Last checked at 17 Sep 2008 07:00
PRESS RELEASE
September 17, 2008 , Kyiv, Ukraine
MHP S.A.
Unaudited Results for the Six Months Ended 30 June 2008
MHP S.A. ("MHP" or the "Company", LSE ticker: "MHPC"), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, published today its unaudited IFRS results for the six months ended 30 June 2008.
Key financial highlights for the second quarter of 2008
Revenue increased 125% to US $206 million (Q2 2007: US $91 million).
EBITDA increased 158% to US $101 million (Q2 2007: US $39 million).
EBITDA margin increased to 49% (Q2 2007: 43%).
Net income increased 445% to US $87 million (Q2 2007: US 16 million).
Net income margin increased to 42% (Q2 2007: 17%).
Key financial highlights for the first six months of 2008
Revenue increased 129% to US $382 million (H1 2007: US $167 million).
EBITDA increased 154% to US $160 million (H1 2007: US $63 million).
EBITDA margin increased to 42% (H1 2007: 38%).
Net income increased 441% to US $111 million (H1 2007: US $21 million).
Net income margin increased to 29% (H1 2007: 12%).
Operational highlights
During the first half of 2008 the Company's poultry production facilities have continued to operate at their full production capacity.
Consumer demand for high quality meat products still remains high.
Agricultural land bank increased to more than 160,000 hectares.
Record-breaking yields across all crops.
Post period end
On July 8th, 2008 MHP announced the acquisition of an 80% stake in Private Enterprise "Ukrainian Bacon", a private Ukrainian meat production company with a current production capacity of approximately 50 tonnes of meat products per day and a production potential of 200 tonnes per day.
On August 6th, 2008 the Ukrainian Cabinet of Ministers approved an increase of approximately 50% of state subsidies per 1 kilogramme of produced meat in live weight to agricultural producers that breed poultry and cattle.
Yuriy Kosyuk, Chief Executive Officer of MHP, said:
"I am pleased to announce another record performance by MHP. During the first half of the year our sales revenue increased by 129% reaching a record US $382 million and net income jumped 441% to US $111 million due to solid EBITDA growth and stable financial costs. The main growth drivers for the period were the growth of volumes in our poultry segment due to the launch of the Myronovka farm complex, unsatisfied consumer demand for chicken meat and the resulting increase in average prices, as well as the organic growth in production volumes of sausage and cooked meat products.
"We continue to focus on increasing shareholder value by strengthening vertical integration, managing our costs, growing our production volumes and expanding our agricultural land bank. High consumer demand in poultry and other agricultural segments, record breaking yields across all crops, our focus on vertical integration and our ability to control costs makes us confident that the strong performance in the first half of the year will continue into the second half."
There will be a webcast conference call for analysts and investors today at 9am US Eastern time, 2pm UK time, 4pm Kiev time and 5pm Moscow time.
The conference call will be accessible by phone by dialling +44 (0) 1452 586 157 and the conference ID is 62924904.
For further information please contact:
| Financial Dynamics Ben Foster (London) Marc Cohen (London) Leonid Solovyev (Moscow) For investor relations enquiries ir@mirohleb.kiev.ua | London: +44 20 7831 3113 Moscow: +7 495 795 06 23 |
Financial Overview
| Q2 2008 | Q2 2007 | growth rate | H1 2008 | H1 2007 | growth rate | ||
| Revenue | 206 | 91 | 125% | 382 | 167 | 129% | |
| IFRS 41 standard gains | 13 | 10 | 34% | 13 | 10 | 34% | |
| Gross profit | 86 | 30 | 187% | 132 | 48 | 172% | |
| Gross margin | 42% | 33% | 34% | 29% | |||
| Operation profit | 87 | 31 | 179% | 134 | 48 | 179% | |
| Operation margin | 42% | 34% | 35% | 29% | |||
| EBITDA | 101 | 39 | 158% | 160 | 63 | 154% | |
| EBITDA margin | 49% | 43% | 42% | 38% | |||
| Net income | 87 | 16 | 445% | 111 | 21 | 441% | |
| Net income margin | 42% | 17% | 29% | 12% |
In the second quarter of 2008 MHP's consolidated revenues increased by 125% to US $206 million (Q2 2007: US $91 million) and by 129% in the first six month 2008 to US $382 million (H1 2007: US $167 million), which reflected the strong performance of the Company's poultry segment. Gross margins increased to 42% from 33% in the second quarter and to 34% from 29% in the first six month 2008. In the second quarter EBITDA increased 158% to US $101 million as against the same period last year (Q2 2007: US $39 million) and EBITDA margin increased year-on-year from 43% to 49%. In the first six months of 2008 EBITDA increased by 154% to US $160 million (H1 2007: US $63 million) and EBITDA margin increased from 38% to 42%. Net Income for the second quarter 2008 increased by 445% to US $87 million (Q2 2007: US $16 million) and for the first six months of 2008 net income increased by 441% from US $21 million to US $111 million as the result of solid EBITDA growth and stable financial expenses.
Poultry and Related Operations
| Q2 2008 | Q2 2007 | growth rate | H1 2008 | H1 2007 | growth rate | ||
| Revenue | 181 | 79 | 130% | 338 | 144 | 136% | |
| - poultry and other | 160 | 66 | 287 | 122 | |||
| - sunflower oil | 21 | 12 | 51 | 21 | |||
| Gross profit | 69 | 19 | 269% | 113 | 39 | 192% | |
| Gross margin | 38% | 24% | 33% | 27% | |||
| EBITDA | 82 | 24 | 238% | 140 | 46 | 206% | |
| EBITDA margin | 45% | 31% | 41% | 32% | |||
| Gross profit per 1 kg of poultry meat | 1,25 | 0,45 | 178% | 1,02 | 0,52 | 96% | |
| EBITDA per 1 kg of poultry meat | 1,49 | 0,58 | 154% | 1,28 | 0,62 | 106% |
MHP's poultry division is the main contributor to the Company's total turnover comprising approximately 90% of total group revenues. During the first six months of 2008, all the Company's poultry production facilities continued to operate to their full production capacity.
Average chicken meat prices for the second quarter increased by 81% to 13.28 UAH (excluding VAT) per 1 kilogramme of poultry meat in adjusted weight (Q2 2007: 7.35 UAH) and volumes increased by 33% against for the same period last year. This was primarily due to the launch of the first stage of the Myronivka chicken farm complex in the middle of 2007, which reached its full production capacity in October 2007. As a result revenue in the segment in the second quarter 2008 increased by 130% from US $79 million to US $181 million.
Average chicken meat prices for the first six month increase by 58% to 11.75 UAH (excluding VAT) per 1 kilogramme of poultry meat in adjusted weight (H1 2007: 7.44 UAH). Volumes increased by 49% and as a result segment revenue in the first six months of 2008 increased by 136% from US $144 million to US $338 million.
As MHP is fully vertical integrated and does not need to rely on third party suppliers, costs in the segment remain stable. Despite salary inflations and utilities price growth the share of salary and utilities costs remain constant mostly due to the efficiency of the Myronovka farm complex. As a result, net gross profit in the segment increased from US $19 million in the second quarter 2007 to US $69 million in the second quarter of 2008 (from US $ 39 million in the first half of 2007 to US $ 113 million in the first half of 2008). Segment gross margin improved from 24% in the second quarter 2007 to 38% in the second quarter of 2008 (from 27% in H1 2007 to 33% in H1 2008). EBITDA in the second quarter of 2008 increased by 238% from US $24 million to US $82 million and in the first six months of the year EBITDA increased by 206% from US $46 million to US $140 million.
As a result of average chicken meat price growth and stable costs, gross profit per 1 killogramme of poultry meat has grown significantly from US $0.45 in the second quarter of 2007 to US $1.25 in the second quarter of 2008 (from US $0.52 in H1 2007 to US $1.02 in H1 2008).
Grain Cultivation and Storage
| Q2 2008 | Q2 2007 | growth rate | H1 2008 | H1 2007 | growth rate | ||
| Revenue | 1 | 0 | 69% | 3 | 2 | 31% | |
| IFRS 41 standard gains | 17 | 11 | 51% | 14 | 11 | 24% | |
| Gross profit | 18 | 12 | 46% | 18 | 12 | 49% | |
| Gross margin | n/a | n/a | n/a | n/a | |||
| EBITDA | 19 | 14 | 37% | 19 | 14 | 38% | |
| EBITDA margin | n/a | n/a | n/a | n/a |
Revenues from grain sold to third parties only materialises in the second half of the year due to the harvest cycle and so H1 2008 only contains the revenue from the sale of grain stocks that have already been revalued to market prices in 2007.
In 2008 cultivated land cropped with wheat increased by 60% to 32,500 hectares and land cropped with rape increased by 130% to 14,000 hectares, as against 2007. As of today the company has finished rape and wheat harvesting. Wheat yield was averaging 6.3 tonnes per hectare (2007: 3.9 tonnes per hectare) and rape yield was averaging 3.5 tonnes per hectare (2007: 1.9 tonnes per hectare).
Rape price in 2008 increased by 39% to 2,420 UAH per tonne (excluding VAT) compared to 1,737 UAH per tonne in 2007.
Other agriculture operations
| Q2 2008 | Q2 2007 | growth rate | H1 2008 | H1 2007 | growth rate | ||
| Revenue | 24 | 12 | 102% | 41 | 21 | 94% | |
| - meat processing | 15 | 8 | 99% | 27 | 14 | 94% | |
| - other | 9 | 4 | 97% | 15 | 8 | 95% | |
| Gross profit | (1) | (1) |
| 1 | (3) | ||
| EBITDA | 1 | 3 | -71% | 6 | 3 | 70% | |
| EBITDA margin | 4% | 27% | 14% | 16% | |||
| Sausage volume | 2 963 | 1 865 | 59% | 5 478 | 3 014 | 82% |
Throughout the first six months of 2008 сonsumer demand for high quality meat products still remained at a high level. The increase in the production of sausage and smoked meat products in the Company's meat processing plant in Crimea was the main growth driver for the segment. Throughout the second quarter production volumes increased by 59% to 2,963 tonnes and throughout the first six month of the year production volumes increased by 82% to 5,500 tonnes mostly due to organic growth. Average sausage and cooked meat prices during the first six months of 2008 increased by 40% to 19.80 UAH per kilogramme excluding VAT (first six months of 2007: 15.33 UAH per kilogramme). As a result, segment revenue for the second quarter increased by 102% year-on-year to US $24 million (Q2 2007: US$ 12 million) and for the first six month by 94% to US $41 million (H1 2007: US $21 million).
In the second quarter of 2008 EBITDA decreased from US $3 million to US $1 million year-on-year and EBITDA margin decreased from 27% to 4%. The EBITDA decrease relates to Y2007 government grants for fruit producers that were eliminated in 2008.
In the first six months of 2008 EBITDA increased from US $3 million to US $6 million as against the same period last year, while EBITDA margin decreased from 16% to 14%.
On July 8th, 2008 MHP announced the acquisition of an 80% stake in Private Enterprise "Ukrainian Bacon", a private Ukrainian meat production company with current production capacity of approximately 50 tonnes of meat products per day and production potential of 200 tonnes per day. The first set of financial results that will reflect this acquisition will be the Q3 results for the period to 30 September 2008 that will be published at the end of this year.
Outlook
MHP has a clear and proven strategy of increasing vertical integration that helps the Company maintain a stable cost structure and we expect the benefits of this to continue to be felt in the second half of the year. We expect that due to increases in state subsidies with effect from August 1st 2008 poultry market average prices will remain stable and we expect sausage and meat production volumes to increase during the second six months of the year due to the Ukrainian Bacon acquisition. Favorable yields across all crops will help us improve the financial performance of the grain segment. We remain confident that the outlook for the Company for the rest of the year will remain positive.
Notes to Editors:
Information on MHP
MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times.
MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.
Information on Ukraine
Independent since 1991, Ukraine represents a large consumer market with 46 million people and a growing economy fuelled by the rising affluence of domestic consumers and external demand for Ukrainian products. In 2007, per capita GDP amounted to US$2,965 and the current pace of household income growth is expected to be sustained in 2008 owing to increasing salaries and enlarged social payments. Ukraine became a member of the WTO in May 2008.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP S.A. does not intend to change these statements to reflect actual results.
MHP S.A.
AND ITS SUBSIDIARIES
Condensed Consolidated Interim Financial Statements
For the six months
ended 30 June 2008
MHP S.A. AND ITS SUBSIDIARIES
TABLE OF CONTENTS
| CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2008 | Page |
| Condensed consolidated interim balance sheet | 2 |
| Condensed consolidated interim income statement | 3 |
| Condensed consolidated interim statement of changes in shareholders' equity | 4 |
| Condensed consolidated interim statement of cash flows | 5-6 |
| Notes to the condensed consolidated interim financial statement | 7-15 |
| MHP S.A. AND ITS SUBSIDIARIES | ||||
| CONDENSED CONSOLIDATED INTERIM BALANCE SHEET | ||||
| AS OF 30 JUNE 2008 (in Ukrainian Hryvnias and in thousands) | ||||
g26,872
| Notes | 30 June 2008 | 31 December 2007 | ||
| ASSETS | ||||
| Non-current assets | ||||
| Property, plant and equipment, net | 3,279,526 | 3,155,028 | ||
| Prepayments for property, plant and equipment | 220,822 | 29,699 | ||
| Deferred tax assets | 12,683 | 13,658 | ||
| Long-term VAT prepaid | 88,113 | 8,795 | ||
| Non-current biological assets | 209,136 | 212,586 | ||
| Other non-current assets | 51,463 | 40,468 | ||
| Total non-current assets | 3,861,743 | 3,460,234 | ||
| Current assets | ||||
| Inventories | 292,822 | 215,358 | ||
| Biological assets | 872,777 | 458,466 | ||
| Agricultural produce | 73,259 | 159,984 | ||
| Taxes recoverable and prepaid, net | 230,568 | 229,272 | ||
| Trade accounts receivable, net | 217,743 | 102,832 | ||
| Other current assets, net | 111,097 | 133,199 | ||
| Bank deposits with maturity over three months | 247,394 | - | ||
| Cash and cash equivalents | 367,482 | 50,942 | ||
| Total current assets | 2,413,142 | 1,350,053 | ||
| Total assets | 6,274,885 | 4,810,287 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Equity attributable to equity holders of the Parent | ||||
| Share capital | 1,436,750 | 1,269,121 | ||
| Additional paid-in capital | 897,415 | 303,299 | ||
| Revaluation reserve | 46,877 | 47,672 | ||
| Retained earnings | 979,624 | 433,874 | ||
| 3,360,666 | 2,053,966 | |||
| Minority interest | 74,544 | 64,034 | ||
| Total equity | 3,435,210 | 2,118,000 | ||
| Non-current liabilities | ||||
| Long-term bank borrowings | 289,069 | 332,686 | ||
| Bonds issued | 1,184,204 | 1,230,198 | ||
| Long-term finance lease and vendor financing obligations | 206,116 | 154,215 | ||
| Other long-term payables | 9,329 | 10,129 | ||
| Deferred tax liabilities | 33,137 | 32,851 | ||
| Total non-current liabilities | 1,721,855 | 1,760,079 | ||
| Current liabilities | ||||
| Trade accounts payable | 130,363 | 126,837 | ||
| Accounts payable for property, plant and equipment | 55,713 | 48,611 | ||
| Other current liabilities | 104,482 | 91,331 | ||
| Short-term bank borrowings and current portion of long-term bank borrowings | 489,633 | 372,969 | ||
| Current portion of bonds issued | 200,000 | 200,000 | ||
| Interest accrued | 20,037 | 20,717 | ||
| Current portion of finance lease obligations | 87,012 | 70,210 | ||
| Deferred income | 30,580 | 1,533 | ||
| Total current liabilities | 1,117,820 | 932,208 | ||
| Total liabilities | 2,839,675 | 2,692,287 | ||
| Contingencies and contractual commitments | - | - | ||
| Total liabilities and shareholders' equity | 6,274,885 | 4,810,287 |
On behalf of the Board
| ___________________________ Yuriy Kosyuk/Chief Executive Officer | _______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
| MHP S.A. AND ITS SUBSIDIARIES | ||
| CONDENSED CONSOLIDATED INCOME STATEMENT | ||
| FOR THE SIX MONTHS ended 30 JUNE 2008 (in Ukrainian Hryvnias and in thousands) | ||
| Six months ended 30 June | ||||
| Notes | 2008 | 2007 | ||
| Continuing operations | ||||
| Revenue | 1,913,088 | 843,725 | ||
| Net change in fair value of biological assets and agricultural produce | 67,106 | 50,615 | ||
| Cost of sales | (1,320,555) | (649,913) | ||
| Gross profit | 659,639 | 244,427 | ||
| Selling, general and administrative expenses | (195,442) | (111,565) | ||
| Government grants recognized as income | 222,028 | 113,302 | ||
| Other operating income and expenses | (15,491) | (3,409) | ||
| Operating profit | 670,734 | 242,755 | ||
| Finance costs, net | (122,479) | (125,822) | ||
| Foreign exchange gains/(losses), net | 16,031 | (12,695) | ||
| Other income and expenses | (3,363) | 1,183 | ||
| Other expenses, net | (109,811) | (137,334) | ||
| Profit before tax | 560,923 | 105,421 | ||
| Income tax expense | (4,897) | (1,811) | ||
| Profit for the PERIOD from continuing operations | 556,026 | 103,610 | ||
| Discontinued operations | ||||
| (Loss)/profit for the period from discontinued operations | - | (643) | ||
| Net profit for the PERIOD | 556,026 | 102,967 | ||
| Attributable to: | ||||
| Equity holders of the Parent | 544,563 | 97,806 | ||
| Minority interest | 11,463 | 5,161 | ||
| Earnings per share | ||||
| From continuing operations (UAH per share): | ||||
| Basic | 4.92 | 0.98 | ||
| Diluted | 4.92 | 0.98 | ||
| From continuing and discontinued operations (UAH per share): | ||||
| Basic | 4.92 | 0.98 | ||
| Diluted | 4.92 | 0.98 | ||
On behalf of the Board
| _______________________________ Yuriy Kosyuk/Chief Executive Officer | ______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 15 form an integral part of these condensed consolidated financial statements.
| MHP S.A. AND ITS SUBSIDIARIES | ||
| CONDENSED CONSOLIDATED INTERIM STATEMENT OF Changes in Shareholders' Equity | ||
| FOR THE SIX MONTHS ended 30 JUNE 2008 (in Ukrainian Hryvnias and in thousands) | ||
| Attributable to Equity Holders of the Parent | Minority interest | Total equity | |||||||||||
| Share capital | Additional paid-in capital | Revaluation reserve | Retained earnings | Total | |||||||||
| 1 January 2007 | 1,269,121 | 287,713 | 2,858 | 224,111 | 1,783,803 | 68,879 | 1,852,682 | ||||||
| Acquisition and changes in non-controlling interest in subsidiaries | - | - | - | 11,520 | 11,520 | (31,529) | (20,009) | ||||||
| Net profit for the period | - | - | - | 97,806 | 97,806 | 5,161 | 102,967 | ||||||
| 30 June 2007 | 1,269,121 | 287,713 | 2,858 | 333,437 | 1,893,129 | 42,511 | 1,935,640 | ||||||
| 1 January 2008 | 1,269,121 | 303,299 | 47,672 | 433,874 | 2,053,966 | 64,034 | 2,118,000 | ||||||
| Share capital issue | 167,629 | 167,629 | 167,629 | ||||||||||
| Share premium | 646,684 | 646,684 | 646,684 | ||||||||||
| Transaction costs related to share capital issue | (52,568) | (52,568) | (52,568) | ||||||||||
| Net profit for the period | 544,563 | 544,563 | 11,463 | 556,026 | |||||||||
| Depreciation charged to the revaluation of property, plant and equipment reserve | (795) | 795 | - | - | - | ||||||||
| Total recognized income and expense for the period | - | - | (795) | 545,358 | 544,563 | 11,463 | 556,026 | ||||||
| Acquisition and changes in non-controlling interest in subsidiaries | 392 | 392 | (953) | (561) | |||||||||
| 30 June 2008 | 1,436,750 | 897,415 | 46,877 | 979,624 | 3,360,666 | 74,544 | 3,435,210 | ||||||
On behalf of the Board
| _______________________________ Yuriy Kosyuk/Chief Executive Officer | _______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 15 form an integral part of these condensed consolidated financial statements.
| MHP S.A. AND ITS SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FFLOWS | |||
| FOR THE SIX MONTHS ENDED 30 JUNE 2008 | |||
| (in Ukrainian Hryvnias and in thousands) |
| Six months ended 30 June | |||
| 2008 | 2007 | ||
| Operating activities | |||
| Profit before income tax | 560,923 | 104,778 | |
| Adjustments to reconcile profit to net cash provided by operations | |||
| Depreciation of property, plant and equipment | 131,220 | 76,211 | |
| Finance costs, net | 122,479 | 125,822 | |
| Effect of fair value adjustments | (67,106) | (44,728) | |
| Non-operating foreign exchange loss/(gain), net | (16,031) | 12,695 | |
| Change in allowance for irrecoverable amounts and VAT and direct write-offs | 9,622 | 2,254 | |
| (Gain)/loss on disposal of property, plant and equipment | 3,245 | 3,273 | |
| Income related to discontinued operations | - | 643 | |
| Other non-cash items | 2,490 | (2,489) | |
| Operating profit before working capital changes | 746,842 | 278,459 | |
| (Increase)/decrease in inventories | (76,999) | 103,711 | |
| Increase in biological assets | (273,804) | (117,177) | |
| Decrease/(increase) in agricultural produce | 52,580 | (10,115) | |
| Decrease in natural gas stock | - | 18,559 | |
| Decrease/(increase) in other current assets | 22,886 | (6,276) | |
| Increase in taxes recoverable and prepaid | (83,797) | (10,960) | |
| (Increase)/decrease in trade accounts receivable | (110,571) | 18,909 | |
| (Decrease)/increase in other long-term payables | (1,065) | 5,911 | |
| Increase in trade accounts payable | 4,446 | 25,633 | |
| Increase in other current liabilities | 5,215 | 25,106 | |
| Increase/(decrease) in deferred income | 29,047 | (323) | |
| Cash generated by operations | 314,780 | 331,437 | |
| Finance costs paid | (127,241) | (115,232) | |
| Interest received | 8,941 | 3,278 | |
| Income tax paid | (3,636) | (3,845) | |
| Net cash generated by operating activities | 192,844 | 215,638 | |
| Investing activities | |||
| Purchases of property, plant and equipment | (270,478) | (346,506) | |
| Prepayment for investments | (106,818) | - | |
| Purchases of other non-current assets | (9,886) | (44,303) | |
| Proceeds from disposals of property, plant and equipment | 5,434 | 42,663 | |
| Purchases of non-current biological assets | (24,131) | - | |
| Short-term deposits | (263,643) | - | |
| Withdrawals of short-term deposits | 8,819 | - | |
| Loans provided to employees, net | (2,820) | (355) | |
| Loans provided to related parties, net | (474) | - | |
| (Purchases)/proceeds from sales of available-for-sale investments | - | 24,240 | |
| Net cash used in investing activities | (663,997) | (324,261) | |
| MHP S.A. AND ITS SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FFLOWS | |||
| FOR THE SIX MONTHS ENDED 30 JUNE 2008 | |||
| (in Ukrainian Hryvnias and in thousands) | |||
| Financing activities | |||
| Issue of share capital and contribution to additional paid in capital | 814,313 | - | |
| Transaction costs related to share capital issue | (55,550) | - | |
| Proceeds from loans received | 786,339 | 314,322 | |
| Repayment of bank loans | (710,747) | (360,678) | |
| Finance lease payments | (30,159) | (25,424) | |
| Net cash generated by financing activities | 804,196 | (71,780) | |
| Effects of exchange rates on cash and cash equivalents | (16,503) | - | |
| Net increase /(decrease) in cash and cash equivalents | 316,540 | (180,403) | |
| Cash and cash equivalents at beginning of the PERIOD | 50,942 | 224,297 | |
| Cash and cash equivalents at end of the PERIOD | 367,482 | 43,894 |
On behalf of the Board
| _______________________________ Yuriy Kosyuk/Chief Executive Officer | ______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 15 form an integral part of these condensed consolidated financial statements.
MHP S.A. AND ITS SUBSIDIARIES
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2008
(in Ukrainian Hryvnias and in thousands)
1. DESCRIPTION OF FORMATION AND THE BUSINESS
Description of formation
MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company registered under the laws of Luxembourg, was formed on 30 May 2006. MHP S.A. was formed to serve as the ultimate holding company of OJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. The registered address of MHP S.A. is 8-10, rue Mathias Hardt, L-1717 Luxembourg, Grand-Duchy of Luxembourg.
In the course of the corporate reorganization related to the establishment of MHP S.A., Raftan Holding Limited ("RHL") was established as a subholding company under MHP S.A. and through a series of transactions became the immediate parent of MHP. As a result of these transactions (collectively referred to as the "Corporate Reorganization") MHP S.A. indirectly owned 99.8% of MHP.
References to the "Group" for periods prior to the formation of MHP S.A. are references to MHP and its subsidiaries and for periods after the formation of MHP S.A. are to MHP S.A. and its subsidiaries.
The primary subsidiaries and the principal activities of the companies forming the Group as of 30 June 2008 and 31 December 2007 were as follows:
| Operating entity | Country of registration | Year established/ acquired | Principal activity | Effective ownership interest*, % | ||
| 30 June 2008 | 31 December 2007 | |||||
| MHP S.A. | Luxembourg | 2006 | Holding company | Parent | Parent | |
| RHL | Republic of Cyprus | 2006 | Sub-holding company | 100 | 100 | |
| MHP | Ukraine | 1998 | Management, marketing and sales | 99.8 | 99.8 | |
| Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv ("MZVKK") | Ukraine | 1998 | Fodder and sunflower oil production | 88.3 | 84.7 | |
| Peremoga Nova ("Peremoga") | Ukraine | 1999 | Chicken farm | 99.8 | 99.8 | |
| Druzhba Narodiv Nova ("Druzhba Nova") | Ukraine | 2002 | Chicken farm | 99.8 | 99.8 | |
|
| ||||||
| Oril-Leader ("Oril") | Ukraine | 2003 | Chicken farm | 99.8 | 99.8 | |
| Tavriysky Kombikormovy Zavod ("TKZ") | Ukraine | 2004 | Fodder production | 99.9 | 99.9 | |
| Ptahofabryka Shahtarska Nova ("Shahtarska") | Ukraine | 2003 | Breeder farm | 99.8 | 99.8 | |
| Myronivska Pticefabrica ("Myronivska") | Ukraine | 2004 | Chicken farm | 99.8 | 99.8 | |
| Starynska Ptahofabryka ("Starynska") | Ukraine | 2003 | Breeder farm | 84.8 | 84.8 | |
| Ptahofabryka Snyatynska Nova ("Snyatynska") | Ukraine | 2005 | Geese breeder farm | 99.8 | 99.8 | |
| Zernoproduct | Ukraine | 2005 | Fodder grain cultivation | 89.8 | 89.8 | |
| Katerynopilsky Elevator | Ukraine | 2005 | Fodder production and grain storage | 99.8 | 99.8 | |
| Druzhba Narodiv ("Druzhba") | Ukraine | 2006 | Cattle breeding, plant cultivation | 95.3 | 95.3 | |
| Agrofirma Kyivska ("Kyivska") | Ukraine | 2006 | Cattle breeding | 75.8 | 75.8 | |
| Crimean Fruit Company ("Crimean Fruit") | Ukraine | 2006 | Fruits grain cultivation | 81.8 | 81.8 | |
| NPF Urozhay ("Urozhay") | Ukraine | 2006 | Fodder grain cultivation | 89.8 | 89.8 | |
| Agrofort ("AGF") | Ukraine | 2006 | Fodder grain cultivation | 86.0 | 86.0 | |
| Zernoproduct-Lypivka ("ZPL") | Ukraine | 2006 | Fodder grain cultivation | 62.9 | 62.9 | |
* Effective voting rights in subsidiaries did not differ from effective ownership rights. Direct ownership interest in subsidiaries by the Parent differs from the effective ownership interest due to cross holdings between subsidiaries.
Description of the business
The principal business activities of the Group are presented by the three operating segments: poultry and related operations, grain growing 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, sunflower oil, mixed fodder and convenience food products. Other agricultural operations comprise the production and sale of sausages, beef, goose meat, foie gras, fruits, potatoes and feed grains. Grain growing comprises the production and sale of grains.
The grain growing segment operations results are dependent on seasonality. The main sales of harvested grain incur beginning in the third quarter.
Prior to 2007, the Group also had natural gas related operations which were discontinued in April 2007.
The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkassy, Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Vinnytsya, Kherson regions and Autonomous Republic of Crimea.
2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated interim financial statements are prepared on the basis of accounting policies as set forth in the Group's consolidated financial statements as at and for the year ended 31 December 2007. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been condensed or omitted. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of the Group management, necessary to fairly state the results of interim periods. Interim results are not necessarily indicative of results to be expected for the full year. The 31 December 2007 balance sheet was derived from the audited consolidated financial statements.
3. INITIAL PUBLIC SHARES OFFERING
On May 15, 2008 MHP S.A.' issued 10,750,000 new ordinary shares.
After the issue MHP S.A.' share capital consists of 110,770,000 ordinary shares at par value EUR 2 each.
The offering has been completed at USD 15 per share.
Increase of MHP S.A.' share capital amounted to UAH 167,629 thousand (USD 33,194 thousand). Share premium on issue constitute UAH 646,684 thousand (USD 128,056 thousand). The net expenses related to the issue amount UAH 52,568 thousand (USD 10,494 thousand).
Net proceeds, after deducting expenses, of the MHP S.A. from the offering amounted to UAH 761,745 thousand (USD 150,756 thousand).
4. PROPERTY, PLANT AND EQUIPMENT
In 2008 the Group continues investment mainly into its poultry and grain business.
During the six months ended 30 June 2008, the Group's additions to Property, plant and equipment amounted to UAH 365,490 thousand.
The main capital expenditures were incurred in connection with acquisition of agricultural machinery for the grain growing operations, particularly combines, and commencement of the second phase of Myronivka chicken farm complex construction.
The Group's disposals of equipment during the six months ended 30 June 2008 amounted to UAH 8,679 thousand.
The amount paid to settle Ukrainian Bacon's liabilities of UAH 106,818 thousand as prepayment for investment in the Ukrainian Bacon, is included in prepayment for property, plant and equipment as at 30 June 2008.
5. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of these financial statements, parties are considered to be related if one party has the ability to control the other party or exercise 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.
The following companies and individuals are considered to be related parties to the Group as of 30 June 2008:
| Name of the related party | Nature of relations with the Group |
| Mr. Yuriy Kosyuk | Chief Executive Officer of MHP S.A. and the Principal Shareholder of the Group |
| WTI | Immediate parent, company owned by Mr. Yuriy Kosyuk |
| Mrs. Olena Kosyuk | Wife of Mr. Yuriy Kosyuk |
| Allied Tech LLP (United Kingdom) | Companies owned or controlled by Mr. Yuriy Kosyuk |
| Allied Tech LLC (USA) | |
| Allied Tech Commerce LLP (United Kingdom) | |
| Agrofirma Berezanska Ptahofabryka | |
| ULL Beteiligungs und Management GmbH | |
| Merkaba LLC | |
| Spector | Company owned by Merkaba LLC |
In April 2007, Mr. Yuriy Kosyuk sold his shareholding in Roda. Accordingly, starting from June 2007 Roda and Realizatsiyna Baza ceased to be related parties to the Group.
During the six months ended 30 June 2008 the Group has engaged into transactions with its related parties within the normal course of business. The revenue from sales to related parties has decreased from UAH 36,119 thousand as for the six months ended 30 June 2007 to UAH 31,093 thousand for the six months ended 30 June 2008. The revenue for the six months ended 30 June 2008 related primarily to the sale of mixed fodder and its components to Agrofirma Berezanska Ptahofabryka. During the six months ended 30 June 2007, the Group also sold property, plant and equipment for UAH 17,500 thousand to Agrofirma Berezanska Ptahofabryka.
The balances of trade accounts receivable due from related parties related to the mixed fodder sale primarily and amounted to UAH 30,935 thousand and UAH 6,639 thousand as at 30 June 2008 and 31 December 2007 respectively.
Terms and conditions of sales to related parties are determined based on arrangements, specific to each contract or transaction. Management believes that the accounts receivable due from related parties do not require allowance for irrecoverable amounts and that the amounts payable to related parties will be settled at cost.
Compensation to key management personnel
Total compensation of the Group's key management personnel (including compensation to Mr. Yuriy Kosyuk), which consist of contractual salary, performance bonuses and bonuses in connection with the MHP S.A.' share issue amounted to UAH 28,965 thousand and UAH 7,570 thousand for the six months ended 30 June 2008 and 2007, respectively.
The balances outstanding of interest free loans provided to the key management personnel amounted to UAH 6,963 thousand and UAH 5,927 thousand as of 30 June 2008 and 31 December 2007 respectively.
6. CHANGES IN INVENTORIES, BIOLOGICAL ASSETS, AND AGRICULTURAL PRODUCE
One of the main reason of changes in the inventories, biological assets and agricultural produce as of 30 June 2008 as compared to 31 December 2007 is seasonality.
The changes in the Group's inventories during the six months ended 30 June 2008 were in line with the normal course of the Group's operations and resulted from accumulation of stock by grain growing entities prior to harvest. Apart from the seasonality factor, inventory increase as at 30 June 2008 as compared to 31 December 2007 is largely attributable to the accumulation of sunflower oil stock. This accumulation resulted from increased mixed-fodder production, and consequently that of sunflower oil, and temporary export quotas and licensing introduced by the Ukrainian government in March 2008.
Increase of current biological assets balances during the six months 2008 is primarily attributable to that of the crops balances.
This increase refers to the costs incurred with respect to future harvest, reflecting seasonality element inherent in the grain growing segment. The balances of crops in fields, being represented at the fair value, include significant portion of positive fair value measurement.
The significant costs borne during the six months 2008 and fair value measurement will be realised at the harvest starting the third quarter.
An increase in current biological assets is also attributable to the positive fair value measurement effect of broiler poultry closing balances resulting from the increase of chicken meat prices.
At the same time the fair value of a hatchery egg has decreased by 30 June 2008 as compared to 31 December 2007 which resulted from decline of the market price of hatchery eggs and breeders held for hatchery eggs production.
Agricultural produce balances has decreased as a result of seasonal reduction of grain stock and other seasonal produce, such as fruits, vegetables. The stock of chicken meat has also decreased between the two dates due to strengthened market demand.
7. BANK BORROWINGS
The following table summarizes bank loans and credit lines held by the Group as of 30 June 2008 and 31 December 2007:
| Bank | Currency | Interest rate | 30 June 2008 | Interest rate | 31 December 2007 | |
| Foreign banks | USD | - | - | - | - | |
| Foreign banks | EUR | 5.62% | 396,119 |
4.77% | 437,315 | |
| 437,315 | ||||||
| Ukrainian banks | USD | 7.17% | 382,583 | 8.71% | 54,540 | |
| Ukrainian banks | UAH | 12.51% | 213,800 | |||
| Ukrainian banks | EUR | - | ||||
| Total bank borrowings | 778,702 | 705,655 | ||||
| Less: | ||||||
| Short-term borrowings and current portion of long-term borrowings | (489,633) | (372,969) | ||||
| Total long-term bank borrowings |
289,069 | 332,686 | ||||
|
(489,633) | (372,969) | |||||
The following table summarizes bank loans and credit lines with respect to the type of interests charged held by the Group as of 30 June 2008 and 31 December 2007:
| 30 June 2008 | 31 December 2007 | |||
| Fixed interest rate | 232,716 | 188,800 | ||
| Floating interest rate | 545,986 | 516,855 | ||
| Total | 778,702 | 705,655 |
Bank loans and credit lines as of 30 June 2008 were repayable as follows:
| 30 June 2008 | ||||||
| Foreign | Ukrainian | Total | ||||
| Within one year | 107,017 | 382,616 | 489,633 | |||
| In the second year | 107,017 |
| 107,017 | |||
| In the third to fifth year inclusive | 182,052 | 182,052 | ||||
| With maturity over five years |
|
|
| |||
| Total | 396,086 | 382,616 | 778,702 | |||
Bank loans and credit lines as of 31 December 2007 were repayable as follows:
| 31 December 2007 | ||||||
| Foreign | Ukrainian | Total | ||||
| Within one year | 104,629 | 268,340 | 372,969 | |||
| In the second year | 104,629 | - | 104,629 | |||
| In the third to fifth year inclusive | 228,057 | - | 228,057 | |||
| With maturity over five years | - | - | - | |||
| Total | 437,315 | 268,340 | 705,655 | |||
As of 30 June 2008, the secured bank borrowings were represented by facilities drawn with Commerzbank for UAH 83,189 thousand (EUR 10,906 thousand).
Property, plant and equipment with the net book value of UAH 54,200 thousand were pledged by the Group to secure its bank borrowings as of 30 June 2008.
8. BONDS ISSUED
Long-term bonds outstanding as of 30 June 2008 and 31 December 2007 were as follows:
| 30 June 2008 | 31 December 2007 | ||
| 10.25% Senior Notes due in 2011 | 1,212,225 | 1,262,500 | |
| Unamortized premium on bonds issued | - | - | |
| Unamortized debt issue costs, net | (28,021) | (32,302) | |
| Total | 1,184,204 | 1,230,198 |
Short-term bonds outstanding as of 30 June 2008 and 31 December 2007 were as follows:
| 30 June 2008 | 31 December 2007 | ||
| 14% Druzhba Nova Bonds due in 2008 |
200,000 |
200,000 | |
| Unamortized premium on bonds issued |
- |
- | |
| Unamortized debt issue cost |
- |
- | |
| Total |
200,000 |
200,000 |
9. LONG-TERM FINANCE LEASE AND VENDOR FINANCING OBLIGATIONS
Finance lease obligations and other long-term payables as of 30 June 2008 and 31 December 2007 were as follows:
|
30 June 2008 |
31 December 2007 | ||
| Finance lease obligations, long-term portion |
204,951 |
151,591 | |
| Long-term payables for property, plant and equipment under vendor financing arrangements | 1,165 | 2,624 | |
| Total | 206,116 | 154,215 |
The finance lease obligations represent amounts due under agreements for lease of trucks, agricultural machinery and equipment with Ukrainian and foreign companies. The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as of 30 June 2008:
| Minimum lease payments | Present value of minimum lease payments | ||
| Payable within one year |
117,508 |
87,012 | |
| Payable in the second year |
96,551 |
74,591 | |
| Payable in the third to fifth year inclusive |
153,816 |
130,360 | |
| 396,875 | 291,963 | ||
| Less: | |||
| Future finance charges | (75,912) | - | |
| Present value of lease obligations | 291,963 | 291,963 | |
| Less: | |||
| Current portion | (87,012) | ||
| Finance lease obligations, long-term portion | 204,951 |
10. CONTINGENCIES AND CONTRACTUAL COMMITMENTS
Operating environment − The principal business activities of the Group are within Ukraine. Laws and regulations affecting businesses operating in Ukraine are subject to rapid changes and the Group's assets and operations could be at risk if there are any adverse changes in the political and business environment.
Taxation − Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. In respect of this, the local and national tax environment in Ukraine is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukraine laws and regulations can lead to the imposition of severe penalties and interest. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and interest, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.
Legal issue − The Group is involved in litigations and other claims that are in the ordinary course of its business activities. Management believes that the resolution of such matters will not have a material impact on its financial position or operating results.
Contractual commitments on purchase of raw materials and biological asset − As of 30 June 2008, sunflower seeds purchase commitments on forward contracts amounted to UAH 127,823 thousand (31 December 2007: UAH 545,875 thousand).
The fair value of the forward contracts obligations was not materially different from the purchase obligations as of 30 June 2008 as compared to 31 December 2007, thus neither assets nor liabilities in respect of the financial instrument were recognized as of 30 June 2008.
As of 30 June 2008, purchase commitments on acquisition of biological assets from foreign suppliers amounted to UAH 25,683 thousand (31 December 2007: UAH 44,108 thousand).
Contractual commitments on purchase of property, plant and equipment − As of 30 June 2008, purchase commitments of the Group on contracts with foreign and Ukrainian suppliers for the purchase of property, plant and equipment for development of agricultural operations amounted to UAH 11,230 thousand (31 December 2007: UAH 19,446 thousand).
Contractual commitments on sales of sunflower oil − As of 30 June 2008, commitments of the Group on sunflower oil sales comprised UAH 14,195 thousand (31 December 2007: UAH 64,990 thousand).
11. FOREIGN CURRENCY EXCHANGE RATE CHANGE
The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure, at the same time the management of the Group sets limits on the level of exposure by currencies.
On May 22, 2008 the National Bank of Ukraine established the official exchange rate UAH 4.85 to USD 1. This has the effect of revaluation of Ukrainian hryvnia from UAH 5.05 to USD 1 which has been fixed since April 2005.
The carrying amount of the Group's foreign currency denominated monetary assets and liabilities as of 30 June 2008 are as follows:
| USD- denominated | EUR- denominated | |||
| Assets | ||||
|
Prepayments for property, plant and equipment | - |
54,485 | ||
|
Trade accounts receivable | 7,882 |
- | ||
|
Other current assets | 10,790 |
- | ||
|
Bank deposits with maturity over three months | 247,294 |
- | ||
|
Cash and cash equivalents | 272,463 |
362 | ||
| Total assets | 538,429 |
54,847 | ||
| Liabilities | ||||
|
Trade accounts payable | 4,382 |
15,891 | ||
|
Accounts payable for property, plant and equipment | 181 | 26,700 | ||
|
Bank borrowings | 382,583 |
396,119 | ||
|
Bonds issued | 1,184,204 |
- | ||
|
Finance lease and vendor financing obligations | 14,735 | 158,502 | ||
| Total liabilities | 1,586,085 |
597,213 |
Below are details the Group's sensitivity to strengthening of the Ukrainian Hryvnia against US Dollar and EURO by 10%. 10% is the sensitivity rate which represents management's assessment of the reasonable 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 a 10% change in foreign currency rates.
| USD-denominated | EUR-denominated | |||
|
Profit or loss * | 104,776 |
54,237 | ||
* The effect of foreign currency sensitivity on shareholders' equity is equal to that on profit or loss.
During the six months ended 30 June 2008, the Ukrainian Hryvnia depreciated against EURO by 2.8%. Ukrainian Hryvnia appreciated against U.S. Dollar by 4.0% during the same period.
12. SEGMENT INFORMATION
The following is an analysis of revenue, results for the period and gain/(loss) arising on fair value recognition of biological assets and agricultural produce by the Group's primary basis of segmentation:
| Revenue | Segment result | Gain / (loss) from recognition at fair value | |||||||||
| Six months ended | Six months ended | Six months ended | |||||||||
| 30 June 2008 | 30 June 2007 | 30 June 2008 | 30 June 2007 | 30 June 2008 | 30 June 2007 | ||||||
| Poultry and related operations | 1,693,160 | 724,677 | 589,917 | 185,139 | 785 | (17) | |||||
| Other agricultural operations | 207,225 | 109,231 | 10,368 | 3,737 | (12,182) | (5,590) | |||||
| Grain growing | 12,703 | 9,817 | 95,860 | 70,261 | 78,503 | 56,222 | |||||
| Unallocated expenses | (25,411) | (16,382) | |||||||||
| Total of continuing operations | 1,913,088 | 843,725 | 670,734 | 242,755 | 67,106 | 50,615 | |||||
13. NET PROFIT FOR THE PERIOD
The significant increase in MHP's net profit for the six months ended 30 June 2008 as compared to the six months ended 30 June 2007 was primarily caused by the increase of gross profit of poultry and related operations segment. The gross profit increase is attributable to the increase of sale volume and chicken meat price. The cost of sales of chicken meat per 1 kg for the six months 2008 approximates respective cost of sales for the fourth quarter 2007.
14. SUBSEQUENT EVENTS
Redemption of bonds
14% Druzhba Nova Bonds with nominal amount UAH 200,000 thousand due in August 2008 have been fully settled on due date. The redemption of bonds was financed at the expense of the two-year credit facility from ING Bank (Ukraine).
Credit facility prolongation
The credit facility of USD 25,000 thousand (UAH 121,250 thousand) from ING Bank (Ukraine) period has been extended for one year till October 2009.
Acquisition of subsidiary
The Group has acquired 80% interest in Private Enterprise "Ukrainian Bacon" for UAH 121,250 thousand. The majority of the purchase price has been paid to settle Ukrainian Bacon's existing liabilities. The acquisition of Ukrainian Bacon has been completed and corporate rights acquired by the Group in July 2008. Ukrainian Bacon produces sausages and cooked meats.