Mhp Reg S Regulatory News (MHPC)

MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

As of and for the six-month period ended 30 June 2021

CONTENTS

STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS................................................................. 3

MANAGEMENT REPORT............................................................................................................................... 4

REVIEW REPORT OF INTERIM condensed consolidated FINANCIAL INFORMATION...................6

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2021

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME.............................................................................................................................................................. 7

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION....................................... 9

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 10

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS................................................... 12

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 14

1. Corporate information.................................................................................................................................. 14

2. Basis of preparation and accounting policies............................................................................................... 15

3. Changes in the group structure.................................................................................................................... 16

4. Segment information.................................................................................................................................... 17

5. Revenue....................................................................................................................................................... 20

6. Profit for the period....................................................................................................................................... 20

7. Deferred income........................................................................................................................................... 21

8. Property, plant and equipment...................................................................................................................... 21

9. Agricultural produce...................................................................................................................................... 21

10. Biological assets........................................................................................................................................ 21

11. Share capital.............................................................................................................................................. 21

12. Bank borrowings........................................................................................................................................ 22

13. Bonds issued............................................................................................................................................. 23

14. Related party balances and transactions.................................................................................................. 25

15. Contingencies and contractual commitments........................................................................................... 26

16. Fair value of financial instruments............................................................................................................ 28

17. Risk management policy........................................................................................................................... 28

18. Dividends.................................................................................................................................................. 30

19. Subsequent events................................................................................................................................... 30

20. Authorization of the interim condensed consolidated financial statements............................................... 30

STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS

In accordance with Article 10 of the Transparency Requirements (Securities for Trading on Regulated Market) Law 190(l)/2007 ("Law"), as amended, we the members of the Board of Directors of MHP SE confirm that to the best of our knowledge:

(a) The interim condensed consolidated financial statements for the period from 1 January 2021 to30 June 2021 that are presented on pages 7 to 30:

i. were prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and in accordance with the provisions of Article 10 (4) of the Law, and

ii. give a true and fair view of the assets and liabilities, the financial position and the profits of MHP SE and the businesses that are included in the interim condensed consolidated financial statements as a whole, and

(b) the interim management report gives a fair review of the information required under Article 10 (6) of the Law.

8 September 2021

Members of the Board of Directors:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

Director Yuriy Melnyk

Director John Grant

Director John Clifford Rich

Director Philip J Wilkinson

Director Christakis Taoushanis

MANAGEMENT REPORT

Key financial highlights

During the six-month period ended 30 June 2021 consolidated revenue increased by 14% to USD 988,575 thousand, compared to USD 867,448 thousand for the six-month period ended 30 June 2020. The increase was mainly attributable to higher export and domestic prices as well as growth in export volume of chicken meat sold. Export sales for the six-month period ended 30 June 2021 constituted 51% of total revenue and amounted to USD 501,564 thousand, compared to USD 452,721 thousand, and 52% of total revenue for the six-month period ended 30 June 2020. The increase in export revenue was mainly attributable to higher prices and volume of chicken meat sold.

Gross profit increased by 63% to USD 358,085 thousand for the six-month period ended30 June 2021 compared to USD 219,014 thousand for the six-month period ended 30 June 2020. The increase was driven mainly by higher returns earned by the grain growing segment due to increase in grain prices.

Operating profit increased by 85% to USD 255,154 thousand for the six-month period ended 30 June 2021 compared to USD 138,041 thousand for the six-month period ended 30 June 2020.

Profit from continuing operations for the six-month period ended 30 June 2021 amounted to USD 232,306 thousand, compared to loss of USD 60,629 thousand for the six-month period ended 30 June 2020. The improvement reflects the increase in operating profit as well as appreciation of the Ukrainian Hryvnia against US Dollar and EURO, which resulted in a foreign exchange gain of USD 50,503 thousand for the six-month period ended 30 June 2021 compared to a foreign exchange loss of USD 129,472 thousand for the six-month period ended 30 June 2020.

Having regard to the activities of the Group, management believes that the above measures are frequently used by investors, analysts and stakeholders to evaluate the efficiency of the Group's operations. For further information on the above measures, please refer to page 6 of the interim condensed consolidated financial statements for the six-month period ended 30 June 2021.

Related parties

During the six-month periods ended 30 June 2021 and 30 June 2020 the Group entered into transactions with related parties that are under common control of the Principal Shareholder of the Group (Note 1) in the ordinary course of business. Detailed information on operations with related parties is disclosed in Note 14.

Dividends

At the extraordinary general meeting, which was held on 28 April 2021, the Shareholders of MHP SE have approved payment of an annual dividend of USD 0.2803 per share, equivalent to USD 30,000 thousand to shareholders on the register as of 7 May 2021. As at 30 June 2021 dividends were fully paid to shareholders.

Risks and uncertainties

There are a number of potential risks and uncertainties, which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2020. A detailed explanation of the risks, and how the Group seeks to mitigate them, can be found on pages 154 to 157 of the annual report which is available at www.mhp.com.cy.

In 2020 the new COVID-19 coronavirus spread rapidly all over the world resulting in the announcement of pandemic status by the World Health Organization in March 2020.

The world economy entered a period of unprecedented health care crisis that has already caused considerable global disruption in business activities and everyday life.

Risks and uncertainties (continued)

COVID-19 had an adverse impact on 2020 earnings, mainly because of its impact on prices and export volumes as many global competitors were experiencing reduced demand and resulting excess capacity. At the end of 2020 and in 1H 2021 the situation stabilized temporarily, although it still could negatively impact the remainder of 2021. These challenges could increase our operating costs and negatively impact our volumes. Management cannot currently predict the impact that COVID-19 may have on short and long-term demand, as it will depend on, among other things, the severity and duration of the COVID-19 crisis.

Management has concluded that COVID-19 is unlikely to have a material impact on MHP's business operations. The Company's liquidity is expected to be adequate to continue operations and meet obligations as they become due in the foreseeable future.

8 September 2021

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya 

REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

To MHP SE

Introduction

We have reviewed the interim condensed consolidated financial statements of MHP SE (the "Company"), and its subsidiaries (collectively referred to as "the Group") on pages 7 to 30, which comprise the interim condensed consolidated statement of financial position as at 30 June 2021 and the interim condensed consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six-month period then ended and selected explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as adopted by the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared in all material respects in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as adopted by the European Union.

Andreas Avraamides

Certified Public Accountant and Registered Auditor

for and on behalf of

Ernst & Young Cyprus Limited

Certified Public Accountants and Registered Auditors

Nicosia, Cyprus

8 September 2021

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (continued)

for the six-month period ended 30 June 2021

(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 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 30 June 2021

(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 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2020

(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 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 14 to 30 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

for the six-month period ended 30 June 2021

(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 14 to 30 form an integral part of these interim condensed consolidated financial statements

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus. The MHP SE shares are listed on the London Stock Exchange ("LSE") in the form of global depositary receipts ("GDRs").

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

The principal business activities of the Group are poultry and related operations, grain growing, as well as meat processing and other agricultural operations. The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Meat processing and other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk and feed grains. As at 30 June 2021 the Group employed 29,791 people (31 December 2020: 30,471 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 30 June 2021 and 31 December 2020 were as follows:

1) On 19 April 2021 merger of MHP SE with its subsidiaries, namely Raftan Holding ltd, Hemiak Investments ltd and Eledem Investments ltd, took place. All assets and liabilities of merging companies have been transferred to the succeeding company MHP SE. Subsidiary companies were dissolved

The Group's primary operational facilities are located in different regions of Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia and Bosnia and Herzegovina.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six-month period ended 30 June 2021 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been condensed or omitted. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of the Group management, necessary to fairly state the results of interim periods. Interim results are not necessarily indicative of the results to be expected for the full year.

These interim condensed consolidated financial statements have been prepared on the assumption that the Group is a going concern and will continue in operation for the foreseeable future.

The 31 December 2020 statement of financial position was derived from the audited consolidated financial statements, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113. Audited consolidated financial statements are available at www.mhp.com.cy.

Adoption of new and revised International Financial Reporting Standards

The adoption of the new or revised Standards did not have any effect on the financial position or performance of the Group and did not result in any changes to the Group's accounting policies and the amounts reported in the interim condensed consolidated financial statements of the Group.

Functional and presentation currencies

The functional currency of Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus companies and Luxembourg company of the Group is US Dollars ("USD"), the functional currency of the other European companies of the Group is EURO ("EUR"), the functional currency of the United Arab Emirates companies is Dirham ("AED"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognized in the consolidated statement of profit or loss and other comprehensive income for the period.

These consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.

The results and financial position of the Group are translated into the presentation currency using the following procedures:

· Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that statement of financial position;

· Income and expenses for each consolidated statement of profit or loss and other comprehensive income are translated at exchange rates at the dates of the transactions;

· The exchange differences arising on translation for consolidation are recognised in other comprehensive income and presented as a separate component of equity. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss;

· All equity items, except for the revaluation reserve, are translated at the historical exchange rate. The revaluation reserve is translated at the closing rate as of the date of the statement of financial position.

For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average exchange rates, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currencies (continued)

The following exchange rates were used:

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2020.

Seasonality of operations

Poultry and related operations, European operating segment and Meat processing and other agricultural operations are not significantly exposed to seasonal fluctuations.

Due to seasonality and implications of IAS 41, results of the Grain growing segment in the first half of the year mainly reflects sales of carried forward agricultural produce and the effect of biological assets revaluation, while during the second half of the year they reflect sales of crops and the effect of revaluation of agricultural produce harvested during the year. Also, the grain growing segment has seasonal requirements to increase working capital from November to May, due to the sowing campaign.

3. Changes in the group structure

Discontinued operation

During the six-month period ended 30 June 2020, the Group disposed of the Snyatynska poultry farm in Ukraine, which carried out goose meat and foie gras operations, and was previously presented within the Meat processing and other agricultural operations segment. Net assets as of the date of disposal were USD 3,303 thousand. The total consideration of USD 2,700 thousand was received in cash during this reporting period.

During the six-month period ended 30 June 2021 the Group disposed of the assets of its subsidiary Dobropilskyi GPP PrJSC, which was located in Ukraine and carried out grain storage operations, and was previously presented within the Poultry and related operations segment. Net assets as of the date of disposal were USD 620 thousand. Before the sale the property plant and equipment included into the net assets disposed were impaired by USD 4,105 thousand. Impairment was recognized as decrease in revaluation reserve related to those property, plant and equipment. The total cash consideration of USD 671 thousand was received during this reporting period.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of profit or loss. All other notes to the financial statements include amounts for continuing operations, unless otherwise mentioned.

Acquisitions

On 01 June 2021, the Group acquired a 51% share in Lubnym`yaso LLC, a Ukrainian meat production plant, whose main economic activity is the production and sale of beef under the trade mark Scott Smeat. As of the date of acquisition, net assets of the acquired plant amounted to USD 1,529 thousand. Purchase consideration of USD 1,569 thousand was paid in cash. Goodwill in the amount of USD 788 thousand is attributable to the expectation that this acquisition will support the Group's strategic transformation to a culinary company through launch of additional products.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

4. Segment information

The Group's business is managed on a worldwide basis, but operates manufacturing facilities and sales offices primarily in Ukraine and Europe.

Reportable segments are presented in a manner consistent with the internal reporting to the Group's chief operating decision maker ("CODM").

Segment information is 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:

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 2. Sales between segments are carried out at market prices. The segment result represents operating profit under IFRS before unallocated corporate expenses and loss on impairment of property, plant and equipment. Unallocated corporate expenses include management remuneration, representative expenses, and expenses incurred in respect of the maintenance of office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.

European operating segment primarily includes sales of chicken meat and meat processing products, produced in the facilities of Perutnina Ptuj. The CODM manages this as a single segment, on the basis that each of research, development, manufacture, distribution and selling of chicken meat and meat processing products require single marketing strategies, a centralised budgeting process and centralised management of production operations.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

4. Segment information (continued)

The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2021:

1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the six-month period ended 30 June 2021 does not include unallocated depreciation and amortization in the amount of USD 656 thousand.

The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2020:

1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the six-month period ended 30 June 2020 does not include unallocated depreciation and amortization in the amount of USD 481 thousand.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

4. Segment information (continued)

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 30 June 2021:

1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the three-month period ended 30 June 2021 does not include unallocated depreciation and amortization in the amount of USD 119 thousand.

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 30 June 2020:

 1) Includes finance income, finance costs, foreign exchange gain (net) and other expenses (net).

2) Depreciation and amortization for the three-month period ended 30 June 2020 does not include unallocated depreciation and amortization in the amount of USD 231 thousand.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

4. Segment information (continued)

Non-current assets based on the geographic location of the manufacturing facilities were as follows as of30 June 2021 and 31 December 2020:

1) Non-current assets excluding deferred tax assets and non-current financial assets.

5. Revenue

Revenue for the six-month and three-month periods ended 30 June 2021 and 2020 was as follows:

The geographic structure of revenue for the six-month and three-month periods ended 30 June 2021 and 2020 was as follows:

6. Profit for the period

The Group's gross profit for the six-month period ended 30 June 2021 increased substantially compared to the six-month period ended 30 June 2020 to USD 358,085 thousand (30 June 2020: USD 219,014 thousand). The increase was driven mainly by higher gain from revaluation of biological assets in the grain growing segment due to increased grain prices.

The Group's operating profit increased mainly as a result of the increase in gross profit partly offset by increased administration, sales and distribution expenses.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2021

(in thousands of US dollars, unless otherwise indicated)

6. Profit for the period (continued)

The Group's profit from continuing operations for the six-month period ended 30 June 2021 increased to a profit of USD 232,306 thousand compared to a loss of USD 60,629 thousand in the six-month period ended 30 June 2020. The improvement was attributable to the growth of operating profit and an unrealized foreign exchange gain of USD 50,503 thousand for the six-month period ended 30 June 2021 compared to a foreign exchange loss of USD 129,472 thousand for the six-month period ended 30 June 2020. Unrealized foreign exchange gains and losses are mostly attributable to the effect of changes in UAH exchange rates on bonds and bank borrowings denominated in US Dollars and Euros.

7. Deferred income

Government grants for compensation of construction and reconstruction of livestock farms and compensation of cost of machinery and equipment are presented in the statement of financial position as deferred income, which is recognised in profit or loss on a systematic basis over the useful life of the related assets. All other compensations received were recognised in the consolidated statement of profit or loss and other comprehensive income. During the six-month period ended 30 June 2021 the Group recognized government compensations of USD 4,099 thousand (2020: USD 2,623 thousand) in the consolidated statement of profit or loss and other comprehensive income.

During the six-month periods ended 30 June 2021 and 30 June 2020, the Group received government compensations in accordance with EU farming subsidies policy and other compensations in accordance with the EU national programs of employment, assigned contributions for employees, and refunds of excise duties in amount of USD 4,199 thousand and USD 3,602 thousand respectively.