Last checked at 18 Aug 2011 07:00
PRESS RELEASE
August 18, 2011, Kyiv, Ukraine
MHP S.A.
Unaudited Financial Results for the Second Quarter and Six Months Ended 30 June 2011
MHP S.A. ("MHP" or the "Company", LSE ticker: "MHPC"), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, today announces its unaudited results for the second quarter and the six months ended 30 June 2011.
Key operational highlights
Poultry and related operations
o During the first half of the year all the Company's chicken production facilities continued to operate at full capacity.
o Consumer demand for chicken remained high and the Company was able to sell close to 100% of the chicken meat produced.
o The Company's share of industrially produced chicken in Ukraine in H1 2011 was around 50%.
o The volume of chicken meat sales to external customers in H1 2011 increased by 8% year-on-year to 182,100 tonnes due to more effective use of existing capacity.
o The average chicken meat price for Q2 2011 was 9% higher compared to Q1 2011, and increased slightly by 1% to UAH 13.97 compared to Q2 2010. In H1 2011 the chicken meat price increased by 2% to UAH 13.44 compared to UAH 13.13 in H1 2010.
o The average price of sunflower oil in H1 2011 increased by 57% to US$ 1,303 per tonne (H1 2010: US$ 830 per tonne).
Grain growing
o In total, in 2011 the Company expects to harvest crops from 60% more land in its grain growing segment compared with 2010.
o MHP's current yields of wheat (5.0 tonnes per hectare) and rape (2.8 tonnes per hectare) are close to twice Ukraine's average.
Other agriculture
o Sausage and cooked meat production volumes increased from 14,200 tonnes in H1 2010 to 17,300 tonnes in H1 2011. The substantial volume growth was driven by increased production at Ukrainian Bacon in accordance with the Company's strategy of growing its meat processing operations.
o The Company's market share of Ukraine's sausage and cooked meat products in Ukraine was around 10%.
Vinnytsia - new green field expansion project
o Construction work on the Vinnytsia project, which commenced as announced previously in May 2010, is running to schedule and on budget.
o Production of Phase 1 is expected to be launched in the beginning of 2013 and reach its full capacity of 220,000 tonnes of poultry per annum in 2015.
Key financial highlights
Q2 2011 highlights
o Revenue increased by 26% to US$ 281 million (Q2 2010: US$ 223 million).
o EBITDA increased by 21% to US$ 101 million (Q2 2010: US$ 84 million).
o Consolidated EBITDA margin increased quarter-by-quarter from 23% in Q1 2011 to 36% in Q2 2011, but remained quite stable year-on-year (Q2 2010: 37%).
o Net income remained stable at US$ 67 million despite the operating profit growth due to effect of non-cash foreign exchange losses/gains driven by increase in Euro to Dollar exchange-value correlation.
H1 2011 highlights
o Revenue increased by 25% to US$ 527 million (H1 2010: US$ 423 million).
o EBITDA increased by 19% to US$ 158 million (H1 2010: US$ 133 million)
o Consolidated EBITDA margin remained high at 30%, at approximately same level compared to the same period last year (H1 2010: 31%).
o Net income decreased by 16% to US$ 86 million (H1 2010: US$ 102 million) despite the operating profit growth due to effect of non-cash foreign exchange losses/gains driven by increase in Euro to Dollar exchange-value correlation.
Commenting on the results, Yuriy Kosiuk, Chief Executive Officer of MHP, said:
"I am very happy to be able to say that the Company has continued to perform strongly in the first half of 2011, with robust revenue and EBITDA growth and the maintenance of our sector-leading margins. Once again, we have reaped the benefits of our vertically integrated business model, where we combine poultry production with grain growing, as we have remained protected against grain price inflation.
Poultry prices growth in H1 2011 was rather modest, nevertheless, in line with world poultry price dynamics. Now our prices for chicken meat are steadily increasing again. Our expectations regarding grain segment results are favorable due to the significant land expansion in 2010 and strong grain prices.
I am also pleased to provide you today with an update on this year's harvests. The harvest of early crops, such as rape and wheat proceeded well and resulted in good yields, which, as usual, are much higher than the Ukrainian average. Meanwhile, initial observations indicate that our sunflower and corn harvests will also produce good yields.
I am also delighted that during the period Yuriy Logush joined the business as Vice President of our Consumer Products Division. Yuriy Logush has a wealth of relevant experience, having been on Kraft's Board of Management for Central and Eastern Europe, Middle East, Africa for nine years, and he will focus on optimising our marketing strategy both in Ukraine and abroad.
Looking ahead, the quality of our products continues to attract consumers and demand remains high. We are therefore confident of that we will continue to expand in line with our strategy and produce strong results."
- end -
MHP's management will host a conference call for investors and analysts followed by a Q&A session. The dial-in details are:
Date: Thursday, 18 August 2011
Time: 09.00 New York / 14.00 London / 16.00 Kyiv / 17.00 Moscow
Title: MHP - Q2 and H1 2011 Financial Results
International/UK Dial in: +44 (0) 1452 555 566
USA free call: +1 866 966 9439
Russia free call 8108 002 097 2044
Conference ID 88832692
A live webcast of the presentation will be available at:
https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=664617113
Alternative URL:
https://webconnect.webex.com/
Click on "Unlisted Events"
Event number: 664 617 113Event password: N/A
For further information please contact:
For investor relations enquiries Anastasiia Sobotiuk (Kyiv)
For media enquiries Marc Cohen (London) Oleg Leonov (Moscow)
|
Kyiv: +38 044 207 99 58 a.sobotyuk@mhp.com.ua
London: +44 20 7831 3113 Moscow: +7 495 795 06 23
|
Financial overview
Q2 2011 | Q2 2010 | % change* | H1 2011 | H1 2010 | % change* | ||
Revenue | US$, m | 281 | 223 | 26% | 527 | 423 | 25% |
IAS 41 standard gains | US$, m | 26 | 14 | 88% | 18 | 10 | 83% |
Gross profit | US$, m | 100 | 78 | 28% | 156 | 125 | 25% |
Gross margin | % | 36% | 35% | 1% | 30% | 30% | - |
Operating profit | US$, m | 87 | 69 | 26% | 129 | 105 | 23% |
Operating margin | % | 31% | 31% | - | 24% | 25% | -1% |
EBITDA | US$, m | 101 | 84 | 21% | 158 | 133 | 19% |
EBITDA margin | % | 36% | 37% | -1% | 30% | 31% | -1% |
Net income | US$, m | 67 | 67 | - | 86 | 102 | -16% |
Net income margin | % | 24% | 30% | -6% | 16% | 24% | -8% |
* Delta in percentage for ratios (% indicators) is calculated as a difference between the ratio in the current reporting period and the ratio in the previous reporting period
Q2 2011 Consolidated Financial Results
Revenue increased by 26% to US$ 281 million (Q2 2010: US$ 223 million) mostly as a result of chicken volume growth, sunflower oil prices increase, and increase both in prices and volumes of processed meat.
EBITDA increased by 21% to US$ 101 million (Q2 2010: US$ 84 million) compared to the same period last year, while EBITDA remained relatively stable at 36% (Q2 2010: 37%).
Net income from continuing operations remained stable at US$ 67 million despite the operation profit growth due to the net effect of non-cash foreign exchange losses/gains of US$ 16 million (US$ 3 million foreign exchange losses in Q2 2011 versus US$ 13 million foreign exchange gains in Q2 2010) related to Euro/USD exchange rate.
H1 2011 Consolidated Financial Results
The dynamics of H1 2011 consolidated financial results are those seen over Q2 2011 period. Revenue increased by 25% to US$ 527 million (H1 2010: US$ 423 million). The reasons of revenue growth are the same as for Q2 2011: increase of chicken volumes, sunflower oil prices increase, increase both in volumes and prices for meat processing products.
EBITDA increased by 19% to US$ 158 million (H1 2010: US$ 133 million), EBITDA margin remained fairly stable at 30% (H1 2010: 31%).
Net income decreased to US$ 86 million (H1 2010: US$ 102 million) despite the operating profit growth due to the net effect of non-cash foreign exchange losses/gains of US$ 34 million (US$ 9 million foreign exchange losses in H1 2011 versus a US$ 25 million foreign exchange gains in H1 2010) related to Euro/USD exchange rate.
Poultry and related operations
Q2 2011 | Q2 2010 | % change | H1 2011 | H1 2010 | % change | ||
Revenue | US$, m | 237 | 198 | 20% | 446 | 375 | 19% |
- Poultry and other | US$, m | 187 | 160 | 17% | 336 | 296 | 13% |
- Sunflower oil | US$, m | 50 | 38 | 31% | 110 | 79 | 40% |
IAS 41 standard gains | US$, m | 1 | 0 | 302% | 6 | 3 | 106% |
Gross profit | US$, m | 59 | 62 | -5% | 112 | 106 | 5% |
Gross margin | % | 25% | 31% | -6% | 25% | 28% | -3% |
EBITDA | US$, m | 64 | 70 | -8% | 121 | 120 | 1% |
EBITDA margin | % | 27% | 35% | -8% | 27% | 32% | -5% |
EBITDA per 1 kg | US$ | 0,66 | 0,81 | -19% | 0,67 | 0,71 | -7% |
Q2 2011 Poultry and related operations segment financial results
Poultry | Q2 2011 | Q2 2010 | % change | H1 2011 | H1 2010 | % change |
Sales volume, third parties tonnes | 97,800 | 85,500 | 14% | 182,100 | 168,500 | 8% |
Price per 1 kg net VAT, UAH | 13.97 | 13.82 | 1% | 13.44 | 13.13 | 2% |
Sunflower oil | ||||||
Sales volume, third parties tonnes | 38,600 | 46,600 | -17% | 84,500 | 95,200 | -11% |
Price per 1 tonne net VAT, US$ | 1,301 | 811 | 60% | 1,303 | 830 | 57% |
In Q2 2011, chicken meat sales volumes to external consumers on an adjusted-weight basis increased by 14% to 97,800 tonnes (Q2 2010: 85,500 tonnes) as a result of production growth due to more effective use of existing capacity as well as due to decrease in stocks.
The average chicken meat sales price increased slightly by 1% to UAH 13.97 per kg (Q2 2010: UAH 13.82 per kg). In Q2 2011 sunflower oil were sold mainly for export andaverage sunflower oil price increased by 60% to US$ 1,301 per tonne (Q2 2010: US$ 811 per tonne).
Demand for chicken meat remained high and the Company sold close to 100% of the chicken produced. Therefore, the segment revenue increased by 20% to US$ 237 million (Q2 2010: US$ 198 million).
Poultry production costs in Q2 2011 rose by approximately 15% compared to Q2 2010 mostly due to the increase in the market price of grain harvested in 2010 and increase in production cost of sunflower meal due to higher sunflower seeds prices. Gross profit decrease by 5% to US$ 59 million (Q2 2010: US$ 62 million), as well as gross profit margin fall from 31% in Q2 2010 to 25% in Q2 2011.
Segment EBITDA decreased by 8% to US$ 64 million (Q2 2010: US$ 70 million), whilst EBITDA margin decreased too (27% in Q2 2011 compared to 35% in Q2 2010). The reason for negative EBITDA dynamic in poultry segment was lower than expected chicken prices growth during the reported quarter, which we expect to be improved in the second half of the year.
H1 2011 Poultry and related operations segment financial results
Chicken meat sales volumes to the third parties on an adjusted-weight basis increased by 8% to 182,100 tonnes in H1 2011 compared to 168,500 tonnes in H1 2010. The average chicken meat sales price increased by 2% to UAH 13.44 per kg (H1 2010: UAH 13.13 per kg). Average sunflower oil prices increased by 57% to US$ 1,303 per tonne (H1 2010: US$ 830 per tonne).
Poultry and related operations segment revenue rose by 19% to US$ 446 million compared to US$ 375 million in H1 2010.
In line with the Company's expectations the increase of poultry production costs in H1 2011 was approximately 10% year-on-year mainly driven by grain prices increase. Gross profit increased by 5% to US$ 112 million (H1 2010: US$ 106 million), while gross profit margin decreased from 28% in H1 2010 to 25%.
Poultry segment EBITDA remained respectively stable US$ 121 million (H1 2010: US$ 120 million). EBITDA margin decreased from 32% in H1 2010 to 27% in H1 2011 as a consequence of poor dynamic of chicken meat prices during the Q2 2011.
Grain growing operations
| Q2 2011 | Q2 2010 | % change | H1 2011 | H1 2010 | % change | |
Revenue | US$, m | 9 | 1 | 1371% | 16 | 3 | 426% |
IAS 41 standard gains | US$, m | 26 | 14 | 85% | 15 | 8 | 89% |
Gross profit | US$, m | 38 | 16 | 139% | 39 | 16 | 135% |
EBITDA | US$, m | 39 | 16 | 143% | 39 | 16 | 137% |
The Company's grain growing segment revenue in H1 2011 was mostly generated by the sale of grain, mainly wheat that has already been revalued to market prices in 2010. Due to the harvest cycle, there is a significant seasonality in this division and higher revenue is expected in the second half of the year.
In 2011 MHP expects to harvest by 60% more land (additional 100,000 hectares under control) compared to 2010, which will significantly increase the volumes available for external grain sales. The Company continues to focus on growing 4 main crops: corn, sunflower, wheat and rape.
The financial result in grain growing segment in H1 2011 is mostly related to revaluation of crops in fields according to IAS 41 standard. The principal reason in higher returns anticipated from grain growing operations is due to larger land plots to be cropped in 2011 compared to 2010.
Other agricultural operations
| Q2 2011 | Q2 2010 | % change | H1 2011 | H1 2010 | % change | |
Revenue | US$, m | 34 | 24 | 41% | 66 | 45 | 46% |
- Meat processing | US$, m | 25 | 18 | 41% | 45 | 33 | 35% |
- Other | US$, m | 10 | 7 | 41% | 21 | 12 | 76% |
IAS 41 standard gains | US$, m | -1 | 0 | n/a | -2 | -1 | n/a |
Gross profit | US$, m | 3 | 1 | 371% | 6 | 2 | 166% |
Gross margin | % | 10% | 3% | 7% | 9% | 5% | 4% |
EBITDA | US$, m | 4 | 1 | 402% | 8 | 3 | 145% |
EBITDA margin | % | 12% | 3% | 9% | 12% | 7% | 5% |
Meat processing products | Q2 2011 | Q2 2010 | % change | H1 2011 | H1 2010 | % change | |
Sales volume, third parties tonnes | 9,400 | 8,000 | 18% | 17,300 | 14,200 | 22% | |
Price per 1 kg net VAT, UAH | 19.50 | 17.08 | 14% | 18.91 | 17.03 | 11% | |
Revenue from Other Agricultural Operations in Q2 2011 increased by 41% to US$ 34 million compared to US$ 24 million in Q2 2010 due to growth of meat processing products revenue as well as fruit and milk sales. In H1 2011 segmental revenue increased by 46% from US$ 45 million to US$ 66 million.
Sales volumes of sausage and cooked meat products increased by 18% to 9,400 tonnes in Q2 2011 compared to Q2 2010 and increased by 22% to 17,300 tonnes in H1 2011 compared to H1 2010 mainly due to Ukrainian Bacon production growth and the increasing consumer demand.
The average sausage and cooked meat prices increased greatly, increased by 14% in Q2 2011 (UAH 19.50 per kg excluding VAT in Q2 2011 compared to UAH 17.08 per kg in Q2 2010) and 11% in H1 2011 (UAH 18.91 per kg in H1 2011 compared to UAH 17.03 per kg in H1 2010).
The gross profit of the segment was US$ 3 million in Q2 2011 (Q2 2010: US$ 1 million) and US$ 6 million in H1 2011 (H1 2010: US$ 2 million). EBITDA also increased considerably, it was US$ 4 million in Q2 2011 (Q2 2010: US$ 1 million) and US$ 8 million in H1 2011 (H1 2010: US$ 3 million). EBITDA margin greatly increased to 12% in Q2 2011 as well as in H1 2011. The key driver for this strong performance was the growth in the amount of meat processing.
MHP is a market leader in meat processing in Ukraine with market share of about 10%. More than 50% of the meat required for sausage production is internally produced chicken meat.
Current Group financial position, cash flow and liquidity
Cash Flows US$, m | Q2 2011 | Q2 2010 | H1 2011 | H1 2010 |
Cash from operations | 40 | 59 | 103 | 106 |
Change in working capital | (2) | (21) | (28) | (42) |
Net Cash from operating activities | 38 | 38 | 75 | 64 |
Cash from investing activities | (59) | (40) | (106) | (58) |
Non-cash investments | (22) | (2) | (32) | (2) |
CAPEX | (81) | (42) | (138) | (60) |
Cash from financing activities | (14) | 186 | (59) | 179 |
Non-cash financing | 22 | 2 | 32 | 2 |
Deposits | 52 | (164) | 119 | (163) |
Total financial activities | 60 | 24 | 92 | 18 |
Total change in cash | 17 | 20 | 29 | 22 |
Cash flow from operations before working capital changes was US$ 103 million in H1 2011 (H1 2010: US$ 106), therefore it remained stable compared to the same periods 2010.
The total increase in working capital in H1 2011 was US$ 28 million. The main contributor to the change in working capital was the cost of the annual grain sowing campaign in the grain growing segment.
Total CAPEX in H1 2011 of US$ 138 million was mostly related to the capital intensive Vinnytsia project. Since the start of construction in May 2010, approximately US$ 220 million has been invested in this project.
Vinnytsia - new green field project
Construction work on the Vinnystia project, which commenced as announced previously in May 2010, is running to schedule and on budget. Significant progress has already been made with the poultry farm, fodder complex and infrastructure at the Vinnytsia site. All equipment required for Phase 1 is already contracted and is being dispatched now.
Poultry Farm
·; Construction of the hatchery is 70% complete
·; 2 brigades (chicken rearing zones) with 38 chicken houses in each are 55% complete
·; Construction of the slaughter house for Phase 1 (220,000 tonnes of poultry per annum) is 65% complete
Installation of the equipment will commence in September 2011.
Fodder Plant and Grain Storage Facilities
·; Construction of the sunflower seeds silo (200,000 m3) is 95% complete, installation of the equipment is 95% complete
·; Construction of the grain silo (200,000 m3) is 95% complete, installation of the equipment is 85% complete
·; Construction of Fodder Plant and Sunflower Crushing Plant is in progress now
Infrastructure and Social Responsibility
The construction of electric power substation with a capacity of 110 kW is 95% complete, the transmission networks are 80% complete, system of gas supply (45 km) is 80% complete. The construction of water supply systems (60 km) and water treatment station with a capacity of 15 thousand m3 of water per day has been started.
The construction of two independent electric power substations is 95% complete. In addition, as part of the facility, MHP will be constructing 45km of new roads (over 50% complete), 260 new residential apartments, a hostel with a capacity for 800 people and a kindergarten with a capacity for 260 children.
As announced earlier in June 2010, the Company is building additional sites at its Shakhtarska breeding farm for 300 million hatchery eggs production per annum to satisfy Vinnytsia poultry complex needs.
MHP has set up a section on its website dedicated to Project Vinnystia where regular updates will be provided, as well as photographs documenting the stages of the project: http://www.mhp.com.ua/en/node/1082/.
Debt Structure
Debt | 30.06.2011 | 31.03.2011 | 31.12.2010 |
Total Debt US$, m | 818 | 805 | 832 |
Cash and bank deposits | 84 | 118 | 174 |
Net Debt | 734 | 687 | 658 |
LTM EBITDA | 350 | 332 | 325 |
Net Debt /LTM EBITDA | 2.10 | 2.07 | 2.03 |
As of June 30, 2011, the Company's total debt was US$ 818 million with an average weighted cost of debt around 9%. Approximately 70% of the Company's total debt is the Eurobond that matures in April 2015. The Company's total debt is mainly denominated in US dollars.
At the end of H1 2011, MHP had US$ 84 million in cash and short-term bank deposits.
The Net Debt/EBITDA ratio at the end of the period was 2.10 (Eurobond covenant: 2.5).
As a hedge for currency risks, revenue from the export of sunflower oil, sunflower husks and chicken meat are denominated in US Dollars, fully covering debt service expenses.
Outlook
Consumer demand for poultry meat continues to remain high and current chicken prices are around 14% higher compared to the same period of the previous year.
This year the Company expects to harvest crops from 60% more land (an additional 100,000 hectares) compared to 2010. This is expected to lead to a significant increase in our grain production external sales volumes and profitability for the current year.
We continue to increase production volumes of sausages and cooked meat that we produce, whilst also producing a wider range of value-added products at our meat processing plants. Due to the investments made in 2010, the Company increased the meat processing capacity at its Ukrainian Bacon facility and will continue to reap the production benefits during 2011.
The CAPEX program in 2011 is mostly related to construction and beginning of equipment installation on the new Vinnitsa poultry production complex, where the construction is on schedule.
We are confident that we will be able to continue to implement our strategy and keep on delivering strong financial results cementing our position as one of the leading agro-industrial companies in Ukraine and the region.
- End -
Notes to Editors:
About MHP
MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times. MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.
Since May 15, 2008, MHP has traded on the London Stock Exchange under the ticker symbol MHPC.
Forward-Looking Statements
This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP S.A. does not intend to change these statements to reflect actual results.
MHP S.A.
AND ITS SUBSIDIARIES
Condensed Consolidated Interim Financial Statements
For the six months
ended 30 June 2011
MHP S.A. AND ITS SUBSIDIARIES
TABLE OF CONTENTS
Page
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2011
| |
Condensed consolidated interim balance sheet | 2 |
Condensed consolidated interim statement of comprehensive income | 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 statements | 7-16 |
MHP S.A. AND ITS SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET | ||||
AS OF 30 JUNE 2011 (in US Dollars and in thousands) | ||||
Notes | 30 June 2011 | 31 December 2010 | ||
ASSETS | ||||
Non-current assets | ||||
Property, plant and equipment, net | 4 | 850,207 | 744,965 | |
Land lease rights, net | 24,175 | 23,216 | ||
Deferred tax assets | 7,824 | 5,190 | ||
Long-term VAT recoverable, net | 20,880 | 24,017 | ||
Non-current biological assets | 45,348 | 43,288 | ||
Other non-current assets | 15,728 | 14,251 | ||
Total non-current assets | 964,162 | 854,927 | ||
Current assets | ||||
Inventories | 116,006 | 113,491 | ||
Biological assets | 6 | 273,288 | 135,410 | |
Agricultural produce | 5 | 50,402 | 113,850 | |
Other current assets, net | 13,688 | 21,331 | ||
Taxes recoverable and prepaid, net | 102,104 | 107,824 | ||
Trade accounts receivable, net | 58,076 | 53,395 | ||
Short-term bank deposits | 15,265 | 134,460 | ||
Cash and cash equivalents | 68,429 | 39,321 | ||
Total current assets | 697,258 | 719,082 | ||
Total assets | 1,661,420 | 1,574,009 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
Equity attributable to equity holders of the Parent | ||||
Share capital | 284,505 | 284,505 | ||
Treasury shares | (40,555) | (40,555) | ||
Additional paid-in capital | 179,565 | 179,565 | ||
Revaluation reserve | 18,781 | 18,781 | ||
Cumulative translation differences | (238,726) |
| (237,751) | |
Retained earnings | 516,102 | 436,439 | ||
719,672 | 640,984 | |||
NON-Controlling interest | 36,032 | 29,384 | ||
Total equity | 755,704 | 670,368 | ||
Non-current liabilities | ||||
Long-term bank borrowings | 7 | 69,968 | 58,426 | |
Bonds issued | 8 | 564,888 | 562,886 | |
Long-term finance lease obligations | 9 | 36,134 | 36,988 | |
Other long-term payables | 326 | 401 | ||
Deferred tax liabilities | 5,247 | 2,502 | ||
Total non-current liabilities | 676,563 | 661,203 | ||
Current liabilities | ||||
Trade accounts payable | 21,146 | 19,012 | ||
Other current liabilities | 39,911 | 33,646 | ||
Accounts payable for property, plant and equipment | 10,035 | 4,396 | ||
Short-term bank borrowings and current portion of long-term bank borrowings | 7 | 110,277 | 140,092 | |
Current portion of bonds issued | 8 | 9,931 | 9,892 | |
Interest accrued | 11,519 | 11,573 | ||
Current portion of finance lease obligations | 9 | 26,334 | 23,827 | |
Total current liabilities | 229,153 | 242,438 | ||
Total liabilities | 905,716 | 903,641 | ||
Contingencies and contractual commitments | 10 | |||
Total liabilities and shareholders' equity | 1,661,420 | 1,574,009 |
On behalf of the Board
___________________________ Yuriy Kosyuk/Chief Executive Officer | _______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.
MHP S.A. AND ITS SUBSIDIARIES | ||
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME | ||
FOR THE SIX MONTHS ENDED 30 June 2011 (in US Dollars and in thousands, except per share data) | ||
Six months ended 30 June | ||||
Notes | 2011 | 2010 | ||
Revenue | 527,380 | 422,945 | ||
Net change in fair value of biological assets and agricultural produce | 18,113 | 9,897 | ||
Cost of sales | (389,126) | (308,004) | ||
Gross profit | 156,367 | 124,838 | ||
Selling, general and administrative expenses | (51,024) | (43,696) | ||
VAT refunds and other government grants income | 30,828 | 28,774 | ||
Other operating expenses, net | (7,620) | (5,096) | ||
Operating profit | 128,551 | 104,820 | ||
Finance income | 4,525 | 4,157 | ||
Finance costs | (35,302) | (30,675) | ||
Foreign exchange (losses)/gains, net | (8,911) | 24,503 | ||
Other (expenses)/income | (68) | (66) | ||
Other expenses, net | (39,756) | (2,081) | ||
Profit before tax | 88,795 | 102,739 | ||
Income tax (expense)/benefit | (2,484) | (505) | ||
profit for the PERIOD | 13 | 86,311 | 102,234 | |
Other comprehensive income/(loss) | ||||
Cumulative translation differences | (975) | 4,737 | ||
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | 85,336 | 106,971 | ||
PROFIT Attributable to: | ||||
Equity holders of the Parent | 79,663 | 98,642 | ||
Minority interest | 6,648 | 3,592 | ||
TOTAL COMPREHENSIVE INCOME Attributable to: | ||||
Equity holders of the Parent | 78,688 | 103,379 | ||
Minority interest | 6,648 | 3,592 | ||
Earnings per share | ||||
Basic and diluted (USD per share): | 0.74 | 0.90 | ||
On behalf of the Board
_______________________________ Yuriy Kosyuk/Chief Executive Officer | ______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 16 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 2011 (in US Dollars and in thousands) | ||
Attributable to Equity Holders of the Parent | Non-controlling interest | Total equity | |||||||||||||||
Share capital
| Treasury shares | Additional paid-in capital
| Revaluation reserve
| Cumulative translation differences | Retained earnings
| Total
|
|
| |||||||||
1 January 2010 | 284,505 | - | 178,815 | 18,781 | (238,521) | 231,044 | 474,624 | 19,784 | 494,408 | ||||||||
Profit for the period | - | - | - | - | - | 98,642 | 98,642 | 3,592 | 102,234 | ||||||||
Other comprehensive income | - | - | - | - | 4,737 | - | 4,737 | - | 4,737 | ||||||||
Total comprehensive income for the period | - | - | - | - | 4,737 | 98,642 | 103,379 | 3,592 | 106,971 | ||||||||
Acquisition of treasury shares | - | (30,951) | - | - | - | - | (30,951) | - | (30,951) | ||||||||
30 June 2010
| 284,505 | (30,951) | 178,815 | 18,781 | (233,784) | 329,686 | 547,052 | 23,376 | 570,428 | ||||||||
1 January 2011 | 284,505 | (40,555) | 179,565 | 18,781 | (237,751) | 436,439 | 640,984 | 29,384 | 670,368 | ||||||||
Profit for the period | - | - | - | - | - | 79,663 | 79,663 | 6,648 | 86,311 | ||||||||
Other comprehensive loss | - | - | - | - | (975) | - | (975) | - | (975) | ||||||||
Total comprehensive income for the period | - | - | - | - | (975) | 79,663 | 78,688 | 6,648 | 85,336 | ||||||||
30 June 2011 | 284,505 | (40,555) | 179,565 | 18,781 | (238,726) | 516,102 | 719,672 | 36,032 | 755,704 | ||||||||
On behalf of the Board
_______________________________ Yuriy Kosyuk/Chief Executive Officer | _______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.
MHP S.A. AND ITS SUBSIDIARIES |
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS | |||
FOR THE SIX MONTHS ENDED 30 JUNE 2011 | |||
(in US Dollars and in thousands) | |||
Six months ended 30 June | |||
2011 | 2010 | ||
Operating activities | |||
Profit before income tax | 88,795 | 102,739 | |
Adjustments to reconcile profit to net cash provided by operations | - | ||
Depreciation and amortization expense | 29,211 | 27,919 | |
Finance costs, net | 35,302 | 30,675 | |
Finance income | (4,525) | (4,157) | |
Net change in fair value of biological assets and agricultural produce | (18,113) | (9,897) | |
Foreign exchange losses/(gains), net | 8,911 | (24,503) | |
Change in allowance for irrecoverable amounts and direct write-offs | (422) | 3,089 | |
Loss on disposal of property, plant and equipment | 71
| 128 | |
Operating profit before working capital changes | 139,230 | 125,993 | |
(Increase)/decrease in inventories | (2,632) | 15,100 | |
Increase in biological assets | (89,340) | (40,384) | |
Decrease in agricultural produce | 42,710 | 25,583 | |
Decrease in other current assets | 7,914 | 3,293 | |
Decrease/(increase) in taxes recoverable and prepaid | 10,501 | (11,382) | |
Increase in trade accounts receivable | (4,822) | (5,019) | |
(Decrease)/increase in other long-term payables | (173) | 819 | |
Increase/ (decrease) in trade accounts payable | 1,983 | (20,769) | |
Increase/ (decrease) in other current liabilities | 5,479 | (9,465) | |
Cash generated by operations | 110,850 | 83,769 | |
Finance costs paid | (39,356) | (22,254) | |
Interest received | 4,714 | 3,522 | |
Income tax paid | (1,227) | (876) | |
Net cash generated by operating activities | 74,981 | 64,161 | |
Investing activities | |||
Purchases of property, plant and equipment | (99,379) | (44,977) | |
Purchases of other non-current assets | (4,763) | (10,146) | |
Proceeds from disposals of property, plant and equipment | 127 | 178 | |
Purchases of non-current biological assets | (2,495) | (2,820) | |
Investments in short-term deposits | (15,298) | (164,801) | |
Withdrawals of short-term deposits | 134,663 | 1,584 | |
Loans provided to employees, net | (213) | (886) | |
Net cash generated by/(used in) investing activities | 12,642 | (221,868) | |
The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.
MHP S.A. AND ITS SUBSIDIARIES |
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS | |||
FOR THE SIX MONTHS ENDED 30 JUNE 2011 | |||
(in US Dollars and in thousands) | |||
Six months ended 30 June | |||
2011 | 2010 | ||
Financing activities | |||
Acquisition of treasury shares | - | (30,951) | |
Proceeds from loans received | 40,970 | 196,059 | |
Repayment of bank loans | (89,230) | (295,520) | |
Proceeds from corporate bonds issued, at par | - | 330,000 | |
Premium related to corporate bonds issued | - | 4,792 | |
Transaction costs related to corporate bonds issued | - | (10,087) | |
Finance lease payments | (10,262) | (8,675) | |
Repayment of other financing | - | (6,498) | |
Net cash used in financing activities | (58,522)
| 179,120 | |
Net increase /(decrease) in cash and cash equivalents | 29,101 | 21,413 | |
Cash and cash equivalents at beginning of the PERIOD | 39,321 | 22,248 | |
Effect of translation to presentation currency and exchange rate changes on the balance of cash and cash equivalents held in foreign currencies | 7 | (31) | |
Cash and cash equivalents at end of the PERIOD | 68,429
| 43,630 | |
On behalf of the Board
_______________________________ Yuriy Kosyuk/Chief Executive Officer | ______________________________________ Viktoria Kapelyushnaya/Chief Financial Officer |
The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.
MHP S.A. AND ITS SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2011
(in US Dollars and in thousands)
1. DESCRIPTION OF THE BUSINESS
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 PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the "MHP S.A. Group" or the "Group". The registered address of MHP S.A. is 5, rue Guillaume Kroll, L-1822 Luxembourg.
The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing, cultivation and selling fruits and producing beef and meat products ready for consumption).The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, sunflower oil, mixed fodder and convenience food products. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, beef, milk, goose meat, foie gras, fruits and feed grains. During the six months ended 30 June 2011, the Group employed over 22,000 people.
During the year ended 31 December 2010 the Group substantially increased its agricultural land bank as part of its vertical integration and diversification strategy through acquisitions of land lease rights.
During the year ended 31 December 2010 the Group also commenced construction of the greenfield Vinnytsya poultry complex.
The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Vinnytsya, Kherson, Sumy, Khmelnitsk regions and Autonomous Republic of Crimea.
The primary subsidiaries and the principal activities of the companies forming the Group as of 30 June 2011 and 31 December 2010 were as follows:
Operating entity | Country of registration | Year established/ acquired
| Principal activity | Effective ownership interest*, % | ||
30 June 2011 | 31 December 2010 | |||||
MHP S.A. | Luxembourg | 2006 | Holding company | Parent | Parent | |
Raftan Holding Limited ("RHL") | Republic of Cyprus | 2006 | Sub-holding Company | 100 | 100 | |
MHP | Ukraine | 1998 | Management, marketing and sales | 99.9 | 99.9 | |
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv ("MZVKK") | Ukraine | 1998 | Fodder and sunflower oil production | 88.5 | 88.5 | |
Peremoga Nova ("Peremoga") | Ukraine | 1999 | Chicken farm | 99.9 | 99.9 | |
Druzhba Narodiv Nova ("Druzhba Nova") | Ukraine | 2002 | Chicken farm | 99.9 | 99.9 | |
Oril-Leader ("Oril") | Ukraine | 2003 | Chicken farm | 99.9 | 99.9 | |
Tavriysky Kombikormovy Zavod ("TKZ") | Ukraine | 2004 | Fodder production | 99.9 | 99.9 | |
Ptahofabryka Shahtarska Nova ("Shahtarska") | Ukraine | 2003 | Breeder farm | 99.9 | 99.9 | |
Myronivska Pticefabrica ("Myronivska") | Ukraine | 2004 | Chicken farm | 99.9 | 99.9 | |
Starynska Ptahofabryka ("Starynska") | Ukraine | 2003 | Breeder farm | 94.9 | 94.9 | |
Ptahofabryka Snyatynska Nova ("Snyatynska") | Ukraine | 2005 | Geese breeder farm | 99.9 | 99.9 | |
Zernoproduct | Ukraine | 2005 | Fodder grain cultivation | 89.9 | 89.9 | |
Katerynopilsky Elevator | Ukraine | 2005 | Fodder production and grain storage, sunflower oil production | 99.9 | 99.9 | |
Druzhba Narodiv ("Druzhba") | Ukraine | 2006 | Cattle breeding, plant cultivation | 99.9 | 99.9 | |
Crimean Fruit Company ("Crimean Fruit") | Ukraine | 2006 | Fruits and fodder grain Cultivation | 81.9 | 81.9 | |
NPF Urozhay ("Urozhay") | Ukraine | 2006 | Fodder grain cultivation | 89.9 | 89.9 | |
Agrofort ("AGF") | Ukraine | 2006 | Fodder grain cultivation | 86.1 | 86.1 | |
Urozhayna Krayina | Ukraine | 2010 | Fodder grain cultivation | 99.9 | 99.9 | |
Ukrainian Bacon | Ukraine | 2008 | Meat processing | 79.9 | 79.9 | |
* 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.
2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. 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 2010. 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 2010 balance sheet was derived from the audited consolidated financial statements.
The functional currency of the Group is the Ukrainian Hryvnia ("UAH"). Transactions in currencies other than the functional currency of the Group are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the statement of financial position date. All realized and unrealized gains and losses arising on exchange differences are included in the consolidated statement of comprehensive income for the period.
These condensed consolidated interim 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 statement of financial position presented are translated at the closing rate as of the date of that statement of financial position;
·; Income and expenses for each statement of comprehensive income are translated at exchange rates at the dates of the transactions;
·; All resulting exchange differences are recognized as a separate component of equity.
The following exchange rates were used:
Currency | Closing rate as of 30 June 2011 | Average for 6 months ended 30 June 2011 | Closing rate as of 31 December 2010 | Average for 6 months ended 30 June 2010 |
UAH/USD | 7.9723 | 7.9580 | 7.9617 | 7.9549 |
UAH/EUR | 11.5000 | 11.1649 | 10.5731 | 10.5831 |
3. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of these financial statements, parties are considered to be related if one party controls, is controlled by, or is under common control with the other party, or exercises significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.
Transactions with related parties under common control - The Group enters into transactions with related parties in the ordinary course of business for the purchase and sale of goods and services and in relation to the provision of financing arrangements.
The 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. The terms of the payables and receivables related to trading activities of the Group do not vary significantly from the terms of similar transactions with third parties.
The transactions with the related parties during the six months ended 30 June 2011 and 30 June 2010 were as follows:
30 June 2011 | 30 June 2010 | ||
Sales of goods to related parties | 4,800 | 3,269 | |
Sales of services to related parties | 28 | 23 | |
Purchases from related parties | 58 | 70 |
During the six months ended 30 June 2011 the Group's sales to related parties mainly consisted of sales of poultry production related products.
The balances owed to and due from related parties were as follows as of 30 June 2011 and 31 December 2010:
30 June 2011 | 31 December 2010 | ||
Trade accounts receivable | 10,512 | 7,756 | |
Advances received | 200 | 200 | |
Short-term advances, finance aid and promissory notes | 2,304 | 2,304 |
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 and performance bonuses amounted to USD 2,958 thousand and USD 3,260 thousand for the six months ended 30 June 2011 and 2010, respectively.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Capital expenditure during the six months ended 30 June 2011 related mostly to the construction of Vinnytsya poultry complex. The construction of Vinnytsya poultry complex commenced in 2010 and is being constructed according to the schedule.
During the six months ended 30 June 2011, the Group's additions to property, plant and equipment amounted to USD 118,340 thousand.
There have been no significant disposals of property, plant and equipment during the six months ended 30 June 2011.
5. CHANGES IN AGRICULTURAL PRODUCE
Agricultural produce balances have decreased as of 30 June 2011 compared to 31 December 2010 mainly due to the internal consumption of corn and sale of wheat.
6. BIOLOGICAL ASSETS
Increase of current biological assets balances during the six months ended 30 June 2011 is primarily attributable to crops balances. The increase refers to the costs incurred with respect to future harvest, reflecting seasonality element inherent in the grain growing segment.
The balances of current biological assets were as follows as of 30 June 2011 and 31 December 2010:
30 June 2011 | 31 December 2010 | |||||||
Thousand units | Carrying amount | Thousand units | Carrying amount | |||||
Breeders held for hatchery eggs production, units | 2,384 | 43,962 | 2,360 | 39,530 | ||||
Total bearer current biological assets | 43,962 | 39,530 | ||||||
Broiler poultry, units | 26,544 | 50,521 | 26,371 | 43,287 | ||||
Hatchery eggs, units | 21,242 | 6,290 | 20,179 | 5,724 | ||||
Crops in fields, hectare | 255 | 162,622 | 76 | 36,940 | ||||
Cattle and pigs, units | 63 | 9,253 | 61 | 9,118 | ||||
Other current consumable biological assets | 640 | 811 | ||||||
Total consumable current biological assets | 229,326 | 95,880 | ||||||
Total current biological assets | 273,288 | 135,410 | ||||||
7. BANK BORROWINGS
The following table summarizes bank loans and credit lines held by the Group as of 30 June 2011 and 31 December 2010:
Bank | Currency | Weighted average interest rate | 30 June 2011 | Weighted average interest rate | 31 December 2010 | |
Foreign banks | USD | 6.14% | 28,985 | 5.52% | 78,642 | |
Foreign banks | EUR | 3.27% | 73,589 | 3.12% | 56,712 | |
Ukrainian banks | USD | 5.92% | 64,500 | 6.25% | 36,750 | |
Ukrainian banks | UAH | 7.29% | 13,171 | 7.75% | 26,414 | |
Total bank borrowings | 180,245 | 198,518 | ||||
Less: | ||||||
Short-term borrowings and current portion of long-term borrowings | (110,277) | (140,092) | ||||
Total long-term bank borrowings | 69,968 | 58,426 | ||||
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 2011 and 31 December 2010:
30 June 2011 | 31 December 2010 | |||
Fixed interest rate | 21,977 | 39,768 | ||
Floating interest rate | 158,268 | 158,750 | ||
Total | 180,245 | 198,518 |
Bank loans and credit lines as of 30 June 2011 were repayable as follows:
30 June 2011 | ||||||
Foreign | Ukrainian | Total | ||||
Within one year | 32,606 | 77,671 | 110,277 | |||
In the second year | 21,770 | - | 21,770 | |||
In the third to fifth year inclusive | 35,480 | - | 35,480 | |||
With maturity over five years | 12,718 | - | 12,718 | |||
Total | 102,574 | 77,671 | 180,245 | |||
Bank loans and credit lines as of 31 December 2010 were repayable as follows:
31 December 2010 | ||||||
Foreign | Ukrainian | Total | ||||
Within one year | 76,928 | 63,164 | 140,092 | |||
In the second year | 22,001 | - | 22,001 | |||
In the third to fifth year inclusive | 31,377 | - | 31,377 | |||
With maturity over five years | 5,048 | - | 5,048 | |||
Total | 135,354 | 63,164 | 198,518 | |||
As of 30 June 2011, the Group had borrowings of USD 4,350 thousand that were secured. These borrowings were secured by property, plant and equipment with the carrying amount of USD 4,949 thousand.
As of 30 June 2011, the Group had available borrowings on undrawn facilities totaling USD 208,642 thousand. These undrawn facilities expire until June 2020.
8. BONDS ISSUED
Bonds issued and outstanding as of 30 June 2011 and 31 December 2010 were as follows:
30 June 2011 | 31 December 2010 | ||
10.25% Senior Notes due in 2011 | 9,967 | 9,967 | |
10.25% Senior Notes due in 2015 | 584,767 | 584,767 | |
Unamortized premium on bonds issued | 4,224 | 4,640 | |
Unamortized debt issue cost | (24,139) | (26,596) | |
Total | 574,819 | 572,778 | |
Less: Current portion of bonds issued | (9,931) | (9,892) | |
Total long-term portion of bonds issued | 564,888 | 562,886 |
On 29 April 2010, MHP S.A. issued USD 330,000 thousand 10.25% Senior Notes due in 2015 for an issue price of 101.452% of principal amount.
In addition, as of 13 May 2010 the MHP S.A. exchanged 96.01% (USD 240,033 thousand) of USD 250,000 thousand of the existing 10.25% Senior Notes due in 2011 for the new Notes due 2015. As a result of exchange, new Notes were issued for the total par value USD 254,767 thousand.
Proceeds from the issues are intended to finance short-term debt, a new green field project - fully-integrated chicken complex at Vinnytsya and extension of grain growing operations.
9. FINANCE LEASE OBLIGATIONS
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 2011:
Minimum lease payments |
Present value of minimum lease payments
| ||||||
30 June 2011 | 31 December 2010 | 30 June 2011 | 31 December 2010 | ||||
Payable within one year | 30,565 | 28,350 | 26,334 | 23,827 | |||
Payable in the second year | 18,793 | 18,775 | 16,540 | 16,304 | |||
Payable in the third to fifth year inclusive | 21,115 | 22,353 | 19,594 | 20,684 | |||
70,473
| 69,478 | 62,468
| 60,815 | ||||
Less: | |||||||
Future finance charges | (8,005) | (8,663) | - | ||||
Present value of finance lease obligations | 62,468 | 60,815 | 62,468 | 60,815 | |||
Less: | |||||||
Current portion | (26,334) | (23,827) | |||||
Finance lease obligations, long-term portion | 36,134 | 36,988 | |||||
10. CONTINGENCIES AND CONTRACTUAL COMMITMENTS
Operating environment - The principal business activities of the Group are within Ukraine. Emerging markets such as Ukraine are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in Ukraine and the Ukraine's economy in general.
Improving situation in external environment and recovering domestic consumption continued to favor Ukraine's economic recovery during the six months ended 30 June 2011. Industrial production growth has been driven mainly by machine building, with food-processing sector demonstrating moderate growth. Ukrainian economy experienced a 4,2% GDP growth in 2010 and further growth is expected in 2011.
The Ukrainian Hryvnia has been relatively stable during the six months 2011. During the six months ended 30 June 2011 EUR strengthened against Ukrainian Hryvnia reflecting global strengthening of EUR against USD.
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 Ukrainian laws and regulations can lead to the imposition of severe penalties and interest. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and interest, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.
In December 2010, the Tax Code of Ukraine was officially published. In its entirety, the Tax Code of Ukraine became effective on 1 January 2011, while some of its provisions took effect later (such as, Section III dealing with corporate income tax, came into force from 1 April 2011). Apart from changes in CIT rates from 1 April 2011 and planned abandonment of VAT refunds for agricultural industry from 1 January 2018, the Tax Code also changes various other taxation rules.
The Group's management believes the enactment of the Tax Code of Ukraine will not have a significant negative impact on the Group's financial results in the foreseeable future.
Legal issues - 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 property, plant and equipment − During the six months ended 30 June 2011 and the year ended 31 December 2010, the companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property plant and equipment for development of agricultural operations. As of 30 June 2011, purchase commitments on such contracts were primarily related to construction of Vinnytsya poultry complex and amounted to USD 95,934 thousand (31 December 2010: USD 79,746 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.
The carrying amount of the Group's foreign currency denominated monetary assets and liabilities as of 30 June 2011 and 31 December 2010 were as follows:
30 June 2011 | 31 December 2010 | ||||
USD denominated | EUR denominated | USD denominated | EUR denominated | ||
Total assets | 50,096 | 9,210 | 104,557 | 128 | |
Total liabilities | 739,490 | 113,761 | 754,892 | 91,083 | |
During the six months ended 30 June 2011, the official exchange rate of UAH to USD has not changed significantly, and the official exchange rate of UAH to EUR has increased by 8.8%.
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:
Six months ended 30 June 2011 | Six months ended 30 June 2010 | |||||||
Poultry and related operations | Grain growing | Other agricultural | Consolidated | Poultry and related operations | Grain growing | Other agricultural | Consolidated | |
REVENUES | ||||||||
Total revenue | 461,862 | 70,774 | 67,352 | 599,988 | 387,151 | 35,476 | 45,371 | 467,998 |
Inter-segment eliminations | (16,177) | (54,998) | (1,433) | (72,608) | (12,422) | (32,475) | (156) | (45,053) |
Sales to external customers | 445,685 | 15,776 | 65,919 | 527,380 | 374,729 | 3,001 | 45,215 | 422,945 |
Segment results | 96,566 | 38,873 | 4,571 | 140,010 | 96,917 | 16,393 | 416 | 113,726 |
Unallocated corporate expenses |
(11,459) |
(8,906) | ||||||
Other expenses, net | (39,756) | (2,081) | ||||||
Profit before tax | 88,795 | 102,739 | ||||||
Depreciation and amortization* | 24,535 | - | 3,061 | 27,596 | 23,521 | - | 2,699 | 26,220 |
Effect of fair value adjustments | 5,870 | 14,619 | (2,376) | 18,113 | 2,853 | 7,744 | (700) | 9,897 |
*Depreciation and amortization attributable to grain segment for the six months ended 30 June 2011 amount USD 9,677 thousand (six months ended 30 June 2010: USD 4,331 thousand).
*Depreciation and amortization for the six months ended 30 June 2011 includes unallocated depreciation and amortization in the amount of USD 1,615 thousand (six months ended 30 June 2010: USD 1,699 thousand).
13. PROFIT FOR THE PERIOD
The Group's operating profit for the six months ended 30 June 2011 increased compared to the six months ended 30 June 2010. The principal reason is high returns anticipated from grain growing operations, mainly due to larger land plots cropped.
Despite increase of operating profit, the net profit decreased primarily due to the unrealized foreign exchange losses (loss USD 8,911 thousand), mainly non-cash, during the six months ended 30 June 2011, while during the six months ended 30 June 2010 the Group recognized foreign exchange gain (gain USD 24,503 thousand). During the six months ended 30 June 2011 EUR strengthened against Ukrainian Hryvnia, which caused recognition of unrealized foreign exchange losses on EUR-denominated part of debt.
14. SUPPLEMENTALCASH FLOW INFORMATION
Operating, investing and financing transactions that did not require the use of cash or cash equivalents were as follows:
Six months ended 30 June | |||
2011 | 2010 | ||
Additions of property, plant and equipment under finance leases and vendor financing arrangements | 7,808 | 2,020 | |
Additions of property, plant and equipment financed through direct bank-lender payments to the vendor | 24,171 | - | |
Property, plant and equipment purchased for credit | 10,035 | 3,925 | |
15. AUTHORIZATION OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
These condensed consolidated interim financial statements were authorized for issue by the Board of Directors of MHP S.A. on 16 August 2011.