Annual Report • Jul 28, 2016
Annual Report
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KSG Аgro is one of the largest vertically integrated agricultural groups in the Dnipropetrovsk region, which works almost in all segments of the agricultural market, including production, storage, processing, and sale of the agricultural products.
As of 31 December 2015, KSG Agro is an agricultural holding with total controlled land bank of approximately 61 thousand hectares (including 28 thousand hectares in Crimea that are not controlled because of the annexation of Crimea).
The Company and its subsidiaries (hereinafter «the Group» or «KSG Agro» or «the Company») implement their development strategy:
| Strategy | Implementation in 2015 |
|---|---|
| • continue optimization of internal operating processes in order to decrease expenses; |
• the Company's cost of sales decreased by 50.3% (while revenue decreased by 26.8% for the year ended 31 December 2015) |
| • the Group plans to focus on pigs' breeding & farming and further increase its efficiency; |
• the Company's gross profit increased from USD (0.2) million for the year ended 31 December 2014 to USD 11.2 million for the year ended 31 December 2015; |
| • continuing to increase |
|
| production of crop and meat and its sales; |
• signed Letter of intent with the International Creditors (including the ECAs, banks and international suppliers) related to the restructuring |
| • focusing on export contracts with existing customers; |
of the total debt in the amount of USD 17.1 million and by promissory note issued USD 1.2 million repayable within 10 years; |
| • reduction of current debt and the |
|
| extension period of credit; | • as at 31 December 2015, KSG Agro reduced its loan portfolio by USD 19,568 thousand compared to |
| • the Group has renewed plans to |
31 December 2014 |
| increase the volume of production of fuel pellets and produced thermal energy |
• in 2015 restructured loans USD 4.9 million repayable within 5 years; |
| • in 2015 subordinated loan USD 15.0 million |
The consolidated financial statements include the statements of subsidiaries, please see the following link:
http://www.ksgagro.com/investment/financial-reports/reports-for-2015/
The Board of Directors (the "Board") observes the majority of Warsaw Stock Exchange corporate governance rules included in the "Code of Best Practice for WSE Listed Companies" in the form and to the extent determined by the Resolution No. 19/1307/2012 of the Exchange Supervisory Board dated 21 November 2012. Code of Best Practice for WSE Listed Companies is available at the official website of the Warsaw Stock Exchange: http://www.corp-gov.gpw.pl/lad\_corp.asp
The Board of Directors consists of five members, three of each hold an executive role (Directors A), and two directors are non executive ones (Directors B)
Mr. Sergiy Kasianov, chairman of the Board of Directors, has a significant indirect holding of securities in the Company. No other person has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over the Company's share capital.
There are no restrictions on voting rights.
Appointment and replacement of Directors and amendments to the Articles of Association
With regard to the appointment and replacement of Directors, its Articles of Association (hereafter referred as the "Articles of Association" and Luxembourg Statute comprising the Companies Law 1915 govern the Company. A general meeting of the shareholders under the quorum may amend the Articles of Associations from time to time and majority requirement provided for by the law of 10 August 1915 on commercial companies in Luxembourg, as amended.
The Board is responsible for managing the business affairs of the Company within the clauses of the Articles of Association. The Directors may only act at duly convened meetings of the Board of Directors or by written consent in accordance with article 9 of Articles of Association.
Articles of Association and national laws and regulation govern the operation of the shareholders meetings and their key powers, description of their rights.
Transfer of shares is governed by Articles of Association of the Company.
The Company's management is responsible for establishing and maintaining adequate controls over financial reporting process for KSG Agro S.A., which include the appropriate level of Board of Directors' involvement.
KSG Agro S.A. maintains an effective internal control structure. It consists, in particular, of organizational arrangements with clearly defined lines of responsibility and delegation of authority, and comprehensive systems and control procedures. An important element of the control environment is an ongoing internal audit program. KSG Agro S.A. system also contains monitoring mechanisms, and actions taken to correct deficiencies if they identified.
To assure the effective administration of internal controls, KSG Agro S.A. carefully selects employees, develops and disseminates oral and written policies and procedures, provides appropriate communication channels and fosters an environment conducive to the effective functioning of controls.
The Company's internal control over financial reporting includes those policies and procedures that:
We believe that it is essential for the Company to conduct its business affairs in accordance with the highest ethical standards, as set forth in KSG Agro S.A.
The following table sets forth the Company's results of operations for the years ended 31 December 2015 and 2014 derived from the Consolidated Financial Statements:
| (US\$ in thousands) | 31 December 2015 |
31 December 2014 |
Changes in % |
|---|---|---|---|
| Revenue | 19,262 | 26,302 | (26.8)% |
| Gain on initial recognition at fair value | |||
| and net change in fair value of biological | 6,207 | 2,259 | 174.8% |
| assets less estimated | |||
| Cost of sales | (14,298) | (28,744) | (50.3)% |
| Gross profit | 11,171 | (183) | |
| Government grant received | 2,078 | 1,805 | 15.1% |
| Selling, general and administrative expenses |
(1,631) | (2,844) | (42.7)% |
| Other operating income | 1,924 | 935 | 105.8% |
| Other operating expenses | - | (83) | (100.0)% |
| Operating profit | 13,542 | (370) | |
| Finance income | 2,027 | 1,319 | 53.7% |
| Finance expenses |
(4,607) | (14,391) | 68.0% |
| Foreign currency exchange loss, net | (9,040) | (22,227) | (59.3)% |
| Loss on impairment of goodwill | - | (827) | (100.0)% |
| Other expenses | (4,054) | (17,283) | (76.5)% |
| Gain/(Loss) on acquisition/(disposal) of subsidiaries and associates |
(499) | 4 | |
| Gain/(Loss) on share purchase warrant | - | 258 | (100.0)% |
| Profit before tax | (2,631) | (53,517) | (95.1)% |
| Income tax expenses | 739 | 281 | 163.0% |
| Profit for the year | (1,892) | (53,236) | 96.4 % |
| EBITDA | 16,421 | 6,762 | 142.8% |
The Company's revenue from sales of finished products decreased year-on-year by 26.8% (while cost of sales decreased by 50.3%) primarily due to the effect of exchange rate differences.
The main segment – crop production – comprises production and sales of wheat, barley, rapeseeds, sundlower, corn and other minor crops. Information about main crops harvested in year 2015 and comparative information for 2014 is as follows:
| Crop harvested in thousands tons |
2015 | 2014 |
|---|---|---|
| Wheat | 19.5 | 34.1 |
| Barley | 5.9 | 9.4 |
| Rapeseeds | 1.9 | 7.9 |
| Sunflower | 21.0 | 18.3 |
| Corn | 2.4 | 2.7 |
| Total | 50.7 | 72.4 |
The following chart sets forth the Company's revenue by segments in per cent for the years indicated:
The most significant portion of the Company's revenue comes from selling sunflower, wheat, rapeseeds and corn. The following table sets forth the volume of the Company's main crops and revenues generated from the sales of such crops:
| 2015 | 2014 | Change,% | |
|---|---|---|---|
| Sunflower | |||
| Sales, USD mln | 7.8 | 4.8 | 63% |
| Sales, thousands tons | 22.0 | 17.3 | 27% |
| Average price, USD/ton | 354.5 | 275 | 29% |
| Wheat* | |||
| Sales, USD mln | 0.7 | 4.1 | (83)% |
| Sales, thousands tons | 6.5 | 34.3 | (81)% |
| Average price, USD/ton | 107.7 | 119 | (10)% |
| Rapeseeds | |||
| Sales, USD mln | 0.6 | 2.3 | (74)% |
| Sales, thousands tons | 1.8 | 7.4 | (76)% |
| Average price, USD/ton | 333.3 | 313 | 6% |
| Corn | |||
| Sales, USD mln | 0.0 | 0.9 | (100)% |
| Sales, thousands tons | 0.1 | 8.3 | (99)% |
| Average price, USD/ton | 0.0 | 109 | (100)% |
* decreasing sales of wheat is due to Inter-segment transactions from Crop production to Livestock breeding for feed of animals
_________
The pig breeding segment mainly represents sales of pigs and piglets. The following table describes revenues of this segment in more detail:
| 2015 | 2014 | Change,% | |
|---|---|---|---|
| Pigs and piglets | |||
| Sales, USD mln | 5.7 | 6.9 | -17% |
| Sales, thousand heads | 60.0 | 64.2 | -7% |
| Sales, tons | 5,649 | 3,553 | 59% |
| Average price, USD/kg | 1.01 | 1.95 | -48% |
Gain on initial recognition at fair value and net change in fair value of biological assets less estimated, increased by 174.8% from USD 2.2 million for the year ended 31 December 2014 to 6.2 million for the year ended 31 December 2015.
| __31.12.2015______ | ___31.12.2014_ | |||||
|---|---|---|---|---|---|---|
| Current biological assets (crops) |
Area, ha |
Amount, USD thsd |
USD/ ha |
Area, ha |
Amount, USD thsd |
USD /ha |
| Wheat | 6,644 | 1,411 | 212 | 14,136 | 2,053 | 145 |
| Barley | 2,664 | 242 | 91 | 5,027 | 269 | 54 |
| Rapeseed | 842 | 258 | 308 | 10,872 | 1,085 | 100 |
| Total current |
||||||
| biological assets | 10,150 | 1,911 | 30,034 | 3,407 |
The Company's cost of sales decreased by 50.3% to USD 14.3 million for the year ended 31 December 2015 from USD 28.7 million for the year ended 31 December 2014 in line with revenue which decreased by 26.8%.
The Company's gross profit inreased from USD (0.2) million for the year ended 31 December 2014 to USD 11.2 million for the year ended 31 December 2015.
The following table sets out a summary of the Company's cash flows for the years indicated:
| (in USD thousands) |
2015 | 2014 |
|---|---|---|
| Net cash flow from operating activities | 1,791 | (4,477) |
| Net cash flow from investing activities | (2,271) | 7,861 |
| Net cash flow from financing activities | 2,290 | (6,636) |
| Net cash flow for the year | 1,810 | (3,252) |
Article 11 a) the structure of their capital, including securities which are not admitted to trading on a regulated market in a Member State, where appropriate with an indication of the different classes of shares and, for each class of shares, the rights and obligations attaching to it and the percentage of total share capital that it represents.
According to article 5.1 of the articles of association of the Company (the Articles), the Company's subscribed share capital amounts to one hundred fifty thousand two hundred United States Dollars (USD 150,200.00) represented by fifteen million twenty thousand (15,020,000) shares having a nominal value of one Cent (USD 0.01) each.
All the issued share capital of the Company is admitted to listing and trading on the main market of the Warsaw Stock Exchange.
The Company bought back thirty-two thousand one hundred and seventy-two (32,172) own shares, representing 0.21% of share capital, that are accounted for as treasury shares.
Article 11 b) any restrictions on the transfer of securities, such as limitations on the holding of securities or the need to obtain the approval of the company or other holders of securities, without prejudice to article 46 of Directive 2001/34/EC.
The shares of the Company are transferred in accordance with customary procedures for the transfer of securities in Book-entry form.
Furthermore, there is no restriction in relation with the transfer of securities pursuant to article 7.5 of the Articles. The sole requirement is that any transfer shall be recorded in the register of shares of the Company.
In accordance with article 7.10 of the Articles, any shareholder, company or individual, who acquires or sells shares, including certificates representing shares of the Company, shall notify to the Company the percentage of the voting rights he/she/it will own pursuant to such acquisition or sale, in case such percentage reaches the thresholds of 5%, 10%, 15%, 20%, 33 1/3%, 50% and 66 2/3% or supersedes or falls under such thresholds. The shareholders shall also notify the Company should the percentage of their respective voting rights reach the above mentioned thresholds or supersede them or fall under such thresholds pursuant to certain events amending the voting rights repartition of the Company.
Those notification requirements apply also to certain situations as listed by article 9 of the law of 11 January 2008 on transparency obligations with respect to the information of companies which securities are listed on a regulated market.
The main shareholder of the Company as at 31 December 2014 is:
There are no special control rights.
Article 11 e) the system of control of any employee share scheme where the control rights are not exercised directly by the employees.
There is no employee share scheme.
Article 11 f) any restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company's cooperation, the financial rights attaching to securities are separated from the holding of securities.
Pursuant to article 7.10 of the Articles, if a shareholder breaches the thresholds mentioned in point b) and fails to notify the Company within the period of four (4) listing days, as stated therein, the exercise of voting rights attached to the new participation exceeding the relevant threshold will be suspended.
Article 11 g) any agreements between shareholders which are known to the company and may result in restrictions on the transfer of securities or voting rights within the meaning of Directive 2004/109/EC.
To the best of our knowledge there are no such agreements.
Pursuant to article 8 of the Articles, the directors of the Company (the Directors or the Board, as applicable) are to be appointed by the general meeting of the shareholders of the Company (the General Meeting) for a period not exceeding six (6) years and until their successors are elected. Moreover, the decision to suspend or dismiss a Director must be adopted by the General Meeting with a majority of more than one-half (1/2) of all voting rights present or represented. When a legal person is appointed as Director, the legal entity must designate a permanent representative (représentant permanent) in accordance with article 51bis of the law of 10 August 1915 on commercial companies, as amended (the Company Law).
In accordance with article 20 of the Articles, the Articles may be amended from time to time by a General Meeting under the quorum and majority requirements provided for by the Company Law.
Under the provisions laid down in article 5.4 of the Articles, the Board is authorized during a period expiring 5 (five) years after the publication of the present authorization in the Mémorial C, Recueil des Sociétés et Associations (i.e. 08 July 2011), to increase in one or several times the share capital of the Company within the limits of the authorized capital. The authorized capital of the Company is set at one hundred fifty thousand seven hundred forty-five United States Dollars (USD 150,745.00) represented by fifteen million seventy-four thousand five hundred (15,074,500) shares with a nominal value of one Cent (USD 0.01).
With respect to the acquisition of own shares, article 6 of the Articles establishes that the Company may acquire its own Shares to the extent permitted by law. To the extent permitted by Luxembourg law, the Board is irrevocably authorized and empowered to take any and all steps to execute any and all documents to do and perform any and all acts for and in the name and on behalf of the Company which may be necessary or advisable in order to effectuate the acquisition of the shares and the accomplishment and completion of all related actions.
According to article 11.2 of the Articles, the Board is vested with the broadest powers to perform all acts of administration and disposition in the company`s interests and within the objectives and purposes of the Company. All powers not expressly reserved by law or by the Articles to the General Meeting fall within the competence of the Board.
Article 11 j) any significant agreements to which the company is a party and which take effect, alter or terminate upon a change of control of the company following a takeover bid, and the effects thereof, except where their nature is such that their disclosure would be seriously prejudicial to the company; this exception shall not apply where the company is specifically obliged to disclose such information on the basis of other legal requirements.
To the extent of our knowledge there are no such agreements.
Article 11 k) any agreements between the company and its board members or employees providing for compensation if they resign or are made redundant without valid reason or if their employment ceases because of a takeover bid.
To the extent of our knowledge there are no such agreements.
The Group's parent is OLBIS Investments LTD S.A., registered in Panama, from 02 March 2016.
Company signed a preliminary letter of intent (LoI) with the bank PJSC Credit Agricole related to the restructuring of the total debt in the amount of USD 3,000 thousand.
At the meeting of the European Business Association Board, held on 22 February 2016, KSG Agro S.A. was accepted as a new full member of the Association. European Business Association unites more than nine hundred companies. It is one of the biggest business communities working on the Ukrainian market. EBA activities focus on the possibility of establishing business relations with the best international and Ukrainian companies. The idea of the Association is to provide its member companies with the opportunity to work together to solve the important issues of the investment climate in Ukraine and improve it for the benefit of industry, society, the economy and the country as a whole.
In May 2016, overdue loan in amount of USD 749 thousand due to PJSC Ukrsotsbank was fully repaid by the Group.
On 10 June 2016 the Group Management received the offer from Bank Pivdennyi to postpone repayment of loan principal for 18 months till the end of 2017. Outstanding amount of loan due to Bank Pivdennyi as at 31 December 2015 constituted USD 1,282 thousands, and matures on 28 October 2016. To conclude restructuring agreement, the Bank requested to repay USD 200 thousands of overdue principal.
The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group's sales of products on credit terms and other transactions with counterparties giving rise to financial assets.
The Group is exposed to the concentration of credit risk. Management monitors and discloses concentrations of credit risk by obtaining monthly reports with exposures to counterparties with the balances in excess of 1% of net assets.
As of 31 December 2015, the Group had 17 counterparties (31 December 2014: 4 counterparties) with aggregated receivable balances above USD 150 thousand each. The total aggregate amount of these balances was USD 9,941 thousand (31 December 2014: USD 2,322 thousand) or 93% of the net amount of trade and other receivables (31 December 2014: 34%).
The Group takes an exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities, all of which are exposed to general and specific market movements.
The Group does not have significant interest-bearing financial assets. Loans and borrowings issued at variable interest rates expose the Group to the interest rate risk. Loans and borrowings issued at fixed rates expose the Group to the fair value risk.
The sensitivities to market risks disclosed below are based on a change in one factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.
Risk of changes in interest rate is generally related to interest-bearing loans. Loans issued at variable rates expose the Group to cash flow interest rate risk. Loans issued at fixed rates expose the Group to fair value interest rate risk. The Group is currently developing its policy on structure of fixed and variable rates loan portfolio. The Group's management analyses market interest rates to minimize interest rate risk.
The Group analyses its interest rate exposure on a dynamic basis. As of 31 December 2015, if interest rate had been 5% higher with all other variables held constant, post-tax loss for the year then ended would have been USD 5,398 thousand lower (2014: USD 3,015 thousand), respectively if interest rate had been 5% lower than profit after tax would have been decrease in the same amount. The impact on Equity would be the same as on the Profit&Losses.
Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity's functional currency.
Because of this exposure, if the US dollar were to strengthen or weaken by 20 percent against the UAH, it would decrease or increase the Group's loss before tax by USD 5,021 thousand, respectively (31 December 2014 40% and USD 10,908 thousand).
KSG AGRO S.A. RCS Luxembourg B 156.864
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF THE REVISEUR D'ENTREPRISES AGREE
DECEMBER 31, 2015
| Pages | |
|---|---|
| REPORT OF THE RÉVISEUR D'ENTREPRISES AGRÉÉ | 4 |
| Consolidated Statement of Financial Position | 7 |
| Consolidated Income Statement | 8 |
| Consolidated Statement of Comprehensive Income/(Loss) |
9 |
| Consolidated Statement of Cash Flows | 10 |
| Consolidated Statement of Changes in Equity |
12 |
| Notes to the Consolidated Financial Statements | 13 |
To the Shareholders of KSG Agro S.A. 24, rue Astrid L-1143 Luxembourg
Following our appointment by the General Meeting of the Shareholders, we have audited the accompanying consolidated financial statements of KSG Agro S.A., which comprise the consolidated statement of financial position as at 31 December 2015, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on these [consolidated] financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the [consolidated] financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the réviseur d'entreprises agréé's judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the réviseur d'entreprises agréé considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
In his report dated 17 February 2016, the preceding auditor issued an adverse opinion on the consolidated financial statements as at 31 December 2014, due to the lack of disclosures of up to date information regarding going concern assumptions, the missing information regarding the nature of the expenses in the caption "cost of sales", the lack of disclosures regarding pending litigations and their potential impacts as well as the missing disclosures regarding the impact on goodwill of the adverse events that occurred with Souz-3 LLC.
As at 31 December 2015, the situation is the following:
IAS 1 requires for Companies, which classify their expenses by function, to disclose additional information on the nature of the expenses, including depreciation and amortisation expense and employee benefits expense. Same as at 31 December 2014 and for the year then ended, the consolidated financial statements do not include information regarding the nature of the expenses, which compose the caption "cost of sales" amounting to USD 28,744 thousand and USD 14,298 thousand for years ending 31 December 2014 and 31 December 2015 respectively.
As at 31 December 2014, the subsidiary Souz-3 LLC had been consolidated, while it had been put in bankruptcy following court decisions subsequent to 31 December 2014. As a consequence, the preceding auditor was not in a position to assess whether adjustments might have been necessary in respect of the contributing balances or contingencies, as well as as of the goodwill for USD 2,830. As at 31 December 2015, the subsidiary Souz-3 LLC was de-consolidated.
The Group could not provide the source documents regarding the promissory notes issued in the amount of USD 176 thousand and USD 269 thousand as of 31 December 2015 and 31 December 2014 respectively, disclosed in Note 18 "Promissory notes issued". We were unable to gain assurance by alternative means on the existence and the valuation of these promissory notes. As a consequence, and same as at 31 December 2014, we were unable to determine whether adjustments might have been necessary in respect of the carrying value of the promissory notes issued as at 31 December 2015.
The recoverability of long-term promissory notes receivable is supported by future cash flow that are based on Management assumptions. We were unable to obtain sufficient appropriate information that permits us to determine the adequacy of Management assumptions that support the recoverable value of these assets nor to assess by alternative procedures their recoverability. Thereby we could not estimate whether long-term promissory notes receivable as of 31 December 2015 and 31 December 2014 in the amount of USD 217 thousand and USD 570 thousand respectively, may be subject to an impairment.
| 31 December | 31 December | ||
|---|---|---|---|
| In thousands of US dollars | Note | 2015 | 2014 |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 8 | 22,500 | 40,254 |
| Intangible assets | 9 | 570 | 6,553 |
| Long-term biological assets | 11 | 16,631 | 20,219 |
| Long-term receivables | 1,238 | 2,227 | |
| Deferred expense | 1,025 | 1,025 | |
| Deferred tax assets | 24 | 117 | |
| Promissory notes receivable | 217 | 570 | |
| Term deposits | 12 | 1,738 | |
| Total non-current assets | 44,036 | 70,848 | |
| Current assets | |||
| Current biological assets | 11 | 4,118 | 5,555 |
| Inventories and agricultural produced | 10 | 3,759 | 4,309 |
| Trade and other accounts receivable | 13 | 10,640 | 6,920 |
| Deferred expense | 255 | ||
| Taxes recoverable and prepaid | 14 | 601 | 1,054 |
| Income tax prepaid | 9 | ||
| Term deposits | 12 | 2,646 | |
| Cash and cash equivalents | 12 | 1,147 | (148) |
| Total current assets ÿ, |
20,265 | 20,600 | |
| TOTAL ASSETS | 64,301 | 91,448 | |
| EQUITY | |||
| Share capital | |||
| 15 | 150 | 150 | |
| Share premium | 15 | 37,366 | 37,366 |
| Treasury shares | 15 | (112) | (112) |
| Retained earnings | (41, 271) | (38, 804) | |
| Currency translation reserve | (8,961) | (13, 012) | |
| Equity attributable to the owners of the Company | (12, 828) | (14, 412) | |
| Non-controlling interests | 5,872 | 11,541 | |
| TOTAL EQUITY | (6,956) | (2, 871) | |
| LIABILITIES | |||
| Non-current liabilities | |||
| Loans and borrowings | 16 | 17,549 | 11,063 |
| Promissory notes issued | 18 | 179 | 215 |
| Deferred tax liability | 24 | 857 | |
| Total non-current liabilities | 17,728 | 12,135 | |
| Current liabilities | |||
| Loans and borrowings | 16 | 28,881 | 55,626 |
| Trade and other accounts payable | 17 | 23,093 | 24,496 |
| Promissory notes issued | 18 | 1,395 | 1,636 |
| Taxes payable | 160 | 415 | |
| Income tax payable | 11 | ||
| Total current liabilities | 53,529 | 82,184 | |
| TOTAL LIABILITIES | 71,257 | ||
| TOTAL LIABILITIES AND EQUITY | 94,319 | ||
| 64,301 $\cap$ |
91,448 |
| In thousands of US dollars | Note | 2015 | 2014 |
|---|---|---|---|
| Revenue | 19 | 19,262 | 26,302 |
| Gain on initial recognition at fair value and net change in fair value of biological assets less estimated point-of-sale costs |
|||
| Cost of sales | 11 | 6,207 | 2,259 |
| 20 | (14, 298) | (28, 744) | |
| Gross profit/(loss) | 11,171 | (183) | |
| Government grant received | 14 | 2,078 | 1,805 |
| Selling, general and administrative expenses | 21 | (1,631) | (2,844) |
| Other operating income | 1,924 | 935 | |
| Other operating expenses | (83) | ||
| Operating (loss)/profit | 13,542 | (370) | |
| Finance income | 23 | 2,027 | 1,319 |
| Finance expenses | 23 | (4,607) | (14, 391) |
| Foreign currency exchange gain/(loss), net | 32 | (9,040) | (22, 227) |
| Loss on impairment of goodwill | (827) | ||
| Other expenses | 22 | (4,054) | (17, 283) |
| Gain/(Loss) on acquisition/(disposal) of subsidiaries and associates | 5 | (499) | 4 |
| Gain on share purchase warrant | 258 | ||
| Loss before tax | (2,631) | (53, 517) | |
| Income tax benefit | 24 | 739 | 281 |
| Loss for the year | (1,892) | (53,236) | |
| (Loss)/Profit attributable to: | |||
| Owners of the Company | (2,467) | (50, 156) | |
| Non-controlling interest | 575 | (3,080) | |
| Loss for the year | (1,892) | (53, 236) |
| Weighted-average number of common shares outstanding | 15,020,000 | 15.020.000 |
|---|---|---|
| Basic earnings per share, USD | (0.16) | (3.34) |
| Diluted earnings per share, USD | (0.16) | (3.34) |
| In thousands of US dollars | Note | 2015 | 2014 |
|---|---|---|---|
| Loss for the year | (1,892) | (53, 236) | |
| Other comprehensive income/(loss), net of income tax | |||
| Items that will not be reclassified subsequently to profit or loss: | |||
| Items that will be reclassified subsequently to profit or loss: | |||
| Currency translation differences- disposed subsidiaries | 1,171 | ||
| Currency translation differences | (2, 321) | (25, 605) | |
| NCI of disposed subsidiary | (1,043) | ||
| Related income tax impact | |||
| Total comprehensive loss for the year | (4,085) | (78, 841) | |
| Total comprehensive loss attributable to: | |||
| Owners of the Company | 1,584 | (63, 133) | |
| Non-controlling interests | (5,669) | (15,708) | |
| Total comprehensive loss for the year | (4,085) | (78, 841) |
for the year ended 31 December 2015
| In thousands of US dollars | Note | 2015 | 2014 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Loss before tax | (2,631) | (53,517) | |
| Adjustments for: | |||
| Depreciation and amortization | 8,9 | 2,879 | 7,132 |
| Impairment and write-off of trade and other accounts receivable | 22 | 1,247 | 4,249 |
| Impairment of LLR | 9 | 425 | - |
| Write-off TAR (Crimea) and prepayments | - | 5,631 | |
| Impairment of VAT receivable | - | 1,558 | |
| Reversal of impairment of provision for inventory | - | (312) | |
| Provision for inventory | 3 | 434 | |
| Gain on initial recognition of biological assets and agricultural produced | 11 | (6,207) | (2,259) |
| Loss from dead crops | 22 | - | 3,209 |
| Exchange differences | 8,126 | 17,663 | |
| Gain on share purchase warrant | - | (258) | |
| Loss on disposal of property, plant and equipment | 22 | - | 235 |
| Finance expenses other than share purchase warrant | 23 | 4,607 | 11,836 |
| Finance income | 23 | (667) | (909) |
| Gain/(loss) on subsidiaries disposal | (1,587) | (9) | |
| Loss on fines and penalties | - | 1,443 | |
| Goodwill impairment | - | 827 | |
| Unwinding of discount | 23 | (1,360) | (410) |
| Amortization of financial instruments | 23 | - | 2,398 |
| Other | 419 | (37) | |
| Operating cash flows before working capital changes | 5,254 | (1,096) | |
| Change in trade and other accounts receivable | (14,955) | (1,222) | |
| Change in current biological assets | (6,966) | 2,350 | |
| Change in inventories and agricultural produce | 1,269 | 38 | |
| Change in trade and other accounts payable | 18,937 | (1,700) | |
| Cash generated from operations | 3,539 | (1,630) | |
| Interest paid | (1,746) | (2,841) | |
| Income tax paid | (2) | (6) | |
| Cash generated from / (used in) operating activities | 1,791 | (4,477) | |
| Cash flow from investment activities | |||
| Acquisition of property, plant and equipment | - | (1,952) | |
| Interest paid | - | (505) | |
| Disposal of subsidiaries/(assets held for sale), net of cash disposed | (10) | (16) | |
| Loan given | - | (61) | |
| Interest received | 667 | 865 | |
| Term deposit received/(placed) | - | 9,530 | |
| Investment payments | (2,018) | - | |
| Settlement of accounts payable related to investment activities | (910) | - | |
| Net cash generated from / (used in) investment activities | (2,271) | 7,861 |
| In thousands of US dollars | Note | 2015 | 2014 |
|---|---|---|---|
| Cash flow from financing activities | |||
| Proceeds from bank loans and other borrowings | 5,273 | 4.344 | |
| Repayment of bank loans | (2,866) | (10, 789) | |
| Repayment of financial lease liabilities | (117) | (191) | |
| Net cash (used in) / received from financing activities | 2,290 | (6, 636) | |
| Net (decrease)/increase in cash and cash equivalents | 1.810 | (3,252) | |
| Cash and cash equivalents at the beginning of the year | 12 | (148) | 131 |
| Effect of exchange rate differences on cash and cash equivalents | (515) | 2,973 | |
| Cash and cash equivalents at the end of the year | 12 | 1,147 | (148) |
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| Attributable to owners of the Company | Non-controlling Total equity | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Note | capital Share |
Share | Treasury | Prepayment for future |
Currency | Retained | Total attributable | interest | ||
| In thousands of US dollars | premium | shares | share issue | translation reserve |
earnings | to owners of the Company |
||||
| Balance as at 31 December 2013 | 150 | 37,366 | (112) | (35) | 11.352 | 48,721 | 28,757 | 77,478 | ||
| Crimea disposal | (1,508) | (1,508) | ||||||||
| Loss for the year | (50, 156) | (50, 156) | (3,080) | (53, 236) | ||||||
| Other comprehensive loss | (12.977) | (12, 977) | (12, 628) | (25, 605) | ||||||
| Total comprehensive loss for the year | (12.977) | (50, 156) | (63, 133) | (15,708) | (78, 841) | |||||
| Balance as at 31 December 2014 | 150 | 37,366 | (112) | (13, 012) | (38, 804) | (14, 412) | 11,541 | (2, 871) | ||
| Loss for the year | (2,467) | (2,467) | 575 | (1, 892) | ||||||
| Other comprehensive income/(loss) | 2,880 | 2,880 | (5,201) | |||||||
| NCI of disposed subsidiary | (1,043) | $(2,321)$ $(1,043)$ |
||||||||
| Forex reserve of disposed entities | 1,171 | 1,171 | 1,171 | |||||||
| Total comprehensive loss for the year | ı | 4,051 | (2,467) | 1,584 | (5.669) | (4,085) | ||||
| Balance as at 31 December 2015 | ||||||||||
| 150 | 37,366 | (112) | (8,961) | (41, 271) | (12, 828) | 5,872 | (6, 956) | |||
KSG Agro S.A. (the "Company") was incorporated under the name Borquest S.A. on 16 November 2010 as a "Société Anonyme" under Luxembourg company law for an unlimited period. On 08 March 2011 the Company's name was changed to KSG Agro S.A.
The registered office of the Company is at 24, rue Astrid, L-1143 Luxembourg and the Company number with the Registre de Commerce is B 156 864.
The Company, its subsidiaries and joint operation (together referred to as the "Group") produces, processes and sells agricultural products and its business activities are conducted mainly in Ukraine.
The number of employees of the Group as at 31 December 2015 was 623 employees (31 December 2014: 835 employees).
The Group's parent is ICD Investments S.A. (65%), registered in Switzerland, and the ultimate controlling party is Mr.Sergiy Kasianov. Remaining Group's shares (35%) are listed on the Warsaw Stock Exchange.
The subsidiaries and principal activities of the companies forming the Group and the Parent's effective ownership interest as at 31 December 2015 and 2014 were as follows:
| Effective ownership ratio, % | ||||
|---|---|---|---|---|
| Operating entity | Principal activity | Country of registration |
31 December 2015 |
31 December 2014 |
| KSG Agro S.A. | Holding company | Luxembourg | Parent | Parent |
| KSG Agricultural and Industrial Holding LTD |
Subholding company | Cyprus | 100% | 100% |
| KSG Agro Polska | Trade of agricultural products |
Poland | 100% | 100% |
| KSG Energy Group LTD | Trade of pellets | Cyprus | 50% | 50% |
| Parisifia LTD | Intermediate holding company |
Cyprus | 50% | 50% |
| Abbondanza SA | Trade of agricultural products |
Switzerland | 50% | 50% |
| Enterprise №2 of Ukrainian agricultural and industrial holding LLC |
Agricultural production | Ukraine | 100% | 100% |
| Scorpio Agro LLC | Agricultural production | Ukraine | 100% | 100% |
| Souz-3 LLC** | Agricultural production | Ukraine | - | 100% |
| Goncharovo Agricultural LLC | Agricultural production | Ukraine | 100% | 100% |
| Agro-Trade House Dniprovsky LLC | Agricultural production | Ukraine | 100% | 100% |
| Dnipro LLC | Agricultural production | Ukraine | 100% | 100% |
| KSG Trade House LTD | Trade of agricultural products |
Ukraine | 100% | 100% |
| Trade House of the Ukrainian Agroindustrial Holding LLC |
Agricultural production | Ukraine | 100% | 100% |
| Unirem Agro Plus LLC | Agricultural production | Ukraine | - | 100% |
| Askoninteks LLC | Agricultural production | Ukraine | 100% | 100% |
| Agro Golden LLC | Agricultural production | Ukraine | 100% | 100% |
| Agro LLC | Lessor of equipment | Ukraine | 100% | 100% |
| SPE Promvok LLC | Lessor of equipment | Ukraine | 100% | 100% |
| Agricultural Company Chumaki LLC (Dniproagrostandard LLC ) ** |
Agricultural production | Ukraine | - | 100% |
| Dniproagroprogress LLC ** | Agricultural production | Ukraine | 0.1% | 100% |
| Meat plant Dnipro LLC | Manufacture | Ukraine | 100% | 100% |
| Hlebna Liga LLC | Trader | Ukraine | 100% | 100% |
| Agrofirm Vesna LLC | Agricultural production | Ukraine | 100% | 100% |
| Vidrodzhennya LLC ** | Agricultural production | Ukraine | - | 100% |
| Agrotrade LLC | Agricultural production | Ukraine | 50% | 50% |
| Factor D LLC | Agricultural production | Ukraine | 50% | 50% |
for the year ended 31 December 2015
| Effective ownership ratio, % | ||||
|---|---|---|---|---|
| Operating entity | Principal activity | Country of registration |
31 December 2015 |
31 December 2014 |
| Rantye LLC | Agricultural production | Ukraine | 50% | 50% |
| Agrotechnologiya LLC** | Oil processing | Ukraine | - | 51% |
| PrJSC Pererobnyk | Flour and animals' feed producing |
Ukraine | 25% | 25% |
| Agroplaza LLC | Intermediate holding company |
Ukraine | 50% | 49,95% |
| Stepove LLC | Agricultural production | Ukraine | 50% | 49,93% |
| Dzherelo LLC | Agricultural production | Ukraine | 50% | 49,95% |
| Kolosyste LLC | Agricultural production | Ukraine | 50% | 49,95% |
| Hlebodar LLC * | Agricultural production | Ukraine | 50% | 49,95% |
| Ukrzernoprom - Prudy LLC * | Agricultural production | Ukraine | 50% | 50,00% |
| Ukrzernoprom - Uyutne LLC * | Agricultural production | Ukraine | 50% | 50,00% |
| Ukrzernoprom - Kirovske LLC * | Agricultural production | Ukraine | 50% | 50,00% |
| Ukrzernoprom - Yelizavetove LLC * | Agricultural production | Ukraine | 50% | 50,00% |
| KSG Dnipro LLC (SFG Bulah LLC) | Agricultural production | Ukraine | 100% | 100% |
| Ranniy Ranok LLC | Agricultural production | Ukraine | 100% | - |
| Pererobnyk LLC PE | Flour and animals' feed producing |
Ukraine | 25% | - |
Companies marked with * are located in Crimea. The Group has no operating control over them starting from 01 October 2014, so deconsolidation of these companies was provided and net assets were written off to zero.
On the annual basis companies with voting rights less than 51% tests for the compliance with IFRS 10 regarding existence of control. In these consolidated financial statements presented subsidiaries with absolute control over operating activity and cash flows and total responsibilities for the incurred profits or losses.
Companies marked with ** are de-consolidated due to the fact of control transfer to third parties. As at 22 September 2015 Company Souz-3 LLC was in bankruptcy process according to lawsuits Result of such de-consolidation is shown in Note 5.
Pererobnyk LLC PE and Ranniy Ranok LLC were established in 2015 year (Note 5).
These consolidated financial statements are presented in thousand of US dollars ("USD"), unless otherwise stated.
Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of IFRS issued by International Financial Reporting Interpretations Committee ("IFRIC") and as adopted by the European Union. These consolidated financial statements have been prepared under the historical cost convention, as modified by the initial recognition of a share purchase warrant at fair value and the recognition of biological assets and agricultural produce based on fair value less costs to sell.
In determining the appropriate basis of preparation of the consolidated financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future. The financial performance of the Group is naturally dependent upon the weather conditions in areas of operations and wider economic environment of Ukraine.
Due to loss of control over Crimea subsidiaries, the Group's financial position and performance in 2014 significantly deteriorated. That caused significant difficulties with timely debt repayment and breach of loan covenants. Also Group's ability to continue its operations within foreseeable future was questioned. To deal with new challenges, In September 2014 the Group's management changed their development strategy. New strategy focused on: optimization of internal operating processes; focus on farming and pig breeding; decrease of loan burden; focusing on export contracts with existing customers. Still the Group management has been successful in implementation of changed strategy and stabilisation of Group financial performance:
The Group started to change its business strategy from 2015 and next years by increasing meat production and harvested crop in proportion applicable for future growth. Developing meat production segment requires some time and investments. However, during 2015 the company increased volume of sales of pigs by 59% from 3,553 tons to 5,649 tons.
Due to wastage of sunflower oil production capacities, during 2015 the Company concentrated on sunflower production. Sunflower yield (tons per ha) increased more than three times in 2015 comparatively to 2014. Thus total Sunflower harvest increased for 2,614 tons respectively. Favourable conjuncture and growing prices on sunflower resulted in increased respective sales revenue by 63% or USD 3 mln.
During 2015 Group Management signed new international sales contracts with Middle East countries, that provide additional confidence in improvement of Company's financial performance through extension of sales areas. Also at the beginning of June 2016, Group Management signed new international sales contracts with Georgian retailers on sales of pork. These contracts allow to guaranty 25% of sales from pig breeding.
All above mentioned Management actions resulted significant improvement of the Group financial position and performance in 2015. For the year ended 31 December 2015, the Company had comprehensive loss of USD 4,085 thousand (2014: comprehensive loss of USD 78,841 thousand). On the results of operation activity, in 2015 the Company received operating profit USD 13,542 thousand (2014: operating loss USD 370 thousand). EBITDA in 2015 amounted USD 16,421 thousand (2014: USD 6,762 thousand) raised and indicates strength of operation activity.
The Group Management concludes that, as the risks and uncertainties described above included in the cash flow forecast with conservative assumptions are covered by restructuring of overdue borrowings, there is a reasonable expectation that the Company can continue its operations in the foreseeable future and, accordingly, has formed a judgment that it is appropriate to prepare the consolidated financial statements as at and for the year ended 31 December 2015 on a going concern basis. If the Company is not successful in debt restructuring plan, the going concern assumption might not be relevant any longer for the Group or its components. The consolidated financial statements would then need to be totally or partially amended to an extent which today cannot be estimated in respect of: the valuation of the assets at their liquidation value, the incorporation of any potential liability and the reclassification of non-current assets and liabilities into current assets and liabilities.
Group recognise controls on subsidiary if next criteria are met:
Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value.
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount ("negative goodwill") is recognised in profit or loss after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between Group subsidiaries are eliminated. Unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group's policies.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Group. Non-controlling interest is recorded as a separate component of the Group's equity.
Goodwill. Goodwill on acquisitions of subsidiaries is presented within intangible assets in the consolidated statement of financial position. It is carried at cost less accumulated impairment, if any. The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business from which the goodwill arose. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment.
Joint operations. The Group accounts for the interest in the joint operations to the extent of:
Depending on their classification financial instruments are carried at fair value or amortised cost as described below.
Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation techniques such as discounted cash flow models or models based on recent arm's length transactions or consideration of financial data of the investees are used to measure at fair value certain financial instruments for which external market pricing information is not available. Valuation techniques may require assumptions not supported by observable market data. Disclosures are made in these financial statements if changing any such assumptions to a reasonably possible alternative would result in significantly different profit, income, total assets or total liabilities.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place.
Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.
Classification of financial assets. The Group classifies all of its financial assets as loans and receivables. Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments other than those that the Group intends to sell in the near term. Loans and receivables are accounted for at amortized cost using the effective interest method, net of provision for impairment after their initial evaluation. Loans and receivables that mature more than 12 months after the consolidated statement of financial position date are included into non-current assets. The Group's financial assets are long term receivables, promissory note receivables, term deposits, trade and other accounts receivable, cash and cash equivalents.
Classification of financial liabilities. The Group's financial liabilities include loans, borrowings, trade and other payables, financial lease, promissory notes issued and derivative financial instruments. Financial liabilities are measured subsequently at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments).
Loans and borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently carried at amortised cost using the effective interest method. Any difference between the proceeds, net of transaction costs, and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Trade and other payables. Trade payables are accrued when the counterparty performs its obligations under the contract and are carried at amortised cost using the effective interest method.
Financial assistance payable. Financial assistance payable is initially recognised at the fair value and carried at amortised cost using the effective interest method. Financial assistance is disclosed within trade and other payables.
Initial recognition of financial instruments. Derivatives are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.
Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.
Land lease rights. Land lease rights acquired in business combinations are initially recognised at their fair value and subsequently are carried at cost less accumulated amortisation and impairment. When agreements on the right to lease land are renegotiated, the Group capitalises incurred costs relating to the agreement prolongation and revises useful lives of land lease rights based on the prolonged term. Recognized on consolidation lease agreements are amortized on straight line method over the term of the agreements without considering possible prolongation.
Property, plant and equipment. Property, plant and equipment items are stated at cost less accumulated depreciation and, where applicable, accumulated impairment. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects, if the recognition criteria are met. All repair and maintenance costs are expensed as incurred. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.
Construction-in-progress represents the cost of properties, plant and equipment which have not yet been completed less any accumulated impairment. This includes cost of construction works, cost of plant and equipment and other direct costs.
The Group leases the land on which its operations are located under operating lease agreements and therefore land is not included in the consolidated financial statements.
At each end of each reporting period management assesses whether there is any indication of impairment of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset's fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment is recognised in profit or loss. An impairment recognised for an asset in prior years is reversed where appropriate if there has been a change in the estimates used to determine the asset's value in use or fair value less costs to sell. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised in profit or loss.
Depreciation. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives:
| Useful lives in years | |
|---|---|
| Buildings and structures | 5-30 |
| Agricultural equipment | 3-15 |
| Vehicles and office equipment | 3-17 |
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
Income taxes. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within operating expenses.
Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill, and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
Special tax for agricultural producers. The Company's subsidiaries in Ukraine engaged in the production, processing and sale of agricultural products may opt for paying a special tax for agricultural producers ("Group #4 of Tax payers defined in Tax Code of Ukraine") in lieu of corporate income tax, land tax, duties for special use of water objects, municipal tax, vehicle tax, duties for geological survey works and duties for trade patents if the revenues from sale of their self-grown agricultural products constitute not less than 75% of their total gross revenues. The amount of special tax for agricultural producers is assessed at 0.15% on the deemed value of the land plots owned or leased by the entity (as determined by the relevant State authorities). As at 31 December 2015 four Ukrainian subsidiaries of the Group elected to pay special tax (31 December 2014: 19). The rest of the Group's entities are subject to regular income tax.
Value added tax. In Ukraine VAT is levied at two rates: 20% on sales and imports of goods within the country, works and services and 0% on the export of goods and provision of works or services to be used outside Ukraine. Output VAT on the sale of goods and services is accounted for on the date the goods/services are delivered to a customer or the date the payment is received from the customer, whichever is earlier. Input VAT is accounted for as follows: entitlement to an input tax credit for purchases arises when VAT invoice is received which is issued on the earlier of the date of payment to the supplier or the date, on which the goods/services are received or entitlement to an input tax credit for imported goods or services arises on the date the tax is paid.
VAT related to sales and purchases is recognised in the statement of financial position on a net basis and disclosed as an asset or liability to the extent it has been recorded in VAT declarations. Prepayments issued and prepayments received are disclosed in these consolidated financial statements net of VAT balances as it is expected that such balances will be settled by delivery of the underlying product or service.
The Group's subsidiaries involved in the production and sale of agricultural produce and that meet certain other criteria are subject to a privileged VAT regime. For such qualifying entities, the net VAT payable is not transferred to the State authorities, but is retained in the business for use in agricultural production. Such net VAT liabilities are credited to profit and loss as government grants.
Government grants. According to the Ukrainian VAT legislation VAT which agricultural producers charge on sales of agricultural produce, net of VAT paid on purchases, is not transferred to the State budget but can be retained for use in agricultural production. These government grants are recognised in profit or loss for the year once the Group makes the qualifying expenditures on agricultural supplies or equipment.
Biological assets. Biological assets represent crops in the field and livestock and are measured at fair value less costs to sell.
Crops in the field. The fair value of crops in the field is determined by using valuation techniques, as there is no market for winter crops and other long-term crops of the same physical condition. The fair value of the Group's biological assets is calculated as the present value of anticipated future cash flows from the asset before tax. The fair value calculation of crops in the field is based on the existing field under crops and the assessments regarding expected crop yield on harvest, time of harvest, future cultivation, treatment, harvest costs and selling prices. The discount rate is determined by reference to weighted-average cost capital based on risk profile of the Group.
Livestock. The fair value of non-current livestock is determined by using valuation techniques, as there is no market for sows of the same physical conditions, such as weight, age and breed. The fair value of livestock is based on expected litter of piglets, expected volume of meat at the date of slaughter, respective anticipated prices, average expected productive lives of the livestock and future production costs. The discount rate is determined by reference to current market determined pre-tax rate.
A gain or loss arising on initial recognition of a biological asset at the fair value less costs to sell and from a change in the fair value less costs to sell of a biological asset at each subsequent reporting date is included in income statement in the period in which it arises.
The biological assets are classified as current or non-current depending on the expected pattern of consumption of the economic benefits embodied in the biological assets. Dairy cattle, sows, fruit gardens and long-term grass are classified as non-current and livestock husbandry and winter crops are classified as current biological assets.
Cost of agricultural preparation of fields before seeding is recorded as work-in-progress in inventories. After seeding the cost of field preparation is reclassified to biological assets held at fair value.
Agricultural produce. Agricultural produce harvested from the Group's biological assets is measured at its fair value less estimated costs to sell at the date of harvest.
Inventories. Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the first in first out basis. The cost of work in progress comprises fuel and other raw material, direct labour, depreciation and amortization, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.
Trade and other receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
Advances issued. Advances issued to suppliers are carried at cost less provision for impairment. An advance issued is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the advance relates to an asset which will itself be classified as non-current upon initial recognition. Advances issued to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other advances are written off to profit or loss when the services relating to the advances are received. If there is an indication that the assets or services relating to an advance will not be received, the carrying value of the advance is written down accordingly and a corresponding impairment is recognised in profit or loss.
Impairment of financial assets carried at amortised cost. Impairment are recognised in profit or loss when incurred as a result of one or more events ("loss events") that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics, and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment has occurred:
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms.
Impairment are always recognised through an allowance account to write down the asset's carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
Uncollectible assets are written off against the related impairment provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment account within the profit or loss for the year.
Cash and cash equivalents. Cash and cash equivalents includes cash on hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash as defined above, net of outstanding bank overdrafts, if any.
Share capital. Ordinary shares are classified as equity. Share premium is the difference between the fair value of the consideration received for the issue of shares and the nominal value of the shares. The share premium account can only be used for limited purposes, which do not include the distribution of dividends, and is otherwise subject to the provisions of the legislation in Luxembourg on reduction of share capital.
Borrowing costs. General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Employee benefits - defined contribution plan. The Group makes statutory unified social contribution to the Pension Fund of Ukraine in respect of its Ukrainian based employees. The contributions are calculated as a percentage of current gross salary and are expensed when incurred.
Wages, salaries, unified social contribution to Pension Fund of Ukraine, paid annual leave and sick leave, bonuses are accrued in the year in which the associated services are rendered by the employees of the Group.
Functional and presentation currency. The currency of each consolidated entity is the currency of the primary economic environment in which the entity operates. The functional currency for the majority of the consolidated entities is the Ukrainian hryvnia. As the Group's management uses USD when monitoring operating results and financial conditions of the Group, the presentation currency of the financial statements is USD. All information in USD has been rounded to the nearest thousand, except when otherwise indicated. The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
Transactions denominated in currencies other than the relevant functional currency are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities at year end, are recognized in profit or loss. Translation at year end does not apply to nonmonetary items.
When control over a foreign operation is lost, the previously recognised exchange differences on translation to a different presentation currency are reclassified from other comprehensive income to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
The exchange rates used for translating foreign currency balances were:
| 2015 | 2014 | |
|---|---|---|
| USD/UAH as of 31 December | 24.0007 | 15.7686 |
| USD/UAH average for the year | 21.8123 | 11.8739 |
| EUR/UAH as of 31 December | 26.2231 | 19.2239 |
| EUR/UAH average for the year | 24.1905 | 15.6833 |
Revenue recognition. Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the goods. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point.
Revenues from rendering of services are recognised in the accounting period in which the services are rendered, by
reference to stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Revenues are shown net of Value Added Tax and discounts. Revenues are measured at the fair value of the consideration received or receivable.
Finance income and costs. Finance income and costs mainly comprise interest income and cash on equivalents and bank deposits, interest expense on borrowings and finance leases and exchange differences on borrowings.
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group's chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.
The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements. Estimates and judgements are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the Group's accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next year are:
Biological assets. In the absence of observable market prices for biological assets in their condition at the reporting dates, the fair value of biological assets was estimated as the present value of future net cash flows expected to be generated from the assets discounted at a current market-determined pre-tax rate.
Fair values of biological assets are based on the following key assumptions:
The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between estimates and actual numbers. The key assumptions used to determine the fair value of biological assets presented in Note 11.
Agricultural produce. Agricultural produce is the harvested product of the Group's biological assets. It is recorded at its estimated fair value less costs to sell, at the point of harvest. The determination of fair value for a biological asset or agricultural produce is facilitated by grouping the produce according to significant attributes; for example, by type or quality. The fair value of each group of agricultural produce at the end of the reporting period is determined as lower of the available average market price for similar products at the point of harvest and net realizable value. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between estimates and actual numbers. A 10% increase or decrease in market prices compared to the selling prices used would result in an increase or decrease in the fair value of agricultural produce of USD 330 thousand (31 December 2014: USD 1,061 thousand).
Allowance for doubtful receivables. The Group periodically assesses recoverability of receivables from main debtors. In the case objective evidence of uncollectability is in place, allowance is provided for the amount of doubtful receivables. No allowance for receivables from related parties is charged. Additionally a general provision for doubtful debts is provided on all receivables due for more than 365 days.
Cost of inventories. At each reporting date the Group carries out assessment of goods for signs impairment of initial value. As at 31 December 2015 the Group's Management uses method of individual assessment of each unit of goods. The same approach was used in 2014.
Goodwill. Goodwill arising from the acquisition of subsidiaries is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount (estimated under five-year cash flows financial plans) of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment is recognised. Impairment relating to goodwill cannot be reversed in the future periods.
Useful lives. Management estimates are necessary to identify the useful lives of property, plant and equipment. Management uses its expertise and judgment in reassessing the remaining useful lives of major items at each reporting date.
Subsidiaries. The Group consolidates the result of Parisifia Trading Ltd (Cyprus), KSG Energy Group Ltd (Cyprus) and Abondanza S.A. (Switzerland) although it only holds 50% of the voting rights, because it has the power to govern its financial and operating policies through arrangements with the other 50% shareholder. The Group also consolidates the results of Pererobnyk PrJSC, a company in which it holds 25% of the voting rights, because it has the power to govern its financial and operating policies through its sole presence in the supervisory and management boards of the company and ability to determine remuneration of its representatives in these governance bodies. Majority of the supervisory and management board members are employees of other entities of the Group. Judgement is required to determine whether the substance of the relationship between the Group and a subsidiary indicates that the entity is controlled by the Group. In making this judgement management considered arrangements with the other shareholders of the subsidiary.
Fair value measurement. Management uses valuation techniques to determine the fair value of financial instruments (where active market quotes are not available – Note 16) and non-financial assets (Note 9, 11). This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date
Income tax and deferred taxes The Group is subject to income taxes in numerous jurisdictions. Significant estimates are required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current tax and deferred tax provisions.
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.
Gain/(loss) on acquisition/(disposal) of subsidiaries and associates consists of the following:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Gain/(loss) on acquisition/(disposal) of subsidiaries | (1,670) | (77) |
| Translation differences on disposed subsidiaries | 1,171 | - |
| Deconsolidation of Crimean companies | - | 81 |
| Total net gain/(loss) | (499) | 4 |
As at 01 July 2015, the following entites - Unirem Agro Plus, Agricultural Company Chumaki LLC (Dniproagrostandard LLC), Dniproagroprogress LLC; as at 24 November 2015 - Agrotechnologiya LLC; and as at 18 December 2015 - Vidrodzhennya LLC - all these entities were de-consolidated due to the fact that control has been transfered to third parties.
Also, as at the date of these consolidated financial statements authorisation Souz-3 LLC was in bankruptcy process according to lawsuits.
for the year ended 31 December 2015
On the basis of subsidiaries' financials as at the date of the loss of control the related impacts were as follows:
| Agro technolo giya LLC |
Dnipro agro progress LLC |
Dnipro agro standard LLC |
Souz-3 LLC |
Unirem Agro Plus LLC |
Vidrod zhennya LLC |
|
|---|---|---|---|---|---|---|
| In thousands of US dollars | ||||||
| Voting right disposed Effective interest attributable to the owners of the |
(51%) | (99,9%) | (100%) | (100%) | (100%) | (100%) |
| Company | (51%) | (100%) | (100%) | (100%) | (100%) | (100%) |
| Land lease rights Property, plant, and |
- | 17 | 186 | - | 148 | 554 |
| equipment Long-life biological assets |
59 | - | 265 | 811 | 238 | 828 |
| (fruit trees) | - | - | - | 55 | - | - |
| Intangible assets | - | - | - | 11 | - | - |
| Inventory | 180 | 2 | 164 | 258 | (6) | 234 |
| Cash and cash equivalents Biological assets (crops in |
- | - | - | 1 | 6 | 3 |
| the field) | - | 51 | 476 | 362 | 780 | 1,581 |
| Raising livestock | - | - | 2 | - | - | 20 |
| Promissory notes | 184 | - | - | - | - | - |
| Taxes receivable | 4 | (4) | 37 | (24) | 123 | 367 |
| Fair value of accounts receivable | 215 | 116 | 1,231 | 3,613 | 3,505 | 2,262 |
| Loans | - | - | (510) | (5,484) | (1,837) | (267) |
| Accounts payable | (751) | (289) | (1,158) | (3,187) | (3,169) | (5,126) |
| Taxes receivable/(payable) | 9 | (1) | (19) | (57) | - | (34) |
| Fair value of 100% of | ||||||
| net assets Plus derecognised |
(100) | (108) | 674 | (3,641) | (212) | 422 |
| non-controlling interest | 1,043 | - | - | - | - | - |
| Plus goodwill (Note 9) | - | - | - | 2,027 | 394 | - |
| Plus translation difference | 215 | 196 | (1,369) | 4,506 | (665) | (1,712) |
| Gain / (Loss) on disposal | (1,158) | (88) | 695 | (2,892) | 483 | 1,290 |
| Total consideration | ||||||
| received | - | - | - | - | - | - |
| Cash and cash | ||||||
| equivalents disposed Outflow of cash on |
- | - | - | 1 | 6 | 3 |
| disposal | - | - | - | (1) | (6) | (3) |
During the year the Group increased for the following entities:
Pererobnyk LLC PE was established by Parisifia LTD with charter capital of UAH 5,000 (USD 232).
Ranniy Ranok LLC was established by Goncharovo Agricultural LLC (99,9%) and KSG Dnipro LLC (0,1%) with total charter capital of UAH 10,000 (USD 464).
The summary disclosure of non-controlling interest as at 31 December 2015 and 2014 is presented below:
| In thousands of US dollars | Portion | Voting rights |
Profit or loss attributable to NCI |
OCI attributable to NCI |
Net assets attributable to NCI |
Dividends paid to NCI |
|---|---|---|---|---|---|---|
| As at 31 December 2015 | ||||||
| Parisifia ltd Group | 50% | 50% | 1,158 | (5,064) | 7,354 | - |
| PrJSC Pererobnyk | 75% | 50% | (593) | (166) | (1,493) | - |
| Agrotechnologiya LLC* | 49% | 49% | 10 | 29 | - | - |
| Total | 575 | (5,201) | 5,861 | - | ||
| As at 31 December 2014 | ||||||
| Parisifia ltd Group | 50% | 50% | (309) | (12,089) | 12,312 | - |
| PrJSC Pererobnyk | 75% | 50% | (2,713) | (599) | (734) | - |
| Agrotechnologiya LLC | 49% | 49% | (58) | 60 | (92) | - |
| Total | (3,080) | (12,628) | 11,486 | - |
Agrotechnologiya LLC* disposed in 2015 (Note 5).
"Parisifia ltd Group" contains next companies: Agrotrade LLC; Factor D LLC; Rantye LLC; Agroplaza LLC; Stepove LLC; Dzherelo LLC; Kolosyste LLC.
KSG Energy Group LTD, Parisifia LTD and Abbondanza SA companies have immaterial NCI effect thus in current note such companies were not considered.
The summarised financial information of these subsidiaries (including the impact of consolidation fair value adjustments, but before intercompany eliminations), was as follows at 31 December 2015 and 2014:
| In thousands of US dollars | Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
Net assets |
|---|---|---|---|---|---|
| As at 31 December 2015 | |||||
| Parisifia LTD Group | 4,552 | 33,764 | (20,009) | (3,608) | 14,699 |
| PrJSC Pererobnyk | 356 | 1,634 | (2,712) | (1,269) | (1,991) |
| Total | 4,908 | 35,398 | (22,721) | (4,877) | 12,708 |
| As at 31 December 2014 | |||||
| Parisifia LTD Group | 8,092 | 48,305 | (23,543) | (8,245) | 24,609 |
| PrJSC Pererobnyk | 505 | 7,494 | (5,729) | (3,249) | (979) |
| Agrotechnologiya LLC | 311 | 190 | (688) | - | (187) |
| Total | 8,908 | 55,989 | (29,960) | (11,494) | 23,443 |
| In thousands of US dollars | Revenue | Profit/(loss) | Total comprehensive (loss) / income |
|---|---|---|---|
| As at 31 December 2015 | |||
| Parisifia LTD Group | 9,449 | 2,297 | (10,122) |
| PrJSC Pererobnyk | 656 | (791) | (221) |
| Agrotechnologiya LLC * | 3 | 21 | 60 |
| Total | 10,108 | 1,527 | (10,283) |
| As at 31 December 2014 | |||
| Parisifia LTD Group | 11,352 | (617) | (24,780) |
| PrJSC Pererobnyk | 1,761 | (3,617) | (4,416) |
| Agrotechnologiya LLC | 354 | (119) | 4 |
| Total | 13,467 | (4,353) | (29,192) |
Agrotechnologiya LLC * - till date of control transfer.
As from 01 January 2015, the Group adopted all changes to International Financial Reporting Standards (IFRSs) which are relevant to its operations.
This adoption did not have a material effect on the financial statements of the Group.
The following Standards, Amendments to Standards and Interpretations have been issued but are not yet effective for annual periods beginning on 01 January 2015. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these Standards early.
The management is currently evaluating the impact of the adoption of Amendments to IAS 16 and IAS 41 "Agriculture: Bearer Plants" that effective for annual periods beginning on or after 01 January 2016 and which will not have any retrospective impact on the consolidated financial statements after it implementation.
After implementation a potential impact from bearer plants accounting due to requirements IAS 16 would be as follows: a) Cost model – depreciation expenses raises and finishing of recognition the "gain on initial recognition at fair value
and net change in fair value of biological assets less estimated point-of-sale costs";
b) Revaluation model - finishing of recognition the "gain on initial recognition at fair value and net change in fair value of biological assets less estimated point-of-sale costs". Recognition of revaluation deviations will be through other comprehensive income and raise of depreciation expenses.
For other Standards and Interpretations the Board of Directors expects that their adoption in future periods will not have a material effect on the financial statements of the Group.
Movement of property, plant and equipment for the year ended 31 December 2015 and 2014 was as follows:
| In thousands of US dollars | Buildings | Agricultural equipment |
Vehicles and office equipment |
Construction in progress |
Total |
|---|---|---|---|---|---|
| At 01 January 2014 | |||||
| Cost | 51,089 | 30,427 | 7,808 | 18,387 | 107,711 |
| Accumulated depreciation | (6,052) | (8,645) | (2,687) | - | (17,384) |
| Carrying amount as at 01 January 2014 | 45,037 | 21,782 | 5,121 | 18,387 | 90,327 |
| Additions | 2,110 | 134 | 833 | 675 | 3,752 |
| Disposals | (1,119) | (2,287) | (1,071) | (1,658) | (6,135) |
| Transfers | 833 | (1,075) | (266) | 508 | - |
| Depreciation charge | (2,331) | (1,903) | (729) | - | (4,963) |
| Exchange differences, cost | (25,786) | (14,561) | (3,968) | (8,950) | (53,265) |
| Exchange difference, depreciation | 3,703 | 5,088 | 1,747 | - | 10,538 |
| Carrying amount as at 31 December 2014 | 22,447 | 7,178 | 1,667 | 8,962 | 40,254 |
| At 31 December 2014 | |||||
| Cost | 27,127 | 12,638 | 3,336 | 8,962 | 52,063 |
| Accumulated depreciation | (4,680) | (5,460) | (1,669) | - | (11,809) |
| Carrying amount as at 31 December 2014 | 22,447 | 7,178 | 1,667 | 8,962 | 40,254 |
| Additions | 1,194 | 248 | 31 | 4,082 | 5,555 |
| Disposals | (3,498) | (1,115) | (127) | (691) | (5,431) |
| Transfers | 2,309 | 955 | 16 | (3,280) | - |
| Depreciation charge | (955) | (816) | (536) | - | (2,307) |
| Disposals of subsidiaries | (808) | (1,049) | (114) | (230) | (2,201) |
| Exchange differences, cost | (11,330) | (5,078) | (1,141) | (83) | (17,632) |
| Exchange difference, depreciation | 1,693 | 1,947 | 622 | - | 4,262 |
| Carrying amount as at 31 December 2015 | 11,052 | 2,270 | 418 | 8,760 | 22,500 |
| At 31 December 2015 | |||||
| Cost | 14,994 | 6,599 | 2,001 | 8,760 | 32,354 |
| Accumulated depreciation | (3,942) | (4,329) | (1,583) | - | (9,854) |
| Carrying amount as at 31 December 2015 | 11,052 | 2,270 | 418 | 8,760 | 22,500 |
During 2015 the Group capitalised borrowing costs in amount of USD 795 thousand (2014: USD 546 thousand) on the construction of a pig-breeding complex (Note 23) using average rate of 18% (2014: 20%).
Included in agricultural equipment are assets held under finance leases with a carrying value of USD 1,071 thousand (2014: USD 1,424 thousand) (Note 16).
For amount of property, plant and equipment pledged to secure bank loans refer to Note 16.
9. Intangible Assets
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Goodwill | 336 | 3,836 |
| Land lease rights | 234 | 2,699 |
| Other | - | 18 |
| Total intangible assets | 570 | 6,553 |
The following table represents movements in the goodwill:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Carrying amount as at 01 January | 3,836 | 8,816 |
| Goodwill impairment | - | (827) |
| Goodwill arising on acquisition/(disposal) of subsidiaries (Note 5) | (2,421) | - |
| Exchange differences | (1,079) | (4,153) |
| Carrying amount as at 31 December | 336 | 3,836 |
Goodwill is allocated to cash-generating units ("CGUs") which represent the lowest level within the Group at which goodwill is monitored by management. Goodwill is allocated to the following CGUs:
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Soyuz-3 LLC | - | 2,830 |
| Unirem Agro Plus LLC | - | 525 |
| Other | 336 | 481 |
| Total goodwill | 336 | 3,836 |
The Group performed its annual impairment test as at 31 December 2015. The Group considers the correlation of its net assets value against market capitalisation, among other factors, when reviewing for indicators of impairment.
Crop production CGUs. The recoverable amount of these CGUs as at 31 December 2015 has been determined based on value in use calculation using cash flow projection from financial budgets approved by Management covering 5 years period. The pre-tax discount rate applied to cash flow projections is 22%. Other significant assumptions include crop yields and crop prices. Crop yields were derived based on average yields of the Group achieved in the five years preceding the budgeted period. For the purpose of impairment testing, the Group conservatively did not budget for any increase in yields. Crop prices were based on actual prices for the year preceding the budgeted year adjusted based on the commodity price forecasts. As a result (after forex impact UAH/USD from 15,7686 at 31 December 2014 to 21,8123 – average for the year 2015), no goodwill allocated to CGUs was impaired since value-in-use of each CGU exceeds its carrying value.
Apart from the considerations in determining the value-in-use, management is not currently aware of any other probable changes that would necessitate changes in its key estimates. However, the estimate of recoverable amount for the crop production is particularly sensitive to the crops market price.
If the crops price used is decreased by 20%, an impairment of USD 121 thousand would have to be written-off against goodwill.
Movements in the carrying amount of land lease rights were as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| At 01 January | ||
| Cost | 5,139 | 14,810 |
| Accumulated amortisation | (2,440) | (3,773) |
| Carrying amount as at 01 January | 2,699 | 11,037 |
| Acquisition / (Disposal) | (572) | (1,641) |
| Effect of de-consolidation | 905 | - |
| Amortization charge | (425) | (2,204) |
| Exchange difference, cost | (3,262) | (8,030) |
| Exchange difference, amortisation | 889 | 3,537 |
| At 31 December | 234 | 2,699 |
| Cost | 2,357 | 5,139 |
| Accumulated amortisation | (2,123) | (2,440) |
| Carrying amount as at 31 December | 234 | 2,699 |
The average remaining useful life of land lease rights as at 31 December 2015 is 4 years.
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Raw materials | 985 | - |
| Agricultural produce | 930 | 1,358 |
| Agricultural stock | 660 | 1,257 |
| Work in progress | 430 | 1,051 |
| Semi-finished goods | 293 | - |
| Goods for resale | 184 | 177 |
| Finished goods | 154 | - |
| Other | 123 | 466 |
| Total inventories and agricultural produced | 3,759 | 4,309 |
Agricultural produced consists mainly of sunflower, wheat and barley (31 December 2014: sunflower, wheat and barley).
In 2015 the Group recognised inventory write-down USD 3 thousand (2014: USD 166 thousands). Also, due to increase of crops market price in 2015, the amount of USD 0 (2014: 371) thousand was recognised as reversal of previously write down expenses.
| 31 December 2015 | 31 December 2014 | ||||
|---|---|---|---|---|---|
| Units | Amount | Units | Amount | ||
| Non-current biological assets (livestock) | |||||
| Cattle | 443 | 178 | 403 | 235 | |
| Sows | 4,473 | 16,323 | 4,556 | 19,685 | |
| Boars | 41 | 12 | 29 | 7 | |
| Area, ha | Amount | Area, ha | Amount | ||
| Non-current biological assets (crops) | |||||
| Lucerne | - | - | 688 | 215 | |
| Other perennial grasses | 33 | 118 | - | 77 | |
| Total non-current biological assets | 16,631 | 20,219 |
for the year ended 31 December 2015
| 31 December 2015 | 31 December 2014 | |||
|---|---|---|---|---|
| Current biological assets (livestock) | Units | Amount | Units | Amount |
| Cattle | 228 | 71 | 206 | 123 |
| Pigs | 54,327 | 2,136 | 42,028 | 2,025 |
| Other | - | - | - | |
| Current biological assets (crops) | Area, ha | Amount | Area, ha | Amount |
| Wheat | 6,644 | 1,411 | 14,136 | 2,053 |
| Barley | 2,664 | 242 | 5,027 | 269 |
| Rapeseed | 842 | 258 | 10,872 | 1,085 |
| Total current biological assets | 4,118 | 5,555 | ||
| Total biological assets | 20,749 | 25,774 |
The total area of agricultural land used by the Group is approximately 33 thousand hectares, including approximately 10 thousand hectares under winter crops as at 31 December 2015.
Significant quantity of Danish breed pigs (recorded as non-current biological assets) was purchased in April 2013 in order to produce piglets of given breed and to sell them in live weight.
The following table represents the changes during the years in the carrying amounts of non-current and current biological assets:
| In thousands of US dollars | Crops | Livestock | Total |
|---|---|---|---|
| Carrying amount as at 01 January 2014 | 38,007 | 17,688 | 55,695 |
| Purchases | - | 5 | 5 |
| Investments into future crops and livestock | 15,184 | 7,366 | 22,550 |
| Sales | - | (8,854) | (8,854) |
| Gain/(loss) arising from changes in fair value attributable to | |||
| physical changes and changes in market prices | (16,637) | 18,896 | 2,259 |
| Harvested during the period | (16,479) | - | (16,479) |
| Loss from dead crops | (2,756) | - | (2,756) |
| Exchange differences | (13,620) | (13,026) | (26,646) |
| Carrying amount as at 31 December 2014 | 3,699 | 22,075 | 25,774 |
| Purchases | - | 48 | 48 |
| Investments into future crops and livestock | 4,512 | 8,439 | 12,951 |
| Sales | - | (7,532) | (7,532) |
| Gain/(loss) arising from changes in fair value attributable to | |||
| physical changes and changes in market prices | 4,441 | 1,766 | 6,207 |
| Harvested during the period | (9,094) | - | (9,094) |
| Disposals of subsidiaries | (3,305) | - | (3,305) |
| Impairment of lucerne | (155) | - | (155) |
| Loss from dead crops | (635) | - | (635) |
| Exchange differences | 2,566 | (6,076) | (3,510) |
| Carrying amount as at 31 December 2015 | 2,029 | 18,720 | 20,749 |
Costs incurred during the period ended 31 December 2015 on crops in the field and livestock were as follows:
| In thousands of US dollars | Crops | Livestock | Total |
|---|---|---|---|
| Raw materials | 1,759 | 7,569 | 9,328 |
| Land lease expenses | 807 | - | 807 |
| Staff costs | 201 | 229 | 430 |
| Depreciation and amortisation | 165 | 544 | 709 |
| FAT | 314 | - | 314 |
| Other | 1,266 | 97 | 1,363 |
| Total costs incurred during the period | 4,512 | 8,439 | 12,951 |
Costs incurred during the period ended 31 December 2014 on crops in the field and livestock were as follows:
| In thousands of US dollars | Crops | Livestock | Total |
|---|---|---|---|
| Raw materials | 5,547 | 5,234 | 10,781 |
| Land lease expenses | 3,627 | - | 3,627 |
| Staff costs | 1,486 | 663 | 2,149 |
| Depreciation and amortisation | 1,331 | 601 | 1,932 |
| FAT | 273 | 24 | 297 |
| Other | 2,920 | 844 | 3,764 |
| Total costs incurred during the period | 15,184 | 7,366 | 22,550 |
Gain on initial recognition at fair value and net change in fair value of biological assets for the years ended 31 December 2015 and 2014 were as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Crops in the field | 1,408 | 1,477 |
| Agricultural produced at the date of harvesting | 3,033 | (16,967) |
| Lucerne | - | (1,186) |
| Sows | 2,968 | 16,509 |
| Livestock husbandry | (1,093) | 2,747 |
| Dairy cows | (109) | (361) |
| Gardens | - | 40 |
| Total gain on initial recognition at fair value | ||
| and net change in fair value of biological assets | 6,207 | 2,259 |
In 2015 Group decided to change the valuation model for cattle as life weight meat at level 1 as active market exists.
| Description | Fair value as at 31 December 2015 |
Valuation technique |
Unobservable inputs | Range of unobservable inputs |
|---|---|---|---|---|
| Crop yield - tonnes per ha | 2.68 | |||
| Crops in the field | 1,411 | Discounted cash | Crops price, USD | 144 per tonne |
| - Winter wheat | flows | Discount rate | 22% | |
| Crop yield - tonnes per ha | 1.86 | |||
| Crops in the field - Winter barley |
242 | Discounted cash flows |
Crops price, USD | 133 per tonne |
| Discount rate | 22% | |||
| Crops in the field | Crop yield - tonnes per ha | 1.29 | ||
| - Winter | 258 | Discounted cash flows |
Crops price, USD | 390 per tonne |
| rapeseed | Discount rate | 22% | ||
| Lucerne | - | |||
| Cattle | 249 | Market Price | Meat price, USD | 855 per tonne |
| Discounted cash | Piglets production, heads (average) |
138,023 per year | ||
| Sows | 16,323 | flows | Price, USD | 1,303–2,367 per tonne |
| Discount rate | 22% | |||
| Pigs | 2,136 | Market Price | Meat price, USD | 883–1,603 per tonne |
| Fruit trees | - |
for the year ended 31 December 2015
Agricultural produced crops harvested during the years ended 31 December 2015 and 2014 were presented in bunker weight as follows:
| 2015 | 2014 | |
|---|---|---|
| Crop harvested | in tonnes | in tonnes |
| Winter wheat | 19,448 | 34,134 |
| Winter barley | 5,906 | 9,366 |
| Winter rapeseed | 1,945 | 7,888 |
| Sunflower | 20,958 | 18,344 |
| Corn | 2,431 | 2,683 |
| Total | 50,688 | 72,415 |
For amount of biological assets pledged to secure bank loans refer to Note 16. Changes in key assumptions used to estimate biological assets fair value would have the following effect on the fair value of biological assets:
| In thousands of US dollars | Effect on fair value of biological assets |
|---|---|
| 10 % increase in price for meat | 6,640 |
| 10 % decrease in price for meat | (6,640) |
| 10 % increase in prices for crops | 330 |
| 10 % decrease in prices for crops | (330) |
| 10 % increase in yield for crops | 330 |
| 10 % decrease in yield for crops | (330) |
| 10 % increase in production costs until harvest | (139) |
| 10 % decrease in production costs until harvest | 139 |
| 5 pp increase in discount rate | (2,852) |
| 5 pp decrease in discount rate | 4,761 |
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Cash in bank / (Overdraft) | 1,147 | (148) |
| Total cash and cash equivalents | 1,147 | (148) |
| Term deposits – non-current | 1,738 | - |
| Term deposits – current | - | 2,646 |
| Total deposits | 1,738 | 2,646 |
Cash and cash equivalents and term deposits were denominated in the following currencies:
| 31 December 2015 | 31 December 2014 | |||
|---|---|---|---|---|
| In thousands of US dollars | Cash and cash equivalents |
Term deposits |
Cash and cash equivalents |
Term Deposits |
| UAH | 719 | 1,738 | (166) | 2,646 |
| EUR | 44 | - | 2 | - |
| USD | 356 | - | 8 | - |
| PLN | 6 | - | 8 | - |
| CHF | 22 | - | - | |
| Total | 1,147 | 1,738 | (148) | 2,646 |
As of 31 December 2015 the cash on banks accounts in amount USD 10 thousand was foreclosed by Ukraine executive authorities in favour of third parties according to court decisions.
For amount of deposits pledged to secure bank loans refer to Note 16.
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Trade accounts receivable | 6,763 | 4,514 |
| Less: provision for trade accounts receivable | (579) | (3,185) |
| Loans issued | 2,396 | 2,631 |
| Less: provision for loans issued | (279) | (1,098) |
| Other financial receivables | 2,654 | 2,335 |
| Less: provision for financial receivables | (1,731) | (125) |
| Total financial trade and other receivables | 9,224 | 5,072 |
| Advances issued | 1,490 | 2,144 |
| Less: provision for advances issued | (74) | (296) |
| Total trade and other accounts receivable | 10,641 | 6,920 |
As at 31 December 2015, almost all financial receivables were denominated in UAH (As at 31 December 2014 almost all financial receivables were denominated in UAH too), detailed information presented in note 28 – Currency risk.
Loans issued represent interest-free loans and are repayable within twelve months. The fair value of each class of trade and other receivables as at 31 December 2015 and 2014 approximates their carrying amount as of these dates. For amount of receivables pledged to secure bank loans refer to Note 16.
Long-term accounts receivable in amount USD 1,238 thousand are presented at amortised cost. These receivables are consist of trade receivables in amount 926.
Movements in the impairment for trade and other receivables were as follows:
| In thousands of US dollars | Trade receivables |
Other receivables |
Loans issued |
Advances issued |
|---|---|---|---|---|
| Impairment at 31 December 2013 | 1,940 | 793 | - | 233 |
| Reclassification of bad debt allowance | (10) | (379) | 426 | (37) |
| Impairment during the year | 2,933 | 11 | 1,032 | 273 |
| Exchange differences | (1,678) | (300) | (360) | (173) |
| Impairment at 31 December 2014 | 3,185 | 125 | 1,098 | 296 |
| Reclassification of bad debt allowance | - | - | - | - |
| Impairment during the year | (980) | 1,816 | (585) | (722) |
| Exchange differences | (1,626) | (210) | (234) | 498 |
| Impairment at 31 December 2015 | 579 | 1,731 | 279 | 74 |
Analysis by credit quality of financial receivables is as follows:
| 31 December 2015 | 31 December 2014 | |||||
|---|---|---|---|---|---|---|
| Trade | Loans | Other | Trade | Loans | Other | |
| In thousands of US dollars | receivables | issued | receivables | receivables | issued | receivables |
| Neither past due nor impaired | ||||||
| - Related parties | 247 | 75 | - | 337 | 116 | 338 |
| Total neither past due nor impaired | 247 | 75 | - | 337 | 116 | 338 |
| Total overdue | ||||||
| - less than 90 days overdue | 3,450 | 123 | 1,619 | 1,953 | 35 | 56 |
| - 91 to 180 days overdue | 103 | 298 | 28 | 206 | 230 | - |
| - 181 to 360 days overdue | 1,122 | 5 | 746 | 382 | 63 | 1,775 |
| - over 360 days overdue | 1,841 | 1,895 | 261 | 1,636 | 2,187 | 166 |
| Total overdue | 6,516 | 2,321 | 2,654 | 4,177 | 2,515 | 1,997 |
| Less: provision for impairment | (579) | (279) | (1,731) | (3,185) | (1,098) | (125) |
| Total trade and other receivables | 6,184 | 2,117 | 923 | 1,329 | 1,533 | 2,210 |
Related parties are represented by the private companies controlled by the majority shareholder of the Group.
Not overdue accounts receivable from related parties are mainly presented by the amounts due from the entities under common control (refer to Note 26). Thus, management believes that all accounts receivable are recoverable in full amounts. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security.
| In thousands of US dollars | 31 December 2015 31 December 2014 |
|
|---|---|---|
| VAT recoverable (1) | 542 | 972 |
| Other taxes receivable | 59 | 82 |
| Total taxes recoverable and prepaid | 601 | 1,054 |
(1) As at 31 December 2015, the balance of VAT recoverable was accumulated on continuing capital expenditures and increased investments in working capital.
The Ukrainian legislation provides for a number of different grants and tax benefits for companies involved in agricultural operations. The below mentioned grants and similar privileges are established by Verkhovna Rada (the Parliament) of Ukraine, as well as by the Ministry of Agrarian Policy of Ukraine, the Ministry of Finance of Ukraine, the State Committee of Water Industry, the customs authorities and local district administrations.
Government grants recognised by the Group as income during the years ended 31 December 2015 and 2014 were presented by VAT refunds amounting to USD 2,078 thousand and USD 1,805 thousand respectively.
As of 31 December 2015 and 2014, the registered share capital of KSG AGRO S.A. amounted to USD 150,200 and comprised of 15 020 thousand ordinary shares with a par value of USD 0.01 each. All issued shares were fully paid.
| In thousands of US dollars, except number of shares | Number of shares |
Ordinary shares |
Share premium |
Total |
|---|---|---|---|---|
| At 01 January 2014 | 15,020,000 | 150 | 37,254 | 37,404 |
| Share issue | - | - | - | - |
| At 31 December 2014 | 15,020,000 | 150 | 37,254 | 37,404 |
| Changes in Equity | - | - | - | - |
| At 31 December 2015 | 15,020,000 | 150 | 37,254 | 37,404 |
Basic earnings per share were calculated through dividing net profit for the year attributable to ordinary shareholders of the parent company, by the average-weighted number of common shares outstanding during the year. Diluted earnings per share are calculated through dividing the net profit attributable to ordinary shareholders of the parent company (after adjustments to interest on convertible preference shares), by the average-weighted number common shares outstanding during the year plus the average-weighted number of common shares to be issued in case of the conversion of all potential common shares with dilutive effect.
Information about earnings and number of shares used when calculating basic and diluted earnings per share is as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Loss for the year attributable to owners of the Company – basic Profit/(loss) from discontinued operations attributable to ordinary |
(2,467) | (50,156) |
| shareholders of the parent company Interest on convertible preference shares |
- - |
- - |
| Loss for the year attributable to owners of the Company – diluted | (2,467) | (50,156) |
| Weighted-average number of shares in issue – basic Dilutive effect |
15,020,000 - |
15,020,000 - |
| Stock option Convertible preference shares |
- - |
- - |
| Weighted-average number of shares in issue – diluted | 15,020,000 | 15,020,000 |
| Basic earnings per share, USD | (0.16) | (3.34) |
| Diluted earnings per share, USD | (0.16) | (3.34) |
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Long-term | ||
| Financial lease liabilities | 128 | 789 |
| Bank loans | 17,421 | 10,274 |
| Total long-term loans and borrowings | 17,549 | 11,063 |
| Total current loans and borrowings | 28,881 | 55,626 |
|---|---|---|
| Other borrowings | - | 8,870 |
| Bank loans | 28,276 | 46,121 |
| Financial lease liabilities | 605 | 635 |
| Current |
As a result of Ukrainian crises, in 2014 several banks of Ukraine have been forced to start liquidation process. In order to ensure repayment due to bank depositors it was decided to sign three side agreements with borrower (the Group), bank (Cambio Bank PJSC) and individuals. As a result such borrowings in consolidated financial statements as at 31 December 2015 were presented as other borrowings amounted USD 3,513 thousand.
As at 31 December 2015 and 2014, the Group's loans and borrowings were denominated in the following currencies:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Borrowings denominated in: | ||
| - USD | 23,827 | 26,585 |
| - UAH | 8,799 | 24,923 |
| - EUR | 13,804 | 15,181 |
| Total loans and borrowings | 46,430 | 66,689 |
The Group was not in compliance with certain loan covenants with respect to a loan of USD 16,457 thousand as at 31 December 2014. Consequently, non-current loan amounting to USD 16,457 thousand, which contractually matured in 2015, was classified as maturing within one year. During 2015 in the scope of overdue borrowing restructuring process, the Company signed Letters of intent with International Creditors (US EXIM Bank, Landesbank Baden-Wurttemberg (LBBW), EKF, Big Dutchman Pig equipment GmbH), according to which overdue loans should be repaid as follows:
ICD Investments SA principal USD 10,297 thousand, interest USD 2,332 thousand - payable in 2026;
Landesbank Baden principal USD 8,856 thousand, interest USD 577 thousand – repayable within 10 years; - Big Dutchman Pig Equipment - principal USD 4,311 thousand, interest USD 376 thousand – repayable within 10 years;
Import Export US Bank - principal USD 2,899 thousand, interest USD 123 thousand – repayable within 10 years;
Export Kredit Fonden -Sydbank AS – principal USD 1,251 thousand– repayable within 10 years;
Considering that restructuring deal of above mentioned borrowing has not legally completed yet, outstanding debt on such loan agreements, presented in Group's consolidated financial statements as at 31 December 2015 as current, except for loan due to ICD Investments SA. Loan due to ICD Investments SA presented in Group's consolidated financial statements as at 31 December 2015 according to agreed terms.
Also during 2015 the Company signed restructuring agreements on loans that were overdue as at 31 December 2014 with the following banks:
As of 31 December 2015, the Group had loans payable (including interests) with overdue payments in amount of USD 5,407 thousand. At the same time the Group is in negotiations with its creditors to achieve restructuring of its debts. Due to this breach and the fact that the negotiations with its finance providers had not been finalised by the end of the year, all the loans were classified into the short term borrowings of the Group. No pending litigation exists in respect with these cases.
As at 31 December 2015 and 2014, the Group's loans and borrowings maturity were as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Loans and borrowings due: | ||
| - within 1 year | 28,881 | 55,626 |
| - between 1 and 5 years | 17,549 | 11,063 |
| Total borrowings | 46,430 | 66,689 |
The carrying value of the Groups' assets pledged as collateral for the Group's bank loans is as follows:
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Property, plant and equipment | 6,308 | 9,760 |
| Receivables (Property rights under agreements on agricultural | ||
| produce selling) | 6,490 | 3,368 |
| Term deposit | 1,738 | 2,646 |
| Inventory | 490 | 2,336 |
| Biological assets | 1,326 | 6,935 |
| Share in subsidiaries (Property rights) | 1,755 | - |
| Total carrying amount of collateral | 18,107 | 25,045 |
As at 31 December 2015, a related party pledged as collateral real estate of contractual value of USD 4,668 thousand for respective liabilities of the Group to the amount of USD 4,792 thousand (2014: contractual value of USD 4,572 thousand for respective liabilities of the Group to the amount USD 14,167 thousand).
Leased assets with the carrying amount of USD 1,071 thousand (31 December 2014: USD 1,268 thousand) are presented as a collateral for the Group's obligations under the finance lease agreements. The Group has not delayed any
payments on these leases as at 31 December 2015 and therefore, according to the lease agreements, the lessor can't require the immediate return of leased assets with the carrying amount of USD 1,071 thousand (2014: USD 1,268 thousand).
As at 31 December 2015 and 2014, obligations under financial lease liabilities were:
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Long-term | 128 | 789 |
| Short-term | 605 | 635 |
| Total finance lease liabilities | 733 | 1,424 |
| Total future minimum lease payments | 831 | 1,719 |
| Less: interest expenses | (98) | (295) |
| Discounted value of future minimum lease payments | 733 | 1,424 |
As at 31 December 2015, future minimum lease payments and their discounted value under financial lease agreements that are not subject to early termination and concluded for a term exceeding one year are as follows:
| In thousands of US dollars | 2016 | 2017 | 2018 | 2019 | 2020 | Total |
|---|---|---|---|---|---|---|
| Future minimum lease payments Less: interest expenses |
641 (36) |
63 (28) |
52 (20) |
46 (11) |
29 (3) |
831 (98) |
| Discounted value of future minimum lease payments |
605 | 35 | 32 | 35 | 26 | 733 |
As at 31 December 2014, future minimum lease payments and their discounted value under financial lease agreements that are not subject to early termination and concluded for a term exceeding one year are as follows:
| In thousands of US dollars | 2015 | 2016 | 2017 | 2019 | Total |
|---|---|---|---|---|---|
| Future minimum lease payments | 788 | 507 | 415 | 9 | 1,719 |
| Less: interest expenses | (153) | (98) | (44) | - | (295) |
| Discounted value of future minimum | |||||
| lease payments | 635 | 409 | 371 | 9 | 1,424 |
As at 31 December 2015 and 2014, minimum lease payments were as follows:
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Amounts payable under financial lease agreements: | ||
| During 1 year | 641 | 788 |
| Over 1 year but no more than 5 years | 190 | 931 |
| Total lease payments | 831 | 1,719 |
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Trade payables | 7,801 | 10,665 |
| Financial assistance received | 10,912 | 5,694 |
| Payables for own promissory notes | - | 1,304 |
| Land lease payables | 233 | 1,274 |
| Promissory notes issued to GEM | 58 | 213 |
| Other accounts payable | 906 | 2,243 |
| Total financial trade and other payables | 19,910 | 21,393 |
| Prepayments received | 2,835 | 2,617 |
| Litigation reserve | 255 | 387 |
| Wages and salaries accrued | 93 | 99 |
| Total trade and other payables | 23,093 | 24,496 |
Prepayments received and accounts payable are interest-free and settled in the normal course of business.
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Long-term promissory notes issued | 179 | 215 |
| Current promissory notes issued | 1,395 | 1,636 |
| Total promissory notes issued | 1,574 | 1,851 |
Long term and short term promissory notes issued in amount USD 1,574 thousand are presented at amortised cost: initial cost of these financial liabilities are equal to USD 1,395 thousand and USD 191 thousand respectively for current and long-term promissory notes issued (including interest charged – USD 12 thousand).
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Sale of agricultural produced and processed food | 17,533 | 24,678 |
| Rendering of services | 1,729 | 1,624 |
| Total revenue | 19,262 | 26,302 |
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Cost of agricultural produced and processed food | 12,997 | 27,890 |
| Cost of rendered services | 1,301 | 854 |
| Total cost of sales | 14,298 | 28,744 |
Cost of goods sold for the year 2015 contains of the following components:
| In thousands of US dollars | 2015 |
|---|---|
| Incurred costs | 10,770 |
| Revaluation effects | 1,639 |
| Additional depreciation & amortization | 1,889 |
| Total cost of sales | 14,298 |
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Informational, expert and consulting services | 264 | 651 |
| Taxes, other than income tax | 220 | 27 |
| Wages and salaries | 176 | 675 |
| Fuel and other materials | 121 | 140 |
| Bank services | 84 | 136 |
| Transport services | 81 | 249 |
| Depreciation and amortisation | 74 | 472 |
| Crops storage services | - | 75 |
| Other expenses | 611 | 419 |
| Total selling, general and administrative expenses | 1,631 | 2,844 |
The total fees for audit services provided to the Group for the year 2015 are USD 76 thousand (2014 – USD 112 thousand).
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Write-off debts Souz-3 LLC and other debts reverse | 1,247 | - |
| Loss of harvest | 635 | 453 |
| Loss of current's assets sales | 465 | - |
| Impairment of LLR | 425 | - |
| Fines and penalties | 396 | 1,197 |
| Impairment of accounts receivable | 240 | 4,249 |
| Impairment of lucerne | 155 | - |
| VAT written off | 71 | 1,558 |
| Impairment of accounts receivable from Crimean companies | - | 4,385 |
| Loss of lucerne in Crimea | - | 2,756 |
| Accounts receivable and prepayments write-off | - | 1,246 |
| Inventories write-off | - | 268 |
| Provision for litigations | - | 246 |
| Loss on PPE disposal | - | 235 |
| Write-down of inventories | - | 166 |
| Other | 420 | 524 |
| Total other expenses | 4,054 | 17,283 |
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Finance income | ||
| Interest income | 709 | 909 |
| Unwinding of discount on non-current financial assets | 1,318 | 410 |
| Total finance income | 2,027 | 1,319 |
| Finance expenses | ||
| Interest expense on bank loans | (4,696) | (11,702) |
| Interest expense on trade loan | - | (324) |
| Interest expense under financial lease | (5) | (356) |
| Discount on non-current financial assets | (430) | (2,398) |
| Unwinding of discount on long-term financial liabilities | (32) | (26) |
| Other finance expenses | (239) | (131) |
| Finance expenses | (5,402) | (14,937) |
| Less: amounts capitalised on qualifying assets (Note 8) | 795 | 546 |
| Total finance expenses | (4,607) | (14,391) |
The majority of the Group's operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed based on Ukrainian statutory rates. The majority of the Group companies that are involved in agricultural production pay the Fixed Agricultural Tax (the "FAT") in accordance with the Tax Code.
The FAT replaces the following taxes for agricultural producers: Corporate Income Tax, Land Tax, Special Water Consumption Duty, and Trade Patent. The FAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is valid indefinitely. FAT does not constitute an income tax, and as such, is recognised in the income statement within item cost of sales.
During the year ended 31 December 2015, the Group's companies that have the status of Corporate Income Tax (the "CIT") payers in Ukraine were subject to income tax at a rate of 18% (for the year ended 31 December 2014: 18%).
The deferred income tax assets and liabilities as of 31 December 2015 and 2014 were measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.
Income tax expense comprises the following:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Current tax expense | (7) | (13) |
| Deferred tax benefit | 746 | 294 |
| Income tax benefit | 739 | 281 |
Reconciliation between the expected and the actual taxation charge is provided below.
| 2015 | ||
|---|---|---|
| In thousands of US dollars | 2014 | |
| Loss before tax | (2,631) | (53,517) |
| - (Gain) attributable to FAT payers | 5,493 | (37,846) |
| - (Loss) attributable to Ukrainian subsidiaries | (8,055) | (13,790) |
| - (Loss) / Profit attributable to other Group companies | (69) | (1,881) |
| Income tax (benefit) / expense related to Ukrainian subsidiaries | 1,450 | 2,482 |
| Income tax (benefit) / expense related to other Group companies | 600 | 373 |
| • non-deductible expense |
- | (112) |
| • change in unrecognised deferred tax asset |
(1,311) | (2,462) |
| Income tax benefit/(expense) | 739 | 281 |
Deferred taxes movement for the year 2015 presented below:
| Credited/ | ||||
|---|---|---|---|---|
| In thousands of US dollars | 31 December 2014 |
(charged) to income statement |
Translation difference |
31 December 2015 |
| Tax effect of deductible temporary differences | ||||
| Accounts receivable | 140 | (6) | (47) | 87 |
| Promissory notes received | 13 | (9) | (4) | - |
| Gross deferred tax asset | 153 | (15) | (51) | 87 |
| Tax effect of taxable temporary differences | ||||
| Property, plant and equipment | (1,010) | 761 | 279 | 30 |
| Gross deferred tax liability | (1,010) | 761 | 279 | 30 |
| Recognised deferred tax asset/(liability) | (857) | 746 | 228 | 117 |
Deferred taxes movement for the year 2014 is presented below:
| In thousands of US dollars | 31 December 2013 |
Credited/ (charged) to income statement |
Translation difference |
31 December 2014 |
|---|---|---|---|---|
| Tax effect of deductible temporary differences | ||||
| Accounts receivable | 59 | 146 | (65) | 140 |
| Promissory notes received | 38 | (8) | (17) | 13 |
| Gross deferred tax asset | 97 | 138 | (82) | 153 |
| Tax effect of taxable temporary differences | ||||
| Property, plant and equipment | (2,224) | 156 | 1,058 | (1,010) |
| Gross deferred tax liability | (2,224) | 156 | 1,058 | (1,010) |
| Recognised deferred tax asset/(liability) | (2,127) | 294 | 976 | (857) |
The Group has four reportable segments, as described below, which are the Group's strategic divisions. The strategic divisions offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic divisions, the Group's CEO reviews internal management reports on at least quarterly basis. The operation in each of the Group's reporting segments are:
Performance is measured based on segment profit or loss, as included in the internal management reports that are reviewed by the Group's CEO. Segment profit or loss is used to measure performance as management believes that such information is the most relevant in evaluating the results of the Group's segments relative to other entities that operate within these industries.
Items which are not disclosed separately in segment income and expenses are as follows: Government grant received, Gain/(loss) on acquisition/(disposal) of subsidiaries/assets held for sale, Other operating income, Selling, general and administrative expenses, Other operating expenses, Finance income, Finance expenses, Loss on share purchase warrant and Income tax benefit.
Information about operating segments for year ended 31 December 2015 presented below:
| In thousands of US dollars | Crop production |
Food processing |
Livestock breeding |
Other operations |
Total |
|---|---|---|---|---|---|
| Revenue | 11,032 | 2,988 | 8,494 | 1,728 | 24,242 |
| including: | |||||
| - sales of goods | 11,032 | 2,988 | 8,494 | (1) | 22,513 |
| - rendering of services | - | - | - | 1,729 | 1,729 |
| Inter-segment transactions | (1,762) | (219) | (2,384) | (615) | (4,980) |
| Revenue from external customers | 9,270 | 2,769 | 6,110 | 1,113 | 19,262 |
| Change in fair value of biological assets less | |||||
| estimated point-of-sale costs | 4,442 | - | 1,765 | - | 6,207 |
| Cost of sales | (6,700) | (2,353) | (3,627) | (1,618) | (14,298) |
| Segment profit/(loss) | 7,012 | 416 | 4,248 | (505) | 11,171 |
| Government grant received | 2,078 | ||||
| Selling, general and administrative expenses | (1,631) | ||||
| Other operating income / (expense), net | 1,924 | ||||
| Operating profit | 13,542 | ||||
| Finance income Finance expenses |
2,027 | ||||
| Foreign currency exchange gain/(loss), net | (4,607) (9,040) |
||||
| Other income/(expenses), net | (4,054) | ||||
| Gain/(Loss) on acquisition/(disposal) of | |||||
| subsidiaries and associates | (499) | ||||
| Loss before tax | (2,631) | ||||
| Income tax benefit | 739 | ||||
| Loss for the period | (1,892) | ||||
| Other segment information: | |||||
| Depreciation and amortisation | 1,272 | 86 | 1,229 | 145 | 2,732 |
| Capital expenditure | 91 | 8 | 2,829 | - | 2,928 |
Information about operating segments for the year ended 31 December 2014 is as follows:
| In thousands of US dollars | Crop production |
Food processing |
Livestock breeding |
Other operations |
Total |
|---|---|---|---|---|---|
| Revenue | 16,199 | 1,686 | 8,063 | 4,194 | 30,142 |
| including: | |||||
| - sales of goods | 16,199 | 1,686 | 8,063 | 2,570 | 28,518 |
| - rendering of services | - | - | - | 1,624 | 1,624 |
| Inter-segment transactions | (1,273) | (222) | (738) | (1,607) | (3,840) |
| Revenue from external customers | 14,926 | 1,464 | 7,325 | 2,587 | 26,302 |
| Change in fair value of biological assets less | |||||
| estimated point-of-sale costs | (15,492) | - | 18,897 | (1,146) | 2,259 |
| Cost of sales | (17,478) | (1,413) | (8,771) | (1,082) | (28,744) |
| Segment profit/(loss) | (18,044) | 51 | 17,451 | 359 | (183) |
| Government grant received | 1,805 | ||||
| Selling, general and administrative expenses | (2,844) | ||||
| Other operating income / (expense), net | 852 | ||||
| Operating profit | (370) | ||||
| Finance income | 1,319 | ||||
| Finance expenses | (14,391) | ||||
| Foreign currency exchange gain/(loss), net | (22,227) | ||||
| Loss on impairment of goodwill | (827) | ||||
| Other income/(expenses), net | (17,283) | ||||
| Gain/(Loss) on acquisition/(disposal) of | |||||
| subsidiaries and associates | 4 | ||||
| Gain on share purchase warrant | 258 | ||||
| Loss before tax | (53,517) | ||||
| Income tax benefit | 281 | ||||
| Loss for the period | (53,236) | ||||
| Other segment information: | |||||
| Depreciation and amortisation | 4,059 | 549 | 1,429 | 1,095 | 7,132 |
| Capital expenditure | (81) | (52) | (1,369) | (28) | (1,530) |
Breakdown of revenue by geographical segments is based on the domicile of the customers and is as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Ukraine | 18,975 | 26,074 |
| Europe | 287 | 228 |
| Total revenue | 19,262 | 26,302 |
Significant related party balances outstanding at the reporting dates are:
| 31 December 2015 | 31 December 2014 | |||
|---|---|---|---|---|
| In thousands of US dollars | Parent and owners |
Entities under common control |
Parent and owners |
Entities under common control |
| Assets | ||||
| Trade and other accounts receivable | - | 323 | 1,721 | 342 |
| Loans issued | - | 311 | - | 448 |
| Liabilities | ||||
| Trade and other accounts payable | 3 | 2,579 | - | 2,889 |
| Loans | 10,297 | 2,386 | 10,297 | 3,802 |
| Interest payable | 2,332 | 3 | 1,572 | 92 |
Revenue and expense transactions with related parties during 2015 and 2014 were as follows:
| 2015 | 2014 | |||
|---|---|---|---|---|
| Parent and | Entities under | Parent and | Entities under | |
| In thousands of US dollars | owners | common control | owners | common control |
| Revenue | - | - | - | 15 |
| Unwinding of discount on long-term receivable | - | 56 | - | 518 |
| Finance expenses | 918 | 701 | 918 | 519 |
| Capitalized borrowing costs (Note 8) | - | 645 | - | 546 |
Entities under common control are companies controlled by majority shareholder – Sergey Kasianov.
As of 31 December 2015, the ultimate controlling party and other related parties provided collateral for the Group's loan of USD 4,675 thousand and USD nil thousand respectively (2014: USD 2,403 thousand and USD 2,502 thousand respectively).
Transactions with key management personnel. Key management personnel are those individuals that have the authority and responsibility for planning, directing and controlling the activities of the Group directly or indirectly, and consist of five members of the Board of Directors.
Remuneration of key management personnel for 2015 comprised short-term benefits totalling USD 173 thousand (2014: USD 304 thousand).
There are no other compensations for key management personnel, information about which need to be disclosed.
As of 31 December 2015, the Group had litigations for repayment of existing payables (except loans payable) in amount USD 1,220 thousand and charging additional fines in amount USD 840 thousand that were continue in 2015 year. The Group estimates that such legal cases will be resolved in favor of Group and due to this no provision was recognized as of 31 December 2014.
During the year ended 31 December 2015, the bank PJSC Credit Agricole suited year Group with requirement to repay debt in amount USD 3,051 thousand payable as of 31 December 2014 and pay additional payments (fines, penalties, interest etc.) for total amount USD 920 thousand. In the first quarter of 2016 the Group Management agreed with bank memorandum for restructure of debt in 2016 and following years.
Contingencies of debt liabilities. The Group had overdue and breach covenants of debt agreements with banks as of 31 December 2014 in total amount USD 29,700 thousand. In case the banks (other than mentioned in Note 31 'Events after the Reporting Period') start sue the Group at the date of this consolidated financial statements the total amount of debts that should be repaid was emounted to USD 32,672 thousand and additional payments (fines, penalties, interest etc.) to be paid in total amount USD 644 thousand. The Group Management actively conducts negotiations with banks and expects to agree with such banks memorandum for restructure of debts with favorable conditions for both parties.
Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group's sales of products on credit terms and other transactions with counterparties giving rise to financial assets.
The Group's maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in the consolidated statement of financial position and as summarised below:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Financial assets | ||
| Long-term receivables | 1 238 | 2,227 |
| Promissory notes receivable | 217 | 570 |
| Term deposits | 1,738 | 2,646 |
| Trade and other accounts receivable | 9,224 | 5,072 |
| Cash and cash equivalents | 1,147 | (148) |
| Total financial assets | 13,564 | 10,367 |
| Financial liabilities | ||
| Trade and other accounts payable | 19,910 | 21,393 |
| Loans and borrowings | 46,430 | 66,689 |
| Promissory notes issued | 1,574 | 1,851 |
| Total financial liabilities | 67,914 | 89,933 |
Credit risk concentration. The Group is exposed to the concentration of credit risk. Management monitors and discloses concentrations of credit risk by obtaining monthly reports with exposures to counterparties with the balances in excess of 1% of net assets.
As of 31 December 2015, the Group had 17 counterparties (31 December 2014: 4 counterparties) with aggregated receivable balances above USD 150 thousand each. The total aggregate amount of these balances was USD 9,941 thousand (31 December 2014: USD 2,322 thousand) or 93% of the net amount of trade and other receivables (31 December 2014: 34%).
Market risk. The Group takes an exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities, all of which are exposed to general and specific market movements.
The Group does not have significant interest-bearing financial assets. Loans and borrowings issued at variable interest rates expose the Group to the interest rate risk. Loans and borrowings issued at fixed rates expose the Group to the fair value risk.
The sensitivities to market risks disclosed below are based on a change in one factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.
Interest rate risk. Risk of changes in interest rate is generally related to interest-bearing loans. Loans issued at variable rates expose the Group to cash flow interest rate risk. Loans issued at fixed rates expose the Group to fair value interest rate risk. The Group is currently developing its policy on structure of fixed and variable rates loan portfolio. The Group's management analyses market interest rates to minimize interest rate risk.
The Group analyses its interest rate exposure on a dynamic basis. As of 31 December 2015, if interest rate had been 5% higher with all other variables held constant, post-tax loss for the year then ended would have been USD 5,398 thousand lower (2014: USD 3,015 thousand), respectively if interest rate had been 5% lower than profit after tax would have been decrease in the same amount. The impact on Equity would be the same as on the Profit&Losses.
Currency risk. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity's functional currency.
As of 31 December 2015, the Group has financial assets and liabilities denominated in foreign currency, net position of which is presented below:
| In thousands of US dollars | USD | EUR | PLN | CHF | UAH |
|---|---|---|---|---|---|
| Financial assets | |||||
| Long-term receivables | 1,238 | - | - | - | - |
| Promissory notes receivable | - | - | - | - | 217 |
| Term deposits | - | - | - | - | 1,738 |
| Trade and other accounts receivable | 23 | 7 | - | - | 9,194 |
| Cash and cash equivalents | 356 | 44 | 6 | 22 | 719 |
| Total financial assets | 1,617 | 51 | 6 | 22 | 11,868 |
| Financial liabilities | |||||
| Trade and other accounts payable | 2,761 | 532 | 2 | 158 | 16,457 |
| Loans and borrowings | 23,827 | 13,804 | - | - | 8,799 |
| Promissory notes issued | 134 | 1,198 | - | - | 242 |
| Total financial liabilities | 26,722 | 15,534 | 2 | 158 | 25,498 |
| Total: net value | (25,105) | (15,483) | 4 | (136) | (13,630) |
As of 31 December 2014, the Group has financial assets and liabilities denominated in foreign currency, net position of which is presented below:
| In thousands of US dollars | USD | EUR | PLN | CHF | UAH |
|---|---|---|---|---|---|
| Financial assets | |||||
| Long-term receivables | 1,098 | - | - | - | 1,129 |
| Promissory notes receivable | - | - | - | - | 570 |
| Term deposits | - | - | - | - | 2,646 |
| Trade and other accounts receivable | - | 389 | - | 37 | 4,646 |
| Cash and cash equivalents | 8 | 2 | 8 | - | (166) |
| Total financial assets | 1,106 | 391 | 8 | 37 | 8,825 |
| Financial liabilities | |||||
| Trade and other accounts payable | (1,792) | (533) | (138) | (6) | (18,924) |
| Loans and borrowings | (26,585) | (15,181) | - | - | (24,923) |
| Promissory notes issued | - | (1,555) | - | - | (378) |
| Total financial liabilities | (28,377) | (17,269) | (138) | (6) | (44,225) |
| Total: net value | (27,271) | (16,878) | (130) | 31 | (35,400) |
Because of this exposure, if the US dollar were to strengthen or weaken by 20 percent against the UAH, it would decrease or increase the Group's loss before tax by USD 5,021 thousand, respectively (31 December 2014 40% and USD 10,908 thousand).
Because of this exposure, if the Euro were to strengthen or weaken by 20 percent against the UAH, it would decrease or increase the Group's profit before tax by USD 3,097 thousand, respectively (31 December 2014: 40% and increase or decrease by USD 6,751 thousand).
Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is managed by the Group management who monitors monthly rolling forecasts of the Group's cash flows.
The Group seeks to maintain a stable funding base primarily consisting of borrowings and trade and other payables.
The table below shows liabilities at 31 December 2015 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in the consolidated statement of financial position because the statement of financial position is based on discounted cash flows.
The maturity analysis of financial liabilities at 31 December 2015 was as follows:
| In thousands of US dollars | Less than 1 year | From 1 year to 2 years |
From 2 years to 5 years |
Total |
|---|---|---|---|---|
| Loans and borrowings | 28,276 | 1,000 | 16,421 | 45,697 |
| Future interest cash flow – loans | 2,462 | 2,135 | 19,023 | 23,620 |
| Financial lease | 605 | 35 | 93 | 733 |
| Future interest cash flow – financial lease | 36 | 28 | 34 | 98 |
| Trade and other payables | 19,646 | 155 | 109 | 19,910 |
| Promissory notes issued | 1,395 | 179 | - | 1,574 |
| Total | 52,420 | 3,532 | 35,680 | 91,632 |
The maturity analysis of financial liabilities at 31 December 2014 was as follows:
| In thousands of US dollars | Less than 1 year | From 1 year to 2 years |
From 2 years to 5 years |
Total |
|---|---|---|---|---|
| Loans and borrowings | 54,991 | - | 10,274 | 65,265 |
| Future interest cash flow – loans | 12,516 | 918 | 91 | 13,525 |
| Financial lease | 635 | 409 | 380 | 1,424 |
| Future interest cash flow – financial lease | 153 | 98 | 44 | 295 |
| Trade and other payables | 21,393 | - | - | 21,393 |
| Promissory notes issued | 1,699 | 234 | - | 1,933 |
| Total | 91,387 | 1,659 | 10,789 | 103,835 |
The Group primary manages business risks and does not have formalised policies and procedures for managing financial risks.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders as well as to provide financing of its operating requirements, capital expenditures and Group's development strategy. The Group's capital management policies aim to ensure and maintain an optimal capital structure to reduce the overall cost of capital and flexibility relating to Group's access to capital markets.
| In thousands of US dollars | 31 December 2015 | 31 December 2014 |
|---|---|---|
| Total amount of borrowings | 48,004 | 68,540 |
| Less cash and cash equivalents | (1,147) | 148 |
| Net debt | 46,857 | 68,688 |
| Total capital | (6,956) | (2,871) |
| Debt to capital ratio | (6,736)% | (2,392)% |
The Group is currently developing its capital management policy. Management monitors on a regular basis the Group's capital structure and may adjust its capital management policies and targets following changes of its operating environment, market sentiment or its development strategy.
Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price.
Fair value estimation. As at 31 December 2015 and 2014, the Group did not have financial assets carried at fair value.
Financial assets carried at amortized cost. Carrying amounts of trade and other financial receivables approximate their fair value.
Financial liabilities carried at amortized cost. Carrying amounts of trade and other payables, financial lease liabilities, promissory notes issued, bank and other borrowings approximate their fair values as at 31 December 2015 and 2014.
The Group's parent is OLBIS Investments LTD S.A., registered in Panama, from 02 March 2016.
Company signed a preliminary letter of intent (LoI) with the bank PJSC Credit Agricole related to the restructuring of the total debt in the amount of USD 3,000 thousand.
At the meeting of the European Business Association Board, held on 22 February 2016, KSG Agro S.A. was accepted as a new full member of the Association. European Business Association unites more than nine hundred companies. It is one of the biggest business communities working on the Ukrainian market. EBA activities focus on the possibility of establishing business relations with the best international and Ukrainian companies. The idea of the Association is to provide its member companies with the opportunity to work together to solve the important issues of the investment climate in Ukraine and improve it for the benefit of industry, society, the economy and the country as a whole.
In May 2016, overdue loan in amount of USD 749 thousand due to PJSC Ukrsotsbank was fully repaid by the Group.
On 10 June 2016 the Group Management received the offer from Bank Pivdennyi to postpone repayment of loan principal for 18 months till the end of 2017. Outstanding amount of loan due to Bank Pivdennyi as at 31 December 2015 constituted USD 1,282 thousands, and matures on 28 October 2016. To conclude restructuring agreement, the Bank requested to repay USD 200 thousands of overdue principal.
The foreign currency exchange losses, net for the years ended 31 December 2015 and 2014 were as follows:
| In thousands of US dollars | 2015 | 2014 |
|---|---|---|
| Foreign currency exchange gain | 5,161 | 1,130 |
| Foreign currency exchange loss | (14,201) | (23,357) |
| Net amount | (9,040) | (22,227) |
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