP |
Ukraine |
1998 |
Management, marketing and sales |
99.9% |
99.9% |
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv |
Ukraine |
1998 |
Fodder and sunflower oil production |
88.5% |
88.5% |
Vinnytska Ptahofabryka |
Ukraine |
2011 |
Chicken farm |
99.9% |
99.9% |
Peremoga Nova |
Ukraine |
1999 |
Chicken farm |
99.9% |
99.9% |
Druzhba Narodiv Nova |
Ukraine |
2002 |
Chicken farm |
100.0% |
100.0% |
Oril-Leader |
Ukraine |
2003 |
Chicken farm |
99.9% |
99.9% |
Tavriysky Kombikormovy Zavod |
Ukraine |
2004 |
Fodder production |
99.9% |
99.9% |
Myronivska Ptahofabryka |
Ukraine |
2004 |
Chicken farm |
99.9% |
99.9% |
Starynska Ptahofabryka |
Ukraine |
2003 |
Breeder farm |
100.0% |
94.9% |
Ptahofabryka Snyatynska Nova |
Ukraine |
2005 |
Geese breeder farm |
99.9% |
99.9% |
Zernoproduct |
Ukraine |
2005 |
Grain cultivation |
99.9% |
89.9% |
Katerynopilsky Elevator |
Ukraine |
2005 |
Fodder production and grain storage, sunflower oil production |
99.9% |
99.9% |
Druzhba Narodiv |
Ukraine |
2006 |
Cattle breeding, plant cultivation |
99.9% |
99.9% |
NPF Urozhay |
Ukraine |
2006 |
Grain cultivation |
99.9% |
99.9% |
Agrofort |
Ukraine |
2006 |
Grain cultivation |
86.1% |
86.1% |
Urozhayna Krayina |
Ukraine |
2010 |
Grain cultivation |
99.9% |
99.9% |
Ukrainian Bacon |
Ukraine |
2008 |
Meat processing |
79.9% |
79.9% |
AgroKryazh |
Ukraine |
2013 |
Grain cultivation |
99.9% |
99.9% |
Baryshevka |
Ukraine |
2013 |
Grain cultivation |
51.0% |
51.0% |
Zakhid-Agro MHP |
Ukraine |
2015 |
Grain cultivation |
100.0% |
100.0% |
Scylla Capital Limited |
British Virgin Islands |
2014 |
Trading in sunflower oil and poultry meat |
100.0% |
100.0% |
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
1. Corporate information (continued)
The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Kherson, Sumy, Khmelnitsk regions and Autonomous Republic of Crimea.
2. Changes in the group structure
Plan to dispose of the Crimean companies
Board of Directors has authorized the management of the Group to pursue negotiations in relation to a planned disposal of the Crimean companies. At the end of December 2016, by virtue of a Board resolution, management of the Group committed to a plan to dispose of the following Group companies that are located in the Autonomous Republic of Crimea ("Crimean companies"):
• Druzhba Narodiv Nova - engaged in the production and sale of chicken meat products in poultry and related operation segment;
• Druzhba Narodiv - engaged in the production and sale of sausages and cooked meats in other agricultural segment; and
• Crimea Fruit Company - engaged in the cultivating and sale of fruits in other agricultural segment.
At the year-end date the management of the Group were in negotiation with potential buyers for its Crimean companies and expected to complete the sale shortly after year-end. The sale was consummated on 17 February 2017 (Note 35).
The Group has recognised impairment losses in respect of the Property, plant and equipment , immediately prior to classifying the assets and liabilities of disposal group as held for sale (Note 20). No impairment loss was recognised on classification disposal group as held for sale as the management of the Group expect that the fair value less costs to sell equals or is not less than the carrying amount.
Analysis of profit for the year from discontinued operations
The combined results of the discontinued operations set out below. The comparative losses and cash flows from discontinued operations have been represented to include those operations classified as discontinued in the current year.
Results for the year from discontinued operations
|
2016 |
|
2015 |
Revenue |
105,574 |
|
121,368 |
Other gains |
10,357 |
|
1 , 935 |
|
115,931 |
|
12 3 ,3 03 |
Expenses |
(11 8 , 190 ) |
|
(135,513) |
Impairment of property, plant and equipment |
( 6 , 865 ) |
|
- |
Loss before tax |
(9,124) |
|
(1 2 , 210 ) |
Income tax expense |
(414) |
|
(777) |
|
|
|
|
Loss for the year from discontinued operations attributable to: |
|
|
|
Equity holders of the Parent |
(10,383) |
|
(13,6 5 7) |
Non-controlling interests |
845 |
|
670 |
|
(9,538) |
|
(1 2 , 987 ) |
Cash flows from discontinued operations
|
2016 |
|
2015 |
Net cash inflows from operating activities |
1,940 |
|
645 |
Net cash outflows from investing activities |
(3,475) |
|
(1,671) |
Net cash inflows from financing activities |
- |
|
- |
Net decrease in cash and cash equivalents |
(1,535) |
|
(1,026) |
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
2. Changes in the group structure (continued)
The Crimea business has been classified and accounted for at 31 December 2016 as a disposal group held for sale (Note 20).
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 statement of comprehensive income . All other notes to the financial statements include amounts for continuing operations, unless otherwise mentioned.
Acquisitions
Agrokultura
In May 2015 the Group signed an asset swap agreement with Agrokultura AB, whereby the equity ownership in Voronezh Agro Holding was swapped with the equity ownership in a group of companies Agrokultura Ukraine. The transaction was completed with effective transfer of control in June 2015.
Voronezh Agro Holding, is a grain growing business, cultivating a land bank of about 40,000 hectares in the Voronezh region of the Russian Federation, with approximately 150,000 tonnes of grain storage capacities.
Group of companies Agrokultura Ukraine is a grain growing business cultivating a land bank of about 60,000 hectares in Lviv, Ternopil and Ivano-Frankivsk regions of Ukraine, with approximately
90,000 tonnes of grain storage capacities.
The following table presents the provisional fair value at the date of acquisition of identifiable assets and liabilities of group of companies Agrokultura Ukraine acquired:
|
|
2015 |
Property, plant and equipment (Note 12) |
|
27,194 |
Land lease rights (Note 13) |
|
25,663 |
Other non-current assets less non-current liabilities |
|
(412) |
Deferred tax liability |
|
(1,834) |
Biological assets (Note 14) |
|
13,977 |
Current assets less current liabilities |
|
654 |
Cash and cash equivalents |
|
115 |
Total consideration received |
|
65,357 |
The following table presents the carrying amount of identifiable assets and liabilities of Voronezh Agro Holding at the date of disposal:
|
|
2015 |
Property, plant and equipment (Note 12) |
|
46,754 |
Other non-current assets less non-current liabilities |
|
(5) |
Biological assets (Note 14) |
|
15,844 |
Other current assets less current liabilities |
|
2,920 |
Cash and cash equivalents |
|
2,305 |
Net assets disposed |
|
67,818 |
The following table presents the net result of the transaction:
|
|
2015 |
Total consideration received |
|
65,357 |
Net assets disposed |
|
(67,818) |
Non-controlling interest disposed |
|
1,003 |
Cumulative translation reserve in respect of the net assets of the subsidiary reclassified from equity to profit or loss on loss of control in subsidiary |
|
(3,267) |
Loss on disposal |
|
(4,725) |
As acquisition of group of companies Agrokultura Ukraine was conducted through exchange of equity interest, the fair value of the equity interest was determined by the amount of consideration received in group of companies Agrokultura Ukraine.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
2. Changes in the group structure (continued)
Cumulative exchange loss in respect of the net assets of the subsidiary reclassified from equity to profit or loss on loss of control of subsidiary relates to the reclassification of translation difference on consolidation of foreign subsidiaries, previously recognised in other comprehensive loss.
Dnister-Agro
In July 2015 the Group acquired from third parties a 100% interest in a group of companies "Dnister-Agro", a grain growing business, cultivating a land bank of approximately 10,000 hectares in the Vinnytsia region of Ukraine. The transaction was accounted for under the acquisition method.
The following table presents the provisional fair value at the date of acquisition of identifiable assets and liabilities acquired:
|
|
Dnister-Agro |
Provisional fair value of identifiable assets and liabilities: |
|
|
Property, plant and equipment (Note 12 ) |
|
669 |
Land lease rights (Note 13 ) |
|
4,999 |
Inventories and biological assets |
|
3,779 |
Trade and other payables |
|
(5,070) |
Total identifiable net assets at fair value |
|
4,377 |
|
|
|
Goodwill from acquisition of subsidiaries |
|
2,066 |
|
|
|
Total Cash consideration due and payable |
|
(6,443) |
|
|
|
Cash paid |
|
(6,490) |
Cash acquired |
|
47 |
The goodwill of USD 2,066 thousand arising from the acquisition of Dnister-Agro consists mainly of the synergies and economies of scale expected from combining the operations of Dniester-Agro and other grain-growing companies of the Group in the nearby region. The advantage of this acquisition giving rise to value is the high concentration of sectors (higher economies on logistics and fuel) and good integration of land to other assets of the Group.
Since 1 January 2015 and up to the date of disposal, the disposed group of companies ("Voronezh Agroholding") contributed USD 18,790 thousand of Revenue and USD 5,046 thousand of profit to the consolidated results of the Group.
From the date of acquisition, the acquired group of companies contributed USD 16,036 thousand of Revenue and USD 1,291 thousand of loss to the Consolidated results of the Group. Had the transactions related to acquisitions as discussed above, occurred on 1 January 2015, "Pro forma" revenue and loss for the year ended 31 December 2015 would have been USD 21,469 thousand and USD 4,589 thousand, respectively.
In 2015 the Group made certain other insignificant acquisitions during each of the periods presented. These acquisitions have been accounted for based on the Group's accounting policies. The impact of these acquisitions was not significant to the consolidated financial statements of the Group, either individually or in aggregate.
Changes in non-controlling interests in subsidiaries
In December 2016 the Group increased its effective ownership interest in Starynska breeding farm to 100% through the acquisition of a non-controlling interest previously held by one of its key management personnel in exchange for 531,395 treasury shares held by the Group. As of 31 December 2016, these shares were in the process of registration as owned by new shareholder. The difference between fair value of shares transferred and their carrying value in the amount of USD 2,901 thousand was recognized as an adjustment to additional paid-in capital (Note 22).
In December 2015 the Group increased its effective ownership interest in Zernoproduct to 100% through the acquisition of a non-controlling interest previously held by one of its key management personnel in exchange for 830,511 treasury shares held by the Group. The difference between fair value of shares transferred and their carrying value in the amount of USD 3,790 thousand was recognized as an adjustment to additional paid-in capital.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies
Basis of presentation and accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The operating subsidiaries of the Group maintain their accounting records under Ukrainian Accounting Standards ("UAS").
UAS principles and procedures may differ from those generally accepted under IFRS. Accordingly, the consolidated financial statements, which have been prepared from the Group entities' UAS records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.
Basis of preparation
The consolidated financial statements of the Group are prepared on the basis of historical cost, except for revalued amounts of buildings and structures, grain storage facilities, production machinery, vehicles and agricultural machinery, biological assets, agricultural produce, and certain financial instruments, which are carried at fair value.
Adoption of new and revised International Financial Reporting Standards
The following standards were adopted by the Group on 1 January 2016:
· Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities - Applying the Consolidation Exception
· Amendments to IAS 27: Equity Method in Separate Financial Statements
· Amendments to IAS 1: Disclosure Initiative
· Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
· Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
· Amendments to IAS 16 and IAS 41: Bearer Plants
· Amendments to IFRSs - "Annual Improvements to IFRSs 2012-2014 Cycle" (amendments to IFRS 3, IFRS 8, IFRS 13, IFRS 21, IAS 16, IAS 24, IAS 39)
The adoption of new or revised standards did not have any material effect on the consolidated financial position or performance of the Group and any disclosures in the Group's consolidated financial statements, except Amendments to IAS 16 and IAS 41: Bearer Plants. The Group has retrospectively applied these amendments for the first time in the current year. The amendments define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41. The produce growing on bearer plants continues to be accounted for in accordance with IAS 41. Such bearer plant has been reclassified from biological assets to property, plant and equipment in the amount of USD 9,489 thousand and USD 8,578 thousand for the years ended 31 December 2016 and 2015, respectively.
Standards and Interpretations in issue but not effective
At the date of authorization of these 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 12: Recognition of Deferred Tax Assets for Unrealised Losses |
|
1 January 2017 |
Amendments to IAS 7: Disclosure Initiative |
|
1 January 2017 |
Amendments to IFRSs - "Annual Improvements to IFRSs 2014 -2016 Cycle" |
|
1 January 2017 |
IFRS 9 "Financial Instruments" 1) |
|
1 January 2018 |
IFRS 15 "Revenue from contracts with customers" including amendments to IFRS 15: Effective date of IFRS 151) |
|
1 January 2018 |
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration |
|
1 January 2018 |
Amendments to IAS 40: Transfers of Investment Property |
|
1 January 2018 |
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions |
|
1 January 2018 |
Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts |
|
1 January 2018 |
IFRS 16 "Leases" |
|
1 January 2019 |
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture |
|
Deferred indefinitely |
1) Standards have been already endorsed for use in the European Union
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Standards and Interpretations in issue but not effective (continued)
IFRS 16 introduces a comprehensive model for the identification of lease agreements and accounting treatments for both lessors and lessees. IFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance lease (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and corresponding liability have to be recognised for all leases by lessees (i.e. on balance sheet) except for short-term leases and leases of low value assets.
As of 31 December 2016, the Group has non-cancellable operating lease commitments in amount of USD 117,920 thousand. IAS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments in Note 29. A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of IFRS 16. The new requirement to recognise a right-of-use asset and a related lease liability is expected to have a significant impact on the amounts recognised in the Group's consolidated financial statements and the Management are currently assessing it's potential impact and expects to be able to provide such information at year-end 2017. It is not practicable to provide a reasonable financial estimate of the effect until the such detailed analysis will be completed.
IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39 Financial Instruments: Recognition and Measurement. The Standard includes the classification and measurement of financial assets and financial liabilities; Impairment methodology and Hedge accounting.
With respect to the classification and measurement under IFRS 9, all recognised financial assets that are currently within the scope of IAS 39 will be subsequently measured at either amortised cost or fair value through profit and loss or fair value through other comprehensive income.
The impairment model under IFRS 9 introduces a new impairment model based on expected loss, rather than incurred loss as per IAS 39. Under the impairment approach in IFRS 9, it is no longer necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses.
The general hedge accounting requirements of IFRS 9 retain the three types of hedge accounting mechanisms in IAS 39. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify as hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overvalued and replaced with the principle of an 'economic relationship'. Retrospective assessment of hedge effectiveness is no longer required. Far more disclosure requirements about an entity's risk management activities have been introduced.
The Board of Directors of the Company anticipate that the application of IFRS 9 in the future will not have a material impact on financial instruments because the Company does not use a hedge accounting, but the application of the new standard may have some impact on amounts of bad debt provision for accounts receivable due to introduction of a new impairment model based on expected credit losses, rather than incurred losses. However, it is not practicable to provide a reasonable estimate of the effect until the Group performs a detailed review. Management expects to be able to provide such information at year-end 2017.
IASB has published a new Standard, IFRS 15 Revenue from Contracts with Customers.
The new Revenue Standard has a single model to deal with revenue from contracts with customers. Its core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The new Revenue Standard introduces a 5-step approach to revenue recognition and measurement:
- Step 1: Identify the contract with a customer;
- Step 2: Identify the performance obligations in the contract;
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Standards and Interpretations in issue but not effective (continued)
- Step 3: Determine the transaction price;
- Step 4:Allocate the transaction price to performance obligations in the contract; and
- Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
The standard is effective for annual periods beginning on or after 1 January 2018 (as amended in September 2015). It applies to new contracts created on or after the effective date and to existing contracts that are not yet complete as of the effective date. Therefore, the current year figures reported in the first year of adoption will be prepared as if the Standard`s requirements had always been applied.
The Board of Directors of the Company anticipate that the application of IFRS 15 in the future will not have a material impact on sales but in respect of export sales it may be necessary to recognize a separate performance obligation and allocate part of the transaction price to a distinct "shipping and risk coverage" service. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review of a wide range of existing contracts. Management expects to be able to provide such information at year-end 2017.
For other 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 currency
The functional currency of Ukrainian, Cyprus and Luxemburg companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Autonomous Republic of Crimea companies of the Group is the Russian Rouble ("RUB"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognised in the consolidated statement of 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 comprehensive income are translated at exchange rates at the dates of the transactions;
· All resulting exchange differences are recognized as a separate component of equity.
· 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.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Functional and presentation currency (continued)
The relevant exchange rates were:
Currency |
Closing rate as |
Average for 2016 |
Closing rate as of 31 December 2015 |
Average for 2015 |
UAH/USD |
27.1909 |
25.5458 |
24.0007 |
21.8290 |
UAH/EUR |
28.4226 |
28.2828 |
26.2231 |
24.2054 |
UAH/RUB |
0.4511 |
0.3832 |
0.3293 |
0.3617 |
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the MHP S.A. and its subsidiaries. Control is achieved when the Company:
• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All significant intercompany transactions, balances and unrealized gains or losses on transactions are eliminated on consolidation, except when the intragroup losses indicate an impairment that requires recognition in the consolidated financial statements.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those adopted by the Group.
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are accounted for using the acquisition method. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values.
The consideration transferred by the Group is measured at fair value, which is the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquired subsidiary and the equity interests issued by the Group in exchange for control of the subsidiary. Acquisition-related costs are generally recognized in the statement of comprehensive income as incurred.
When the consideration transferred by the Group in a business combination includes assets and liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and is included as part of the consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiary's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the subsidiary's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests, if any, are measured at fair value or, when applicable, on the basis specified in other IFRS standards.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired subsidiary, and the fair value of the Group's previously held equity interest in the acquired subsidiary (if any) over the net of the acquisition-date amounts of the identifiable
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Accounting for acquisitions (continued)
assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of non-controlling interests in the subsidiary and the fair value of the Group's previously-held interest in the subsidiary (if any), the excess is recognized in the consolidated statement of comprehensive income, as a bargain purchase gain .
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Parent.
When an acquisition of a legal entity does not constitute a business, the cost of the group of assets is allocated between the individual identifiable assets in the group based on their relative fair values.
Accounting for transactions with entities under common control
The assets and liabilities of subsidiaries acquired from entities under common control are recorded in these consolidated financial statements at pre-acquisition carrying values. Any difference between the carrying value of net assets of these subsidiaries, and the consideration paid by the Group is accounted for in these consolidated financial statements as an adjustment to shareholders' equity. The results of the acquired entity are reflected from the date of acquisition.
Any gain or loss on disposals to entities under common control are recognized directly in equity and attributed to owners of the Parent.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Borrowing costs
Borrowing costs include interest expense, finance charges on finance leases and other interest-bearing long-term payables and debt service costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the statement of comprehensive income in the period in which they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognized in the consolidated financial statements. Rather, they are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are recognized only when the contingency is resolved.
Segment information
Segment reporting is presented on the basis of management's perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal reports provided to the Group's chief operating decision maker ("CODM"). The Group has identified its top management team as its CODM and the internal reports used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented. These internal reports are prepared on the same basis as these consolidated financial statements.
Based on the current management structure, the Group has identified the following reportable segments:
• Poultry and related operations;
• Grain growing operations;
• Other agricultural operations.
Reportable segments represent the Group's principal business activities . Poultry and related operations segment include sales of chicken meat, sales of by-products such as vegetable oil and related products and other poultry-related products. CODM is considering oil extraction as a part of mixed fodder production rather than a separate line of business as primarily quality and effectiveness of mixed fodder production prevails over oil output. Grain growing operations include sale of grain other than feed grains and green-fodder. Other agricultural operations segment primarily includes sales of other than poultry meat and meat processing products, fruit, feed grains and milk.
The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.
Non-current assets held for sale
Non-current assets and disposal groups are classi?ed as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classi?cation.
When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classi?ed as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classi?ed as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Revenue recognition
The Group generates revenue primarily from the sale of agricultural products to the end customers. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, the amount of revenue can be measured reliably and it is probable that collection will occur and costs incurred or to be incurred in respect of the transaction can be measured reliably. The point of transfer of risk, which may occur at delivery or shipment, varies for contracts with different types of customers.
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
When goods are exchanged or swapped for goods which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. When goods are sold in exchange for dissimilar goods, the exchange is regarded as a transaction which generates revenue, and revenue is measured at the fair value of the goods received, adjusted by the amount of any cash or cash equivalents transferred.
VAT refunds and other government grants
The Group's companies are subject to special tax treatment for value-added tax ("VAT"). The Group's entities, which qualify as agricultural producers, are entitled to retain the net VAT payable. VAT amounts payable are not transferred to the State, but credited to the entity's separate special account to support the agriculture activities of the Group. Net result on VAT operations, calculated as excess of VAT liability over VAT credit is charged to profit or loss. VAT receivable exceeding VAT liability is used as a reduction in tax liabilities of the next period.
Government grants are recognized as income over the periods necessary to match them with the related costs, or as an offset against finance costs when received as compensation for the finance costs for agricultural producers. To the extent the conditions attached to the grants are not met at the reporting date, the received funds are recorded in the Group's consolidated financial statements as deferred income.
Other government grants are recognized at the moment when the decision to disburse the amounts to the Group is made.
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Property, plant and equipment
All groups of property, plant and equipment are carried at revalued amounts, being their fair value at the date of the revaluation less any subsequent depreciation and impairment losses, except land and other fixed assets that are carried at historical cost less accumulated depreciation.
The historical cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the item to the location and condition necessary for it to be capable of operating in the manner intended by the management of the Group; (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, (d) the obligation for which the Group incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period; and (e) for qualifying assets, borrowing costs capitalized in accordance with the Group's accounting policy.
Subsequently capitalized costs include major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are charged to the consolidated statement of comprehensive income as incurred.
The Group moved to revaluation model for Auxiliary and other machinery and utilities and infrastructure during the year ended 31 December 2016. For all groups of property, plant and equipment carried at revaluation the model revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date. If the asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserve. However, such increase is recognized in the statement of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognized in the statement of comprehensive income. If the asset's carrying amount is decreased as a result of a revaluation, the decrease is recognized in the statement of comprehensive income.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Property, plant and equipment (continued)
However, such decrease is debited directly to the revaluation reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset.
Depreciation on revalued assets is charged to the statement of comprehensive income. The excess of depreciation charge on the revalued asset over the depreciation that would have been charged based on the historical cost of the asset is transferred from revaluation reserve directly to retained earnings over the assets useful life. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings.
Depreciation of property, plant and equipment is charged so as to write off the depreciable amount over the useful life of an asset and is calculated using a straight line method. Useful lives of the groups of property, plant and equipment are as follows:
• Buildings and structures |
15 - 55 years |
• Grain storage facilities |
20 - 60 years |
• Production machinery |
10 - 25 years |
• Auxiliary and other machinery |
5 - 25 years |
• Utilities and infrastructure |
20 - 50 years |
• Vehicles and agricultural machinery |
5 - 15 years |
• Other fixed assets |
3 - 10 years |
Depreciable amount is the cost of an item of property, plant and equipment, or revalued amount, less its residual value. The residual value is the estimated amount that the Group would currently obtain from disposal of the item of property, plant and equipment, after deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The residual value, the useful lives and depreciation method are reviewed at each financial year-end. The effect of any changes from previous estimates is accounted for prospectively as a change in an accounting estimate.
The gain or loss arising on sale or disposal of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income .
Construction in progress comprises costs directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated. Depreciation of construction in progress commences when the assets are available for use, i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by the management.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Intangible assets
Intangible assets, which are acquired by the Group and which have finite useful lives, consist primarily of land lease rights.
Land lease rights acquired separately are carried at cost less accumulated amortization and accumulated impairment losses.
Land lease rights acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, land lease rights acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as land lease rights acquired separately.
Amortization of intangible assets is recognized on a straight line basis over their estimated useful lives. For land lease rights, the amortization period varies from 3 to 15 years.
The amortization period and the amortization method for intangible assets with finite useful lives are reviewed at least at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.
Impairment of tangible and intangible assets other than goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive income unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of comprehensive income , unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in the statement of comprehensive income . An impairment loss recognized on goodwill is not reversed in subsequent periods.
Income taxes
Income taxes have been computed in accordance with the laws currently enacted or substantially enacted in jurisdictions where operating entities are located. Income tax is calculated based on the results for the year as adjusted for items that are non-assessable or non-tax deductible. It is calculated using tax rates that have been enacted by the reporting date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is charged or credited to the statement of comprehensive income , except when it relates to items credited or charged directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income.
Deferred tax assets and liabilities are offset when:
• The Group has a legally enforceable right to set off the recognized amounts of current tax assets and current tax liabilities;
• The Group has an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.
The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. These companies are exempt from income taxes and pay the Fixed Agricultural Tax instead (Note 11).
Withholding tax
Passive income (dividends, interest, royalties, etc) from Ukrainian sources that is paid to non-resident entities is generally subject to withholding tax (WHT).
The WHT tax rates 15% (base rates) should be applied unless more favorable rates (reduced rates) are provided by a relevant double taxation treaty (DTT) signed between Ukraine and foreign country.
In order to benefit from reduced tax rate in D T T, the non-resident recipient of income must confirm its tax residency and should also be considered the beneficial owner of such income.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Withholding tax (continued)
Tax residency status should be confirmed by tax residency certificate issued by tax authorities of the recipient's country of residence for tax year in which the income is paid.
According to the Tax Code of Ukraine, agents, nominee holders, and other intermediaries in respect of received income cannot be beneficial owners of income sourced in Ukraine and are not entitled to favorable treaty provisions. The Ukrainian tax authorities use both legal and economic substance approach for the beneficial owner definition considering also economic substance of the transaction and the substance of the recipient of income.
As result, in order to prove the beneficial ownership status of the non-resident recipient, there should be additional documental support to justify the substance of transactions.
No formal requirements exist to the above documents and, in practice, such documents may include evidence that the recipient of income has a real office, employees and that the recipient is fully entitled to manage and dispose the received income without limitations.
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs comprise raw materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present locations and condition.
Cost is calculated using the FIFO (first-in, first-out) method. Net realizable value is determined as the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Agriculture related production process results in production of joint products: main and by-products. A by-product arising from the process is measured at net realizable value and this value is deducted from the cost of the main product.
Biological assets and agricultural produce
Agricultural activity is defined as a biological transformation of biological assets for sale into agricultural produce or into additional biological assets. The Group classifies hatchery eggs, live poultry and other animals and plantations as biological assets.
The Group recognizes a biological asset or agricultural produce when the Group controls the asset as a result of past events, it is probable that future economic benefits associated with the asset will flow to the Group, and the fair value or cost of the asset can be measured reliably.
Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any resulting gain or loss recognized in the consolidated statement of comprehensive income . Costs to sell include all costs that would be necessary to sell the assets, including costs necessary to get the assets to market.
The difference between fair value less costs to sell and total production costs is allocated to biological assets held in stock as of each reporting date as a fair value adjustment.
The change in this adjustment from one period to another is recognized as "Net change in fair value of biological assets and agricultural produce" in the statement of comprehensive income .
Agricultural produce harvested from biological assets is measured at its fair value less costs to sell at the point of harvest. A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell is included in the statement of comprehensive income .
Based on the above policy, the principal groups of biological assets and agricultural produce are stated as follows:
Biological Assets
(i) Broiler chickens
Broilers comprise poultry held for chicken meat production. The fair value of broilers is determined by reference to the cash flows that will be obtained from the sales of 42-day aged chickens, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.
(ii) Breeders
The fair value of breeders is determined using the discounted cash flow approach based on hatchery eggs' market prices.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Biological assets and agricultural produce (continued)
(iii) Cattle and pigs
Cattle and pigs comprise cattle held for regeneration of livestock population and animals raised for milk and beef and pork meat production. The fair value of livestock is determined based on market prices of livestock of similar age, breed and genetic merit. Cattle, for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable, are measured using the present value of expected net cash flows from the asset discounted at a current market-determined pre-tax rate.
(iv) Crops in fields
The fair value of crops in fields is determined by reference to the cash flows that will be obtained from sales of harvested crops, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.
(v) Hatchery eggs
The fair value of hatchery eggs is determined by reference to market prices at the point of harvest.
Agricultural Produce
(i) Dressed poultry, beef and pork
The fair value of dressed poultry, beef and pork is determined by reference to market prices at the point of harvest.
(ii) Grain and fruits
The fair value of fodder grain and fruits is determined by reference to market prices at the point of harvest.
The Group's biological assets are classified into bearer and consumable biological assets depending upon the function of a particular group of biological assets in the Group's production process. Consumable biological assets are those that are to be harvested as agricultural produce, and include hatchery eggs and live broiler chickens intended for the production of meat, as well as pork and meat cows. Bearer biological assets include poultry held for hatchery eggs production, orchards, milk cows and breeding bulls.
Financial instruments
Financial assets and financial liabilities are recognized on the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets and liabilities are recognized using settlement date accounting. The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity. Financial assets and financial liabilities of the Group are represented by cash and cash equivalents, account receivables, borrowings, account payables and other financial liabilities. The accounting policies for initial recognition and subsequent measurement of financial instruments are disclosed in the respective accounting policies set out below in this Note.
Financial assets and financial liabilities are initially recognised at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. On derecognition of a financial asset in its entirety, the difference between the
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Financial instruments (continued)
asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
Accounts receivable
Accounts receivable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method. Accounts receivable, which are non-interest bearing, are stated at their nominal value. Appropriate allowances for estimated irrecoverable amounts are recognized in the statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash with banks, deposits and marketable securities with an original maturity of less than three months.
Bank borrowings, corporate bonds issued and other long-term payables
Interest-bearing bank borrowings, bonds issued and other long-term payables are initially measured at fair value net of directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption amount is recognized over the term of the borrowings and recorded as finance costs.
Derivative financial instruments
The Group enters into derivative financial instruments to purchase sunflower seeds. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not remeasured at fair value through statement of comprehensive income .
As of 31 December 2016 and 2015 there were no material derivative financial instruments that were recognized in these consolidated financial statements.
Trade and other accounts payable
Accounts payable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases.
Assets held by the Group under finance leases are recognized as assets of the Group at their fair value at the date of acquisition or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised directly to the statement of comprehensive income and are classified as finance costs.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
3. Summary of significant accounting policies (continued)
Leases (continued)
Rental income or expenses under operating leases are recognized in the consolidated statement of comprehensive income on a straight line basis over the term of the lease.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation (either based on legal regulations or implied) as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation can be made.
Reclassifications and revisions
Certain comparative information presented in the consolidated financial statements for the year ended
31 December 2015 has been revised in order to achieve comparability with the presentation used in the
consolidated financial statements for the year ended 31 December 2016. Such reclassifications and
revisions were not significant to the Group financial statements.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in Note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects both current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.
Revenue recognition
In the normal course of business, the Group engages in sale and purchase transactions with the purpose of exchanging crops in various locations to fulfil the Group's production requirements. In accordance with the Group's accounting policy, revenue is not recognized with respect to the exchange transactions involving goods of similar nature and value. The Group management applies judgment to determine whether each particular transaction represents an exchange or a transaction that generates revenue. In making this judgment, management considers whether the underlying crops are of similar type and quality, as well as whether the time passed between the transfer and receipt of the underlying crops indicates that the substance of the transaction is an exchange of similar goods. The amount of exchange transaction involving goods of similar nature amounted to USD 14,755 thousand and USD 18,566 thousand for the years ended 31 December 2016 and 2015, respectively.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Revaluation of property, plant and equipment
At each reporting date, the Group carries out a review of the carrying amount of the groups of property plant and equipment accounted for using a revaluation model to determine whether the carrying amount differs materially from fair value.
Grain storage facilities, Utilities and infrastructure: The Group carries out impairment review by preparing a discounted cash flow analysis involving assumptions on projected revenues and costs, and a discount rate. Additionally, the Group considers economic stability and availability of transactions with similar assets in the market when determining whether to perform a fair value assessment in a given period. Based on the results of this review, the Group concluded that grain storage facilities, utilities and infrastructure should be revalued during the year ended 31 December 2016.
The Group appointed an independent valuer for a revaluation of these groups during the year ended 31 December 2016 and performed revaluation as of 31 March 2016. Key assumptions used by the independent valuer in assessing the fair value of buildings and structures using the replacement cost method were as follows:
· present condition of particular assets was ranked from excellent to good;
· changes in prices of assets and construction materials from the date of their acquisition/construction to the date of valuation; and
· other external and internal factors that might have effect on fair value of the assets.
Results of the revaluation based on the replacement cost approach were compared with a revaluation performed using the income approach to check for impairment indicators of revalued assets, if any.
Vehicles and agricultural machinery, Auxiliary and other machinery: The fair value of items of Vehicles and agricultural machinery, Auxiliary and other machinery is determined generally by reference to market-based evidence, which are the amounts for which the assets could be exchanged between knowledgeable, willing customers in an arm's length transaction as of the valuation date. For the items of unique nature, replacement cost method is used.
For the market approach the Group carries at each reporting date a review of the carrying amount of these assets to determine whether the carrying amount differs from fair value. The Group considers economic stability and the availability of transactions with similar assets in the market when determining whether to perform fair value assessment in a given period. Based on the results of review the Group concluded that vehicles and agricultural machinery, auxiliary and other machinery should be revalued during the year ended 31 December 2016.
The Group appointed an independent valuer to value Vehicles and agricultural machinery, Auxiliary and other machinery during the year ended 31 December 2016; the revaluation was performed as of 31 March 2016.
Key assumptions used by the independent valuer in assessing the fair value of production machinery, vehicles and agricultural machinery using the market approach method were as follows:
· present condition of particular assets was ranked from excellent to good; and
· external prices provided by suppliers of machinery and vehicles for similar items were considered.
Income approach test and test for impairment: Results of the revaluation based on the replacement cost approach were compared with a revaluation performed using the income approach to check for impairment indicators of revalued assets, if any.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Revaluation of property, plant and equipment (continued)
The following unobservable inputs were used to measure Utilities and infrastructure, Grain storage facilities, Vehicles and agricultural machinery and Auxiliary and other machinery:
Description |
Fair value as at 31 December 2016 |
|
Valuation technique(s) |
|
Unobservable inputs |
|
Range of unobservable inputs (average) |
|
Relationship of unobservable inputs to fair value |
|
|
|
|
|
|
|
|
|
|
Utilities and infrastructure |
78,236 |
|
Depreciated replacement cost method |
|
Index of physical depreciation |
|
0-81% |
|
The higher the index of physical depreciation, the lower the fair value |
|
|
|
|
|
Cumulative index of inflation of construction works |
|
1.72-2.34 |
|
The higher the index, the higher the fair value |
Grain storage facilities |
80,850 |
|
Depreciated replacement cost method |
|
Index of physical depreciation |
|
6-56% |
|
The higher the index of physical depreciation, the lower the fair value |
|
|
|
|
|
Cumulative index of inflation of construction works |
|
1.72-1.99 |
|
The higher the index, the higher the fair value |
Vehicles and agricultural machinery |
185,198 |
|
Market comparable approach |
|
Index of physical depreciation |
|
0-90% |
|
The higher the index of physical depreciation, the lower the fair value |
Auxiliary and other machinery |
39,239 |
|
Market comparable approach |
|
Index of physical depreciation |
|
5-100% |
|
The higher the index of physical depreciation, the lower the fair value |
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Fair value less costs to sell of biological assets and agricultural produce
Biological assets are recorded at fair values less costs to sell. The Group estimates the fair values of biological assets based on the following key assumptions:
• Average meat output for broilers and livestock for meat production;
• Average productive life of breeders and cattle held for regeneration and milk production;
• Expected crops output;
• Projected orchards output;
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Fair value less costs to sell of biological assets and agricultural produce (continued)
• Estimated changes in future sales prices;
• Projected production costs and costs to sell; and,
• Discount rate.
During the year ended 31 December 2016 the fair value of biological assets and agricultural produce was estimated using discount factors of 14.9% and 21.4% (31 December 2015: 23.0% and 34.6%) for non-current and current assets, respectively.
Although some of these assumptions are obtained from published market data, the majority of these assumptions are estimated based on the Group's historical and projected results (Note 14).
Useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and equipment is a matter of management estimate based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates.
Deferred tax assets
Deferred tax assets, including those arising from unused tax losses are recognised to the extent that it is probable that they will be recovered, which is dependent on the generation of sufficient future taxable profit. Based on management assessment the Group decided to recognise deferred tax assets on unused tax losses, which will be utilized in future against existing deferred tax liabilities and available future tax profits.
VAT recoverable
The balance of VAT recoverable may be realized by the Group either through a cash refund from the state budget or by set off against VAT liabilities in future periods. Management classified the VAT recoverable balance as current or non-current based on expectations as to whether it will be realized within twelve months from the reporting date. In addition, management assessed whether an allowance for irrecoverable VAT needed to be created.
In making this assessment, management considered past history of receiving VAT refunds from the state budget. For VAT recoverable expected to be set off against VAT liabilities in future periods, management based its estimates on detailed projections of expected excess of VAT output over VAT input in the normal course of the business.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
5. Segment information
The majority of the Group's operations and non-current assets are located within Ukraine.
Segment information is analysed 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 • other poultry related sales |
|
|
Grain growing operations segment: |
• sales of grain |
|
|
Other agricultural operations segment:
|
• sales of meat processing products and other meat • other agricultural operations (milk, feed grains and other) |
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 3. 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 chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
The Group does not disclose geographical revenue information as it is not available and the cost to develop it would be excessive.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
5. Segment information (continued)
As of 31 December and for the year then ended the Group's segmental information from continuing operations was as follows:
Year ended 31 December 2016 |
Poultry and related operations |
Grain growing operations |
Other agricultural operations |
Total reportable segme nts |
Eliminations |
Consolidated |
|
|
|
|
|
|
|
External sales |
970,387 |
84,753 |
80,322 |
1,135,462 |
- |
1,135,462 |
Sales between business segments |
29,759 |
195,872 |
249 |
225,880 |
(225,880) |
- |
Total revenue |
1,000,146 |
280,625 |
80,571 |
1,361,342 |
(225,880) |
1,135,462 |
Segment results |
207,969 |
116,670 |
10,259 |
334,898 |
- |
334,898 |
Unallocated corporate expenses |
|
|
|
|
|
(18,634) |
Loss on impairment of property, plant and equipment |
|
|
|
|
|
(1,443) |
Other expenses, net 1) |
|
|
|
|
|
(259,115) |
Profit before tax from continuing operations |
|
|
|
|
|
55,706 |
Other information: |
|
|
|
|
|
|
Additions to property, plant and equipment 2) |
74,823 |
18,955 |
3,685 |
97,463 |
- |
97,463 |
Depreciation and amortization expense 3) |
60,767 |
33,336 |
2,907 |
97,010 |
- |
97,010 |
Net change in fair value of biological assets and agricultural produce |
5,039 |
32,198 |
1,657 |
38,894 |
- |
38,894 |
|
|
|
|
|
|
|
1) Include finance income, finance costs, foreign exchange loss (net) and other expenses (net).
2) Additions to property, plant and equipment in 2016 (Note 12) do not include unallocated additions in the amount of USD 2,520 thousand.
3) Depreciation and amortization for the year ended 31 December 2016 does not include unallocated depreciation and amortization in the amount of USD 1,557 thousand.
Year ended 31 December 2015 |
Poultry and related operations |
Grain growing operations |
Other agricultural operations |
Total reportable segments |
Eliminations |
Consolidated |
|
|
|
|
|
|
|
External sales |
878,393 |
117,240 |
66,282 |
1,061,915 |
- |
1,061,915 |
Sales between business segments |
24,795 |
145,535 |
90 |
170,420 |
(170,420) |
- |
Total revenue |
903,188 |
262,775 |
66,372 |
1,232,335 |
(170,420) |
1,061,915 |
Segment results |
280,913 |
70,606 |
9,200 |
360,719 |
- |
360,719 |
Unallocated corporate expenses |
|
|
|
|
|
(13,968) |
Other expenses, net 1) |
|
|
|
|
|
(500,632) |
Loss before tax from continuing operations |
|
|
|
|
|
(153,881) |
Other information: |
|
|
|
|
|
|
Additions to property, plant and equipment 2) |
97,166 |
54,164 |
1,330 |
152,660 |
- |
152,660 |
Depreciation and amortization expense 3) |
62,568 |
23,753 |
1,778 |
88,099 |
- |
88,099 |
Net change in fair value of biological assets and agricultural produce |
19,483 |
(2,582) |
2,950 |
19,851 |
- |
19,851 |
|
|
|
|
|
|
|
1) Include loss from disposal of subsidiaries, finance income, finance costs, foreign exchange loss (net) and other expenses (net).
2) Additions to property, plant and equipment in 2015 (Note 12) do not include unallocated additions in the amount of USD 3,396 thousand.
3) Depreciation and amortization for the year ended 31 December 2015 does not include unallocated depreciation and amortization in the amount of USD 802 thousand.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
5. Segment information (continued)
The Group's export sales to external customers by major product types were as follows during the years ended 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Vegetable oil and related products |
295,596 |
|
241,481 |
|
Chicken meat and related products |
243,725 |
|
189,175 |
|
Grain |
80,990 |
|
92,094 |
|
Other agricultural segment products |
14,409 |
|
1,146 |
|
|
634,720 |
|
523,896 |
|
Export sales of vegetable oil and related products and export sales of grains are primarily made to global trading companies at CPT port terms. The major markets for the Group's export sales of chicken meat are Middle East, CIS countries and EU, as well as, to a lesser extent, Northern Africa and Asia.
6. Revenue
Revenue for the years ended 31 December 2016 and 2015 was as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Poultry and related operations segment |
|
|
|
|
|
|
|
|
|
Chicken meat |
617,930 |
|
599,839 |
|
Vegetable oil and related products |
295,596 |
|
241,794 |
|
Other poultry related sales |
56,861 |
|
36,760 |
|
|
970,387 |
|
878,393 |
|
|
|
|
|
|
Grain growing operations segment |
|
|
|
|
|
|
|
|
|
Grain |
84,753 |
|
117,240 |
|
|
84,753 |
|
117,240 |
|
|
|
|
|
|
Other agricultural operations segment |
|
|
|
|
|
|
|
|
|
Other meat |
54,705 |
|
43,852 |
|
Other agricultural sales |
25,617 |
|
22,430 |
|
|
80,322 |
|
66,282 |
|
|
1,135,462 |
|
1,061,915 |
|
7. Cost of sales
Cost of sales for the years ended 31 December 2016 and 2015 was as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Poultry and related operations |
680,574 |
|
584,174 |
|
Grain growing operations |
62,526 |
|
97,840 |
|
Other agricultural operations |
69,150 |
|
57,422 |
|
|
812,250 |
|
739,436 |
|
For the years ended 31 December 2016 and 2015 cost of sales comprised the following:
|
2016 |
|
2015 |
|
|
|
|
|
|
Costs of raw materials and other inventory used |
548,061 |
|
502,174 |
|
Payroll and related expenses |
89,870 |
|
85,787 |
|
Depreciation and amortization expense |
87,992 |
|
79,946 |
|
Other costs |
86,327 |
|
71,529 |
|
|
812,250 |
|
739,436 |
|
By-products arising from the agricultural production process are measured at net realizable value, and this value is deducted from the cost pool.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
8. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Payroll and related expenses |
26,882 |
|
25,022 |
|
Services |
17,188 |
|
13,627 |
|
Depreciation expense |
10,575 |
|
8,955 |
|
Fuel and other materials used |
8,032 |
|
8,520 |
|
Representative costs and business trips |
6,886 |
|
7,412 |
|
Advertising expense |
4,633 |
|
5,031 |
|
Bank services and conversion fees |
469 |
|
350 |
|
Insurance expense |
398 |
|
630 |
|
Other |
3,710 |
|
2,782 |
|
|
78,773 |
|
72,329 |
|
Remuneration to the auditors, included in Services above, approximate to USD 554 thousand and USD 702 thousand for the years ended 31 December 2016 and 2015 , respectively. Such remuneration includes both audit and non-audit services, with the audit fees component approximating USD 390 thousand and USD 430 thousand for the years ended 31 December 2016 and 2015, respectively .
9. VAT refunds and other government grants income
The Ukrainian legislation provides for a number of different grants and tax benefits for companies involved in agricultural operations. The below mentioned grants and similar privileges are established by Verkhovna Rada (the Parliament) of Ukraine, as well as by the Ministry of Agrarian Policy of Ukraine, the Ministry of Finance of Ukraine, the State Committee of Water Industry, the customs authorities and local district administrations.
VAT refunds and other government grants recognized by the Group as income during the years ended 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
VAT refunds |
34,056 |
|
75,410 |
|
Other government grants |
- |
|
25 |
|
|
34,056 |
|
75,435 |
|
VAT refunds for agricultural industry
According to the Tax Code of Ukraine issued in December 2010 and effective since 1 January 2011 ("Tax Code"), companies that generated not less than 75% of gross revenues for the previous tax year from sales of own agricultural products are entitled to retain VAT on sales of agricultural products, net of VAT paid on purchases, for use in agricultural production.
During the year ended 31 December 2015 and before, VAT collected from agricultural producers was fully retained by these companies. On 24 December 2015, the Law "On amending the Tax Code of Ukraine and certain legislative acts of Ukraine in terms of ensuring the balanced budget receipts in 2016" was adopted effective 1 January 2016. In accordance with the new legislation, agricultural producers will be entitled to retain only a portion of VAT on agricultural operations. Producers of grain and industrial crops, cattle and dairy producers, poultry and other agriculture producers shall retain VAT in a portion of 15%, 80% and 50%, respectively.
On 30 December 2016 the President of Ukraine signed the Law No. 1791 On Amendments to the Tax Code of Ukraine Regarding the Balancing of Budget Revenues in 2017 (hereinafter the "Law No. 1791"). The Law No. 1791 introduces changes to VAT administration for agricultural companies which previously enjoyed a special VAT regime.
However, in order to continue state support for agricultural companies, the Law No. 1791 introduces budget subsidies for agricultural companies by amending the Law of Ukraine On State Support of Agriculture of Ukraine. From 2017 onwards, budget subsidies will be provided for 5 consecutive calendar years, until 1 January 2022. The agricultural producers eligible for the subsidies will include those involved in poultry production and animal farming, as well as fruit and vegetable farmers.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
9. VAT refunds and other government grants income (continued)
VAT refunds for agricultural industry (continued)
For each agricultural producer, the amount of the subsidy is not to exceed the amount of VAT tax paid by the producers, and will be distributed on a monthly basis.
10. Finance costs
Finance costs for the years ended 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Interest on corporate bonds |
68,184 |
|
74,321 |
|
Interest on bank borrowings |
35,186 |
|
24,812 |
|
Interest on obligations under finance leases |
1,835 |
|
2,288 |
|
Bank commissions and other charges |
6,063 |
|
6,645 |
|
Total finance costs |
111,268 |
|
108,066 |
|
|
|
|
|
|
Less: |
|
|
|
|
Finance costs included in the cost of qualifying assets |
(4,425) |
|
(2,495) |
|
|
106,843 |
|
105,571 |
|
For qualifying assets, the weighted average capitalization rate on funds borrowed during the year ended 31 December 2016 was 9.69% ( 2015 : 9.29%).
Interest on corporate bonds for the years ended 31 December 2016 and 2015 includes amortization of premium and debt issue costs on bonds issued in the amounts of USD 5,978 thousand and USD 5,020 thousand, respectively.
11. Income tax
The majority of the Group's operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed based on Ukrainian statutory rates. The net results of the Group companies incorporated in jurisdictions other than Ukraine were insignificant during the years ended 31 December 2016 and 2015.
During the year ended 31 December 2016, the Group's companies that have the status of Corporate Income Tax (the "CIT") payers in Ukraine were subject to income tax. The Tax Code of Ukraine introduced an 18% income tax rate effective from 1 January 2014. The deferred income tax assets and liabilities as of 31 December 2016 and 2015 are measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.
The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. On 1 January 2015, the Law "On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine on Tax Reform" (the "Law") became effective. Under the Law, the fixed agricultural tax regime ("FAT") was transformed, without substantial changes to tax rules, by means of introducing a separate (4th) group of single taxpayers - agricultural manufacturers. The tax rates calculated as a percentage of the target-ratio based monetary valuation per hectare of agricultural land result ing in substantially lower tax charges compared to CIT. Agricultural manufacturers are eligible to apply for a single tax if they meet both the following two requirements:
1. The share of the entity's income from agricultural production (i.e., sale of the entity's cultivated and processed products) to the total share of its income equals or exceeds 75 per cent; and
2. These agriproducts were cultivated on land that such agricultural manufacturers own or lease, and the ownership title and leases have been duly registered.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
11. Income tax (continued)
The components of income tax expense/(benefit) were as follows for the years ended 31 December 2016 and 2015
|
2016 |
|
2015 |
|
|
|
|
|
|
Current income tax expense/(benefit) |
621 |
|
(1,460) |
|
Deferred tax benefit |
(13, 701 ) |
|
(39,682) |
|
Income tax benefit |
(13,0 80 ) |
|
(41,142) |
|
The reconciliation between profit before tax from continuing operations multiplied by the statutory tax rate and the tax expense for the years ended 31 December 2016 and 2015 was as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Profit/(Loss) before income tax |
55,706 |
|
(153,881) |
|
|
|
|
|
|
Income tax expense calculated at rates effective during the year ended in respective jurisdictions |
7,405 |
|
(28,483) |
|
|
|
|
|
|
Tax effect of: |
|
|
|
|
|
|
|
|
|
Income generated by FAT payers (exempt from income tax) |
(40,678) |
|
(41,413) |
|
Non-deductible expenses |
12, 821 |
|
14,493 |
|
Expenses not deducted for tax purposes |
7,004 |
|
11,136 |
|
Translation loss |
368 |
|
3,125 |
|
Income tax benefit |
(13,080) |
|
(41,142) |
|
During the years ended 31 December 2016 and 2015 the Group did not recognize deferred tax assets arising from temporary differences of USD 38,911 thousand, USD 61,867 thousand, respectively, as the Group did not intend to deduct the relevant expenses for tax purposes in subsequent periods, as there are uncertainties on whether sufficient taxable profits will be generated by particular companies of the Group in the future. There is no expiration date of accounting tax losses according to Tax Code of Ukraine.
Deferred tax liabilities have not been recognized in respect of unremitted earnings of Ukrainian subsidiaries as the earnings can be remitted free from taxation currently and in future years, based on current legislation.
As of 31 December 2016 and 2015 deferred tax assets and liabilities comprised the following:
|
2016 |
|
2015 |
|
|
|
|
|
|
Deferred tax assets arising from: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
6 |
|
170 |
|
Other current liabilities |
761 |
|
926 |
|
Inventories |
326 |
|
1,066 |
|
Tax losses |
81,923 |
|
79,758 |
|
|
|
|
|
|
Total deferred tax assets |
83,016 |
|
81,920 |
|
|
|
|
|
|
Deferred tax liabilities arising from: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
(92,700) |
|
(89,396) |
|
Inventories |
(19) |
|
(4) |
|
Prepayments to suppliers |
- |
|
(7) |
|
Total deferred tax liabilities |
(92,719) |
|
(89,407) |
|
Net deferred tax liabilities |
(9,703) |
|
(7,487) |
|
Certain Group's companies incurred losses during the 2016 and preceding years. The Group has recognised deferred tax assets on accounting tax losses to the extent of possible future taxable income.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
11. Income tax (continued)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as of 31 December 2016 and 2015 :
|
2016 |
|
2015 |
|
|
|
|
|
|
Deferred tax assets |
1,561 |
|
5,740 |
|
Deferred tax liabilities |
(11,264) |
|
(13,227) |
|
|
(9,703) |
|
(7,487) |
|
The movements in net deferred tax liabilities for the years ended 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Net deferred tax liabilities as of beginning of the year |
(7,487) |
|
(20,424) |
|
|
|
|
|
|
Deferred tax benefit |
13, 701 |
|
39,682 |
|
Deferred tax liabilities arising on acquisition of subsidiaries |
- |
|
42 |
|
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income |
(16,1 43 ) |
|
(30,842) |
|
Translation difference |
22 6 |
|
4,055 |
|
|
|
|
|
|
Net deferred tax liabilities as of end of the year |
(9,703) |
|
(7,487) |
|
.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
12. Property, plant and equipment
The following table represents movements in property, plant and equipment for the year ended 31 December 2016:
|
Land |
|
Buildings and structures |
|
Grain storage facilities |
|
Production machinery
|
|
Auxiliary and other machinery |
|
Utilities and infrastructure |
|
Vehicles and agricultural machinery |
|
Other fixed assets1 |
|
Construction in progress |
|
Total |
Cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2016 |
775 |
|
595,322 |
|
65,181 |
|
280,493 |
|
36,947 |
|
57,575 |
|
214,391 |
|
16,348 |
|
79,803 |
|
1,346,835 |
Additions |
567 |
|
17,433 |
|
340 |
|
18,304 |
|
10,389 |
|
5,356 |
|
18,744 |
|
2,185 |
|
26,665 |
|
99,983 |
Disposals |
(39) |
|
(1,157) |
|
(93) |
|
(676) |
|
(379) |
|
(76) |
|
(2,900) |
|
(139) |
|
(247) |
|
(5,706) |
Transfers |
- |
|
19,500 |
|
- |
|
11,228 |
|
144 |
|
2,684 |
|
906 |
|
88 |
|
(34,550) |
|
- |
Reclassified as held for sale (Note 20) |
- |
|
(37,450) |
|
- |
|
(8,223) |
|
- |
|
(842) |
|
(19,089) |
|
(10,531) |
|
(243) |
|
(76,378) |
Revaluations |
- |
|
- |
|
28,433 |
|
- |
|
2,691 |
|
24,263 |
|
31,500 |
|
- |
|
- |
|
86,887 |
Impairment loss2 |
- |
|
(24,315) |
|
- |
|
(2,437) |
|
(688) |
|
(229) |
|
(6,052) |
|
(75) |
|
(2,798) |
|
(36,594) |
Translation difference |
(86) |
|
(51,181) |
|
(8,594) |
|
(33,750) |
|
(7,575) |
|
(8,701) |
|
(18,759) |
|
(328) |
|
(9,229) |
|
(138,203) |
At 31 December 2016 |
1,217 |
|
518,152 |
|
85,267 |
|
264,939 |
|
41,529 |
|
80,030 |
|
218,741 |
|
7,548 |
|
59,401 |
|
1,276,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2016 |
- |
|
- |
|
5,083 |
|
20,224 |
|
10,999 |
|
14,503 |
|
31,805 |
|
5,971 |
|
- |
|
88,585 |
Depreciation charge for the year3 |
- |
|
15,967 |
|
5,090 |
|
27,010 |
|
3,106 |
|
2,665 |
|
45,218 |
|
1,341 |
|
- |
|
100,397 |
Elimination upon disposal |
- |
|
(213) |
|
- |
|
(626) |
|
(145) |
|
(63) |
|
(2,180) |
|
(132) |
|
- |
|
(3,359) |
Eliminated on revaluation |
- |
|
- |
|
(5,034) |
|
- |
|
(9,059) |
|
(12,993) |
|
(27,630) |
|
- |
|
- |
|
(54,716) |
Reclassified as held for sale (Note 20) |
- |
|
(8,808) |
|
- |
|
(3,860) |
|
- |
|
(602) |
|
(12,692) |
|
(922) |
|
- |
|
(26,884) |
Translation difference |
- |
|
2,235 |
|
(722) |
|
(2,974) |
|
(2,611) |
|
(1,716) |
|
(978) |
|
(767) |
|
- |
|
(7,533) |
At 31 December 2016 |
- |
|
9,181 |
|
4,417 |
|
39,774 |
|
2,290 |
|
1,794 |
|
33,543 |
|
5,491 |
|
- |
|
96,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2016 |
775 |
|
595,322 |
|
60,098 |
|
260,269 |
|
25,948 |
|
43,072 |
|
182,586 |
|
10,377 |
|
79,803 |
|
1,258,250 |
At 31 December 2016 |
1,217 |
|
508,971 |
|
80,850 |
|
225,165 |
|
39,239 |
|
78,236 |
|
185,198 |
|
2,057 |
|
59,401 |
|
1,180,334 |
1) Other fixed assets include bearer plants, office furniture and equipment;
2) Impairment loss contains USD 35,151 thousand of loss on impairment of property, plant and equipment included in a disposal group held for sale;
3) Depreciation charge for the year included in results from discontinued operations USD 7,298 thousand.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
12. Property, plant and equipment (continued)
The following table represents movements in property, plant and equipment for the year ended 31 December 2015:
|
Land |
|
Buildings and structures |
|
Grain storage facilities |
|
Production machinery
|
|
Auxiliary and other machinery |
|
Utilities and infrastructure |
|
Vehicles and agricultural machinery |
|
Other fixed assets1 |
|
Construction in progress |
|
Total |
Cost or fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
14,099 |
|
723,297 |
|
99,774 |
|
300,537 |
|
54,903 |
|
80,638 |
|
208,456 |
|
23 , 3 17 |
|
40,661 |
|
1,54 5 , 6 82 |
Additions |
405 |
|
18,157 |
|
2,426 |
|
28,059 |
|
1,087 |
|
3,624 |
|
37,131 |
|
1,236 |
|
63,931 |
|
156,056 |
Disposals |
- |
|
(294) |
|
(108) |
|
(567) |
|
(305) |
|
(224) |
|
(2,075) |
|
(163) |
|
- |
|
(3,736) |
Transfers |
23 |
|
3,553 |
|
- |
|
1,460 |
|
936 |
|
882 |
|
110 |
|
(36) |
|
(6,928) |
|
- |
Disposals of Voronezh Agroholding (Note 2) |
(12,470) |
|
(7,732) |
|
(9,172) |
|
- |
|
(2,620) |
|
(193) |
|
(17,095) |
|
(4) |
|
(164) |
|
(49,450) |
Acquisitions of subsidiaries (Note 2) |
- |
|
4,427 |
|
4,574 |
|
- |
|
1,300 |
|
636 |
|
16,603 |
|
139 |
|
184 |
|
27,863 |
Revaluations |
- |
|
101,054 |
|
- |
|
54,787 |
|
- |
|
- |
|
39,228 |
|
- |
|
- |
|
195,069 |
Translation difference |
(1,282) |
|
(247,140) |
|
(32,313) |
|
(103,783) |
|
(18,354) |
|
(27,788) |
|
(67,967) |
|
( 8 , 1 41) |
|
(17,881) |
|
(52 4 , 6 49) |
At 31 December 2015 |
775 |
|
595,322 |
|
65,181 |
|
280,493 |
|
36,947 |
|
57,575 |
|
214,391 |
|
16,348 |
|
79,803 |
|
1,346,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
- |
|
- |
|
3,584 |
|
- |
|
15,671 |
|
17,970 |
|
- |
|
8,598 |
|
- |
|
45,823 |
Depreciation charge for the year2 |
- |
|
20,301 |
|
3,440 |
|
27,693 |
|
1,632 |
|
3,239 |
|
44,040 |
|
511 |
|
- |
|
100,856 |
Elimination upon disposal |
- |
|
(290) |
|
(108) |
|
(485) |
|
(302) |
|
(223) |
|
(923) |
|
(158) |
|
- |
|
(2,489) |
Eliminated on revaluation |
- |
|
(17,675) |
|
- |
|
(4,921) |
|
- |
|
- |
|
(6,477) |
|
- |
|
- |
|
(29,073) |
Disposals of Voronezh Agroholding (Note 2) |
- |
|
(166) |
|
(398) |
|
- |
|
(644) |
|
(23) |
|
(1,465) |
|
- |
|
- |
|
(2,696) |
Translation difference |
- |
|
(2,170) |
|
(1,435) |
|
(2,063) |
|
(5,358) |
|
(6,460) |
|
(3,370) |
|
(2,980) |
|
- |
|
(23,836) |
At 31 December 2015 |
- |
|
- |
|
5,083 |
|
20,224 |
|
10,999 |
|
14,503 |
|
31,805 |
|
5,971 |
|
- |
|
88,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2015 |
14,099 |
|
723,297 |
|
96,190 |
|
300,537 |
|
39,232 |
|
62,668 |
|
208,456 |
|
1 4 , 7 19 |
|
40,661 |
|
1,49 9 ,859 |
At 31 December 2015 |
775 |
|
595,322 |
|
60,098 |
|
260,269 |
|
25,948 |
|
43,072 |
|
182,586 |
|
10,377 |
|
79,803 |
|
1,258,250 |
1) Other fixed assets include bearer plants, office furniture and equipment
2) Depreciation charge for the year included in results from discontinued operations USD 5,764 thousand
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
12. Property, plant and equipment (continued)
As of 31 December 2016 , included within construction in progress were prepayments for property, plant and equipment in the amount of USD 8,661 thousand (2015: USD 20,501 thousand).
As of 31 December 2016 , included within property, plant and equipment were fully depreciated assets with the original cost of USD 9,490 thousand ( 2015 : USD 9,431 thousand).
As of 31 December 2016 and 2015 the net carrying amount of property, plant and equipment, represented by vehicles and agricultural machinery, held under finance lease agreements was USD 39,460 thousand and USD 64,018 thousand, respectively.
Impairment assessment
The Group reviews its property, plant and equipment each period to determine if any indication of impairment exists. Based on these reviews, there were no indicators of impairment as of 31 December 2016 and 2015, except for impairment of certain assets in the amount of USD 1,443 thousand.
Revaluation of vehicles and agricultural machinery
During the year ended 31 December 2016 and 2015, the Group engaged independent appraisers to revalue its vehicles and agricultural machinery. The effective dates of revaluation were 31 March 2016 and 31 March 2015 respectively. The valuation, which conformed to the International Valuation Standards, was determined using market comparable approach adjusted based on age and condition of the machinery.
Revaluation of production machinery
During the year ended 31 December 2015, the Group engaged independent appraisers to revalue its production machinery. The effective date of revaluation was 31 March 2015. The valuation, which conformed to the International Valuation Standards, was determined using market comparable approach adjusted based on age and condition of the machinery or for items of specialized nature replacement cost method. During the year ended and as of 31 December 2016, the Group evaluated if the fair value of production machinery is materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of producers prices, index of physical depreciation and functional currency depreciation, the Management assessed it not to be materially different from the reported book values.
Revaluation of buildings and structures
During the year ended 31 December 2015, the Group engaged independent appraisers to revalue its buildings and structures. The effective date of revaluation was 31 December 2015. The valuation, which conformed to the International Valuation Standards, was determined using replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the buildings and structures. During the year ended and as of 31 December 2016, the Group evaluated if the fair value of buildings and structures is materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of inflation of construction works and index of physical depreciation, the Management assessed it not to be materially different from the reported book values.
Revaluation of Grain storage facilities
During the year ended 31 December 2016, the Group engaged independent appraisers to revalue its grain storage facilities as of 31 March 2016. The valuation, which conformed to the International Valuation Standards, was determined using replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the facilities. During the year ended 31 December 2015, the Group assessed the fair value of grain storage not to be materially different from the reported book values.
Revaluation of Auxiliary and other machinery
During the year ended 31 December 2016 the Group engaged an independent appraiser to determine the fair value of its Auxiliary and other machinery as of 31 March 2016. The valuation, which conformed to the International Valuation Standards, was determined using the market comparable approach adjusted based on age and condition of the machinery or for items of specialized nature replacement cost method.
Revaluation of Utilities and infrastructure
During the year ended 31 December 2016, the Group engaged independent appraisers to revalue its utilities and infrastructure as of 31 March 2016. The valuation, which conformed to the International Valuation Standards, was determined using replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the facilities.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
12. Property, plant and equipment (continued)
Had the Group's property plant and equipment been measured on a historical cost basis, their carrying amount would have been as follows:
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
Fair value |
|
Net book value if carried at cost |
||
|
|
|
2016 |
2015 |
|
2016 |
2015 |
Buildings and structures |
Level 3 |
|
508,971 |
595,322 |
|
142,990 |
188,420 |
Grain storage facilities |
Level 3 |
|
80,850 |
60,098 |
|
38,504 |
44,319 |
Production machinery |
Level 2 |
|
225,165 |
260,269 |
|
109,178 |
111,018 |
Vehicles and agricultural machinery |
Level 2 |
|
185,198 |
182,586 |
|
39,791 |
51,695 |
Utilities and infrastructure |
Level 3 |
|
78,236 |
43,072 |
|
42,427 |
43,072 |
Auxiliary and other machinery |
Level 2, 3 |
|
39,239 |
25,948 |
|
26,477 |
25,948 |
There are no restrictions on the distribution of the revaluation surplus to the shareholders.
13. Land lease rights
Land lease rights represent rights for operating leases of agricultural land plots. The following table represents the movements in land lease rights for the years ended 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
Cost: |
|
|
|
|
As of 1 January |
53,868 |
|
34,301 |
|
Additions |
7,755 |
|
6,644 |
|
Disposal of subsidiaries (Note 2) |
- |
|
(2,212) |
|
Acquired through business combinations (Note 2) |
- |
|
30,662 |
|
Translation difference |
(6,750) |
|
(15,527 ) |
|
As of 31 December |
54,873 |
|
53,868 |
|
|
|
|
|
|
Accumulated amortization: |
|
|
|
|
As of 1 January |
7,616 |
|
7,065 |
|
Amortization charge for the year |
4,582 |
|
3,519 |
|
Disposal of subsidiaries (Note 2) |
- |
|
(424) |
|
Translation difference |
(1,170) |
|
(2,544 ) |
|
As of 31 December |
11,028 |
|
7,616 |
|
|
|
|
|
|
Net book value: |
|
|
|
|
As of 1 January |
46,252 |
|
27,236 |
|
As of 31 December |
43,845 |
|
46,252 |
|
14. Biological assets
The balances of non-current biological assets were as follows as of 31 December 2016 and 2015:
|
Thousand units |
Carrying amount |
|
Thousand units |
Carrying amount |
|
|
2016 |
|
2015 |
|
||
|
|
|
|
|
|
|
Milk cows, units |
18.1 |
12,532 |
|
18.4 |
11,343 |
|
Boars and sows, units |
1.7 |
232 |
|
4.2 |
2,494 |
|
Other non-current bearer biological assets |
|
323 |
|
|
50 |
|
Total bearer non-current biological assets |
|
13,087 |
|
|
13,887 |
|
|
|
|
|
|
|
|
Non-current cattle and pigs, units |
3.5 |
1,471 |
|
3.6 |
1,317 |
|
Total consumable non-current biological assets |
|
1,471 |
|
|
1,317 |
|
Total non-current biological assets |
|
14,558 |
|
|
15,204 |
|
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
14. Biological assets (continued)
The balances of current biological assets were as follows as of 31 December 2016 and 2015:
|
Thousand units |
Carrying amount |
|
Thousand units |
Carrying amount |
|
|
2016 |
|
2015 |
|
||
|
|
|
|
|
|
|
Breeders held for hatchery eggs production, units |
3,741 |
46,483 |
|
3,381 |
52,523 |
|
Total bearer current biological assets |
|
46,483 |
|
|
52,523 |
|
|
|
|
|
|
|
|
Broiler chickens, units |
38,685 |
40,558 |
|
42,426 |
49,234 |
|
Hatchery eggs, units |
30,701 |
6,202 |
|
31,102 |
8,157 |
|
Crops in fields, hectare |
93 |
20,977 |
|
109 |
27,224 |
|
Cattle and pigs, units |
17 |
1,845 |
|
40 |
2,412 |
|
Other current consumable biological assets |
|
149 |
|
|
250 |
|
Total consumable current biological assets |
|
69,731 |
|
|
87,277 |
|
Total current biological assets |
|
116,214 |
|
|
139,800 |
|
Other current consumable biological assets include geese and other livestock.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
14. Biological assets (continued)
The following table represents movements in major biological assets for the years ended 31 December 2016 and 2015 :
|
|
Milk cows, boars, sows |
|
Breeders held for hatchery eggs production |
|
Broiler chickens |
|
Crops in fields |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
As of 31 December 2014 |
|
15,133 |
|
38,701 |
|
54,720 |
|
28,570 |
|
||||
Costs incurred |
|
4,906 |
|
87,002 |
|
387,420 |
|
180,460 |
|
||||
Changes on business combination (Note 2) |
|
- |
|
- |
|
- |
|
213 |
|
||||
Gains arising from change in fair value of biological assets less costs to sell |
|
10,304 |
|
52,604 |
|
217,095 |
|
57,053 |
|
||||
Transfer to consumable biological assets |
|
- |
|
(104,134) |
|
104,134 |
|
- |
|
||||
Transfer to bearing non-current biological assets |
|
5,192 |
|
- |
|
- |
|
- |
|
||||
Decrease due to sale |
|
(319) |
|
- |
|
- |
|
- |
|
||||
Decrease due to harvest |
|
(15,800) |
|
(5,681) |
|
(694,045) |
|
(228,744) |
|
||||
Translation difference |
|
(5,579) |
|
(15,969) |
|
(20,090) |
|
(10,328) |
|
||||
As of 31 December 2015 |
|
13,837 |
|
52,523 |
|
49,234 |
|
27,224 |
|
||||
Costs incurred |
|
5,611 |
|
64,707 |
|
459,893 |
|
219,285 |
|
||||
Gains arising from change in fair value of biological assets less costs to sell |
|
7,454 |
|
29,415 |
|
162,626 |
|
107,259 |
|
||||
Transfer to consumable biological assets |
|
- |
|
(85,857) |
|
85,857 |
|
- |
|
||||
Transfer to bearing non-current biological assets |
|
5,506 |
|
- |
|
- |
|
- |
|
||||
Decrease due to sale |
|
(498) |
|
- |
|
- |
|
- |
|
||||
Decrease due to harvest |
|
(17,485) |
|
(8,134) |
|
(712,668) |
|
(329,794) |
|
||||
Reclassified as held for sale |
|
- |
|
- |
|
1,204 |
|
- |
|
||||
Translation difference |
|
(1,661) |
|
(6,171) |
|
(5,588) |
|
(2,997) |
|
|
|||
As of 31 December 2016 |
|
12,764 |
|
46,483 |
|
40,558 |
|
20,977 |
|
|
|||
Information on movements in hatchery eggs and cattle and pigs groups have been considered immaterial for disclosure.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
14. Biological assets (continued)
Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy, except for cattle and pigs that can be measured based on market prices of livestock of a similar age, breed and genetic merit, and which are therefore measured at fair value within Level 2 of the fair value hierarchy. There were no transfers between any levels during the year.
The following unobservable inputs were used to measure biological assets:
Description |
Fair value as at 31 December 2016 |
|
Valuation technique(s) |
|
Unobservable inputs |
|
Range of unobservable inputs (average) |
|
Relationship of unobservable inputs to fair value |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Crops in fields |
20,977 |
|
Discounted cash flows |
|
Crops yield - tonnes per hectare |
|
3.3 - 6.2 (5.2) |
|
The higher the crops yield, the higher the fair value |
|
|||||
|
|
|
|
|
Crops price - per tonne |
|
USD 101 - 341 (185) |
|
The higher the market price, the higher the fair value |
||||||
|
|
|
|
|
Discount rate |
|
21.4% |
|
The higher the discount rate, the lower the fair value |
||||||
Breeders held for hatchery eggs production |
46,483 |
|
Discounted cash flows |
|
Number of hatchery eggs produced by one breeder |
|
165 |
|
The higher the number, the higher the fair value |
||||||
|
|
|
|
|
Hatchery egg price - per egg |
|
USD 0.20 |
|
The higher the market price, the higher the fair value |
||||||
|
|
|
|
|
Discount rate |
|
14.9% |
|
The higher the discount rate, the lower the fair value |
||||||
Broiler chickens |
40,558 |
|
Cash flows |
|
Average weight of one broiler - kg |
|
2.4 |
|
The higher the weight, the higher the fair value |
||||||
|
|
|
|
|
Poultry meat price - per kg |
|
UAH 6.7 - 35.6 (23.59) |
|
The higher the market price, the higher the fair value |
||||||
Milk cows |
12,532 |
|
Discounted cash flows |
|
Daily milk yield - litre per cow |
|
13.12 - 20.58 (18.13) |
|
The higher the milk yield, the higher the fair value |
||||||
|
|
|
|
|
Weight of the cow - kg per cow |
|
514 - 545 (531) |
|
The higher the weight, the higher the fair value |
||||||
|
|
|
|
|
Milk price - per litre |
|
UAH 5.36 - 6.17 (5.83) |
|
The higher the market price, the higher the fair value |
||||||
|
|
|
|
|
Meat price - per kg |
|
UAH 13.55 - 18.88 (17.10) |
|
The higher the market price, the higher the fair value |
|
|||||
|
|
|
|
|
Discount rate |
|
14.9% |
|
The higher the discount rate, the lower the fair value |
|
|||||
If the above unobservable inputs to the valuation model were 10% higher/lower while all the other variables were held constant, the carrying amount of the current and non-current biological assets would increase /decrease by USD 46,227 thousand and USD 42,296 thousand, respectively.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
15. Inventories
The balances of inventories were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Components for mixed fodder production |
108,571 |
|
185,455 |
|
Work in progress |
26,073 |
|
31,343 |
|
Other raw materials |
24,186 |
|
24,373 |
|
Spare parts |
10,201 |
|
10,395 |
|
Sunflower oil |
9,958 |
|
16,186 |
|
Packaging materials |
3,478 |
|
4,705 |
|
Mixed fodder |
3,191 |
|
4,756 |
|
Other inventories |
1,674 |
|
1,815 |
|
|
187,332 |
|
279,028 |
|
As of 31 December 2016 and 2015 work in progress in the amount of USD 26,073 thousand and USD 31,343 thousand comprised expenses incurred in cultivating fields to be planted in the years 2017 and 2016 respectively.
As of 31 December 2016, components for mixed fodder production with carrying amount of USD 106,101 thousand (2015: USD 112,500 thousand) were pledged as collateral to secure bank borrowings (Note 23).
16. Agricultural produce
The balances of agricultural produce were as follows as of 31 December 2016 and 2015:
|
Thousand tonnes |
Carrying amount |
|
Thousand tonnes |
Carrying amount |
|
|
2016 |
|
2015 |
|
||
|
|
|
|
|
|
|
Chicken meat |
33.8 |
36,441 |
|
24.7 |
26,806 |
|
Other meat |
N/A 1) |
2,354 |
|
N/A 1) |
2,139 |
|
Grain |
847 |
116,316 |
|
757 |
79,997 |
|
Fruits, vegetables and other crops |
N/A 1) |
12,278 |
|
N/A 1) |
11,632 |
|
|
|
167,389 |
|
|
120,574 |
|
1) Due to the diverse composition of noted produce unit of measurement is not applicable.
The fair value of Agricultural produce was estimated based on market price as of date of harvest and is within Level 2 of the fair value hierarchy.
As of 31 December 2016, grains with carrying amount of USD 4,000 thousand were pledged as collateral to secure advances received from customers (Note 27).
17. Taxes recoverable and prepaid
Taxes recoverable and prepaid were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
VAT recoverable |
26,034 |
|
67,538 |
|
Miscellaneous taxes prepaid |
5,201 |
|
4,493 |
|
|
31,235 |
|
72,031 |
|
18. Trade accounts receivable, net
The balances of trade accounts receivable were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Agricultural operations |
50,737 |
|
36,620 |
|
Due from related parties (Note 28) |
113 |
|
173 |
|
Sunflower oil sales |
284 |
|
2,892 |
|
Less: allowance for irrecoverable amounts |
(266) |
|
(885) |
|
|
50,868 |
|
38,800 |
|
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
18. Trade accounts receivable, net (continued)
The allowance for irrecoverable amounts is estimated at the level of 25% of trade accounts receivable on sales of poultry meat which are over 30 days past due (for trade accounts receivable on other sales - over 60 days). Trade accounts receivable on sales of poultry meat which are aged over 270 days and trade accounts receivable on other sales which are aged over 360 days are provided in full.
The Group also performs specific analysis of trade accounts receivable due from individual customers to determine whether any further adjustments are required to the allowance for irrecoverable amounts assessed on the percentages disclosed above. Based on the results of such a review as of 31 December 2016 the Group determined that trade accounts receivable on sales of poultry meat of USD 1,909 thousand (2015: USD 5 thousand) were overdue but do not require allowance for irrecoverable amounts.
For the years ended 31 December 2016 and 2015 the Group has not recorded any impairment of receivables relating to amounts owed by related parties as management is certain about their recoverability.
The ageing of trade accounts receivable that were impaired as of 31 December 2016 and 2015 was as follows:
|
Trade accounts receivable |
|
|
Allowance for irrecoverable amounts |
|
||||
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable on sales of poultry meat: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 30 but less than 270 days |
- |
|
7 |
|
|
- |
|
(2) |
|
Over 270 days |
- |
|
558 |
|
|
- |
|
(558) |
|
|
- |
|
565 |
|
|
- |
|
(560) |
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable on other sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 60 but less than 360 days |
334 |
|
183 |
|
|
(146) |
|
(46) |
|
Over 360 days |
120 |
|
279 |
|
|
(120) |
|
(279) |
|
|
454 |
|
462 |
|
|
(266) |
|
(325) |
|
|
454 |
|
1,027 |
|
|
(266) |
|
(885) |
|
19. Cash and cash equivalents
The balances of cash and cash equivalents were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Cash on hand and with banks |
150,951 |
|
57,633 |
|
EUR short-term deposits with banks |
3,588 |
|
43 |
|
UAH short-term deposits with banks |
31 |
|
1,667 |
|
|
154,570 |
|
59,343 |
|
During the year ended 31 December 2016, UAH denominated short-term deposits earned an effective interest rate of 7.3% (2015: 12.5%). All cash and cash equivalents are held within reputable foreign and Ukrainian banks.
Cash and cash equivalents included in disposal group classified as held for sale as of 31 December 2016 comprised USD 2,098 thousand.
As of 31 December 2016, EUR short-term deposits with banks in the amount of USD 3,588 thousand (2015: USD 43 thousand) were restricted as collateral to secure bank borrowings.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
20. Assets classified as held for sale
As described in Note 2, by year-end the management of the Group had committed to a plan to dispose of its Crimean companies and anticipated that the disposal was completed on 17 February 2017 (Note 35).
Immediately before the classification of Crimean companies as a disposal group held for sale, the recoverable amount was estimated for certain items of property, plant and equipment and an impairment loss was recognised in the amount of USD 35,151 thousand. The impairment loss in the amount of USD 28,286 thousands is recognised in other comprehensive income to the extent of any credit balance existing in the revaluation reserve. The remaining part of the impairment loss in the amount of USD 6,865 thousands is recognised in profit or loss for the period.
The ultimate disposal value was higher than the aggregate carrying amount of the assets comprising the discontinued operations (Note 35). As such, as at 31 December 2016, no further impairment loss on reclassification of disposal group as held for sale was recognized.
The major classes of assets and liabilities of the Crimean companies at the end of the reporting period are as follows:
|
As at 31 December 2016 |
Property, plant and equipment, net |
49,494 |
Other non-current assets |
1,367 |
Biological assets |
9,364 |
Agricultural produce |
8,708 |
Inventories |
11,113 |
Trade accounts receivable, net |
1,806 |
Taxes recoverable and prepaid, net |
2,745 |
Other current assets |
1, 701 |
Cash and cash equivalents |
2,098 |
Total assets classified as held for sale |
88,396 |
|
|
Trade accounts payable |
(3,472) |
Other current liabilities |
( 1 , 692 ) |
Total liabilities associated with assets classified as held for sale |
( 5,164 ) |
Intragroup accounts receivable and payable eliminated on consolidation, net |
(5,691) |
Net assets of disposal group |
77,541 |
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
21. Shareholders' equity
Share capital
As of 31 December 2016 and 2015 the authorized, issued and fully paid share capital of MHP S.A. comprised the following number of shares:
|
2016 |
|
2015 |
|
|
|
|
|
|
Number of shares authorized for issue |
159,250,000 |
|
159,250,000 |
|
Number of shares issued and fully paid |
110,770,000 |
|
110,770,000 |
|
Number of shares outstanding |
106,781,794 |
|
106,250,399 |
|
The authorized share capital as of 31 December 2016 and 2015 was EUR 318,500 thousand represented by 159,250,000 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.
22. Non-controlling interests
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
Name of subsidiary |
Proportion of ownership interests and voting rights held by non-controlling interests |
|
Profit/(loss) allocated to non-controlling interests |
|
Accumulated non-controlling interests |
||||||
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv |
11.5% |
|
11.5% |
|
(921) |
|
(1,615) |
|
3,638 |
|
3,977 |
Starynska Ptahofabryka (Note 2) |
0.0% |
|
5.0% |
|
- |
|
3,449 |
|
- |
|
16,500 |
Other subsidiaries with immaterial non-controlling interests |
n/a |
|
n/a |
|
6,717 |
|
5,839 |
|
13,060 |
|
7,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
n/a |
|
5,796 |
|
7,673 |
|
16,698 |
|
28,127 |
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
22. Non-controlling interests (continued)
Summarised financial information in respect of each of the Group's subsidiaries that has material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.
|
|
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv |
|
|
Starynska Ptahofabryka |
||
|
|
2016 |
|
2015 |
|
|
2015 |
|
|
|
|
|
|
|
|
Current assets |
|
312,765 |
|
368,048 |
|
|
335,617 |
|
|
|
|
|
|
|
|
Non-current assets |
|
104,578 |
|
113,468 |
|
|
30,503 |
|
|
|
|
|
|
|
|
Current liabilities |
|
299,919 |
|
361,248 |
|
|
30,850 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
85,648 |
|
85,488 |
|
|
- |
|
|
|
|
|
|
|
|
Equity attributable to owners of the Group |
|
28,138 |
|
30,803 |
|
|
318,770 |
|
|
|
|
|
|
|
|
Revenue |
|
509,114 |
|
428,458 |
|
|
97,474 |
|
|
|
|
|
|
|
|
Expenses |
|
(517,121) |
|
(442,501) |
|
|
(28,495) |
|
|
|
|
|
|
|
|
(Loss)/profit for the year |
|
(8,007) |
|
(14,043) |
|
|
68,979 |
|
|
|
|
|
|
|
|
(Loss)/profit attributable to owners of the Group |
|
(7,086) |
|
(12,428) |
|
|
65,530 |
|
|
|
|
|
|
|
|
(Loss)/profit attributable to the non-controlling interests |
|
(921) |
|
(1,615) |
|
|
3,449 |
|
|
|
|
|
|
|
|
(Loss)/profit for the year |
|
(8,007) |
|
(14,043) |
|
|
68,979 |
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) attributable to owners of the Company |
|
4,480 |
|
5,765 |
|
|
(123,638) |
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) attributable to the non-controlling interests |
|
582 |
|
749 |
|
|
(6,507 ) |
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) for the year |
|
5,062 |
|
6,514 |
|
|
(130,145 ) |
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) attributable to owners of the Company |
|
(2,606 ) |
|
(6,663) |
|
|
(58,108) |
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) attributable to the non-controlling interests |
|
(339 ) |
|
(866) |
|
|
(3,058) |
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) for the year |
|
(2,945 ) |
|
(7,529) |
|
|
(61,166) |
|
|
|
|
|
|
|
|
Net cash inflow from operating activities |
|
4,723 |
|
863 |
|
|
1,209 |
|
|
|
|
|
|
|
|
Net cash outflow from investing activities |
|
(2,420 ) |
|
(1,095) |
|
|
(1,025) |
|
|
|
|
|
|
|
|
Net cash outflow from financing activities |
|
- |
|
(11,337) |
|
|
- |
|
|
|
|
|
|
|
|
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
23. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2016 and 2015:
|
|
|
|
2016 |
|
2015 |
|
||
Bank |
|
Currency |
|
WAIR 1) |
USD' 000 |
|
WAIR 1) |
USD' 000 |
|
|
|
|
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
|
|
Foreign banks |
|
USD |
|
8.09% |
241,823 |
|
7.87% |
234,463 |
|
Foreign banks |
|
EUR |
|
1.33% |
17,744 |
|
1.49% |
43,668 |
|
|
|
|
|
|
259,567 |
|
|
278,131 |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Ukrainian banks |
|
USD |
|
7.20% |
68,752 |
|
7.03% |
50,985 |
|
Foreign banks |
|
USD |
|
6.93% |
65,500 |
|
6.43% |
90,000 |
|
Current portion of |
|
|
102,555 |
|
|
108,072 |
|
||
|
|
|
|
|
236,807 |
|
|
249,057 |
|
Total bank borrowings |
|
|
|
496,374 |
|
|
527,188 |
|
1) WAIR represents the weighted average interest rate on outstanding borrowings.
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 the borrowings drawn with the Ukrainian banks is payable on a monthly or quarterly basis. Interest on borrowings drawn with foreign banks is payable semi-annually.
Term loans and credit line facilities were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Credit lines |
134,252 |
|
140,985 |
|
Term loans |
362,122 |
|
386,203 |
|
|
496,374 |
|
527,188 |
|
As of 31 December 2016 and 2015 all of the Group's bank term loans and credit lines bear floating interest rates.
Bank borrowings and credit lines outstanding as of 31 December 2016 and 2015 were repayable as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Within one year |
236,944 |
|
249,057 |
|
In the second year |
134,837 |
|
97,952 |
|
In the third to fifth year inclusive |
113,758 |
|
164,979 |
|
After five years |
10,835 |
|
15,200 |
|
|
496,374 |
|
527,188 |
|
As of 31 December 2016, the Group had available undrawn facilities of USD 56,479 thousand (2015: USD 84,774 thousand). These undrawn facilities expire during the period from August 2017 until January 2020.
The Group, as well as, particular subsidiaries of the Group have to comply with certain covenants imposed by the banks providing the loans. The main covenants which are to be complied with by the Group are as follows: liability to equity ratio, net debt to EBITDA ratio, EBITDA to interest expenses ratio and current ratio. The Group subsidiaries are also required to obtain approval from lenders regarding the property to be used as collateral.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
23. Bank borrowings (continued)
During the years ended 31 December 2016 and 2015 the Group has complied with all covenants imposed by banks providing the loans.
As of 31 December 2016, the Group had borrowings of USD 89,046 thousand (2015: USD 94,168 thousand) that were secured. These borrowings were secured by inventories with a carrying amount of USD 106,101 thousand (2015: USD 112,500 thousand) (Note 15) and deposits with banks in the amount of USD 4,165 thousand (2015: USD 4,168 thousand) that were restricted as collateral to secure bank borrowings.
As of 31 December 2016 and 2015 accrued interest on bank borrowings was USD 7,606 thousand and USD 8,203 thousand, respectively.
24. Bonds issued
Bonds issued and outstanding as of 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
8.25% Senior Notes due in 2020 |
750,000 |
|
750,000 |
|
Unamortized debt issuance cost |
(24,639) |
|
(21,470) |
|
|
725,361 |
|
728,530 |
|
|
|
|
|
|
Less: |
|
|
|
|
Current portion of bonds issued |
- |
|
- |
|
Total long-term portion of bonds issued |
725,361 |
|
728,530 |
|
|
|
|
|
|
As of 31 December 2016 and 2015 accrued interest on bonds issued was USD 15,125 thousand and USD 15,125 thousand, respectively.
8.25% Senior Notes
On 2 April 2013, MHP S.A. issued USD 750,000 thousand of 8.25% Senior Notes due in 2020 at an issue price of 100% of the principal amount. USD 350,000 thousand out of issued USD 750,000 thousand 8.25% Senior Notes were used to facilitate the early redemption and exchange of its existing 10.25% Senior Notes due in 2015.
The early redemption of 10.25% Senior Notes due in 2015 from the issue of 8.25% Senior Notes due in 2020, which were placed with the same holders, resulted in a change in the net present value of the future cash flows of less than 10%, and thus was accounted for as modification and all the related expenses, including consent fees, were capitalized and will be amortized over the maturity period of the 8.25% Senior Notes due in 2020 in the amount of USD 28,293 thousand.
Other related expenses , including consent fees, in the amount of USD 16,654 thousand were expensed as incurred .
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP, Druzhba Narodiv, Druzhba Narodiv Nova, Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv, Oril-Leader, Katerynopilsky Elevator, Ptahofabryka Peremoga Nova, Zernoproduct, Myronivska Ptahofabryka, Starynska Ptahofabryka, Agrofort, NPF Urozhay, Vinnytska Ptahofabryka, Raftan Holding Limited, Scylla Capital Limited.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
24. Bonds issued (continued)
Interest on the Senior Notes was payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of certain financial ratios as defined by indebtedness agreement, 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 certain covenants imposed, all outstanding Senior Notes will become due and payable without further action or notice. 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.
Consent solicitation
On 7 March 2016, the Group has received consent from the Holders of the outstanding USD 750,000 thousand 8.25% Senior Notes for certain proposed amendments to the Indenture and the Notes. Amendments were obtained before the Consent Expiration Date (7 March 2016). The Amendments were implemented by way of execution of the Supplemental Indenture on March 8, 2016, and became effective from the Consent Settlement Date (9 March 2016).
In relation to the Notes, the Company has, on the Consent Settlement Date, paid to those Holders from whom valid Consents were delivered and not revoked on or prior to the Consent Expiration Date and which Consents are accepted by the Company the Consent Payment of USD 12.50 for each USD 1 thousand in principal amount of the Notes that were subject of the relevant Electronic Instructions and comprised USD 9,148 thousand.
During the years ended 31 December 2016 and 2015 the Group has complied with all covenants defined by indebtedness agreement.
The weighted average effective interest rate on the Senior Notes was 9.69% per annum for the year ended 31 December 2016, 9.29% per annum for the year ended 31 December 2015. The Notes are listed on London Stock Exchange.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
25. Finance lease obligations
Long-term finance lease obligations represent amounts due under agreements for the leasing of trucks, agricultural machinery and equipment with Ukrainian and foreign companies. As of 31 December 2016, the weighted average interest rates on finance lease obligations were 6.46% and 8.04% for finance lease obligations denominated in EUR and USD, respectively ( 2015 : 6.46% and 8.04%). `
The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as of 31 December 2016 and 2015:
|
Minimum lease payments |
|
|
Present value of minimum lease payments |
|
||||||||||||||
|
2016 |
|
2015 |
|
|
2016 |
|
2015 |
|
||||||||||
Payable within one year |
8,854 |
|
15,207 |
|
|
8,044 |
|
14,027 |
|
||||||||||
Payable in the second year |
3,060 |
|
7,507 |
|
|
2,648 |
|
7,277 |
|
||||||||||
Payable in the third to fifth year inclusive |
3,411 |
|
2,341 |
|
|
2,933 |
|
2,318 |
|
||||||||||
|
15,325 |
|
25,055 |
|
|
13,625 |
|
23,622 |
|
||||||||||
Less: |
|
|
|
|
|
|
|
|
|
||||||||||
Future finance charges |
(1,700) |
|
(1,433) |
|
|
- |
|
- |
|
||||||||||
Present value of finance lease obligations |
13,625 |
|
23,622 |
|
|
13,625 |
|
23,622 |
|
||||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|||||||||
Current portion |
|
|
|
|
|
(8,044) |
|
(14,027) |
|
||||||||||
Finance lease obligations, long-term portion |
|
|
|
|
|
5,581 |
|
9,595 |
|
||||||||||
26. Trade accounts payable
Trade accounts payable were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Trade accounts payable to third parties |
46,502 |
|
47,659 |
|
Payables due to related parties (Note 28) |
6 |
|
10 |
|
|
46,508 |
|
47,669 |
|
27. Other current liabilities
Other current liabilities were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Accrued payroll and related taxes |
24,638 |
|
22,163 |
|
Advances from and other payables due to third parties |
26,382 |
|
3,852 |
|
Amounts payable for property, plant and equipment |
5,960 |
|
7,605 |
|
Other payables |
4,786 |
|
5,700 |
|
|
61,766 |
|
39,320 |
|
As of 31 December 2016, the Group had advances received from customers of USD 10,000 thousand that were secured. This advance received was secured by agricultural produce with a carrying amount of USD 4,000 thousand (Note 16).
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
28. Related party balances and transactions
For the purposes of these financial statements, parties are considered to be related if one party controls, is controlled by, or is under common control with the other party, or exercises significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.
Transactions with related parties under common control
The Group enters into transactions with related parties that are the companies under common control of the Principal Shareholder of the Group (Note 1) in the ordinary course of business 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. Management believes that amounts receivable due from related parties do not require an allowance for irrecoverable amounts and that the amounts payable to related parties will be settled at cost. 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.
The transactions with the related parties during the years ended 31 December 2016 and 2015 were as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Sales of goods to related parties |
- |
|
290 |
|
Sales of services to related parties |
- |
|
2 |
|
Purchases from related parties |
69 |
|
115 |
|
The balances owed to and due from related parties were as follows as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Trade accounts receivable (Note 18) |
113 |
|
173 |
|
Payables due to related parties (Note 26) |
6 |
|
10 |
|
Advances and finance aid receivable |
3,310 |
|
1,228 |
|
Compensation of key management personnel
Total compensation of the Group's key management personnel included primarily in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income amounted to USD 8,421 thousand and USD 7,778 thousand for the years ended 31 December 2016 and 2015 , respectively. Compensation of key management personnel consists of contractual salary and performance bonuses.
Total compensation of the Group's independent non-executive directors, which consists of contractual salary, amounted to USD 451 thousand and USD 496 thousand in 2016 and 2015, respectively.
Key management personnel totalled 39 and 40 individuals as of 31 December 2016 and 2015, respectively, including 3 and 4 independent non-executive directors as of 31 December 2016 and 2015, respectively.
Other transactions with related parties
In December 2016 the Group increased its effective ownership interest in Starynska breeding farm to 100% through the acquisition of a non-controlling interest previously held by one of its key management personnel in exchange for 531,395 treasury shares held by the Group. The transaction was recognised within equity (Note 2).
In December 2015 the Group increased its effective ownership interest in Zernoproduct to 100% through the acquisition of a non-controlling interest previously held by one of its key management personnel in exchange for 830,511 treasury shares held by the Group. The transaction was recognised within equity (Note 2).
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
29. Contingencies and contractual commitments
Operating Environment
In the recent years, Ukraine has been in a political and economic turmoil. Crimea, an autonomous republic of Ukraine, was effectively annexed by the Russian Federation. In 2016, an armed conflict with separatists continued in certain parts of Luhansk and Donetsk regions. These events resulted in higher inflation, devaluation of the national currency against major foreign currencies, illiquidity and volatility of financial markets. In January 2016, the agreement on the free trade area between Ukraine and the EU came into force. As a result, the Russian Federation implemented a trade embargo or import duties on key Ukrainian export products. In response, Ukraine implemented similar measures against Russian products.
In 2016, average inflation amounted to 13.9% comparing to 48.7% in 2015. Despite the fact that the cumulative inflation in Ukraine for the three latest years slightly exceeded 100%, management believes that the Ukrainian economy is not hyperinflationary due to slowing down of inflation during 2016 and lack of qualitative characteristics of the hyperinflationary economic environment.
The economic situation began to stabilize in 2016, which resulted in GDP growth around 1% and stabilization of Ukrainian Hryvnia. This allowed the National Bank of Ukraine to ease some foreign exchange restrictions imposed during 2014-2015, including decrease of the required share of foreign currency proceeds sale to 65% and permission of dividends remittance. However, certain other restrictions were prolonged. Significant external financing is required to support the economy. During 2015 and 2016, Ukraine received the first tranches of extended fund facilities (EFF) agreed with the IMF. Further stabilization of the economic and political situation depends, to a large extent, upon success of the Ukrainian government's efforts, yet further economic and political developments are currently difficult to predict.
Taxation and legal issues
Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. In respect of this, the local and national tax environment in Ukraine 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, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.
Facing current economic and political issues, the Government has implemented certain reforms in the tax system of Ukraine by adopting the Law of Ukraine 'On Amending the Tax Code of Ukraine and Certain Laws of Ukraine', which is effective from 1 January 2015, except for certain provisions which will take effect at a later date.
Management believes that the Group has been in compliance with all requirements of effective tax legislation and currently is assessing the possible impact of the introduced amendments.
Starting from 1 September 2013 the Tax Code of Ukraine introduced new, based on the OECD transfer pricing guidelines, rules for determining and applying fair market prices, which significantly changed transfer pricing ("TP") regulations in Ukraine.
The Group exports Vegetable oil, Chicken meat and related products, performs intercompany transactions, which may potentially be in the scope of the new Ukrainian TP regulations. The Group has submitted the controlled transaction report for the year ended 31 December 2015 within the required deadline, and has prepared all necessary documentation on controlled transactions for the year ended 31 December 2016 as required by legislation and plans to submit report.
As of 31 December 2016, the Group's management assessed its possible exposure to tax risks for a total amount of USD 4,210 thousand related to corporate income tax (31 December 2015: USD 4,639 thousand). No provision was charged of such possible tax exposure.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
29. Contingencies and contractual commitments (continued)
As of 31 December 2016, companies of the Group were engaged in ongoing litigation with tax authorities for the amount of USD 6,069 (2015: USD 8,840 thousand), including USD 2,689 thousand (2015: USD 6,272 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 2,592 thousand as of 31 December 2016 (2015: USD 5,784 thousand) relates to cases where court hearings have taken place and where the court in either the first or second instance has already ruled in favour of the Group. Manage-ment believes that based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and no respective provision is required in the Group's financial statements as of the reporting date.
Contractual commitments on purchase of property, plant and equipment
During the years ended 31 December 2016 and 2015, the companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property, plant and equipment for development of agricultural operations. As of 31 December 2016, purchase commitments amounted to USD 2,656 thousand (2015: USD 13,312 thousand).
Commitments on land operating leases
The Group has the following contractual obligations in respect of land operating leases as of 31 December 2016 and 2015:
|
2016 |
|
2015 |
|
|
|
|
|
|
Within one year |
18,207 |
|
14,443 |
|
In the second to the fifth year inclusive |
57,212 |
|
44,037 |
|
After fifth year |
43,257 |
|
37,848 |
|
|
118,676 |
|
96,328 |
|
Ukrainian legislation provides for a ban on sales of agricultural land plots till 1 January 2018. There are significant uncertainties as to the subsequent extension of the ban. The current legislation has resulted in the Group holding land lease rights, rather than the land itself.
30. Dividends
On 16 March 2016, the Board of Directors of MHP S.A. approved a payment of interim dividends in an amount of USD 0.7529 per share, equivalent to approximately USD 80,000 thousand, which were paid to shareholders during the year ended 31 December 2016.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
31. 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 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 approximate the carrying value for cash and cash equivalents, short-term bank deposits, trade accounts receivables, 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 |
||
|
2016 |
2015 |
|
2016 |
2015 |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings (Note 23) |
503,980 |
535,391 |
|
490,923 |
522,469 |
Senior Notes due in 2020 (Note 24) |
740,486 |
743,655 |
|
729,000 |
656,250 |
Finance lease obligations (Note 25) |
13,625 |
23,622 |
|
14,079 |
23,654 |
The carrying amount of Senior Notes issued includes interest accrued at each of the respective dates.
The fair value of bank borrowings and finance lease obligations as of 31 December 2016 was estimated by discounting the expected future cash outflows by a market rate of interest for bank borrowings: 8.3% (2015: 8.0%) and for finance lease obligations of 8.0% (2015: 7.0%), 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.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies
During the years ended 31 December 2016 and 2015 there were no material changes to the objectives, policies and process for credit risk, capital risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk and commodity price and procurement risk managing.
Capital risk management
The Group manages its capital to ensure that entities of the Group will be able to continue as a going concern while maximising the return to the equity holders through maintaining a balance between the higher returns that might be possible with higher levels of borrowings and the security afforded by a sound capital position. The management of the Group reviews the capital structure on a regular basis. Based on the results of this review, the Group takes steps to balance its overall capital structure through new share issues and through the issue of new debt or the redemption of existing debt.
The Group's target is to achieve a leverage ratio (net debt to adjusted operating profit) of not higher than 3.0. The Group defines its leverage ratio as the proportion of net debt to adjusted operating profit.
As of 31 December 2016 and 2015 the leverage ratio was as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Bank borrowings (Note 23) |
503,980 |
|
535,391 |
|
Bonds issued (Note 24) |
740,486 |
|
743,655 |
|
Finance lease obligations (Note 25) |
13,625 |
|
23,622 |
|
Total Debt |
1,258,091 |
|
1,302,668 |
|
|
|
|
|
|
Less: |
|
|
|
|
Cash and cash equivalents and Short-term bank deposits (Note 19) |
(154,570) |
|
(59,343) |
|
Net debt |
1,103,521 |
|
1,243,325 |
|
|
|
|
|
|
Operating profit before loss on impairment of property, plant and equipment |
316,264 |
|
346,751 |
|
|
|
|
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense (Notes 7, 8) |
98,567 |
|
88,901 |
|
Adjusted operating profit |
414,831 |
|
435,652 |
|
|
|
|
|
|
Net debt to adjusted operating profit |
2.66 |
|
2.85 |
|
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies (continued)
Capital risk management (continued)
Debt is defined as bank borrowings, bonds issued and finance lease obligations. Net debt is defined as debt less cash and cash equivalents and short-term bank deposits. Adjusted operating profit is defined as operating profit adjusted for the depreciation and amortization expense and losses and gains believed by the management to be non-recurring in nature, as this measure produces results substantially comparable to those reviewed for the purposes of financial covenants under the Group's borrowings.
Major categories of financial instruments
|
|
|
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
Financial assets: |
|
|
|
|
Long-term bank deposits |
577 |
|
4,125 |
|
Loans to employees and related parties |
1,222 |
|
1,086 |
|
Other receivables |
12,555 |
|
5,796 |
|
Trade accounts receivable, net (Note 18) |
50,868 |
|
38,800 |
|
Cash and cash equivalents (Note 19) |
154,570 |
|
59,343 |
|
|
219,792 |
|
109,150 |
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
Bank borrowings (Note 23) |
496,374 |
|
527,188 |
|
Bonds issued (Note 24) |
725,361 |
|
728,530 |
|
Finance lease obligations (Note 25) |
13,625 |
|
23,622 |
|
Amounts payable for property, plant and equipment (Note 27) |
5,960 |
|
7,605 |
|
Accrued interest (Note 23,24) |
22,731 |
|
23,328 |
|
Trade accounts payable (Note 26) |
46,508 |
|
47,669 |
|
Accrued payroll and related taxes (Note 27) |
24,638 |
|
22,163 |
|
Other payables (Note 27) |
4,786 |
|
5,700 |
|
|
1,339,983 |
|
1,385,805 |
|
The main risks inherent to the Group's operations are those related to credit risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk, and commodity price and procurement risk.
Credit risk
The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one customer or group of customers. The approved credit period for major groups of customers, which include franchisees, distributors and supermarkets, is set at 5-21 days.
Limits on the level of credit risk by customer are approved and monitored on a regular basis by the management of the Group. The Group's management assesses amounts receivable from the customers for recoverability starting from 30 and 60 days for receivables on sales of poultry meat and receivables on other sales, respectively. No assessment is performed immediately from the date credit period is expired. As of 31 December 2016 about 28% (2015: 32%) of trade accounts receivable comprise amounts due from 12 large supermarket chains, which have the longest contractual receivable settlement period among customers.
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.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies (continued)
Liquidity risk (continued)
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 31 December 2016 and 2015. 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 amount |
Contractual Amounts |
Less than 1 year |
From 2nd to 5th year |
After 5th year |
Year ended 31 December 2016 |
|
|
|
|
|
Bank borrowings |
503,980 |
547,622 |
261,040 |
274,611 |
11,971 |
Bonds issued |
740,486 |
966,563 |
61,875 |
904,688 |
- |
Finance lease obligations |
13,625 |
15,325 |
8,854 |
6,471 |
- |
Total |
1,258,091 |
1,529,510 |
331,769 |
1,185,770 |
11,971 |
|
|
|
|
|
|
Year ended 31 December 2015 |
|
|
|
|
|
Bank borrowings |
535,391 |
589,901 |
275,066 |
297,949 |
16,886 |
Bonds issued |
743,655 |
1,028,438 |
61,875 |
966,563 |
- |
Finance lease obligations |
23,622 |
25,055 |
15,207 |
9,848 |
- |
Total |
1,302,668 |
1,643,394 |
352,148 |
1,274,360 |
16,886 |
|
|
|
|
|
|
All other financial liabilities (excluding those disclosed above) are repayable within one year.
The Group's target is to maintain its current ratio, defined as the proportion of current assets to current liabilities, at the level of not less than 1.2. As of 31 December 2016 and 2015, the current ratio was as follows:
|
|
|
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
Current assets |
821,428 |
|
736,921 |
|
Current liabilities |
381,020 |
|
373,401 |
|
|
2.16 |
|
1.97 |
|
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure, but the management of the Group sets limits on the level of exposure to foreign currency fluctuations in order to manage currency risk.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies (continued)
Currency risk (continued)
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 December were as follows:
|
2016 |
|
2015 |
|
|
|||
|
USD |
EUR |
|
USD |
EUR |
|
||
ASSETS |
|
|
|
|
|
|
||
Long-term bank deposits |
- |
577 |
|
- |
4,125 |
|
||
Other non-current assets, net |
5,039 |
- |
|
- |
- |
|
||
Trade accounts receivable |
20,315 |
117 |
|
12,823 |
- |
|
||
Other current assets, net |
8,408 |
- |
|
1,554 |
- |
|
||
Cash and cash equivalents |
107,539 |
10,240 |
|
38,834 |
5,836 |
|
||
|
141,301 |
10,934 |
|
53,211 |
9,961 |
|
||
LIABILITIES |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Trade accounts payable |
2,365 |
4,544 |
|
4,012 |
4,999 |
|
||
Other current liabilities |
368 |
3,380 |
|
9 |
3,341 |
|
||
Accrued interest |
22,570 |
161 |
|
23,023 |
305 |
|
||
Short-term bank borrowings |
212,289 |
24,518 |
|
220,409 |
28,648 |
|
||
Short-term finance lease obligations |
5,138 |
2,906 |
|
7,477 |
5,029 |
|
||
Current portion of bonds issued |
- |
- |
|
- |
- |
|
||
|
242,730 |
35,509 |
|
254,930 |
42,322 |
|
||
Non-current liabilities |
|
|
|
|
|
|
||
Long-term bank borrowings |
241,685 |
17,882 |
|
234,463 |
43,668 |
|
||
Bonds issued |
725,361 |
- |
|
728,530 |
- |
|
||
Long-term finance lease obligations |
4,730 |
853 |
|
5,485 |
4,022 |
|
||
|
971,776 |
18,735 |
|
968,478 |
47,690 |
|
||
|
1,214,506 |
54,244 |
|
1,223,408 |
90,012 |
|
||
The table below illustrates the Group's sensitivity to a change in the exchange rate of the Ukrainian Hryvnia against the US Dollar and EUR. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for possible change in foreign currency rates.
|
Change in foreign currency exchange rates |
|
Effect on profit before tax, gain/(loss) |
|
|
|
|
2016 |
|
|
|
|
|
|
|
Increase in USD exchange rate |
10% |
|
(107,321) |
Increase in EUR exchange rate |
10% |
|
(4,331) |
|
|
|
|
Decrease in USD exchange rate |
5% |
|
53,660 |
Decrease in EUR exchange rate |
5% |
|
2,166 |
|
|
|
|
2015 |
|
|
|
|
|
|
|
Increase in USD exchange rate |
10% |
|
(117,020) |
Increase in EUR exchange rate |
10% |
|
(8,005) |
|
|
|
|
Decrease in USD exchange rate |
5% |
|
58,510 |
Decrease in EUR exchange rate |
5% |
|
4,003 |
|
|
|
|
The effect of foreign currency sensitivity on shareholders' equity is included in the statement of comprehensive income. There are no hedging activities in the other comprehensive income, so the statement of comprehensive income and the statement of changes in equity impacts are the same.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies (continued)
Currency risk (continued)
During the year ended 31 December 2016 the Ukrainian Hryvnia depreciated against the EUR and USD by 7.74% and 11.73%, respectively (2015: depreciated against the EUR by 26.66% and 34.30% against the USD). As a result, during the year ended 31 December 2016 the Group recognized net foreign exchange losses in the amount of USD 145,217 thousand (2015: foreign exchange losses in the amount of USD 389,557 thousand) in the consolidated statement of comprehensive income.
In June 2016 the National Bank of Ukraine ("NBU") decreased a requirement to sell foreign currency proceeds from any export sales at Ukrainian interbank currency market to 65%. During the year ended 31 December 2016 USD 235 thousand (2015: USD 2,957 thousand) net foreign exchange gain resulting from the difference in NBU and Ukrainian interbank currency market exchange rates, was included in Other operating income.
The currency risk is mitigated by the existence of USD-denominated proceeds from sales of sunflower oil, grain and chicken meat, which are sufficient for servicing the Group's foreign currency denominated liabilities and were as follows during the years, ended 31 December 2016 and 2015:
|
|
|
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
Vegetable oil and related products |
295,596 |
|
241,481 |
|
Chicken meat and related products |
243,725 |
|
189,175 |
|
Grain 1) |
85,960 |
|
109,444 |
|
Other agricultural segment products |
14,409 |
|
1,146 |
|
|
639,690 |
|
541,246 |
|
1) Grain export sales during the year ended 31 December 2016 includes USD 4,970 thousand (2015: USD 17,350 thousand) of gain received from operations, when goods are exchanged or swapped for goods which are of similar nature.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect primarily borrowings by changing either their fair value (fixed rate debt) or future cash flows (variable rate debt). For variable rate borrowings, interest is linked to LIBOR or EURIBOR.
The below table illustrates the Group's sensitivity to increases or decreases of interest rates by 5% (2015: 5%). The analysis was applied to interest bearing liabilities (bank borrowings, finance lease obligations and accounts payable under grain purchase financing arrangements) based on the assumption that the amount of liability outstanding as of the reporting date was outstanding for the whole year.
|
Increase/ (decrease) of floating rate |
|
Effect on profit before tax, gain/(loss) |
|
|
|
USD ' 000 |
2016 |
|
|
|
|
|
|
|
LIBOR |
5% |
|
(23,192) |
LIBOR |
-5% |
|
23,192 |
EURIBOR |
5% |
|
(2,308) |
EURIBOR |
-5% |
|
2,308 |
|
|
|
|
2015 |
|
|
|
|
|
|
|
LIBOR |
5% |
|
(23,392) |
LIBOR |
-5% |
|
23,392 |
EURIBOR |
5% |
|
(4,068) |
EURIBOR |
-5% |
|
4,068 |
|
|
|
|
The effect of interest rate sensitivity on shareholders' equity is equal to that on statement of comprehensive income.
Notes to the Consolidated financial statements
for the year ended 31 December 2016
(in thousands of US dollars , unless otherwise indicated)
32. Risk management policies (continued)
Livestock diseases risk
The Group's agro-industrial business is subject to risks of outbreaks of various diseases. The Group faces the risk of outbreaks of diseases, which are highly contagious and destructive to susceptible livestock, such as avian influenza or bird flu for its poultry operations. These and other diseases could result in mortality losses. Disease control measures were adopted by the Group to minimize and manage this risk. The Group's management is satisfied that its current existing risk management and quality control processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect on current or future earnings from fluctuations in the prices of commodities. To mitigate this risk the Group continues expansion of its grain growing segment, as part of vertical integration strategy, and also accumulates sufficient commodity stock to meet its production needs.
33. Pensions and retirement plans
The employees of the Group receive pension benefits from the government in accordance with the laws and regulations of Ukraine. The Group's contributions to the State Pension Fund for the year ended 31 December 2016 was USD 18,652 thousand and is recorded in the consolidated statement of comprehensive income on an accrual basis (2015: USD 24,826 thousand). In January 2011 in accordance with the Law of Ukraine "On charge and accounting of unified social contribution" certain changes in the administration of social charges were made and social charges are to become payable in the form of Unified Social Contribution, including contributions to the State Pension Fund by 22% of gross salary cost. The Group companies are not liable for any other supplementary pensions, post-retirement health care, insurance benefits or retirement indemnities to its current or former employees, other than pay-as-you-go expenses.
34. Earnings per share
The earnings and weighted average number of ordinary shares used in calculation of earnings per share are as follows:
|
2016 |
|
2015 |
|
|
|
|
|
|
Profit/(loss) for the year attributable to equity holders of the Parent |
63,835 |
|
(119,776) |
|
Earnings/(loss) used in calculation of earnings per share |
63,835 |
|
(119,776) |
|
|
|
|
|
|
Weighted average number of shares outstanding |
106,256,207 |
|
105,629,222 |
|
Basic and diluted earnings/(loss) per share (USD per share) |
0.60 |
|
(1.13) |
|
The Group has neither potentially dilutive ordinary shares nor other dilutive instruments; therefore, the diluted earnings per share equal basic earnings per share.
35. Subsequent events
On 17 February 2017 the Group sold its 100% ownership interest in the Group's companies located in Autonomous Republic of Crimea for cash consideration of USD 77,500 thousand. The consideration consisted only of cash, there were no direct costs related to disposal. As a result, the Group completely ceased to operate its fruit business, while poultry production capacities and meat processing capacities decreased by 6.5 % and by 12.6 %, respectively.
36. Authorization of the consolidated financial statements
These consolidated financial statements were authorized for issue by the Board of Directors of MHP S.A. on 14 March 2017.