Mhp Reg S Regulatory News (MHPC)

20 March 2019, Limassol, Cyprus

MHP SE

Consolidated management report for 2018

MHP SE (LSE:MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, focusing primarily on the production of poultry and cultivation of grain, as well as other agricultural operations (meat processing and meat products ready for consumption), today announces its unaudited results for the fourth quarter and twelve months ended 31 December 2018. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

OPERATIONAL HIGHLIGHTS

Since Q2 2018, MHP has been launching new production sites of Phase 2 of the Vinnytsia Poultry Complex:

· Since the end of May until the end of December, three rearing sites (brigades) commenced operations;

· Since being commissioned at the beginning of July, the slaughterhouse has been gradually increasing its capacity utilization.

· Poultry production volumes reached 617,943* tonnes, up 9% (12M 2017: 566,242 tonnes)

· The average chicken meat price increased by 12% year-on-year to UAH 39.86 per kg (12M 2017: UAH 35.63 per kg) (excluding VAT)

· Chicken meat exports increased by 30% to 286,846 tonnes (12M 2017: 220,983 tonnes) as a result of increased exports mainly to countries in the MENA and the EU countries

*- production volume of chicken meat only without by-products

FINANCIAL HIGHLIGHTS

· Revenue of US$ 1,556 million, increased by 21% year-on-year (12M 2017: US$ 1,288 million)

· Export revenue amounted to US$ 924 million, 59% of total revenue (12M 2017: US$ 732 million, 57% of total revenue)

· Adjusted EBITDA margin decreased to 29% from 36%; adjusted EBITDA decreased to US$ 450 million from US$ 459 million

· Net profit for the period is US$ 128 million, compared to profit US$ 230 million for 12M 2017

FINANCIAL OVERVIEW

* pps - percentage points

** Adjusted operating profit from continuing operations before loss on impairment of property, plant and equipment

Average official FX rate for 12 months: UAH/US$ 27.2016 in 2018 and UAH/US$ 26.5947 in 2017

Chief Executive Officer, Yuriy Kosyuk, commented:

During 2018 we enjoyed another year of firm progress in terms of capacity and sales growth, at the same time as continuing to focus on putting in place the foundations for further development. I'd like to highlight in particular the solid start to the construction of Phase 2 of the Vinnytsia poultry complex with additional volumes produced and exported; the launch of the second biogas complex; and the establishment of the Centre of Innovation.

In line with our strategy of further expansion and growth outside Ukraine, we completed the acquisition of a Slovenian poultry and meat-processing company in early 2019. We have also been successfully developing our international projects in Slovakia, the Netherlands, and the GCC.

MHP has continued to demonstrate itself to be a strong and profitable company based upon its vertically-integrated business model and driven by its low-cost leadership position, adherence to high standards, drive for innovation, intensive investment programme, strong management team and talented employees.

Our stakeholders will be aware that, particularly in recent years, the geopolitical and macroeconomic situations in Ukraine have been improving. In particular, Ukraine is experiencing annual GDP growth of around 2.5-3.0%, as well as enjoying the relative stability of its currency and the continued development and investment into a number of industries, especially that of agriculture.

During the year, we consolidated our position as the leading industrial producer of chicken meat in Ukraine. Total poultry sales increased by 11% year-on-year to around 593,000 tonnes, with sales in Ukraine remaining stable.

We continued to execute upon our strategy of diversification of sales. Poultry exports increased by 30% y/y and the number of countries to which we export our poultry increased from around 60 to over 80. Growing our international reach remains a strategic imperative for MHP and in 2018 we exported around 286,846 tonnes of poultry meat mainly to the EU, MENA and Africa. Poultry exports constituted around 48% of total poultry sales volumes (2017: 41%).

Our financial results were in line with Management expectations, with EBITDA of US$ 450 million (2017: US$ 459 million) and an EBITDA margin of 29% (2017: 36%). Exports of poultry, oils and grains generated a further increase in hard currency revenues to US$ 878 million (2017: US$ 732 million), thereby growing the proportion of US$-denominated revenue from 57% to 58% of total Group revenue.

MHP made significant progress on several fronts during the year:

o Efficient production growth. Our production facilities across all of our business segments continued to operate at full capacity. Production at our Poultry & Related Operations segment increased by an additional 30,000 tonnes due to the launch of Phase 2 of the Vinnytsia poultry complex and brought us additional hard currency revenues.

Our Grain Growing segment showed outstanding results both in terms of yields, with a record harvest of corn of 10.9 t/ha in net weight, and in terms of EBITDA per ha (US$ 419 compared with US$ 267 in 2017), thereby proving MHP's leadership position within our peer group in Ukraine.

Our Other Agricultural segment has continued to expand its range of value-added products to satisfy consumer demand and taste, showing positive results in sales.

o Future growth: Ukraine and international expansion. In line with our strategy, we will continue to grow both domestically in Ukraine and in export markets. The capacity increase at the Vinnytsia poultry complex is expected to be our main driver of growth over the next 3-5 years and will result in around 900,000 tonnes of total poultry production by 2023e (2018: 617,943 tonnes).

The next major step in our expansion strategy is to successfully integrate and subsequently develop our recently acquired company in Slovenia, Perutnina Ptuj. Perutnina Ptuj's current annual poultry production capacity constitutes around 80,000 tonnes and it sells this produce into 22 EU countries. This company will provide a platform for further development and opportunities in the EU with further capacity expansion planned over the next 3-5 years.

We will also continue to monitor and explore potential M&A opportunities, in particular in Europe and MENA, and to develop export market opportunities worldwide from our cutting facilities in the EU and our sales & distribution office in UAE.

o Eurobond issue. In April 2018, MHP successfully completed a Eurobond transaction involving the repurchase of around US$ 416 million Eurobonds 2020 and issue of a new US$ 550 million 8-year Eurobond with a coupon of 6.95%.

o Our people and their development. It is important for me and for the Company that we work together and share our success with talented, innovative, strong, self-motivated, smart, experienced people, who strive to achieve new, different and ambitious goals. We are committed to maximising opportunities for the people working with us and we have in place a number of programmes to further this goal. Our "New Horizons' programme delivers remote training and also enabled us to update our assessment process. As we seek to recruit the best new people to the Company, we focus, amongst other things, on identifying those demonstrating drive and an entrepreneurial spirit and approach. Our search is helped significantly by our "MHP Start" project for university students.

o Communication with stakeholders. MHP has an ongoing programme of cooperation with our main stakeholders - employees, partners (clients), local communities and investors. Our employees are residents of the villages and cities where the Company operates meaning that we are in constant collaboration with local communities. We have been focussing our efforts on the principles of sustainable development and partnership, engaging local communities in joint projects. Working together, we are able to improve the quality of life within communities and regions, ensuring the sustainable development of both MHP and Ukraine. We produce quality products for our partners (clients) and invest in new equipment and new technology in adherence and compliance with international standards.

However, I'd like to take the opportunity here to draw out a few tenets of that strategy and with that, to highlight some of our priorities for the year:

o to continue our focus on exports, cementing our position in existing territories and exploring and capitalising on new opportunities;

o to continue to investigate potential targeted acquisitions and joint ventures, both in Europe and the MENA regions;

o to maintain our investment in people and build on our reputation as a high-quality, responsible and transparent employer; and

o to promote the sustainable development of the business, with a particular focus on our environmental impact (including alternative energy projects), animal welfare and social responsibility.

In 2019, I expect MHP to continue to strengthen its position as a leading international agro-industrial company with good growth visibility in both domestic and international markets.

Segment Performance

Poultry and related operations segment

Chicken meat

Aggregate volume of chicken meat sold to third parties during 12M 2018 increased by 11% mainly as a result of increased production of heavier chicken and decreased share of thinning as well as due to the launch of new rearing sites of Phase 2 on Vinnitsa poultry farm. MHP continued to follow a strategy of both geographic diversification and product mix optimization, building up the volumes of chicken meat sold across the MENA, the EU, Africa and Asia. Driven by poultry exports growth, sales in Ukraine during 12M 2018 decreased slightly by 2% to 306,680 tonnes (12M 2017: 311,743 tonnes).

Through the 12M 2018 the aggregate average chicken meat price was UAH 40.56, 12% higher compared 12M 2017 based on growth achieved in 2H 2017. From January 2018 until the end of December, chicken meat prices remained relatively stable.

Vegetable oil

During 12M 2018 MHP's sales of sunflower oil have remained stable compared to 12M 2017 and reached 315,079 tonnes. Sales of soybeans oil for 12M 2018 increased by 83% to 50,044 tonnes, partially as a result of the push back of the contract for approx. 6,000 tonnes of oil to January 2018 from Q4 2017 and low base in 12M 2017.

Poultry and Related Operations segment financial results and trends

* pps - percentage points

During 12M 2018 revenue of the segment increased by 18% year-on-year driven mostly by an increase in price and sales volume of chicken meat, partly offset by decreased price of vegetable oil.

IAS 41 standard gain/(loss) reflects net change in fair value of biological assets and agricultural produce. IAS 41 standard loss in 12M 2018 amounted to US$ 1 million mainly as a result of a reduction of poultry meat stocks, partly offset by increase in broiler chickens stock due to the launch of new rearing sites.

Gross profit in 12M 2018 compared to 12M 2017 remained almost stable at US$ 301 million.

In 12M 2018, adjusted EBITDA decreased by 15%, mainly related to a decrease in government grants income (there was no allocation of grants/subsidies in Ukraine's 2018 budget), as well as an increase in administration, sales and distribution expenses mainly due to increased in payroll cost, logistics costs and warehouse rent.

Grain Growing segment

In 2018 MHP harvested around 362,820 hectares of land in Ukraine and gathered around 2.65 million tonnes of crops, 33% more compared to 2017 mainly related to strong and MHP's historically record harvest of corn due to operational efficiency and favorable weather conditions in Ukraine Though average MHP yield is significantly higher than Ukraine's average for almost all crops due to operational efficiency and employment of best practices.

[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;

 [1] MHP yields are net weight, Ukraine yields are bunker weight;

Segment's revenue for 12M 2018 amounted to US$ 181 million compared to US$ 117 million in 12M 2017. An increase in revenue is mainly attributable to the larger volumes of crops sold in 2018 as a result of the stronger harvest in 2018 compared to 2017.

IAS 41 standard gain for 12M 2018 amounted to US$ 33 million. Gain was primarily driven by an increase in volume of agricultural produce stocks as of 31 December 2018 compared to 2017 caused by substantially higher yields in 2018 compared to 2017 and increased needs in corn reserved for internal consumption during 2019.

12M 2018 adjusted EBITDA of the segment has increased by 59% compared to 12M 2017 due to higher yields of main crops.

Other Agricultural segment

12M 2018 sales of meat processing products remained stable year-on-year. The average processed meat price increased by 20% year-over-year to UAH 62.22 per kg in 12M 2018, mostly driven by an increase in price of poultry.

Sales volumes of convenience food in 12M 2018 increased by 26% to 17,997 tonnes, driven mainly by introduction of a new product line (cooked and chilled products). The average price in 12M 2018 increased by 7% to UAH 42.53 per kg (excluding VAT).

* includes convenience food products, milk, cattle, goose meat, foie gras and feed grains.

Segment revenue for 12M 2018 increased by 12% year-on-year, in line with an increase in price for meat processing and amounted to US$ 134 million.

The segment's adjusted EBITDA decreased to US$ 16 million in 12M 2018 compared to US$ 19 million in 12M 2017, an decrease by 16% year-on-year driven mostly by lower returns earned from cattle and milk operations.

 Current Group financial position and cash flow

* Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities

Cash flow from operations before changes in working capital for 12M 2018 amounted to US $306 million (12M 2017: US$ 333 million).

Use of funds in working capital during 12M 2018 compared to 12M 2017 is mostly related to higher investments in the stock of crops designated for internal consumption as of 31 December 2018 compared to 31 December 2017, partly offset by an increase in prepayments of sunflower oil.

During 12M 2018 total CAPEX amounted to US$ 232 million mainly related to the launch of production sites of Phase 2 of the Vinnytsia Poultry Complex.

Debt Structure and Liquidity

As of 31 December 2018, the share of long-term debt in the total outstanding debt has is 90%. The weighted average interest rate was at around 7%.

As of 31 December 2018, MHP's cash and cash equivalents amounted to US$ 212 million.

Net debt increased to US$ 1,131 million, compared to US$ 1,031 million as of 31 December 2017.

The Net Debt / LTM adjusted EBITDA ratio was 2.51 as of 31 December 2018, well within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenue from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in US Dollars, covering debt service expenses in full. Export revenue for 12M 2018 amounted to US$ 924 million or 59% of total revenue (US$ 732 million or 57% of total sales for 12M 2017).

Outlook

Our main drivers for the growth in 2019 will be:

- An increase in production volume of chicken meat by around 100,000 tonnes as a result of our capital investments in the expansion of the Vinnytsia poultry complex (Phase 2) in Ukraine and by around 80,000 tonnes driven by recent acquisition of Perutnina Ptuj in Slovenia; and

- An increase in export sales of chicken meat across all regions, which is expected to result in around 320,000 tonnes of chicken meat; and

- Gradual launch in operations of an alternative energy biogas project of 12MW capacity at the Vinnytsia poultry complex (launched at the end of 2018).

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.

CORPORATE GOVERNANCE OVERVIEW

With effect from 7 august 2017, mhp converted from a public limited liability company ("societe anonyme") into a european company ("societas europaea") with effect from 7 august 2017.

MHP was established on 30 May 2006. With effect from 27 December 2017, the Company's registered office and central administration was transferred to Cyprus and the Company is currently registered in the Cyprus Registry for SE Companies, under number SE 27. From that date, the Company's registered office address is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

On 27 December 2017, the Company also adopted a New Memorandum and Articles of Association to comply with the provisions of the Cyprus Companies Law, Cap. 113, Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees, the SE Regulation and the European Public Limited - Liability Company Regulations 2006, that are applicable in Cyprus. This New Memorandum and Articles of Association can be found here: https://www.mhp.com.ua/library/file/memorandum-english.pdf. The Company's corporate governance structures, processes and procedures are outlined in its Code of Corporate Governance which can be viewed at the corporate website. The Company upholds and practises the highest standards of ethics and integrity in its relationships with its shareholders, the Board of Directors, personnel, business community and other stakeholders including government and regulatory agencies.

Statement of Compliance with the UK Corporate Governance Code

The Company has been steadily developing its corporate governance processes and procedures over the last few years. During 2018, it undertook important steps to develop the expertise and independence of Board members through the appointment of two independent Non-Executive Directors. MHP complies with the requirements of Cypriot law and regards the UK Corporate Governance Code as the appropriate international and good practice benchmark for its approach. It is the opinion of the Board that during 2018, the Company complied with the principles and requirements outlined in the UK Corporate Governance Code except in relation to the matters noted below.

Principal Responsibilities of the Board

The Board is responsible for the overall conduct of the Company's business and has the powers, authorities and duties vested in it by and pursuant to the relevant Cyprus laws and regulations and the Articles of Association of the Company, see: https://mhp.com.cy/corporate-governance/regulatory-documents/. The Company has a unitary governance structure and the Board is the ultimate decision-making body, except for the powers reserved for the Shareholders' Meeting by law or as specified in the Articles of Association.

Role of the Chairman

The Board elects the Chairman from amongst members that meet the Board's criteria for an independent Director following the preparation of a job specification by the Nominations and Remuneration Committee. The Company's Corporate Governance Charter excludes the CEO from also becoming Chairman. The Chairman of the Board is responsible for the proper and efficient functioning of the Board. The Chairman determines the calendar of the Board and Committee meetings and the agenda of the Board's meetings after consultation with the CEO. Prior to each meeting, the Chairman ensures that Directors receive complete and accurate information and, to the extent appropriate, a copy of any Management presentation to be made at the Board meeting. The Chairman of the Board will also make sure that there is sufficient time for making decisions. The Chairman is also responsible for ensuring that new Directors receive a complete and tailored induction to the Company prior to joining the Board and that existing Directors continually update their skills and the knowledge and familiarity with the Company required to fulfil their role both on the Board and on Board Committees. The Chairman of the Board represents the Board to shareholders and the public and chairs Shareholders' Meetings. The Chairman serves as the interface between the Board and major shareholders of the Company on matters of corporate governance.

Relationship Between the Chairman and the CEO

A clear division of responsibilities is maintained between the Chairman and the CEO. The CEO may not carry out the duties of the Chairman of the Board and vice versa. The Chairman is required to establish close relations with the CEO by giving him support and advice while respecting the executive responsibilities of the CEO. The CEO provides the Chairman of the Board with all the information he requires to carry out his tasks.

Role of the CEO

The CEO reports directly to the Board of Directors. The CEO is entrusted by the Board with the day-to-day management of the Company within the strategic parameters established by the Board. He oversees the organisation and efficient day-to-day management of subsidiaries, affiliates and joint ventures. The CEO is responsible for the execution and management of the outcome of all Board decisions. The CEO is delegated powers that are not exclusively reserved to the Board or to the Shareholders' Meeting. The CEO can delegate authority for daily management to subordinate executives but will retain ultimate accountability to the Board of Directors for the actions which are conducted during the performance of the role and the actions of delegates.

Board of Directors

Members of the Board are elected annually by a majority vote of shareholders at the AGM and may be re-elected an unlimited number of times. At 31 December 2018, the Board had eight directors, three of whom are regarded by the Board as independent. Mr Banfi is not considered to be independent because he has performed consultancy work for the Company. The Board considers Mr Grant to be independent notwithstanding his period of service since 2006.

In 2018, the Board conducted an annual effectiveness review in order to evaluate its performance as well as that of its Committees and individual Directors. The evaluation process was initiated by a questionnaire. The conclusions were analysed by the Board to further strengthen its composition and performance.

Changes to the Board of Directors in 2018 and Other Developments

During 2018 there were several new appointments to the Board:

• Roberto Banfi was appointed in June 2018;

• Christakis Taoushanis was appointed in July 2018; and

• Roger Wills was appointed in December 2018.

Auditors' Remuneration

The auditor's remuneration was US$ 1,604 thousand for the year ended 31 December 2018 (2017: US$ 980 thousand). Such remuneration includes both audit and non-audit services, with the statutory audit fees component approximating US$ 430 thousand for the year ended 31 December 2018 (2017: US$ 420 thousand). Fees for the other assurance services component were US$ 458 thousand (2017: US$ 294 thousand); for tax advisory services US$ 20 thousand (2017: US$ 130 thousand); and for other non-audit services US$ 697 thousand (2017: US$ 136 thousand). The Company has rules and processes in place to ensure the independence of the auditors, including non-audit fee limitations set by the Board, and annual investigations by the Audit Committee into whether any services provided are incompatible with the independence of the auditors.

Director Independence

The independence of each of the Non-Executive Directors is considered on appointment. Each year, the Board also considers the facts and circumstances relating to Director independence (and throughout the year as appropriate). This process includes an assessment of whether each Non-Executive Director is independent of management and any business or other relationships that could materially interfere with their exercise of objective, unfettered and independent judgement or their ability to act in the best interests of the shareholders. In making its decision, the Board considers relationships with management, major shareholders, associated companies and other parties with whom the Company conducts business. Following the conduct of these processes, the Board has concluded that John Grant is an Independent Board Director. Christakis Taoushanis and Roger Wills, who joined the Board of Directors during 2018, are also regarded by the Board as Independent Non-Executive Directors.

Senior Independent Director

John Grant has been designated as the Board's Senior Independent irector since 2011. The Senior Independent Director is available to shareholders if they have any concerns that they cannot resolve through the normal channels (e.g. Chairman, CEO or other Non-Executive Directors). The Senior Independent Director also provides a sounding board for the Chairman, is responsible for the evaluation of the Chairman and serves as a trusted intermediary for Non-Executive Directors as and when necessary. In 2018, the Senior Independent Director received three requests from shareholders and other stakeholders.

Conflicts of Interest

The Board has formal procedures in place to manage conflict of interest matters. Each Director is required to inform the Board of any other Directorship, office or responsibility, including executive positions that are taken up outside the Company during the term of office. If, in the opinion of the Board, a conflict of interest exists, the relevant Director does not participate in discussions and will abstain from a Board vote on the affected matter. The Company's Conflict of Interest Policy covers any transactions involving conflicts of interest (whether actual or potential) of:

1. MHP's Management team members, including Directors of subsidiaries and branches ("key management");

2. MHP's line managers who have authority to authorise transactions on behalf of MHP ("line managers"); and

3. other MHP employees who are authorised to internally approve any decisions as to significant provisions of transactions based on internal policies and instructions ("responsible employees") or who have the power to influence such decisions.

Confidential Information

All Board Directors are required to keep information received in their capacity as Directors confidential and may not use it for any purpose other than for fulfilling their remit.

Other Professional Commitments

Every Director is required to allocate the time and attention required for the proper fulfillment of their duties. This commitment includes limiting the number of other professional commitments to the extent required.

Information and Professional Development

The Board ensures that Directors, especially Non-Executive Directors, have access to independent professional advice at the Company's expense where they judge it necessary to discharge their responsibilities as Directors. Board Committees are also provided with sufficient resources to undertake their duties. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. The Chairman is responsible for ensuring that the Directors receive accurate, timely and clear information. The Company's Executive Management team is obliged to provide such information and Directors to seek clarification or amplification where necessary. The Chairman ensures that Directors continually update their skills, knowledge and familiarity with the Company in order to fulfil their role both on the Board and on Board Committees. The Company provides the necessary means for developing and updating its Directors' knowledge and capabilities.

Internal Control and Risk Management

The Board of Directors is ultimately responsible for the Company's governance, risk management, internal control environment and processes and reviews their effectiveness at least annually. Once identified, risks are evaluated to establish financial or non-financial impact and the likelihood of their occurrence. For risks assessed as significant, a mitigation action-plan is determined by the operational business management team. The summary of key risks is regularly discussed with MHP's management team and annually reported to the Board of Directors through the Audit Committee. The Company has an independent risk and process management department whose activities are overseen by the CFO and reported to the Audit Committee.

Internal Audit

The Company maintains an internal audit function. The Head of Internal Audit has the right of access to the Audit Committee and the Chairman. The Head of Internal Audit reports to the Audit Committee which is responsible for:

• Monitoring and reviewing the effectiveness of the Company's internal audit function in the context of the Company's

overall risk management system;

• Approving the appointment and removal of the Head of Internal Audit;

• Approving the remit of the internal audit function;

• Ensuring it has adequate resources and is free from management or other restrictions;

• Agreeing the internal audit plan;

• Reviewing internal audit reports;

• Monitoring management responses to internal audit recommendations; and

• Meeting the Head of Internal Audit annually, without management being present, to discuss the department's remit and any issues arising from the internal audit work carried out.

Financial Reporting Process

MHP has in place a comprehensive financial review cycle which includes a detailed annual budgeting process. The annual budget and the business plan, upon which the budget is based, is reviewed and approved by the Board of Directors. Major commercial and financial risks are assessed as part of the business planning process. There is a comprehensive system of financial reporting, with monthly performance reports presented to the Board of Directors.

At Group level, MHP has in place common accounting policies and procedures for internal and external financial reporting. Management monitors the publication of new reporting standards and works closely with the external auditors in evaluating in advance the potential impact of these standards.

Compensation of Key Management Personnel

Total compensation of the Group's key management personnel amounted to US$ 16,809 thousand for the year ended 31 December 2018 (2017: US$ 14,143 thousand). Compensation of key management personnel consists of contractual salary and performance bonuses. Total compensation of the Group's Non-Executive Directors, which consists of contractual salary, amounted to US$ 1,106 thousand in 2018 (2017: US$ 460 thousand). Key management personnel totalled 35 and 37 individuals as of 31 December 2018 and 2017 respectively, including 4 and 2 Independent Directors as of 31 December 2018 and 2017 respectively.

Directors and Officers Litigation Statement

No member of the Board of Directors or of MHP's senior management has, for at least five years:

1. any convictions relating to fraudulent offences;

2. been a senior manager or a member of the administrative or supervisory bodies of any company at the time of, or preceding, any bankruptcy, receivership or liquidation; or

3. been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) nor had ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company, or from acting in the management or conduct of the affairs of a company.

Share Options

At the date of this Annual Report, neither the Company nor PJSC MHP has a share option plan and no share options have been granted to members of the Board of Directors, members of MHP's senior management or employees.

Additional Disclosures

At the date of Report, no takeover bids have been made for the Company's shares. According to the terms of the Senior Notes, the Company may be required to offer to repurchase the Senior Notes from holders if a change in control occurs as a result of a takeover bid. There are no agreements between the Company and its Directors or employees providing for compensation on loss of office or employment (whether through resignation, purported redundancy or otherwise) that would occur because of a takeover bid.

Committee

Nominations and Remuneration Committee

Dr John C Rich, Chairman

John Grant

Roger Wills (from March 2019)

The Committee's main tasks are disclosed in the updated 2018 Corporate Governance Charter (Annex E): https://www.mhp.com.ua/library/file/corporate-governance.pdf. During 2018, the Committee held four meetings and all of the Committee members attended.

Audit Committee

John Grant, Chairman

John Rich

Christakis Taoushanis (from November 2018)

Roger Wills (from March 2019)

The Committee's main tasks are disclosed in the updated 2018 Corporate Governance Chapter (Annex D): https://www.mhp.com.ua/library/file/corporate-governance.pdf. During 2018, the Committee held four meetings and the average attendance of Committee members was 100%.

RISK MANAGEMENT

The environment and markets in which we operate are dynamic and subject to constant change. We must be able to respond to these changes, taking appropriate levels of risk to protect our market position and to take advantage of opportunities. A failure to manage these changes and risks could have an adverse impact on our business and on the achievement of our strategic goals. We have integrated our risk management processes with our strategy and embedded them throughout the Company, thereby aligning risk management, strategy and performance across all entities, departments and functions. This enables us to make better business decisions.

Risk Oversight

The Audit Committee monitors the effectiveness of the Company's risk management and control systems through regular updates from management, reviews of the key findings of the external and internal auditors, and an annual review of the risk management process and risk matrix. Results are reported regularly to the Board, which has overall responsibility for risk management. The Internal Audit function provides objective assurance to the management team and to the Audit Committee on the effectiveness of risk management and helps management to continuously improve its risk management framework and process. The Company's approach to the identification and assessment of risks, and the response to risks, is based on best business practices and international COSO Enterprise Risk Management standards.

Enhancements over the last 12 Months

We constantly strive to improve our risk management process. In 2018, MHP enhanced and implemented its risk management framework based upon the recommendations in the COSO (The Committee of Sponsoring Organisations of the Treadway Commission) Enterprise Risk Management Framework. This risk management framework defines how to identify, classify, assess and manage the risks that the Company faces in order to provide reasonable assurance regarding the achievement of the Company`s strategy and objectives. The implementation of the risk management framework has been supported by training the management teams. Following the most recent COSO guidance for risk management in 2018 we focussed on the development and enhancement of the Group's risk management culture:

• Encouraging the identification of risks

Managers support open communication and promote disclosure and risk management discussions.

• Integrating risk management in every role and function

Every employee shares the responsibility for managing risk.

• Continuous identification and assessment of risks

Process owners regularly look for new operational risks, reassess the status of known risks, and reevaluate or update plans to prevent or respond to problems associated with these risks.

BUSINESS RISKS

Outbreaks of avian flu and other livestock diseases

IMPACT

Avian flu may result in:

• loss of flock;

• loss of customers;

• export restrictions;

• distribution of disease; and

• significant financial losses.

HOW WE MANAGE IT

To ensure the well-being of livestock at MHP's facilities, the Company has implemented high biosecurity standards and systems supplemented by a set of preventive veterinary-sanitary and hygiene measures, including:

• ongoing monitoring of avian flu cases worldwide followed by rigorous assessment of MHP's existing biosecurity systems based on identified reasons causing those cases;

• geographic separation of poultry rearing facilities with a significant distance between each facility;

• where any infected areas are identified, immediate actions are taken to limit the access of all visitors to MHP facilities;

• regular monitoring of poultry conditions, including analysis of indicators of their well-being and health and investigation of the quality of raw materials (litter, food, water) and products (poultry carcasses);

• monitoring compliance with biosafety rules; and

• strict control over the implementation of preventive and control measures. In January 2017, EU compartmentalization procedures were introduced in Ukraine. This means that the emergence of avian influenza symptoms in poultry flocks in part of a country does not have to lead to a total trade suspension.

Occurrence of a material environmental or health and safety incident

IMPACT

The occurrence of a material environmental or health and safety incident impacts day-to-day operations, leading to financial penalties and reputational harm.

HOW WE MANAGE IT

MHP maintains environmental and health and safety policies, management systems and procedures in line with good practice and legal requirements. These are regularly reviewed and updated and employees participate in frequent training and development activities.

Fluctuations in prices of grains and related products

IMPACT

Fluctuations in prices of grains and related products in Ukraine and globally may affect the cost of chicken production and the profitability of MHP's grain growing operations, which could materially affect MHP's operating results.

HOW WE MANAGE IT

MHP drives cost efficiency across all its businesses, supported by its vertically-integrated business model. MHP minimizes the impact of fluctuations in world grain prices by growing internally 100% of the corn required for poultry feed production. The Company has also adopted an innovative approach by replacing a significant proportion of expensive imported soybean protein with protein from sunflower seeds grown by MHP.

Fluctuations in demand and market prices of chicken meat

IMPACT

MHP's business and financial results are dependent upon prices of chicken products, both in Ukraine and worldwide.

HOW WE MANAGE IT

Demand for chicken in Ukraine is expected to remain strong and to have further growth potential as beef and pork are mostly produced by households and small farms and are far more expensive to produce and purchase than chicken. Chicken meat is the most affordable kind of meat from both a price and a diet perspective. MHP products are available for purchase through different sales channels at all times and the Company offers competitive trade terms to its customers. MHP's domestic strategy and in particular its focus on higher value-add products are drivers for increasing the Company's profitability from chicken meat sales in Ukraine.

Failure to implement the growth strategy and expansion into export markets

IMPACT

MHP may be unsuccessful in its attempt to increase market share for its chicken meat in export markets and may be impacted by import restrictions imposed by other countries on agricultural commodities.

HOW WE MANAGE IT

MHP has a long-term strategy for the Group's expansion into diversified export markets. MHP sees more uncertainty in the Middle East and Africa compared with the EU. However, MHP's market share of key poultry import markets remains relatively low (less than 10%) allowing MHP to redistribute volumes between markets without disruption. Since our market share is low, MHP will be able to grow its presence gradually. This will be partly through growth in population and consumption per capita and partly through offering better service and quality to our customers.

Occurrence of a material product quality or product safety incident

IMPACT

The occurrence of a material product quality or product safety incident impacts day-to-day operations, leading to financial penalties and a reduction in brand value.

HOW WE MANAGE IT

MHP prioritises product safety and quality in line with international best practice and the applicable regulations. It maintains robust quality and safety management systems and has an excellent track record in this area.

Fluctuations in commodity prices such as gas, fuel and energy

IMPACT

Changes in commodity prices affect MHP's production and distribution costs and in turn impact operating results and cash flows.

HOW WE MANAGE IT

MHP closely monitors and controls its gas, fuel and energy costs. Energy price risks are mitigated by a priority focus on developing renewable sources of energy and a consistent increase in the use of co-generation and alternative energy technology. The processing of sunflower leaves a huge amount of husks that are burned to generate steam heat for our fodder complexes.

Unfavourable weather conditions

IMPACT

Extreme changes in temperature or rainfall including weather change in summer and winter could influence agricultural productivity as a whole and crop yield, harvesting and transportation costs in particular.

HOW WE MANAGE IT

Ukraine's weather is generally temperate, with plenty of sunshine in the summer and adequate rainfall. This combines with extremely fertile soil to create excellent growing conditions. In addition, MHP's management team supports the use of modern technology to achieve a yield which is significantly higher than the average for Ukraine

Failure to successfully integrate newly acquired businesses in the EU, MENA and the UK

IMPACT

The acquisition and subsequent integration of new businesses in Europe will be subject to a number of challenges and uncertainties, including: the diversion of Management's attention from other business concerns and potential disruption to MHP's ongoing business; the potential necessity of coordinating geographically separated facilities; incurring unanticipated expenses; the consolidation of functional areas where appropriate; adapting MHP's business model and practices to different jurisdictions; adapting any acquired companies' practices and policies to those of MHP; and possible inconsistencies in standards, controls, procedures and policies, operating systems and business culture.

HOW WE MANAGE IT

In anticipation of new acquisitions MHP has prepared a succession and development plan for the Company's managers which allows them to participate intensively in the management of new businesses. MHP has developed a plan of key controls and safeguards to be put in place. During our due diligence processes on potential target acquisitions we pay specific attention to the production and safety standards of those potential acquisitions and we develop plans to integrate such standards with MHP. This is also factored in to our financial resources allocation.

Lack of highly qualified staff at strategic level and production enterprises

IMPACT

The agriculture industry is facing a number of personnel challenges including: the migration of skilled workers to neighbouring countries; the ageing of the current workforce; and changes in the required skills base. A lack of qualified science, engineering, technical and other employees could increase risks to the long-term future of the business.

HOW WE MANAGE IT

MHP works to maintain positive relationships with employees and strives to build upon its reputation as a high-quality, responsible employer of choice. As a part of this, MHP provides a number of programmes designed to enrich its employees and the broader community including:

• the provision of education and professional programmes for the younger generation;

• the provision of its "Personnel Reserve" and "New Horizon" training programmes for prospective and high-performing employees;

• the implementation of a strategic action plan to build and support schools in regions where its facilities

operate; and

• the development of a digitalization strategy that is in the process of implementation and focusses on automating business processes and decision-making (artificial intelligence).

Failure to accomplish the digitalization strategy

IMPACT

Changes in technology may render current technology obsolete or require MHP to make substantial capital investments. Resistance of employees and/or lack of expertise might result in an inability to accomplish the Company's digitalisation strategy which is aimed at increasing the efficiency of business operations and decreasing the dependence on the labour market.

HOW WE MANAGE IT

MHP has upgraded its digital transformation strategy, focussing on optimization and automation of key business processes. A change management culture is also being continuously developed throughout the Company. Strong internal project managers and counterparties are in place to assist in the successful implementation of the digitalisation strategy.

Inefficient procurement and an increase in production costs

IMPACT

An increase in MHP's production costs could materially and adversely affect its profitability.

HOW WE MANAGE IT

MHP strives to continually improve its procurement procedures and production processes. The procurement of strategic items is centralised with a high level of regulation and control. The KPIs are set and are closely monitored with a view to deceasing costs of production.

FINANCE RISKS

Fluctuations in foreign exchange rates

IMPACT

MHP operates globally and has operations and transactions in different currencies. Fluctuations in the value of the UAH versus the US dollar and other currencies give rise to transaction and translation exposure.

HOW WE MANAGE IT

The majority of MHP borrowings are denominated in US dollars. The resulting exposure is hedged by the generation in 2018 of 59% of total revenue in US dollars from the export of sunflower and soybean oils, chicken meat and grain. The amount of export sales will continue to increase with the further expansion of the Vinnytsia poultry complex and the strengthening of the Group's positions in export markets. This will allow MHP to continue to service all dollar-denominated loans and payments for operating activities.

Fluctuations in interest rates

IMPACT

Changes in interest rates affect the cost of borrowings, the value of our financial instruments, our profit and loss and shareholders' equity.

HOW WE MANAGE IT

MHP monitors its interest rate exposures and analyses the potential impact of interest rate movements on its net interest expenses. MHP's debt portfolio is well balanced with an 85/15 share of fixed/floating interest rates. The majority of MHP's borrowings are from foreign banks at rates lower than those available in Ukraine; a significant part of the Company's debt is also in the form of Eurobonds issued at fixed interest rates.

Credit risk

IMPACT

Counterparties involved in transactions with MHP may fail to make scheduled payments, resulting in financial losses to MHP.

HOW WE MANAGE IT

MHP has a diversified pool of customers. The amount of credit allowed to any one customer or group of customers is strictly controlled. Credit offered to major groups of customers, including supermarkets and franchisees is, on average, between 5 and 21 days. To hedge the risk, MHP procedures require verification of counterparties' solvency prior to the signing of an agreement with contractors. Policies and operating guidelines include limits in respect of counterparties to ensure that there is no significant concentration of credit risk. Credit risks are managed by security paragraphs, which are included in agreements with customers. At foreign subsidiaries of MHP SE an insurance company is involved to approve the credit limit amount and to insure against the risk of non-payment.

Liquidity risk

IMPACT

If, in the long term, MHP is unable to generate and maintain positive operating cash flows and operating income, it may need additional funding. MHP's inability to raise capital on favourable terms could lead to a default on its payment obligations and could have a material adverse effect on MHP's business, results of operations, financial condition and prospects.

HOW WE MANAGE IT

MHP maintains efficient budgeting and cash management processes to ensure that adequate funds are available to meet its business requirements. MHP adopts a flexible CAPEX programme enabling capital projects to be deferred if necessary. MHP has an irreducible balance in hard currency on correspondent accounts and maintains a certain level of undrawn credit lines.

Inefficient investment

IMPACT

The inefficient regulation of the Company's investment appraisal and realization procedures or a lack of evaluation or proper authorisation of investment projects could result in the implementation of unauthorised and unprofitable investment decisions and a subsequent waste of capital.

HOW WE MANAGE IT

MHP has developed and implemented procedures to ensure due process in this area. The Evaluation of Investment Projects procedure requires that the Investment Committee approves investment projects. All investment projects of the Company should be documented with a formal investment appraisal report and financial model and be jointly approved by the Investment Committee.

REPUTATION RISKS

Local communities

IMPACT

A deterioration in local community relationships may lead to disruption in day-to-day business activities, adverse perceptions about MHP's approach to human rights and negative reputational effects.

HOW WE MANAGE IT

MHP is in regular dialogue with its local communities and other stakeholders in the regions in which it operates and aims to conduct these relationships sensitively and with mutual respect. It also prioritises the human rights of its local communities. MHP has designed and implemented stakeholder relations programmes in line with good international practice. This activity includes regular meetings with local community representatives, roadshows to enable local people to meet the Company and the design and maintenance of a variety of communication channels. MHP also supports, designs and conducts a number of projects in conjunction with local authorities and local communities that aim to improve local standards of living and infrastructure.

Investor and other stakeholder relations

IMPACT

Inaccurate or out-of-date information about MHP and its activities leads to negative impacts on the Company's reputation and adverse impacts on its relations with material stakeholders including its shareholders.

HOW WE MANAGE IT

MHP maintains an experienced and well-resourced communications and investor relations team that is supported by a national and international network of professional services advisors. The team is tasked with ensuring that MHP's investor and wider communications activities are conducted in line with international good practice. The team also ensures that information about the company is distributed in a timely manner, is accurate and up-to-date. MHP also monitors external commentary about its activities to ensure that any inaccuracies are corrected promptly. A qualitative measurement of the Company's image is performed on a regular basis and monitored by its senior management team.

COMPLIANCE RISKS

Legal and regulatory risk

IMPACT

The Group's businesses may be affected by regulatory developments in any of the countries in which MHP operates, including changes in fiscal, tax or other regulatory regimes. Potential impacts include higher costs to meet new environmental requirements, the possible expropriation of assets, other taxes, or new requirements for local ownership.

HOW WE MANAGE IT

MHP's management team actively monitors regulatory developments in the countries in which the Group operates. MHP's financial control framework has adopted tax and treasury approaches fully in compliance with relevant local laws in the jurisdictions where the business is registered. MHP pays its taxes in full. Moreover, MHP is consistently developing and integrating into its business practices standards such as the Market Abuse Regulation and sustainability reporting.

Bribery and corruption

IMPACT

A bribery or corruption incident leads to significant reputational harm, adverse stakeholder relations effects, financial penalties and threatens MHP's licence to operate.

HOW WE MANAGE IT

MHP maintains robust anti-bribery and corruption policies and procedures which are regularly reviewed and monitored by the Audit Committee. These include a Code of Ethical Conduct and Investigations Procedures which all employees are required to adhere to. These address matters such as bribery, gifts, supplier and customer relations, conflicts of interest and other areas of potentially corrupt activity.

Failure to comply with the covenants under loan agreements

IMPACT

A failure by MHP to comply with restrictive covenants under the terms of its indebtedness could put MHP into default.

HOW WE MANAGE IT

Strict monitoring of compliance with the covenants is organised within the Company.

BUSINESS CONTINUITY RISK

Failure of it systems could materially affect MHP's business

IMPACT

MHP is becoming more dependent on IT systems and considers its IT systems critical to successful business operations. MHP relies on its IT systems in many aspects of its business, including aspects of accounting records, business monitoring, execution, production of orders, invoicing, payment monitoring and health and safety. Although MHP backs up its IT systems and has a disaster recovery plan in place, the failure of IT systems could have a material adverse effect on MHP's business, operational results, financial condition and prospects.

HOW WE MANAGE IT

A number of measures have been implemented across the Company to reduce the risk of IT systems failure. These include: the implementation of additional business continuity measures; the organization of reserved data channels; moving services to the Cloud; and the establishment of an incident management process providing continuous support for the business. In addition, the Information Security (IS) team performs regular audits of critical IT services in order to determine any IS weaknesses and to perform penetration testing of Company vulnerabilities. It also increases employee awareness of IS risks and focusses on developing proper behaviours.

MANAGEMENT REPORT

Principal Activities and Review of the Business

MHP is a leading international agro-industrial company and the largest producer of chicken in Ukraine*. The Company operates a vertically-integrated business model, owning and operating each of the key stages of chicken production processes, with the objective of maximising self-sufficiency and efficiency in production costs by consolidating multiple steps in the value-chain. The business is organised into and operates through three business segments: Poultry and Related Operations Segment; Grain Growing Segment; and Other Agricultural Segment. Key to the Company's approach to managing waste and minimizing its use of energy is MHP's biogas programme, which enables the recycling of waste including husk and manure. Its first plant, with 5 MWs of capacity, is in operation and a further biogas complex with 24 MWs of capacity is under construction.

Poultry and Related Operations Segment

The Poultry and Related Operations Segment produces and sells chicken meat (fresh and frozen), vegetable oils (sunflower and soybean) and mixed fodder. It incorporates three chicken meat complexes and two breeding farms, three sunflower oil plants, two soybean crushing plants and three feed mills.

2018 production figures were as follows:

• Three chicken meat complexes produced 617,943 tonnes of chicken meat;

• Two breeding farms produced 459,309,450 hatching eggs;

• Three sunflower oil plants produced 314,115 tonnes of oil;

• One soybean crushing plant produced 39,066 tonnes of oil; and

• Three feed mill plants produced 1,660,958 tonnes of meal.

Grain Growing Segment

The Grain Growing Segment grows crops for fodder production and for sale to third-parties.

In 2018 MHP's total landbank constituted 378,293 hectares (ha) of land of which 369,314 ha were in grain cultivation incorporating a number of arable farms in Ukraine. MHP harvested 362,820 ha of land yielding 2,654,422 tonnes of crops. Grain storage facilities were 1,590,000 m3 and 694,395 tonnes capacity in plastic bags.

Other Agricultural Segment

The Other Agricultural Segment predominantly produces and sells sausage and cooked meat, convenience foods and produce from cattle and milk operations. It incorporates two facilities for producing prepared meat products and a number of mixed farms. The meat-processing operation is the Segment's flagship business, producing 33,975 tonnes of meat-processing products and 17,997 tonnes of convenience foods in 2018.

Future Developments

The Executive Management team believe there are ample opportunities for growth both internationally and within Ukraine. In Ukraine, customers tend to buy domestically produced chicken, choosing from the wide range of poultry products that MHP develops and offers to its customers. These products are both more affordable than pork and beef and fresher than imported meat. Exports of chicken meat balance MHP's total sales and provide higher margins compared to local sales.

MHP's Strategy is:

• To expand poultry production capacity during the period 2019-2022;

• To explore merger and acquisition opportunities and to potentially acquire further meat-processing and/or poultry production businesses in the EU and/or MENA regions;

• To continue export expansion through sales diversification and market targeting;

• To continue establishing international sales and distribution offices and potentially joint ventures;

• To increase production efficiency through modernisation and innovation, improvement in cost and quality control, use of up-to-date technology, and increased vertical integration;

• To maintain its "continuous improvement" approach to the Company's already high biosecurity standards, environmental standards, health and safety procedures and animal welfare practices;

• To promote and develop the Company's strong brands through consumer-driven innovation and the introduction of new products;

• To increase the Company's presence in value-added food products such as processed meat and convenience food;

• To expand alternative energy projects (e.g. biogas);

• To potentially expand the Company's landbank to around 500,000 hectares over the medium term in order to further reduce the dependence on third-party suppliers of ingredients for fodder, and to provide additional hard currency revenues from grain export sales; and

• To continue to develop our local stakeholder relationships in partnership with our local communities and business partners..

Business review and risks

A review of the Group's performance and the key risks and uncertainties which have been faced as well as details on likely developments and Risk Management can be found in pages 14-19 of this Report.

Board Meetings

During 2018, the Board of Directors held six meetings with a 100 % attendance rate. Directors attended meetings in person and occasionally via conference call. The Board of Directors has also approved their decisions through 18 circular resolutions.

The Board conducts regular effectiveness reviews in order to evaluate its performance as well as that of its committees and individual Directors. The evaluation process is normally initiated by a questionnaire and then supplemented by individual interviews by the Chair with each of the Directors. The conclusions are analysed by the Board to further strengthen its composition and performance.

At the end of each year, MHP's Non-executive Directors have a regular meeting to discuss and to evaluate the performance of the executive Directors.

The latest meeting took place in London, UK, in December 2018.

The results of the evaluation are usually communicated to executive Directors at the first Board meeting of the following year.

AGM

The next AGM will take place on 19 June 2019 at noon at 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The 2019 AGM notice will be posted on the Company's website at https://www.mhp.com.ua/en/investor-relations/corporate-governance/MHP-S-E-Cyprus/annual-general-meeting.

Board of Directors

The biographical details of the current serving Directors are set out on https://www.mhp.com.ua/en/about/board.

The Directors who served during the year were: Mr Roberto Banfi (appointed to the Board in June 2018); Mr John Grant; Ms Viktoria Kapelyushnaya; Mr Yuriy Kosyuk; Mr Yuriy Melnyk; Mr William Richards (stood down from the Board in October 2018); Dr John Rich; Mr Christakis Taoushanis (appointed to the Board in July 2018); and Mr Roger Wills (appointed to the Board in December 2018).

Directors' Indemnity Arrangements

The Directors have the benefit of a Directors' liability insurance policy and the Company has entered into qualifying third-party indemnity arrangements with them, as permitted by the Companies Act 2006. The policy was in force throughout 2018, at the year end, and continues in force at the date of this Report.

The Directors are permitted to take independent legal advice at the Company's expense within set limits in furtherance of their duties.

Dividend Policy

In March 2013 the Board of Directors approved the adoption of a dividend policy that maintains a balance between the need to invest in further development and the right of shareholders to share the net profits of the Company. The dividend policy confirms the Company's intention to pay annual dividends to shareholders. The Company paid dividends of US$ 80 million in 2018 (2017: US$ 80 million).

Significant Sharesholders and Related Party Transactions

In December 2018, the Group exchanged 256,414 of its shares in the form of GDRs held in treasury to increase its effective ownership interest in Agrofort to 100% through the acquisition of a non-controlling interest.

Research and Development

Sustaining significant investment in research and development "R&D" is fundamental to the Company's long-term growth strategy. MHP employs state-of-the-art technology throughout its operations. Our target is to sustain our position as a world leader in poultry production, cost control and efficiency levels at the same time as adopting a sustainable and responsible approach to society, the environment and animal welfare.

Corporate Responsibility Reporting

The Group initiated Corporate Responsibility reporting in 2015 and issues a separate Corporate Responsibility Report (Non-Financial Report) annually. This Report includes information for MHP's material stakeholders and applies the latest applicable Global Reporting Initiative's (GRI) reporting framework. The latest Corporate Responsibility Report (Non-Financial Report) is for 2017 and can be found in the "Sustainable Development" section of the Company's website at: https://www.mhp.com.ua/en/responsibility/sustainable-development.

The Company expects the 2018 Report to be available in June 2019.

Branches

MHP does not have any branches.

Going Concern

After reviewing the 2019 budget and longer-term plans, the Directors are satisfied that, at the time of the approval of the financial statements, it was appropriate to adopt the going concern basis in preparing the financial statements of the Group.

Political Donations

The Group did not make any political donations or incur any political expenditure during the year.

Communication with Shareholders

The Directors highlight the importance of effective and clear communication with shareholders. During 2018 shareholders had a number of meetings and discussions with Board members, predominantly with Mr Yuriy Kosyuk, Dr John Rich, and Ms Viktoria Kapelyushnaya, including meetings during roadshows, at conferences and regular conference calls. In order to facilitate communication with Independent Directors, the Board has introduced a direct communication channel between shareholders and independent Directors and provides direct contact details through the Investor Relations Director. Details can be found at http://www.mhp.com.ua/en/investor-relations/ir-contacts.

Events after the Balance Sheet Date

On 15 February 2019, MHP received clearance from the Slovenian Competition Protection Agency for its acquisition of Perutnina Ptuj, a well-established international food-processing company and the most important and largest producer of poultry meat and poultry meat products in Southeast Europe. The acquisition had already received clearance from regulators in Austria, North Macedonia, Serbia and Romania.

On 21 February 2019, MHP completed its acquisition of Perutnina Ptuj.

Disclosure of Information to Auditors

So far as each Director is aware, all information relevant to the audit of the Group's consolidated financial statements has been supplied to the Group's auditors. Each Director has taken all steps that he/she ought to have taken in his/her duty as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

The independent auditors, Messrs Deloitte Limited, have expressed their willingness to continue in office and a resolution authorising the Board of Directors to fix their remuneration will be submitted at the forthcoming Annual General Meeting.

Approval

Approved by the Board and signed on its behalf by:

Dr John Rich

Chairman of the Board of Directors of MHP SE

MHP SE AND ITS SUBSIDIARIES

Consolidated Financial Statements

As of and for the year ended 31 December 2018

CONTENTS

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 2018..................................................................................................................................................... (a)

INDEPENDENT AUDITOR'S REPORT...................................................................................................... (i)

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2018

Consolidated statement of profit or loss and other comprehensive income..................................................... 9

Consolidated statement of financial position............................................................................................. 11

Consolidated statement of changes in equity............................................................................................ 12

Consolidated statement of cash flows...................................................................................................... 13

Notes to the Consolidated financial statements......................................................................................... 15

1. Corporate information...................................................................................................................... 15

2. Changes in the group structure......................................................................................................... 16

3. Summary of significant accounting policies....................................................................................... 17

4. Critical accounting judgments and key sources of estimation uncertainty............................................. 34

5. Segment information....................................................................................................................... 35

6. Revenue......................................................................................................................................... 37

7. Cost of sales.................................................................................................................................. 37

8. Selling, general and administrative expenses..................................................................................... 38

9. Government grants income.............................................................................................................. 38

10. Finance costs.............................................................................................................................. 39

11. Income tax................................................................................................................................... 39

12. Property, plant and equipment....................................................................................................... 42

13. Land lease rights.......................................................................................................................... 45

14. Other non-current assets, net........................................................................................................ 45

15. Biological assets.......................................................................................................................... 46

16. Inventories................................................................................................................................... 49

17. Agricultural produce...................................................................................................................... 49

18. Taxes recoverable and prepaid....................................................................................................... 49

19. Trade accounts receivable, net....................................................................................................... 49

20. Other current assets..................................................................................................................... 51

21. Cash and cash equivalents............................................................................................................ 51

22. Shareholders' equity..................................................................................................................... 51

23. Non-controlling interests................................................................................................................ 52

24. Bank borrowings........................................................................................................................... 53

25. Bonds issued............................................................................................................................... 54

26. Finance lease obligations.............................................................................................................. 56

27. Other current liabilities.................................................................................................................. 57

28. Related party balances and transactions........................................................................................ 57

29. Contingencies and contractual commitments.................................................................................. 58

30. Dividends..................................................................................................................................... 60

31. Fair value of financial instruments................................................................................................... 60

32. Risk management policies............................................................................................................ 62

33. Pensions and retirement plans....................................................................................................... 67

34. Earnings per share....................................................................................................................... 67

35. Subsequent events....................................................................................................................... 67

36. Authorization of the consolidated financial statements..................................................................... 67

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 2018

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view of the financial position of MHP SE (the "Company") and its subsidiaries (the "Group") as of 31 December 2018 and of the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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;

· 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 2018 were authorized for issue by the Board of Directors on 19 March 2019.

Board of Directors' responsibility statement

In accordance with Article 9 sections (3c) and (7) of the Transparency Requirements (Traded Securities in Regulated Markets) Law 190 (1) / 2007 until 2013, we, the members of the Board of Directors responsible for the drafting of the consolidated financial statements of MHP SE for the year ended 31 December 2018, on the basis of our knowledge, declare that:

a) the consolidated financial statements which are presented on pages 9 to 67:

(i) have been prepared in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the provisions of article 9 section (4) of the law, and

(ii) provide a true and fair view of the assets and liabilities, the financial position and the profit or loss of the Company's and subsidiary companies, consolidated financial statements as a whole and

b) the Management report provides a fair review of the developments and the performance of the business and the financial position of the Group included in the consolidated accounts taken as a whole, together with a description of the main risks and uncertainties which they face.

On behalf of the Board:

INDEPENDENT AUDITOR'S REPORT

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 15 to 67 form an integral part of these consolidated financial statements

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 15 to 67 form an integral part of these consolidated financial statements

Consolidated statement of financial position

as of 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 15 to 67 form an integral part of these consolidated financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 16 to 67 form an integral part of these consolidated financial statements

Consolidated statement of cash flows

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 16 to 67 form an integral part of these consolidated financial statements

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 15 to 67 form an integral part of these consolidated financial statements

Notes to the Consolidated financial statements

for the year ended 31 December 2018

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. MHP SE serves as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP SE, which in turn directly owns of 59,7% of the total outstanding share capital of MHP SE.

The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing 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, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk, goose meat, foie gras and feed grains. During the year ended 31 December 2018 the Group employed 28,575 people (2017: 27,589 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 December 2018 and 2017 were as follows: