Mhp Reg S Regulatory News (MHPC)

23 August 2018, Limassol, Cyprus

MHP SE

Unaudited Financial Results for the Second Quarter and Six Months Ended 30 June 2018

MHP SE (LSE:MHPC), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and cultivation of grain, today announces its unaudited results for the six months and second quarter ended 30 June 2018.

OPERATIONAL HIGHLIGHTS

 In Q2 2018, MHP has been launching the first production sites of Phase 2 of the Vinnytsia Poultry Complex ('Complex'):

· Since the end of May, two rearing sites (brigades) of the Complex commenced operations;

· At the beginning of July, the slaughterhouse commenced operations.

Q2 2018

· Poultry production volumes reached 155,725 tonnes, up by 7% (Q2 2017: 145,820 tonnes)

· The average chicken meat price increased by 20% year-on-year to UAH 39.38 per kg (Q2 2017: UAH 32.92 per kg) (excluding VAT)

· Chicken meat exports, at 70,145 tonnes, remained stable compared to Q2 2017 - 71,332 tonnes

H1 2018

· Poultry production volume reached 307,890 tonnes, up by 7% (H1 2017: 287,694 tonnes)

· The average chicken meat price increased by 21% year-on-year to UAH 39.17 per kg (H1 2017: UAH 32.35 per kg) (excluding VAT)

· Chicken meat exports increased by 9% to 133,564 tonnes (H1 2017: 123,042 tonnes) as a result of increased exports mainly to the countries in MENA and the EU.

FINANCIAL HIGHLIGHTS

Q2 2018

· Revenue of US$ 388 million, increased by 21% year-on-year (Q2 2017: US$ 321 million)

· Export revenue of US$ 223 million, 57% of total revenue (Q2 2017: US$ 185 million, 58% of total revenue)

· Operating profit of US$ 150 million remained stable year-on-year; operating margin was 39%

· Adjusted EBITDA margin decreased to 45% from 54%; adjusted EBITDA slightly increased to US$ 174 million from US$ 173 million

· Net profit is US$ 100 million, compared to US$ 153 million for Q2 2017

H1 2018

· Revenue of US$ 694 million, increased by 16% year-on-year (H1 2017: US$ 600 million)

· Export revenue of US$ 385 million, 55% of total revenue (H1 2017: US$ 349 million, 58% of total revenue)

· Operating profit of US$ 212 million decreased by 6% year-on-year; operating margin was 31%

· Adjusted EBITDA margin decreased to 38% from 44%; adjusted EBITDA slightly decreased to US$ 263 million from US$ 266 million

· Net profit reached US$ 190 million, down 10% compared to US$ 210 million for H1 2017 mainly due to reduction in government grants income (US$ 24 million) and due to one-off transaction costs (US$ 33 million) related to new Eurobond issued in April 2018, partly offset by non-cash foreign exchange translation gain.

FINANCIAL OVERVIEW

* pps - percentage points

Average official FX rate for Q2: UAH/US$ 26.1784 in 2018 and UAH/US$ 26.4627 in 2017

Average official FX rate for H1: UAH/US$ 26.7462 in 2018 and UAH/US$ 26.7602 in 2017

DIVIDENDS

On 6 March 2018, the Board of Directors of MHP SE approved payment of an interim dividend of US$ 0.7492 per share, equivalent to approximately US$ 80 million, on 26 April 2018 to shareholders on the register as of 20 April 2018. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) for dividends to be paid later than on the declared dividend payment date (but not later than 1 November 2018), with no interest accrued on the amount of dividend paid later.

During the six-month period ended 30 June 2018, MHP SE paid dividend to shareholders in amount of approximately US$ 60 million.

DIAL-IN DETAILS

MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results

The dial-in details are:

Time: 07.00 New York / 12.00 London / 14.00 Kyiv

Title: Financial results for Q2 and H1 2018

International/UK Dial in: +44 2071943759

USA free call: +1 6467224916

Conference ID EV00077762

Participant PIN code 11109084#

In order to follow the presentation together with the management, please register using the following link: http://event.onlineseminarsolutions.com/r.htm?e=1809217&s=1&k=53F5382C4D55BE2D550DA4EB17C5E881

For Investor Relations enquiries, please contact:

Anastasia Sobotiuk (Kyiv) +38 044 207 99 58 a.sobotyuk@mhp.com.ua

For Analysts enquiries, please contact:

Iryna Bublyk (Kyiv) +38 044 207 00 04 i.bublik@mhp.com.ua

Segment Performance

Poultry and related operations

Chicken meat prices

Aggregate volume of chicken meat sold to third parties increased by 2% in H1 2018 and reached 288,437 tonnes (H1 2017: 283,972 tonnes) as a result of growth in exports. In Q2 2018 export sales totaled 70,145 tonnes and remained stable compared to the Q2 2017 export sales volume - 71,332 tonnes. In H1 2018 poultry exports increased by 9% and reached 133,564 tonnes (H1 2017: 123,042 tonnes), mainly driven by the growth of exports in Q1 2018. MHP continued to follow a strategy of both geographic diversification and in a product mix optimization building-up the export volumes of chicken meat across the MENA, the EU, Africa and Asia.

In H1 2018 the average chicken meat price constituted UAH 39.17, which is 21% higher than in H1 2017. The increase in price year-on-year is mainly driven by a price growth in H2 2017 compared to H1 2017. Chicken meat price during H1 2018 remained almost at the same level.

Vegetable oil

In Q2 2018, sunflower oil sales volume constituted 100,598 tonnes, which is 19% higher year-on-year. In H1 2018 MHP's sales of sunflower oil have decreased by 11% compared to H1 2017 and reached 148,104 tonnes. The changes in sales volumes in the periods are driven mainly by delivery terms change from DAP to FOB since the beginning of 2018, production volume of sunflower oil remained relatively stable year-on-year. Sales of soybean oil reached 13,366 tonnes in Q2 2018, 105% higher year-on-year and 31,621 tonnes in H1 2018, 121% higher year-on-year, mainly driven by an increase in global market price of soybean cake.

* pps - percentage points

As a result of the increase in sales volume and price of chicken meat, revenue has increased by 19% in H1 2018 compared to H1 2017.

IAS 41 standard loss in H1 2018 amounted to US$ 8 million mainly as a result of a relatively stable price of chicken meat during H1 2018 and a decrease in the fair value of a parent stock.

Gross profit of the poultry and related operations segment for Q2 2018 increased by 25% compared to Q2 2017 and amounted to US$ 79 million. An increase is mainly attributable to increase of meat prices, which was partly offset by increased production costs, reflecting higher prices of soybean and sunflower as a components of mixed fodder consumed as well as higher payroll costs.

Adjusted EBITDA has decreased by 9%, mainly related to a decrease in government grants income due to the Government has not allocated the budget for the subsidies for 2018 year, as well as an increase in administration, sales and distribution expenses mainly due to an increase in payroll cost, logistics costs and warehouse rent.

Grain growing operations

In 2018 in grain growing operations the Company is to harvest around 365,000 hectares of land.

The Company's harvesting campaign of winter rapeseeds, barley and wheat is complete, so that winter crops current (bunker) yields are as follows:

Grain growing segment's revenue for 6M 2018 amounted to US$ 13 million compared to US$ 28 million in 6M 2017. The decrease was mainly attributable to the lower amount of crops in stock designated for sale as of 31 December 2017, compared to stock for sale as of 31 December 2016 mainly as a result of lower yields in 2017.

IAS 41 standard gain for 6M 2018 amounted to US$ 78 million compared with US$ 51 million in H1 2017 mainly as a result of the revaluation of crops in fields (biological assets) at the reporting date.

Other agricultural operations

Sales volume of meat processing products slightly decreased by 2% year-on-year and amounted to 8,798 tonnes in Q2 2018. The average processed meat price increased by 32% year-over-year to UAH 61.09 per kg in Q2 2018 in line with poultry price increase. 

* pps - percentage points

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

Segment revenue of H1 2018 increased by 18% year-on-year to US$ 65 million mainly as a result of an increase in price of meat processing as well as price and sales volume of convenience food products. The segment's adjusted EBITDA increased mostly as a result of higher returns earned from meat processing, convenience food and milk operations.

Current Group 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 H1 2018 amounted to US$ 137 million (H1 2017: US$ 144 million).

Use of funds in working capital during H1 2018 is mostly related to investments in crops in fields to be harvested in H2 2018.

In H1 2018 total CAPEX amounted to US$ 126 million mainly related to launching the production sites of Phase 2 of the Vinnytsia Poultry Complex.

Debt Structure and Liquidity

As of June 30, 2018, the share of long-term debt in the total outstanding debt slightly decreased to 95% of total debt (96% of total debt as of 31 December 2017). The weighted average interest rate is around 7%.

As of 30 June 2018, MHP's cash and cash equivalents amounted to US$ 109 million. Net debt increased to US$ 1,180 million, compared to US$ 1,031 million as at 31 December 2017.

The Net Debt / LTM EBITDA ratio was 2.59 as of 30 June 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, more than fully covering debt service expenses. Export revenue for H1 2018 amounted to US$ 385 million or 55% of total revenue (US$ 349 million or 58% of total sales in H1 2017).

Outlook

Recent launch of Phase 2 of the Vinnytsia Poultry Complex (2 brigades - May and June) and launch of additional two brigades by the end of 2018 will result in increase of poultry production volumes in the second half of the year to meet demand both in domestic and export markets.

Taking into account favorable weather conditions during summer time, we are expecting a good harvest of spring crops (corn, sunflower and soya), which will positively affect the overall financial result of MHP in 2018.

We are confident that 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 grains.

Notes to Editors:

About MHP

MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times.

MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.

Since May 15, 2008, MHP has traded on the London Stock Exchange under the ticker symbol MHPC.

Forward-Looking Statements

This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP SE. Such statements do not guarantee that these are actions to be taken by MHP SE in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.

MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

As of and for the six-month period ended 30 June 2018

CONTENTS

STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS.................................................................(a)

MANAGEMENT REPORT...............................................................................................................................(b)

REVIEW REPORT OF INTERIM CONDENCED CONSOLIDATED FINANCIAL INFORMATION.................(c)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME.............................................................................................................................................................. 5

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 6

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 7

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS................................................... 9

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................ 11

1. Corporate information................................................................................................................................. 11

2. Basis of preparation and accounting policies............................................................................................. 12

3. Segment information.................................................................................................................................. 14

4. Profit for the period.................................................................................................................................... 15

5. Government grants income....................................................................................................................... 15

6. Property, plant and equipment.................................................................................................................. 15

7. Inventories and agricultural produce......................................................................................................... 15

8. Biological assets....................................................................................................................................... 16

9. Shareholders' equity................................................................................................................................. 16

10. Bank borrowings.................................................................................................................................... 16

11. Bonds issued......................................................................................................................................... 17

12. Related party balances and transactions.............................................................................................. 20

13. Contingencies and contractual commitments...................................................................................... 21

14. Fair value of financial instruments....................................................................................................... 22

15. Risk management policy..................................................................................................................... 23

16. Dividends............................................................................................................................................ 24

17. Subsequent events............................................................................................................................. 24

18. Authorization of the interim condensed consolidated financial statements........................................ 24

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"), 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 2018 to 30 June 2018 that are presented on pages 5 to 24:

i. were prepared in accordance with the International Financial Reporting Standards 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 total, and

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

22 August 2018

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 Raymond William Richards

Director Christakis Taoushanis

Director Roberto Banfi

MANAGEMENT REPORT

Key financial highlights

During the six-month period ended 30 June 2018 consolidated revenue increased by 16% and amounted to USD 693,762 thousand, compared to USD 599,830 thousand for the six-month period ended 30 June 2017. Export sales for the six-month period ended 30 June 2018 constituted 55% of total revenue and amounted to USD 385,001 thousand, compared to USD 349,034 thousand, 58% of total revenue for the six-month period ended 30 June 2017. Overall increase in revenue is mainly attributable to the increased price and volume exports of chicken meat.

Gross profit has increased by 10% and amounted to USD 262,359 thousand for the six-month period ended 30 June 2018 compared to USD 238,790 thousand for the six-month period ended 30 June 2017.

Operating profit decreased by 6% to USD 212,414 thousand for the six-month period ended 30 June 2018 compared to USD 226,138 thousand for the six-month period ended 30 June 2017, mainly as a result of a decrease in government grants income (Note 5).

Profit for the period from continuing operations for six-month period ended 30 June 2018 decreased by 9% and amounted to USD 190,479 thousand, compared to USD 210,101 thousand for the six-month period ended 30 June 2017.

Dividends

On 6 March 2018, the Board of Directors of MHP SE approved a payment of the interim dividends of USD 0.7492 per share, equivalent to approximately USD 80,000 thousand, on 26 April 2018 to shareholders on the register as of 20 April 2018. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than 1 November 2018), with no interest accrued on the amount of dividend paid later (Note 12).

During the six-month period ended 30 June 2018, MHP SE paid dividends to shareholders of approximately USD 60,044 thousand.

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 2017. A detailed explanation of the risks, and how the Group seeks to mitigate the risks, can be found on pages 148 to 153 of the annual report which is available at www.mhp.com.cy.

22 August 2018

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

Review Report of interim condensed consolidated financial information

To MHP SE

Introduction

We have reviewed the accompanying interim condensed consolidated financial information of MHP SE ("the Company") and its subsidiaries (together with the Company, the "Group") on pages 5 to 24 which comprises the interim condensed consolidated statement of financial position as at 30 June 2018 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 a summary of significant accounting policies and other explanatory information ("the interim condensed consolidated financial information").

Board of Directors' responsibilities

The Company's Board of Directors is responsible for the preparation and presentation of this interim condensed consolidated financial information in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted by the European Union.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Auditor's Responsibility

Our responsibility is to express a conclusion on this interim condensed consolidated financial information based on our review. This report, including the conclusion, has been prepared for and only for the Company. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

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 condensed consolidated 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 information for the six-month period ended 30 June 2018 is not prepared in all material respects, in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

Comparative figures

The interim condensed consolidated financial information of the Company for the six-month period ended 30 June 2017 were reviewed by another auditor who expressed an unqualified conclusion on that interim condensed consolidated financial information on 16 August 2017.

Deloitte Limited

Certified Public Accountants and Registered Auditors

Limassol, 22 August 2018

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

for the six-month period ended 30 June 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 11 to 24 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 30 June 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 11 to 24 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 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 11 to 24 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 2017

(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 11 to 24 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 2018

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 11 to 24 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 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 11 to 24 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 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 59,8% 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 six-month period ended 30 June 2018 the Group employed about 28,226 people (31 December 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 30 June 2018 and 31 December 2017 were as follows:

The Group's primary operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Sumy and Khmelnitsk regions.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2018

(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 2018 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

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 2017 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.

Adoption of new and revised International Financial Reporting Standards

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make adjustments as a result of adopting the following standards:

· IFRS 9 Financial Instruments, and

· IFRS 15 Revenue from Contracts with Customers

In accordance with the transitional provisions, IFRS 9 was adopted without restating comparative information. The adjustments arising from the new requirements of recognition and measurement of financial liabilities are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognized in the opening balance sheet on 1 January 2018 (Note 11). 

The adoption of these standards and the new accounting policies did not have any material effect on the financial position or performance of the Group. The other standards did not result in any changes to the Group's accounting policies and the amounts reported in the six-month period ended 30 June 2018 or prior periods.

For the Standards and Interpretations, as well as amendments to the Standards that were in issue but not yet effective management anticipates that their adoption will not have a material effect on the consolidated financial statements of the Group in future periods, except those disclosed in the Group's annual financial statements for the year ended 31 December 2017. The Management are currently assessing their potential impact. It is not practicable to provide a reasonable financial estimate of the effect until the detailed analysis is completed.

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"). 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;

· All resulting exchange differences are recognized as a separate component of equity;

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2018

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currency (continued)

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

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

The following exchange rates were used: