Last checked at 25 Sep 2023 09:02
25 September 2023, Limassol, Cyprus
MHP SE
Financial Results for the Second Quarter and Six Months ended 30 June 2023
MHP SE (LSE:MHPC), the parent company of a leading international food & agrotech group with headquarters in Ukraine, today announces its unaudited results for the second quarter ended 30 June 2023. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".
MHP is reporting good operational and financial results for H1 2023 thanks to a recovery in global export levels, continued demand, a stable international poultry price environment, supported by new culinary products launched in Ukraine and the extraordinary efforts of the MHP team to minimize the disruption caused by the War. It should be noted that operational and financial results in H1 2022 were severely impacted by the onset of the War, making year-on-year comparison difficult. Results for the second half of 2023 may again be adversely affected by War-related challenges that are not under MHP's control.
WAR IN UKRAINE - UPDATE
The War in Ukraine continues, with intensive fighting in the South and East of the country and irregular but frequent rocket and drone attacks against civilian infrastructure across Ukraine. The bombing campaign aimed at undermining the country's economic capability shows no sign of abating.
On July 18, 2023, Russia unilaterally decided not to extend the Black Sea Grain Initiative, originally signed by Ukraine, the UN, Turkey and Russia on 22 July 2022. Known as the 'Grain Deal', the agreement allowed for export of Ukrainian grain and vegetable oil through the "grain corridor" from designated Ukrainian ports to the Bosphorus. This has significantly restricted the capacity for seaborn trade for Ukrainian agricultural produce which, combined with the heightened costs of alternative export channels, may have a substantive impact on the Company's logistics on vegetable oils and related products in the coming months.
As the Grain Deal expired, Russian military forces intensified rocket attacks against Ukrainian seaports specifically aiming to degrade the country's export infrastructure. Recent attacks in the Odessa region targeted port infrastructure, grain depots and other storage facilities, resulting in major damage to Reni, Chernomorsk and Pivdeny which are key hubs for Ukrainian agriculture exports. The situation remains highly fluid, and the outlook is subject to extraordinary levels of uncertainty. Any substantive escalation of attacks could increase risks to MHP's Ukrainian operations, potentially leading to disruption of production and distribution.
Due to the War, MHP is experiencing a severe shortage of vegetable oil storage capacity, currently covering just 50% of production. Lack of storage has forced the Company to increase exports. This is a significant challenge, as it limits the Company's ability to manage pricing cyclicality, directly impacting the profitability of its vegetable oil production.
On 2 May 2023, the European Commission adopted exceptional and temporary preventive measures on imports of a defined number of products from Ukraine to five member states. The preventive measures applied to four agricultural products - wheat, maize, rapeseed and sunflower seed - originating in Ukraine. Under the measures set by the European Commission, these products could only transit via these five member states by means of a common customs transit procedure or en route to a territory outside the EU. The European Commission lifted the restrictions on 15 September 2023, given that Ukraine agreed to tighten control over its agricultural exports. Despite this, market access conditions in the relevant member states, in particular, Poland, Hungary and Slovakia, for the affected Ukrainian products are uncertain and remain subject to on-going developments. Furthermore, MHP's exports to the EU continue to be reliant on poultry quotas and any changes to the current regime could pose a significant risk to the Company.
MHP notes the recent comments by the Ukrainian Energy Minister expecting further electricity shortages in winter due to continued infrastructure challenges. While MHP has made provisions of alternative energy sources for its main operations, significant energy outages may lead to an increase in the cost base and/or a decrease in production across the Company's main products.
MHP continues to focus on the welfare of its employees in the face of increased challenges arising from the War, with more than 2,300 employees currently mobilized. Since the beginning of the War, support to the mobilized employees and their families, as well as those that have returned to civilian life, has been provided and is provided on a regular basis. It is very sad to report that 92 MHP employees have lost their lives or are missing in action in the service of their country. The Company is extending its sympathies and support to their families, friends and colleagues.
A re-skilling campaign is underway at the Company's operational facilities, as - due to the mobilization - the average age of available employees has increased, and the ratio of women to men has increased.
The Company continues to support Victory for Ukraine, a Ukraine based charity project, different kind of support and aid, having already contributed 12,000 tons of MHP products donated and delivered to people of Ukraine since the beginning of the War in Ukraine.
In addition to the specific challenges outlined above, the Company faces significant general uncertainties inherent in the War, where substantive escalation of attacks could increase risks to MHP's Ukrainian operations, potentially leading to further disruption in production.
Nonetheless, as of today, MHP's production facilities continue to operate at close to full capacity, as they have been throughout the first half of 2023. The Company continues to export to over 70 countries, providing grain, vegetable oils and poultry meat to global markets.
OPERATIONAL ENVIRONMENT
As of today, the Company has been dynamically adapting to the evolving operational environment, and has been able to continue operations in Ukraine. MHP's own facilities have not suffered significant physical damage. In the event of any future adverse impact to its operations, the Company has in place detailed contingency plans, ensuring that it is ready to take all actions necessary to rebuild, restore and re-start production in the shortest time possible. The Company sees its readiness to act on contingencies as a key strategic priority, including access to adequate liquidity to enact emergency measures.
The global market environment for non-poultry products remains challenging, with depressed prices for wheat and rapeseed products including vegetable oils putting pressure on profit margins.
OPERATIONAL HIGHLIGHTS
Q2 2023
· Poultry production volume in Ukraine was up 7% at 181,690 tonnes (Q2 2022: 170,395 tonnes). Poultry production volumes of the European Operating Segment (PP) increased by 7% to 33,306 tonnes (Q2 2022: 31,259 tonnes).
· MHP Ukraine's average chicken meat price remained almost unchanged at US$ 1.95 per kg (Q2 2022: US$ 2.03 per kg) excluding VAT. The average price of chicken meat produced by PP was stable at EUR 3.34 per kg (Q2 2022: EUR 3.36 per kg).
· Chicken meat exports from Ukraine increased by 46% to 100,234 tonnes (Q2 2022: 68,552 tonnes).
H1 2023
· Poultry production volume in Ukraine increased by 4% to 359,332 tonnes (H1 2022: 346,039 tonnes). Poultry production volumes of the PP increased by 9% to 65,087 tonnes (H1 2022: 59,809 tonnes).
· MHP Ukraine's average chicken meat price was stable at US$ 1.90 per kg (H1 2022: US$ 1.93 per kg) excluding VAT. The average price of poultry meat produced by PP increased by 12% to EUR 3.48 per kg (H1 2022: EUR 3.11 per kg).
· Chicken meat exports from Ukraine increased by 34% to 212,165 tonnes (H1 2022: 157,892 tonnes).
-
FINANCIAL HIGHLIGHTS
Q2 2023
· Revenue of US$ 809 million, increased by 36% y/y (Q2 2022: US$ 595 million).
· Export revenue of US$ 508 million, 63% of total revenue (Q2 2022: US$ 333 million, 56% of total revenue).
· Operating profit of US$ 68 million was stable while operating margin decreased to 8% (Q2 2022:US$ 67 million and 11% respectively).
· Adjusted EBITDA (net of IFRS 16) decreased to US$ 101 million from US$ 111 million; adjusted EBITDA margin (net of IFRS 16) decreased to 12% from 19%.
· Net profit has slightly decreased to US$ 18 million, compared to US$ 20 million for Q2 2022.
H1 2023
· Revenue increased to US$ 1,555 million, up by 35% y/y (H1 2022: US$ 1,149 million).
· Export revenue increased to US$ 973 million, 52% higher y/y, representing 63% of total revenue (H1 2022: US$ 640 million, 56% of total revenue).
· Operating profit increased to US$ 152 million, up by 100% y/y (H1 2022: US$ 76 million) and operating margin increased from 7% to 10%.
· Adjusted EBITDA (net of IFRS 16) increased by 42% to US$ 218 million (H1 2022: US$ 154 million); adjusted EBITDA margin (net of IFRS 16) increased from 13% to 14%.
· Net income amounted to US$ 67 million, compared to a loss of US$ 89 million in H1 2022, primarily reflecting a US$ 4 million non-cash foreign exchange gain in H1 2023 compared with a US$ 92 million foreign exchange loss in H1 2022.
FINANCIAL OVERVIEW
(in mln. US$, unless indicated otherwise) |
| Q2 2023 |
| Q2 2022 | % change1) |
| H1 2023 | H1 2022 | % change1) |
|
|
| |||||||
Revenue |
| 809 |
| 595 | 36% |
| 1,555 | 1,149 | 35% |
IAS 41 standard losses | (40) | (37) | -8% | (76) | (93) | 18% | |||
Gross profit |
| 150 |
| 152 | -1% |
| 294 | 241 | 22% |
Gross profit margin |
| 19% |
| 26% | -7 pps |
| 19% | 21% | -2 pps |
War-related expenses | (7) | (13) | -46% | (13) | (38) | -66% | |||
Operating profit |
| 68 |
| 67 | 1% |
| 152 | 76 | 100% |
Operating profit margin |
| 8% |
| 11% | -3 pps |
| 10% | 7% | 3 pps |
Adjusted EBITDA |
| 109 |
| 119 | -8% |
| 233 | 169 | 38% |
Adjusted EBITDA margin |
| 13% |
| 20% | -7 pps |
| 15% | 15% | 0 pps |
Adjusted EBITDA (net of IFRS 16) |
| 101 |
| 111 | -9% |
| 218 | 154 | 42% |
Adjusted EBITDA margin (net of IFRS 16) |
| 12% |
| 19% | -7 pps |
| 14% | 13% | 1 pps |
Net profit /(loss) |
| 18 |
| 20 | -10% |
| 67 | (89) | 175% |
Net profit/(loss) margin |
| 2% |
| 3% | -1 pps |
| 4% | -8% | 12 pps |
1) pps - percentage points
Average official FX rate for Q2: UAH/US$ 36.57 in 2023 and UAH/US$ 29.25 in 2022.
Average official FX rate for H1 2023 UAH/US$ 36.57 and for H1 2022 UAH/US$ 28.91.
DIAL-IN DETAILS
MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results.
The dial-in details are:
Time: 14.00 London / 16.00 Kyiv / 09.00 New York
Title: Financial results for Q2 2023 and H1 2023
UK: +44 203 984 9844
Ukraine: +380 89 324 0624
USA: +1 718 866 4614
PIN code: 645982
To follow the presentation with the management team, please use the following link:
https://mm.closir.com/slides?id=645982
For Investor Relations enquiries, please contact:
Anastasia Sobotiuk (Kyiv) +38 050 339 29 99
+357 99 76 71 26 a.sobotyuk@mhp.com.ua
Segment Performance
Poultry and Related Operations Segment
| Q2 2023 | Q2 20221) | % change y/y2) | Q1 2023 | % change q/q2) | H1 2023 | H1 2022 | % change2) | |
Poultry |
|
|
|
|
|
| |||
Sales volume1), third party tonnes |
| 178,122 | 140,549 | 27% | 187,519 | -5% | 365,641 | 299,573 | 22% |
Export sales volume, tonnes |
| 100,234 | 68,552 | 46% | 111,931 | -10% | 212,165 | 157,892 | 34% |
Domestic sales volume, tonnes |
| 77,888 | 71,997 | 8% | 75,588 | 3% | 153,476 | 141,681 | 8% |
Portion of export sales, % |
| 56% | 49% | 7 pps | 60% | -4 pps | 58% | 53% | 5 pps |
Average price per 1 kg net of VAT, USD |
| 1.95 | 2.03 | -4% | 1.85 | 5% | 1.90 | 1.93 | -2% |
Average price per 1 kg net of VAT, UAH (Ukraine) |
| 56.89 | 41.77 | 36% | 52.62 | 8% | 54.78 | 43.86 | 25% |
Average price per 1 kg net of VAT, USD (Ukraine) |
| 1.56 | 1.43 | 9% | 1.44 | 8% | 1.50 | 1.51 | -1% |
Average price per 1 kg net of VAT, USD (export) |
| 2.22 | 2.63 | -16% | 2.11 | 5% | 2.16 | 2.28 | -5% |
Sunflower oil |
| ||||||||
Sales volume, third parties tonnes | 168,677 | 48,495 | 248% | 77,201 | 118% | 245,878 | 81,476 | 202% | |
Soybeans oil |
| ||||||||
Sales volume, third parties tonnes | 13,630 | 9,191 | 48% | 14,400 | -5% |
28,030
| 19,547 | 43% |
1) Total poultry sales include domestic sales, export sales and sales of culinary products
2) pps - percentage points
Chicken meat
The total volume of chicken meat sold to third parties in H1 2023 increased by 22% to 365,641 tonnes (H1 2022: 299,573 tonnes). Domestic sales in H1 2023 increased by 8% mainly due to higher demand in Ukraine compared to H1 2022 when the full effects of the War affected results from March. Export sales in H1 2023 increased by 34% y/y to 212,165 tonnes, mainly as a result of substantially decreased sales in H1 2022 due to the effects of the War.
Poultry export prices in Q2 2023 decreased by 16% y/y, mainly driven by relative stabilization of prices on international markets compared to their pick levels achieved in Q2 2022. At the same time prices increased by 5% q/q, as a result of an increase in prices for filet and breast cup in the EU and UK channels.
In Q2 2023 poultry prices on the domestic market in USD terms increased by 9% y/y, and by 8% q/q, driven by increase in sales volume of high-margin product - fillet as well as increased share of sales of other relatively expensive culinary products.
Vegetable oil
In Q2 2023, sunflower oil sales volume amounted to 168,677 tonnes, up 248% y/y. In H1 2023 MHP's sales of sunflower oil increased by 202% compared to H1 2022 to 245,878 tonnes, mainly driven by an increase in production of sunflower cake due to both additional crushing capacity and a change in the recipe as well as partial restoration of logistic routes comparing to H1 2022.
Sales of soybean oil amounted to 13,630 tonnes in Q2 2023 also increased by 48% y/y, and by 43% to 28,030 tonnes in H1 2023, compared with 19,547 tonnes in H1 2022.
At the same time, international vegetable oil prices decreased substantially and the downward trend continues. Moreover, expensive and disruptive logistics from Ukraine made vegetable oils exports less profitable compared to sales in H1 2022.
Financial result and trends
(in mln. US$, unless indicated otherwise) |
| Q2 2023 | Q2 2022 | % change y/y1) | Q1 2023 | % change q/q1) | H1 2023 | H1 2022 | % change1) |
|
|
|
|
|
|
|
|
|
|
Revenue |
| 608 | 430 | 41% | 519 | 17% | 1,127 | 809 | 39% |
- Poultry and other |
| 392 | 330 | 19% | 390 | 1% | 782 | 652 | 20% |
- Vegetable oil |
| 216 | 100 | 116% | 129 | 67% | 345 | 157 | 120% |
|
|
|
|
|
| ||||
IAS 41 standard gain | 10 | 9 | 11% | 3 | 233% | 13 | 15 | -13% | |
|
| ||||||||
Gross profit |
| 144 | 87 | 66% | 110 | 31% | 254 | 148 | 72% |
Gross margin |
| 24% | 20% | 4 pps | 21% | 3 pps | 23% | 18% | 5 pps |
|
|
|
|
|
|
|
|
|
|
War-related expenses | (4) | (10) | -60% | (4) | 0% | (8) | (31) | -74% | |
|
|
|
|
|
|
| |||
Adjusted EBITDA |
| 124 | 68 | 82% | 97 | 28% | 221 | 100 | 121% |
Adjusted EBITDA margin |
| 20% | 16% | 4 pps | 19% | 1 pps | 20% | 12% | 8 pps |
1) pps - percentage points
In H1 2023, revenue increased by 39% y/y as a result of sales volume increase of both vegetable oil and chicken meat that was partly set off by lower oil and meat price on export markets.
IAS 41 standard gain in H1 2023 decreased to US$ 13 million y/y mainly as a result of a lower chicken meat price and optimization of meat stocks volumes comparing to H1 2022.
Gross profit in H1 2023 increased to US$ 254 million mainly driven by higher sales volumes of chicken meat on export markets and by a significant increase from sales of vegetable oil.
In H1 2023, adjusted EBITDA increased to US$ 221 million, mainly as a result of higher gross profit and lower War-related expenses.
Grain Growing Segment
Winter crops (wheat, rapeseeds and other) harvesting is complete on around 94,200 ha of land:
- rapeseeds - around 33,000 ha with around 3.7 t/ha yield;
- wheat - around 40,300 ha with around 6.6 t/ha yield.
Yields of spring crops are expected to be better than in 2022 due to favorable weather conditions in Ukraine. In 2023, MHP is planning to harvest around 348,300 ha of land.
A decrease in domestic grain prices (in line with international grain prices) and limited export capabilities as a result of continuous missiles strikes on the Ukrainian ports infrastructure and termination of the Grain deal by Russia had a negative effect on segment performance. The trend of international grain price remains unfavorable as of the date of this report.
It should be noted that these events will have limited impact on the overall Group performance, as almost all grains and oilseeds (except for rapeseeds and some wheat) are/will be consumed internally.
Financial result and trends
(in mln. US$ unless indicated otherwise) |
| H1 2023 |
| H1 2022 |
| % change |
|
|
|
|
|
|
|
Revenue |
| 93 |
| 53 |
| 75% |
IAS 41 standard loss | (81) | (113) | 28% | |||
|
| |||||
Gross profit |
| (30) |
| 25 |
| -220% |
War-related expenses |
| - | (1) | -100% | ||
|
|
|
|
|
|
|
Adjusted EBITDA | (13) | 48 | -127% | |||
Adjusted EBITDA (net of IFRS 16) |
| (27) |
| 34 |
| -179% |
Grain growing segment's revenue in H1 2023 amounted to US$ 93 million compared to US$ 53 million in H1 2022. The increase was mainly attributable to the higher volume of sales of corn purchased from farmers in Ukraine and sales of rapeseeds in 1H2023 which were harvested in 2022, while usually they are realized in the second half of the year, just after the harvest.
The reduction in Adjusted EBITDA (net of IFRS 16) to US$ (27) million in H1 2023 from US$ 34 million in 2022 was caused by lower revaluation of biological assets (both winter and spring crops) as a result of the decrease in domestic prices due to limited export capabilities.
A significant decrease in international grain prices, as well as increased logistic costs due to the War impact, led to poor results in the Grain Segment. The Company expects Grain Segment EBITDA for 2023 to be significantly lower than in 2022.
Meat Processing and Other Agricultural Segment
Meat processing products |
| Q2 2023 | Q2 2022 | % change y/y | Q1 2023 | % change q/q | H1 2023 | H1 2022 | % change |
Sales volume, third parties tonnes | 2,965 | 2,289 | 30% | 2,525 | 17% | 5,490 | 8,304 | -34% | |
Price per 1 kg net VAT, UAH | 128.47 | 88.34 | 45% | 133.28 | -4% | 130.68 | 87.84 | 49% |
Sales volume of meat processing products decreased by 34% y/y to 5,490 tonnes in H1 2023 driven by War-related challenges that resulted in temporary suspension of production facilities of "Ukrainian Bacon" in the Donetsk region in Q2 2022 and subsequent partial redeployment of its operations in Central Ukraine.
The average price increased by 49% y/y to UAH 130.68 per kg in H1 2023. This change took place during H2 2022 and was driven mainly by higher raw material prices (spices, packaging, and other components) as well as by a positive change in product mix.
Convenience food |
| Q2 2023 | Q2 2022 | % change y/y | Q1 2023 | % change q/q | H1 2023 | H1 2022 | % change |
Sales volume, third parties tonnes | 5,899 | 3,421 | 72% | 5,538 | 7% | 11,437 | 7,410 | 54% | |
Price per 1 kg net VAT, UAH | 83.32 | 58.94 | 41% | 85.66 | -3% | 85.71 | 56.04 | 53% |
Sales volumes of convenience food in H1 2023 increased by 54% to 11,437 tonnes.
The average price in H1 2023 increased by 53% to UAH 85.71 per kg (excluding VAT). This change took place during Q4 2022 and Q1 2023 and was driven mainly by raw material price increases as well as a focus on increased sales of higher-margin products.
Financial result and trends
(in mln. US$, except margin data) |
| Q2 2023 | Q2 2022 | % change y/y1) | Q1 2023 | % change q/q1) | H1 2023 | H1 2022 | % change1) |
|
|
|
|
|
|
|
|
|
|
Revenue |
| 35 | 27 | 30% | 32 | 9% | 67 | 63 | 6% |
- Meat processing and convenience food |
| 25 | 20 | 25% | 24 | 4% | 49 | 48 | 2% |
- Other2) |
| 10 | 7 | 43% | 8 | 25% | 18 | 15 | 20% |
IAS 41 standard losses | (4) | - | -100% | (1) | -300% | (5) | 1 | -600% | |
Gross profit |
| 2 | 2 | 0% | 3 | -33% | 5 | 6 | -17% |
Gross margin |
| 6% | 7% | -1 pps | 9% | -3 pps | 7% | 10% | -3 pps |
War-related expenses |
| - | (1) | -100% | - | 0% | - | (4) | -100% |
| |||||||||
Adjusted EBITDA |
| 1 | - | 100% | 3 | -67% | 4 | - | 100% |
Adjusted EBITDA margin |
| 3% | 0% | 3 pps | 9% | -6 pps | 6% | 0% | 6 pps |
1) pps - percentage points;
2) includes milk, cattle and feed grains.
The segment's revenue in H1 2023 increased by 6% to US$ 67 million. Adjusted EBITDA in H1 2023 was US$ 4 million compared to US$ nil in H1 2022 mainly due to significant War-related expenses incurred in H1 2022.
European Operating Segment (PP)
Poultry |
| Q2 2023 | Q2 2022 | % change y/y | Q1 2023 | % change q/q | H1 2023 | H1 2022 | % change |
Sales volume, third parties tonnes | 21,956 | 19,619 | 12% | 19,114 | 15% | 41,070 | 37,363 | 10% | |
Price per 1 kg net VAT, EUR | 3.34 | 3.36 | -1% | 3.53 | -5% | 3.48 | 3.11 | 12% |
In Q2 2023, poultry sales of the European operating segment increased to 21,956 tonnes, and by 15% compared with Q1. This was driven by an increased production of chicken meat following expansion of facilities in Croatia and Serbia. Average price decreased by 1% in Q2 2023 to EUR 3.34 (Q2 2022: EUR 3.36).
Meat processing products1) |
| Q2 2023 | Q2 2022 | % change y/y | Q1 2023 | % change q/q | H1 2023 | H1 2022 | % change |
Sales volume, third parties tonnes | 11,289 | 10,238 | 10% | 10,715 | 5% | 22,004 | 20,155 | 9% | |
Price per 1 kg net VAT, EUR | 3.54 | 3.12 | 13% | 3.33 | 6% | 3.32 | 3.02 | 10% |
1) includes sausages and convenience foods
Meat processing product sales were up by 10% y/y to 11,289 tonnes in Q2 2023 (Q2 2022: 10,238 tonnes), at the same time increased by 5% compared with Q1. Average price in Q2 2023 increased by 13% to EUR 3.54.
Financial result and trends
(in mln. US$, except margin data) |
| Q2 2023 | Q2 2022 | % change y/y1) | Q1 2023 | % change q/q1) | H1 2023 | H1 2022 | % change1) |
|
|
|
|
|
|
|
|
|
|
Revenue |
| 142 | 120 | 18% | 125 | 14% | 267 | 224 | 19% |
IAS 41 standard gains | (5) | 3 | -267% | 2 | -350% | (3) | 5 | -160% | |
|
|
|
|
|
|
|
|
|
|
Gross profit |
| 33 | 35 | -6% | 32 | 3% | 65 | 62 | 5% |
Gross margin |
| 23% | 29% | -6 pps | 26% | -3 pps | 24% | 28% | -4 pps |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
| 19 | 22 | -14% | 20 | -5% | 39 | 37 | 5% |
Adjusted EBITDA margin |
| 13% | 18% | -5 pps | 16% | -3 pps | 15% | 17% | -2 pps |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (net of IFRS 16) |
| 19 | 22 | -14% | 19 | 0% | 38 | 36 | 6% |
Adjusted EBITDA margin (net of IFRS 16) |
| 13% | 18% | -5 pps | 15% | -2 pps | 14% | 16% | -2 pps |
1) pps - percentage points.
European operating segment's revenue in H1 2023 increased by 19% to US$ 267 million (H1 2022: US$ 224 million), mainly as a result of the increase in poultry sales volume and price.
Adjusted EBITDA (net of IFRS 16) amounted to US$ 38 million for H1 2023 compared with US$ 36 million for H1 2022. Adjusted EBITDA margin (net of IFRS 16) decreased from 16% to 14%.
Current Group cash flow
(in mln. US$) |
| Q2 2023 |
| Q2 2022 |
| H1 2023 |
| H1 2022 |
Cash from operations |
| 108 |
| 133 |
| 206 |
| 254 |
Change in working capital | 70 | (179) | 68 | (246) | ||||
Net Cash from operating activities |
| 178 |
| (46) |
| 274 |
| 8 |
Cash used in investing activities |
| (66) |
| (35) |
| (102) |
| (73) |
Including: |
|
|
|
|
|
|
|
|
CAPEX1) | (53) | (30) | (92) | (63) | ||||
Cash from financing activities | 32 |
| - |
| 18 |
| 22 | |
Total change in cash2) |
| 144 |
| (81) |
| 190 |
| (43) |
1)Calculated as cash used for Purchases of property, plant and equipment plus cash used for purchases of other non-current assets
2)Calculated as Net Cash from operating activities plus Cash used in investing activities plus Cash used in financing activities
Cash flow from operations before changes in working capital for H1 2023 amounted to US$ 206 million (H1 2022: US$ 254 million), mainly as a result of interest payments of US$ 96 million in H1 2023 compared to US$ 18 million in H1 2022.
The differences between H1 2023 and Q2 2023 compared to H1 2022 and Q2 2022 respectively were mainly attributable to:
· return of stocks of chicken meat and vegetable oil to normal levels at the end of H1 2023 from the unusually high amounts at the end of H1 2022, caused by disrupted logistics due to War activities, that has partly recovered afterward due to the Grain deal and diversification of delivery routes by the Group;
· higher volumes of grains exported in H1 2023 compared to H1 2022 as a result of partial recovery of sea routes due to the Grain deal;
· higher stocks of sunflower seeds at the beginning of 2023 compared to 2022 and increased internal consumption in 1H 2023 compared to same period of the previous year;
· stable amounts of trade accounts receivable compared to significant growth in sunflower oil receivables in H1 2022;
However, it should be noted that, investments in working capital will substantially increase in H2 2023, resulting in substantial cash outflow for 2023 due to future required purchases of sunflower seeds, fertilizers and plant protection materials as well as termination of the Grain deal by Russia that causing significant restrictions in the capacity for seaborn trade for Ukrainian agricultural exports.
In H1 2023 total CAPEX amounted to US$ 92 million mainly related to maintenance and modernization projects, new products development of Ukrainian operations and expansion of Perutnina Ptuj production facilities. The increase from US$ 63 million in H1 2022 is mainly due to higher investments in cost optimization and culinary strategy projects as well as purchases of diesel generators for mitigation of possible power outages impact.
Debt Structure and Liquidity
(in mln. US$) |
| 30 June 2023 |
| 31 December 2022 |
| 30 June 2022 |
|
|
|
|
|
|
|
Total Debt1) 2) |
| 1,539 |
| 1,537 |
| 1,511 |
LT Debt1) | 1,007 | 1,507 | 1,491 | |||
ST Debt 1) | 725 | 182 | 144 | |||
Trade credit facilities2) | (193) | (152) | (125) | |||
Cash and bank deposits | (502) | (300) | (222) | |||
Net Debt1) |
| 1,037 |
| 1,237 |
| 1,289 |
|
| |||||
LTM Adjusted EBITDA1) | 449 | 384 | 468 | |||
Net Debt / LTM Adjusted EBITDA1) |
| 2.31 |
| 3.22 |
| 2.75 |
1) Net of IFRS 16 adjustments: as if any lease that would have been treated as an operating lease under IAS 17 as was in effect before the 1 January 2019, is treated as an operating lease for purposes of this calculation. In accordance with covenants in MHP's bond and loan agreements, these data exclude the effects of IFRS 16 on accounting for operating leases.
2) Indebtedness under trade credit facilities that is required to be repaid within 12 months of drawdown should be excluded for purposes of this calculation
As of 30 June 2023, MHP's cash and cash equivalents amounted to US$ 502 million, of which US$ 277 million was held by the Group's subsidiaries outside Ukraine. Under the repatriation rules instituted by the National Bank of Ukraine, the equivalent amounts of such cash and cash equivalents would need to be repatriated to Ukraine within six months of recognition of foreign currency proceeds from exports from Ukraine, which limits the Group's ability to utilize such cash and cash equivalents for repayment of indebtedness.
The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 2.31 as of 30 June 2023, well below the limit of 3.0 defined in the Eurobond agreement.
As of 30 June 2023, the share of long-term debt in the total outstanding debt decreased to 65% as the first US$ 500 million Eurobond, which is due for repayment in May 2024, is now classified as short-term.
The Group has reached agreement in principle with a number of international and development financial institutions to enter into facilities agreements providing up to US$ 400 million in aggregate (collectively the "IFI Facilities"). When entered into, disbursements under the IFI Facilities are expected to be made in one or more tranches pursuant to utilization requests by the Company, subject to the satisfaction of terms and certain conditions precedent, including the absence of a material adverse change in the Group's business, operations, property, financial condition or prospects, and the maintenance of certain financial ratios consistent with the Group's obligations under its Eurobonds. The Group expects to use the proceeds received pursuant to initial utilization requests to finance a portion of its tender for any and all of its US$500 million aggregate principal amount outstanding 7.75% notes due 2024 announced on 25 September 2023. The Company intends to deliver all notes acquired pursuant to the tender offer to the Trustee for prompt cancellation.
Subsequent Events
Investments in Joint Venture in Saudi Arabia
On 7 September 2023, the Company signed a shareholder agreement with Desert Hills Veterinary Services Company Limited, subsidiary of Tanmiah Food Company, a publicly listed company on the Saudi stock market, with intention to establish a joint venture in poultry farming in the Kingdom of Saudi Arabia. The Company will have 45% of the share capital of this entity upon its incorporation, and an initial investment by the Company is planned in amount of around SAR 27 million (or equivalent of around US$ 7 million).
Outlook
The outlook for the agricultural sector in Ukraine continues to be subject to extreme operational uncertainty due to War-related risks, including frequent missile and drone attacks on Ukrainian infrastructure and other targets. In addition to the risk of physical damage, the Company faces continued logistics disruptions and increased logistics costs as a result of the ongoing conflict.
Grain prices in Ukraine and internationally are expected to remain depressed in the second half of the year. Combined with the logistics difficulties in Ukraine, and despite good harvest yields, the Company expects a weak financial performance in the grain segment. While poultry prices in Ukraine have largely stabilised, international prices are expected to continue to fluctuate around a generally negative trend. Risks remain on the downside if international poultry prices correlate further with the downward trend in the grain markets.
Notes to Editors:
About MHP
MHP SE is the parent company of a leading international food & agrotech group with headquarters in Ukraine and also in the Balkans (Perutnina Ptuj Group).
Ukraine: MHP has the greatest market share and the 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 nine distribution and logistical centers, 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.
The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer in the Balkans, has production assets in four Balkan countries: Slovenia, Croatia, Serbia, Bosnia and Herzegovina; owns distribution companies in Austria, North Macedonia and Romania and supplies products to 15 countries in Europe. Perutnina Ptuj is a vertically integrated company across all stages of chicken meat production - feed, hatching eggs production and hatching, breeding, slaughtering, sausages and further poultry processing production.
MHP trades on the London Stock Exchange under the ticker symbol MHPC since 2008.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP SE. Such statements do not guarantee that these are actions to be taken by MHP SE in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.
MHP SE AND ITS SUBSIDIARIES
Interim condensed consolidated Financial Statements
As of and for the three-month and six-month period
ended 30 June 2023
CONTENTS
STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS................................................................. 3
MANAGEMENT REPORT.............................................................................................................................. 4
REPORT ON REVIEW OF INTERIM condensed consolidated FINANCIAL INFORMATION..................................................................................................................................................6
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE-MONTH AND SIX-MONTH PERIOD ENDED 30 JUNE 2023
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME.............................................................................................................................................................. 7
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 8
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY....................................... 9
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS.................................................. 11
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.............................. 13
1. Corporate information............................................................................................................................... 13
2. Basis of preparation and accounting policies........................................................................................... 14
3. Segment information................................................................................................................................ 17
4. Revenue................................................................................................................................................... 20
5. Cost of sales............................................................................................................................................. 21
6. Selling, general and administrative expenses.......................................................................................... 21
7. Profit for the period.................................................................................................................................. 21
8. Property, plant and equipment................................................................................................................ 21
9. Agricultural produce................................................................................................................................ 22
10. Inventories........................................................................................................................................... 22
11. Biological assets.................................................................................................................................. 22
12. Shareholders' equity............................................................................................................................ 22
13. Bank borrowings................................................................................................................................. 22
14. Bonds issued...................................................................................................................................... 24
15. Related party balances and transactions........................................................................................... 26
16. Operating environment....................................................................................................................... 27
17. Contingencies and contractual commitments..................................................................................... 28
18. Fair value of financial instruments...................................................................................................... 29
19. Risk management policy.................................................................................................................... 30
20. Subsequent events............................................................................................................................ 31
21. Authorization of the interim condensed consolidated financial statements....................................... 31
STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS
In accordance with Article 10 of the Transparency Requirements (Securities for Trading on Regulated Market) Law 190(l)/2007 ("Law"), as amended, we the members of the Board of Directors of MHP SE confirm that to the best of our knowledge:
(a) The interim condensed consolidated financial statements for the period from 1 January 2023 to30 June 2023 that are presented on pages 7 to 31:
i. were prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and in accordance with the provisions of Article 10 (4) of the Law, and
ii. give a true and fair view of the assets and liabilities, the financial position and the profits of MHP SE and the businesses that are included in the interim condensed consolidated financial statements as a whole, and
(b) the interim management report gives a fair review of the information required under Article 10 (6) of the Law.
25 September 2023
Members of the Board of Directors:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
Director John Grant
Director John Clifford Rich
Director Philip J Wilkinson
Director Andriy Bulakh
Director Christakis Taoushanis
Director Oscar Chemerinski
MANAGEMENT REPORT
Key financial highlights
During the six-month period ended 30 June 2023 consolidated revenue increased by 35% to USD 1,554,966 thousand, compared to USD 1,148,741 thousand for the six-month period ended 30 June 2022. Export sales for the six-month period ended 30 June 2023 constituted 63% of total revenue at USD 973,078 thousand, compared to USD 640,137 thousand, and 56% of total revenue for the six-month period ended 30 June 2022. The increase in revenue was mainly attributable to an increase in the volume of chicken meat and vegetable oil sold partly offset by a decline in the export prices. The significant increase in volumes reflects unusually low sales in H1 2022, when exports were adversely affected by disruption in logistics caused by the Russian military invasion of Ukraine resulting in a full-scale war (the "War"). Volumes had mostly recovered in H2 of 2022.
Gross profit increased by 22% to USD 293,792 thousand for the six-month period ended30 June 2023 compared to USD 240,775 thousand for the six-month period ended 30 June 2022. The increase was driven mainly by higher revenue in the poultry and related operations segment due to an increase in the volume of chicken meat and vegetable oil sold. At the same time increased production costs and a decrease in grain prices have led to the negative revaluation of biological assets of the Grain operating segments, that partly reduced the positive effect from poultry operations.
Operating profit increased by 100% to USD 151,644 thousand for the six-month period ended 30 June 2023 compared to USD 75,708 thousand for the six-month period ended 30 June 2022. In March-June 2022, following the Russian invasion in February 2022, the Group incurred significant expenses related to the War (including write-offs of inventories, donations to communities in Ukraine and the impairment of certain property, plant and equipment), which were significantly lower during six-month period ended 30 June 2023. This factor together with an improvement in gross profit resulted in the increase in operating profit.
Profit for the six-month period ended 30 June 2023 amounted to USD 66,569 thousand, compared to a loss of USD 88,519 thousand for the six-month period ended 30 June 2022. The increase is mainly due to higher operating profit and the fixed exchange rate of the Ukrainian Hryvnia against the US Dollar as established by the National Bank of Ukraine, which resulted in a foreign exchange gain of USD 4,486 thousand for the six-month period ended 30 June 2023 compared to a loss of USD 92,192 thousand for the six-month period ended 30 June 2022.
Having regard to the activities of the Group, management believes that the above measures are frequently used by investors, analysts and stakeholders to evaluate the efficiency of the Group's operations.
Dividends
In view of continuing War-related uncertainties, and the resulting need to preserve liquidity to support the Company's ongoing business operations, no final dividend was declared for the 2022 financial year. The Directors have decided not to declare an interim dividend for the six-month period ended 30 June 2023.
Risks and uncertainties
Russian invasion
On February 24, 2022, Russian forces began a military invasion of Ukraine resulting in a full-scale war across the Ukrainian State (the "War").
As a result of the War, MHP has experienced a number of significant disruptions and operational issues within its business, which are described in detail in Note 16 Operating environment. Detailed information on this matter can also be found on pages 156 to 157 of the 2022 Annual Report which is available at mhp.com.cy.
Management believes that the Group has adequate resources to continue in operational existence for the foreseeable future. However, due to the unpredictable effects of the ongoing War on the key assumptions underlying management forecasts, Management concludes that a material uncertainty exists, which may cast significant doubt about the Group's ability to continue as a going concern.
Risks and uncertainties (continued)
Other risks and uncertainties
There are a number of potential risks and uncertainties, which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 December 2022. A detailed explanation of these risks, and how the Group seeks to mitigate them, can be found on pages 212 to 215 of the 2022 Annual Report.
25 September 2023
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the members of MHP SE
Introduction
We have reviewed the interim condensed consolidated financial statements of MHP SE (the "Company"), and its subsidiaries (collectively referred to as "the Group") on pages 7 to 31, which comprise the interim condensed consolidated statement of financial position as at 30 June 2023, and the interim condensed consolidated statement of profit or loss and other comprehensive income for the three-month and six-month periods then ended, and the interim condensed consolidated statements of changes in equity and cash flows for the six-month period then ended and selected explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as adopted by the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as adopted by the European Union.
Emphasis of Matter - Material Uncertainty Related to Going Concern
We draw attention to Note 2 to the interim condensed consolidated financial statements, indicates that the Group's operations are negatively affected by the Russian Federation`s military invasion of Ukraine, with the magnitude of further developments or the timing of their cessation being uncertain. These conditions, along with other matters as set forth in Notes 2 and 16 indicate the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.
Andreas Avraamides
Certified Public Accountant and Registered Auditor
for and on behalf of
Ernst & Young Cyprus Limited
Certified Public Accountants and Registered Auditors
Nicosia, Cyprus
25 September 2023
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the three-month and six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
|
| Six-month periodended 30 June |
| Three-month periodended 30 June | ||||
Notes | 2023 |
| 2022 |
| 2023 |
| 2022 | |
|
|
|
|
|
|
|
| |
Revenue | 3, 4 | 1,554,966 | 1,148,741 | 809,364 | 595,413 | |||
Net change in fair value of biological assets and agricultural produce | 3 | (76,183) | (92,549) | (39,510) | (36,591) | |||
Cost of sales | 5 | (1,184,991) | (815,417) | (619,618) | (407,319) | |||
Gross profit | 7 | 293,792 | 240,775 | 150,236 | 151,503 | |||
| ||||||||
Selling, general and administrative expenses | 6 | (134,124) | (112,888) | (74,621) | (58,615) | |||
Other operating income |
| 6,236 | 6,205 | 1,221 | 4,334 | |||
Other operating expenses | 16 | (14,260) | (47,270) | (9,182) | (19,091) | |||
Loss on impairment of property, plant and equipment | 8 | - | (11,114) | - | (11,114) | |||
Operating profit | 7 | 151,644 | 75,708 | 67,654 | 67,017 | |||
| ||||||||
Finance income |
| 6,460 | 2,176 | 4,254 | 1,008 | |||
Finance costs | 13, 14 | (79,728) | (78,845) | (39,722) | (41,435) | |||
Foreign exchange gain/(loss), net |
| 4,486 | (92,192) | 306 | 3,131 | |||
Profit/(Loss) before tax |
| 82,862 | (93,153) | 32,492 | 29,721 | |||
Income tax (expenses)/benefit |
| (16,293) | 4,634 | (14,988) | (9,988) | |||
Profit/(Loss) for the period | 7 | 66,569 | (88,519) | 17,504 | 19,733 | |||
Other comprehensive income/(loss) |
| |||||||
Items that will not be reclassified to profit or loss: |
| |||||||
Decrease in revaluation reserve as a result of impairment of property, plant and equipment | 8 | - | (9,489) | - | (9,489) | |||
Deferred tax on decrease in revaluation reserve as a result of impairment of property, plant and equipment |
| - | 1,708 | - | 1,708 | |||
Deferred tax charged directly to revaluation reserve |
| - | (81,317) | - | - | |||
| ||||||||
Items that may be reclassified to profit or loss: |
| |||||||
Cumulative translation difference |
| 11,527 | (111,382) | 3,572 | (22,943) | |||
Other comprehensive income/(loss) for the period |
| 11,527 | (200,480) | 3,572 | (30,724) | |||
Total comprehensive income/(loss) for the period |
| 78,096 | (288,999) | 21,076 | (10,991) | |||
| ||||||||
Profit/(Loss) attributable to: |
| |||||||
Equity holders of the Parent |
| 70,665 | (83,461) | 18,970 | 23,729 | |||
Non-controlling interests |
| (4,096) | (5,058) | (1,466) | (3,996) | |||
|
| 66,569 | (88,519) | 17,504 | 19,733 | |||
Total comprehensive income/(loss) attributable to: |
| |||||||
Equity holders of the Parent |
| 82,447 | (280,362) | 22,399 | (5,286) | |||
Non-controlling interests |
| (4,351) | (8,637) | (1,323) | (5,705) | |||
|
| 78,096 | (288,999) | 21,076 | (10,991) | |||
|
| |||||||
Earnings/(Loss) per share |
| |||||||
Basic and diluted earnings/(loss) per share (USD per share) |
| 0.66 | (0.78) | 0.18 | 0.22 | |||
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as of 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
| Notes | 30 June 2023 |
| 31 December 2022 |
ASSETS |
|
|
|
|
Non-current assets |
|
|
| |
Property, plant and equipment | 8 | 1,892,185 |
| 1,855,731 |
Right-of-use asset |
| 228,622 |
| 222,917 |
Intangible assets |
| 79,320 |
| 79,628 |
Goodwill |
| 61,425 |
| 59,808 |
Non-current biological assets |
| 17,213 |
| 21,206 |
Non-current financial assets |
| 9,179 |
| 7,813 |
Long-term deposits |
| 2,504 |
| 3,105 |
Deferred tax assets |
| 1,397 |
| 2,434 |
|
| 2,291,845 |
| 2,252,642 |
Current assets |
|
| ||
Inventories | 10 | 272,677 |
| 413,790 |
Biological assets | 11 | 368,751 |
| 176,693 |
Agricultural produce | 9 | 177,698 |
| 361,427 |
Prepayments |
| 30,405 |
| 29,905 |
Other current financial assets |
| 31,545 |
| 22,097 |
Taxes recoverable and prepaid |
| 57,272 |
| 68,759 |
Trade accounts receivable |
| 202,422 |
| 182,900 |
Cash and cash equivalents |
| 502,049 |
| 300,489 |
| 1,642,819 |
| 1,556,060 | |
TOTAL ASSETS |
| 3,934,664 |
| 3,808,702 |
|
|
| ||
EQUITY AND LIABILITIES |
|
| ||
Equity |
|
| ||
Share capital | 12 | 284,505 |
| 284,505 |
Treasury shares |
| (44,593) |
| (44,593) |
Additional paid-in capital |
| 174,022 |
| 174,022 |
Revaluation reserve |
| 761,498 |
| 792,221 |
Retained earnings | 1,660,214 | 1,558,826 | ||
Translation reserve | (1,325,828) | (1,337,610) | ||
Equity attributable to equity holders of the Parent |
| 1,509,818 |
| 1,427,371 |
Non-controlling interests |
| 13,975 |
| 18,326 |
Total equity |
| 1,523,793 |
| 1,445,697 |
|
|
| ||
Non-current liabilities |
|
| ||
Bank borrowings | 13 | 105,386 |
| 117,719 |
Bonds issued | 14 | 889,984 |
| 1,382,981 |
Lease liabilities | 19 | 169,982 |
| 164,071 |
Deferred income |
| 36,391 |
| 36,912 |
Deferred tax liabilities | 2 | 129,011 |
| 123,677 |
Other non-current liabilities |
| 5,201 |
| 5,081 |
| 1,335,955 |
| 1,830,441 | |
Current liabilities |
|
| ||
Trade accounts payable |
| 127,224 |
| 122,576 |
Other current liabilities |
| 102,969 |
| 95,793 |
Contract liabilities |
| 25,489 |
| 30,945 |
Bonds issued | 14 | 496,478 | - | |
Bank borrowings | 13 | 223,538 |
| 176,112 |
Interest payable | 13,14 | 21,923 |
| 41,886 |
Lease liabilities | 19 | 77,295 |
| 65,252 |
| 1,074,916 |
| 532,564 | |
TOTAL LIABILITIES |
| 2,410,871 |
| 2,363,005 |
TOTAL EQUITY AND LIABILITIES |
| 3,934,664 |
| 3,808,702 |
|
|
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2023
(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 as of 1 January 2023 | 284,505 | (44,593) | 174,022 | 792,221 | 1,558,826 | (1,337,610) | 1,427,371 | 18,326 | 1,445,697 | ||||||||
Profit for the period | - | - | - | - | 70,665 | - | 70,665 | (4,096) | 66,569 | ||||||||
Other comprehensive income/(loss) | - | - | - | - | - | 11,782 | 11,782 | (255) | 11,527 | ||||||||
Total comprehensive (loss)/profit for the period | - | - | - | - | 70,665 | 11,782 | 82,447 | (4,351) | 78,096 | ||||||||
Transfer from revaluation reserve to retained earnings | - | - | - | (30,723) | 30,723 | - | - | - | - | ||||||||
| |||||||||||||||||
Balance as of 30 June 2023 | 284,505 | (44,593) | 174,022 | 761,498 | 1,660,214 | (1,325,828) | 1,509,818 | 13,975 | 1,523,793 | ||||||||
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2022
(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 as of 1 January 2022 | 284,505 | (44,593) | 174,022 | 811,684 | 1,557,284 | (1,018,514) | 1,764,388 | 29,800 | 1,794,188 | ||||||||
Loss for the period | - | - | - | - | (83,461) | - | (83,461) | (5,058) | (88,519) | ||||||||
Other comprehensive loss | - | - | - | (88,798) | - | (108,103) | (196,901) | (3,579) | (200,480) | ||||||||
Total comprehensive loss for the period | - | - | - | (88,798) | (83,461) | (108,103) | (280,362) | (8,637) | (288,999) | ||||||||
Transfer from revaluation reserve to retained earnings | - | - | - | (27,802) | 27,802 | - | - | - | - | ||||||||
Dividends declared by subsidiaries | - | - | - | - | - | - | - | (2,363) | (2,363) | ||||||||
Translation differences on revaluation reserve | - | - | - | (49,212) | 49,212 | - | - | - | - | ||||||||
| |||||||||||||||||
Balance as of 30 June 2022 | 284,505 | (44,593) | 174,022 | 645,872 | 1,550,837 | (1,126,617) | 1,484,026 | 18,800 | 1,502,826 | ||||||||
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Notes | Six-month period ended 30 June 2023 |
| Six-month period ended 30 June 2022 | |
Operating activities |
|
|
| |
Profit/(Loss) before tax |
| 82,862 | (93,153) | |
Non-cash adjustments to reconcile profit or loss before tax to net cash flows |
| |||
Depreciation and amortization expense | 3 | 81,725 | 81,884 | |
Loss on impairment of property, plant and equipment | 8, 16 | - | 11,114 | |
Net change in fair value of biological assets and agricultural produce | 3 | 76,183 | 92,549 | |
Change in allowance for expected credit losses and direct write-offs |
| 668 | 15,466 | |
(Gain)/Loss on disposal of property, plant and equipment and other non-current assets |
| (471) | 630 | |
Finance income |
| (6,460) | (2,176) | |
Finance costs | 13, 14 | 79,728 | 78,845 | |
Released deferred income |
| (435) | (733) | |
Foreign exchange loss/(gain), net |
| (4,486) | 92,192 | |
Operating cash flows before movements in working capital |
| 309,314 | 276,618 | |
Working capital adjustments |
| |||
Change in inventories |
| 141,612 | (22,768) | |
Change in biological assets |
| (193,790) | (169,146) | |
Change in agricultural produce |
| 121,626 | 49,546 | |
Change in prepayments made |
| (47) | (26,163) | |
Change in other current financial assets |
| (3,180) | (3,122) | |
Change in taxes recoverable and prepaid |
| 11,508 | (22,547) | |
Change in trade accounts receivable |
| (17,788) | (59,936) | |
Change in contract liabilities |
| (5,364) | 442 | |
Change in other current liabilities |
| 9,861 | 1,261 | |
Change in trade accounts payable |
| 3,356 | 6,800 | |
Cash generated by operations |
| 377,108 | 30,985 | |
Interest received |
| 4,774 | 786 | |
Interest paid |
| (96,457) | (18,463) | |
Income taxes paid |
| (11,453) | (5,090) | |
Net cash flows from operating activities |
| 273,972 | 8,218 | |
Investing activities |
| |||
Purchases of property, plant and equipment | 8 | (92,022) | (60,763) | |
Purchases of other non-current assets |
| (402) | (2,233) | |
Purchase of intangible assets |
| (2,701) | (2,444) | |
Proceeds from disposals of property, plant and equipment |
| 2,505 | 1,558 | |
Purchases of non-current biological assets |
| (800) | (2,287) | |
Prepayments and capitalized initial direct costs under lease contracts |
| (3,197) | (6,673) | |
Government grants received |
| 233 | - | |
Investments in government bonds |
| (6,438) | - | |
Investments in other current financial assets |
| (3,047) | - | |
Investments in deposits |
| (676) | (9) | |
Withdrawals of deposits |
| 4,803 | - | |
Loans provided to/(repaid by) employees, net |
| 190 | 303 | |
Loans provided to related parties | 15 | (46) | (313) | |
Net cash flows used in investing activities |
| (101,598) | (72,861) | |
Financing activities |
| |||
Proceeds from bank borrowings |
| 52,231 | 81,265 | |
Repayment of bank borrowings |
| (26,298) | (53,135) | |
Repayment of lease liabilities |
| (5,852) | (5,520) | |
Consent payment |
| - | (499) | |
Dividends paid by subsidiaries to non-controlling shareholders |
| (1,781) | (392) | |
Net cash flows from financing activities |
| 18,300 | 21,719 |
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
Notes | Six-month period ended 30 June 2023 | Six-month period ended 30 June 2022 | ||
Net decrease in cash and cash equivalents |
| 190,674 | (42,924) | |
Net foreign exchange difference on cash and cash equivalents |
| 10,886 | (9,926) | |
Cash and cash equivalents at 1 January |
| 300,489 | 275,237 | |
Cash and cash equivalents at 30 June |
| 502,049 | 222,387 | |
|
|
On behalf of the Board:
Chief Executive Officer Yuriy Kosyuk
Chief Financial Officer Viktoriia Kapeliushna
The accompanying notes on the pages 13 to 31 form an integral part of these interim condensed consolidated financial statements
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
1. Corporate information
MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus. The MHP SE shares are listed on the London Stock Exchange ("LSE") in the form of global depositary receipts ("GDRs").
The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP SE, owning 59.7% of the total outstanding share capital of MHP SE.
The principal business activities of the Group are poultry and related operations, grain growing, as well as meat processing and other agricultural operations. The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil and mixed fodder. Grain growing comprises the production and sale of grains. Meat processing and other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk and feed grains. As at 30 June 2023 the Group employed 32,336 people (31 December 2022: 31,701 people).
The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 30 June 2023 and 31 December 2022 were as follows:
Name | Country of registration | Year established/acquired | Principal activities | 30 June 2023 | 31 December 2022 |
MHP Lux S.A. | Luxembourg | 2018 | Finance Company | 100.0% | 100.0% |
MHP | Ukraine | 1998 | Management, marketing and sales | 99.9% | 99.9% |
Myronivsky Plant of Manufacturing Feeds and Groats | Ukraine | 1998 | Fodder and vegetable oil production | 88.5% | 88.5% |
Vinnytska Ptakhofabryka | Ukraine | 2011 | Chicken farm | 100.0% | 100.0% |
Peremoga Nova | Ukraine | 1999 | Breeder farm | 99.9% | 99.9% |
Oril-Leader | Ukraine | 2003 | Chicken farm | 99.9% | 99.9% |
Myronivska Pticefabrika | Ukraine | 2004 | Chicken farm | 99.9% | 99.9% |
Starynska Ptakhofabryka | Ukraine | 2003 | Breeder farm | 100.0% | 100.0% |
Zernoprodukt MHP | Ukraine | 2005 | Grain cultivation | 99.9% | 99.9% |
Katerinopilskiy Elevator | Ukraine | 2005 | Fodder production and grain storage, vegetable oil production | 99.9% | 99.9% |
SPF Urozhay | Ukraine | 2006 | Grain cultivation | 99.9% | 99.9% |
Agrofort | Ukraine | 2006 | Grain cultivation | 99.9% | 99.9% |
MHP-Urozhayna Krayina | Ukraine | 2010 | Grain cultivation | 99.9% | 99.9% |
Ukrainian Bacon | Ukraine | 2008 | Meat processing | 79.9% | 79.9% |
MHP-AgroKryazh | Ukraine | 2013 | Grain cultivation | 51.0% | 51.0% |
MHP-Agro-S | Ukraine | 2013 | Grain cultivation | 51.0% | 51.0% |
Zakhid-Agro MHP | Ukraine | 2015 | Grain cultivation | 100.0% | 100.0% |
Perutnina Ptuj d.d. | Slovenia | 2019 | Poultry production | 100.0% | 100.0% |
MHP Food Trading | United Arab Emirates | 2016 | Trading in vegetable oil and poultry meat | 100.0% | 100.0% |
MHP B.V. | Netherlands | 2014 | Trading in poultry meat | 100.0% | 100.0% |
MHP Trade B.V. | Netherlands | 2018 | Trading in poultry meat | 100.0% | 100.0% |
MHP Saudi Arabia Trading | Saudi Arabia | 2018 | Trading in poultry meat | 75.0% | 75.0% |
MHP Food UK Limited | United Kingdom | 2021 | Trading in poultry meat | 100.0% | 100.0% |
The Group's primary operational facilities are located in different regions of Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia and Bosnia and Herzegovina (represented by Perutnina Ptuj d.d. together with its subsidiaries).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the six-month period ended 30 June 2023 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union (EU). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2022, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113.
Going concern
In 2023, the Group has continued its operations in an environment severely impacted by the Russian invasion of Ukraine since 24 February 2022. In its analysis of the observable impact of the War and other factors on its business during the six months period ended 30 June 2023 and up to the date of authorization to issue these interim condensed consolidated financial statements, the Group considered, not limited to, the following key events and conditions:
· the Group's poultry production facilities have not suffered any physical damage;
· certain inventories and biological assets were damaged and written-off as a result of the military actions of the Russian invasion (Note 16. Operating environment);
· the Group continued to provide a substantial range of poultry products as humanitarian aid to the people of Ukraine (Note 16. Operating environment);
· both export and domestic sales returned to pre-War levels in H2 2022, despite limited capacity of existing delivery routes and active hostilities in the southern and eastern regions of Ukraine. As a result, during H1 2023 the Group operated at its normal capacity utilization after the lower production levels during H1 2022;
· from November 2022 to February 2023, Russia's attacks on Ukrainian power generation and distribution infrastructure led to severe power outages in Ukraine. These caused temporary disruption of oilseed processing, poultry and silo operations during this period;
· since the beginning of the Russian invasion, more than 2,300 employees of the Group have joined the Ukrainian military forces and territorial defense;
· termination of The Black Sea Grain Initiative ("Grain deal") by Russia on 18 July 2023 and intensification of attacks on the Ukrainian ports infrastructure, grain depots and other storage facilities has led to suspension of shipping routes for export of grains and vegetable oil from Ukraine. As the Group continuously develops and advances its logistic routes, this escalation did not have a direct impact on the overall Group performance: the majority of the crops (sunflower and soybean seeds, corn) are consumed internally, while the Group exports poultry products and oils using its own-established delivery routes;
· the Group has in its debt portfolio (Note 14) bonds with a nominal value of USD 500 million maturing in May 2024 which may impact its liquidity position in the upcoming twelve months;
· the Group's European operations at Perutnina Ptuj have not been directly affected by events in Ukraine as they are largely independent and self-sufficient from an operational and supply chain perspective, and continue operating at full capacity.
In 2023, in response to the above challenges, the Group has:
· optimized utilization of production facilities to meet domestic and export demand;
· established alternative export routes, including by road and rail, to address the logistical issues caused by the War;
· equipped its key sites with diesel generators and continued to operate two biogas facilities to produce electricity, industrial steam and heating, to mitigate the impact of power outages on its business;
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Going concern (continued)
· secured 2023 harvesting campaign by building up the required level of inventories in advance. The Group plans to harvest more than 348,000 hectares of grains and oilseeds in 2023 (73,000 hectares of winter rapeseeds and wheat have already been harvested);
· because of the War, no dividends were declared for the 2021 and 2022 financial years. The Directors have decided not to declare an interim dividend for the first half of 2023;
· taking into account its debt maturity profile, the Group shapes its debt management process in such a way to ensure timely servicing of its bonds and other borrowings as they fall due. The Group analyses various scenarios to service the bonds, focusing in particular on those USD 500 million maturing in May 2024, and has developed a plan, which, in management's view, should provide for a mutually beneficial solution to both the Group and the bondholders (Note 20).
Management has prepared adjusted financial forecasts, including cash flow projections, for the twelve month period starting on the date of approval of these interim condensed consolidated financial statements. The adjusted forecasts take into consideration potential likely and downside scenarios for the operations resulting from the War and other factors described above. The Group manages its operations by continuously monitoring the Group`s obligations under the existing debt agreements and taking required measures to service its debts on time and in full.
These forecasts indicate that the Group has adequate resources to continue in operational existence for the foreseeable future. The Directors have therefore concluded that it is appropriate to apply the going concern basis of accounting in preparing these interim condensed consolidated financial statements. However, due to the currently unpredictable effects of the ongoing War, in combination with the influence of other described factors on the significant assumptions used in management forecasts, the Directors have concluded that a material uncertainty exists, which may cast significant doubt about the Group's ability to continue as a going concern, in which case the Group may be unable to realize its assets and discharge its liabilities in the normal course of business.
Adoption of new and revised International Financial Reporting Standards
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2022, except for the adoption of new standards effective as of 1 January 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
The following standards were adopted by the Group on 1 January 2023:
· Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies;
· Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates;
· IFRS 17 Insurance Contracts;
· Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction.
The adoption of the new or revised Standards did not have any effect on the financial position or performance of the Group and did not result in any changes to the Group's accounting policies and the amounts reported in the interim condensed consolidated financial statements of the Group.
Standards and interpretations in issue, but not effective
At the date of authorization of these interim condensed 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 |
Lease Liability in a Sale and Leaseback - Amendments to IFRS 16 | 1 January 2024 |
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Standards and interpretations in issue, but not effective (continued)
Standards and Interpretations | Effective for annual period beginning on or after | |
Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 | 1 January 2024 | |
International Tax Reform - Pillar Two Model Rules - Amendments to IAS 12 | 1 January 2024 | |
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 | Postponed indefinitely | |
Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants - Amendments to IAS 1 | 1 January 2024 | |
The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability - Amendments to IAS 21 | 1 January 2025 |
These amendments have not yet been endorsed by the European Union. The Group is currently assessing the impact of these amendments to IAS 21 on the consolidated financial statements. For other amendments management anticipates that their adoption will not have a material effect on the consolidated financial statements of the Group in future periods.
Functional and presentation currencies
The functional currency of Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus and Luxembourg companies of the Group is the US Dollar ("USD"); the functional currency of other European companies of the Group is the Euro ("EUR"); the functional currency of the United Arab Emirates companies is the Dirham ("AED"); the functional currency of the UK companies is the British Pound ("GBP"); the functional currency of the Saudi Arabia company is the Saudi Riyal ("SAR"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognised in the consolidated statement of profit or loss and other comprehensive income for the period. These interim condensed consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.
The results and financial position of the Group are translated into the presentation currency using the following procedures:
· Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that statement of financial position;
· income and expenses for each consolidated statement of profit or loss are translated at exchange rates at the dates of the transactions;
· exchange differences arising on translation for consolidation are recognised in other comprehensive income and presented as a separate component of equity. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss;
· all equity items, except for the revaluation reserve, are translated at the historical exchange rate. The revaluation reserve is translated at the closing rate as of the date of the statement of financial position.
For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average exchange rates, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.
The following exchange rates were used:
Currency | Closing rate as of 30 June 2023 | Average for six months ended 30 June 2023 | Average for three months ended 30 June 2023 | Closing rate as of 31 December 2022 | Average for six months ended 30 June 2022 | Average for three months ended 30 June 2022 |
UAH/USD | 36.5686 | 36.5686 | 36.5686 | 36.5686 | 28.9066 | 29.2549 |
UAH/EUR | 40.0006 | 39.5236 | 39.8205 | 38.9510 | 31.7356 | 31.1984 |
USD/EUR | 1.0939 | 1.0808 | 1.0889 | 1.0651 | 1.0979 | 1.0664 |
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
2. Basis of preparation and accounting policies (continued)
Significant accounting policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2022.
Seasonality of operations
Poultry and related operations, European operating segment and Meat processing and other agricultural operations are not significantly exposed to seasonal fluctuations.
Grain growing segment, due to seasonality and implications of IAS 41, in the first half of the year mainly reflects sales of carried forward agricultural produce and the effect of biological assets revaluation, while during the second half of the year it reflects sales of crops and the effect of revaluation of agricultural produce harvested during the year. Also, grain growing segment has seasonal requirements for working capital increase from November to May, due to the sowing campaign.
3. Segment information
The Group's business is managed on a worldwide basis, but operates manufacturing facilities and sales offices primarily in Ukraine and Europe.
Reportable segments are presented in a manner consistent with the internal reporting to the Group's chief operating decision maker ("CODM").
Segment information is 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 as follows:
Poultry and related operations segment:
| • sales of chicken meat • sales of vegetable oil and related products • culinary products and other poultry related sales |
Grain growing operations segment: | • sales of grain |
Meat processing and other agricultural operations segment: | • sales of meat processing products and other meat • other agricultural operations (milk, feed grains and other) |
European operating segment: | • sales of meat processing and chicken meat products in Southeast Europe |
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 2 Basis of preparation and accounting policies. Sales between segments are carried out at market prices. The segment result represents operating profit under IFRS before unallocated corporate expenses and loss on impairment of property, plant and equipment. Unallocated corporate expenses include management remuneration, representative expenses, and expenses incurred in respect of the maintenance of office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.
European Operating Segment primarily includes sales of chicken meat and meat processing products, produced in the facilities of Perutnina Ptuj. However, the CODM manages this as a single segment, on the basis that each of research, development, manufacture, distribution and selling of chicken meat and meat processing products requires single marketing strategies, centralized budgeting process and centralized management of production operations.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2023:
| Poultry and related operations | Grain growing operations | Meat processing and other agricultural operations | European operating segment | Total reportable segments | Eliminations | Consolidated |
External sales | 1,127,018 | 93,436 | 67,240 | 267,272 | 1,554,966 | - | 1,554,966 |
Sales between business segments | 22,584 | 98,341 | 170 | - | 121,095 | (121,095) | - |
Total revenue | 1,149,602 | 191,777 | 67,410 | 267,272 | 1,676,061 | (121,095) | 1,554,966 |
Segment results | 179,983 | (36,557) | 1,397 | 27,175 | 171,998 | - | 171,998 |
Unallocated corporate expenses | (20,354) | ||||||
Other expenses, net 1) | (68,782) | ||||||
Profit before tax from continuing operations | 82,862 | ||||||
Other information: | |||||||
Depreciation and amortization expense 2) | 41,350 | 23,670 | 2,994 | 12,264 | 80,278 | - | 80,278 |
Net change in fair value of biological assets and agricultural produce | 13,277 | (81,390) | (4,811) | (3,259) | (76,183) | - | (76,183) |
1) Includes finance income, finance costs, foreign exchange gain (net);
2) Depreciation and amortization for the six-month period ended 30 June 2023 does not include unallocated depreciation and amortization in the amount of USD 1,447 thousand.
The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2022:
| Poultry and related operations | Grain growing operations | Meat processing and other agricultural operations | European operating segment | Total reportable segments | Eliminations | Consolidated |
External sales | 808,739 | 53,276 | 63,193 | 223,533 | 1,148,741 | - | 1,148,741 |
Sales between business segments | 25,015 | 195,004 | 150 | - | 220,169 | (220,169) | - |
Total revenue | 833,754 | 248,280 | 63,343 | 223,533 | 1,368,910 | (220,169) | 1,148,741 |
Segment results | 60,765 | 18,513 | (2,267) | 26,681 | 103,692 | - | 103,692 |
Unallocated corporate expenses | (16,870) | ||||||
Loss on impairment of property, plant and equipment | - | - | (11,114) | - | (11,114) | - | (11,114) |
Other expenses, net 1) | (168,861) | ||||||
Loss before tax from continuing operations | (93,153) | ||||||
Other information: | |||||||
Depreciation and amortization expense 2) | 38,906 | 29,436 | 2,438 | 10,317 | 81,097 | - | 81,097 |
Net change in fair value of biological assets and agricultural produce | 14,932 | (113,339) | 860 | 4,998 | (92,549) | - | (92,549) |
1) Includes finance income, finance costs, foreign exchange loss (net);
2) Depreciation and amortization for the six-month period ended 30 June 2022 does not include unallocated depreciation and amortization in the amount of USD 787 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 30 June 2023:
| Poultry and related operations | Grain growing operations | Meat processing and other agricultural operations | European operating segment | Total reportable segments | Eliminations | Consolidated |
External sales | 607,712 | 24,190 | 35,008 | 142,454 | 809,364 | - | 809,364 |
Sales between business segments | 11,236 | 54,952 | 86 | - | 66,274 | (66,274) | - |
Total revenue | 618,948 | 79,142 | 35,094 | 142,454 | 875,638 | (66,274) | 809,364 |
Segment results | 102,535 | (32,958) | (302) | 12,093 | 81,368 | - | 81,368 |
Unallocated corporate expenses | (13,714) | ||||||
Other expenses, net 1) | (35,162) | ||||||
Profit before tax from continuing operations | 32,492 | ||||||
Other information: | |||||||
Depreciation and amortization expense 2) | 21,287 | 10,193 | 1,562 | 7,585 | 40,627 | - | 40,627 |
Net change in fair value of biological assets and agricultural produce | 10,009 | (41,266) | (3,448) | (4,805) | (39,510) | - | (39,510) |
1) Includes finance income, finance costs, foreign exchange gain (net);
2) Depreciation and amortization for the three-month period ended 30 June 2023 does not include unallocated depreciation and amortization in the amount of USD 726 thousand.
The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 30 June 2022:
| Poultry and related operations | Grain growing operations | Meat processing and other agricultural operations | European operating segment | Total reportable segments | Eliminations | Consolidated |
External sales | 430,064 | 18,118 | 27,063 | 120,168 | 595,413 | - | 595,413 |
Sales between business segments | 8,879 | 77,495 | 64 | - | 86,438 | (86,438) | - |
Total revenue | 438,943 | 95,613 | 27,127 | 120,168 | 681,851 | (86,438) | 595,413 |
Segment results | 49,080 | 24,165 | (229) | 17,234 | 90,250 | - | 90,250 |
Unallocated corporate expenses | (12,119) | ||||||
Loss on impairment of property, plant and equipment | - | - | (11,114) | - | (11,114) | - | (11,114) |
Other expenses, net 1) | (37,296) | ||||||
Profit before tax from continuing operations | 29,721 | ||||||
Other information: | |||||||
Depreciation and amortization expense 2) | 19,260 | 14,852 | 579 | 5,124 | 39,815 | - | 39,815 |
Net change in fair value of biological assets and agricultural produce | 8,700 | (47,946) | 128 | 2,527 | (36,591) | - | (36,591) |
1) Includes finance income, finance costs, foreign exchange gain (net);
2) Depreciation and amortization for the three-month period ended 30 June 2022 does not include unallocated depreciation and amortization in the amount of USD 579 thousand.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
3. Segment information (continued)
Non-current assets based on the geographic location of the manufacturing facilities were as follows as of 30 June 2023 and 31 December 2022:
2023 |
| 2022 | |
Ukraine | 1,879,476 | 1,922,334 | |
Europe | 396,998 | 314,620 | |
The Middle East and North Africa (MENA) | 2,291 | 2,336 | |
2,278,765 | 2,239,290 |
1) Non-current assets excluding deferred tax assets and non-current financial assets.
4. Revenue
Revenue from the contracts with customers for the six-month and three-month periods ended 30 June 2023 and 2022 was as follows:
Six-month periodended 30 June |
| Three-month periodended 30 June | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |
Poultry and related operations segment |
|
|
|
|
|
|
|
Chicken meat | 718,984 | 607,418 | 359,039 | 302,445 | |||
Vegetable oil and related products | 345,213 | 161,342 | 216,293 | 103,058 | |||
Other poultry related sales | 62,821 | 39,979 | 32,380 | 24,561 | |||
| 1,127,018 | 808,739 | 607,712 | 430,064 | |||
Grain growing operations segment | |||||||
Grain | 93,436 | 53,276 | 24,190 | 18,118 | |||
| 93,436 | 53,276 | 24,190 | 18,118 | |||
Meat processing and other agricultural operations segment | |||||||
Other meat | 48,930 | 47,662 | 24,550 | 19,685 | |||
Other agricultural sales | 18,310 | 15,531 | 10,458 | 7,378 | |||
| 67,240 | 63,193 | 35,008 | 27,063 | |||
| |||||||
European operating segment | |||||||
| |||||||
Chicken meat | 171,028 | 129,050 | 93,152 | 64,465 | |||
Other meat | 69,744 | 66,924 | 34,742 | 35,794 | |||
Other agricultural sales | 26,500 | 27,559 | 14,560 | 19,909 | |||
| 267,272 | 223,533 | 142,454 | 120,168 | |||
| 1,554,966 | 1,148,741 | 809,364 | 595,413 | |||
The geographic structure of revenue for the six-month and three-month periods ended 30 June 2023 and 2022 was as follows:
Six-month periodended 30 June |
| Three-month periodended 30 June | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |
Export | 973,078 | 640,137 | 507,855 | 332,534 | |||
Domestic | 581,888 | 508,604 | 301,509 | 262,879 | |||
| 1,554,966 | 1,148,741 | 809,364 | 595,413 | |||
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
5. Cost of sales
Cost of sales for the six-month and three-month periods ended 30 June 2023 and 2022 comprised of following:
Six-month periodended 30 June |
| Three-month periodended 30 June | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |
Costs of raw materials and other inventory used | 873,292 | 571,587 | 446,660 | 288,053 | |||
Payroll and related expenses | 141,842 | 131,837 | 84,979 | 63,532 | |||
Depreciation and amortization expense | 67,788 | 72,768 | 32,581 | 36,013 | |||
Other costs | 102,069 | 39,225 | 55,398 | 19,721 | |||
| 1,184,991 |
| 815,417 |
| 619,618 |
| 407,319 |
6. Selling, general and administrative expenses
Selling, general and administrative expenses for the six-month and three-month periods ended 30 June 2023 and 2022 was as follows:
Six-month periodended 30 June |
| Three-month periodended 30 June | |||||
2023 |
| 2022 |
| 2023 |
| 2022 | |
Payroll and related expenses | 65,463 | 52,325 | 38,167 | 25,127 | |||
Services | 34,169 | 32,399 | 17,634 | 18,463 | |||
Depreciation and amortization expense | 13,937 | 9,061 | 8,769 | 4,329 | |||
Advertising expense | 6,133 | 6,209 | 2,798 | 3,202 | |||
Fuel and other materials used | 5,522 | 4,470 | 3,530 | 3,106 | |||
Representative costs and business trips | 3,969 | 4,449 | 1,556 | 2,808 | |||
Insurance expense | 1,771 | 1,220 | 647 | 286 | |||
Bank services and conversion fees | 507 | 549 | 245 | 273 | |||
Other | 2,653 | 2,206 | 1,275 | 1,021 | |||
| 134,124 |
| 112,888 |
| 74,621 |
| 58,615 |
7. Profit for the period
The Group's gross profit for the six-month period ended 30 June 2023 increased compared to the six-month period ended 30 June 2022 to USD 293,792 thousand (30 June 2022: USD 240,775 thousand). The increase was driven mainly by higher revenue in the poultry and related operations segment due to an increase in the volume of chicken meat and vegetable oil sold. At the same time increased production costs and the reduction of grain prices has led to the negative revaluation of biological assets of Grain operating segments, that partly reduced the positive effect from poultry operations.
Operating profit increased by 100% to USD 151,644 thousand for the six-month period ended 30 June 2023 compared to USD 75,708 thousand for the six-month period ended 30 June 2022. In March-June 2022, following the Russian invasion in February 2022, the Group incurred significant expenses related to the war (including write-offs of inventories, donations to communities in Ukraine and the impairment of certain property, plant and equipment), which were significantly lower during six-month period ended 30 June 2023. This factor together with improvement in gross profit resulted in the increase in operating profit.
Profit for the six-month period ended 30 June 2023 amounted to USD 66,569 thousand, compared to a loss of USD 88,519 thousand for the six-month period ended 30 June 2022. The increase is mainly due to the higher operating profit and the stabilization of the Ukrainian Hryvnia against the US Dollar and EURO, which resulted in a foreign exchange gain of USD 4,486 thousand for the six-month period ended 30 June 2023 compared to a loss of USD 92,192 thousand for the six-month period ended 30 June 2022 (mainly arisen on the Group's borrowings in foreign currencies).
8. Property, plant and equipment
During the six-month period ended 30 June 2023, the Group's additions to property, plant and equipment amounted to USD 95,046 thousand (six-month period ended 30 June 2022: USD 60,763 thousand) related to maintenance and modernization projects, new products development of Ukrainian operations and expansion of Perutnina Ptuj production facilities. An increase in additions is higher mainly due to increased investments in cost optimization and culinary strategy projects as well as purchases of diesel generators for
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
8. Property, plant and equipment (continued)
mitigation of possible power outages impact. There were no significant disposals of property, plant and equipment during the six-month periods ended 30 June 2023 and 30 June 2022.
During the six-month period ended 30 June 2022, the Group identified indicators of impairment of property, plant and equipment of its subsidiary "Ukrainian Bacon", which was located in Donetsk region. As a result, as at 30 June 2022, the Group has recognized an impairment loss of USD 20,603 thousand in respect of property, plant and equipment, of which USD 11,114 thousand was recorded as Loss on impairment of property, plant and equipment within profit or loss and USD 9,489 thousand as Decrease in revaluation reserve within other comprehensive income.
The remaining part of the movement mainly relates to depreciation charge over the period and translation difference into the presentation currency.
9. Agricultural produce
A decrease of agricultural produce balances for the six-month period ended 30 June 2023 was mainly as a result of internal consumption of grains and oilseeds as well as a decrease in stocks of chicken meat due to optimization of working capital.
10. Inventories
A decrease of inventories for the six-month period ended 30 June 2023 was mainly due to seasonal reclassification of investments in fields to biological assets as well as a decrease of vegetable oil and sunflower seeds balances due to sales and internal consumption respectively.
11. Biological assets
The increase in current biological assets as compared to 31 December 2022 is primarily related to crops in fields balance growth, represented mainly by spring crops seeded. The increase is partially offset by the negative IAS 41 revaluation adjustment as a result of lower sales prices.
12. Shareholders' equity
As of 30 June 2023 and 31 December 2022 the authorized, issued and fully paid share capital of MHP SE comprised the following number of shares:
30 June 2023 |
| 31 December 2022 | |
Number of shares issued and fully paid | 110,770,000 | 110,770,000 | |
Number of shares outstanding | 107,038,208 | 107,038,208 |
The authorized share capital as of 30 June 2023 and 31 December 2022 was EUR 221,540 thousand represented by 110,770,000 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.
13. Bank borrowings
The following table summarizes bank borrowings and credit lines outstanding as of 30 June 2023 and 31 December 2022:
|
|
|
| 30 June 2023 |
| 31 December 2022 | ||
|
| Currency |
| WAIR 1) | USD' 000 |
| WAIR 1) | USD' 000 |
|
|
|
|
|
| |||
Non-current | ||||||||
EUR | EURIBOR2) + 1,21% | 105,386 | EURIBOR2) + 1.35% | 117,719 | ||||
105,386 | 117,719 | |||||||
Current | ||||||||
UAH | 20.00%4) | 2,456 | 20.00%4) | 2,456 | ||||
USD | SOFR3) + 2,39% | 59,350 | SOFR3) + 2.20% | 10,550 | ||||
USD | 7.48% | 42,787 | 6.06% | 56,843 | ||||
EUR | EURIBOR2) + 2,22% | 29,725 | EURIBOR2) + 2,3% | 25,564 | ||||
EUR | 6.67% | 58,333 | 4.32% | 56,802 | ||||
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
13. Bank borrowings (continued)
|
|
|
| 30 June 2023 |
| 31 December 2022 | ||
|
| Currency |
| WAIR 1) | USD' 000 |
| WAIR 1) | USD' 000 |
|
|
|
|
|
| |||
Current portion oflong-term bank borrowings | EUR | EURIBOR2) + 1,21 % | 30,887 | EURIBOR2) + 1.35% | 23,897 | |||
223,538 | 176,112 | |||||||
Total bank borrowings |
|
| 328,924 |
| 293,831 | |||
1) WAIR represents the weighted average interest rate on outstanding borrowings
2) According to the terms of certain agreements, if market EURIBOR becomes negative, it shall be deemed to be zero for calculation of interest expense
3) The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
4) Deduction interest amount equal to 3m UIRD will be applied as interest compensation from Government, where Ukrainian Index of Retail Deposit Rates (UIRD) - indicative rate calculated at 15:00 Kyiv time of each Banking Day in the Thomson Reuters system based on nominal rates on time deposits of individuals in hryvnia for a period of 3 months with interest paid upon the expiration of the deposit agreement, operating in 20 largest Ukrainian banks in the size of the deposit portfolio of individuals. As of 30 June 2023 3m UIRD rate is equal 12.39% p.a. (31 December 2022: 11.18% p.a.)
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.
As of 30 June 2023 and 31 December 2022, the Group's bank term loans and credit lines bear either floating or fixed interest rates.
Bank borrowings and credit lines outstanding as of 30 June 2023 and 31 December 2022 were repayable as follows:
30 June 2023 |
| 31 December 2022 | |
Within one year | 223,538 | 176,112 | |
In the second year | 24,866 | 27,170 | |
In the third to fifth year inclusive | 73,017 | 84,041 | |
After five years | 7,503 | 6,508 | |
| 328,924 | 293,831 |
As of 30 June 2023, the Group had undrawn facilities of USD 93,374 thousand (31 December 2022: USD 36,819 thousand). These undrawn facilities expire during the period until September 2028.
The Group, as well as particular subsidiaries of the Group, have to comply with the following maintenance covenants imposed by the banks providing the loans: EBITDA to interest expenses ratio, current ratio and liabilities to equity ratio. Separately, in case of excess of Net Debt to EBITDA ratio (the Group's leverage ratio), there are negative covenants in respect of restricted payments, including dividends, capital expenditures, additional indebtedness and restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates.
As of 30 June 2023 the Group complied with all covenants. As at 30 June 2023, the Group's leverage ratio decreased to 2.31 to 1, compared with 2.58 and 3.22 to 1 as at 31 March 2023 and 31 December 2022 respectively. As a result, restrictions are no longer applicable to the Group as from 18 May 2023, the date of publication of interim condensed consolidated financial statements for the period from 1 January 2023 to 31 March 2023.
The Group's bank borrowings are jointly and severally guaranteed by MHP, Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga Nova, Starynska Ptakhofabryka, Zernoproduct
MHP, Katerinopilskiy Elevator, Agrofort, SPF Urozhay, MHP SE, Scylla Capital Limited, Myronivska Pticefabrika, Vinnytska Ptakhofabryka.
As of 30 June 2023, the Group had borrowings of USD 111,718 thousand that were secured by property, plant and equipment with a collateral amount of USD 105,739 thousand (31 December 2022: USD 109,258 thousand and USD 100,789 thousand respectively).
As of 30 June 2023, the Group had borrowings of USD 79,949 thousand that were secured by agricultural produce with a carrying amount of USD 92,364 thousand (31 December 2022: borrowings of USD 30,608 thousand were secured by agricultural produce with carrying amount of USD 38,260 thousand).
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
13. Bank borrowings (continued)
As of 30 June 2023, a deposit with carrying amount of USD 19,847 thousand (31 December 2022: USD 23,137 thousand) was restricted as collateral to issued letters of credit.
As of 30 June 2023 and 31 December 2022, interest payable on bank borrowings was USD 1,166 thousand and USD 774 thousand, respectively.
14. Bonds issued
Bonds issued and outstanding as of 30 June 2023 and 31 December 2022 were as follows:
Carrying amount | Nominal amount | ||||||
30 June 2023 | 31 December 2022 | 30 June 2023 |
| 31 December 2022 | |||
Non-current | |||||||
7.75% Senior Notes due in 2024 | - | 494,416 | - | 500,000 | |||
6.25% Senior Notes due in 2029 | 347,984 | 347,858 | 350,000 | 350,000 | |||
6.95% Senior Notes due in 2026 | 542,000 | 540,707 | 550,000 | 550,000 | |||
889,984 | 1,382,981 |
| 900,000 |
| 1,400,000 | ||
Current | |||||||
7.75% Senior Notes due in 2024 | 496,478 | - | 500,000 | - | |||
496,478 |
| - |
| 500,000 |
| - | |
Unamortized debt issuance cost | - | - | (13,538) | (17,019) | |||
Total bonds issued | 1,386,462 |
| 1,382,981 |
| 1,386,462 | 1,382,981 | |
As of 30 June 2023 and 31 December 2022, the amount of interest payable on bonds issued was USD 20,757 thousand and USD 41,112 thousand respectively.
6.25% Senior Notes
On 19 September 2019, MHP Lux S.A., a public company with limited liability (société anonyme) incorporated in 2018 under the laws of the Grand Duchy of Luxembourg, issued USD 350,000 thousand 6.25% Senior Notes due in 2029 at par value. The funds received were used to satisfy and discharge the 8.25% Senior Notes due in April 2020, for debt refinancing and for general corporate purposes.
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP SE, PrJSC "Oril - Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, "Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator" LLC, PrJSC "MHP", PrJSC "Zernoprodukt MHP" and PrJSC "Agrofort".
Interest on the Senior Notes is payable semi-annually in arrears in March and September. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. 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 100% of the aggregate principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.
6.95% Senior Notes
On 3 April 2018, MHP Lux S.A. issued USD 550,000 thousand 6.95% Senior Notes due in 2026 at par value. Out of the total issue amount USD 416,183 thousand were designated for redemption and exchange of the existing 8.25% Senior Notes due in 2020.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
14. Bonds issued (continued)
6.95% Senior Notes (continued)
The Senior Notes are jointly and severally guaranteed on a senior basis by MHP SE, PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, "Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator" LLC, Scylla Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in April and October. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. 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 100% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.
7.75% Senior Notes
On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in 2024 at par value. Out of the total issue the amount of USD 245,200 thousand were designated for redemption and exchange of existing 8.25% Senior Notes due in 2020.
The Senior Notes are jointly and severally guaranteed on a senior basis by PrJSC "MHP", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, Vinnytska Ptakhofabryka LLC, SE "Peremoga Nova", "Katerinopolskiy Elevator" LLC, Scylla Capital Limited.
Interest on the Senior Notes is payable semi-annually in arrears in May and November. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. 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.
Covenants
Certain restrictions under the indebtedness agreements (e.g. incurrence of additional indebtedness, restricted payments as defined above, dividends payment) are dependent on the leverage ratio of the Group calculated as Net Debt to EBITDA. Once the leverage ratio exceeds 3.0 to 1, it is not permitted for the Group to make certain restricted payments, declare dividends exceeding USD 30 million in any financial year, or incur additional debt except that defined as a Permitted Debt. According to the indebtedness agreements, the consolidated leverage ratio is tested on the date of incurrence of additional indebtedness or restricted payment and after giving pro forma effect to such incurrence or restricted payment as if it had been incurred or done at the beginning of the most recent four consecutive fiscal quarters for which financial statements are publicly available (or are made available). As at 30 June 2023 the leverage ratio of the Group is 2.31 to 1 (31 March 2023 and 31 December 2022: 2.58 and 3.22 to 1 respectively), lower than the defined limit 3.0 to 1. The Group believes that since, as at the interim reporting dates, it improved the leverage ratio and met the covenants imposed, the aforementioned restrictions are no longer applicable to the Group as from 18 May 2023, the date of publication of interim condensed consolidated financial statements for the three months ended 31 March 2023.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
14. Bonds issued (continued)
Consent solicitation in 2022
On 30 March 2022, the Group received consent from Holders to postpone the semi-annual interest payments on each of the 2024 Notes, the 2026 Notes and the 2029 Notes scheduled for Spring 2022 for a period up to 270 days (the "Support Period"). As a result, the Group postponed bonds` interest payments for a total amount of USD 49,425 thousand, and interest on postponed payments continued to accrue during the Support Period. As of 31 December 2022 two deferred semi-annual interest amounts of the 2026 Notes and the 2029 Notes in a cumulative amount of USD 31,559 thousand were paid by Group on time. The last deferred coupon payment due in February 2023 in the amount of USD 20,501 thousand was paid on time.
15. Related party balances and transactions
For the purposes of these interim condensed consolidated 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, in the ordinary course of business, enters into transactions with related parties that are companies under common control of the Principal Shareholder of the Group (Note 1) 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. 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.
Transactions with related parties during the six-month periods ended 30 June 2023 and 30 June 2022 were as follows:
Six-month period ended 30 June 2023 |
| Six-month period ended 30 June 2022 | |
Loans and finance aid provided to related parties | 46 | 313 | |
Interest charged on loans and finance aid provided | 162 | - | |
Sales to related parties | 121 | - | |
Purchases from related parties | 215 | 7 | |
Key management personnel of the Group: | |||
Loans provided | 98 | 294 | |
Loans repaid | 226 | 355 |
The balances owed to and due from related parties were as follows as of 30 June 2023 and 31 December 2022:
30 June 2023 |
| 31 December 2022 | |
Loans and finance aid receivable | 3,947 | 3,601 | |
Less: expected credit losses | (2,176) | (2,117) | |
1,771 | 1,484 | ||
Loans to key management personnel | 3,529 | 3,656 | |
Less: expected credit losses | (379) | (276) | |
3,150 | 3,380 | ||
Trade accounts receivable | 141 | 106 | |
Payables due to related parties | 13 | 21 |
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
15. Related party balances and transactions (continued)
Loans and finance aid receivable
For loans and finance aid receivable, credit risk increased to the point where it is considered credit-impaired. The expected credit loss for such loans amounted to USD 2,063 thousand and USD 1,882 thousand as at 30 June 2023 and 31 December 2022 respectively.
Compensation of key management personnel
Total compensation of the Group's key management personnel included primarily in selling, general and administrative expenses in the Consolidated Statements of Profit and Loss and Other Comprehensive Income amounted to USD 9,932 thousand and USD 4,680 thousand for the six-month periods ended 30 June 2023 and 2022, respectively. Compensation of key management personnel consists of contractual salary and performance bonuses paid.
16. Operating environment
On 24 February 2022, Russian forces commenced a military invasion of Ukraine resulting in a full-scale war across the Ukrainian State. The ongoing military attack has led, and continues to lead, to significant casualties, dislocation of the population, damage to infrastructure and disruption to economic activity in Ukraine and temporary occupation of some territories. Sea ports and airports remain closed and some have been damaged, and many roads and bridges have been damaged or destroyed, further crippling transportation and logistics.
In 2023, Ukrainian entities have continued their business activity in this challenging economic environment, facing disruption of supply chains, higher business costs, physical destruction of production facilities and infrastructure (in the energy sector in particular).
In June 2023 the consumer inflation decelerated to 12.8% y/y, down from more than 26% in 2022, according to the inflation report of the National Bank of Ukraine (hereafter "NBU"). The easing of inflationary pressure was facilitated by the sufficient supply of food staples and fuels, by recovery of the energy system from the consequences of Russian missile attacks and by decrease in global energy prices. According to the NBU recent forecasts, inflation will decelerate to 10.6% in 2023 and will decline to 8.5% in 2024 and to 6% in 2025.
The NBU forecasts real GDP growth to 2.9% in 2023 with further economic growth of real GDP by 3.5% in 2024 and by 6.8% in 2025.
The NBU cut the key policy rate from 25% p.a. (as set in July 2022) to 20% p.a. effective 15 September 2023. The NBU also decreased the interest rate on overnight certificates of deposit by 4 pp, to 16%, and by 5 pp, to 22% on refinancing loans. During the six-months period ended 30 June 2023 and up to the date of authorization of these interim condensed consolidated financial statements, the exchange rate remained fixed at UAH 36.57 to the US Dollar. At the same time, in late June 2023, the NBU have approved the Strategy for easing foreign currency restrictions, transitioning to a more flexible exchange rate, and returning to inflation targeting.
On 2 May 2023, the European Commission adopted exceptional and temporary preventive measures on imports of a defined number of products from Ukraine. The measures concern four agricultural products - wheat, maize, rapeseed and sunflower seed - originating in Ukraine, which cannot continue to be released for free circulation in Bulgaria, Hungary, Poland, Romania and Slovakia. These products can continue to circulate in or transit via these five Member States by means of a common customs transit procedure or go to a country or territory outside the EU. The European Commission lifted the restrictions on 15 September 2023, after Ukraine agreed to tighten control over its agricultural exports. Despite this, market access conditions in the relevant member states, in particular, Poland, Hungary and Slovakia, for the affected Ukrainian products are uncertain and remain subject to on-going developments.
The "Grain deal" or Black Sea Grain Initiative, which was signed by Ukraine, the UN, Turkey and Russia on 22 July 2022, was suspended on 18 July 2023 since Russia had refused to extend the deal. The deal has allowed to export Ukrainian grain and vegetable oil through the "grain corridor" since it first began in July 2022. The intensity of Russian attacks on the Ukrainian ports has significantly increased since the second half of July 2023. These attacks have targeted ports infrastructure, grain depots and other storage facilities. The situation remains highly fluid and the outlook is subject to extraordinary uncertainty.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
16. Operating environment (continued)
The Government continues to implement measures to stabilize markets and the economy. International organizations (such as the IMF, EBRD, EU, World Bank), along with individual countries and charities, are providing Ukraine with financing, donations and material support. International assistance remains an important source of financing to meet state budget needs.
Since 24 February 2022, the Group has suffered losses as a result of the continuous War in Ukraine, caused by the full-scale Russian invasion. The Group considers the following expenses incurred during the six-month periods ended 30 June 2023 and 2022 to be directly related to the War:
2023 |
| 2022 | |
Loss on impairment of property, plant and equipment | - | 11,114 | |
Community support donations1) | 2,175 | 16,674 | |
Write-off of inventories and biological assets1) | 196 | 9,815 | |
Salary to mobilized employees2) | 8,925 | 5,043 | |
Expected credit losses of trade accounts receivable and non-current financial assets1) | - | 4,873 | |
Other war-related expenses1) | 2,058 | 1,952 | |
Total amount recognized in profit or loss | 13,354 |
| 49,471 |
Decrease in revaluation reserve | - |
| 9,489 |
| 13,354 |
| 58,960 |
1) These expenses are presented within other operating expenses in the consolidated statement of profit or loss and other comprehensive income
2) These expenses are presented within cost of sales and selling, general and administrative expenses in the consolidated statement of profit or loss and other comprehensive income
The Group, working with volunteers, has been providing humanitarian aid (mainly through food supply) to the people of Ukraine since the beginning of the war, despite logistical challenges. Since the invasion began, the Group has provided over 12,000 tonnes of poultry products pro bono.
17. Contingencies and contractual commitments
Taxation and legal matters
The Group carries out its operations in various jurisdictions, with a significant number of operations in Ukraine, which are subject to tax legislation. Ukrainian legislation regarding taxation and other regulatory matters, including currency exchange control and custom regulations, is regularly changing and revisited. Non-compliance with tax laws and regulations can lead to the imposition of severe penalties and fines.
Management believes that the Group has been in compliance with all requirements of effective tax legislation.
The Group exports vegetable oil, chicken meat and related products, and performs intercompany transactions which may potentially be in the scope of the Ukrainian transfer pricing regulations. The Group has submitted the controlled transaction report for the years ended 31 December 2020 and 31 December 2021 within the required deadlines.
As of 30 June 2023, the Group's management assessed its possible exposure to tax risks to be a total amount of USD 4,428 thousand related to corporate income tax (31 December 2022: USD 4,428 thousand). No provision was recognised relating to such possible tax exposure.
As of 30 June 2023, companies of the Group were engaged in ongoing litigation with tax authorities for the amount of USD 14,861 thousand (31 December 2022: USD 25,652 thousand), including USD 6,268 thousand (31 December 2022: USD 17,023 thousand) of litigations with the tax authorities related to disallowance of certain amounts of VAT refunds and deductible expenses claimed by the Group. Out of the total amount above, USD 9,896 thousand as of 30 June 2023 (31 December 2022: USD 20,332 thousand) relates to cases where court hearings have taken place and where the court in either the first or second instance has already ruled in favor of the Group. Manage-ment believes that, based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and, therefore, no respective provision is required in the Group's financial statements as of the reporting date.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
17. Contingencies and contractual commitments (continued)
Contractual commitments on purchase of property, plant and equipment
During the six-month period ended 30 June 2023, companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property, plant and equipment. These agreements are mainly related to maintenance and modernization projects, new products development in Ukraine and expansion of Perutnina Ptuj production facilities. As of 30 June 2023, purchase commitments amounted to USD 51,001 thousand (31 December 2022: USD 33,022 thousand).
18. Fair value of financial instruments
Fair value disclosures in respect of financial instruments are made in accordance with the requirements of IFRS 7 "Financial Instruments: Disclosure" and IFRS 13 "Fair value measurement". 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 receivable, other current assets and trade accounts payable due to the short-term nature of the financial instruments. The fair value of non-current financial assets is measured by discounting the estimated future cash outflows, with reference to market interest rates, and it approximates the carrying value of non-current financial assets.
Set out below is the comparison by category of carrying amounts and fair values of all the Group's financial instruments, excluding those discussed above, that are carried in the consolidated statement of financial position:
| Carrying amount |
| Fair value | ||
30 June 2023 | 31 December 2022 |
| 30 June 2023 | 31 December 2022 | |
|
|
| |||
Financial liabilities | |||||
Bank borrowings (Note 11) | 330,090 | 294,605 | 335,853 | 296,294 | |
Senior Notes due in 2024, 2026, 2029 (Note 12) | 1,407,219 | 1,424,093 | 837,763 | 692,616 | |
The carrying amount of Bank borrowings and Senior Notes issued includes interest payable at each of the respective dates.
The fair value of bank borrowings was estimated by discounting the expected future cash outflows by a market rate of interest for bank borrowings of 4.1% (31 December 2022: 3.4%), and is within Level 2 of the fair value hierarchy.
The fair value of Senior Notes was estimated based on market quotations and is within Level 1 of the fair value hierarchy.
In determining fair value of financial instruments, the impact of potential climate-related matters, including legislation, climate change, and company climate objectives which may affect the fair value measurement of financial assets and liabilities has been considered. At present, the impact of climate-related matters is not material to the Group's financial statements.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
19. Risk management policy
During the six-month period ended 30 June 2023 there were no material changes to the objectives, policies and process for credit risk, capital risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk and commodity price and procurement risk managing.
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 and other current liabilities, which are considered by the Group from a risk management perspective. 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 30 June 2023 and 31 December 2022. 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.
| Carrying amount | Contractual Amounts | Less than 1 year | From 2nd to 5th year | After 5th year |
30 June 2023 |
|
|
|
| |
Bank borrowings | 330,090 | 437,166 | 322,532 | 106,882 | 7,752 |
Bonds issued | 1,407,219 | 1,695,613 | 598,850 | 713,950 | 382,813 |
Lease liabilities | 247,277 | 477,375 | 78,917 | 205,749 | 192,709 |
Trade accounts payable | 127,224 | 127,224 | 127,224 | - | - |
Other current financial liabilities | 102,969 | 102,969 | 102,969 | - | - |
Total | 2,214,779 | 2,840,347 | 1,230,492 | 1,026,581 | 583,274 |
| |||||
31 December 2022 | |||||
Bank borrowings | 294,605 | 309,690 | 182,794 | 120,227 | 6,669 |
Bonds issued | 1,424,093 | 1,765,539 | 119,351 | 1,252,438 | 393,750 |
Lease liabilities | 229,323 | 439,320 | 65,067 | 192,698 | 181,555 |
Trade accounts payable | 122,576 | 122,576 | 122,576 | - | - |
Other current liabilities | 95,793 | 95,793 | 95,793 | - | - |
Total | 2,166,390 | 2,732,918 | 585,581 | 1,565,363 | 581,974 |
|
As of 30 June 2023, although part of the Group's existing undrawn financing facilities in certain banks in amount of USD 37 million were not available (31 December 2022: USD 37 million), this has not influenced the overall liquidity of the Group.
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 various transactions denominated in foreign currencies.
The Group does not use any derivatives to manage foreign currency risk exposure; Group management 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 of30 June 2023 and 31 December 2022 were as follows:
30 June 2023 |
| 31 December 2022 | |||
| USD | EUR |
| USD | EUR |
|
|
|
|
| |
Total assets | 307,923 | 121,259 | 177,509 | 116,847 | |
Total liabilities1) | 1,519,515 | 134,438 | 1,498,217 | 136,207 | |
Net liabilities | 1,211,592 | 13,179 |
| 1,320,708 | 19,360 |
1) Currency denominated liabilities consist mostly of bonds issued and bank borrowings.
Notes to the INTERIM CONDENSED Consolidated financial statements
for the six-month period ended 30 June 2023
(in thousands of US dollars, unless otherwise indicated)
19. Risk management policy (continued)
Currency risk (continued)
The table below details the Group's sensitivity to strengthening/(weakening) of the UAH against USD and EUR. This sensitivity range 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 |
2023 | |||
Increase in USD exchange rate | 20% | (242,318) | |
Increase in EUR exchange rate | 20% | (2,636) | |
Decrease in USD exchange rate | 2% | 24,232 | |
Decrease in EUR exchange rate | 2% | 264 | |
| |||
2022 |
|
|
|
Increase in USD exchange rate | 20% | (264,142) | |
Increase in EUR exchange rate | 20% | (3,872) | |
| |||
Decrease in USD exchange rate | 2% | 26,414 | |
Decrease in EUR exchange rate | 2% | 387 | |
During the six-month period ended 30 June 2023, the Ukrainian Hryvnia depreciated against the EUR by 2.6% while the official exchange rate of the Ukrainian Hryvnia against the USD remained unchanged (six-month period ended 30 June 2022: appreciated against the EUR and depreciated against USD by 0.5% and 6.8% respectively). As a result, during the six-month period ended 30 June 2023 the Group recognized a net foreign exchange gain in the amount of USD 4,486 thousand (six-month period ended 30 June 2022: net foreign exchange loss in the amount of USD 92,192 thousand) in the interim condensed consolidated statement of profit or loss and other comprehensive income.
20. Subsequent events
Loan agreement with international financial institutions
The Group has reached agreement in principle with a number of international and development financial institutions to enter into facilities agreements providing up to USD 400 million in aggregate (collectively the "IFI Facilities"). When entered into, disbursements under the IFI Facilities are expected to be made in various tranches pursuant to utilization requests by the Company, subject to the satisfaction of terms and certain conditions precedent, including the absence of a material adverse change in the Group's business, operations, property, financial condition or prospects, and the maintenance of certain financial ratios consistent with the Group's obligations under its Eurobonds. The Group expects to use the proceeds received pursuant to initial utilization requests to finance a portion of the tender offer announced on 25 September 2023 for any and all of its US$500 million aggregate principal amount outstanding 7.75% notes due 2024. The Company intends to deliver all notes acquired pursuant to the tender offer to the Trustee for prompt cancellation.
Investments in joint venture in Saudi Arabia
On 7 September 2023, the Company signed a shareholder agreement with Desert Hills Veterinary Services Company Limited, subsidiary of Tanmiah Food Company, a publicly listed company on the Saudi stock market, with intention to establish a joint venture in poultry farming in the Kingdom of Saudi Arabia. The Company will have 45% of the share capital of this entity upon its incorporation, and an initial investment by the Company is planned in amount of SAR 26,810 thousand (or equivalent of USD 7,239 thousand).
21. Authorization of the interim condensed consolidated financial statements
These interim condensed consolidated financial statements were authorized for issue by the Board of Directors of MHP SE on 25 September 2023.