Mhp Reg S Regulatory News (MHPC)

07 March 2018, Kyiv, Ukraine

MHP SE

Financial Results for the Fourth Quarter and

Twelve Months Ended 31 December 2017

MHP SE (LSE: MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, focusing primarily on the production of poultry and cultivation of grain, as well as other agricultural operations (meat processing and meat products ready for consumption) today announces its results for the twelve months and fourth quarter ended 31 December 2017. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

OPERATIONAL HIGHLIGHTS

Q4 2017

· Poultry production 141,544 tonnes, down 5% (Q4 2016: 148,245 tonnes)

· Average chicken meat price increased by 34% year-on-year to UAH 40.71 per kg (Q4 2016: UAH 30.41 per kg) (excluding VAT)

· Chicken meat exports 45,042 tonnes, down 5% (Q4 2016: 47,654 tonnes)

12M 2017

· Poultry production 566,242 tonnes, down 1% (12M 2016: 574,328 tonnes)

· Average chicken meat price increased by 24% year-on-year to UAH 35.63 per kg (12M 2016: UAH 28.85 per kg) (excluding VAT)

· Chicken meat exports increased by 16% to 220,983 tonnes (12M 2016: 190,223 tonnes) as a result of increased exports mainly to countries in the EU and MENA

· Processing plant established in Slovakia as part of Company's export growth strategy

FINANCIAL HIGHLIGHTS

Q4 2017

· Revenue of US$ 318 million, increased by 2% year-on-year (Q4 2016: US$ 313 million)

· Export revenue amounted to US$ 171 million, 54% of total revenue (Q4 2016: US$ 180 million, 58% of total revenue)

· Adjusted EBITDA margin increased to 28% from 23%; adjusted EBITDA increased to US$ 88 million from US$ 72 million

· Net loss for the period of US$ 27 million, compared to loss of US$ 28 million for Q4 2016, including US$ 62 million (Q4 2016: US$ 55 million) of non-cash foreign exchange translation loss

12M 2017

· Revenue of US$ 1,288 million, increased by 13% year-on-year (12M 2016: US$ 1,135 million)

· Export revenue amounted to US$ 732 million, 57% of total revenue (12M 2016: US$ 635 million, 56% of total revenue)

· Adjusted EBITDA margin decreased to 36% from 37%; adjusted EBITDA increased to US$ 459 million from US$ 415 million

· Net profit for the period of US$ 230 million, compared to profit of US$ 69 million for 12M 2016, including US$ 36 million (12M 2016: US$ 145 million) of non-cash foreign exchange translation loss

FINANCIAL OVERVIEW

* pps - percentage points

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

Average official FX rate for Q4: UAH/US$ 26.9617 in 2017 and UAH/US$ 25.8896 in 2016

Average official FX rate for 12 months: UAH/US$ 26.5947 in 2017 and UAH/US$ 25.5458 in 2016

Chief Executive Officer, Yuriy Kosyuk, commented:

In recent years MHP has operated in a challenging domestic environment. I am pleased to note, however, that decisive reforms over these years are continuing to boost confidence, leading to significant improvements in both the geopolitical and macroeconomic situations in Ukraine and to a steadily improving economy. Against this backdrop, MHP has become progressively stronger, successfully managing the challenging macro and market conditions and diversifying its footprint and product lines to bring more resilience to the Company's own performance.

MHP has continued to build on its track record of strong profitability and growth, powered by its low-cost leadership and the success of its vertically integrated model. Our experienced management team has a track record of delivery in both domestic and international markets. Construction of Phase 2 of the Vinnytsia project is progressing on budget and on time and the team has successfully launched international expansion projects in Europe (the Netherlands and Slovakia) and the GCC, which resulted in a 16% increase in poultry exports.

International expansion is strategically significant for MHP because it diversifies geographic and currency risk exposure at the same time as creating new market opportunities. We continue to investigate opportunities for domestic and international growth, exploring new markets and developing new products for our customers, supplemented by potential targeted acquisitions.

Our financial results were in line with Management expectations, with EBITDA of US$ 459 million and an EBITDA margin of 36%. Exports of poultry, oils and grains generated a further increase in hard currency revenues, which grew by 15% year-on-year to US$ 732 million.

All of our production facilities, as usual, continued to work at full capacity to meet customer demand. Production at our Poultry Division became 'smarter' (more efficient in terms of cost management) and less volatile due to the skills and experience of our management team. Our Grain Growing Division deployed new and advanced technologies such as drones and satellite imaging for smarter management of the application of seeds and fertilisers; this puts us in a leadership position within our peer group in Ukraine. And our Other Agricultural Division, represented by meat-processing products, has continued to expand its range of products to satisfy consumer demand and taste, showing outstanding growth in sales.

In May 2017, MHP successfully completed a Eurobond transaction involving the repurchase of US$ 245 million Eurobonds 2020 and issue of a new US$ 500 million 7-year Eurobond with a coupon of 7.75%. The issue was more than three times oversubscribed, which demonstrates MHP's strong relationship with its bondholders and their trust in the Company.

In 2018, I expect MHP to continue to strengthen its position as a leading international agro-industrial group with good growth visibility in both domestic and international markets. I am confident that our strategy will continue to generate sustainable growth, enabling us to deliver strong operational and financial performance in 2018 and beyond.

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

The dial-in details are:

Time: 09.00 New York / 14.00 London / 16.00 Kyiv / 17.00 Moscow

Title: Financial results for Q4 and 12M 2017

International/UK Dial in: +44 2071943759

USA free call: +1 8442860643

Russia free call +7 4956469315

Conference ID EV00070046

Participant PIN code 34878250#

In order to follow the presentation together with the management, please register using the following link:

http://event.onlineseminarsolutions.com/r.htm?e=1620227&s=1&k=17A1526D9DF8411BB82546243A588106

For enquiries, please contact:

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

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

Segment Performance

Poultry and related operations

Aggregate volume of chicken meat sold to third parties decreased by 13% in Q4 2017 mainly as a result of significant stock decrease and growth of exports in H1 2017. During 12M 2017 sales volumes remained at practically the same level as the previous year. MHP continued to follow a strategy of both geographic diversification and a product mix optimization building-up its export volumes of chicken meat mainly in the EU and MENA countries. As a result of the growth in exports, sales in Ukraine decreased by 18% to 68,704 tonnes in Q4 2017 (Q4 2016: 83,410 tonnes) and during 12M 2017 decreased by 9% to 311,743 tonnes (12M 2016: 344,133 tonnes).

Through Q4 2017 and 12M 2017 the aggregate average chicken meat price was UAH 40.71 and UAH 35.63 respectively, 34% and 24% higher compared to Q4 2016 and 12M 2016. The increase in price year-over-year was mainly driven by MHP's export product mix optimization as well as geographic diversification in line with its export strategy.

During 12M 2017 sales of sunflower oil decreased by 9% compared to 12M 2016 to 311,393 tonnes. This reflected reduced sunflower production in response to an improved feed conversion ratio (kg of grains per kg of bird), as well as a decision to increase the oil content of sunflower cake used in fodder. Sales of soybeans oil decreased by 52% in Q4 2017 mainly as a contract for approx. 6,000 tonnes of oil was deferred to January 2018. MHP also sells soybean cake to third parties.

* pps - percentage points

Revenue of the segment increased by 10% year-on-year driven mostly by an increase in price of chicken meat, partly offset by decreased price and sales volume of vegetable oil.

IAS 41 standard gain/(loss) reflects the net change in the fair value of biological assets and agricultural produce. IAS 41 standard gain for 12M 2017 amounted to US$ 29 million mainly as a result of an increase in the price of chicken meat and an increase in the fair value of a parent stock affected by an increase in global market prices for hatchery eggs.

Gross profit of the segment increased by 13% year-on-year driven mainly by an increase in sales price, partly offset by increased production costs, reflecting higher prices of grain consumed as well as higher payroll costs.

12M 2017 EBITDA increased mostly in line with the increase in gross profit. An additional positive impact was attributable to an increase in government grants income due to amendments in the Tax Code of Ukraine that became effective from 1 January 2017.

Grain growing operations

In 2017 MHP harvested 356,080 hectares of land in Ukraine and gathered around 2.0 million tonnes of crops, 15% less than in 2016 mainly as a result of lower yields across all crops due to adverse weather conditions during 2017. MHP's average yield nonetheless remained significantly higher than Ukraine's average for almost all crops due to operational efficiency and employment of best practices.

[1] Including barley, rye, sugar beet, sorghum and other and excluding land left fallow as part of crop rotation.

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

Segment revenue for 12M 2017 amounted to US$ 117 million compared to US$ 85 million in 12M 2016. The increase was mainly attributable to the larger volumes of crops exported in 2017 following the strong harvest in 2016, a significant part of which was sold in 2017.

IAS 41 standard loss for 12M 2017 amounted to US$ 12 million. The loss represents the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) remaining in stock as of31 December 2017. Decrease in IAS 41 value is mainly related to lower stocks as of 31 December 2017 compared to 2016 due to lower yields and production volume in 2017.

12M 2017 EBITDA of the segment decreased by 37% compared to 12M 2016 due to both lower yields of main crops as a result of unfavorable weather conditions and increased costs reflecting higher prices of seeds for growing, as well as higher land lease, energy and payroll expenses.

Other agricultural operations

12M 2017 sales of meat processing products increased by 6% year-on-year driven mainly by intensive product promotion and advertising, as well as expansion of the product range and types of packaging.

The average processed meat price increased by 16% year-over-year to UAH 49.17 per kg in 12M 2017, mostly in line with an increase in price of poultry.

* pps - percentage points

** in 2017 the Group decided to include convenience food previously reported in poultry and related operations segment to other agricultural operations in line with how Group's chief operating decision maker evaluates performance of the segments. Comparative information was restated retrospectively.

Segment revenue for 12M 2017 increased by 24% year-on-year, in line with an increase in sales volume and price for meat processing, to US$ 120 million. Segment EBITDA increased to US$ 19 million in 12M 2017 compared to US$ 16 million in 12M 2016, a 19% increase year-on-year driven mostly by higher returns from meat processing, cattle and milk operations.

Current Group financial position and cash flow

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

Cash flow from operations before changes in working capital for 12M 2017 amounted to US $333 million (12M 2016: US$ 273 million). The increase compared with 12M 2016 mostly reflected an increase in net profit before foreign exchange differences.

The decrease in cash from changes in working capital during 12M 2017 compared to 12M 2016 is mostly related to lower investments in the stock of sunflower crops designated for internal consumption as of 31 December 2016 compared to the previous year, and subsequently more investment required in inventory during 12M 2017, as well as reimbursement of VAT receivable in 2016 for previous periods and a decrease in prepayments of sunflower oil and rapeseed.

During 12M 2017 total CAPEX amounted to US$ 123 million mainly related to preparation of construction related to Phase 2 of the Vinnytsia poultry complex.

Debt Structure and Liquidity

The Company's debt structure changed significantly during 2017. As at 31 December 2017, with an increase in the share of long-term debt from 80% to 96%. The weighted average interest rate was around 8%.

As at 31 December 2017, cash and cash equivalents amounted to US$ 126 million. Net debt decreased to US$ 1,031 million, compared to US$ 1,081 million as at 31 December 2016.

The Net Debt / LTM EBITDA ratio was 2.25 as at 31 December 2017, well within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenue from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in US Dollars, covering debt service expenses in full. Export revenue for 12M 2017 amounted to US$ 732 million or 57% of total revenue (US$ 635 million or 56% of total sales for 12M 2016).

DIVIDENDS

On 14 March 2017, the Board of Directors of MHP S.A. approved payment of an interim dividend of US$0.7492 per share, equivalent to approximately US$ 80 million. The dividend was paid to shareholders on 29 March 2017.

On 6 March 2018, the Board of Directors of MHP SE approved payment of an interim dividend of US$0.7492 per share, equivalent to approximately US$ 80 million, to be paid to shareholders by the end of April 2018.

TRANSFER OF THE REGISTERED OFFICE OF MHP SE

With effect from 27 December 2017 ("the Transfer Effective Date"), the Company's registered office and central administration was transferred from Luxembourg to Cyprus and the Company was registered in the Cyprus Registry for SE Companies, under number SE 27.

On and from the Transfer Effective Date, the Company's registered office address is situated at 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The Company has adopted New Memorandum and Articles of Association to comply with the provisions of the Cyprus Companies Law, Cap. 113, Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees, the SE Regulation and the European Public Limited - Liability Company Regulations 2006, as are applicable in Cyprus.

NED RESIGNATION/APPOINTMENT

On 13 October 2017, Philippe Lamarche, after 7 years as a non-executive director, resigned from the Board of Directors of MHP SE for personal reasons. The Board is initiating a search for a suitably qualified candidate to replace Mr Lamarche at the earliest opportunity.

On 24 October 2017, William Richards was appointed as a non-executive director of MHP SE for a period ending with the annual general meeting of the shareholders of the Company to be held in 2019.

Outlook

Winter crops are experiencing good conditions that provide the Company with a positive outlook for its 2018 harvest of winter wheat and winter rapeseeds.

The main drivers for profitable growth in 2018 will be:

- An increase in production volume of chicken meat by around 40,000 tonnes as a result of capital investments in the expansion of the Vinnytsia poultry complex (Phase 2);

- An increase in exports of chicken meat across all regions to an expected 260,000-270,000 tonnes; and

- Construction of an alternative-energy biogas project of 12MW capacity at the Vinnytsia poultry complex.

We are confident that, with our vertically integrated business model, we will continue to deliver strong financial results, supported by a significant and growing share of hard currency revenues from exports of chicken, oils and grain.

Notes to Editors:

About MHP

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

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

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

Forward-Looking Statements

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

MHP SE AND ITS SUBSIDIARIES

Consolidated Financial Statements

As of and for the year ended 31 December 2017

CONTENTS

STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION

AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 December 2017..................................................................................................................................................... (a)

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

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2017

Consolidated statement of comprehensive income.................................................................................... 10

Consolidated statement of financial position............................................................................................. 12

Consolidated statement of changes in equity............................................................................................ 13

Consolidated statement of cash flows...................................................................................................... 14

Notes to the Consolidated financial statements......................................................................................... 16

1. Corporate information...................................................................................................................... 16

2. Changes in the group structure......................................................................................................... 18

3. Summary of significant accounting policies....................................................................................... 19

4. Critical accounting judgments and key sources of estimation uncertainty............................................. 35

5. Segment information....................................................................................................................... 39

6. Revenue......................................................................................................................................... 41

7. Cost of sales.................................................................................................................................. 41

8. Selling, general and administrative expenses..................................................................................... 42

9. VAT refunds and other government grants income.............................................................................. 42

10. Finance costs.............................................................................................................................. 43

11. Income tax................................................................................................................................... 43

12. Property, plant and equipment....................................................................................................... 46

13. Land lease rights.......................................................................................................................... 49

14. Biological assets.......................................................................................................................... 49

15. Inventories................................................................................................................................... 53

16. Agricultural produce...................................................................................................................... 53

17. Taxes recoverable and prepaid....................................................................................................... 53

18. Trade accounts receivable, net....................................................................................................... 53

19. Cash and cash equivalents............................................................................................................ 54

20. Assets classified as held for sale................................................................................................... 55

21. Shareholders' equity..................................................................................................................... 56

22. Non-controlling interests................................................................................................................ 56

23. Bank borrowings........................................................................................................................... 58

24. Bonds issued............................................................................................................................... 59

25. Finance lease obligations.............................................................................................................. 61

26. Other current liabilities.................................................................................................................. 61

27. Related party balances and transactions........................................................................................ 62

28. Contingencies and contractual commitments.................................................................................. 63

29. Dividends..................................................................................................................................... 65

30. Fair value of financial instruments................................................................................................... 65

31. Risk management policies............................................................................................................ 67

32. Pensions and retirement plans....................................................................................................... 72

33. Earnings per share....................................................................................................................... 72

34. Subsequent events....................................................................................................................... 72

35. Authorization of the consolidated financial statements..................................................................... 72

STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2017

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view of the financial position of MHP SE (the "Company") and its subsidiaries (the "Group") as of 31 December 2017 and of the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In preparing the consolidated financial statements, the Board of Directors is responsible for:

· properly selecting and applying accounting policies;

· presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance;

· making an assessment of the Group's ability to continue as a going concern.

The Board of Directors, within its competencies, is also responsible for:

· designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group;

· maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS;

· maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions;

· taking such steps as are reasonably available to them to safeguard the assets of the Group; and

· preventing and detecting fraud and other irregularities.

The consolidated financial statements of the Group as of and for the year ended 31 December 2017 were authorized for issue by the Board of Directors on 06 March 2018.

Board of Directors' responsibility statement

In accordance with Article 9 sections (3c) and (7) of the Transparency Requirements (Traded Securities in Regulated Markets) Law 190 (1) / 2007 until 2013, we, the members of the Board of Directors responsible for the drafting of the consolidated financial statements of MHP SE for the year ended 31 December 2017, on the basis of our knowledge, declare that:

a) the consolidated financial statements which are presented on pages 10 to 71:

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

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

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

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

Independent Auditor's Report

To the Members of MHP SE

Report on the Audit of the Consolidated Financial Statements 

Opinion

We have audited the consolidated financial statements of MHP SE (the "Company"), and its subsidiaries (the "Group"), which are presented in pages 10 to 71 and comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We remained independent of the Group throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Reporting on other information

The Board of Directors is responsible for the other information. The other information comprises the information included in the annual report, including the corporate governance statement, but does not include the consolidated financial statements and our auditor's report thereon. The Board of Directors is also required pursuant to article 151 of the Cyprus Companies Law Cap.113 to prepare a report on non-financial information. This report is expected to be made available to us after the date of this auditor's report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the report on non-financial information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of the Board of Directors and those charged with governance for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as 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.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Cont'd)

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

·  Obtain an understanding of internal control relevant to the audit 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 Group's internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

· Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.

Report on Other Legal and Regulatory Requirements

Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the following information in our Independent Auditor's Report, which is required in addition to the requirements of International Standards on Auditing.

Appointment of the Auditor and Period of Engagement

We were first appointed as auditors of the Group on 24 October 2017 by a shareholders' resolution. This is our first period of engagement appointment.

Consistency of the Additional Report to the Audit Committee

We confirm that our audit opinion on the consolidated financial statements expressed in this report is consistent with the additional report to the Audit Committee of the Company, which we issued on 5 March 2018 in accordance with Article 11 of the EU Regulation 537/2014.

Provision of Non-audit Services

We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation 537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-audit services which were provided by us to the Group and which have not been disclosed in the consolidated financial statements or the consolidated management report.

Other Legal Requirements

Pursuant to the additional requirements of the Auditors Law of 2017, we report the following:

· In our opinion, based on the work undertaken in the course of our audit, the consolidated management report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the consolidated financial statements.

· In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the consolidated management report. We have nothing to report in this respect.

· In our opinion, based on the work undertaken in the course of our audit, the information included in the corporate governance statement in accordance with the requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap, 113, and is consistent with the consolidated financial statements.

· In our opinion, based on the work undertaken in the course of our audit, the corporate governance statement includes all information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113.

· In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. We have nothing to report in this respect.

Other Matter

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

The engagement partner on the audit resulting in this independent auditor's report is Costas Georghadjis.

Comparative figures

The consolidated financial statements of the Group for the year ended 31 December 2016 were audited by another auditor who expressed an unmodified opinion on those financial statements on 14 March 2017.

Costas Georghadjis

Certified Public Accountant and Registered Auditor

for and on behalf of

Deloitte Limited

Certified Public Accountants and Registered Auditors

Limassol, 6 March 2018

Consolidated statement of comprehensive income

for the year ended 31 December 2017

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 16 to 71 form an integral part of these consolidated financial statements

Consolidated statement of comprehensive income

for the year ended 31 December 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 16 to 71 form an integral part of these consolidated financial statements

Consolidated statement of financial position

as of 31 December 2017

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 16 to 71 form an integral part of these consolidated financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2017

(in thousands of US dollars, unless otherwise indicated)