Interim / Quarterly Report • Aug 14, 2019
Interim / Quarterly Report
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KSG Agro S.A.
Unaudited Interim Condensed Consolidated Financial Statements
30 June 2019
| Statement of the Board of Directors and management's responsibility for the preparation and approval of the interim condensed consolidated financial statements |
3 |
|---|---|
| Interim Management Report | 4 |
| Unaudited Interim Condensed Consolidated Statement of Financial Position | 12 |
| Unaudited Interim Condensed Consolidated Statement of Profit or Loss | 13 |
| Unaudited Interim Condensed Consolidated Statement of Other Comprehensive Income | 14 |
| Unaudited Interim Condensed Consolidated Statement of Cash Flows | 15 |
| Unaudited Interim Condensed Consolidated Statement of Changes in Equity | 17 |
| Notes to the Unaudited Interim Condensed Consolidated Financial Statements | 18 |
The following statement is made with a view to clarify responsibilities of management and Board of Directors in relation to the interim condensed consolidated financial statements of KSG Agro S.A. and its subsidiaries (together the "Group").
The Board of Directors and the Group's management are responsible for the preparation of the interim condensed consolidated financial statements of the Group as of 30 June 2019 and for the six months then ended in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
In preparing the interim condensed consolidated financial statements, the Board of Directors and management are responsible for:
The Board of Directors and management are also responsible for:
In accordance with Article 4 (2) (c) of the law of Luxembourg of 11 January 2008 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, we declare that, to the best of our knowledge, the interim condensed consolidated financial statements for the six months ended 30 June 2019, prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of KSG Agro S.A. and its subsidiaries included in the consolidation taken as a whole. In addition, the management report includes a fair review of the development and performance of the business and the position of KSG Agro S.A. and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
The interim condensed consolidated financial statements as of 30 June 2019 and for the six months then ended were approved on 14 August 2019.
________________________
А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
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.
The Company and its subsidiaries (hereinafter «the Group» or «KSG Agro» or «the Company») implement their development strategy:
| Strategy | Implementation |
|---|---|
| Focus on farming & pigs breeding and increase its |
Revenue from livestock breeding for the six months ended 30 June 2019 was USD 3.7 million. Revenues for the comparative period of 2018 were USD 4.3 million, but also included sales of cows. Later in 2018, the Group has sold its cattle and focused on breeding of pigs |
| efficiency | During both the six months ended 30 June 2019 and the six months ended 30 June 2018, sales of pigs were 48 thousand heads |
| In 2018, the Group began reconstruction of infrastructure facilities adjacent to the pig complex. In particular, the construction works for the sewage pumping station had started and continued into 2019 |
|
| In 2019, the Group plans to commission a new sow house at the pig complex to increase pig production by 20% |
|
| Searching new | As at 30 June 2019, the Group's total controlled land bank was 27 thousand hectares |
| contractors and signing agreements for sale of crops using USD prices |
Revenue from crop production for the six months ended 30 June 2019 was USD 1.6 million which is comparable to the same period of 2018 |
| Most revenue from crops in 2019 was generated from USD 0.9 million of sales of sunflower, USD 0.2 million of sales of sorghum and USD 0.2 million of sales of rapeseed |
|
| As at 30 June 2019, the Group has started harvesting winter crops, gathering 3.8 thousand tonnes of barley, 2.3 thousand tonnes of wheat and 1.1 thousand tonnes of rapeseed |
|
| Due to gradual strengthening of Ukrainian Hryvnia against the US dollar, the Group expects to be less vulnerable to currency risks as agreements for sale of crops will still be negotiated in UAH prices. As of the date of this report, the exchange rate was UAH 25.15 per USD 1, down from 26.16 as at 30 June 2019 and further down from 27.68 as at 31 December 2018 |
|
| Reduction of current debt and extension of credit period |
At the date these financial statements are being issued the Group has finalised the restructuring of its major loans and borrowings |
| In February 2019, the Group has restructured its debt under the loan from Big Dutchman Pig Equipment. At the date these financial statements are being issued, the remaining balance was repaid in full |
|
| In July 2019, the Group has finalised restructuring terms for an overdue loan from LBBW in the total amount as at 31 December 2018, including interest, of USD 9.9 million. As a result, the Group's debt under the loan was reduced to EUR 3.2 million. At the date these financial statements are being issued, the remaining balance is USD 3.3 million |
|
| The Group's obligations under bank and other loans which existed as at 31 December 2018 are down from USD 44.3 million to USD 38.1 million as at 30 June 2019 and further down to USD 31.8 million at the date these financial statements are being issued |
|
| Current portion of bank and other loans is down from USD 23.8 million as at 31 December 2018 to USD 15.0 million at the date these financial statements are being issued |
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.corpgov.gpw.pl/lad\_corp.asp
The Board of Directors consists of five members, three of which 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.
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.
In this regards the Company is governed by the article 9 if the Articles of Association.
Mr. Sergiy Kasianov has been appointed as chairman of the board of Directors.
The board of Directors shall meet upon call by the Chairman, or any two Directors at the place and time indicated in the notice of meeting, the person(s) convening the meeting setting the agenda.
Written notice of any meeting of the Board of Directors shall be given to all Directors at least five (5) calendar days in advance of the hour set for such meeting, except in circumstances of emergency where 24 hours prior notice shall suffice which shall duly set out the reason for the urgency.
The board of Directors may act validly and validly adopt resolutions if approved by the majority of Directors including at least one class A and one class B Director at least a majority of the Directors are present or represented at a meeting.
The audit committee has three members and is in charge of overseeing financial reporting and disclosure.
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:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Ukrainian generaly adopted accounting principles and transformation to International Financial Reporting Standards as adopted by European Union;
• that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
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 six months ended 30 June 2019 and 2018 derived from the unaudited interim condensed consolidated financial statements:
| 30 June | 30 June | ||
|---|---|---|---|
| 2019 | 2018 | ||
| In thousands of US dollars | (unaudited) | (unaudited) | Change, % |
| Revenue | 8,376 | 8,700 | (4)% |
| Gain on initial recognition at fair value and net change in fair value | |||
| of biological assets less estimated point-of-sale costs | 2,924 | 1,160 | 152% |
| Cost of sales | (9,653) | (8,890) | 9% |
| Gross profit | 1,647 | 970 | 70% |
| Government grant received | - | 7 | (100)% |
| Selling, general and administrative expenses | (589) | (562) | 5% |
| Other operating income | 282 | 744 | (62)% |
| Operating profit | 1,340 | 1,159 | 16% |
| Finance income | 4,930 | 77 | 6,303% |
| Finance expenses | (729) | (752) | (3)% |
| Foreign currency exchange gain/(loss), net | 1,089 | 890 | 22% |
| Other expenses | (461) | (378) | 22% |
| Loss on disposal of subsidiaries | (685) | - | 100% |
| Profit before tax | 5,484 | 996 | 451% |
| Income tax expense | (3) | (13) | (77)% |
| Profit for the period | 5,481 | 983 | 458% |
Revenue from livestock breeding for the six months ended 30 June 2019 was USD 3.7 million. Revenues for the comparative period of 2018 were USD 4.3 million, but also included sales of cows. Later in 2018, the Group has sold its cattle and focused on breeding of pigs. During both the six months ended 30 June 2019 and the six months ended 30 June 2018, sales of pigs were 48 thousand heads.
Revenue from crop production for the six months ended 30 June 2019 was USD 1.6 million which is comparable to the same period of 2018. Most revenue from crops in 2019 was generated from USD 0.9 million of sales of sunflower, USD 0.2 million of sales of sorghum and USD 0.2 million of sales of rapeseed.
Composition of the Group's revenue and cost of sales by segment are disclosed in Note 18 to the unaudited interim condensed consolidated financial statements.
Components of selling, general and administrative expenses and other expenses are disclosed in Notes 14 and 15, respectively, to the unaudited interim condensed consolidated financial statements.
Finance income for the six months ended 30 June 2019 includes USD 4.3 million of restructuring gain on loan from Big Dutchman Pig Equipment and USD 0.6 million of restructuring gain on promissory notes. In accordance with the agreement signed by the Group in regards to its loan from Big Dutchman Pig Equipment, the Group's debt under the loan agreement was restructured. Restructuring implied a reduction of the loan amount to EUR 1.0 million, which was repaid in full by July 2019.
Finance expenses for the six months ended 30 June 2019 include USD 0.5 million of interest expenses on loans, which is lower than for the comparative period due to restructuring of the Group's major loans, as well as USD 0.2 million of interest expenses on leases as a result of adoption of IFRS 16 from 1 January 2019.
Foreign exchange gain for the six months ended 30 June 2019 was attributed to strengthening of Ukrainian Hryvnia against the US Dollar and the Euro as Ukrainian subsidiaries of the Group have significant financial liabilities denominated in USD and EUR.
Details on disposal of subsdiary Goncharovo Agricultural LLC are discussed in Note 5 to the unaudited interim condensed consolidated financial statements.
5. Information with respect to Article 11 of the Law of 19 May 2006 on takeover bids
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.
On May 23, 2013 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.
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 30 June 2019 is:
OLBIS Investments LTD S.A. holds nine million seven hundred and five thousand five hundred (9,705,500) shares, representing 64.62% of the issued share capital of the Company.
KSG Agro S.A holds thirty-two thousand one hundred seventy-two (32,172) shares, representing 0.21% of the issued share capital of the Company.
In free float there are five million two hundred and eighty-two thousand three hundred twenty-eight (5,282,328) shares, representing 35.17% of the issued share capital of the Company.
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.
Material subsequent events are described in Note 21 to the interim condensed consolidated financial statements.
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 individually material balances.
As at 30 June 2019, the Group had 8 counterparties with aggregated receivable balances above USD 150 thousand each (31 December 2018: 8 counterparties). The total aggregate amount of these balances was USD 5,393 thousand (31 December 2018: USD 6,014 thousand) or 47% of the net amount of trade and other receivables (31 December 2018: 66%).
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.
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.
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 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.
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.
Management believes it is responding appropriately to all the risks identified in order to support the sustainability of the Company's business in the current circumstances.
________________________
14.08.2019 А.V. Skorokhod (Chief Executive Officer)
________________________
14.08.2019
L.L. Omelchenko (Chief Financial Officer)
as at 30 June 2019
| 30 June | 31 December | ||
|---|---|---|---|
| In thousands of US dollars | Note | 2019 (unaudited) |
2018 (audited) |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 6 | 18,129 | 17,976 |
| Long-term biological assets | 23,246 | 22,168 | |
| Deferred expense | 260 | 372 | |
| Deferred tax assets | 236 | 236 | |
| Right-of-use assets | 20 | 1,548 | - |
| Total non-current assets | 43,419 | 40,752 | |
| Current assets | |||
| Current biological assets | 8 | 11,014 | 6,219 |
| Inventories and agricultural produced | 7 | 7,036 | 5,846 |
| Trade and other accounts receivable | 9 | 11,422 | 9,824 |
| Taxes recoverable and prepaid | 308 | 289 | |
| Cash and cash equivalents | 144 | 229 | |
| Total current assets | 29,924 | 22,407 | |
| TOTAL ASSETS | 73,343 | 63,159 | |
| EQUITY | |||
| Share capital | 150 | 150 | |
| Share premium | 37,366 | 37,366 | |
| Treasury shares | (112) | (112) | |
| Retained earnings | (34,304) | (40,274) | |
| Currency translation reserve | (9,343) | (10,659) | |
| Equity attributable to the owners of the Company | (6,243) | (13,529) | |
| Non-controlling interests | 6,329 | 7,167 | |
| TOTAL EQUITY | 86 | (6,362) | |
| LIABILITIES | |||
| Non-current liabilities | |||
| Loans and borrowings | 10 | 17,862 | 20,467 |
| Lease liabilities | 20 | 1,642 | - |
| Total non-current liabilities | 19,504 | 20,467 | |
| Current liabilities | |||
| Loans and borrowings | 10 | 21,621 | 23,877 |
| Trade and other accounts payable | 11 | 29,835 | 23,502 |
| Lease liabilities | 20 | 1,357 | - |
| Promissory notes issued | 771 | 1,339 | |
| Taxes payable | 169 | 336 | |
| Total current liabilities | 53,753 | 49,054 | |
| TOTAL LIABILITIES | 73,257 | 69,521 | |
| TOTAL LIABILITIES AND EQUITY | 73,343 | 63,159 |
________________________
А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
for the six months ended 30 June 2019
| 30 June 2019 |
30 June 2018 |
||
|---|---|---|---|
| In thousands of US dollars | Note | (unaudited) | (unaudited) |
| Revenue | 12 | 8,376 | 8,700 |
| Gain on initial recognition at fair value and net change in fair value of | |||
| biological assets less estimated point-of-sale costs | 2,924 | 1,160 | |
| Cost of sales | 13 | (9,653) | (8,890) |
| Gross profit | 1,647 | 970 | |
| Government grant received | - | 7 | |
| Selling, general and administrative expenses | 14 | (589) | (562) |
| Other operating income | 282 | 744 | |
| Operating profit | 1,340 | 1,159 | |
| Finance income | 16 | 4,930 | 77 |
| Finance expenses | 16 | (729) | (752) |
| Foreign currency exchange gain/(loss), net | 17 | 1,089 | 890 |
| Other expenses | 15 | (461) | (378) |
| Loss on disposal of subsidiaries | (685) | - | |
| Profit before tax | 5,484 | 996 | |
| Income tax expense | (3) | (13) | |
| Profit for the period | 5,481 | 983 | |
| Profit attributable to: | |||
| Owners of the Company | 5,970 | 409 | |
| Non-controlling interest | (489) | 574 | |
| Profit for the period | 5,481 | 983 |
| Weighted-average number of common shares outstanding | 15,020,000 | 15,020,000 |
|---|---|---|
| Basic earnings per share, USD | 0.39 | 0.03 |
| Diluted earnings per share, USD | 0.39 | 0.03 |
________________________
А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
for the six months ended 30 June 2019
| 30 June | 30 June | ||
|---|---|---|---|
| In thousands of US dollars | Note | 2019 (unaudited) |
2018 (unaudited) |
| Profit for the period | 5,481 | 983 | |
| Other comprehensive income, net of income tax | |||
| Currency translation differences | 967 | 414 | |
| Total comprehensive income for the period | 6,448 | 1,397 | |
| Total comprehensive income attributable to: | |||
| Owners of the Company | 7,286 | 781 | |
| Non-controlling interests | (838) | 616 | |
| Total comprehensive income for the period | 6,448 | 1,397 |
________________________ А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
for the six months ended 30 June 2019
| 30 June 2019 |
30 June 2018 |
||
|---|---|---|---|
| In thousands of US dollars | Note | (unaudited) | (unaudited) |
| Cash flow from operating activities | |||
| Profit before tax | 5,484 | 996 | |
| Adjustments for: | |||
| Depreciation and amortisation | 6 | 638 | 726 |
| Impairment and write-off of receivables and VAT | 15 | 374 | - |
| Write-off of accounts payable | (273) | (485) | |
| Impairment of inventory | 15 | 24 | 281 |
| Write-off cost of crop production and loss of harvest | 15 | - | 12 |
| Gain on initial recognition of biological assets and agricultural produce | (2,924) | (1,160) | |
| Exchange differences | 17 | (1,089) | (890) |
| Finance expenses | 16 | 729 | 752 |
| Finance income | 16 | (4,930) | (77) |
| Loss on disposal of subsidiaries | 5 | 685 | - |
| Operating cash flow before working capital changes | (1,282) | 155 | |
| Change in trade and other accounts receivable | (2,236) | (127) | |
| Change in current biological assets | (3,330) | (1,068) | |
| Change in inventories and agricultural produce | (1,786) | (3,192) | |
| Change in trade and other accounts payable | 8,865 | 3,914 | |
| Cash generated from / (used in) operations | 231 | (318) | |
| Interest paid on loans and leases | 10, 20 | (148) | (323) |
| Income tax paid | (3) | (34) | |
| Cash generated from / (used in) operating activities | 80 | (675) | |
| Cash flow from investment activities | |||
| Acquisition of property, plant and equipment | (63) | (491) | |
| Interest received | 6 | 14 | |
| Disposal of subsidiaries, net of cash disposed | 5 | - | - |
| Cash generated from / (used in) investment activities | (57) | (477) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements
for the six months ended 30 June 2019
| 30 June 2019 |
30 June 2018 |
||
|---|---|---|---|
| In thousands of US dollars | Note | (unaudited) | (unaudited) |
| Cash flow from financing activities | |||
| Proceeds from bank and other loans | 10 | 1,299 | 150 |
| Deposits received | - | 534 | |
| Repayment of bank and other loans | 10 | (1,338) | (48) |
| Repayment of leases | 20 | (74) | (14) |
| Cash generated from / (used in) financing activities | (113) | 622 | |
| Net (decrease) / increase in cash and cash equivalents | (90) | (530) | |
| Cash and cash equivalents at the beginning of the period | 229 | 760 | |
| Effect of exchange rate differences on cash and cash equivalents | 5 | 4 | |
| Cash and cash equivalents at the end of the period | 144 | 234 |
________________________
А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
for the six months ended 30 June 2019
| Attributable to owners of the Company | Non-controlling interest |
Total equity | |||||||
|---|---|---|---|---|---|---|---|---|---|
| In thousands of US dollars | Note | Share capital |
Share premium |
Treasury shares |
Currency translation reserve |
Retained earnings |
Total attributable to owners of the Company |
||
| Balance as at 31 December 2017 (audited) Adjustment on initial application of IFRS 9 |
150 | 37,366 | (112) | (10,987) | (39,082) (1,501) |
(12,665) (1,501) |
7,078 (485) |
(5,587) (1,986) |
|
| Adjusted balance as at 1 January 2018 | 150 | 37,366 | (112) | (10,987) | (40,583) | (14,166) | 6,593 | (7,573) | |
| Profit for the period Other comprehensive income/(loss) |
- - |
- - |
- - |
- 372 |
409 - |
409 372 |
574 42 |
983 414 |
|
| Total comprehensive income/(loss) for the period Balance as at 30 June 2018 (unaudited) |
- 150 |
- 37,366 |
- (112) |
372 (10,615) |
409 (40,174) |
781 (13,385) |
616 7,209 |
1,397 (6,176) |
|
| Balance as at 31 December 2018 (audited) |
150 | 37,366 | (112) | (10,659) | (40,274) | (13,529) | 7,167 | (6,362) | |
| Profit for the period Other comprehensive income/(loss) |
- - |
- - |
- - |
- 1,316 |
5,970 - |
5,970 1,316 |
(489) (349) |
5,481 967 |
|
| Total comprehensive income/(loss) for the period Balance as at 30 June 2019 (unaudited) |
- 150 |
- 37,366 |
- (112) |
1,316 (9,343) |
5,970 (34,304) |
7,286 (6,243) |
(838) 6,329 |
6,448 86 |
Approved for issue and signed on behalf of the Board of Directors on 14 August 2019.
________________________ А.V. Skorokhod (Chief Executive Officer)
________________________
L.L. Omelchenko (Chief Financial Officer)
The accompanying notes are an integral part of these interim condensed consolidated financial statements
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 operations (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 30 June 2019 was 475 employees (31 December 2018: 566 employees).
The Company's parent is OLBIS Investments LTD S.A. (65%), registered in Panama, and the ultimate controlling party is Mr. Sergiy Kasianov. Remaining shares (35%) are listed on the Warsaw Stock Exchange.
The Company's effective ownership interest in subsidiaries forming the Group and their principal activities are as follows:
| Effective ownership ratio, % | ||||
|---|---|---|---|---|
| Operating entity | Principal activity | Country of registration |
30 June 2019 |
31 December 2018 |
| 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 pellet, dormant | 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% |
| Goncharovo Agricultural LLC (Note 5) | Agricultural production | Ukraine | - | 100% |
| Agro-Trade House Dniprovsky LLC | Agricultural production | Ukraine | 100% | 100% |
| Trade House Rantye | Agricultural production | Ukraine | 100% | 100% |
| KSG Trade House LTD | Manufacture | Ukraine | 100% | 100% |
| Trade House of the Ukrainian Agroindustrial Holding LLC |
Agricultural production | Ukraine | 100% | 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% |
| Hlebna Liga LLC | Trader | Ukraine | 100% | 100% |
| Agrofirm Vesna LLC | Agricultural production, dormant |
Ukraine | 100% | 100% |
| Agrotrade LLC | Agricultural production | Ukraine | 50% | 50% |
| Factor D LLC | Agricultural production, dormant |
Ukraine | 50% | 50% |
| Rantye LLC | Agricultural production | Ukraine | 50% | 50% |
| Strong-Invest LLC | Agricultural production | Ukraine | 50% | 50% |
| PrJSC Pererobnyk | Flour and animals' feed producing, dormant |
Ukraine | 25% | 25% |
| Agroplaza LLC | Intermediate holding company |
Ukraine 50% |
50% |
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
for the six months ended 30 June 2019
(All amounts in USD thousand, unless otherwise stated)
| Effective ownership ratio, % | |||||
|---|---|---|---|---|---|
| Operating entity | Principal activity | Country of 30 June registration 2019 |
31 December 2018 |
||
| Stepove LLC | Agricultural production | Ukraine | 50% | 50% | |
| Dzherelo LLC | Agricultural production | Ukraine | 50% | 50% | |
| Kolosyste LLC | Agricultural production, dormant |
Ukraine | 50% | 50% | |
| Ukrzernoprom - Prudy LLC * | Agricultural production | Ukraine | 50% | 50% | |
| Ukrzernoprom - Uyutne LLC * | Agricultural production | Ukraine | 50% | 50% | |
| Ukrzernoprom - Kirovske LLC * | Agricultural production | Ukraine | 50% | 50% | |
| Ukrzernoprom - Yelizavetove LLC * | Agricultural production | Ukraine | 50% | 50% | |
| KSG Dnipro LLC | Agricultural production | Ukraine | 100% | 100% | |
| Pererobnyk LLC PE | Flour and animals' feed producing, dormant |
Ukraine | 25% | 25% |
Companies marked with * are located in Crimea. The Group has no operating control over them starting from 1 October 2014, so deconsolidation of these companies was provided and net assets were written down to zero.
The Group consolidates all other subsidiaries, including those where it owns less than 51 per cent of the equity shares. Based on the contractual arrangements between the Group and other investors, the Group has the power to appoint and remove the majority of the board of directors of these subsidiaries. The relevant activities of subsidiaries are determined by their boards of directors based on simple majority votes. Therefore, management of the Group concluded that the Group has control over the subsidiaries and the subsidiaries are consolidated in these financial statements.
These consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2018 ('last annual financial statements'). They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.
These consolidated financial statements have been prepared under the historical cost convention, as modified by the recognition of biological assets and agricultural produce based on fair value less costs to sell.
IFRS 16 is effective for periods beginning on or after 1 January 2019 and replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The nature and effect of these changes are disclosed in Note 20.
Ukrainian economy suffered a deep slump in 2014-2016 due to the political instability, the escalation of the conflict in the Donetsk and Luhansk regions and unfavorable global markets for key export-oriented sectors.
Starting in 2017 and going further, the Ukrainian economy has demonstrated a slight recovery amid overall macroeconomics stabilization supported by a rise in domestic investment, revival in household consumption, increase in agricultural and industrial production, construction activity and improved environment on external markets.
Ukraine returned to international debt capital markets, having issued a record USD 3 billion 15-year Eurobond at 7.375% in September 2017, which smoothed external debt maturity profile of Ukraine.
for the six months ended 30 June 2019
(All amounts in USD thousand, unless otherwise stated)
In 2018, consumer price inflation slowed down to the 5-year low of 9.8%, from 13.7% in 2017. The decline in inflation was helped by the tight monetary policy of the National Bank of Ukraine ("NBU"). In particular, it contributed to the strengthening of the hryvnia against the currencies of Ukraine's main partners in nominal and real terms. Through June 2019, consumer price and core inflation increased slightly, to 9.6% yoy and 7.4% yoy, respectively.
As of the date of this report, the official NBU exchange rate of Hryvnia against US dollar was UAH 25.15 per USD 1, compared to UAH 26.16 per USD 1 as at 30 June 2019 and UAH 27.68 per USD 1 as at 31 December 2018.
NBU continues to further ease its currency control restrictions, which were introduced back in 2014. In particular, 2018 have seen a decrease in the percentage of mandatory sale of foreign currency, increase in the settlement period for export-import transactions in foreign currency, and increase in limits on dividend payments to non-residents. In 2019, mandatory sale of foreign currency and limits on dividend payments to non-residents were rescinded altogether.
The banking system remains fragile due to its weak level of capital, low asset quality caused by the economic situation, currency depreciation, changing regulations and other factors.
The relationships between Ukraine and the Russian Federation have remained strained.
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. To deal with new challenges, in September 2014 the Group's management changed their development strategy to focus on farming & pigs breeding, and decrease of loan burden.
Since then, the Group management has been successful in implementation of changed strategy and stabilisation of the Group's financial performance:
for the six months ended 30 June 2019
(All amounts in USD thousand, unless otherwise stated)
The Directors conclude 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 reasonable expectation that the Group can continue its operations in the foreseeable future and, accordingly, has formed a judgment that it is appropriate to prepare the interim condensed consolidated financial statements as at 30 June 2019 and for the six months then ended on a going concern basis. If the Group is not successful in fulfilling the terms of its debt restructuring agreements, 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 recognises controls on subsidiary if next criteria are met:
power over the investee;
exposure, or rights, to variable returns from its involvement with the investee;
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 cashgenerating 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, finance 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 reporting 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.
(All amounts in USD thousand, unless otherwise stated)
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.
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 does not own land. It leases land plots for its agricultural activities and accounts for them as right-of-use assets under IFRS 16.
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.
for the six months ended 30 June 2019
(All amounts in USD thousand, unless otherwise stated)
Leases. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:
This policy is applied to contracts entered into, or changed, on or after 1 January 2019.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
In the comparative period, as a lessee the Group classified leases that transfer substantially all of the risks and rewards of ownership as finance leases. When this was the case, the leased assets were measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Minimum lease payments were the payments over the lease term that the lessee was required to make, excluding any contingent rent. Subsequently, the assets were accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases were classified as operating leases and were not recognised in the Group's statement of financial position. Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease. If an arrangement contains lease and non-lease components, the Group applies IFRS 15 to allocate the consideration in the contract.
The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of 'other operating income'.
The accounting policies applicable to the Group as a lessor in the comparative period were not different from IFRS 16.
Income taxes. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting 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.
for the six months ended 30 June 2019 (All amounts in USD thousand, unless otherwise stated)
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 selfgrown agricultural products constitute not less than 75% of their total gross revenues. The amount of special tax for agricultural producers is assessed at 0.81% on the deemed value of the land plots owned or leased by the entity (as determined by the relevant State authorities).
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 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 profit or loss 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.
for the six months ended 30 June 2019 (All amounts in USD thousand, unless otherwise stated)
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. 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.
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. The Group has elected to measure loss allowances for trade receivables at an amount equal to lifetime expected credit losses (ECLs). The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). The maximum period considered when estimating expected credit losses is the maximum contractual period which the over Group is exposed to credit risk. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).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.
(All amounts in USD thousand, unless otherwise stated)
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 the Pension Fund of Ukraine, paid annual leave and sick leave, bonuses are accrued in the period 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 where 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:
| Average for | Average for | |||
|---|---|---|---|---|
| As at | six months ended | As at | six months ended | |
| 30 June 2019 | 30 June 2019 | 31 December 2018 | 30 June 2018 | |
| USD/UAH | 26.1664 | 26.9316 | 27.6883 | 26.7462 |
| EUR/UAH | 29.7302 | 30.4277 | 31.7141 | 32.4092 |
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.
for the six months ended 30 June 2019
(All amounts in USD thousand, unless otherwise stated)
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.
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.
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.
Allowance for lifetime expected credit losses. The Group has elected to measure loss allowances for trade receivables at an amount equal to lifetime expected credit losses (ECLs). The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). The maximum period considered when estimating expected credit losses is the maximum contractual period which the over Group is exposed to credit risk. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
At each reporting period, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Cost of inventories. As at each reporting date the Group carries out assessment of goods for signs of impairment of initial value. Management uses method of individual assessment of each unit of goods.
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.
for the six months ended 30 June 2019 (All amounts in USD thousand, unless otherwise stated)
Subsidiaries. The Group consolidates the result of Parisifia 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) and non-financial assets. 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.
In March 2019 the Group disposed of Goncharovo Agricultural LLC. Effect of disposal was as follows:
| 30 June 2019 (unaudited) |
|
|---|---|
| Property, plant and equipment | 314 |
| Current biological assets | 381 |
| Inventories and agricultural produce | 572 |
| Trade and other accounts receivable | 264 |
| Trade and other accounts payable | (442) |
| Net assets disposed | 1,089 |
| Effective ownership ratio, % | 100% |
| Group's share in net assets disposed | 1,089 |
| Fair value of consideration received (i) | 404 |
| Loss on disposal of subsidiaries | (685) |
| Net cash disposed with the subsidiary | - |
| Cash consideration received (i) | - |
Net cash flow on disposal -
(i) In accordance with the agreement signed by the Group in regards to its loan from Big Dutchman Pig Equipment, the Group's debt under the loan agreement was restructured and was repaid by July 2019. Fair value of consideration received for shares of Goncharovo Agricultural LLC was set off against the remainder of the restructured loan amount (Note 10).
Movement of property, plant and equipment for the six months ended 30 June 2019 and 2018 was as follows:
| Buildings | Agricultural equipment |
Vehicles and office equipment |
Construction in progress |
Total | |
|---|---|---|---|---|---|
| Carrying amount as at | |||||
| 1 January 2018 (audited) | 10,222 | 2,436 | 3,669 | 1,770 | 18,097 |
| Additions | - | 7 | - | 523 | 530 |
| Disposals | - | (2) | - | - | (2) |
| Transfers | 13 | 206 | 278 | (497) | - |
| Depreciation charge | (418) | (253) | (55) | - | (726) |
| Exchange difference | 648 | 175 | 263 | 20 | 1,106 |
| Carrying amount as at | |||||
| 30 June 2018 (unaudited) | 10,465 | 2,569 | 4,155 | 1,816 | 19,005 |
| Carrying amount as at | |||||
| 1 January 2019 (audited) | 9,842 | 2,193 | 3,788 | 2,153 | 17,976 |
| Additions | 51 | 197 | 2 | 77 | 327 |
| Disposals | - | - | - | - | - |
| Disposals of subsidiaries | (51) | (185) | (78) | - | (314) |
| Transfers | - | - | - | - | - |
| Depreciation charge | (440) | (168) | (30) | - | (638) |
| Exchange difference | 435 | 39 | 177 | 127 | 778 |
| Carrying amount as at | |||||
| 30 June 2019 (unaudited) | 9,837 | 2,076 | 3,859 | 2,357 | 18,129 |
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Agricultural produce | 2,760 | 3,225 |
| Work in progress | 1,191 | 1,640 |
| Semi-finished goods | 668 | 12 |
| Agricultural stock | 453 | 223 |
| Raw materials | 678 | 317 |
| Goods for resale | 69 | 59 |
| Finished goods | 718 | 142 |
| Fuel | 479 | 52 |
| Other | 20 | 176 |
| Total inventories and agricultural produce | 7,036 | 5,846 |
(All amounts in USD thousand, unless otherwise stated)
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Crops in the field | 8,290 | 4,008 |
| Livestock husbandry | 2,724 | 2,211 |
| Total current biological assets | 11,014 | 6,219 |
| Crops in the field | Area, ha | Amount | Area, ha | Amount |
|---|---|---|---|---|
| Wheat | 9,296 | 3,563 | 8,296 | 2,223 |
| Barley | 2,609 | 585 | 2,309 | 566 |
| Rapeseed | 2,490 | 1,089 | 2,490 | 1,056 |
| Sunflower | 10,044 | 2,552 | 59 | 24 |
| Other | 2,743 | 501 | 36 | 139 |
| Total crops in the field | 8,290 | 4,008 |
Movement in crops in the field during the period related to:
| 2019 | |
|---|---|
| Carrying amount as at 1 January (audited) | 4,008 |
| Purchases | - |
| Investments into future crops | 3,137 |
| Sales | - |
| Gain/(loss) arising from changes in fair value attributable to | |
| physical changes and changes in market prices | 2,301 |
| Harvested during the period | (1,125) |
| Disposal of subsidiaries | (381) |
| Loss from dead crops | - |
| Exchange differences | 350 |
| Carrying amount as at 30 June (unaudited) | 8,290 |
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Trade accounts receivable | 9,946 | 8,250 |
| Less: provision for trade accounts receivable | (3,059) | (3,059) |
| Loans issued | 4,256 | 4,308 |
| Less: provision for loans issued | (1,381) | (1,456) |
| Other financial receivables | 4,106 | 4,208 |
| Less: provision for other financial receivables | (2,538) | (2,538) |
| Total financial trade and other receivables | 11,330 | 9,713 |
| Advances issued | 465 | 409 |
| Less: provision for advances issued | (373) | (298) |
| Total trade and other accounts receivable | 11,422 | 9,824 |
(All amounts in USD thousand, unless otherwise stated)
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Long-term | ||
| Finance leases of agricultural equipment (Note 20) | - | 98 |
| Bank and other loans | 17,862 | 20,369 |
| Total long-term loans and borrowings | 17,862 | 20,467 |
| Current | ||
| Finance leases of agricultural equipment (Note 20) | - | 70 |
| Bank and other loans | 21,621 | 23,807 |
| Total current loans and borrowings | 21,621 | 23,877 |
The Group's loans and borrowings consisted of the following categories:
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Bank loans | 20,337 | 24,235 |
| Loan from related party | 10,363 | 10,363 |
| Interest payable | 5,270 | 6,065 |
| Accrued provision | 3,513 | 3,513 |
| Finance leases of agricultural equipment (Note 20) | - | 168 |
| Total loans and borrowings | 39,483 | 44,344 |
Movement in bank and other loans during the period related to:
| 2019 | |
|---|---|
| Carrying amount as at 1 January (audited) | 44,176 |
| Loans received | 1,299 |
| Loans repaid | (1,338) |
| Loan set-off (i) | (404) |
| Interest accrued | 499 |
| Interest paid | (135) |
| Gain on restructuring (i) | (4,346) |
| Exchange differences | (268) |
| Carrying amount as at 30 June (unaudited) | 39,483 |
(i) In accordance with the agreement signed by the Group in regards to its loan from Big Dutchman Pig Equipment, the Group's debt under the loan agreement was restructured. Restructuring implied a reduction of the loan amount to EUR 1,030 thousand, which was repaid by July 2019. The Group has also disposed of its shares in Goncharovo Agricultural LLC. Fair value of consideration received for the shares was set off against the remainder of the restructured loan amount (Note 5).
Shortly after the reporting date, the Group has successfully negotiated restructuring terms for an overdue loan from LBBW in the total amount as at 30 June 2019, including interest, of USD 9,919 thousand (Note 21).
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
|---|---|---|
| Trade payables | 15,399 | 12,253 |
| Financial assistance received | 4,831 | 4,677 |
| Land lease payables (Note 20) | - | 798 |
| Other accounts payable | 5,445 | 3,074 |
| Total financial trade and other payables | 25,675 | 20,802 |
| Prepayments received | 2,640 | 1,255 |
| Litigation reserve | 1,395 | 1,386 |
| Wages and salaries accrued | 125 | 59 |
| Total trade and other payables | 29,835 | 23,502 |
(All amounts in USD thousand, unless otherwise stated)
| Revenue for the six months ended 30 June was as follows: | 2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Sale of agricultural produced and processed food | 6,631 | 7,426 |
| Rendering of services | 1,745 | 1,274 |
| Total revenue | 8,376 | 8,700 |
| Cost of sales for the six months ended 30 June was as follows: | 2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Cost of agricultural produced and processed food Cost of rendered services |
8,515 1,138 |
8,021 869 |
| Total cost of sales | 9,653 | 8,890 |
| Components of cost of sales were as follows: | 2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Incurred costs Revaluation effects |
8,985 668 |
6,407 2,483 |
| Total cost of sales | 9,653 | 8,890 |
| Selling, general and administrative expenses for the six months ended 30 June were as follows: |
2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Wages and salaries | 116 | 111 |
| Fuel and other materials | 1 | 17 |
| Taxes, other than income tax | 9 | 54 |
| Transport services | 93 | 58 |
| Depreciation and amortisation | 71 | 47 |
| Informational, expert and consulting services | 28 | 19 |
| Bank services | 27 | 9 |
| Crops storage services | 10 | 21 |
| Meat storage costs | 173 | - |
| Other expenses | 61 | 226 |
| Total selling, general and administrative expenses | 589 | 562 |
| Other expenses for the six months ended 30 June were as follows: | 2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Impairment of receivables | 221 | - |
| VAT written off | 153 | - |
| Inventory written off | 24 | 281 |
| Fines and penalties | 63 | 85 |
| Write-off сost of crop production and loss of harvest | - | 12 |
| Total other expenses | 461 | 378 |
(All amounts in USD thousand, unless otherwise stated)
| Finance income and expenses for the six months ended 30 June were as follows: |
2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Finance income | ||
| Interest income | 6 | 77 |
| Other finance income | 4,924 | - |
| Total finance income | 4,930 | 77 |
| Finance expenses | ||
| Interest expense on bank and other loans | (499) | (743) |
| Interest expense on leases | (222) | - |
| Other finance expenses | (8) | (9) |
| Total finance expenses | (729) | (752) |
| Foreign currency exchange gains and losses for the six months ended 30 June were as follows: |
2019 (unaudited) |
2018 (unaudited) |
|---|---|---|
| Foreign currency exchange gain | 1,429 | 2,076 |
| Foreign currency exchange loss | (340) | (1,186) |
| Net amount | 1,089 | 890 |
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.
(All amounts in USD thousand, unless otherwise stated)
Information about operating segments for the six months ended 30 June 2019 (unaudited) is as follows:
| Crop production |
Food processing |
Livestock breeding |
Other operations |
Total | |
|---|---|---|---|---|---|
| Revenue | 2,180 | 1,361 | 6,189 | 1,939 | 11,669 |
| Inter-segment transactions | (563) | (217) | (2,482) | (31) | (3,293) |
| Revenue from external customers | 1,617 | 1,144 | 3,707 | 1,908 | 8,376 |
| Change in fair value of biological assets less estimated point-of-sale costs |
2,301 | - | 623 | - | 2,924 |
| Cost of sales | (3,107) | (1,055) | (4,191) | (1,300) | (9,653) |
| Segment profit/(loss) | 811 | 89 | 139 | 608 | 1,647 |
| Government grant received Selling, general and administrative expenses Other operating income Operating profit Finance income Finance expenses Foreign currency exchange gain/(loss), net Other expenses Loss on disposal of subsidiary Profit before tax |
- (589) 282 1,340 4,930 (729) 1,089 (461) (685) 5,484 |
||||
| Income tax expense | (3) | ||||
| Profit for the period | 5,481 |
Information about operating segments for the six months ended 30 June 2018 (unaudited) is as follows:
| Crop production |
Food processing |
Livestock breeding |
Other operations |
Total | |
|---|---|---|---|---|---|
| Revenue | 1,692 | 2,165 | 4,378 | 465 | 8,700 |
| Inter-segment transactions | - | - | - | - | - |
| Revenue from external customers | 1,692 | 2,165 | 4,378 | 465 | 8,700 |
| Change in fair value of biological assets less | |||||
| estimated point-of-sale costs | - | - | 1,160 | - | 1,160 |
| Cost of sales | (2,700) | (2,116) | (3,545) | (529) | (8,890) |
| Segment profit/(loss) | (1,008) | 49 | 1,993 | (64) | 970 |
| Government grant received Selling, general and administrative expenses Other operating income Operating profit Finance income Finance expenses Foreign currency exchange gain/(loss), net Other expenses Profit before tax |
7 (562) 744 1,159 77 (752) 890 (378) 996 |
||||
| Income tax expense | (13) | ||||
| Profit for the period | 983 |
Crop production segment, due to seasonality and implications of IAS 41, in the first half of the year mainly reflects the sales of carried forward agricultural produce and effect of biological assets revaluation, while during the second half of the year it reflects sales of crops and effect of revaluation of agricultural produce harvested during the year. Also, crop production segment has seasonal requirements for working capital increase during November-May, to undertake land preparation work.
Food processing segment, pigs' breeding as well as other operations segment are not significantly exposed to the seasonal fluctuations.
Significant related party balances outstanding at the reporting dates are:
| 30 June 2019 (unaudited) | 31 December 2018 (audited) | ||||
|---|---|---|---|---|---|
| Parent and owners |
Entities under common control |
Parent and owners |
Entities under common control |
||
| Assets | |||||
| Trade accounts receivable | - | 403 | - | 380 | |
| Loans issued | - | 543 | - | 22 | |
| Other financial receivables | - | 41 | - | 24 | |
| Advances issued | - | 154 | - | 5 | |
| Liabilities | |||||
| Loans | 10,363 | - | 10,363 | - | |
| Interest payable | 3,708 | - | 3,553 | - | |
| Trade payables | 27 | 100 | 27 | 95 | |
| Financial assistance received | - | 138 | - | 123 | |
| Other accounts payable | - | 858 | - | 833 | |
| Prepayments received | - | 55 | - | - |
Except for loans from related parties, transactions with related parties are recorded at the contractual amounts agreed between the parties.
The Group leases land plots, mostly from individuals, and agricultural equipment for producing crops. The Group does not own agricultural land. Ukrainian legislation provides for a ban on sales of agricultural land plots until 1 January 2020. There are significant uncertainties as to the subsequent extension of the ban. The current legislation has resulted in the Group leasing from individuals holding land lease rights, rather than owning the land itself.
The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period. Accounting policy for leases was also updated to reflect the requirements of the new standard.
On adoption, the Group recognised lease liabilities in relation to leases of land plots, which had previously been classified as operating leases under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 20%.
The right-of-use asset at 1 January 2019 was recognised at an amount equal to the lease liability (adjusted for land lease payables recognised under IAS 17). Therefore, there is no impact on equity at 1 January 2019.
The difference between land lease commitments disclosed as at 31 December 2018 and lease liability recognised as at 1 January 2019 arises from the effect of discounting lease payments and adjustments as a result of a different treatment of liabilities and advances for land leases.
Leases of agricultural equipment were classified as finance leases under IAS 17 and their accounting treatment remained largely unaffected by the adoption of IFRS 16.
(All amounts in USD thousand, unless otherwise stated)
Reconciliation of lease liabilities under IAS 17 to lease liabilities under IFRS 16 is as follows:
| Finance leases of agricultural equipment – future minimum lease payments Finance leases of agricultural equipment – future interest expenses |
250 (82) |
|---|---|
| Finance leases of agricultural equipment (Note 10) | 168 |
| Land lease payables (Note 11) | 798 |
| Land lease future commitments (unrecognised) | 3,647 |
| Lease liabilities at 31 December 2018 under IAS 17 | 4,613 |
| Less: future interest expenses | (2,087) |
| Lease liabilities at 1 January 2019 under IFRS 16 | 2,526 |
The Group reclassified 'land lease payables' and 'finance leases of agricultural equipment' as lease liabilities in the opening balance sheet at 1 January 2019. As at 31 December 2018, they were classified as part of 'trade and other accounts payable' and 'loans and borrowings', respectively.
Changes in lease liabilities for the six months ended 30 June 2019 were as follows:
| 2019 | |
|---|---|
| Lease liabilities as at 1 January (transition date) | 2,526 |
| Recognition of lease liability | 147 |
| Interest accrued | 222 |
| Leases repaid | (74) |
| Interest paid | (13) |
| Exchange differences | 191 |
| Lease liabilities as at 30 June (unaudited) | 2,999 |
Maturity of lease liabilities was as follows:
| 30 June 2019 (unaudited) | 1 January 2019 (transition date) | |||
|---|---|---|---|---|
| Future lease | Present | Future lease | Present | |
| payments | value | payments | value | |
| Due within 1 year | 1,819 | 1,357 | 1,746 | 878 |
| Between 1 and over 5 years | 3,140 | 1,642 | 2,949 | 1,648 |
| Less: future interest expenses | (1,960) | (2,169) | ||
| Present value of lease liabilities | 2,999 | 2,999 | 2,526 | 2,526 |
Changes in right-of-use assets under contracts for lease of agricultural land were as follows:
| 2019 | |
|---|---|
| Lease liabilities at 1 January 2019 (transition date) | 2,526 |
| Less: land lease payables at 31 December 2018 (Note 11) | (798) |
| Less: finance leases of agricultural equipment at 31 December 2018 (Note 10) | (168) |
| Cost at transition date | 1,560 |
| Accumulated depreciation and impairment losses | - |
| Right-of-use assets as at 1 January (transition date) | 1,560 |
| Recognition of lease liability Depreciation charge |
147 (261) |
| Exchange differences Right-of-use assets as at 30 June (unaudited) |
102 1,548 |
| Cost Accumulated depreciation and impairment losses Right-of-use assets as at 30 June (unaudited) |
1,817 (269) 1,548 |
In July 2019, the Group has finalised restructuring terms for an overdue loan from LBBW in the total amount as at 30 June 2019, including interest, of USD 9.9 million. As a result, the Group's debt under the loan was reduced to EUR 3.2 million. At the date these financial statements are being issued, the remaining balance is USD 3.3 million.
There were no other material subsequent events.
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