Last checked at 20 Mar 2012 07:00
PRESS RELEASE
March 20, 2012, Kyiv, Ukraine
MHP S.A.
Financial Results for the Fourth Quarter and Full Yearended December 31, 2011
MHP S.A. ("MHP" or the "Company", LSE ticker: "MHPC"), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, today announces its financial results for the fourth quarter 2011 and full year ended 31 December 2011.
Key operational highlights
Poultry
o The Company's total volumes of chicken meat sold to third parties increased by 12% to 370,900 tonnes (2010: 331,400 tonnes).
o During the year, consumer demand for chicken remained high; all MHP's poultry production units continued to operate at 100% of capacity and the Company was able to sell close to 100% of the chicken produced.
o MHP's market share of industrially produced chicken in Ukraine was around 50% and of total poultry supply remained at around 33%.
o Average chicken meat sales prices to third parties in Q4 2011 increased by 18% to UAH 17.00 (net of VAT) per kg of adjusted weight when compared to Q4 2010. For the full year of 2011 the average chicken price increased by 10% to UAH 15.00 (net of VAT) per kg against UAH 13.65 (net of VAT) per kg in 2010.
o Export sales of chicken for the total 2011 increased by almost 80% compared to 2010 and constituted around 10% of total sales volumes. In 2011 the Company opened new export sales markets, among which are Libya, Lebanon, Uzbekistan and Angola.
Grain Growing
o Over 2011 the Company operated on 280,000 hectares of land, including 100,000 hectares acquired in 2010 that was cultivated for the first time in 2011. Total harvest in 2011 constituted 1,712,068 tonnes.
o MHP's 2011 yields as usual are significantly higher than Ukraine's average per hectare, moreover higher than in 2010, particularly in corn.
Other Agricultural
o Sales volumes of processed meat products, the main driver in Other agricultural segment, increased by 12% to 37,000 tonnes in 2011 compared to 32,900 tonnes in 2010.
o MHP is a market leader with close to 10% market share in meat processing in Ukraine in 2011.
Key financial highlights
Q4 2011 highlights
o Revenue increased by 30% to US$ 349 million (Q4 2010: US$ 268 million).
o EBITDA increased by 8% to US$ 100 million (Q4 2010: US$ 93 million).
o Net income from continuing operations slightly decreased from US$ 57 million to US$ 54 million.
FY 2011 highlights
o Revenue increased by 30% to US$ 1,229 million (2010: US$ 944 million).
o EBITDA increased by 24% to US$ 401 million (2010: US$ 325 million).
o EBITDA margin remained relatively at the same level and constituted 33% (2010: 34%)
o Net income from operations increased by 20% to US$ 259 million (2010: US$ 215 million).
Commenting on the results, Yuriy Kosiuk, Chief Executive Officer of MHP, said:
"I am very pleased to announce an excellent set of results for 2011. We have delivered a strong financial performance across our chicken, grain growing and other agricultural divisions.
In 2011 Ukraine experienced the highest crops yields during the period of Ukraine independence. Our company reaped the benefit of our significant land expansion in 2010, driving up production across all our main crops and generating outstanding profits in the grain growing segment. We have once again delivered record crop yields, significantly higher than the average in Ukraine, and well ahead of 2010, gathering one of the biggest harvests across agri companies in Ukraine.
We are delighted to report that development of our new Vinnytsia poultry complex project continues to plan. Our flagship expansion project is on track to commence production in early 2013 and to reach its full annual capacity of 220,000 tonnes of chicken meat in 2015. In 2012 we plan to start a trial production at Vinnytsia to get ready for a strong start in 2013.
Our objective is to carry on expanding and strengthening our leading market position, to be able to continue to implement our strategy and deliver strong financial results whilst achieving sector leading results by focusing on doing what we do best - producing and marketing a range of dependable, high-quality, value for money products. Our unique business model is the core of our strong profitability that gives us confidence in the future".
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MHP's management will host a conference call for investors and analysts followed by a Q&A session. The dial-in details are:
Date: Tuesday, 20 March 2012
Time: 9.00 New York / 13.00 London / 15.00 Kyiv / 17.00 Moscow
Title: MHP - Q4 and FY2011 Financial Results
UK Standard International +44 (0) 1452 555 566
UK Free Call 0800 694 0257
Russia Free Call 8108 002 097 2044
USA Free Call 1866 966 9439
Conference ID 599 68 111
A live webcast of the presentation will be available at:
https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=660842202
Alternative URL:
https://webconnect.webex.com/
Click on "Unlisted Events"
Event number: 599 68 111Event password: N/A
For further information please contact:
For investor relations and media enquiries Anastasiia Sobotiuk (Kyiv)
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Kyiv: +38 044 207 99 58 a.sobotyuk@mhp.com.ua
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Financial overview
In US$ | 2011 | 2010 | change | Q4 2011 | Q4 2010 | change | |
Revenue | US$, m | 1,229 | 944 | 30% | 349 | 268 | 30% |
IAS 41 standard gains | US$, m | 21 | 29 | -27% | (39) | (1) | n/a |
Gross profit | US$, m | 361 | 293 | 23% | 66 | 67 | -1% |
Gross margin | % | 29% | 31% | (2 pps)* | 19% | 25% | (6 pps)* |
Operating profit | US$, m | 321 | 257 | 25% | 66 | 68 | -2% |
Operating margin | % | 26% | 27% | (1 pps)* | 19% | 25% | (6 pps)* |
EBITDA | US$, m | 401 | 325 | 24% | 100 | 93 | 8% |
EBITDA margin | % | 33% | 34% | (1 pps)* | 29% | 35% | (6 pps)* |
Net income | US$, m | 259 | 215 | 20% | 54 | 57 | -6% |
Net income margin | % | 21% | 23% | (2 pps)* | 15% | 21% | (6 pps)* |
*pps -percentage points.
Q4 2011 Consolidated Financial Results
Consolidated revenue totalled US$ 349 million and increased by 30% (Q4 2010: US$ 268 million) as a result of higher chicken prices and sales volumes as well as high growth of external sales in grain growing segment.
EBITDA was US$ 100 million, which is 8% more than in Q4 2010 (US$ 93 million). EBITDA margin decreased from 35% to 29%.
Net income from operations slightly decreased by 6% from US$ 57 million in Q4 2010 to US$ 54 million in Q4 2011.
FY 2011 Consolidated Financial Results
For the full year MHP's revenue increased by 30% to US$ 1,229 million (2010: US$ 944 million) due to the growth of chicken meat sales volumes and average price, and high grain yields and increase of harvested land in grain growing segment, providing additional volumes of grains for external sales.
In 2011, EBITDA totaled US$ 401 million, which was by 24% more than in 2010 (2010: US$ 325 million). EBITDA margin slightly decreased from 34% to 33% due to modest chicken meat prices dynamics in H1 2011.
Net income from operations amounted to US$ 259 million, by 20% greater than in 2010 (2010: US$ 215 million). Net income margin decreased from 23% to 21%.
Functional currency
The functional currency for the Group's companies is the Ukrainian Hryvnia (UAH), however, for the convenience of users of financial statements, MHP presents its financial statements in US dollars (US$), using the quarterly average and historical exchange rates.
| As of 31 December 2011 | Average for 2011 | As of 31 December 2010 | Average for 2010 | |
UAH/USD | 7.9898 | 7.9677 | 7.9617 | 7.9353 |
UAH/EUR | 10.2981 | 11.0926 | 10.5731 | 10.5313 |
MHP's operating assets are located in Ukraine and its revenues and costs are principally denominated in Hryvnas. Almost 29% of our revenue and almost all financial costs are denominated in foreign currencies, primarily US dollars. Management believes that MHP's exposure to currency exchange rate fluctuations as a result of foreign currency costs is completely hedged by its US dollar revenue earned from the export of sunflower oil, sunflower husks, chicken meat and grains. In 2011 the Company generated US$ 354 million of revenue in foreign currencies, which was 47% more than in the previous year (US$ 240 million in 2010).
US$, m | 2011 | 2010 |
Sunflower oil and related products | 222,418 | 188,156 |
Chicken meat and related products | 67,874 | 29,147 |
Grains | 63,101 | 22,454 |
Other agricultural segment products | 486 | 290 |
Total export revenue | 353,879 | 240,047 |
Poultry and related operations
2011 | 2010 | change | Q4 2011 | Q4 2010 | change | ||
Revenue | US$, m | 979 | 800 | 22% | 260 | 221 | 17% |
- Poultry and other | US$, m | 763 | 620 | 23% | 206 | 167 | 23% |
- Sunflower oil | US$, m | 216 | 180 | 20% | 54 | 54 | - |
IAS 41 standard gains | US$, m | 3 | 9 | -72% | 1 | 1 | - |
Gross profit | US$, m | 261 | 240 | 9% | 76 | 56 | 36% |
Gross margin | % | 27% | 30% | (3 pps)* | 29% | 25% | 4 pps* |
EBITDA | US$, m | 290 | 273 | 7% | 88 | 65 | 35% |
EBITDA margin | % | 30% | 34% | (4 pps)* | 34% | 29% | 5 pps* |
EBITDA per 1 kg | US$ | 0.78 | 0.82 | -5% | 0.99 | 0.80 | 24% |
* pps -percentage points.
Q4 2011 Poultry and related operations segment financial results
Poultry | Q4 2011 | Q4 2010 | % change |
Sales volume, third parties tonnes | 88,900 | 81,900 | 9% |
Price per 1 kg net VAT, UAH | 17.00 | 14.35 | 18% |
Sunflower oil | |||
Sales volume, third parties tonnes | 48,200 | 46,200 | 4% |
Price per 1 tonne net VAT, US$ | 1,109 | 1,174 | -6% |
During the fourth quarter of 2011 the volume of chicken meat sales to external consumers on an adjusted-weight basis accounted to 88,900 tonnes, which was by 9% more compared to the fourth quarter of 2010.
In Q4 2011, the average chicken meat sales price increased greatly by 18% to UAH 17.00 per kg of adjusted weight (excluding VAT) compared to the fourth quarter of 2010. During Q4 2011 chicken meat prices remained stable at the high level reached in Q4 2011.
48,200 tonnes of sunflower oil were produced and sold for export at an average price of US$ 1,109 per tonne, 6% less than in Q4 2010 in line with world market trends (Q4 2010: US$ 1,174).
Revenue increased by 17% to US$ 260 million (Q4 2010: US$ 221 million) as a result of higher chicken prices and sales volumes.
In Q4 2011 growth of poultry revenue stimulated Gross profit growth, which increased by 36% to US$ 76 million (2010: US$ 56 million).
EBITDA rose greatly by 34% to US$ 88 million (Q4 2010: US$ 65 million) compared to the same period last year, and EBITDA margin increased from 29% to 34% due to strong chicken meat prices. EBIDTA per 1 kg of chicken meat remained stable and constituted US$ 0.78 in 2011 (2010: US$ 0.82).
FY 2011 Poultry and related operations segment financial results
Poultry | 2011 | 2010 | % change | |
Sales volume, third parties tonnes | 370,900 | 331,400 | 12% | |
Price per 1 kg net VAT, UAH | 15.00 | 13.65 | 10% | |
Sunflower oil | ||||
Sales volume, third parties tonnes | 173,600 | 195,800 | -11% | |
Price per 1 tonne net VAT, US$ | 1,245 | 919 | 35% | |
In 2011 MHP increased its poultry production volumes by 7% and produced 384,000 tons of poultry meat (2010: 360,000 tons of poultry meat). The growth of volumes produced was a result of more effective use of existing production capacities in spite of all the Company's existing poultry production facilities operated at their full production capacity during the year.
Annual MHP's poultry sales volumes to third parties increased by 12% to 370,900 tons (including sales from stocks) compared to 331,400 tons in 2010.
The average sales price of chicken meat increased by 10% to 15.00 UAH per kg in 2011 from 13.65 UAH per kg in 2010. The chicken meat price growth was the result of the grain price increase in Ukraine and worldwide at the end of 2010 and following the world poultry price trends during 2011. Growth of chicken prices was modest during H1 2011 due to oversupply of pork from small and ineffective producers, suffering from grain increased prices, while during H2 2011 chicken meat prices grew by 19% year on year.
In 2011, 173,600 tonnes of sunflower oil were produced and sold mostly for export. In comparison to 2010 the volume of oil sold decreased by 11% that is the consequence of a partial purchase of sunflower meal at attractive price. Average price of sunflower oil increased by 35% from US$ 919 per tonne in 2010 to US$ 1,245 per tonne in 2011 in line with world market trends.
Due to the strong H2 2011 financial results, the financial results for the full year of 2011 increased greatly in comparison with 2010, while margins remained stably high. The total Poultry segment revenue amounted to US$ 979 million, which is 22% more than the segment's revenue of US$ 800 million in 2010. The main driver of the segment revenue increase was simultaneous considerable growth of poultry sales volume and average price, as well as growth of sunflower oil prices in line with global market trends.
Poultry production costs in 2011 increased by around 15% against 2010 that is the common trend for the most meat producing companies worldwide last year. Such dynamics accounted for market grain prices growth during the marketing year 2011 and utilities prices growth during 2011.
The gross profit of the poultry segment increased only by 9% from US$ 240 million in 2010 to US$ 262 million in 2011, while the gross profit margin decreased from 30% in 2010 to 27% in 2011 due to modest chicken price growth in H1 2011.
EBITDA of poultry segment increased by 7% to US$ 290 million in 2011 (2010: US$ 273 million). EBITDA margin decreased from 34% in 2010 to 30% in 2011 due to the same reason as for gross margin - the modest chicken price growth in H1 2011. However, in general the decline of EBITDA margin in Poultry segment was compensated by higher financial results in Grain growing segment.
Grain growing operations
| 2011 | 2010 | % change | Q4 2011 | Q4 2010 | % change | |
Revenue | US$, m | 104 | 36 | 191% | 50 | 14 | 261% |
IAS 41 standard gains | US$, m | 17 | 17 | - | -41 | -5 | n/a |
Gross profit | US$, m | 86 | 46 | 85% | -15 | 9 | n/a |
EBITDA | US$, m | 121 | 67 | 80% | 17 | 29 | -42% |
EBITDA per 1 hectare | US$ | 482 | 458 | 5% | |||
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In 2011, the division harvested 250,200 hectares of crops (2010: 150,000 hectares), including 100,000 hectares acquired in 2010 and first time cultivated and harvested in 2011. The Company's total land bank remained 280,000 hectares, the same as in the end of 2010 while harvest increased to 1.7 million tons of grains, almost twice higher compared to 2010.
Ukraine's harvest as well as MHP's harvest in 2011 was considerable due to good weather conditions. Ukraine's average yields of corn and wheat were very high; moreover, MHP obtained even higher yields per hectare.
Revenue from the Grain division was US$ 104 million in 2011, which is 191% more than in 2010. The reasons of high growth of revenue were the increase of cropped land, the great increase in yields, and external sales of excess corn. MHP currently uses the majority of the grain it produces in its own operations, but the considerable part of grain was sold to the third parties and constituted the revenue of Grain growing segment.
EBITDA per 1 hectare in 2011 remained almost the same as in 2010 (US$ 482 per ha in 2011 versus US$ 458 per ha in 2010), taking into accounts that 100,000 hectares added in 2010 were first year cultivated by MHP in 2011.
2011 | 2010 (for land under control as of 01.01.2010) | ||||||
MHP's average* | Ukraine's average** | MHP's average* | Ukraine's average** | ||||
Corn | 9.5 | 6.4 | 7.8 | 4.3 | |||
Wheat | 5.1 | 3.4 | 4.7 | 2.9 | |||
Sunflower | 2.7 | 1.8 | 2.6 | 1.6 | |||
Rapeseed | 2.8 | 1.7 | 3.0 | 1.7 | |||
* - Tonnes per hectare, net weight
** - Source: the State Committee on Statistics of Ukraine, based on bunker weight
Production, tonnes | Cropped hectares | Production, tonnes | Cropped hectares | ||||
Corn | 1,022,783 | 107,750 | 492,642 | 63,165 | |||
Wheat | 267,250 | 52,210 | 183,785 | 39,360 | |||
Sunflower | 73,735 | 27,000 | 65,455 | 25,630 | |||
Rapeseed | 25,400 | 9,150 | 9,010 | 3,020 | |||
Other* | 322,900 | 54,090** | 162,166 | 15,442 | |||
Total: | 1,712,068 | 250,200 | 913,058 | 146,617 |
* - Includes soybean, barley and sugar beet
** - Includes fallow land in 2011
Other agricultural operations
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* pps -percentage points.
Meat processing products | 2011 | 2010 | % change | Q4 2011 | Q4 2010 | % change | |
Sales volume, third parties tonnes | 37,000 | 32,900 | 12% | 8,800 | 8,800 | - | |
Price per 1 kg net VAT, UAH | 20.01 | 17.59 | 14% | 21.44 | 18.52 | 16% |
The financial results of Other agricultural operations segment showed stable positive trends during 2011 and Q4 2011 particularly. Revenue increased by 20% to US$ 39 million in Q4 2011 from US$ 33 million in Q4 2010 as a result of growth of revenue of meat processing products as well as other products.
Full year revenue accounted to US$ 146 million, which is 35% more than in previous year (2010: US$ 108 million). The considerable growth of segment`s revenue was mainly a result of increase in sales volumes and prices of meat processing products during 2011. MHP's sausage and cooked meat production volumes remained stable in Q4 2011 compared to Q4 2010, whilst they increased by 12% to 37,000 tonnes in 2011 compared to 32,900 tonnes in 2010.
Average sausage and cooked meat prices rose by 16% to UAH 21.44 per kg excluding VAT in Q4 2011 and by 14% to UAH 20.01 per kg in 2011. MHP is a market leader in meat processing in Ukraine and current market share of MHP constitutes about 10%.
Financial results of other agricultural segment in 2011 were mainly driven by meat processing operations, fruits and farming activity. Gross profit of Other agricultural operations segment was US$ 15 million in 2011, which is 124% more than in 2010 (2010: US$ 6 million). Divisional EBITDA increased by 76% to US$ 16 million in 2011 from US$ 9 million in 2010 and EBITDA margin increased from 9% in 2010 to 11% in 2011.
Current financial position, cash flow and liquidity
Cash Flows US$, m |
2011 |
2010 | Q4 2011 | Q4 2010 |
Cash from operations | 323 | 263 | 115 | 74 |
Change in working capital | (125) | (166) | (86) | (85) |
Net Cash from operating activities | 198 | 97 | 28 | (11) |
Cash from investing activities | (247) | (203) | (65) | (90) |
Non-cash investments | (86) | (20) | (32) | (6) |
CAPEX | (333) | (223) | (97) | (96) |
Cash from financing activities | (22) | 250 | 4 | 76 |
incl. Treasury shares acquisition | - | (46) | - | - |
Non-cash financing | 86 | 20 | 32 | 6 |
Deposits | 126 | (127) | - | - |
Total financial activities | 190 | 143 | 36 | 82 |
Total change in cash | 55 | 17 | (33) | (25) |
Cash flow from operations before working capital changes increased to US$ 115 million in Q4 2011 (Q4 2010: US$ 74 million) and to US$ 324 million in full year 2011 (2010: US$ 263 million) in line with higher Company's EBITDA.
In 2011, the total increase in working capital was US$ 125 million. The main contributors to working capital were:
o VAT recoverable related to intensive CAPEX program (US$ 47 million)
o Increase in agricultural produce, mainly grains (US$ 43 million)
o Some technology changes in grain growing segment with increased proportion of fertilizers application in autumn in 2011/2012 sowing campaign (US$ 20 million)
o Trade accounts receivables increase due to higher chicken meat and sunflower oil prices (US$ 13 million)
Total CAPEX was US$ 65 million in Q4 2011 and US$ 333 million in 2011, and the most part of CAPEX was related to the Vinnytsia project. Since the start of the Vinnytsia project financing in the second half of 2010, approximately US$ 360 million was invested in the project as of the end of 2011.
Vinnytsia - new green field project
Construction work on the Vinnystia project, which commenced as announced previously in May 2010, is running to schedule and on budget. Significant progress has already been made with the poultry farm, fodder complex and infrastructure at the Vinnytsia site. All equipment required for Phase 1 is already contracted and is being dispatched now.
Poultry Farm
·; Construction of the hatchery is 90% complete
·; 3 brigades (chicken rearing zones) with 38 chicken houses in each are 90% complete
·; Construction of the slaughter house for Phase 1 (220,000 tonnes of poultry per annum) is 90% complete. Installation of equipment in the slaughter house is 80% complete.
Fodder Plant and Grain Storage Facilities
·; Construction of the sunflower seeds silo (200,000 m3) is complete, equipment has been installed
·; Construction of the grain silo (200,000 m3) is complete, equipment has been installed
·; Construction of Fodder Plant is 50% complete and Sunflower Crushing Plant is 80% complete. Installation of equipment is in progress.
Infrastructure and Social Responsibility
The construction of electric power substation with a capacity of 110 mW is complete, the transmission networks are complete, system of gas supply (45 km) is complete. The construction of water supply systems (60 km) is 90% complete and water treatment station with a capacity of 15 thousand m3 of water per day is 90% complete.
The construction of two independent electric power substations is complete. In addition, as part of the facility, MHP will be constructing 45 km of new roads (90% complete), 260 new residential apartments, a hostel with a capacity for 800 people and a kindergarten with a capacity for 260 children.
As announced earlier in June 2010, the Company is building additional sites at its Shakhtarska breeding farm for 300 million hatchery eggs production per annum to satisfy Vinnytsia poultry complex needs.
MHP has set up a section on its website dedicated to the Vinnytsia project: http://www.mhp.com.ua/en/node/1082/.
Debt Structure
Debt | 31.12.2011 | 31.12.2010 |
Total Debt U.S.$, m | 898 | 832 |
Cash and bank deposits | (97) | (174) |
Net Debt | 801 | 658 |
EBITDA | 401 | 325 |
Debt /EBITDA | 2.24 | 2.56 |
Net Debt /EBITDA | 2.00 | 2.03 |
As of December 31, 2011, the Company's total debt was US$ 898 million, most of which was denominated in US dollars. The weighted average interest rate comprised approximately 9%.The main part of MHP`s debt are Eurobonds (US$ 585 million), which matures in April 2015.
US$ 100 million of our long-term debt is principally represented by loans, covered by ECA; it matures at various times up to 2018.
US$ 37 million of our debt is accounted for IFC and EBRD three year loans for financing Company's working capital needs.
US$ 52 million represents financing for the lease of agricultural machinery and equipment used in our grain growing activities and for vehicles for distribution, and has maturities up to 2015.
The Net Debt/EBITDA ratio at the end of the period was 2.0 (Eurobond covenant: 2.5).
As a hedge for currency risks, revenue from the export of sunflower oil, sunflower husks and chicken meat are denominated in US Dollars, fully covering debt service expenses.
At the end of 2011 MHP had US$ 97 million in cash and short term bank deposits including approximately US$ 72 million denominated in US dollar.
Outlook
Consumer demand for poultry continues to remain high and the Company's production facilities are all operating at full capacity.
In the middle of 2012 we plan to commence trial production at Vinnytsia, testing equipment, processes and resources, to be ready for a strong in early 2013. Until production at Vinnytsia commences in 2013 our poultry production growth will be limited as operations are already at 100% capacity. Therefore, we are going to concentrate our efforts on increasing our share of value added high margin products in our product mix.
Following the Company's strategy and objectives, MHP continues to develop export markets in order to establish and/or to build a reliable and a long-term relationship.
In grain growing segment in 2012 we expect good harvest in spite of challenging weather conditions during autumn and winter.
We continue to increase the quantity of sausages and cooked meat products and produce a wider range of value-added products at our meat processing plants. The growth of production volumes of meat processing products in 2012 will be obtained by the further increase of production at Ukrainian Bacon.
The CAPEX program in 2012 will be mostly related to the construction and the equipment installation on the new Vinnytsia poultry production complex, where the construction is on budget and to schedule.
We are confident that we will be able to continue to implement our strategy and keep on delivering strong financial results cementing our position as one of the leading agri-industrial companies in Ukraine.
- End -
Notes to Editors:
About MHP
MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times. MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.
Since May 15, 2008, MHP has traded on the London Stock Exchange under the ticker symbol MHPC.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP S.A. does not intend to change these statements to reflect actual results.
MHP S.A. AND ITS SUBSIDIARIES
Consolidated Financial Statements
For the year ended 31 December 2011
CONTENT
STATEMENT OF BOARD OF DIRECTORS.............................................................................................. (a)
INDEPENDENT AUDITORS' REPORT...................................................................................................... (i)
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
Consolidated statements of comprehensive income.................................................................................... 6
Consolidated statements of financial position............................................................................................. 7
Consolidated statements of changes in equity............................................................................................ 8
Consolidated cash flow statements........................................................................................................... 9
Notes to the Consolidated financial statements......................................................................................... 11
1. Corporate information...................................................................................................................... 11
2. Changes in the group structure......................................................................................................... 12
3. Summary of significant accounting policies....................................................................................... 13
4. Critical accounting judgments and key sources of estimation uncertainty............................................. 24
5. Segment information....................................................................................................................... 26
6. Revenue......................................................................................................................................... 28
7. Cost of sales.................................................................................................................................. 28
8. Selling, general and administrative expenses..................................................................................... 29
9. VAT refunds and other government grants income.............................................................................. 29
10. Other operating expenses, net....................................................................................................... 30
11. Finance costs.............................................................................................................................. 30
12. Income tax................................................................................................................................... 31
13. Property, plant and equipment....................................................................................................... 33
14. Land lease rights, net................................................................................................................... 37
15. Long-term VAT recoverable, net..................................................................................................... 37
16. Biological assets.......................................................................................................................... 37
17. Other non-current assets............................................................................................................... 40
18. Inventories................................................................................................................................... 40
19. Agricultural produce...................................................................................................................... 40
20. Other current assets, net.............................................................................................................. 41
21. Taxes recoverable and prepaid, net................................................................................................ 41
22. Trade accounts receivable, net....................................................................................................... 41
23. Short-term bank deposits.............................................................................................................. 42
24. Cash and cash equivalents............................................................................................................ 43
25. Shareholders' equity..................................................................................................................... 43
26. Bank borrowings........................................................................................................................... 44
27. Bonds issued............................................................................................................................... 45
28. Finance lease obligations.............................................................................................................. 46
29. Trade accounts payable................................................................................................................ 47
30. Other current liabilities.................................................................................................................. 47
31. Related party balances and transactions........................................................................................ 47
32. Contingencies and contractual commitments.................................................................................. 48
33. Fair value of financial instruments................................................................................................... 50
34. Risk management policies............................................................................................................ 50
35. Pensions and retirement plans....................................................................................................... 56
36. Earnings per share....................................................................................................................... 56
37. Authorization of the consolidated financial statements..................................................................... 56
STATEMENT OF BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
Board of Directors is responsible for the preparation of the consolidated financial statements that present fairly the consolidated financial position of MHP S.A. and its subsidiaries (the "Group") as of 31 December 2011 and the consolidated results of its operations, cash flows and changes in equity for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
In preparing the consolidated financial statements, 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.
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 for the year ended 31 December 2011 were authorized for issue by the Board of Directors on 19 March 2012.
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
To the Shareholders of
MHP S.A.
5, rue Guillaume Kroll
L-1882 Luxembourg
INDEPENDENT AUDITORS' REPORT
Report on the consolidated financial statements
Following our appointment by the General Meeting of the Shareholders dated 27 April 2011, we have audited the accompanying consolidated financial statements of MHP S.A., which comprise the consolidated balance sheet as of 31 December 2011, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
Responsibility of the Board of Directors' for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Independent auditor's responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the independent auditor's judgment including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the independent auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of MHP S.A. as of 31 December 2011, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
Report on other legal and regulatory requirements
The director's report, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements. The corporate governance statement in the annual report, which is the responsibility of the Board of Directors, includes the information required by the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended and the description included with respect to Article 68bis paragraphs c and d of the aforementioned law is consistent with the consolidated financial statements.
For Deloitte Audit
société à responsabilité limitée
Cabinet de révision agréé
Sophie Mitchell, Réviseur d'enterprises agréé
Partner
19 March 2012
560, rue de Neudorf
L-2220 Luxembourg
Consolidated statements of compRehensive income
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
Notes | 2011 | 2010 | 2009 | |||
Revenue | 6 | 1,229,090 | 944,206 | 711,004 | ||
Net change in fair value of biological assets and agricultural produce | 5 | 21,288 | 29,014 | 35,236 | ||
Cost of sales | 7 | (889,127) | (680,637) | (499,163) | ||
Gross profit | 361,251 | 292,583 | 247,077 | |||
Selling, general and administrative expenses | 8 | (106,447) | (102,107) | (80,972) | ||
VAT refunds and other government grants income | 9 | 87,985 | 82,058 | 67,812 | ||
Other operating expenses, net | 10 | (22,045) | (15,750) | (14,633) | ||
Operating profit before impairment of property, plant and equipment | 320,744 | 256,784 | 219,284 | |||
Impairment of property, plant and equipment | - | - | (1,304) | |||
Operating profit | 320,744 | 256,784 | 217,980 | |||
Finance income | 6,356 | 13,309 | 3,823 | |||
Finance costs | 11 | (65,918) | (62,944) | (50,817) | ||
Foreign exchange gain/(loss), net | 2,318 | 10,965 | (23,580) | |||
Other (expenses)/income, net | (1,385) | (793) | 696 | |||
Gain realized from acquisitions and changes in non-controlling interests in subsidiaries, net | - | - | 5,413 | |||
Other expenses, net | (58,629) | (39,463) | (64,465) | |||
Profit before tax | 262,115 | 217,321 | 153,515 | |||
Income tax (expense)/benefit | 12 | (2,760) | (1,873) | 6,488 | ||
Profit for the year | 259,355 | 215,448 | 160,003 | |||
Other comprehensive income/(loss) | ||||||
Effect of revaluation of property, plant and equipment | - | - | 11,912 | |||
Deferred tax charged directly to revaluation reserve | - | - | (2,541) | |||
Cumulative translation difference | (3,040) | 770 | (15,822) | |||
Other comprehensive (loss)/income for the year | (3,040) | 770 | (6,451) | |||
Total comprehensive income for the year | 256,315 | 216,218 | 153,552 | |||
Profit attributable to: | ||||||
Equity holders of the Parent | 243,376 | 205,395 | 148,564 | |||
Non-controlling interests | 15,979 | 10,053 | 11,439 | |||
259,355 | 215,448 | 160,003 | ||||
Total comprehensive income attributable to: | ||||||
Equity holders of the parent | 240,336 | 206,165 | 142,113 | |||
Non-controlling interests | 15,979 | 10,053 | 11,439 | |||
256,315 | 216,218 | 153,552 | ||||
Earnings per share | ||||||
Basic and diluted earnings per share (USD per share) | 36 | 2.26 | 1.88 | 1.34 |
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 11 to 56 form an integral part of these consolidated financial statements
Consolidated statements of financial position
as of 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
Notes | 31 December 2011 | 31 December 2010 | 31 December 2009 | |||
ASSETS | ||||||
Non-current assets | ||||||
Property, plant and equipment | 13 | 1,008,923 | 744,965 | 634,269 | ||
Land lease rights, net | 14 | 27,227 | 23,216 | 854 | ||
Deferred tax assets | 12 | 7,795 | 5,190 | 10,183 | ||
Long-term VAT recoverable, net | 15 | 24,850 | 24,017 | 20,670 | ||
Non-current biological assets | 16 | 46,327 | 43,288 | 36,235 | ||
Long-term bank deposits | 6,017 | - | - | |||
Other non-current assets | 17 | 14,476 | 14,251 | 8,717 | ||
1,135,615 | 854,927 | 710,928 | ||||
Current assets | ||||||
Inventories | 18 | 182,240 | 132,591 | 106,805 | ||
Biological assets | 16 | 135,990 | 116,310 | 98,433 | ||
Agricultural produce | 19 | 169,022 | 113,850 | 66,227 | ||
Other current assets, net | 20 | 21,989 | 21,331 | 15,297 | ||
Taxes recoverable and prepaid, net | 21 | 137,175 | 107,824 | 66,958 | ||
Trade accounts receivable, net | 22 | 65,794 | 53,395 | 43,377 | ||
Short-term bank deposits | 23 | 1,777 | 134,460 | 7,632 | ||
Cash and cash equivalents | 24 | 94,758 | 39,321 | 22,248 | ||
808,745 | 719,082 | 426,977 | ||||
TOTAL ASSETS | 1,944,360 | 1,574,009 | 1,137,905 | |||
EQUITY AND LIABILITIES | ||||||
Equity | ||||||
Share capital | 25 | 284,505 | 284,505 | 284,505 | ||
Treasury shares | (40,555) | (40,555) | - | |||
Additional paid-in capital | 179,565 | 179,565 | 178,815 | |||
Revaluation reserve | 18,781 | 18,781 | 18,781 | |||
Retained earnings | 679,815 | 436,439 | 231,044 | |||
Translation reserve | (240,791) | (237,751) | (238,521) | |||
Equity attributable to equity holders of the Parent | 881,320 | 640,984 | 474,624 | |||
Non-controlling interests | 44,489 | 29,384 | 19,784 | |||
Total equity | 925,809 | 670,368 | 494,408 | |||
Non-current liabilities | ||||||
Bank borrowings | 26 | 109,108 | 58,426 | 56,043 | ||
Bonds issued | 27 | 567,000 | 562,886 | 248,046 | ||
Finance lease obligations | 28 | 32,558 | 37,389 | 44,856 | ||
Deferred tax liabilities | 12 | 2,207 | 2,502 | 8,970 | ||
710,873 | 661,203 | 357,915 | ||||
Current liabilities | ||||||
Trade accounts payable | 29 | 52,689 | 19,012 | 72,380 | ||
Other current liabilities | 30 | 53,269 | 38,042 | 45,428 | ||
Bank borrowings | 26 | 170,380 | 140,092 | 139,790 | ||
Bonds issued | 27 | - | 9,892 | - | ||
Accrued interest | 27 | 12,073 | 11,573 | 3,526 | ||
Finance lease obligations | 28 | 19,267 | 23,827 | 24,458 | ||
307,678 | 242,438 | 285,582 | ||||
TOTAL LIABILITIES | 1,018,551 | 903,641 | 643,497 | |||
TOTAL EQUITY AND LIABILITIES | 1,944,360 | 1,574,009 | 1,137,905 |
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 11 to 56 form an integral part of these consolidated financial statements
Consolidated statements of changes in equity
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
Attributable to equity holders of the Parent | |||||||||||||||||
Share capital | Treasury shares | Additional paid-in capital | Revaluation reserve | Retained earnings | Translation reserve | Total | Non-controlling interests | Total equity | |||||||||
Balance at 1 January 2009 | 284,505 | - | 178,815 | 9,410 | 82,480 | (222,699) | 332,511 | 13,706 | 346,217 | ||||||||
Profit for the year | - | - | - | - | 148,564 | - | 148,564 | 11,439 | 160,003 | ||||||||
Other comprehensive income/(loss) | - | - | - | 9,371 | - | (15,822) | (6,451) | - | (6,451) | ||||||||
Total comprehensive income/(loss) for the year | - | - | - | 9,371 | 148,564 | (15,822) | 142,113 | 11,439 | 153,552 | ||||||||
Acquisition and changes in non-controlling interests in subsidiaries (Note 2) | - | - | - | - | - | - | - | (5,361) | (5,361) | ||||||||
Balance at 31 December 2009 | 284,505 | - | 178,815 | 18,781 | 231,044 | (238,521) | 474,624 | 19,784 | 494,408 | ||||||||
Profit for the year | - | - | - | - | 205,395 | - | 205,395 | 10,053 | 215,448 | ||||||||
Other comprehensive income | - | - | - | - | - | 770 | 770 | - | 770 | ||||||||
Total comprehensive income for the year | - | - | - | - | 205,395 | 770 | 206,165 | 10,053 | 216,218 | ||||||||
Acquisition of treasury shares (Note 25) | - | (46,288) | - | - | - | - | (46,288) | - | (46,288) | ||||||||
Treasury shares disposed of under a compensation scheme (Note 25) | - | 5,733 | 750 | - | - | - | 6,483 | - | 6,483 | ||||||||
Dividends declared by subsidiary | - | - | - | - | - | - | - | (453) | (453) | ||||||||
Balance at 31 December 2010 | 284,505 | (40,555) | 179,565 | 18,781 | 436,439 | (237,751) | 640,984 | 29,384 | 670,368 | ||||||||
Profit for the year | - | - | - | - | 243,376 | - | 243,376 | 15,979 | 259,355 | ||||||||
Other comprehensive loss | - | - | - | - | - | (3,040) | (3,040) | - | (3,040) | ||||||||
Total comprehensive income for the year | - | - | - | - | 243,376 | (3,040) | 240,336 | 15,979 | 256,315 | ||||||||
Dividends declared by subsidiary | - | - | - | - | - | - | - | (601) | (601) | ||||||||
Acquisition and changes in non-controlling interests in subsidiaries | - | - | - | - | - | - | - | (273) | (273) | ||||||||
Balance at 31 December 2011 | 284,505 | (40,555) | 179,565 | 18,781 | 679,815 | (240,791) | 881,320 | 44,489 | 925,809 | ||||||||
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 11 to 56 form an integral part of these consolidated financial statements
Consolidated cash flow statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
2011 | 2010 | 2009 | |||
Operating activities | |||||
Profit before tax | 262,115 | 217,321 | 153,515 | ||
Non-cash adjustments to reconcile profit before tax to net cash flows | |||||
Depreciation and amortization expense | 80,341 | 67,902 | 51,677 | ||
Net change in fair value of biological assets and agricultural produce | (21,288) | (29,014) | (35,236) | ||
Gain realized from acquisitions and changes in non-controlling interests in subsidiaries, net | - | - | (5,413) | ||
Change in allowance for irrecoverable amounts and direct write-offs | 18,888 | 8,264 | 9,594 | ||
Impairment of property, plant and equipment | - | - | 1,304 | ||
Loss/(gain) on disposal of property, plant and equipment and other non-current assets | 551 | 1,931 | (8) | ||
Bonus to key management personnel settled in treasury shares | - | 6,483 | - | ||
Finance income | (6,356) | (13,309) | (3,823) | ||
Finance costs | 65,918 | 62,944 | 50,817 | ||
Unrealised foreign exchange (gain)/loss, net | (2,519) | (10,965) | 23,580 | ||
Operating cash flows before movements in working capital | 397,650 | 311,557 | 246,007 | ||
Working capital adjustments | |||||
Change in inventories | (29,033) | (23,962) | (62,259) | ||
Change in biological assets | (13,011) | (4,868) | (10,580) | ||
Change in agricultural produce | (43,290) | (21,768) | (8,767) | ||
Change in other current assets | (886) | (5,130) | 439 | ||
Change in taxes recoverable and prepaid | (47,103) | (47,919) | (42,340) | ||
Change in trade accounts receivable | (12,666) | (10,744) | (14,459) | ||
Change in other liabilities | 7,491 | 256 | 12,191 | ||
Change in trade accounts payable | 13,350 | (52,516) | 48,051 | ||
Cash generated by operations | 272,502 | 144,906 | 168,283 | ||
Interest received | 6,645 | 12,924 | 3,737 | ||
Interest paid | (77,239) | (58,134) | (47,494) | ||
Income taxes paid | (4,247) | (3,116) | (1,464) | ||
Net cash flows from operating activities | 197,661 | 96,580 | 123,062 | ||
Investing activities | |||||
Purchases of property, plant and equipment | (234,895) | (139,157) | (135,257) | ||
Acquisition of land lease rights | (5,424) | (4,767) | - | ||
Purchases of other non-current assets | (4,093) | (2,883) | (3,445) | ||
Proceeds from disposals of property, plant and equipment | 369 | 703 | 1,545 | ||
Purchases of non-current biological assets | (2,139) | (3,610) | (5,604) | ||
Acquisition of subsidiaries, net of cash acquired | - | (38,659) | - | ||
Financing provided in relation to acquisition of subsidiaries | - | (13,408) | - | ||
Investments in long-term deposits | (6,017) | - | - | ||
Investments in short-term deposits | (52,259) | (164,662) | (7,608) | ||
Withdrawals of short-term deposits | 184,419 | 37,608 | 25,330 | ||
Loans provided to employees, net | (1,098) | (993) | (758) | ||
Loans repaid by/(provided to) related parties, net | - | 100 | (70) | ||
Net cash flows used in investing activities | (121,137) | (329,728) | (125,867) |
The accompanying notes on the pages 11 to 56 form an integral part of these consolidated financial statements
CONSOLIDATED CASH FLOW STATEMENTS (continued)
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
2011 | 2010 | 2009 | |||
Financing activities | |||||
Proceeds from bank borrowings | 158,071 | 565,134 | 447,037 | ||
Repayment of bank borrowings | (142,867) | (560,309) | (446,068) | ||
Proceeds from bonds | - | 323,018 | - | ||
Repayment of bonds | (9,976) | - | - | ||
Repayment of finance lease obligations | (25,740) | (24,532) | (22,957) | ||
Proceeds from other financing received | - | - | 6,366 | ||
Repayment of other financing | - | (6,420) | (12,554) | ||
Dividends paid by subsidiary to non-controlling shareholders | (602) | (453) | - | ||
Acquisition of treasury shares | - | (46,288) | - | ||
Net cash flows from financing activities | (21,114) | 250,150 | (28,176) | ||
Net increase/(decrease) in cash and cash equivalents | 55,410 | 17,002 | (30,981) | ||
Net foreign exchange difference | 27 | 71 | (843) | ||
Cash and cash equivalents at 1 January | 39,321 | 22,248 | 54,072 | ||
Cash and cash equivalents at 31 December | 94,758 | 39,321 | 22,248 | ||
Non-cash transactions | |||||
Additions of property, plant and equipment under finance leases | 13,895 | 16,365 | 22,118 | ||
Additions of property, plant and equipment financed through direct bank-lender payments to the vendor | 72,007 | 3,970 | 4,489 |
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoria Kapelyushnaya
The accompanying notes on the pages 11 to 56 form an integral part of these consolidated financial statements
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
1. Corporate information
MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company (société anonyme) registered under the laws of Luxembourg, was formed on 30 May 2006. MHP S.A. was formed to serve as the ultimate holding company of PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the "MHP S.A. Group" or the "Group". The registered address of MHP S.A. is 5, rue Guillaume Kroll, L-1882 Luxembourg.
The controlling shareholder of MHP S.A. is the Chief Executive Officer of MHP S.A. Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP S.A.
The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing, cultivation and selling fruits and producing beef and meat products ready for consumption). The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, sunflower oil, mixed fodder and convenience food products. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, beef, milk, goose meat, foie gras, fruits and feed grains. During the year ended 31 December 2011 the Group employed about 24,800 people (2010: 22,000 people, 2009: 22,000 people).
The Group has been undertaking a large-scale investment program to expand its poultry and related operations, with the first launch in 2007 of Myronivska poultry farm. In June 2009, the Group completed the stage two of the Myronivska poultry complex, which reached full production capacity during the third quarter of 2009. In May 2010 the Group also commenced construction of the greenfield Vinnytsya poultry complex. During the year ended 31 December 2011 construction works at Vinnytsia complex was performed as scheduled and the Group completed construction of two grain storage facilities of the complex.
During the year ended 31 December 2010 the Group substantially increased its agricultural land bank as part of its vertical integration and diversification strategy through acquisitions of land lease rights (Note 14).
The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 December 2011, 2010 and 2009 were as follows:
Name | Country of registration | Year established/acquired | Principal activities | 2011 | 2010 | 2009 |
Raftan Holding Limited | Cyprus | 2006 | Sub-holding Company | 100.0% | 100.0% | 100.0% |
MHP | Ukraine | 1998 | Management, marketing and sales | 99.9% | 99.9% | 99.9% |
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv | Ukraine | 1998 | Fodder and sunflower oil production | 88.5% | 88.5% | 88.5% |
Peremoga Nova | Ukraine | 1999 | Chicken farm | 99.9% | 99.9% | 99.9% |
Druzhba Narodiv Nova | Ukraine | 2002 | Chicken farm | 99.9% | 99.9% | 99.9% |
Oril-Leader | Ukraine | 2003 | Chicken farm | 99.9% | 99.9% | 99.9% |
Tavriysky Kombikormovy Zavod | Ukraine | 2004 | Fodder production | 99.9% | 99.9% | 99.9% |
Ptahofabryka Shahtarska Nova | Ukraine | 2003 | Breeder farm | 99.9% | 99.9% | 99.9% |
Myronivska Pticefabrica | Ukraine | 2004 | Chicken farm | 99.9% | 99.9% | 99.9% |
Starynska Ptahofabryka | Ukraine | 2003 | Breeder farm | 94.9% | 94.9% | 94.9% |
Ptahofabryka Snyatynska Nova | Ukraine | 2005 | Geese breeder farm | 99.9% | 99.9% | 99.9% |
Zernoproduct | Ukraine | 2005 | Grain cultivation | 89.9% | 89.9% | 89.9% |
Katerynopilsky Elevator | Ukraine | 2005 | Fodder production and grain storage, sunflower oil production | 99.9% | 99.9% | 99.9% |
Druzhba Narodiv | Ukraine | 2006 | Cattle breeding, plant cultivation | 99.9% | 99.9% | 99.9% |
Crimean Fruit Company | Ukraine | 2006 | Fruits and grain cultivation | 81.9% | 81.9% | 81.9% |
NPF Urozhay | Ukraine | 2006 | Grain cultivation | 89.9% | 89.9% | 89.9% |
Agrofort | Ukraine | 2006 | Grain cultivation | 86.1% | 86.1% | 86.1% |
Urozhayna Krayina | Ukraine | 2010 | Grain cultivation | 99.9% | 99.9% | n/a |
Ukrainian Bacon | Ukraine | 2008 | Meat processing | 79.9% | 79.9% | 79.9% |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
1. Corporate information (continued)
The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Vinnytsya, Kherson, Sumy, Khmelnitsk regions and Autonomous Republic of Crimea.
2. Changes in the group structure
The Group did not make any significant acquisitions or disposals during the year ended 31 December 2011, although there was an immaterial acquisition of a non-controlling interests, which was recognised in equity.
Detailed below is the information on acquisitions and disposals of subsidiaries, as well as changes in non-controlling interests in subsidiaries of the Group during the years ended 31 December 2010 and 2009.
Acquisitions
2010 acquisitions in grain growing segment
During the year ended 31 December 2010, the Group acquired from third parties 100% interests in a number of entities engaged in grain growing activities. The transactions were accounted for under the acquisition method. The Group's effective ownership interest in these subsidiaries following the acquisition and as of 31 December 2010 was 99.9%.
The fair value of the net assets acquired was as follows:
2010 | ||||||
Property, plant and equipment | 16,463 | |||||
Land lease rights, net | 18,801 | |||||
Non-current biological assets | 3,482 | |||||
Agricultural produce | 5,274 | |||||
Biological assets | 5,827 | |||||
Inventories | 1,076 | |||||
Taxes recoverable and prepaid, net | 1,086 | |||||
Trade accounts receivable, net | 113 | |||||
Cash and cash equivalents | 54 | |||||
Total assets | 52,176 | |||||
Accounts payable to the Group | (13,408) | |||||
Trade accounts payable | (1,656) | |||||
Other current liabilities | (981) | |||||
Total liabilities | (16,045) | |||||
Net assets acquired | 36,131 | |||||
Fair value of the consideration transferred | (38,943) | |||||
Goodwill (Note 17) | 2,812 | |||||
Cash consideration paid | (38,713) | |||||
Cash acquired | 54 | |||||
Net cash outflow arising on the acquisition | (38,659) |
Goodwill arising on the acquisitions of these subsidiaries is attributable to the benefits of expected synergies and future development of the grain growing activities. Had the transactions related to acquisitions as discussed above, occurred on 1 January 2010, "Pro forma" revenue and profit for the year ended 31 December 2010 would have been USD 957,497 thousand and USD 217,734 thousand, respectively. "Pro forma" earnings per share would have been USD 1.9 per share.
These "pro forma" revenue and profit measures for the year do not reflect any adjustments related to other transactions. "Pro forma" results represent an approximate measure of the performance of the combined group on an annualized basis. The unaudited "pro forma" information does not purport to represent what the Group's financial position or results of operations would actually have been if these transactions had occurred at such dates or to project the Group's future results of operations.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
2. Changes in the group structure (continued)
Changes in non-controlling interests in subsidiaries
Druzhba Narodiv Nova
In September 2009, as a result of transfer of treasury shares held by Druzhba Narodiv Nova ("Druzhba") to MHP, the Group increased its effective ownership in Druzhba to 99.9%. The gain on the transfer in the amount of USD 304 thousand was recognized in these consolidated financial statements in "Gain realized from acquisitions and changes in non-controlling interests in subsidiaries" line of statement of comprehensive income.
Starynska Ptahofabryka
In April 2009 the Group increased the share capital of Starynska Ptahofabryka by USD 2,594 thousand, which resulted in dilution of the non-controlling interests. As a result, the Group's effective ownership interest increased to 94.9%. The resulting effect of change in non-controlling interests in the amount of USD 5,109 thousand was recognized in these consolidated financial statements in "Gain realized from acquisitions and changes in non-controlling interests in subsidiaries, net" line of statement of comprehensive income.
Other
The Group made other insignificant acquisitions during each of the periods presented. These acquisitions have been accounted for based on the Group's accounting policies. The impact of these acquisitions was not significant to the consolidated financial statements of the Group, either individually or in aggregate.
3. Summary of significant accounting policies
Basis of presentation and accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The operating subsidiaries of the Group maintain their accounting records under Ukrainian Accounting Standards ("UAS"). UAS principles and procedures may differ from those generally accepted under IFRS. Accordingly, the consolidated financial statements, which have been prepared from the Group entities' UAS records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.
The consolidated financial statements of the Group are prepared on the historical cost basis, except for revalued amounts of property, plant and equipment, biological assets, agricultural produce, and certain financial instruments.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2011:
·; IAS 24 "Related Party Disclosures" ‒ Revised definition of related parties. Effective1 January 2011;
·; IAS 32 "Financial Instruments: Presentation" ‒ Amendments relating to classification of rights issues. Effective 1 February 2010;
·; IFRIC 14 "Prepayments of a Minimum Funding Requirement" ‒ Amendments to IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Effective 1 January 2011.
The adoption of the standards or interpretations is described below:
IAS 24 Related Party Disclosures (Amendment)
The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Adoption of new and revised International Financial Reporting Standards (continued)
IAS 32 Financial Instruments: Presentation (Amendment)
The IASB issued an amendment that alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these type of instruments.
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment)
The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements in Euroland, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group.
Standards and Interpretations in issue but not effective
At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations, as well as amendments to the Standards were in issue but not yet effective:
Standards and Interpretations | Effective for annual period beginning on or after | |
Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards" - Replacement of "fixed dates" for certain exceptions with "the date of transition to IFRSs" and Additional exemption for entities ceasing to suffer from severe hyperinflation | 1 July 2011 | |
Amendments to IFRS 7 "Financial instruments: Disclosures" - Transfers of financial assets | 1 July 2011 | |
Amendments to IAS 12 "Income Taxes" - Deferred Tax: Recovery of Underlying Assets | 1 July 2012 | |
Amendments to IAS 1 "Presentation of Financial Statements" ‒ To revise the way other comprehensive income is presented | 1 July 2012 | |
IAS 27 "Separate Financial Statements" (revised 2011) | 1 January 2013 | |
IAS 28 "Investments in Associates and Joint Ventures" (revised 2011) | 1 January 2013 | |
IFRS 10 "Consolidated Financial Statements" | 1 January 2013 | |
IFRS 11 "Joint Arrangements" | 1 January 2013 | |
IFRS 12 "Disclosure of Interests in Other Entities" | 1 January 2013 | |
IFRS 13 "Fair Value Measurement" | 1 January 2013 | |
Amendments to IAS 19 "Employee benefits" ‒ Post employment benefits and termination benefits projects | 1 January 2013 | |
Amendments to IFRS 7 "Financial instruments: Disclosures" - Offsetting of financial assets and financial liabilities | 1 January 2013 | |
Amendments to IAS 32 "Financial instruments: Presentation" - Application guidance on the offsetting of financial assets and financial liabilities | 1 January 2014 | |
Amendments to IFRS 7 "Financial instruments: Disclosures" - Disclosures about the initial application of IFRS 9 | 1 January 2015 | |
IFRS 9 "Financial Instruments: Classification and Measurement and Accounting for financial liabilities and derecognition" | 1 January 2015 |
Management is currently evaluating the impact of the adoption of IFRS 9 "Financial Instruments", IFRS 10 "Consolidated Financial Statements", IFRS 12 "Disclosure of Interests in Other Entities", IFRS 13 "Fair Value Measurement", amendment to IFRS 7 "Financial instruments: Disclosures" and amendments to IAS 12 "Income Taxes". For other Standards and Interpretations management anticipates that their adoption in future periods will not have material effect on the financial statements of the Group.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Functional and presentation currency
The functional currency of the entities within the Group is the Ukrainian Hryvnia ("UAH"). 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 on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognised in the consolidated statement of comprehensive income for the period.
These consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.
The results and financial position of the Group are translated into the presentation currency using the following procedures:
·; Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that balance sheet;
·; Income and expenses for each consolidated statement of comprehensive income are translated at exchange rates at the dates of the transactions;
·; All resulting exchange differences are recognized as a separate component of equity.
For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average rates of exchange, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.
The relevant exchange rates were:
Currency | Closing rate as of 31 December 2011 | Average for 2011 | Closing rate as of 31 December 2010 | Average for 2010 | Closing rate as of 31 December 2009 | Average for 2009 |
UAH/USD | 7.9898 | 7.9677 | 7.9617 | 7.9353 | 7.7916 | 7.9850 |
UAH/EUR | 10.2981 | 11.0926 | 10.5731 | 10.5313 | 10.8736 | 11.4489 |
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Parent and entities controlled by the Parent (its subsidiaries). Control is achieved when the Parent has the power to govern the financial and operating policies of an entity, either directly or indirectly, so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements of the Group from the date when control effectively commences.
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All significant intercompany transactions, balances and unrealized gains/(losses) on transactions are eliminated on consolidation, except when the intragroup losses indicate an impairment that requires recognition in the consolidated financial statements.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those adopted by the Group.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Accounting for acquisitions
The acquisitions of subsidiaries from third parties are accounted for using the acquisition method. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values.
The consideration transferred by the Group is measured at fair value, which is the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquired subsidiary and the equity interests issued by the Group in exchange for control of the subsidiary. Acquisition-related costs are generally recognized in statement of comprehensive income as incurred.
When the consideration transferred by the Group in a business combination includes assets and liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and is included as part of the consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiary's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the subsidiary's identifiable net assets. The choice of measurement basis is made on transaction-by-transaction basis. Other types of non-controlling interests, if any, are measured at fair value or, when applicable, on the basis specified in other IFRS standards.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired subsidiary, and the fair value of the Group's previously held equity interest in the acquired subsidiary (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of non-controlling interests in the subsidiary and the fair value of the Group's previously-held interest in the subsidiary (if any), the excess is recognized in the consolidated statement of comprehensive income, as a bargain purchase gain.
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Parent.
When an acquisition of a legal entity does not constitute a business, the cost of the group of assets is allocated between the individual identifiable assets in the group based on their relative fair values.
Accounting for transactions with entities under common control
The assets and liabilities of subsidiaries acquired from entities under common control are recorded in these consolidated financial statements at pre-acquisition carrying values. Any difference between the carrying value of net assets of these subsidiaries, and the consideration paid by the Group is accounted for in these consolidated financial statements as an adjustment to shareholders' equity. The results of the acquired entity are reflected from the date of acquisition.
Any gain or loss on disposals to entities under common control are recognized directly in equity and attributed to owners of the Parent.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Discontinued operations
Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use.
This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets' carrying amount and fair value less costs to sell.
If the criteria of classification of the disposal group held for sale are met after the balance sheet date, disposal group is not presented as held for sale in those financial statements when issued. However, when those criteria are met after the balance sheet date but before the authorization of the financial statements for issue, the Group discloses the respective information in notes to the financial statements.
Non-current assets or disposal groups to be abandoned are not classified as held for sale as the carrying amount will be recovered principally through continuing use. Non-current assets or disposal groups to be abandoned include non-current assets or disposal groups that are to be used to the end of their economic life or to be closed rather than sold. The assets or disposal groups to be abandoned are reported as discontinued operations in the period in which they are abandoned.
Borrowing costs
Borrowing costs include interest expense, finance charges on finance leases and other interest-bearing long-term payables and debt service costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the statement of comprehensive income in the period in which they are incurred.
Contingent liabilities and assets
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are recognized only when the contingency is resolved.
Segment information
Segment reporting is presented on the basis of management's perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal reports provided to the Group's chief operating decision maker ("CODM"). The Group has identified its top management team as its CODM and the internal reports used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented. These internal reports are prepared on the same basis as these consolidated financial statements.
Based on the current management structure, the Group has identified the following reportable segments:
• Poultry and related operations;
• Grain growing;
• Other agricultural operations.
The Group does not present information on segment assets and liabilities as CODM does not review information on segment assets and liabilities for decision-making purposes.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Revenue recognition
The Group generates revenue primarily from the sale of agricultural products to the end customers. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, the amount of revenue can be measured reliably and it is probable that collection will occur. The point of transfer of risk, which may occur at delivery or shipment, varies for contracts with different types of customers.
When goods are exchanged or swapped for goods which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. When goods are sold in exchange for dissimilar goods, the exchange is regarded as a transaction which generates revenue, and revenue is measured at the fair value of the goods received, adjusted by the amount of any cash or cash equivalents transferred.
Government grants
Government grants received or receivable for processing of live animals and value added tax ("VAT"), and grants for the agricultural industry (conditional upon reinvestment of the granted funds for agricultural production purposes) are recognized as income over the periods necessary to match them with the related costs, or as an offset against finance costs when received as compensation for the finance costs for agricultural producers. To the extent the conditions attached to the grants are not met at the reporting date, the received funds are recorded in the Group's consolidated financial statements as deferred income. Other government grants are recognized at the moment when the decision to disburse the amounts to the Group is made.
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
Property, plant and equipment
Property, plant and equipment are carried at historical cost less accumulated depreciation and accumulated impairment losses, except for grain storage facilities, which are carried at revalued amounts, being their fair value at the date of the revaluation less any subsequent depreciation and impairment losses.
The historical cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the item to the location and condition necessary for it to be capable of operating in the manner intended by the management of the Group; (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, (d) the obligation for which the Group incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period; and (e) for qualifying assets, borrowing costs capitalized in accordance with the Group's accounting policy.
Subsequently capitalized costs include major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are charged to the consolidated statement of comprehensive income as incurred.
For grain storage facilities revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date. If the asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserve. However, such increase is recognized in the statement of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognized in the statement of comprehensive income. If the asset's carrying amount is decreased as a result of a revaluation, the decrease is recognized in the statement of comprehensive income. However, such decrease is debited directly to the revaluation reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset.
Depreciation on revalued assets is charged to the statement of comprehensive income. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. No transfer is made from the revaluation reserve to retained earnings except when an asset is derecognized.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Property, plant and equipment (continued)
Depreciation of property, plant and equipment is charged so as to write off the depreciable amount over the useful life of an asset and is calculated using a straight line method. Useful lives of the groups of property, plant and equipment are as follows:
• Buildings and structures 15 - 35 years
• Grain storage facilities 20 - 35 years
• Machinery and equipment 10 - 15 years
• Utilities and infrastructure 10 years
• Vehicles and agricultural machinery 5 - 15 years
• Office furniture and equipment 3 - 5 years
Depreciable amount is the cost of an item of property, plant and equipment, or revalued amount, less its residual value. The residual value is the estimated amount that the Group would currently obtain from disposal of the item of property, plant and equipment, after deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.
The depreciable amount of assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The residual value, the useful lives and depreciation method are reviewed at each financial year-end. The effect of any changes from previous estimates is accounted for prospectively as a change in an accounting estimate.
The gain or loss arising on a sale or disposal of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.
Construction in progress comprises costs directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated. Depreciation of construction in progress commences when the assets are available for use, i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by the management.
Intangible assets
Intangible assets, which are acquired by the Group and which have finite useful lives, consist primarily of land lease rights.
Land lease rights acquired separately are carried at cost less accumulated amortization and accumulated impairment losses.
Land lease rights acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, land lease rights acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as land lease rights acquired separately.
Amortization of intangible assets is recognized on a straight line basis over their estimated useful lives. For land lease rights, the amortization period varies from 3 to 15 years.
The amortization period and the amortization method for intangible assets with finite useful life are reviewed at least at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Impairment of tangible and intangible assets other than goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive incomeunless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Impairment of goodwill
For the purposes of impairment testing, goodwill is allocated to each of the Group's cash generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in statement of comprehensive income in the consolidated statement of comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Income taxes
Income taxes have been computed in accordance with the laws currently enacted in jurisdictions where operating entities are located. Income tax is calculated based on the results for the year as adjusted for items that are non-assessable or non-tax deductible. It is calculated using tax rates that have been enacted by the reporting date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Income taxes (continued)
Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items credited or charged directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income.
Deferred tax assets and liabilities are offset when:
• The Group has a legally enforceable right to set off the recognized amounts of current tax assets and current tax liabilities;
• The Group has an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;
• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.
The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. These companies are exempt from income taxes and pay the Fixed Agricultural Tax instead (Note 12).
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs comprise raw materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present locations and condition.
Cost is calculated using the FIFO (first-in, first-out) method. Net realizable value is determined as the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Agriculture related production process results in production of joint products: main and by-products. A by-product arising from the process is measured at net realizable value and this value is deducted from the cost of the main product.
Biological assets and agricultural produce
Agricultural activity is defined as a biological transformation of biological assets for sale into agricultural produce or into additional biological assets. The Group classifies hatchery eggs, live poultry and other animals and plantations as biological assets.
The Group recognizes a biological asset or agricultural produce when the Group controls the asset as a result of past events, it is probable that future economic benefits associated with the asset will flow to the Group, and the fair value or cost of the asset can be measured reliably.
Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any resulting gain or loss recognized in the consolidated statement of comprehensive income. Costs to sell include all costs that would be necessary to sell the assets, including costs necessary to get the assets to market.
The difference between fair value less costs to sell and total production costs is allocated to biological assets held in stock as of each reporting date as a fair value adjustment.
The change in this adjustment from one period to another is recognized in Net change in fair value of biological assets and agricultural produce in the statement of comprehensive income.
Agricultural produce harvested from biological assets is measured at its fair value less costs to sell at the point of harvest. A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell is included in the statement of comprehensive income.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Biological assets and agricultural produce (continued)
Based on the above policy, the principal groups of biological assets and agricultural produce are stated as follows:
Biological Assets
(i) Broilers
Broilers comprise poultry held for chicken meat production. Fair value of broilers is determined by reference to the cash flows that will be obtained from sales of 44-day aged chickens, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.
(ii) Breeders
The fair value of breeders is determined using the discounted cash flow approach based on hatchery eggs market prices.
(iii) Cattle and pigs
Cattle and pigs comprise cattle held for regeneration of livestock population and animals raised for milk and beef and pork meat production. The fair value of livestock is determined based on market prices of livestock of similar age, breed and genetic merit. Cattle, for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable, are measured using the present value of expected net cash flows from the asset discounted at a current market-determined pre-tax rate.
(iv) Orchards
Orchards consist of plants used for fruits production. Fruit trees achieve the normal productive age in the second to fifth year. The fair value of orchards which have attained normal productive age is determined using the discounted cash flow approach.
(v) Crops in fields
The fair value of crops in fields is determined by reference to the cash flows that will be obtained from sales of harvested crops, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.
Agricultural Produce
(i) Dressed poultry, beef and pork
The fair value of dressed poultry, beef and pork is determined by reference to market prices at the point of harvest.
(ii) Grain and fruits
The fair value of fodder grain and fruits is determined by reference to market prices at the point of harvest.
The Group's biological assets are classified into bearer and consumable biological assets depending upon the function of a particular group of biological assets in the Group's production process. Consumable biological assets are those that are to be harvested as agricultural produce, and include hatchery eggs and live broiler poultry intended for the production of meat, as well as pork and meat cows. Bearer biological assets include poultry held for hatchery eggs production, orchards, milk cows and breeding bulls.
Financial instruments
Financial assets and financial liabilities are recognized on the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets and liabilities are recognized using settlement date accounting. The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity. The accounting policies for initial recognition and subsequent measurement of financial instruments are disclosed in the respective accounting policies set out below in this Note.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
3. Summary of significant accounting policies(continued)
Accounts receivable
Accounts receivable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method. Short-term accounts receivable, which are non-interest bearing, are stated at their nominal value. Appropriate allowances for estimated irrecoverable amounts are recognized in the statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash with banks, deposits and marketable securities with original maturity of less than three months.
Bank borrowings, corporate bonds issued and other long-term payables
Interest-bearing borrowings, bonds and other long-term payables are initially measured at fair value net of directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption amount is recognized over the term of the borrowings and recorded as finance costs.
Derivative financial instruments
The Group enters into derivative financial instruments to purchase sunflower seeds. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not remeasured at fair value through statement of comprehensive income.
As of 31 December 2011 there were no material derivative financial instruments that were recognized in these consolidated financial statements.
Trade and other accounts payable
Accounts payable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases.
Assets held by the Group under finance leases are recognized as assets of the Group at their fair value at the date of acquisition or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised directly to the statement of comprehensive incomeand are classified as finance costs.
Rental income or expenses under operating leases are recognized in the consolidated statement of comprehensive income on a straight line basis over the term of the lease.
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation (either based on legal regulations or implied) as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation can be made.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in Note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects both current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognized in financial statements.
Acquisitions of land lease rights
During the year ended 31 December 2010, the Group acquired control over entities owning legal rights for operating leases of agricultural land plots. For each individual acquisition, the Group evaluated whether the acquisition constituted an asset acquisition or a business combination. In making this judgment, management considered whether the acquired entities are capable of being conducted and managed as a business for the purpose of providing returns, including whether the acquired entities possess other assets and workforce as inputs compared to normal industry requirements. As a result, the Group's management concluded that land lease rights of USD 4,767 thousand and USD 18,801 thousand were acquired in assets acquisition and business combination transactions, respectively (Note 14).
Revenue recognition
In the normal course of business, the Group engages in sale and purchase transactions with the purpose to exchange crops in various locations to fulfill the Group's production requirements. In accordance with the Group's accounting policy, revenue is not recognized with respect to the exchange transactions involving goods of similar nature and value. Group management applies judgment to determine whether each particular transaction represents an exchange or a transaction that generates revenue. In making this judgment, management considers whether the underlying crops are of similar type and quality, as well as whether the time passed between the transfer and receipt of the underlying crops indicates that the substance of the transaction is an exchange of similar goods.
Recognition of inventories
During the years ended 31 December 2011 and 2009, the Group acquired components for mixed fodder production from a local supplier under grain purchase financing arrangements. According to the contractual terms, legal ownership to the goods passed to the Group on physical delivery to the Group's grain storage facilities, which is generally the date when inventories are recognized in the Group's financial statements. However, based on the analysis of the nature of this arrangement, management applied judgment to determine the date on which control over these goods passed to the Group. In making this judgment, management considered the relevant significance of risk and rewards associated with ownership of grain, in particular date of transfer of physical damage risk, as well as commercial risks and benefits associated with ownership. Based on this assessment, management concluded that the Group assumed risk of physical damage and obtained commercial benefits prior to obtaining legal ownership over these inventories and as such, that these inventories should be recognized in the Group's financial statements from the date when they were acquired by the supplier.
Revaluation of property, plant and equipment
As described in Note 3 and 13, the Group applies revaluation model to the measurement of grain storage facilities. At each reporting date, the Group carries out a review of the carrying amount of these assets to determine whether the carrying amount differs materially from fair value. The Group carries out such review by preparing a discounted cash flow analysis involving assumptions on projected revenues and costs, and a discount rate. Additionally, the Group considers economic stability and availability of transactions with similar assets in the market when determining whether to perform a fair value assessment in a given period. Based on the results of this review, the Group concluded that grain storage facilities need not be revalued as of 31 December 2011.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Fair value less costs to sell of biological assets and agricultural produce
Biological assets are recorded at fair values less costs to sell. The Group estimates the fair values of biological assets based on the following key assumptions:
• Average meat output for broilers and livestock for meat production;
• Average productive life of breeders and cattle held for regeneration and milk production;
• Expected crops output;
• Projected orchards output;
• Estimated changes in future sales prices;
• Projected production costs and costs to sell;
• Discount rate.
Although some of these assumptions are obtained from published market data, a majority of these assumptions are estimated based on the Group's historical and projected results.
Useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and equipment is a matter of management estimate based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates.
Impairment of property, plant and equipment
As described in Note 13, during the year ended 31 December 2009, the Group identified indicators of impairment associated with the assets used in the production of goose meat and foie gras and assessed the assets' recoverable amount. In determining the recoverable amount of these assets, Group management referred to the assets' value in use due to lack of reliable basis of estimates of the amounts obtainable from the sale of the asset in an arm's length transaction between knowledgeable and willing parties.
The value in use calculation requires management to estimate future cash inflows expected to arise from the group of assets and a suitable discount rate in order to calculate present value.In estimating the appropriate discount rate, the Group used the weighted average cost of capital, as adjusted for currency denomination of expected future cash flows and levels of business risks assessed for this group of assets. Details of the impairment loss calculation are set out in Note 13.
VAT recoverable
Note 15 describes long-term VAT recoverable accumulated by the Group on its capital expenditures and investments in working capital. The balance of VAT recoverable may be realized by the Group either through a cash refund from the state budget or by set off against VAT liabilities with the state budget in future periods. Management classified VAT recoverable balance as current or non-current based on expectations as to whether it will be realized within twelve months from the reporting date. In addition, management assessed whether the allowance for irrecoverable VAT needs to be created.
In making this assessment, management considered past history of receiving VAT refunds from the state budget. For VAT recoverable expected to be set off against VAT liabilities in future periods, management based its estimates on detailed projections of expected excess of VAT output over VAT input in the normal course of the business.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
5. Segment information
All of the Group's operations are located within the Ukraine.
Segment information is analyzed on the basis of the types of goods supplied by the Group's operating divisions. The Group's reportable segments under IFRS 8 are therefore as follows:
Poultry and related operations segment:
• sales of chicken meat
• sales of sunflower oil
• other poultry related sales
Grain growing segment:
• sales of grain
Other agricultural operations segment:
• sales of meat processing products and other meat
• other agricultural operations (sales of fruits, milk, feed grains and other)
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 3. Sales between segments are carried out at market prices. Segment result represents operating profit under IFRS before impairment of property, plant and equipment and unallocated corporate expenses. Unallocated corporate expenses include management remuneration, representative expenses, and expenses on maintenance of office premises. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
As of 31 December and for the year then ended the Group's segmental information was as follows:
Year ended 31 December 2011 | Poultry and related operations | Grain growing | Other agricultural operations | Eliminations | Consolidated |
External sales | 978,871 | 103,739 | 146,480 | - | 1,229,090 |
Sales between business segments | 36,381 | 117,831 | 5,203 | (159,415) | - |
Total revenue | 1,015,252 | 221,570 | 151,683 | (159,415) | 1,229,090 |
Segment results | 236,602 | 104,286 | 9,651 | - | 350,539 |
Unallocated corporate expenses | (29,795) | ||||
Other expenses, net | (58,629) | ||||
Profit before tax | 262,115 | ||||
Other information: | |||||
Additions to property, plant and equipment 1) | 309,072 | 23,079 | 7,598 | - | 339,749 |
Depreciation and amortization expense 2) | 53,879 | 16,422 | 6,742 | - | 77,043 |
Net change in fair value of biological assets and agricultural produce | 2,665 | 17,322 | 1,301 | - | 21,288 |
1) Additions to property, plant and equipment in 2011 (Note 13) include unallocated additions to property, plant and equipment in the amount of USD 2,527 thousand.
2) Depreciation and amortization for the year ended 31 December 2011 includes unallocated depreciation and amortization in the amount of USD 3,298 thousand.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
5. Segment information (continued)
Year ended 31 December 2010 | Poultry and related operations | Grain growing | Other agricultural operations | Eliminations | Consolidated |
External sales | 800,237 | 35,631 | 108,338 | - | 944,206 |
Sales between business segments | 28,584 | 85,668 | 3,353 | (117,605) | - |
Total revenue | 828,821 | 121,299 | 111,691 | (117,605) | 944,206 |
Segment results | 225,073 | 55,765 | 3,738 | - | 284,576 |
Unallocated corporate expenses | (27,792) | ||||
Other expenses, net | (39,463) | ||||
Profit before tax | 217,321 | ||||
Other information: | |||||
Additions to property, plant and equipment 1) | 128,972 | 17,360 | 9,825 | - | 156,157 |
Depreciation and amortization expense 2) | 47,600 | 11,397 | 5,585 | - | 64,582 |
Net change in fair value of biological assets and agricultural produce | 9,473 | 17,019 | 2,522 | - | 29,014 |
1) Additions to property, plant and equipment in 2010 (Note 13) include unallocated additions to property, plant and equipment in the amount of USD 4,818 thousand.
2) Depreciation and amortization for the year ended 31 December 2010 includes unallocated depreciation and amortization in the amount of USD 3,320 thousand.
Year ended 31 December 2009 | Poultry and related operations | Grain growing | Other agricultural operations | Eliminations | Consolidated |
External sales | 577,143 | 45,752 | 88,109 | - | 711,004 |
Sales between business segments | 22,438 | 37,673 | 1,496 | (61,607) | - |
Total revenue | 599,581 | 83,425 | 89,605 | (61,607) | 711,004 |
Segment results | 196,594 | 35,301 | 3,234 | - | 235,129 |
Unallocated corporate expenses | (15,845) | ||||
Impairment of property, plant and equipment | (1,304) | ||||
Other expenses, net | (64,465) | ||||
Profit before tax | 153,515 | ||||
Other information: | |||||
Additions to property, plant and equipment 1) | 117,685 | 5,559 | 10,338 | - | 133,582 |
Depreciation and amortization expense | 37,193 | 9,011 | 5,473 | - | 51,677 |
Net change in fair value of biological assets and agricultural produce | 16,670 | 17,862 | 704 | - | 35,236 |
1) Additions to property, plant and equipment in 2009 (Note 13) include unallocated additions to property, plant and equipment in the amount of USD 24,545 thousand.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
5. Segment information (continued)
The Group's export sales to external customers by major product types were as follows during the years ended 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Sunflower oil and related products | 222,418 | 188,156 | 104,864 | ||
Chicken meat and related products | 67,874 | 29,147 | 17,650 | ||
Grain | 63,101 | 22,454 | 30,109 | ||
Other agricultural segment products | 486 | 290 | 270 | ||
353,879 | 240,047 | 152,893 |
Export sales of sunflower oil and related products and export sales of grains are primarily made to global trading companies at CPT port terms. The major markets for the Group's export sales of chicken meat are CIS, Middle East, Central and South East Asia
6. Revenue
Revenue for the years ended 31 December 2011, 2010 and 2009 was as follows:
2011 | 2010 | 2009 | |||
Poultry and related operations segment | |||||
Revenue from sales of chicken meat | 693,207 | 562,982 | 443,654 | ||
Revenue from sunflower oil and related products | 216,030 | 179,982 | 101,274 | ||
Revenue from other poultry related sales | 69,634 | 57,273 | 32,215 | ||
978,871 | 800,237 | 577,143 | |||
Grain growing segment | |||||
Revenue from sales of grain | 103,739 | 35,631 | 45,752 | ||
103,739 | 35,631 | 45,752 | |||
Other agricultural operations segment | |||||
Revenue from sales of other meat | 99,740 | 79,185 | 60,116 | ||
Other agricultural sales | 46,740 | 29,153 | 27,993 | ||
146,480 | 108,338 | 88,109 | |||
1,229,090 | 944,206 | 711,004 |
7. Cost of sales
Cost of sales for the years ended 31 December 2011, 2010 and 2009 was as follows:
2011 | 2010 | 2009 | |||
Poultry and related operations | 684,001 | 546,494 | 375,525 | ||
Grain growing operations | 71,883 | 29,771 | 38,286 | ||
Other agricultural operations | 133,243 | 104,372 | 85,352 | ||
889,127 | 680,637 | 499,163 |
For the years ended 31 December 2011, 2010 and 2009 cost of sales comprised the following:
2011 | 2010 | 2009 | |||
Costs of raw materials and other inventory used | 620,385 | 475,093 | 338,114 | ||
Payroll and related expenses | 131,840 | 101,425 | 79,746 | ||
Depreciation and amortization expense | 66,675 | 56,799 | 43,479 | ||
Other costs | 70,227 | 47,320 | 37,824 | ||
889,127 | 680,637 | 499,163 |
By-products arising from the agricultural production process are measured at net realizable value, and this value is deducted from the cost of the main product.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
8. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
Payroll and related expenses | 40,391 | 43,576 | 30,062 | ||
Services | 24,381 | 17,517 | 13,992 | ||
Depreciation expense | 13,666 | 11,103 | 8,198 | ||
Fuel and other materials used | 12,433 | 9,166 | 6,454 | ||
Representative costs and business trips | 8,330 | 8,611 | 8,807 | ||
Advertising expense | 2,415 | 9,094 | 10,562 | ||
Insurance expense | 1,919 | 1,734 | 1,349 | ||
Bank services and conversion fees | 486 | 535 | 476 | ||
Other | 2,426 | 771 | 1,072 | ||
106,447 | 102,107 | 80,972 |
Remuneration to the auditors, included into Services above, approximate to USD 1,000 thousand, USD 1,000 thousand and USD 1,000 thousand for the years ended 31 December 2011, 2010 and 2009, respectively, and comprised audit and other advisory fees.
During the year ended 31 December 2010 Payroll and related expenses included a one-off bonus paid by the Group to one of the top managers in the form of 455,000 shares representing 0.4% of the share capital of MHP S.A. (Note 25). The amount recognized as part of selling, general and administrative expenses, was measured as the sum of the fair value of the shares at grant date of USD 6,483 thousand and the amount of payroll related taxes of USD 1,145 thousand (Note 31).
9. VAT refunds and other government grants income
The Ukrainian legislation provides for a number of different grants and tax benefits for companies involved in agricultural operations. The below mentioned grants and similar privileges are established by Verkhovna Rada (the Parliament) of Ukraine, as well as by the Ministry of Agrarian Policy of Ukraine, the Ministry of Finance of Ukraine, the State Committee of Water Industry, the customs authorities and local district administrations.
Government grants recognized by the Group as income during the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
VAT refunds | 87,476 | 80,223 | 65,606 | ||
Fruits and vine cultivation | 26 | 1,219 | 1,145 | ||
Other government grants | 483 | 616 | 1,061 | ||
87,985 | 82,058 | 67,812 |
VAT refunds for agricultural industry
According to the Tax Code of Ukraine issued in December 2010 and effective as of January 1, 2011 («Tax Code»),, companies that generated not less than 75% of gross revenues for the previous tax year from sales of own agricultural products are entitled to retain VAT on sales of agricultural products, net of VAT paid on purchases, for use in agricultural production.
In accordance with the Tax Code (Note 32), the VAT rate will be decreased from currently effective 20% to 17% from 1 January 2014. The special VAT regime for agricultural industry will be effective through 1 January 2018.
Included in VAT refunds for the years ended 31 December 2011, 2010 and 2009 were specific VAT subsidies for the production and sale of milk and live animals for further processing in the amount of USD 422 thousand, USD 2,125 thousand and USD 1,511 thousand, respectively.
Government grants on fruits and vine cultivation
In accordance with the Law "On State Budget of Ukraine" two companies of the Group were entitled to receive grants for the years ended 31 December 2011, 2010 and 2009 for the creation and cultivating of orchards, vines and berry-fields.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
9. VAT refunds and other government grants income (continued)
Other government grants
Other government grants recognized as income during the years ended 31 December 2011, 2010 and 2009 mainly comprised of subsidies related to crop growing.
In addition to the government grants income recognized by the Group, the Group receives a grant to compensate agricultural producers for costs used to finance operations. Agricultural producers are entitled to the compensation of finance costs incurred on bank borrowings in accordance with the Law "On State Budget of Ukraine" during the years ended 31 December 2011, 2010 and 2009. The eligibility, application and tender procedures related to such grants are defined and controlled by the Ministry of Agrarian Policy of Ukraine.
These grants were recognized as a reduction in the associated finance costs and during the years ended 31 December 2011, 2010 and 2009 were USD 1,828 thousand, USD 4,999 thousand and USD 900 thousand, respectively (Note 11).
10. Other operating expenses, net
Other operating expenses for the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
Impairment of VAT receivable | 14,776 | 8,212 | 7,803 | ||
Impairment of accounts receivable | 898 | 1,115 | 1,791 | ||
Loss/(gain) on disposal of property, plant and equipment and other non-current assets | 551 | 1,931 | (8) | ||
Other | 6,842 | 5,434 | 5,623 | ||
Total other operating expenses | 23,067 | 16,692 | 15,209 | ||
Less: | |||||
Other operating income | (1,022) | (942) | (576) | ||
Total other operating expenses, net | 22,045 | 15,750 | 14,633 |
11. Finance costs
Finance costs for the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
Interest on corporate bonds | 64,996 | 50,911 | 26,822 | ||
Interest on bank borrowings | 9,720 | 8,539 | 12,996 | ||
Interest on obligations under finance leases | 5,157 | 5,979 | 7,279 | ||
Interest on grain purchases financing arrangements | 294 | 3,049 | 3,463 | ||
Bank commissions and other charges | 3,782 | 1,921 | 1,301 | ||
Government grants as compensation for the finance costs of agricultural producers (Note 9) | (1,828) | (4,999) | (900) | ||
Total finance costs | 82,121 | 65,400 | 50,961 | ||
Less: | |||||
Finance costs included in cost of qualifying assets | (16,203) | (2,456) | (144) | ||
65,918 | 62,944 | 50,817 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
11. Finance costs (continued)
For qualifying assets, the weighted average capitalization rate on funds borrowed generally during the year ended 31 December 2011 was 9.55% (2010: 10.62%, 2009: 9.87%).
Interest on corporate bonds for the years ended 31 December 2011, 2010 and 2009 includes amortization of premium and debt issue costs on bonds issued in the amounts of USD 4,124 thousand, USD 1,526 thousand and USD 1,197 thousand, respectively.
12. Income tax
Substantially all of the Group's operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed based on Ukrainian statutory rates. The net results of the Group companies incorporated in jurisdictions other than the Ukraine were insignificant during the years ended 31 December 2011, 2010, and 2009.The majority of the Group companies that are involved in agricultural production pay the Fixed Agricultural Tax (the "FAT") in accordance with the Tax Code. The FAT substitutes the following taxes for agricultural producers: Corporate Income Tax, Land Tax, Municipal Tax, Natural Resources Usage Duty, Geological Survey Duty, and Trade Patent. The FAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is valid indefinitely. FAT does not constitute an income tax, and as such, is recognized in the statement of comprehensive income in other operating expenses.
During the year ended 31 December 2011, the Group companies which have the status of the Corporate Income Tax (the "CIT") payers in the Ukraine were subject to income tax at: 1 January - 1 April - 25% rate, 1 April - 31 December- 23% rate. During 2010, and 2009, the Group companies which have the status of the CIT payers in the Ukraine were subject to income tax at a 25% rate.
The Tax Code of Ukraine (Note 32) introduces gradual decreases in income tax rates over the future years (from 23% effective 1 April 2011 to 16% effective 1 January 2014), as well as certain changes to the rules of income tax assessment starting from 1 April 2011. The deferred income tax assets and liabilities as of 31 December 2011 and 2010 were measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.
The components of income tax expense/(benefit) were as follows for the years ended 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Current income tax charge | 5,664 | 3,413 | 933 | ||
Deferred tax benefit | (2,904) | (1,540) | (7,421) | ||
Income tax expense/(benefit) | 2,760 | 1,873 | (6,488) |
Reconciliation between profit before tax multiplied by the statutory tax rate and the tax expense for the years ended 31 December 2011, 2010 and 2009 was as follows:
2011 | 2010 | 2009 | |||
Profit before income tax | 262,115 | 217,321 | 153,515 | ||
At the Company's statutory income tax rate of 23% - 25% | 61,010 | 54,330 | 38,379 | ||
Tax effect of: | |||||
Income generated by FAT payers (exempt from income tax) | (77,043) | (76,815) | (58,770) | ||
Changes in tax rate and law | - | (18,801) | - | ||
(Recognized)/Unrecognized deferred tax assets on property, plant and equipment | (6,792) | 6,792 | - | ||
Non-deductible expenses | 10,332 | 11,889 | 10,419 | ||
Expenses not deducted for tax purposes | 15,253 | 24,478 | 3,484 | ||
Income tax expense/(benefit) | 2,760 | 1,873 | (6,488) |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
12. Income tax (continued)
As of 31 December 2011, 2010 and 2009 the Group did not recognize deferred tax assets arising from temporary differences of USD 64,907 thousand, USD 97,912 thousand and USD 13,936 thousand, respectively, as the Group did not intend to deduct respective expenses for tax purposes in subsequent periods. As of 31 December 2010 the Group did not recognize deferred tax assets on temporary differences in respect of the property, plant and equipment of USD 27,168 thousand due to uncertainties relating to norms of Tax Code which came into effect from 1 April 2011. As of 31 December 2011, subsequently to the implementation of the new tax code, management of the Group reassessed the recoverability of the deferred tax assets on property, plant and equipment. The Group was able to utilize part of the deferred tax assets balance in 2011 and has the ability to utilize it in future periods in accordance with the provisions of the new code.
Deferred tax liabilities have not been recognized in respect of unremitted earnings of Ukrainian subsidiaries as the earnings can be remitted free from taxation currently and in future years, based on current legislation.
As of 31 December 2011, 2010 and 2009 deferred tax assets and liabilities comprised the following:
2011 | 2010 | 2009 | |||
Deferred tax assets arising from: | |||||
Property, plant and equipment | 5,996 | 6,792 | - | ||
Other current liabilities | 1,518 | 1,619 | 5,168 | ||
Advances received and other payables | 1,155 | 4,284 | 5,736 | ||
Inventories | 1,011 | - | 897 | ||
Expenses deferred in tax books | 288 | 1,942 | 6,795 | ||
less: | |||||
Unrecognized deferred tax assets | - | (6,792) | - | ||
Total deferred tax assets | 9,968 | 7,845 | 18,596 | ||
Deferred tax liabilities arising from: | |||||
Property, plant and equipment | (2,987) | (2,655) | (13,999) | ||
Inventories | (996) | (675) | - | ||
Prepayments to suppliers | (397) | (1,827) | (3,384) | ||
Total deferred tax liabilities | (4,380) | (5,157) | (17,383) | ||
Net deferred tax assets | 5,588 | 2,688 | 1,213 |
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Deferred tax assets | 7,795 | 5,190 | 10,183 | ||
Deferred tax liabilities | (2,207) | (2,502) | (8,970) | ||
5,588 | 2,688 | 1,213 |
The movements in net deferred tax assets/(liabilities) for the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
Net deferred tax assets/(liabilities) as of beginning of the year | 2,688 | 1,213 | (4,113) | ||
Deferred tax benefit | 2,904 | 1,540 | 7,421 | ||
Deferred tax on property, plant and equipment charged directly to revaluation reserve | - | (2,541) | |||
Translation difference | (4) | (65) | 446 | ||
Net deferred tax assets as of end of the year | 5,588 | 2,688 | 1,213 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
13. Property, plant and equipment
The following table represents movements in property, plant and equipment for the year ended 31 December 2011:
Buildings and structures | Grain storage facilities | Machinery and equipment | Utilities and infrastructure | Vehicles and agricultural machinery | Office furniture and equipment | Construction in progress |
Total | ||||||||
Cost or fair value: | |||||||||||||||
At 1 January 2011 | 259,799 | 32,589 | 274,024 | 52,440 | 190,943 | 16,046 | 131,551 | 957,392 | |||||||
Additions | 27,030 | 7,728 | 45,656 | 5,530 | 29,285 | 1,786 | 225,261 | 342,276 | |||||||
Disposals | (247) | - | (743) | (4) | (2,083) | (121) | - | (3,198) | |||||||
Transfers | 8,361 | 3,720 | 31,011 | 950 | (2,263) | 223 | (42,002) | - | |||||||
Translation difference | (945) | (125) | (1,032) | (190) | (694) | (58) | 570 | (2,474) | |||||||
At 31 December 2011 | 293,998 | 43,912 | 348,916 | 58,726 | 215,188 | 17,876 | 315,380 | 1,293,996 | |||||||
Accumulated depreciation and impairment: | |||||||||||||||
At 1 January 2011 | 37,189 | 1,046 | 83,171 | 13,198 | 71,068 | 6,755 | - | 212,427 | |||||||
Depreciation charge for the year | 14,517 | 1,331 | 27,602 | 3,325 | 25,323 | 3,322 | - | 75,420 | |||||||
Eliminated on disposals | (128) | - | (473) | (1) | (1,253) | (109) | - | (1,964) | |||||||
Translation difference | (143) | (4) | (317) | (49) | (270) | (27) | - | (810) | |||||||
At 31 December 2011 | 51,435 | 2,373 | 109,983 | 16,473 | 94,868 | 9,941 | - | 285,073 | |||||||
Net book value | |||||||||||||||
At 1 January 2011 | 222,610 | 31,543 | 190,853 | 39,242 | 119,875 | 9,291 | 131,551 | 744,965 | |||||||
At 31 December 2011 | 242,563 | 41,539 | 238,933 | 42,253 | 120,320 | 7,935 | 315,380 | 1,008,923 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
13. Property, plant and equipment (continued)
The following table represents movements in property, plant and equipment for the year ended 31 December 2010:
Buildings and structures | Grain storage facilities | Machinery and equipment | Utilities and infrastructure | Vehicles and agricultural machinery | Office furniture and equipment | Construction in progress |
Total | ||||||||
Cost or fair value: | |||||||||||||||
At 1 January 2010 | 217,356 | 30,929 | 244,698 | 52,757 | 154,570 | 13,897 | 66,322 | 780,529 | |||||||
Additions | 25,500 | 1,563 | 21,906 | 4,897 | 29,526 | 2,102 | 75,481 | 160,975 | |||||||
Disposals | (176) | - | (425) | (38) | (1,563) | (51) | - | (2,253) | |||||||
Transfers | 6,670 | 12 | 2,248 | 1,167 | 122 | 49 | (10,268) | - | |||||||
Acquired through business combination (Note 2) | 6,365 | - | 2,106 | 22 | 7,955 | 15 | - | 16,463 | |||||||
Reclassifications | 3,652 | - | 2,869 | (6,521) | - | - | - | - | |||||||
Translation difference | 432 | 85 | 622 | 156 | 333 | 34 | 16 | 1,678 | |||||||
At 31 December 2010 | 259,799 | 32,589 | 274,024 | 52,440 | 190,943 | 16,046 | 131,551 | 957,392 | |||||||
Accumulated depreciation: | |||||||||||||||
At 1 January 2010 | 23,447 | - | 59,634 | 9,593 | 49,896 | 3,690 | - | 146,260 | |||||||
Depreciation charge for the year | 13,216 | 1,049 | 23,409 | 4,397 | 22,088 | 3,110 | - | 67,269 | |||||||
Eliminated on disposals | (36) | - | (234) | (3) | (992) | (46) | - | (1,311) | |||||||
Reclassifications | 540 | - | 265 | (805) | - | - | - | - | |||||||
Translation difference | 22 | (3) | 97 | 16 | 76 | 1 | - | 209 | |||||||
At 31 December 2010 | 37,189 | 1,046 | 83,171 | 13,198 | 71,068 | 6,755 | - | 212,427 | |||||||
Net book value | |||||||||||||||
At 1 January 2010 | 193,909 | 30,929 | 185,064 | 43,164 | 104,674 | 10,207 | 66,322 | 634,269 | |||||||
At 31 December 2010 | 222,610 | 31,543 | 190,853 | 39,242 | 119,875 | 9,291 | 131,551 | 744,965 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
13. Property, plant and equipment (continued)
The following table represents movements in property, plant and equipment for the year ended 31 December 2009:
Buildings and structures | Grain storage facilities | Machinery and equipment | Utilities and infrastructure | Vehicles and agricultural machinery | Office furniture and equipment | Construction in progress |
Total | ||||||||
Cost or fair value: | |||||||||||||||
At 1 January 2009 | 137,697 | 21,060 | 174,310 | 26,043 | 125,081 | 4,438 | 153,417 | 642,046 | |||||||
Additions | 48,026 | - | 57,579 | 3,118 | 35,888 | 9,600 | 3,916 | 158,127 | |||||||
Disposals | (117) | - | (844) | (2) | (2,749) | (54) | (544) | (4,310) | |||||||
Transfers | 38,164 | - | 21,859 | 25,189 | 1,870 | 300 | (87,382) | - | |||||||
Revaluations | - | 10,739 | - | - | - | - | - | 10,739 | |||||||
Impairment loss | (941) | - | (153) | - | (210) | - | - | (1,304) | |||||||
Translation difference | (5,473) | (870) | (8,053) | (1,591) | (5,310) | (387) | (3,085) | (24,769) | |||||||
At 31 December 2009 | 217,356 | 30,929 | 244,698 | 52,757 | 154,570 | 13,897 | 66,322 | 780,529 | |||||||
Accumulated depreciation and impairment: | |||||||||||||||
At 1 January 2009 | 19,250 | 445 | 41,377 | 6,488 | 32,728 | 1,925 | - | 102,213 | |||||||
Depreciation charge for the year | 5,040 | 734 | 20,492 | 3,418 | 20,740 | 1,925 | - | 52,349 | |||||||
Eliminated on disposals | (40) | - | (285) | (2) | (1,966) | (45) | - | (2,338) | |||||||
Eliminated on revaluations | - | (1,173) | - | - | - | - | - | (1,173) | |||||||
Translation difference | (803) | (6) | (1,950) | (311) | (1,606) | (115) | - | (4,791) | |||||||
At 31 December 2009 | 23,447 | - | 59,634 | 9,593 | 49,896 | 3,690 | - | 146,260 | |||||||
Net book value | |||||||||||||||
At 1 January 2009 | 118,447 | 20,615 | 132,933 | 19,555 | 92,353 | 2,513 | 153,417 | 539,833 | |||||||
At 31 December 2009 | 193,909 | 30,929 | 185,064 | 43,164 | 104,674 | 10,207 | 66,322 | 634,269 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
13. Property, plant and equipment (continued)
As of 31 December 2011, included within construction in progress were prepayments for property, plant and equipment in the amount of USD 46,086 thousand (2010: USD 25,020 thousand, 2009: USD 6,591 thousand).
As of 31 December 2011, included within property, plant and equipment were fully depreciated assets with an original cost of USD 19,647 thousand (2010: USD 12,494 thousand, 2009: USD 5,243 thousand).
As of 31 December 2011, certain of the Group's machinery and equipment with the carrying amount of USD 4,648 thousand (2010: USD 5,247 thousand, 2009: USD 5,813 thousand) were pledged as collateral to secure its bank borrowings (Note 26).
As of 31 December 2011, 2010 and 2009 the net carrying amount of property, plant and equipment, represented by vehicles and agricultural machinery, held under finance lease agreements were USD 73,798 thousand, USD 72,234 thousand and USD 61,554 thousand, respectively.
Impairment assessment
The Group reviews its property, plant and equipment each period to determine if any indication of impairment exists. Based on these reviews, indicators of impairment were identified in 2009 associated with the assets used in the production of goose meat and foie gras.
The amount of impairment losses recognized during the year ended 31 December 2009, together with information on the discount rates used in the estimation of the recoverable amount of impaired assets, is as follows:
Production line | Discount rate used, % | Impairment | |||
2009 | |||||
Goose meat and foie gras | 31.1 | 1,304 | |||
1,304 | |||||
Revaluation of grain storage facilities
During the year ended 31 December 2009, the Group engaged independent appraisers to revalue its grain storage facilities. The effective date of revaluation was 1 December 2009. The valuation, which conformed to the International Valuation Standards, was determined by reference to observable prices in an active market and recent market transactions.
No revaluation of grain storage facilities was performed as of 31 December 2011 and 2010 as, based on management's assessment, the fair value of grain storage facilities as of 31 December 2011 and 2010 did not materially differ from their carrying amount.
If the grain storage facilities were carried at cost, their net book value as of 31 December 2011 would be USD 20,514 thousand (2010: USD 13,792 thousand, 2009: USD 12,549 thousand).
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
14. Land lease rights, net
Land lease rights represent rights for operating leases of agricultural land plots, the major part of which was acquired by the Group during the year ended 31 December 2010 as part of assets acquisitions and through business combinations.
The following table represents the movements in land lease rights for the years ended 31 December:
2011 | 2010 | ||||
Cost: | |||||
As of 1 January | 24,439 | 965 | |||
Additions | 5,995 | 4,767 | |||
Acquired through business combinations (Note 2) | - | 18,801 | |||
Translation difference | (102) | (94) | |||
As of 31 December | 30,332 | 24,439 | |||
Accumulated amortization: | |||||
As of 31 December | 1,223 | 111 | |||
Amortization charge for the year | 1,891 | 1,117 | |||
Translation difference | (9) | (5) | |||
As of 31 December | 3,105 | 1,223 | |||
Net book value: | |||||
As of 1 January | 23,216 | 854 | |||
As of 31 December | 27,227 | 23,216 |
15. Long-term VAT recoverable, net
As of 31 December 2011, 2010 and 2009 the balance of long-term VAT recoverable was accumulated on continuing capital expenditures. Management expects that these balances will not be recovered within twelve months of the reporting date.
As of 31 December 2011, an allowance for estimated irrecoverable long-term VAT of USD 4,938 thousand was recorded by the Group (2010: USD 3,746 thousand, 2009: USD 4,537 thousand).
16. Biological assets
The balances of non-current biological assets were as follows as of 31 December 2011, 2010 and 2009:
Thousand units | Carrying amount | Thousand units | Carrying amount | Thousand units | Carrying amount | |||
2011 | 2010 | 2009 | ||||||
Orchards, hectare | 1.64 | 27,978 | 1.87 | 25,768 | 2.4 | 23,478 | ||
Milk cows, boars, sows, units | 14.1 | 14,803 | 13.1 | 13,997 | 11.5 | 9,560 | ||
Other non-current bearer biological assets | 906 | 714 | 530 | |||||
Total bearer non-current biological assets | 43,687 | 40,479 | 33,568 | |||||
Non-current cattle and pigs, units | 5.1 | 2,640 | 5.9 | 2,809 | 6.6 | 2,667 | ||
Total consumable non-current biological assets | 2,640 | 2,809 | 2,667 | |||||
Total non-current biological assets | 46,327 | 43,288 | 36,235 | |||||
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
16. Biological assets (continued)
The balances of current biological assets were as follows as of 31 December 2011, 2010 and 2009:
Thousand units | Carrying amount | Thousand units | Carrying amount | Thousand units | Carrying amount | |||
2011 | 2010 | 2009 | ||||||
Breeders held for hatchery eggs production, units | 2,384 | 39,345 | 2,360 | 39,530 | 1,886 | 35,845 | ||
Total bearer current biological assets | 39,345 | 39,530 | 35,845 | |||||
Broiler poultry, units | 25,273 | 55,411 | 26,371 | 43,287 | 24,258 | 36,957 | ||
Hatchery eggs, units | 20,472 | 5,915 | 20,179 | 5,724 | 19,334 | 6,310 | ||
Crops in fields, hectare | 71 | 23,876 | 76 | 17,840 | 58 | 11,715 | ||
Cattle and pigs, units | 56 | 10,654 | 61 | 9,118 | 44 | 6,714 | ||
Other current consumable biological assets | 789 | 811 | 892 | |||||
Total consumable current biological assets | 96,645 | 76,780 | 62,588 | |||||
Total current biological assets | 135,990 | 116,310 | 98,433 | |||||
Other current consumable biological assets include geese and other livestock.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
16. Biological assets (continued)
The following table represents movements in biological assets for the years ended 31 December 2011, 2010 and 2009:
Crops in fields | Orchards | Breeders held for hatchery eggs production | Broiler poultry | Milk cows, boars, sows | Non-current cattle and pigs |
Cattle, pigs | ||||||||
As of 1 January 2009 | 18,875 | 19,934 | 19,323 | 23,126 | 6,033 | 2,987 | 10,386 | |||||||
Increase due to purchases | 7,323 | 1,434 | 6,635 | 14,720 | 265 | 672 | 1,710 | |||||||
Gains/(losses) arising from change in fair value of biological assets less costs to sell | 111,677 | 8,578 | 66,934 | 408,338 | 8,443 | (106) | 19,801 | |||||||
Transfer to consumable biological assets | - | - | (50,617) | 50,615 | (825) | (59) | 884 | |||||||
Transfer to bearing non-current biological assets | - | - | - | - | 2,167 | 816 | (2,983) | |||||||
Decrease due to sale | - | - | - | - | (192) | (3) | (9,745) | |||||||
Decrease due to harvest | (125,193) | (5,631) | (5,313) | (458,654) | (6,023) | (1,539) | (13,051) | |||||||
Translation difference | (967) | (837) | (1,117) | (1,188) | (308) | (101) | (288) | |||||||
As of 31 December 2009 | 11,715 | 23,478 | 35,845 | 36,957 | 9,560 | 2,667 | 6,714 | |||||||
Increase due to purchases | 3,135 | 1,537 | 8,176 | 2,830 | 176 | 65 | 1,756 | |||||||
Acquired through business combinations (Note 2) | 2,234 | - | - | - | 3,411 | 71 | 3,560 | |||||||
Gains/(losses) arising from change in fair value of biological assets less costs to sell | 155,551 | 10,104 | 72,341 | 504,092 | 10,599 | (1,976) | 23,792 | |||||||
Transfer to consumable biological assets | - | - | (69,968) | 69,968 | (1,782) | (295) | 2,077 | |||||||
Transfer to bearing non-current biological assets | - | - | - | - | 2,162 | 3,724 | (5,886) | |||||||
Decrease due to sale | - | - | - | - | (529) | (7) | (8,371) | |||||||
Decrease due to harvest | (154,791) | (9,455) | (6,957) | (570,647) | (9,611) | (1,449) | (14,535) | |||||||
Translation difference | (4) | 104 | 93 | 87 | 11 | 9 | 11 | |||||||
As of 31 December 2010 | 17,840 | 25,768 | 39,530 | 43,287 | 13,997 | 2,809 | 9,118 | |||||||
Increase due to purchases | 7,239 | 1,820 | 8,983 | 80 | 12 | 35 | 1,946 | |||||||
Gains/(losses) arising from change in fair value of biological assets less costs to sell | 273,357 | 13,487 | 84,905 | 616,361 | 12,781 | (63) | 32,249 | |||||||
Transfer to consumable biological assets | - | - | (76,889) | 76,889 | (1,325) | (285) | 1,610 | |||||||
Transfer to bearing non-current biological assets | - | - | - | - | 4,072 | 1,269 | (5,340) | |||||||
Decrease due to sale | - | - | - | - | (198) | (12) | (11,291) | |||||||
Decrease due to harvest | (274,383) | (12,994) | (17,045) | (681,022) | (14,484) | (1,104) | (17,601) | |||||||
Translation difference | (177) | (103) | (139) | (184) | (52) | (9) | (37) | |||||||
As of 31 December 2011 | 23,876 | 27,978 | 39,345 | 55,411 | 14,803 | 2,640 | 10,654 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
17. Other non-current assets
The balances of other non-current assets were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Packaging and containers | 7,533 | 7,757 | 5,592 | ||
Goodwill (Note 2) | 2,812 | 2,812 | - | ||
Long-term loans to employees and related parties (Note 31) | 1,297 | 1,039 | 708 | ||
Other investments | 252 | 273 | 273 | ||
Other non-current assets | 2,582 | 2,370 | 2,144 | ||
14,476 | 14,251 | 8,717 |
Long-term loans to employees and related parties are interest free and measured at amortized cost using the effective interest rate method (Note 31).
18. Inventories
The balances of inventories were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Components for mixed fodder production | 111,220 | 83,477 | 70,568 | ||
Work in progress | 35,705 | 19,100 | 14,545 | ||
Other raw materials | 19,037 | 14,345 | 9,099 | ||
Spare parts | 5,373 | 3,831 | 3,558 | ||
Packaging materials | 4,057 | 4,092 | 3,283 | ||
Sunflower oil | 3,077 | 4,234 | 2,020 | ||
Mixed fodder | 2,822 | 2,231 | 2,156 | ||
Other inventories | 949 | 1,281 | 1,576 | ||
182,240 | 132,591 | 106,805 |
In order to present more relevant information about Group's financial position based on nature of Group's operations, management decided to reclassify expenses incurred in cultivating of not planted fields from current biological assets to inventories, retrospectively for all periods presented. As of 31 December 2011, 2010 and 2009 work in progress in the amount of USD 35,705 thousand, 19,100 thousand and USD 14,545 thousand comprised of expenses incurred in cultivating fields to be planted in the years 2012, 2011 and 2010, respectively.
As of 31 December 2011, inventories with carrying amount of USD 45,491 thousand (2010: USD 62,500 thousands, 2009: nil) were pledged as collateral to secure bank borrowings (Note 26).
19. Agricultural produce
The balances of agricultural produce were as follows as of 31 December 2011, 2010 and 2009:
Thousand tonnes | Carrying amount | Thousand tonnes | Carrying amount | Thousand tonnes | Carrying amount | |||
2011 | 2010 | 2009 | ||||||
Chicken meat | 5.561 | 11,716 | 15.333 | 24,403 | 5.531 | 7,405 | ||
Other meat | N/A1) | 6,380 | N/A1) | 4,058 | N/A1) | 3,167 | ||
Grain | 841 | 131,764 | 455 | 77,069 | 396 | 48,641 | ||
Fruits, vegetables and other crops | N/A1) | 19,162 | N/A1) | 8,320 | N/A1) | 7,014 | ||
169,022 | 113,850 | 66,227 | ||||||
1) Due to the diverse composition of noted produce unit of measurement is not applicable.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
20. Other current assets, net
Other current assets were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Prepayments to suppliers and prepaid expenses | 17,242 | 12,202 | 10,585 | ||
Short-term advances, finance aid to and promissory notes from related parties (Note 31) | 2,000 | 2,304 | 1,061 | ||
Loans to employees | 1,140 | 634 | 941 | ||
VAT bonds | - | 5,038 | - | ||
Other receivables | 1,828 | 2,320 | 3,447 | ||
Less: allowance for irrecoverable amounts | (221) | (1,167) | (737) | ||
21,989 | 21,331 | 15,297 |
As of 31 December 2010, VAT bonds were represented by debt securities with face value of USD 5,725 thousand, which were issued by the State to Ukrainian subsidiaries of the Group as part of conversion of the Group's VAT recoverable. The VAT bonds are stated at their fair value, which is determined by reference to market quotations. During the year ended 31 December 2011, the Group sold the VAT bonds for a cash consideration of USD 5,297 thousand.
21. Taxes recoverable and prepaid, net
Taxes recoverable and prepaid were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
VAT recoverable | 149,853 | 116,534 | 69,890 | ||
Miscellaneous taxes prepaid | 1,350 | 1,472 | 1,889 | ||
Less: allowance for irrecoverable VAT | (14,028) | (10,182) | (4,821) | ||
137,175 | 107,824 | 66,958 |
22. Trade accounts receivable, net
The balances of trade accounts receivable were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Agricultural operations | 53,750 | 44,888 | 37,481 | ||
Due from related parties (Note 31) | 10,895 | 7,756 | 3,176 | ||
Sunflower oil sales | 1,934 | 1,536 | 3,432 | ||
Less: allowance for irrecoverable amounts | (785) | (785) | (712) | ||
65,794 | 53,395 | 43,377 |
The allowance for irrecoverable amounts is estimated at the level of 25% of trade accounts receivable on sales of poultry meat which are over 30 days past due (for trade accounts receivable on other sales - over 60 days). Trade accounts receivable on sales of poultry meat which are aged over 270 days and trade accounts receivable on other sales which are aged over 360 days are provided in full.
The Group also performs specific analysis of trade accounts receivable due from individual customers to determine whether any further adjustments are required to the allowance for irrecoverable amounts assessed on the percentages disclosed above. Based on the results of such a review as of 31 December 2011 the Group determined that trade accounts receivable on sales of poultry meat of USD 750 thousand (2010: USD 305 thousand, 2009: nil) were overdue but do not require allowance for irrecoverable amounts.
For the year ended 31 December 2011, 2010 and 2009 the Group has not recorded any impairment of receivables relating to amounts owed by related parties as management is certain about their recoverability.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
22. Trade accounts receivable, net (continued)
The ageing of trade accounts receivable that were impaired as of 31 December 2011, 2010 and 2009 was as follows:
Trade accounts receivable | Allowance for irrecoverable amounts | ||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||
Trade accounts receivable on sales of poultry meat: | |||||||||||
Over 30 but less than 270 days | 372 | 408 | 546 | (93) | (102) | (137) | |||||
Over 270 days | 344 | 79 | 139 | (344) | (79) | (139) | |||||
716 | 487 | 685 | (437) | (181) | (276) | ||||||
Trade accounts receivable on other sales: | |||||||||||
Over 60 but less than 360 days | 199 | 141 | 397 | (50) | (35) | (99) | |||||
Over 360 days | 298 | 569 | 337 | (298) | (569) | (337) | |||||
497 | 710 | 734 | (348) | (604) | (436) | ||||||
1,213 | 1,197 | 1,419 | (785) | (785) | (712) | ||||||
23. Short-term bank deposits
Short-term bank deposits were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | ||||||
Effective rate | USD' 000 | Effective rate | USD' 000 | Effective rate | USD' 000 | |||
UAH | 9.00 % | 1,777 | 15.93 % | 59,460 | 16.14 % | 7,632 | ||
USD | - | - | 8.37 % | 75,000 | - | - | ||
1,777 | 134,460 | 7,632 | ||||||
As of 31 December 2011 and 2010, the short-term deposits were placed with Ukrainian banks for periods of six months to one year. As of 31 December 2009, the balances of short-term deposits for the total amount of USD 7,619 thousand represented security for bank guarantees issued against the Group's liabilities under grain financing arrangements (Note 29, 30).
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
24. Cash and cash equivalents
The balances of cash and cash equivalents were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Cash in hand and with banks | 47,119 | 39,321 | 22,248 | ||
USD short-term deposits with banks | 37,000 | - | - | ||
UAH short-term deposits with banks | 10,639 | - | - | ||
94,758 | 39,321 | 22,248 |
During the year ended 31 December 2011, UAH and USD denominated short-term deposits earn an effective interest rate at 5.29 % and 5.60 %, respectively.
25. Shareholders' equity
Share capital
As of 31 December the authorized, issued and fully paid share capital of MHP S.A. comprised of the following number of shares:
2011 | 2010 | 2009 | |||
Number of shares authorized for issue | 159,250,000 | 159,250,000 | 159,250,000 | ||
Number of shares issued and fully paid | 110,770,000 | 110,770,000 | 110,770,000 | ||
Number of shares outstanding | 107,854,856 | 107,854,856 | 110,770,000 |
The authorized share capital as of 31 December 2011, 2010 and 2009 was EUR 318,500 thousand represented by 159,250,000 shares with par value of EUR 2 each.
All shares have equal voting rights and rights to receive dividends, which are payable at the discretion of the Group.
Treasury shares
During the year ended 31 December 2010, the Group acquired, under the share buy-back program, 3,370,144 shares for a cash consideration of USD 46,288 thousand, of which 455,000 shares were further partially used for the compensation scheme (Note 8). The excess of the fair value of shares transferred over the carrying value of the shares bought back in the amount of USD 750 thousand was recognized as an adjustment to additional paid-in capital.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
26. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||||||||
Bank | Currency | WAIR 1) | USD' 000 | WAIR 1) | USD' 000 | WAIR 1) | USD' 000 | ||||
Foreign banks | USD | 4.39% | 95,979 | 5.52% | 78,642 | - | |||||
Foreign banks | EUR | 3.13% | 97,009 | 3.12% | 56,712 | 3.24% | 81,873 | ||||
192,988 | 135,354 | 81,873 | |||||||||
Ukrainian banks | USD | 5.39% | 86,500 | 6.25% | 36,750 | 8.86% | 94,000 | ||||
Ukrainian banks | UAH | - | 7.75% | 26,414 | 23.82% | 19,960 | |||||
86,500 | 63,164 | 113,960 | |||||||||
Total bank borrowings | 279,488 | 198,518 | 195,833 | ||||||||
Less: | |||||||||||
Short-term bank borrowings and current portion of long-term bank borrowings | (170,380) | (140,092) | (139,790) | ||||||||
Total long-term bank borrowings | 109,108 | 58,426 | 56,043 | ||||||||
1) WAIR represents the weighted average interest rate on outstanding borrowings.
The Group's borrowings are drawn from various banks as term loans, credit line facilities and overdrafts. Repayment terms of principal amounts of bank borrowings vary from monthly repayment to repayment on maturity depending on the agreement reached with each bank. The interest on the borrowings drawn with the Ukrainian banks is payable on a monthly or quarterly basis. Interest on borrowings drawn with foreign banks is payable semi-annually.
Term loans and credit line facilities were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Credit lines | 146,500 | 141,806 | 129,103 | ||
Term loans | 132,988 | 56,712 | 66,730 | ||
279,488 | 198,518 | 195,833 |
The following table summarizes fixed and floating interest rates bank loans and credit lines held by the Group as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Floating interest rate | 276,712 | 158,750 | 148,447 | ||
Fixed interest rate | 2,776 | 39,768 | 47,386 | ||
279,488 | 198,518 | 195,833 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
26. Bank borrowings (continued)
Bank borrowings and credit lines outstanding as of 31 December 2011, 2010 and 2009 were repayable as follows:
2011 | 2010 | 2009 | |||
Within one year | 170,380 | 140,092 | 139,790 | ||
In the second year | 30,951 | 22,001 | 25,090 | ||
In the third to fifth year inclusive | 60,871 | 31,377 | 23,958 | ||
After five years | 17,286 | 5,048 | 6,995 | ||
279,488 | 198,518 | 195,833 |
As of 31 December 2011, the Group had available undrawn facilities of USD 251,315 thousand (2010: USD 168,323 thousand, 2009: USD 6,413 thousand). These undrawn facilities expire during the period from January 2012 until June 2020.
The Group, as well as, particular subsidiaries of the Group have to comply with certain covenants imposed by the banks providing the loans. The main covenants which are to be complied with by the Group are as follows: total equity to total assets ratio, net debt to EBITDA ratio, EBITDA to interest expenses ratio and current ratio. The Group subsidiaries are also required to obtain approval from lenders regarding the property to be used as collateral.
As of 31 December 2011, the Group had borrowings of USD 52,191 thousand (2010: USD 55,751 thousand, 2009: USD 9,980 thousand) that were secured. These borrowings were secured by property, plant and equipment with a carrying amount of USD 4,648 thousand (2010: USD 5,247 thousand, 2009: USD 5,813 thousand) (Note 13) and inventories with a carrying amount of USD 45,491 thousand (2010: USD 62,500 thousand, 2009: nil) (Note 18).
27. Bonds issued
Bonds issued and outstanding as of 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
10.25% Senior Notes due in 2011 | - | 9,967 | 250,000 | ||
10.25% Senior Notes due in 2015 | 584,767 | 584,767 | - | ||
Unamortized premium on bonds issued | 3,755 | 4,640 | - | ||
Unamortized debt issue cost | (21,522) | (26,596) | (1,954) | ||
567,000 | 572,778 | 248,046 | |||
Less: | |||||
Current portion of bonds issued | - | (9,892) | - | ||
Total long-term portion of bonds issued | 567,000 | 562,886 | 248,046 |
As of 31 December 2011, 2010 and 2009 amount of accrued interest on bonds issued were USD 10,157 thousand, USD 10,244 thousand and USD 2,180 thousand, respectively.
10.25% Senior Notes
In November 2006, MHP S.A. issued USD 250 million 10.25% Senior Notes ("Senior Notes"), due in November 2011, at par. The Senior Notes are jointly and severally guaranteed on a senior basis by MHP, Peremoga Nova , Druzhba Narodiv Nova, Oril-Leader, Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv, Zernoproduct and Druzhba Narodiv. Interest on the Senior Notes is payable semi-annually in arrears. Up to 30 November 2009, the Group had the right to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net proceeds of any offering of MHP S.A. common equity at a redemption price of 110.25% of the principal amount, plus accrued and unpaid interest up to the redemption date. This option was not exercised by the Group.
These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates.
The effective interest rate on the Senior Notes is 11.43% per annum.
The notes are listed on London Stock Exchange.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
27. Bonds issued (continued)
If the Group fails to comply with the covenants imposed, all outstanding Senior Notes will become due and payable without further action or notice. If a change of control occurs the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.
On 29 April 2010, MHP S.A. issued USD 330,000 thousand 10.25% Senior Notes due in 2015 for an issue price of 101.452% of principal amount.
In addition, as of 13 May 2010 MHP S.A. exchanged 96.01% (USD 240,033 thousand) of USD 250,000 thousand of the existing 10.25% Senior Notes due in 2011 for the new Notes due in 2015. As a result of the exchange, new Senior Notes were issued for the total par value of USD 254,767 thousand.
28. Finance lease obligations
Long-term finance lease obligations represent amounts due under agreements for lease of trucks, agricultural machinery and equipment with Ukrainian and foreign companies. As of 31 December 2011, the weighted average interest rates on finance lease obligations were 8.88% and 7.68% for finance lease obligations denominated in EUR and USD, respectively (2010: 8.92% and 7.91%, 2009: 8.61% and 7.81%).
The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as of 31 December 2011, 2010 and 2009:
Minimum lease payments | Present value of minimum lease payments | ||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||
Payable within one year | 22,736 | 28,350 | 31,094 | 19,267 | 23,827 | 24,458 | |||||
Payable in the second year | 16,391 | 18,775 | 25,535 | 14,706 | 16,705 | 21,619 | |||||
Payable in the third to fifth year inclusive | 19,145 | 22,353 | 26,187 | 17,852 | 20,684 | 23,237 | |||||
58,272 | 69,478 | 82,816 | 51,825 | 61,216 | 69,314 | ||||||
Less: | |||||||||||
Future finance charges | (6,447) | (8,262) | (13,502) | - | - | - | |||||
Present value of finance lease obligations | 51,825 | 61,216 | 69,314 | 51,825 | 61,216 | 69,314 | |||||
Less: | |||||||||||
Current portion | (19,267) | (23,827) | (24,458) | ||||||||
Finance lease obligations, long-term portion | 32,558 | 37,389 | 44,856 | ||||||||
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
29. Trade accounts payable
Trade accounts payable were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Trade accounts payable to third parties | 52,655 | 18,986 | 72,361 | ||
Payables due to related parties | 34 | 26 | 19 | ||
52,689 | 19,012 | 72,380 |
As of 31 December 2011 trade accounts payable included liabilities that bear a floating rate of interest under grain purchase financing arrangements in the amount of USD 11,184 thousand and accrued interest of USD 126 thousand (2010: nil, 2009: in the amount of USD 51,970 thousand and accrued interest of USD 1,932 thousand).
30. Other current liabilities
Other current liabilities were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Accrued payroll and related taxes | 32,886 | 24,528 | 25,268 | ||
Amounts payable for property, plant and equipment | 10,236 | 4,396 | 6,340 | ||
Advances from and other payables due to third parties | 1,921 | 4,137 | 3,629 | ||
Advances from related parties (Note 31) | 200 | 200 | 200 | ||
Payables on other financing arrangements | - | - | 6,370 | ||
Other payables | 8,026 | 4,781 | 3,621 | ||
53,269 | 38,042 | 45,428 |
As of 31 December 2009 payables on other financing arrangements represented short-term credit facility received from a grain supplier at LIBOR+3.27%.
31. Related party balances and transactions
For the purposes of these financial statements, parties are considered to be related if one party controls, is controlled by, or is under common control with the other party, or exercises significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.
Transactions with related parties under common control
The Group enters into transactions with related parties that are under common control of the Principal Shareholder of the Group (Note 1) in the ordinary course of business for the purchase and sale of goods and services and in relation to the provision of financing arrangements.
Terms and conditions of sales to related parties are determined based on arrangements specific to each contract or transaction. Management believes that amounts receivable due from related parties do not require an allowance for irrecoverable amounts and that the amounts payable to related parties will be settled at cost. The terms of the payables and receivables related to trading activities of the Group do not vary significantly from the terms of similar transactions with third parties.
The transactions with the related parties during the years ended 31 December 2011, 2010 and 2009 were as follows:
2011 | 2010 | 2009 | |||
Sales of goods to related parties | 10,649 | 7,476 | 6,937 | ||
Sales of services to related parties | 89 | 51 | 40 | ||
Purchases from related parties | 127 | 194 | 112 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
31. Related party balances and transactions (continued)
The balances owed to and due from related parties were as follows as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Trade accounts receivable (Note 22) | 10,895 | 7,756 | 3,176 | ||
Advances received (Note 30) | 200 | 200 | 200 | ||
Short-term advances, finance aid and promissory notes (Note 20) | 2,000 | 2,304 | 1,061 |
Long-term loans to related parties are included in Note 17.
Compensation of key management personnel
Total compensation of the Group's key management personnel included primarily in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income amounted to USD 8,741 thousand, USD 15,514 thousand and USD 8,652 thousand for the years ended 31 December 2011, 2010 and 2009, respectively. Compensation of key management personnel consists of contractual salary and performance bonuses. During the year ended 31 December 2010 compensation to key management personnel included a one-off bonus to one of the top managers in the amount of USD 7,628 thousand (Note 8).
Key management personnel totalled 34 individuals as of 31 December 2011 and 38 individuals as of 31 December 2010 and 2009, including 3 independent directors in each year.
32. Contingencies and contractual commitments
Operating environment
The principal business activities of the Group are within the Ukraine. Emerging markets such as the Ukraine are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in the Ukraine and the Ukraine's economy in general. Laws and regulations affecting business operating in the Ukraine are subject to rapid changes and the Group's assets and operations could be at risk if there are any adverse changes in the political and business environment.
The Ukraine's economic recovery after the crisis year 2009 is slow but stable. The GDP growth constituted 6.6% in the third quarter of 2011, following 3.8% of GDP growth in the second quarter and 5.2% of GDP growth in the first quarter of 2011. Overall in 2011 the Ukrainian economy grew by about 5% mainly due to the increase in private consumption.
The Ukrainian currency remained relatively stable during 2011, following the trends of 2009 and 2010. The Ukrainian Hryvnia demonstrated moderate growth against EUR during the second half of 2011 through the EUR devaluation against the US dollar because of the sovereign-debt crisis of European Union.
Taxation
Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. In respect of this, the local and national tax environment in the Ukraine is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and interest. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and interest, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
32. Contingencies and contractual commitments (continued)
In December 2010, the Tax Code of Ukraine was officially published. In its entirety, the Tax Code of Ukraine became effective on 1 January 2011, while some of its provisions took effect later (such as, Section III dealing with corporate income tax, will come into force from 1 April 2011). Apart from changes in CIT rates from 1 April 2011 and planned abandonment of VAT refunds for agricultural industry from 1 January 2018, as discussed in Notes 12 and 21, respectively, the Tax Code also changed various other taxation rules.
Legal issues
In the ordinary course of business, the Group is subject to legal actions and complaints. As of 31 December 2011, the Group companies had ongoing litigations with the tax authorities related to disallowance of certain amounts of VAT refunds claimed by the Group. According to the assessment performed by the management of the Group on a case by case basis the possible exposure relating to these court cases amounted to approximately USD 2,000 thousand as of 31 December 2011. Management believes that, based on past history of court resolutions of similar lawsuits by the Group the risk is remote for all other cases.
Contractual commitments on purchase of property, plant and equipment
During the years ended 31 December 2011, 2010 and 2009, the companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property plant and equipment for development of agricultural operations. As of 31 December 2011, purchase commitments on such contracts were primarily related to construction of the Vinnytsya poultry complex and amounted to USD 80,168 thousand (2010: USD 79,746 thousand, 2009: USD 2,307 thousand).
Commitments on land operating leases
The Group has the following contractual obligations in respect of land operating leases of land as of 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Within one year | 12,480 | 11,855 | 6,886 | ||
In the second to the fifth year inclusive | 41,457 | 37,037 | 23,868 | ||
Thereafter | 64,713 | 51,688 | 38,256 | ||
118,650 | 100,580 | 69,010 |
Ukrainian legislation provides for a ban on sales of agricultural land plots till 1 January 2013. There are significant uncertainties as to the subsequent extension of the ban.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
33. Fair value of financial instruments
Fair value disclosures in respect of financial instruments are made in accordance with the requirements of International Financial Reporting Standard 7 "Financial Instruments: Disclosure". Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group's financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the instrument. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a market exchange from the sale of its full holdings of a particular instrument.
The fair value is estimated to be the same as the carrying value for cash and cash equivalents, short-term bank deposits, trade accounts receivables, and trade accounts payable due to the short-term nature of the financial instruments.
Set out below is the comparison by category of carrying amounts and fair values of all of the Group's financial instruments, that are carried in the consolidated statement of financial position:
Carrying amount | Fair value | ||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||
Financial liabilities | |||||||
Bank borrowings | 279,488 | 198,518 | 195,833 | 283,677 | 199,185 | 180,675 | |
Finance lease obligations | 51,825 | 61,216 | 69,314 | 51,418 | 63,420 | 63,407 | |
Senior Notes due in 2015 | 567,000 | 562,886 | - | 513,697 | 613,339 | - | |
Senior Notes due in 2011 | - | 9,892 | 248,046 | - | 10,092 | 228,875 | |
Fair value of bank borrowings and finance lease obligations was estimated by discounting the expected future cash outflows by a market rate of interest.
The fair value of Senior Notes was estimated based on market quotations.
34. Risk management policies
Capital risk management
The Group manages its capital to ensure that entities of the Group will be able to continue as a going concern while maximising the return to the equity holders through maintaining a balance between the higher returns that might be possible with higher levels of borrowings and the security afforded by a sound capital position. The management of the Group reviews the capital structure on a regular basis. Based on the results of this review, the Group takes steps to balance its overall capital structure through new share issues and through the issue of new debt or the redemption of existing debt.
The Group's target is to achieve a leverage ratio (Net debt to adjusted operating profit) of not higher than 2.5. Prior to 2010 the Group defined its leverage ratio as the proportion of debt to adjusted operating profit. During the year ended 31 December 2010, the Group changed the definition of its leverage ratio, which now is determined as the proportion of net debt to adjusted operating profit.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
34. Risk management policies (continued)
As of 31 December 2011, 2010 and 2009 the leverage ratio was as follows:
2011 | 2010 | 2009 | |||
Bank borrowings (Note 26) | 279,488 | 198,518 | 195,833 | ||
Bonds issued (Note 27) | 567,000 | 572,778 | 248,046 | ||
Finance lease obligations (Note 28) | 51,825 | 61,216 | 69,314 | ||
Payables on other financing arrangements (Note 30) | - | - | 6,370 | ||
Debt | 898,313 | 832,512 | 519,563 | ||
Less: | |||||
Cash and cash equivalents and Short-term bank deposits | (96,535) | (173,781) | (29,880) | ||
Net debt | 801,778 | 658,731 | 489,683 | ||
Operating profit | 320,744 | 256,784 | 217,980 | ||
Adjustments for: | |||||
Depreciation and amortization expense (Notes 7,8) | 80,341 | 67,902 | 51,677 | ||
Loss on impairment of property, plant and equipment (Note 13) | - | - | 1,304 | ||
Adjusted operating profit | 401,085 | 324,686 | 270,961 | ||
Debt to adjusted operating profit | 2.24 | 2.56 | 1.92 | ||
Net debt to adjusted operating profit | 2.00 | 2.03 | 1.81 |
Debt is defined as bank borrowings, bonds issued, finance lease obligations, and payables on other financing arrangements. Net debt is defined as debt less cash and cash equivalents and short-term bank deposits. For the purposes of the leverage ratio, debt does not include interest-bearing liabilities, which are included in trade accounts payable (Note 29). Adjusted operating profit is defined as operating profit adjusted for the depreciation and amortization expense and losses and gains believed by the management to be non-recurring in nature, as this measure produces results substantially comparable to those reviewed for the purposes of financial covenants under the Group's borrowings.
Major categories of financial instruments
2011 | 2010 | 2009 | |||
Financial assets: | |||||
Long-term bank deposits | 6,017 | - | - | ||
Cash and cash equivalents (Note 24) | 94,758 | 39,321 | 22,248 | ||
Short-term bank deposits (Note 23) | 1,777 | 134,460 | 7,632 | ||
Trade accounts receivable, net (Note 22) | 65,794 | 53,395 | 43,377 | ||
Loans to employees and related parties (Notes 17, 20) | 2,437 | 1,673 | 1,649 | ||
VAT bonds (Note 20) | - | 5,038 | - | ||
Other receivables (Note 20) | 1,828 | 2,320 | 3,447 | ||
172,611 | 236,207 | 78,353 | |||
Financial liabilities: | |||||
Bank borrowings (Note 26) | 279,488 | 198,518 | 195,833 | ||
Bonds issued (Note 27) | 567,000 | 572,778 | 248,046 | ||
Finance lease obligations (Note 28) | 51,825 | 61,216 | 69,314 | ||
Amounts payable for property, plant and equipment (Note 30) | 10,236 | 4,396 | 6,340 | ||
Accrued interest | 12,073 | 11,573 | 3,526 | ||
Trade accounts payable (Note 29) | 52,689 | 19,012 | 72,380 | ||
Other current liabilities (Note 30) | 8,026 | 4,781 | 9,991 | ||
981,337 | 872,274 | 605,430 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
34. Risk management policies (continued)
The main risks inherent to the Group's operations are those related to credit risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk, and commodity price and procurement risk.
Credit risk
The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one customer or group of customers. The approved credit period for major groups of customers, which include franchisees, distributors and supermarkets, is set at 5-21 days.
Limits on the level of credit risk by customer are approved and monitored on a regular basis by the management of the Group. The Group's management assesses amounts receivable from the customers for recoverability starting from 30 and 60 days for receivables on sales of poultry meat and receivables on other sales, respectively. No assessment is performed immediately from the date credit period is expired. About 32% of trade accounts receivable comprise amounts due from 12 large supermarket chains, which have the longest contractual receivable settlement period among customers.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all liabilities as they are due. The Group's liquidity position is carefully monitored and managed. The Group has in place a detailed budgeting and cash forecasting process to help ensure that it has adequate cash available to meet its payment obligations.
The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities using the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows as of 31 December 2011. The amounts in the table may not be equal to the statement of financial position carrying amounts since the table includes all cash outflows on an undiscounted basis.
Year ended 31 December 2011 | Carrying amount | Contractual amounts | Less than 1 year | From 2nd to 5th year | After 5th year |
Bank borrowings | 279,488 | 299,418 | 177,506 | 103,210 | 18,702 |
Bonds issued | 567,000 | 794,552 | 59,939 | 734,613 | - |
Finance lease obligations | 51,825 | 58,272 | 22,736 | 35,536 | - |
Total | 898,313 | 1,152,242 | 260,181 | 873,359 | 18,702 |
The Group's target is to maintain its current ratio, defined as the proportion of current assets to current liabilities, at the level of not less than 1.2. As of 31 December 2011, 2010 and 2009, the current ratio was as follows:
2011 | 2010 | 2009 | |||
Current assets | 808,745 | 719,082 | 426,977 | ||
Current liabilities | 307,678 | 242,438 | 285,582 | ||
2.63 | 2.97 | 1.50 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
34. Risk management policies (continued)
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure, at the same time the management of the Group sets limits on the level of exposure to foreign currency fluctuations.
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 December were as follows:
2011 | 2010 | 2009 | ||||||
USD | EUR | USD | EUR | USD | EUR | |||
ASSETS | ||||||||
Long-term bank deposits | - | 6,017 | - | - | - | - | ||
Trade accounts receivable | 3,794 | - | 1,954 | - | 3,910 | - | ||
Other current assets, net | 688 | - | 386 | - | - | - | ||
Short-term bank deposits | - | - | 75,000 | - | - | - | ||
Cash and cash equivalents | 71,766 | 1,165 | 27,217 | 128 | 17,088 | 37 | ||
76,248 | 7,182 | 104,557 | 128 | 20,998 | 37 | |||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Trade accounts payable | 12,146 | 3,522 | 104 | 2,798 | 54,482 | 4,127 | ||
Other current liabilities | 266 | 7,389 | - | 2,587 | 6,385 | 4,232 | ||
Accrued interest | 11,416 | 657 | 11,163 | 311 | 2,686 | 591 | ||
Short-term bank borrowings | 151,918 | 17,264 | 89,371 | 23,627 | 94,000 | 25,830 | ||
Short-term finance lease obligations | 9,605 | 9,662 | 8,323 | 15,504 | 5,448 | 19,010 | ||
Current portion of bonds issued | - | - | 9,967 | - | - | - | ||
185,351 | 38,494 | 118,928 | 44,827 | 163,001 | 53,790 | |||
Non-current liabilities | ||||||||
Long-term bank borrowings | 30,561 | 79,745 | 26,021 | 33,085 | - | 56,043 | ||
Bonds issued | 584,767 | - | 584,767 | - | 250,000 | - | ||
Long-term finance lease obligations | 25,581 | 6,977 | 24,219 | 13,170 | 16,106 | 28,750 | ||
640,909 | 86,722 | 635,007 | 46,255 | 266,106 | 84,793 | |||
826,260 | 125,216 | 753,935 | 91,082 | 429,107 | 138,583 | |||
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
34. Risk management policies (continued)
The table below details the Group's sensitivity to strengthening of the Ukrainian Hryvnia against US Dollar and EUR. This sensitivity rate represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for possible change in foreign currency rates.
Change in foreign currency exchange rates | Effect on profit before tax | ||
2011 | |||
Increase in USD exchange rate | 10% | (75,001) | |
Increase in EUR exchange rate | 10% | (11,803) | |
Decrease in USD exchange rate | 5% | 37,501 | |
Decrease in EUR exchange rate | 5% | 5,902 | |
2010 | |||
Increase in USD exchange rate | 10% | (64,938) | |
Increase in EUR exchange rate | 10% | (9,095) | |
| |||
Decrease in USD exchange rate | 5% | 32,469 | |
Decrease in EUR exchange rate | 5% | 4,548 | |
2009 | |||
Increase in USD exchange rate | 15% | (61,216) | |
Increase in EUR exchange rate | 15% | (20,782) | |
Decrease in USD exchange rate | 5% | 20,405 | |
Decrease in EUR exchange rate | 5% | 6,927 |
The effect of foreign currency sensitivity on shareholders' equity is equal to that reported in the statement of comprehensive income.
During the year ended 31 December 2011, the Ukrainian Hryvnia appreciated against the EUR by 5.3% and appreciated against the US Dollar by 0.4% (2010: appreciated against the EUR by 3.1% and depreciated against the US Dollar by 1.8%, 2009: depreciated both against the EUR and the US Dollar by 5.5% and 3.7%, respectively). As a result, during the year ended 31 December 2011 the Group recognized net foreign exchange gains in the amount of USD 2,318 thousand (2010: foreign exchange gains in the amount of USD 10,965 thousand, 2009: foreign exchange losses of USD 23,580 thousand) in the consolidated statement of comprehensive income.
Group management believes that the currency risk is mitigated by the existence of USD-denominated proceeds from sales of sunflower oil, grain and chicken meat, which are substantially sufficient for servicing the Group's foreign currency denominated liabilities and were as follows during the years, ended 31 December 2011, 2010 and 2009:
2011 | 2010 | 2009 | |||
Sunflower oil and related products | 222,418 | 188,156 | 104,864 | ||
Chicken meat and related products | 67,874 | 29,147 | 17,650 | ||
Grain | 63,101 | 22,454 | 30,109 | ||
Other agricultural segment products | 486 | 290 | 270 | ||
353,879 | 240,047 | 152,893 |
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
34. Risk management policies (continued)
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments. For variable rate borrowings, interest is linked to LIBOR or EURIBOR.
The below table details the Group's sensitivity to increases or decreases by 5% (2010: 10%, 2009: 10%). The analysis was applied to interest bearing liabilities (bank borrowings, finance lease obligations and accounts payable under grain purchase financing arrangements) based on the assumption that the amount of liability outstanding as of the reporting date was outstanding for the whole year.
Increase/ (decrease) of floating rate | Effect on profit before tax | ||
USD ' 000 | |||
2011 | |||
LIBOR | 5% | (9,263) | |
LIBOR | -5% | 9,263 | |
EURIBOR | 5% | (4,781) | |
EURIBOR | -5% | 4,781 | |
2010 | |||
LIBOR | 10% | (11,825) | |
LIBOR | -10% | 11,825 | |
EURIBOR | 10% | (5,778) | |
EURIBOR | -10% | 5,778 | |
2009 | |||
LIBOR | 10% | (9,741) | |
LIBOR | -10% | 9,741 | |
EURIBOR | 10% | (6,490) | |
EURIBOR | -10% | 6,490 |
The effect of interest rate sensitivity on shareholders' equity is equal to that on statement of comprehensive income.
Livestock diseases risk
The Group's agro-industrial business is subject to risks of outbreaks of various diseases. The Group faces the risk of outbreaks of diseases, which are highly contagious and destructive to susceptible livestock, such as avian influenza or bird flu for its poultry operations. These and other diseases could result in mortality losses. Disease control measures were adopted by the Group to minimize and manage this risk. The Group's management is satisfied that its current existing risk management and quality control processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.
Commodity price and procurement risk
Commodity price risk arises from the risk of an adverse effect on current or future earnings from fluctuations in the prices of commodities. To mitigate this risk the Group continues expansion of its grain growing segment, as part of vertical integration strategy, and also accumulates sufficient commodity stock to meet its production needs.
Notes to the Consolidated financial statements
for the year ended 31 December 2011
(in thousands of US dollars, unless otherwise indicated)
35. Pensions and retirement plans
The employees of the Group receive pension benefits from the government in accordance with the laws and regulations of the Ukraine. The Group's contributions to the State Pension Fund for the year ended 31 December 2011 comprised USD 48,563 thousand and are recorded in the consolidated statement of comprehensive income on an accrual basis (2010: USD 34,024 thousand, 2009: USD 23,840 thousand). In January 2011 in accordance with the Law of Ukraine "On charge and accounting of unified social contribution" certain changes in administration of social charges was made and social charges are become payable in form of Unified Social Contribution, including contribution to the State Pension Fund in range of 36.76%-49.7%. The Group companies are not liable for any other supplementary pensions, post-retirement health care, insurance benefits or retirement indemnities to its current or former employees, other than pay-as-you-go expenses.
36. Earnings per share
The earnings and weighted average number of ordinary shares used in calculation of earnings per share are as follows:
2011 | 2010 | 2009 | |||
Profit for the year attributable to equity holders of the Parent | 243,376 | 205,395 | 148,564 | ||
Earnings used in calculation of earnings per share from continuing operations | 243,376 | 205,395 | 148,564 | ||
Weighted average number of shares outstanding | 107,854,856 | 109,411,408 | 110,770,000 | ||
Basic and diluted earnings per share (USD per share) | 2.26 | 1.88 | 1.34 |
The Group has no dilutive potential ordinary shares; therefore, the diluted earnings per share equal basic earnings per share.
37. Authorization of the consolidated financial statements
These consolidated financial statements were authorized for issue by the Board of Directors of MHP S.A. on 19 March 2012.