MHP SE - Earnings Release 2019 | FinancialReports.eu

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RNS Number : 5282J

MHP SE

14 April 2020

14 April 2020, Limassol, Cyprus

MHP SE

Financial Results for the Fourth Quarter and Twelve Months Ended 31 December 2019

MHP SE (LSE:MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, today announces its results for the fourth quarter and twelve months ended 31 December 2019. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

EVENTS DURING AND POST REPORTING PERIOD

Further to the announcement in February 2019 of the acquisition of Perutnina Ptuj ("PP"), the largest producer of poultry meat and poultry meat products in the Balkans region of southeast Europe, MHP completed the acquisition of minority shareholders by the end of September 2019 and is now the 100% owner of PP. PP's financial results are reported separately in the European Operating Segment.

On 13 September 2019, MHP announced that it had completed the issue of a US$ 350 million Eurobond of 6.25% notes due 19 September 2029. This is the longest-dated bond issued by a Ukrainian corporate and carries the lowest coupon in the private sector in Ukraine. Proceeds from this new issue enabled full repayment of MHP's short-term liabilities (US$ 335 million at the end of H1 2019), extending MHP's maturity profile and making virtually all its debt long-term.

OPERATIONAL HIGHLIGHTS

· In 2019, MHP continued to launch additional production sites as part of Phase 2 of the Vinnytsia poultry complex ("Vinnytsia") bringing the total number of rearing sites to six. The Company's other poultry production facilities continued to operate at full capacity during the period

· PP was successfully integrated into the Group, contributing US$ 271 million to Group revenue during the 10 months of 2019 during which it was consolidated, and a higher-than-expected 16% adjusted EBITDA margin for PP

· Further progress was achieved towards the Group's strategic shift towards more customer-centric products including more value-added primary and further processed products for the domestic market

· A business transformation group was established tasked with improving the efficiency of business processes

Q4 2019

· Poultry production volumes for MHP excluding PP reached 188,784* tonnes, up 18% year-on-year (Q4 2018: 159,431 tonnes). Poultry production volumes of the European Operating Segment (PP) amounted to 23,321 tonnes

· The average chicken meat price decreased by 14% year-on-year to UAH 34.69 per kg (Q4 2018: UAH 40.56 per kg) (excluding VAT). The average price of chicken meat produced by PP during Q4 2019 was 2.66 EUR per kg

· Chicken meat exports totaled 87,651 tonnes (excluding PP's 3,752 tonnes), increased by 20% (Q4 2018: 72,929 tonnes)

*- production volume of chicken meat only, without by-products

12M 2019

· Poultry production volumes reached 728,917* tonnes, up 18% (12M 2018: 617,943 tonnes). Poultry production volumes of European operating segment (PP) amounted to 79,358 tonnes

· The average chicken meat price decreased by 5% year-on-year to UAH 38.06 per kg (12M 2018: UAH 39.86 per kg) (excluding VAT). The average price of chicken meat produced by PP during 2019 was 2.64 EUR per kg

· Chicken meat exports increased by 25% year-on-year to 357,433 tonnes (excluding PP's 13,881 tonnes) (12M 2018: 286,846 tonnes) as a result of increased exports mainly to countries in MENA and the EU

*- production volume of chicken meat only, without by-products

FINANCIAL HIGHLIGHTS

Q4 2019

· Revenue of US$ 551 million, an increase of 43% year-on-year (Q4 2018: US$ 385 million)

· Export revenue amounted to US$ 316 million, 57% of total revenue (Q4 2018: US$ 263 million, 68% of total revenue)

· Operating loss of US$ 2 million, down from a profit of US$ 29 million in Q4 2018; operating margin declined from 8% to 0%

· Adjusted EBITDA margin (net of IFRS 16) decreased to 8% from 23%; adjusted EBITDA (net of IFRS 16) of US$ 43 million was down 51% year-on-year (Q4 2018: US$ 88 million)

· Net loss for the period was US$ 60 million (Q4 2018: loss of US$ 14 million)

12M 2019

· Revenue of US$ 2,056 million, an increase of 32% year-on-year (12M 2018: US$ 1,552 million) driven by an increase in sales of poultry meat, vegetable oils and convenience food, as well as by the acquisition of PP

· Export revenue amounted to US$ 1,186 million, 58% of total revenue (12M 2018: US$ 924 million, 60% of total revenue), up 28% year-on-year from the continued strategy of geographic diversification of exports

· Operating profit of US$ 216 million, down 31% year-on-year from US$ 312 million; operating margin declined from 20% to 11%

· Adjusted EBITDA margin (net of IFRS 16) decreased to 18% (2018: 29%); adjusted EBITDA (net of IFRS 16) decreased to US$ 376 million versus US$ 450 million in 2018 driven by low commodity prices (both for crops and poultry) and the effects of adverse weather conditions, combined with the significant strengthening of the Ukrainian Hryvnia

· Net profit for the period was US$ 215 million, compared to profit US$ 128 million for 12M 2018

FINANCIAL OVERVIEW


(in mln. US$, unless indicated otherwise)	Q4 2019	Q4 20181)	% change2)	12M 2019	12M 20181)	% change2)


Revenue	551	385	43%	2,056	1,552	32%
IAS 41 standard gains/(losses)	(58)	(23)	152%	(40)	32	-225%

Gross profit	52	67	-22%	398	422	-6%
Gross profit margin	9%	17%	-8 pps	19%	27%	-8 pps

Operating profit	(2)	29	-107%	216	312	-31%
Operating profit margin	0%	8%	-8 pps	11%	20%	-9 pps

Adjusted EBITDA	70	88	-20%	427	450	-5%
Adjusted EBITDA margin	13%	23%	-10 pps	21%	29%	-8 pps

Adjusted EBITDA (net of IFRS 16)	43	88	-51%	376	450	-16%
Adjusted EBITDA margin (net of IFRS 16)	8%	23%	-15 pps	18%	29%	-11 pps

Net profit before foreign exchange differences	(63)	(42)	50%	30	116	-74%
Net profit margin before forex gain	-11%	-11%	0 pps	1%	7%	-6 pps
Foreign exchange gain	3	28	-89%	185	12	1442%

Net profit (loss)	(60)	(14)	329%	215	128	68%
Net profit margin	-11%	-4%	-7 pps	10%	8%	2 pps

1) Information for the Q4 2019 and for the year ended 31 December 2019 is presented excluding results of discontinued operation, which is presented as a single amount as loss after tax from discontinued operations

2) pps - percentage points

Average official FX rate for Q4: UAH/US$ 24.2606 in 2019 and UAH/US$ 27.9502 in 2018

Average official FX rate for 12 months: UAH/US$ 25.8373 in 2019 and UAH/US$ 27.2016 in 2018

Chief Executive Officer, Yuriy Kosyuk, commented:

"AT THE TIME OF WRITING WE FIND OURSELVES IN HIGHLY UNCERTAIN TIMES DUE TO THE COVID-19 PANDEMIC. I WANT TO REASSURE OUR PEOPLE THAT THEIR HEALTH AND SAFETY IS PARAMOUNT AND THAT WE WILL CONTINUE TO PROVIDE NECESSARY SUPPORT AND ASSISTANCE. I REMAIN CONFIDENT THAT MHP IS UNIQUELY POSITIONED AND WILL NOT ONLY ADAPT TO SUCCESSFULLY MANAGE THE SHORT-TERM CHALLENGES, BUT WILL EVOLVE TO OPTIMALLY POSITION ITSELF TO CAPITALISE ON THE MEDIUM- AND LONG-TERM OPPORTUNITIES IN OUR INDUSTRIES.

2019 WAS A CHALLENGING YEAR FOR MHP, BUT IT WAS ALSO A PIVOTAL YEAR IN OUR HISTORY. WE INTEGRATED PERUTNINA PTUJ INTO OUR OPERATIONS AND, PERHAPS MORE IMPORTANTLY, WE INSTIGATED CHANGE; WE ARE IN THE PROCESS OF TRANSFORMING THE COMPANY'S BUSINESS MODEL SO THAT WE AS A GROUP ARE MORE EFFICIENT AND MORE CUSTOMER ORIENTED. THIS TRANSFORMATION WILL EMBRACE NEW TECHNOLOGY AND INNOVATION AND WILL RELY ON EACH AND EVERY ONE OF OUR TALENTED AND COMMITTED EMPLOYEES; I AM CONFIDENT THAT THEY CAN RISE TO THE CHALLENGE AND DELIVER FOR OUR STAKEHOLDERS."

TURBULENT AND DYNAMIC GLOBAL MARKETS IN 2019

In 2019 global markets were disrupted following on from the events of 2018. African Swine Fever in China and Southeast Asia caused significant imbalances in all protein flows but had more impact in poultry production and regional pricing.

The changing global poultry flows caused a significant disparity between export producers in terms of market access; Saudi Arabia, MHP's key market in the Middle East, was closed to Ukrainian exports in Q4 2019. Poland emerged as a key producer of poultry in 2019 which caused over-production within the EU, resulting in historically low prices for poultry breast meat.

PERFORMANCE HIGHLIGHTS

Group revenue in 2019 amounted to US$ 2,056 million (2018: US$ 1,552 million), representing 32% growth year-on-year driven by an increase in the sale of poultry meat, vegetable oils and convenience food, as well as by the acquisition of Perutnina Ptuj (PP). Domestic revenues reflect growth of 39% whilst export growth was up 28%, driven by an increase in grains, vegetable oils and meat-processing products. Export revenue represented 58% of Group revenue in 2019 (2018: 60%).

Adjusted EBITDA (net of IFRS 16) was US$ 376 million and lower than expected, down 16% (2018: US$ 450 million) resulting in an adjusted EBITDA margin (net of IFRS 16) of 18% (2018: 29%). The lower profitability was driven by lower commodity prices (both for crops and poultry) and the effects of adverse weather conditions, combined with the significant strengthening of the Ukrainian Hryvnia (13% in Q4 2019 alone) leading to higher US dollar denominated production costs.

BUSINESS REVIEW

Despite the challenges, MHP made significant progress towards a number of strategic goals during the year and continued to execute upon its growth strategy in both export and domestic markets.

· Integration of Perutnina Ptuj. I am delighted with the way in which the newly-acquired Balkans operations have been so efficiently integrated into the Group and with the operational synergies that have been realised to date. There is more to achieve and there are also lessons to be learned from the PP operations that will be applied across the wider Group going forward.

· Transformation from a raw materials company into a 'culinary' company. A gradual strategic shift towards more customer-centric products is underway. The most important evolution in this tenet of our strategy during 2019 was the move towards more value-added primary and further-processed products for the Ukraine domestic market and, similarly, export markets. This strategic evolution, which is customer-led and involves us working closely with our customers as partners to anticipate their evolving needs, will be rolled-out more extensively over the next several years and will transform the Company's sales from a commodity production base to a branded value-added base delivering higher margin products. This development also further mitigates risks in the movement of raw products for export when avian influenza outbreaks occur in Eastern Europe.

· Export volume growth. Export revenue grew by 28% y/y and now constitutes 58% of total revenue, driven by the continued implementation of the Company's diversification strategy as well as product mix optimisation - the "right product for the right market" - to countries within the EU, MENA, CIS and Africa.

· Mid-term growth opportunities. In February 2020 we announced that MHP is planning a greenfield project in Saudi Arabia; there is significant government support for the project and a feasibility study is ongoing.

2020 STRATEGIC PRIORITIES

MHP has responded and adapted to the challenges of 2019 and continues to take positive steps to further enhance and optimise its business model.

· Business transformation. To increase MHP's financial strength, we have tasked a newly-created business transformation group with ambitious goals to improve the efficiency of all business processes. This includes transforming customer service, the digitalisation of processes and the creation of a new franchising business model. This team is in the early stages of investigating potential new products and processes which, over time, will create thoughtful, balanced solutions for increased efficiency.

· Looking after our people as MHP transforms. Our people are our greatest asset and MHP will ensure that they are looked after, including through a fair, transparent and merit-based remuneration system whereby they are rewarded for their contribution. Andriy Bulakh, appointed Deputy CEO, People in January 2020, will oversee our work on developing the corporate culture, values and competency model; increasing the efficiency and productivity of employees and organisations; new training formats; and switching to more flat, flexible and adaptive staff management models featuring increased engagement.

· Perutnina Ptuj. Continued investment in PP remains a priority in order to capitalise on the opportunities for expansion into regional and Western European markets with a focus on high-quality, branded ready-to-eat and ready-to-cook products. I am confident that PP will continue to deliver and will be a leader in poultry production in Europe in the medium-term.

· Investment in 'Commercial Kitchens'. A 'Commercial Kitchen' concept is being developed and is planned to be implemented in Ukraine during 2020, whereby the Company directly supplies end customers rather than the HORECA processors.

· Production volume growth. During the Company's annual strategy meeting in May 2019, the Company reiterated its previous production target of 850-880,000 tonnes of poultry meat by 2024. We continue to expect PP and the expanded Vinnytsia Poultry Complex to be our main drivers of production growth in 2020 towards this goal.

· Increasing the profitability of our agricultural operations. Spring crops are a key driver of the Company's results. The Grain Growing segment is therefore refocussing. It is increasing the number of hectares in which spring crops (corn, soy and sunflower) are sown and reducing the number of hectares in which winter crops (wheat, barley and rapeseed) are sown. This, combined with the optimisation of production costs and the use of technology including Artificial Intelligence, will increase the efficiency of the Grain Growing segment.

· Export growth: we will continue to execute our geographical diversification strategy and to focus upon more customised products as part of a strategy to access new prospective markets.

· Long-term goal to be an efficient and successful player in the global protein industry consolidation: We continue to monitor developments and potential M&A opportunities, both in poultry production and in the meat-processing industry, internationally.

· To promote the sustainable development of the business: MHP is committed to reducing greenhouse gas emissions intensity with a long-term goal of being carbon neutral for every kilogram of poultry meat produced. The Company's largest biogas facility is in production with one more unit (12MW) planned. In addition, a research programme focussed on carbon sequestration, whereby carbon dioxide and other forms of carbon are stored in the soil for the long-term, is ongoing.

INNOVATION AND RESEARCH & DEVELOPMENT

The Company's Centre of Innovation has continued its active programme in 2019, both in Ukraine and in the Balkans. Key advances made in relation to the production of poultry meat included the following:

· Antibiotic-free - significantly more production (in excess of 30% of total volumes) is now designated as "antibiotic-free" and the Company remains on target to produce in excess of 85% of poultry meat on an antibiotic-free basis by 2023e. In early 2020, an antibiotic-free line of poultry products was launched in Ukraine for domestic consumers, see also case study in the Annual Report.

An important planned development of the Nasha Riaba brand in 2020 underlines MHP's industry-leading commitment to eliminate the use of antibiotics in the chicken meat production process. Nasha Riaba product labelling will highlight the brand's long-term commitment to the eradication of antibiotic use; this step will further re-enforce MHP's commitment to improving human health and healthy eating. MHP plans to achieve this aim by setting step-by-step targets and rigorous and robust testing.

· Health and nutrition - a two-year MHP research programme has enabled the Company to confirm and to state on its products that its poultry products have lower levels of saturated fats and higher levels of polyunsaturated fats; this is a significant mitigation factor in human coronary artery disease and a key driver of sales growth for increasingly health-conscious consumers.

MHP's management will host a conference call for investors and analysts followed by Q&A on the day of the results.


The dial-in details are:
Time:	14.00 London / 16.00 Kyiv / 09.00 New York
Title:	Financial results for Q4 and 12M 2019
International/UK Dial in: Ukraine:	+44 203 984 9844 +380 89 324 0624
USA free call:	+1 718 866 4614

Participant PIN code	645982

In order to follow the presentation together with the management, please use the following link:

https://mm.closir.com/slides?id=645982

For enquiries, please contact:

Anastasia Sobotiuk (Kyiv) +38 044 207 99 58 [email protected]

Iryna Bublyk (Kyiv) +38 044 207 00 04 [email protected]

Segment Performance

Poultry and related operations segment


	Q4 2019	Q4 2018	% change	12M 2019	12M 2018	% change


Poultry
Sales volume, third parties, tonnes	158,624	144,183	10%	669,964	593,527	13%
- Sales in Ukraine, third parties, tonnes	70,972	71,253	0%	312,531	306,680	2%
- Export sales volume, third parties, tonnes	87,651	72,929	20%	357,433	286,846	25%
Average price per 1 kg net of VAT, UAH	34.69	40.56	-14%	38.06	39.86	-5%
Average price per 1 kg net of VAT, USD	1.43	1.45	-1%	1.47	1.47	0%
Price per 1 kg net of VAT, UAH (Ukraine)	37.17	38.07	-2%	37.49	36.62	2%
Price per 1 kg net of VAT, USD (export)	1.35	1.54	-12%	1.49	1.59	-6%

Sunflower oil
Sales volume, third parties tonnes	112,688	74,108	52%	384,150	315,079	22%
Soybeans oil
Sales volume, third parties tonnes	11,764	12,268	-4%	51,771	50,044	3%

Chicken meat

Aggregate volumes of chicken meat sold to third parties increased by 10% in Q4 2019 and during 12M 2019 increased by 13%, mainly as a result of increased production of heavier chicken and decreased share of thinning, as well as due to the launch of new rearing sites of Phase 2 at the Vinniytsia Poultry Complex. MHP continued to follow a strategy of both geographic diversification and product mix optimization, building up volumes of chicken meat sold across the MENA, EU, Africa and Asia. In addition to the growth in poultry exports, sales in Ukraine during 12M 2019 increased slightly by 2% to 312,531 tonnes (12M 2018: 306,681 tonnes).

For the 12M 2019, the aggregate average chicken meat price was UAH 38.06, 5% lower than in 12M 2018 mainly driven by substantial drops in poultry prices in the EU countries as well as revaluation of the local currency (UAH).

Vegetable oil

During 12M 2019, MHP's sales of sunflower oil have increased by 22% compared to 12M 2018 and reached 384,150 tonnes. Sales of soybean oil have increased by 3% during 12M 2019 and reached 51,771 tonnes.

Poultry and Related Operations segment - financial results and trends


(in mln. US$, unless indicated otherwise)	Q4 2019	Q4 2018	% change*	12M 2019	12M 2018	% change*


Revenue	337	289	17%	1,368	1,241	10%
- Poultry and other	250	231	8%	1,073	973	10%
- Vegetable oil	87	58	50%	295	268	10%

IAS 41 standard gains/(losses)	(3)	8	-138%	9	(1)	-1000%

Gross profit	45	73	-38%	273	301	-9%
Gross margin	13%	25%	-12 pps	20%	24%	-4 pps

Adjusted EBITDA	43	76	-43%	281	311	-10%
Adjusted EBITDA margin	13%	26%	-13 pps	21%	25%	-4 pps
Adjusted EBITDA per 1 kg (net of IAS 41)	0.29	0.47	-38%	0.41	0.53	-23%

* pps - percentage points

During 12M 2019, revenue of the segment increased by 10% year-on-year driven mostly by an increase in sales volume of chicken meat and vegetable oil, but partly offset by decreased prices of chicken meat.

IAS 41 standard gain/(loss) reflects net change in fair value of biological assets and agricultural produce. IAS 41 standard gain during 12M 2019 amounted to US$ 9 million mainly as a result of an increase of poultry meat stocks, but partly offset by a decrease in prices.

Gross profit of the segment for 12M 2019 decreased by 9% year-on-year driven by lower prices of chicken meat and higher production costs in USD terms due to strengthening of the Ukrainian Hryvna in Q4 2019, as well as higher costs of mixed fodder protein components and payroll costs.

During 12M 2019, adjusted EBITDA decreased by 10%, in line with the decrease in gross profit.

Grain Growing segment

In 2019, MHP harvested around 360,000 hectares of land in Ukraine and gathered around 2.41 million tonnes of crops, 9% less versus 2018 mainly related to MHP's historically record harvest of corn in 2018. Average MHP yields are significantly higher than Ukrainian averages for almost all crops due to operational efficiency and employment of technology and best practices.


	2019 [1]		2018 [1]
	Production volume	Cropped land	Production volume	Cropped land

	in tonnes	in hectares	in tonnes	in hectares
Corn	1,312,416	140,221	1,344,547	123,398
Wheat	300,396	46,797	295,640	48,379
Sunflower	237,755	65,447	235,245	72,981
Rapeseed	122,597	41,233	125,346	38,541
Soya	102,418	38,197	114,322	37,558
Other [2]	332,007	27,581	539,322	41,963
Total	2,407,589	359,476	2,654,422	362,820

[1] Only land of grain growing segment;

[2] Including barley, rye, sugar beet, sorghum and other and excluding land left fallow as part of crop rotation;


	2019		2018
	MHP's average [1]	Ukraine's average [1]	MHP's average [1]	Ukraine's average[1]
	tonnes per hectare		tonnes per hectare

Corn	9.4	7.1	10.9	7.8
Wheat	6.4	4.3 2.6	6.1	3.7
Sunflower	3.6	2.6	3.2	2.3
Rapeseed	3.0	2.6	3.3	2.7
Soya	2.7	2.3	3.0	2.6

[1] MHP yields are net weight, Ukraine yields are bunker weight;


(in mln. US unless indicated otherwise)	12M 2019	12M 2018	% change


Revenue	268	181	48%

IAS 41 standard gains/(losses)	(50)	33	-252%

Gross profit	29	108	-73%

Adjusted EBITDA*	109	151	-28%
Adjusted EBITDA (net of IFRS 16)	60	151	-60%
Adjusted EBITDA (net of IFRS 16) per 1 hectare	167	416	-60%

*- after implementation of IFRS 16

Grain growing segment revenue for 12M 2019 amounted to US$ 268 million compared to US$ 181 million in 12M 2018. The increase in revenue is mainly attributable to higher level of crops in stock designated for sale as of 31 December 2018 due to the record yields in 2018.

IAS 41 standard loss for 12M 2019 amounted to US$ 50 million and was primarily driven by substantial decreases in prices of crops (especially corn).

12M 2019 adjusted EBITDA of the segment has decreased by 28% versus 12M 2018 due to decreases in prices as well as higher production costs in USD terms due to strengthening of the Ukrainian Hryvna (accentuated by the seasonality of operations with major expenses incurred in H1 2019).

Meat processing and other agricultural operations segment


Meat processing products	Q4 2019	Q4 2018	% change		12M 2019		12M 2018	% change


Sales volume, third parties tonnes	8,699	7,978	9%	35,458		33,975			4%
Price per 1 kg net VAT, UAH	69.67	66.25	5%	67.34		62.22			8%

In Q4 2019 and during 12M 2019, sales of meat processing products increased by 9% and 4% and reached 8,699 tonnes and 35,458 tonnes, respectively. The average processed meat price increased by 8% year-over-year to UAH 67.34 per kg in 12M 2019, driven by the implementation of the improved sales and marketing strategy.


Convenience food	Q4 2019	Q4 2018	% change	12M 2019	12M 2018	% change

Sales volume, third parties tonnes	5,179	4,887	6%	19,236	17,997	7%
Price per 1 kg net VAT, UAH	41.94	41.20	2%	40.97	42.53	-4%

Sales volumes of convenience food in 12M 2019 increased by 7% to 19,236 tonnes, driven mainly by a high base effect, where salted fillet (a semi-final product) was included previously. Average prices in 12M 2019 decreased by 4% to UAH 40.97 per kg (excluding VAT).


(in mln. US$, except margin data)	Q4 2019	Q4 2018	% change	12M 2019	12M 2018	% change


Revenue	42	33	27%	149	130	15%
- Meat processing	32	26	23%	118	103	15%
- Other*	10	7	43%	31	27	15%

IAS 41 standard gains	3	(1)	-400%	2	-	100%

Gross profit	9	(1)	-1000%	19	12	58%
Gross margin	21%	-3%	24 pps	13%	9%	4 pps

Adjusted EBITDA	8	2	300%	20	16	25%
Adjusted EBITDA margin	19%	6%	13 pps	13%	12%	1 pps

* includes, milk, cattle and feed grains.

Segment revenue for 12M 2019 increased by 15% year-on-year, in line with increases in volumes for meat processing, to US$ 149 million.

The segment's adjusted EBITDA increased to US$ 20 million in 12M 2019 versus US$ 16 million in 12M 2018, an increase by 25% year-on-year, driven mostly by higher returns earned from meat processing products.

Current Group financial position and cash flow


(in mln. US$)	Q4 2019	Q4 2018	12M 2019	12M 2018

Cash from operations	70	63	310	306
Change in working capital	112	-	192	(45)
Net Cash from operating activities	182	63	502	261

Cash used in investing activities	(28)	(8)	(333)	(224)
Including:
Net cash outflow on acquisition of subsidiaries	-	-	(206)	-
Net cash inflow from disposal of subsidiaries	-	7	-	7
CAPEX*	(17)	(51)	(113)	(252)

Cash used in financing activities	(104)	(8)	37	137
Incl. Dividends	-	(11)	(85)	(89)
Total financial activities	(104)	(19)	(48)	48

Total change in cash**	50	36	121	85

* Calculated as cash used for Purchases of property, plant and equipment plus cash used for purchases of other non-current assets

** Calculated as Net Cash from operating activities plus Cash used in investing activities plus Total financial activities

Cash flow from operations before changes in working capital for 12M 2019 amounted to US$ 310 million (12M 2018: US$ 306 million).

Positive cash flow effects from changes in working capital during 12M 2019 mostly reflect reductions in inventory as unusually high stocks of sunflower and soya crops as of 31 December 2018 (following record high yields in 2018) were utilized or sold during the period, the effects of increases in amounts payable for seeds and plant protection products to be paid in 2020, and reimbursement of VAT receivable for previous periods.

During 12M 2019, total CAPEX amounted to US$ 113 million mainly related to the launch of production sites of Phase 2 of the Vinnytsia poultry complex.

European operating segment (PP)


Poultry	Q4 2019	12M 2019 (10 months)*


Sales volume, third parties tonnes	14,173	51,101
Price per 1 kg net VAT, EUR	2.66	2.64

* results of PP from 21 February 2019 when the acquisition was completed

In Q4 2019, poultry sales of the newly-established Europe operating segment, which comprises the operations of Perutnina Ptuj, were 14,173 tonnes with an average price of EUR 2.66. For the 12M 2019, sales amounted to 51,101 tonnes with an average price of EUR 2.64.


Meat processing products*	Q4 2019	12M 2019 (10 months)**


Sales volume, third parties tonnes	9,241	30,282
Price per 1 kg net VAT, EUR	2.75	2.71

* includes sausages and convenience foods

** results of PP from 21 February 2019 when the acquisition was completed

In Q4 2019, meat processing products sales at PP constituted 9,241 tonnes with an average price of EUR 2.75, while 12M 2019 sales amounted to 30,282 tonnes with an average price of EUR 2.71.


(in US$ millions, unless indicated otherwise)	Q4 2019	12M 2019 (10 months)*

	78	271
Revenue	78

IAS 41 standard gains	-	-

Gross profit	21	77
	28%
Gross margin	27%
Adjusted EBITDA**	15	44
Adjusted EBITDA margin**	19%	16%
Adjusted EBITDA (net of IFRS 16)	15	42
Adjusted EBITDA margin (net of IFRS 16)	19%	15%

* results of PP from 21 February 2019 when the acquisition was completed

** after implementation of IFRS 16

European operating segment's revenue in Q4 2019 amounted to US$ 78 million and US$ 271 million for 12M 2019. Adjusted EBITDA** was US$ 15 million for the quarter and US$ 44 million for 12M 2019, respectively. Adjusted EBITDA margin** was 19% and 16% for Q4 2019 and 12M 2019, respectively.

Debt Structure and Liquidity


(in mln. US$)	31 December 2019	30 September 2019	31 December 2018

Total Debt1)	1,480	1,581	1,343
LT Debt1)	1,448	1,469	1,206
ST Debt1)	32	112	137
Cash and cash equivalents	(341)	(288)	(212)
Net Debt1)	1,139	1,293	1,131

LTM adjusted EBITDA1), 2)	379	436	450
Net Debt / LTM ADJUSTED EBITDA1), 2)	3.01	2.96	2.51

1) Net of IFRS 16 adjustments: as if any lease that would have been treated as an operating lease under IAS 17 as was in effect before the 1 January 2019, is treated as an operating lease for purposes of this calculation. In accordance with covenants in MHP's bond and loan agreements, these data exclude the effects of IFRS 16 on accounting for operating leases.

2) Calculated as if acquisitions of subsidiaries had occurred on the first day of the year. LTM adjusted EBITDA of Perutnina Ptuj d.d amounted to US$ 45 million

As of 31 December 2019, the share of long-term debt in the total outstanding debt is 98%. The weighted average interest rate was at around 7%.

As of 31 December 2019, MHP's cash and cash equivalents amounted to US$ 341 million.

Net debt increased to US$ 1,139 million, compared to US$ 1,131 million as of 31 December 2018.

The Net Debt / LTM adjusted EBITDA (net of IFRS 16) ratio was 3.01 as of 31 December 2019, higher than the limit of 3.0 defined in the Eurobond agreement. Although exceeding the ratio of 3.0 does not constitute the breach of any covenant under the indebtedness agreement, this leads to the introduction of additional control measures by MHP. In particular, MHP has to supervise and assess incurrence of additional indebtedness, restricted payments (e.g. dividend distribution, investments in third parties), mergers with third parties outside of the Group, and granting of financing of any kind to third parties.

Such restrictions become effective on the date of publication of the audited consolidated financial statements as of and for the year ended 31 December 2019.

As a hedge for currency risks, revenue from the export of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in foreign exchange, covering debt service expenses in full. Export revenue for 12M 2019 amounted to US$ 1,186 million or 58% of total revenue (12M 2018: US$ 924 million or 60% of total sales).

DIVIDENDS

On 13 April 2020, the Board of Directors of MHP SE approved payment of an interim dividend of US$ 0.2803 per share, equivalent to US$ 30 million, to be paid to shareholders by the end of April 2020. The announcement will be published in due course.

BOARD OF DIRECTORS APPOINTMENT

On 24 March 2020, Mr Philip J Wilkinson OBE was appointed as an Independent Non-Executive Director to the Board for a period ending with the annual general meeting of the shareholders of the Company to be held in 2020.

SUBSEQUENT EVENTS

With the recent and rapid development of the Coronavirus disease (COVID-19) outbreak the world economy entered a period of unprecedented health care crisis that has already caused considerable global disruption in business activities and everyday life.

Many countries have adopted extraordinary and economically costly containment measures. Certain countries have required companies to limit or even suspend normal business operations. Governments, including the Ukraine, have implemented restrictions on travelling as well as strict quarantine measures.

Industries such as tourism, hospitality and entertainment are expected to be directly disrupted significantly by these measures. Other industries such as manufacturing and financial services are expected to be indirectly affected and their results to also be negatively affected.

The financial effect of the current crisis on the global economy and overall business activities cannot be estimated with reasonable certainty at this stage, due to the pace at which the outbreak expands and the high level of uncertainties arising from the inability to reliably predict the outcome.

Management has considered all available information about the future, which was obtained after 31 December 2019, including the impact of the COVID-19 outbreak on customers, suppliers and staff, as well as actual and projected foreseeable impact from various factors, such as:

• whether the entity could continue to operate if staff were not able to physically be present;

• the duration that the entity could survive given the availability of cash resources and the flexibility of its cost base;

• whether there has been a significant decline in revenue;

• whether there has been a significant erosion of profits due to higher costs or incurrence of unforeseen expenses;

• whether there is a likelihood of potential breach of debt covenants as a result of the adverse impact on its financials;

• whether there have been any concerns on the continuation of receipt of goods/services from suppliers.

continue to monitor the situation closely and will assess the need for additional measures in case the period of disruption becomes prolonged.

Despite the COVID-19 outbreak, the Group continues to fulfill its liabilities. The Group made coupon payments in an amount of USD 10,938 thousand on 18 March 2020 in respect of the 6.25% Senior Notes and USD 19,113 thousand on 2 April 2020 in respect of the 6,95% Senior Notes.

The event is considered as a non-adjusting event and is therefore not reflected in the recognition and measurement of the assets and liabilities in the financial statements as at 31 December 2019.

OUTLOOK for 2020

A number of challenges have combined to create an unusual degree of uncertainty in early 2020. In particular, the combination of the COVID-19 Pandemic and an outbreak of H5N1 avian influenza in the Vinnytsia region of Ukraine in Q1 2020, which caused a temporary cessation of exports from Ukraine to the EU, Saudi Arabia and other MENA markets and CIS countries, is expected to adversely affect MHP's financial results for the year.

Against this backdrop, the Company's main drivers of growth are expected to be increases in poultry production volumes of c25,000 tonnes from Perutnina and c10,000 tonnes from the Vinnytsia poultry complex, respectively, combined with an increase in the efficiency of grain growing operations driven by optimisation of production costs and land utilisation.

With its vertically-integrated business model and efficient cost base, the Board believes that MHP is well-placed to manage its way through the expected disruption over the next few months and remains confident that the Group will deliver a strong financial result in 2020.

Notes to Editors:

About MHP

MHP is the leading producer of poultry products not only in Ukraine, but also in the Balkans (Perutnina Ptuj Group) and in the EU.

Ukraine: MHP has the greatest market share (over 30% of poultry consumption) and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 9 distribution and logistical centers, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times.

MHP also has a leading grain cultivation business growing corn to support the vertical integration of its chicken production and increasingly other grains, such as wheat and rape, for sale to third parties. MHP leases agricultural land located primarily in the highly fertile black soil regions of Ukraine.

The Balkans: Perutnina Ptuj is a leading poultry and meat-processing producer in the Balkans, has production assets in four Balkan countries: Slovenia, Croatia, Serbia, Bosnia and Herzegovina; owns distribution companies in Austria, Macedonia and Romania and supply products to 15 countries in Europe. Perutnina Ptuj is a vertically integrated company across all states of chicken meat production - feed, hatching eggs production and hatching, breeding, slaughtering, sausages and further poultry processing production.

MHP trades on the London Stock Exchange under the ticker symbol MHPC.

Forward-Looking Statements

This press release might contain forward-looking statements that refer to future events or forecast financial indicators for MHP SE. Such statements do not guarantee that these are actions to be taken by MHP SE. in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements. MHP SE does not intend to change these statements to reflect actual results.

MHP SE AND ITS SUBSIDIARIES

Consolidated Financial Statements

As of and for the year ended 31 December 2019

CONTENTS

STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION

AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 December 2019..................................................................................................................................................... (a)

INDEPENDENT AUDITOR'S REPORT..................................................................................................... (i)

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2019

Consolidated statement of profit or loss and other comprehensive income.............................................. 15

Consolidated statement of financial position.......................................................................................... 17

Consolidated statement of changes in equity.......................................................................................... 18

Consolidated statement of cash flows.................................................................................................... 19

Notes to the Consolidated financial statements....................................................................................... 21

1. Corporate information..................................................................................................................... 21

2. Changes in the group structure........................................................................................................ 22

3. Summary of significant accounting policies..................................................................................... 24

4. Critical accounting judgments and key sources of estimation uncertainty.......................................... 40

5. Segment information...................................................................................................................... 45

6. Revenue........................................................................................................................................ 47

7. Cost of sales................................................................................................................................. 48

8. Selling, general and administrative expenses................................................................................... 48

9. Deferred revenue............................................................................................................................ 48

10. Finance costs.............................................................................................................................. 49

11. Income tax.................................................................................................................................. 49

12. Property, plant and equipment...................................................................................................... 52

13. Right-of-use assets...................................................................................................................... 55

14. Intangible assets.......................................................................................................................... 56

15. Goodwill...................................................................................................................................... 57

16. Other non-current assets, net........................................................................................................ 58

17. Biological assets......................................................................................................................... 58

18. Inventories................................................................................................................................... 61

19. Agricultural produce..................................................................................................................... 61

20. Taxes recoverable and prepaid..................................................................................................... 61

21. Trade accounts receivable, net..................................................................................................... 62

22. Other current assets..................................................................................................................... 65

23. Cash and cash equivalents........................................................................................................... 65

24. Shareholders' equity.................................................................................................................... 66

25. Non-controlling interests............................................................................................................... 66

26. Bank borrowings.......................................................................................................................... 68

27. Bonds issued.............................................................................................................................. 69

28. Lease liabilities............................................................................................................................ 72

29. Other current liabilities.................................................................................................................. 73

30. Related party balances and transactions....................................................................................... 73

31. Contingencies and contractual commitments................................................................................. 74

32. Dividends.................................................................................................................................... 76

33. Fair value of financial instruments................................................................................................. 76

34. Risk management policies............................................................................................................ 78

35. Pensions and retirement plans...................................................................................................... 81

36. Earnings per share....................................................................................................................... 82

37. Subsequent events...................................................................................................................... 82

38. Authorization of the consolidated financial statements................................................................... 83

STATEMENT OF THE BOARD OF DIRECTORS' RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2019

The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view of the financial position of MHP SE (the "Company") and its subsidiaries (the "Group") as of 31 December 2019 and of the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In preparing the consolidated financial statements, the Board of Directors is responsible for:

· properly selecting and applying accounting policies;

· presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· providing additional disclosures when compliance with the specific requirements in the International Financial Reporting Standards ("IFRS") are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance;

· making an assessment of the Group's ability to continue as a going concern.

The Board of Directors, within its competencies, is also responsible for:

· designing, implementing and maintaining an effective and sound system of internal controls over financial reporting, throughout the Group;

· maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS;

· maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions;

· taking such steps as are reasonably available to them to safeguard the assets of the Group; and

· preventing and detecting fraud and other irregularities.

The consolidated financial statements of the Group as of and for the year ended 31 December 2019 were authorized for issue by the Board of Directors on 13 April 2020.

Board of Directors' responsibility statement

In accordance with Article 9 sections (3c) and (7) of the Transparency Requirements (Traded Securities in Regulated Markets) Law 190 (1) / 2007 until 2013, we, the members of the Board of Directors responsible for the drafting of the consolidated financial statements of MHP SE for the year ended 31 December 2019, on the basis of our knowledge, declare that:

a) the consolidated financial statements which are presented on pages 15 to 83:

(i) have been prepared in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the provisions of article 9 section (4) of the law, and

(ii) provide a true and fair view of the assets and liabilities, the financial position and the profit or loss of the Company's and subsidiary companies, consolidated financial statements as a whole and

b) the Management report provides a fair review of the developments and the performance of the business and the financial position of the Group included in the consolidated accounts taken as a whole, together with a description of the main risks and uncertainties which they face.

On behalf of the Board:


Yuriy Kosyuk Director	John Grant Director	Viktoria Kapelyushnaya Director	John Clifford Rich Director	Philip J Wilkinson Director


Yuriy Melnyk Director	Christakis Taoushianis Director	Roberto Banfi Director	Roger Wills Director

Independent Auditor's Report

To the Members of MHP SE

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of MHP SE (the "Company"), and its subsidiaries (the "Group"), which are presented in pages 15 to 83 of the consolidated financial statements and comprise the consolidated statement of financial position as at 31 December 2019, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2019, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We remained independent of the Group throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


Why the matter was determined to be a key audit matter	How the matter was addressed in the audit
Valuation of property, plant and equipment As described in Note 3 to the consolidated financial statements, all classes of property, plant and equipment ("PPE"), except for the land and other fixed assets, are measured after initial recognition at revalued amounts. The latest revaluation was recognized as of 30 September 2019, on the basis of a valuation carried out by an independent appraiser. As a result, the revaluation reserve was increased by USD 199,437 thousand, less the effect of deferred income taxes of USD 17,053 thousand. We have considered the valuation of property, plant and equipment to be a key audit matter as it requires applying significant judgement and subjectivity in determining appropriate unobservable inputs and estimates in assessing the fair values using the depreciated replacement cost and market comparable methods such as: · changes in market prices of assets and construction materials from the date of their acquisition/ construction/ date of previous valuation to the date of this valuation; · external market prices for vehicles; · normative and remaining useful lives; · rates of physical depreciation. The results of revaluation based on the depreciated replacement cost and market comparable approaches were compared by management to a valuation they performed using the income approach to test for economic obsolescence. This exercise is based on assumptions such as discount rates, terminal growth rates, expected production volumes and operating margins, the determination of which requires the exercise of significant judgement. Management provided more details in relation to the above in Note 4 "Critical Accounting Estimates and Key Sources of Estimation Uncertainty" and Note 12 "Property, Plant, and Equipment" to the consolidated financial statements.	We have performed, amongst others the following audit procedures, in order to address the risks of material misstatement associated with this key audit matter: · Оbtained an understanding of the internal controls surrounding the valuation process for PPE and assessed their design and implementation. · Assessed the competence, capabilities, experience, professional qualifications and objectivity of the independent appraisal firm. In addition, we discussed the scope of their work with management and reviewed the related terms of engagement to determine that there were no matters that affected their objectivity or imposed scope limitations. · With the support of our internal valuation specialists, (i) assessed whether the valuation methodology applied is appropriate and in line with international valuation standards as well as industry norms, (ii) challenged the appropriateness of the key parameters and assumptions used by the independent appraiser to estimate the fair values. · Carried out appropriate audit procedures to test the accuracy and completeness of the data provided by the management to the independent appraisal firm taking into account our assessment of the relevant controls. · With the support of our internal valuation specialists, we compared the 30th of September 2019 PPE values with those of the previous revaluation as of 31 December 2017, and investigated any unexplained deviations identified and challenged where necessary the underlying data and assumptions. · In respect of the economic obsolescence exercise, with the support of our internal valuation specialists, (i) challenged the reasonableness of the valuation assumptions in the management's forecasts with reference to past performance and market conditions to determine whether the assumptions used fell within an acceptable range, (ii) assessed the historical forecasting and budgeting accuracy, and (iii) assessed the appropriateness of the discount rates used. · Checked the mathematical accuracy of the computations made in the valuation workings. · Assessed completeness and accuracy of all related disclosures in the consolidated financial statements based on the relevant international financial reporting standards, including significant assumptions and methods used in the valuations and sensitivity analysis on the changes of the unobservable inputs. All the above procedures were completed in a satisfactory manner.
Adoption of IFRS 16 "Leases" As described in Note 3 to the consolidated financial statements, the Group has adopted IFRS 16 "Leases", using the modified retrospective approach as of 1 January 2019. Upon adoption the Group recognized lease liabilities of USD 177,093 thousand and right-of-use assets of USD 185,442 thousand, including reclassification of liabilities and assets previously recorded under finance leases. We consider the adoption of IFRS 16 "Leases" to be a key audit matter due to: (a) the degree of complexity of the business process as a result of the large number of agricultural land lease contracts with individuals, and (b) the significant judgement exercised by management to determine the following key parameters used in the measurement of the lease liability such as (i) the value of lease payments for the non-contractual changes of the payments which are made based on customary industry practice, and (ii) the determination of appropriate incremental borrowing rates. Management provides more details in relation to the above in Note 13 "Right-of-Use Asset" as well as Note 28 "Lease Liabilities" and Note 33 "Fair Value of Financial Instruments" to the consolidated financial statements.	We have performed amongst others the following audit procedures in order to address the risks of material misstatement associated with this key audit matter: · Assessed the appropriateness of the accounting policies adopted by management for the purpose of identification, measurement and accounting of leases in accordance with the requirements of IFRS 16 "Leases". · Obtained an understanding of the internal controls pertaining to the accuracy and completeness of the lease database and assessed their design and implementation. · Challenged management's assumptions relating to accounting of non-contractual changes of lease payments in measuring the lease liability by analyzing historical data and market data to determine whether the assumptions used fell within an acceptable range. · Assessed the accuracy and completeness of the lease database by (i) agreeing for a sample, the amount of the lease used in the measurement of lease liability to the actual payments, and (ii) examining the reconciliation of total lease amount included in the database and used in the measurement of the lease liability to the total actual payments adjusted to prepaid or unpaid lease balances as of 31 December 2019. · On a sample basis, assessed the accuracy of the lease term contained in the database by reference to the signed contracts and/or subsequent modifications. · Checked the mathematical accuracy of the calculation determining the lease liability as of 31 December 2019. · Recalculated the Group's estimation of lease liabilities as of 1 January 2019 which was based on the verified lease database as of 31 December 2019 and changes of non-contractual lease payments during the period which were supported by the Group's budgets and average increase of lease payments per locations. · Assessed the appropriateness of the incremental borrowing rates used in the calculation of lease liabilities with the support of our internal valuation specialists. · Assessed completeness and accuracy of all related disclosures provided in the consolidated financial statements with the requirements of international financial reporting standards. All the above procedures were completed in a satisfactory manner.
Valuation of biological assets Biological assets are measured at fair value less costs to sell in accordance with IAS 41 "Agriculture". As of 31 December 2019, the carrying amount of biological assets was USD 235,399 thousand, of which USD 205,747 thousand was classified within current assets and USD 29,652 thousand within non-current assets. Current biological assets mainly comprise of breeders held for hatchery egg production, broilers and crops in fields. Non-current biological assets mainly comprise of milk cows. For determining the fair value of biological assets, the Group uses the discounted cash flows technique as well as the market prices of livestock of similar age, breed and genetic merit. This valuation is a key audit matter since it requires applying assumptions affected by expected market or economic conditions which can vary over time and complex and judgmental assessment process. The key assumptions and inputs used in the measurement of the fair values are: · average meat output for broilers and livestock for meat production; · average productive life of breeders and cattle held for laying eggs and milk production; · expected yields; · estimated market prices for poultry meat, crops, hatchery egg and milk; · projected production costs and costs to sell; and · discount rates. Management provided more details in relation to the above in Note 4 "Critical Accounting Estimates and Key Sources of Estimation Uncertainty" and Note 17 "Biological Assets" to the consolidated financial statements.	We have performed amongst others the following audit procedures in order to address the risks of material misstatement associated with this key audit matter: · Obtained an understanding of the internal controls surrounding the valuation process for biological assets and assessed their design and implementation. · Assessed whether the valuation methods used are in accordance with IAS 41 and consistent with international valuation standards and industry norms. · Evaluated the reasonableness and appropriateness of the discount rate with the support of our internal valuation specialists. · Performed a sensitivity analysis to identify the significant inputs and assumptions, and to assess the accuracy of sensitivity disclosures in the financial statements. · Performed a recalculation of fair value of biological assets as of the reporting date using actual prices subsequent to year end or observable future prices adjusted by logistic costs, industry rates like meat output for broilers or number of hatchery eggs produced by one breeder, expected yields with a reference to past performance, projected production costs from the approved budgets and the discount rates agreed with our internal valuation specialists. · Assessed the historical forecasting and budgeting accuracy. · Assessed completeness and accuracy of all related disclosures provided in the consolidated financial statements. All the above procedures were completed in a satisfactory manner.
Purchase price allocation ("PPA") on the acquisition of Perutnina Ptuj ("Perutnina") and impairment assessment of goodwill and intangibles with indefinite life that arose on the acquisition As described in note 2 to the consolidated financial statements, the Group acquired 90,69% of the share capital of Perutnina for USD 250,012 thousand. As part of the purchase price allocation ("PPA"), this amount has been allocated to the fair value of identifiable assets acquired and liabilities assumed by cash generating unit ("CGU") resulting in the recognition of goodwill of USD 61,518 thousand. The PPA and impairment assessment which was performed by directors with the use of independent specialists is considered as a key audit matter since it is subject to significant judgement and estimation in the following areas: PPA exercise · Identification of CGUs and intangible assets · Valuation of tangible and intangible assets (including goodwill) Impairment assessment · Selection of the appropriate impairment model to be used · Assessment and determination of the expected cash flows from the business of each CGU and trademarks · Setting appropriate growth rates and operating margins by CGU · Setting appropriate growth rates and royalty rate for trademarks · Selection of the appropriate discount rate for each CGU and for each trademark identified Management provided more details in relation to the above in Note 4 "Critical Accounting Estimates and Key Sources of Estimation Uncertainty", Note 14 "Intangible Assets" and Note 15 "Goodwill" to the consolidated financial statements.	We have performed amongst others the following audit procedures with the support of our internal valuation specialists, where deemed necessary, in order to address the risks of material misstatement associated with this key audit matter: · Оbtained an understanding of the internal controls surrounding the PPA and goodwill/intangible impairment process and assessed their design and implementation. · Assessed the competence, capabilities, experience, professional qualifications and objectivity of the independent specialists. In addition, we discussed with the management the scope of their work and reviewed the related terms of engagement to determine that there were no matters that affected their objectivity or imposed scope limitations. · Assessed the criteria used by management in the identification of the separate CGUs for their businesses. · For the PPA exercise, assessed whether identifiable assets acquired and liabilities assumed were appropriately valued and allocated to the appropriate CGU. · Assessed whether valuation techniques and methodology used are appropriate and comply with generally accepted valuation practices and industry norms. · Assessed the valuation and business assumptions used in the PPA exercise as well as in the impairment models by CGU, by reference to historical data and, where applicable, external benchmarks and data to determine whether the assumptions used fell within an acceptable range. · Carried out appropriate audit procedures to test the accuracy and completeness of the data provided by the management to the independent appraisal firm taking into account our assessment of relevant controls. · On a sample basis, checked the mathematical accuracy of the valuation models. · Assessed completeness and accuracy of all related disclosures provided in the consolidated financial statements with the requirements of international financial reporting standards. All the above procedures were completed in a satisfactory manner.
Loans to related parties As described in Note 30 to the consolidated financial statements, the Group provided loans to related parties. As of 31 December 2019, the balance of "loans and finance aid receivable" from related parties amounted to USD 21,717 thousand and the balance of "loans to key management personnel" amounted to USD 4,945 thousand. As stated in Note 37, subsequent to the balance sheet date, additional loans were provided to related parties. We considered these transactions with related parties to be a key audit matter due to the following: · Significant judgment is exercised by the Board of Directors in determining whether transactions are made on an arm's length basis; · The complexity of judgement involved when determining if transactions with affiliates are subject to certain bonds' covenants' restrictions; · Accurate and complete disclosures of transactions with related parties are fundamental for the users of financial statements. Management provided more details in relation to the above in Note 4 "Critical accounting judgments and key sources of estimation uncertainty" as well as Note 30 "Related party balances and transactions" and Note 37 "Subsequent events" to the consolidated financial statements.	We have performed amongst others the following audit procedures in order to address the risks of material misstatement associated with this key audit matter: · Obtained an understanding of the internal controls surrounding the provision of loans to related parties and assessed their design and implementation. · Obtained from those charged with governance and from management the list of all known related parties. · Reviewed minutes of board meetings and management meetings to assess completeness of related party disclosures. · On a sample basis, reconciled the balances of loans to amounts per confirmations received from the related parties. · Traced individual related party transactions on a sample basis to supporting documentation. · Reviewed underlying contracts to understand the terms of related party loans and assessed Board of Directors' considerations in the application of arm's length principle. · With the support of our internal legal specialists, challenged management's assessment regarding impact of related party transactions on compliance with bonds' covenants by assessing the advice received by the Group from their internal and external lawyers. · Assessed completeness and accuracy of all related disclosures provided in the consolidated financial statements. All the above procedures were completed in a satisfactory manner.

Reporting on other information

The Board of Directors is responsible for the other information. The other information comprises the information included in the annual report, including the corporate governance statement, but does not include the consolidated financial statements and our auditor's report thereon. The Board of Directors is also required pursuant to article 151 of the Cyprus Companies Law Cap.113 to prepare and publish a Non-Financial Information Report by 30 June 2020. This report has not been issued by the date of this report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and those charged with governance for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Cont'd)

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

· Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.

Report on Other Legal and Regulatory Requirements

Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the following information in our Independent Auditor's Report, which is required in addition to the requirements of International Standards on Auditing.

Appointment of the Auditor and Period of Engagement

We were first appointed as auditors of the Group on 24 October 2017 by a shareholders' resolution. This is our third period of engagement appointment.

Consistency of the Additional Report to the Audit Committee

We confirm that our audit opinion on the consolidated financial statements expressed in this report is consistent with the additional report to the Audit Committee of the Company, which we issued on 13 April 2020 in accordance with Article 11 of the EU Regulation 537/2014.

Provision of Non-audit Services

We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation 537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-audit services which were provided by us to the Group and which have not been disclosed in the consolidated financial statements or the consolidated management report.

Other Legal Requirements

Pursuant to the additional requirements of the Auditors Law of 2017, we report the following:

· In our opinion, based on the work undertaken in the course of our audit, the consolidated management report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the consolidated financial statements.

· In our opinion, based on the work undertaken in the course of our audit, the information included in the corporate governance statement in accordance with the requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap, 113, and is consistent with the consolidated financial statements.

· In our opinion, based on the work undertaken in the course of our audit, the corporate governance statement includes all information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. In respect of subparagraphs (ii) and (iii), the corporate governance statement included in the annual report sets out the exceptions and the explanations thereon in the application of the UK Corporate Governance Code, which the Group applies, including the provision on the independence of the Audit Committee Chairman.

· In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. We have nothing to report in this respect.

Other Matter

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

The engagement partner on the audit resulting in this independent auditor's report is Costas Georghadjis.

Costas Georghadjis

Certified Public Accountant and Registered Auditor

for and on behalf of

Deloitte Limited

Certified Public Accountants and Registered Auditors

Limassol, 13 April 2020

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)



Continuing operations	Notes	2019	2018

Revenue	6	2,055,943	1,552,206
Net change in fair value of biological assets and agricultural produce	5	(39,515)	32,094
Cost of sales	7	(1,618,596)	(1,162,727)
Gross profit		397,832	421,573

Selling, general and administrative expenses	8	(179,156)	(99,577)
Other operating income/(expenses), net		3,071	(5,803)
Loss on impairment of property, plant and equipment	12	(6,244)	(3,803)
Operating profit		215,503	312,390

Finance income		8,034	4,457
Finance costs	10	(147,552)	(138,019)
Foreign exchange gain, net	34	185,291	11,638
Other expenses, net		(8,064)	(10,561)
Profit before tax		253,212	179,905
Income tax expense	11	(32,107)	(50,527)
Profit for the year from continuing operations		221,105	129,378
Discontinued operations
Loss for the year from discontinued operations	2	(5,822)	(1,274)
Profit for the year		215,283	128,104

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)


	Notes	2019	2018
Other comprehensive income

Items that will not be reclassified to profit or loss:
Effect of revaluation of property, plant and equipment	12	199,437	-
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income as result of revaluation	11	(17,053)	-
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income as result of intercompany sales		15,162	49,357

Items that may be reclassified to profit or loss:
Cumulative translation difference		175,928	14,054
Other comprehensive income		373,474	63,411
Total comprehensive income for the year		588,757	191,515

Profit attributable to:
Equity holders of the Parent		218,441	124,926
Non-controlling interests	25	(3,158)	3,178
		215,283	128,104
Total comprehensive income attributable to:
Equity holders of the Parent		585,943	186,828
Non-controlling interests		2,814	4,687
		588,757	191,515
Earnings per share from continuing and discontinued operations
Basic and diluted earnings per share (USD per share)		2.04	1.17


Earnings per share from continuing operations
Basic and diluted earnings per share (USD per share)	36	2.10		1.18

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

Consolidated statement of financial position

as of 31 December 2019

(in thousands of US dollars, unless otherwise indicated)


	Notes	31 December 2019	31 December 2018
ASSETS
Non-current assets
Property, plant and equipment	12	2,049,298	1,498,530
Right-of-use asset	13	229,244	-
Intangible assets	14	106,522	52,059
Goodwill	15, 2	64,843	2,509
Non-current biological assets	17	29,652	23,392
Long-term bank deposits		3,298	3,387
Deferred tax assets	11	2,284	-
Other non-current assets, net	16	23,713	54,110
		2,508,854	1,633,987
Current assets
Inventories	18	208,389	273,522
Biological assets	17	205,747	179,290
Agricultural produce	19	215,816	224,789
Other current assets	22	52,573	32,858
Taxes recoverable and prepaid	20	30,030	45,146
Trade accounts receivable, net	21	124,474	69,305
Cash and cash equivalents	23	340,735	211,768
Assets classified as held for sale	2	3,877	-
		1,181,641	1,036,678
TOTAL ASSETS		3,690,495	2,670,665

EQUITY AND LIABILITIES
Equity
Share capital	24	284,505	284,505
Treasury shares		(44,593)	(44,593)
Additional paid-in capital		174,022	174,022
Revaluation reserve	12	862,435	642,800
Retained earnings		1,148,113	1,040,327
Translation reserve		(842,188)	(1,015,591)
Equity attributable to equity holders of the Parent		1,582,294	1,081,470
Non-controlling interests	25	13,572	16,536
Total equity		1,595,866	1,098,006

Non-current liabilities
Bank borrowings	26	75,880	105,783
Bonds issued	27	1,365,669	1,090,935
Lease liabilities	28	151,789	9,087
Deferred revenues	9	49,933	34,578
Deferred tax liabilities	11	55,305	12,953
Other non-current liabilities		5,872	-
		1,704,448	1,253,336
Current liabilities
Trade accounts payable		147,334	66,398
Other current liabilities	29	131,994	96,383
Bank borrowings	26	24,945	132,715
Accrued interest	26, 27	21,789	19,472
Lease liabilities	28	64,074	4,355
Liabilities directly associated with assets classified as held for sale	2	45	-
		390,181	319,323
TOTAL LIABILITIES		2,094,629	1,572,659
TOTAL EQUITY AND LIABILITIES		3,690,495	2,670,665

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

Consolidated statement of changes in equity

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)


	Attributable to equity holders of the Parent
	Share capital	Treasury shares	Additional paid-in capital	Revaluation reserve	Retained earnings	Translation reserve	Total	Non-controlling interests	Total equity

Balance at 31 December 2017	284,505	(48,503)	175,291	661,454	925,978	(1,030,159)	968,566	17,141	985,707
Effect of adoption IFRS 9	-	-	-	-	2,904	-	2,904	-	2,904
Balance at 1 January 2018	284,505	(48,503)	175,291	661,454	928,882	(1,030,159)	971,470	17,141	988,611
Profit for the year	-	-	-	-	124,926	-	124,926	3,178	128,104
Other comprehensive income	-	-	-	49,357	-	12,545	61,902	1,509	63,411
Total comprehensive income for the year	-	-	-	49,357	124,926	12,545	186,828	4,687	191,515
Transfer from revaluation reserve to retained earnings	-	-	-	(73,587)	73,587	-	-	-	-
Dividends declared by the Parent	-	-	-	-	(80,000)	-	(80,000)	-	(80,000)
Dividends declared by subsidiaries	-	-	-	-	-	-	-	(9,369)	(9,369)
Non-controlling interests acquired	-	3,910	(1,269)	-	997	-	3,638	(3,638)	-
Derecognition of interests in subsidiaries	-	-	-	(1,950)	(539)	2,023	(466)	7,715	7,249
Translation differences on revaluation reserve	-	-	-	7,526	(7,526)	-	-	-	-
Balance at 31 December 2018	284,505	(44,593)	174,022	642,800	1,040,327	(1,015,591)	1,081,470	16,536	1,098,006
Profit/(loss) for the year	-	-	-	-	218,441	-	218,441	(3,158)	215,283
Other comprehensive income	-	-	-	194,099	-	173,403	367,502	5,972	373,474
Total comprehensive income for the year	-	-	-	194,099	218,441	173,403	585,943	2,814	588,757
Transfer from revaluation reserve to retained earnings	-	-	-	(80,271)	80,271	-	-	-	-
Dividends declared by the Parent	-	-	-	-	(80,000)	-	(80,000)	-	(80,000)
Dividends declared by subsidiaries	-	-	-	-	-	-	-	(6,082)	(6,082)
Non-controlling interests acquired	-	-	-	-	-	-	-	15,526	15,526
Increase of Group's effective ownership interest in subsidiaries (Note 2)	-	-	-	-	(5,119)	-	(5,119)	(15,222)	(20,341)
Translation differences on revaluation reserve	-	-	-	105,807	(105,807)	-	-	-	-
Balance at 31 December 2019	284,505	(44,593)	174,022	862,435	1,148,113	(842,188)	1,582,294	13,572	1,595,866

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

Consolidated statement of cash flows

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)


	Notes	2019	2018

Operating activities

Profit before tax		253,212	179,905
Non-cash adjustments to reconcile profit before tax to net cash flows
Loss before tax from discontinued operations		(5,822)	(1,274)
Depreciation and amortization expense	5	206,195	134,953
Net change in fair value of biological assets and agricultural produce	5	39,515	(32,094)
Change in allowance for unrecoverable amounts and direct write-offs		3,858	3,333
Loss on impairment of property, plant and equipment	12	6,244	3,803
Loss on disposal of property, plant and equipment and other non-current assets		512	1,953
Finance income		(8,034)	(4,457)
Finance costs	10	147,552	138,019
Released deferred revenue		(1,862)	-
Non-operating foreign exchange gain, net		(185,291)	(11,638)
Operating cash flows before movements in working capital		456,079	412,503

Working capital adjustments

Change in inventories		125,887	(21,032)
Change in biological assets		20,109	(29,338)
Change in agricultural produce		8,474	(12,964)
Change in other current assets		7,806	(6,663)
Change in taxes recoverable and prepaid		21,954	(6,327)
Change in trade accounts receivable		(19,420)	(16,003)
Change in other current liabilities		(9,269)	39,607
Change in trade accounts payable		36,799	7,696
Cash generated by operations		648,419	367,479

Interest received		7,789	4,288
Interest paid		(142,894)	(97,464)
Income taxes paid		(11,543)	(13,398)
Net cash flows from operating activities		501,771	260,905

Investing activities

Purchases of property, plant and equipment		(111,766)	(210,038)
Purchases of other non-current assets		(743)	(42,032)
Payments for renewal of lease agreements		-	(9,404)
Government grants received	9	12,935	35,371
Net cash inflow on disposal of subsidiaries		-	7,249
Additions to right-of-use assets		(8,618)	-
Proceeds from disposals of property, plant and equipment		2,476	2,138
Purchases of non-current biological assets		(284)	(2,747)
Withdrawals of short-term deposits		-	4,452
Investments in short-term deposits		-	(5,673)
Acquisition of subsidiaries, net of cash acquired		(205,724)	-
Loans provided to employees, net		(3,408)	(420)
Loans provided to related parties		(28,004)	(8,091)
Loans repaid by related parties		10,115	5,322
Net cash flows used in investing activities		(333,021)	(223,873)

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)


	Notes	2019	2018

Financing activities

Proceeds from bank borrowings		213,809	255,024
Repayment of bank borrowings		(405,749)	(201,531)
Proceeds from bonds issued	27	350,000	550,000
Repayment of bonds		(79,417)	(416,183)
Transaction costs related to corporate bonds issued		(4,751)	(44,468)
Transaction costs related to bank loans received		(697)	(384)
Repayment of lease liabilities		(15,806)	(4,416)
Dividends paid	32	(80,000)	(80,000)
Dividends paid by subsidiaries to non-controlling shareholders		(5,249)	(9,369)
Acquisition of non-controlling interest		(20,341)	-
Consent payment related to corporate bonds	27	-	(992)
Net cash flows (used in)/from financing activities		(48,201)	47,681

Net increase in cash and cash equivalents		120,549	84,713
Cash and cash equivalents attributable to disposal group classified as held for sale in the year		1	-
Net foreign exchange difference		8,417	1,501
Cash and cash equivalents at 1 January		211,768	125,554
Cash and cash equivalents at 31 December	23	340,735	211,768

Non-cash transactions

Effect of revaluation of property, plant and equipment	12	193,193	-
Additions of property, plant and equipment under leases		-	5,647
Additions of property, plant and equipment financed through direct bank-lender payments to the vendor		1,318	11,377
Property, plant and equipment purchased for credit		-	6,287
Non-cash repayments of lease liabilities		(10,842)	-

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 21 to 83 form an integral part of these consolidated financial statements

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP SE (the "Parent" or "MHP SE"), a limited liability company (Societas Europaea) registered under the laws of Cyprus, was formed on 30 May 2006. Hereinafter, MHP SE and its subsidiaries are referred to as the "MHP SE Group" or the "Group". The registered address of MHP SE is 16-18 Zinas Kanther Street, Agia Triada, 3035 Limassol, Cyprus.

The controlling shareholder of MHP SE is Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP SE, which in turn directly owns of 59,7% of the total outstanding share capital of MHP SE.

The principal business activities of the Group are poultry and related operations, grain growing, as well as meat processing and other agricultural operations (meat processing and meat products ready for consumption). The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Meat processing and other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk and feed grains. During the year ended 31 December 2019 the Group employed 31,427 people (2018: 28,575 people).

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 31 December 2019 and 2018 were as follows:


Name	Country of registration	Year established/ acquired	Principal activities	31 December 2019	31 December 2018

Raftan Holding Limited	Cyprus	2006	Sub-holding Company	100.0%	99.9%
Larontas Limited	Cyprus	2015	Sub-holding Company	100.0%	100.0%
Hemiak Investments Limited	Cyprus	2018	Sub-holding Company	100.0%	100.0%
MHP Lux S.A.	Luxembourg	2018	Finance Company	100.0%	100.0%
Myronivsky Hliboprodukt	Ukraine	1998	Management, marketing and sales	99.9%	99.9%
Myronivsky Plant of Manufacturing Feeds and Groats	Ukraine	1998	Fodder and vegetable oil production	88.5%	88.5%
Vinnytska Ptakhofabryka	Ukraine	2011	Chicken farm	99.9%	99.9%
Peremoga Nova	Ukraine	1999	Breeder farm	99.9%	99.9%
Oril-Leader	Ukraine	2003	Chicken farm	99.9%	99.9%
Myronivska Pticefabrika	Ukraine	2004	Chicken farm	99.9%	99.9%
Starynska Ptakhofabryka	Ukraine	2003	Breeder farm	100.0%	100.0%
Ptakhofabryka Snyatynska Nova	Ukraine	2005	Geese breeder farm	99.9%	99.9%
Zernoprodukt MHP	Ukraine	2005	Grain cultivation	99.9%	99.9%
Katerinopilskiy Elevator	Ukraine	2005	Fodder production and grain storage, vegetable oil production	99.9%	99.9%
SPF Urozhay	Ukraine	2006	Grain cultivation	99.9%	99.9%
Agrofort	Ukraine	2006	Grain cultivation	99.9%	99.9%
Urozhayna Krayina	Ukraine	2010	Grain cultivation	99.9%	99.9%
Ukrainian Bacon	Ukraine	2008	Meat processing	79.9%	79.9%
AgroKryazh	Ukraine	2013	Grain cultivation	51.0%	51.0%
Agro-S	Ukraine	2013	Grain cultivation	51.0%	51.0%
Zakhid-Agro MHP	Ukraine	2015	Grain cultivation	100.0%	100.0%
Scylla Capital Limited	British Virgin Islands	2014	Trading in sunflower oil and poultry meat	100.0%	100.0%
Perutnina Ptuj	Slovenia	2019	Poultry production	100.0%	-
MHP Trading FZE	United Arab Emirates	2018	Trading in sunflower oil and poultry meat	100.0%	100.0%
MHP Food Trading	United Arab Emirates	2016	Trading in sunflower oil and poultry meat	100.0%	100.0%

The Group's primary operational facilities are located in different regions of Ukraine as well as in Southeast Europe, including Slovenia, Serbia, Croatia and Bosnia and Herzegovina.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

2. Changes in the group structure

Acquisitions

On 21 February 2019, the Group acquired 90.69% of the issued share capital and thereby obtained control of Perutnina Ptuj, a Slovenian based international meat-processing company, who is a producer of poultry meat and poultry meat products in Southeast Europe. Perutnina Ptuj together with its subsidiaries has production capacity of 55,000 tonnes per annum of poultry meat and more than 35,000 tonnes per annum of value-added meat products. Perutnina Ptuj was acquired in line with MHP's strategy and will provide a platform for further development and opportunities in the EU with further capacity expansion planned over the next 3 to 5 years.

The final fair values of identifiable assets acquired and liabilities assumed and any non-controlling interests are as set out in the table below.


		21 February 2019
Inventories		35,371
Biological assets		8,721
Trade accounts receivable, net		36,198
Cash and cash equivalents		20,986
Other current liabilities less other current assets		(8,103)
Property, plant and equipment		179,581
Right-of-use asset		14,564
Identifiable intangible assets		53,448
Trade accounts payable		(34,283)
Deferred tax liabilities net of deferred tax assets		(18,338)
Other non-current liabilities less other non-current assets		(6,073)
Bank borrowings and lease liabilities 1)		(74,960)
Contingent liabilities		(3,092)
Total identifiable assets		204,020
Goodwill		61,518
Non-controlling interest of in 7.61 % of Perutnina Ptuj 2)		(15,526)
Total consideration due and payable		250,012
Net cash outflow arising on acquisition:
Cash consideration paid		250,012
Less: amount paid in 2018		(23,302)
Less: cash and cash equivalent balances acquired		(20,986)
		205,724

1) includes USD 16,466 thousand of lease liabilities recognised in accordance with the adoption of IFRS 16 (Note 3).

2) At the date of acquisition, there were 200,488 treasury shares

The final fair value of the total identifiable assets acquired was increased by USD 10,087 thousand from previously reported provisional amounts mainly as a result of finalizing the necessary valuations of intangible assets (Note 14).

The consideration was paid as follows: USD 23,302 thousand in 2018 as a prepayment and USD 226,710 thousand in 2019. Acquisition-related costs amounted to USD 2,689 thousand.

The fair value of the trade receivables is USD 36,198 thousand and a gross contractual value of USD 38,474 thousand. The best estimate at acquisition date of the contractual cash flows not to be collected are USD 2,276 thousand.

The goodwill of USD 61,518 thousand arising from the acquisition attributed to the expected synergies and other benefits from combining the assets and activities of Perutnina Ptuj with those of the Group:

· the acquisition was in line with the Group's strategy to extend a presence in EU markets. Perutnina Ptuj has production assets in four Balkan countries: Slovenia, Croatia, Serbia, Bosnia and Herzegovina; owns distribution companies in Austria, North Macedonia and Romania and supplies products to 15 countries in Europe. Perutnina has strong brands and customer base;

· Perutnina Ptuj has the ability to increase production of poultry products using existing production capacities. As a leading cost-efficient poultry producer, the Group has solid expertise in cost optimization and the management expects to improve the profitability of Perutnina Ptuj;

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

2. Changes in group structure (continued)

· Perutnina Ptuj will provide the Group a platform for further production capacity expansion in Europe.

None of the goodwill is expected to be deductible for income tax purposes.

The non-controlling interest (7.61% ownership interest Perutnina Ptuj) recognised at the acquisition date was measured as a proportionate share of the acquired entity's net identifiable assets and amounted to

USD 15,526 thousand.

Perutnina Ptuj contributed USD 271,297 thousand revenue and USD 20,914 thousand to the Group's profit for the period between the date of acquisition and the reporting date.

If the acquisition of Perutnina Ptuj had been completed on the first day of the financial year, the Group revenues for the year ended 31 December 2019 would have been USD 2,103,867 thousand and the Group profit would have been USD 216,682 thousand.

Changes in non-controlling interests in subsidiaries

Since acquisition date and up to 31 of December 2019, the Group has increased its effective ownership interest in Perutnina Ptuj to 100% through the purchase of a non-controlling interest for the amount USD 20,341 thousand. The difference between the carrying value of the net assets acquired and the consideration paid was recognised as an adjustment to retained earnings in the amount of USD 5,119 thousand.

Plan to dispose of the Snyatynska poultry farm

The Board of Directors has authorized the management of the Group to cease production of goose meat and foie gras. At the end of July 2019, by virtue of a Board resolution, management of the Group committed to a plan to dispose of the Snyatynska poultry farm, a wholly owned subsidiary that is located in Ukraine, and was previously presented within Meat processing and other agricultural operations segment. The management believes that the production of foie gras is not consistent with the Group's strategy and policy of being a global leader in Environmental Sustainability and Animal Welfare.

At 31 December 2019, the management of the Group was in negotiation with potential buyers for its Snyatynska poultry farm and expected to complete the sale within 6 months.

No impairment loss was recognised on classification of disposal group as held for sale as the management of the Group expects that the fair value less costs to sell either equals or is higher than the carrying amount.

Analysis of profit for the year from discontinued operations

The combined results of the discontinued operations are set out below. The comparative losses and cash flows from discontinued operations have been represented to include those operations classified as discontinued in the current year.

Results from discontinued operations for year ended 31 December


	2019	2018
Revenue	2,310	3,771
Expenses	(8,132)	(5,045)
Loss before tax	(5,822)	(1,274)
Income tax expense	-	-
	(5,822)	(1,274)

Cash flows from discontinued operations for year ended 31 December


	2019	2018
Net cash (outflows)/inflows from operating activities	(3,269)	853
Net cash outflows from investing activities	(93)	(357)
Net cash inflows/(outflows) from financing activities	3,357	(501)
Net decrease in cash and cash equivalents	(5)	(5)

Earnings per share from discontinued operations


		2019		2018
Basic and diluted loss per share (USD per share)		(0.06)		(0.01)

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

2. Changes in group structure (continued)

The major classes of assets and liabilities of the Snyatynska poultry farm at the end of the reporting period are as follows:


	31 December 2019
Property, plant and equipment, net	3,599
Agricultural produce	149
Inventories	128
Cash and cash equivalents	1
Total assets classified as held for sale	3,877
Other current liabilities	(45)
Total liabilities associated with assets classified as held for sale	(45)
Intragroup accounts receivable and payable eliminated on consolidation, net 1)	1,048
Net assets of disposal group	4,880
1) intragroup balances that are eliminated in the Group's consolidated financial statements have been included herein to illustrate the balances that will be transferred with the disposal group and convert to third party balances

The Snyatynska poultry farm has been classified and accounted for at 31 December 2019 as a disposal group held for sale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of profit or loss. All other notes to the financial statements include amounts for continuing operations, unless otherwise mentioned.

3. Summary of significant accounting policies

Basis of presentation and accounting

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the requirements of the Cyprus Companies Law Cap 113. The operating subsidiaries of the Group maintain their accounting records under local accounting standards.

Local principles and procedures may differ from those generally accepted under IFRS. Accordingly, the consolidated financial statements, which have been prepared from the Group entities' local accounting records, reflect adjustments necessary in order for the financial statements to be presented in accordance with IFRS.

Basis of preparation

These consolidated financial statements have been prepared on the assumption that the Group is a going concern and will continue in operation for the foreseeable future.

The consolidated financial statements of the Group are prepared on the basis of historical cost except for revalued amounts of buildings and structures, grain storage facilities, production machinery, vehicles and agricultural machinery, biological assets, agricultural produce and certain financial instruments, which are carried at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Correction of prior period disclosure errors

Subsequent to the issuance of the consolidated financial statements as of and for the year ended 31 December 2018, the management of the Group identified errors in the disclosure of the operating land lease commitments due to the fact that not all constructive obligations were captured in the calculation and thus included with a disclosure restatement to correct this disclosure error in these financial statements.

The effect of restatement of the disclosure provided in the consolidated financial statements as of and for the year ended 31 December 2018 is summarized below.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Contractual and constructive obligations in respect of agricultural land operating leases as of

31 December 2018:


	As previously reported	Effect of restatement	As restated

Within one year	31,330	17,837	49,167
In the second to the fifth year inclusive	104,346	57,994	162,340
After fifth year	112,078	39,278	151,356
Total commitments on land operating leases	247,754	115,109	362,863

In addition, the Company disclosed in the consolidated financial statements as of and for the year ended 31 December 2018 that the analysis conducted by the Group in relation to the initial application of IFRS 16 indicated a probable recognition of right of use of asset and lease liability in the amount not higher than USD 103,933 thousand. The preliminary assessment was underestimated due to the fact that not all constructive obligations were captured in the calculation.

The corrected amounts for the right of use assets and lease liabilities are disclosed in "IFRS 16 leases" section of Note 3 below and amounted to USD 185,442 thousand and USD 177,093 thousand, respectively.

The restatements had no impact on the consolidated statement of financial position as of 31 December 2018, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and basic and diluted earnings per share for the years then ended.

Adoption of new and revised International Financial Reporting Standards

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make adjustments as a result of adopting IFRS 16 Leases.

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 and adjustments 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 below.

The Group applied the practical expedient to retain the classification of existing contracts as leases under the previous International Accounting Standard 17 "Leases" ("IAS 17") instead of reassessing whether existing contracts contain a lease at the date of initial application.

Several other amendments and interpretations apply for the first time in 2019, but did not result in any changes to the Group's accounting policies and the amounts reported in the consolidated financial statements of the Group.

IFRS 16 Leases

IFRS 16 changes how the Group accounts for leases previously classified as operating lease under IAS 17, which were off-balance-sheet.

The Group's leases mainly represent rent of land from individuals (Ukrainian citizens) for agricultural purposes.

Impact on transition

The Group has elected to apply the following other transitional reliefs permitted by the Standard:

· The application of a single discount rate for portfolio of leases with reasonably similar characteristic;

· The exclusion of initial direct costs of obtaining a lease from the measurement of right-of-use assets at the date of initial application.

· Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Adoption of new and revised International Financial Reporting Standards (continued)

IFRS 16 Leases (continued)

The table below shows the amount of adjustment for each financial statement line item affected by the application of IFRS 16:


Impact on assets, liabilities and equity as at 1 January 2019	Opening balance as at 1 January 2019	IFRS 16 adjustments	As presented
Property, plant and equipment	1,498,530	(21,449)	1,477,081
Right-of-use assets, net	-	185,442	185,442
Other non-current assets1)	54,110	(6,092)	48,018
Other current assets1)	32,858	(69)	32,789
Net impact on total assets	1,585,498	157,832	1,743,330
Lease liabilities	9,087	114,042	123,129
Current portion of lease liabilities	4,355	49,609	53,964
Other current liabilities2)	96,383	(5,819)	90,564
Net impact on total labilities	109,825	157,832	267,657
Retained earnings	1,040,327	-	1,040,327

1) consists of prepayments for land lease

2) accrued payable for land lease

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17. These liabilities were measured at the present value of future lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. Future lease payments consist of:

· fixed payments (including in-substance fixed payments);

· variable lease payment that are based on a market index or a rate, initially measured using the index or rate as at the commencement date. Regardless of the lease payments stated in the lease contracts, customary business practices complement the contractual terms in a way that at each particular date the rate is a market rate. Since the entire market operates on the basis of expectations of a periodic revision of rates (based on current market rates), management has concluded that the rates are determined by the market mechanism. In substance, non-contractual changes in lease payments are driven by competitive forces and changes in payments are based on average changes of lease payments in the region.

The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 20%. Incremental borrowing rate was determined as the rate of interest that the Group would have to pay to borrow over a similar term the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The majority of the Group's leases are denominated in UAH.

The average maturity of lease agreements is 7 years.

The reconciliation between the operating lease commitments as of 31 December 2018 and the opening balance for the lease liabilities as of 1 January 2019 is as follows:


		Thousand US dollars
Land lease commitments as of 31 December 2018 (as restated)		362,863
Discounted lease commitments as of 1 January 2019		157,832
Add: accrued payable for land lease as of 31 December 2018		5,819
Add: lease liabilities as of 31 December 2018 (Note 28)		13,442
Lease liabilities as of 1 January 2019		177,093

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Adoption of new and revised International Financial Reporting Standards (continued)

IFRS 16 Leases (continued)

The recognised right-of-use assets relate to the following types of assets:


	31 December 2019	1 January 2019

Land	198,711	163,993
Property, plant and equipment	30,533	21,449
Total right-of-use assets	229,244	185,442

Property, plant and equipment held under lease arrangements previously presented within property, plant and equipment is now presented within the line item right-of-use assets. There has been no change in the amount recognised.

Adoption of IFRS 16 has no impact on the Group's land lease rights acquired in a business combination and capitalized costs for renewal of contracts recognised before 1 January 2019.

Standards and Interpretations in issue but not effective

At the date of authorization of these consolidated financial statements, the following Standards and Interpretations, as well as amendments to the Standards were in issue but not yet effective:


Standards and Interpretations		Effective for annual period beginning on or after
Amendments to IFRS 10 and IAS 28 - Sale or contribution of assets between an investor and its associate or joint venture1)		Not determined
Amendments to IAS 1- Classification of liabilities as current or non-current		1 January 2022
IFRS 17 Insurance Contracts2)		1 January 2021
Amendments to IAS 1 and IAS 8: Definition of Material2)		1 January 2020
Amendments to IFRS 3 Business Combinations		1 January 2020
Amendments to IFRS 9, IAS 39 and IFRS17: Interest Rate Benchmark Reform2)		1 January 2020
Amendments to References to the Conceptual Framework in IFRS Standards2)		1 January 2020
1) Early application is allowed.
2) Standards have been already endorsed for use in the European Union

For these Standards and Interpretations, management anticipates that their adoption will not have a material effect on the consolidated financial statements of the Group in future periods.

Functional and presentation currency

The functional currency of Ukrainian companies of the Group is the Ukrainian Hryvnia ("UAH"); the functional currency of the Cyprus companies and Luxembourg company of the Group is US Dollars ("USD"), the functional currency of the Slovenian companies of the Group is EURO ("EUR"). Transactions in currencies other than the functional currency of the entities concerned are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the reporting date. All realized and unrealized gains and losses arising on exchange differences are recognised in the consolidated statement of profit or loss and other comprehensive income for the period.

These consolidated financial statements are presented in US Dollars ("USD"), which is the Group's presentation currency.

The results and financial position of the Group are translated into the presentation currency using the following procedures:

· Assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as of the reporting date of that statement of financial position;

· Income and expenses for each consolidated statement of profit or loss are translated at exchange rates at the dates of the transactions;

· All resulting exchange differences are recognised as a separate component of equity;

· All equity items, except for the revaluation reserve, are translated at the historical exchange rate. The revaluation reserve is translated at the closing rate as of the date of the statement of financial position.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Functional and presentation currency (continued)

For practical reasons, the Group translates items of income and expenses for each period presented in the financial statements using the quarterly average exchange rates, if such translations reasonably approximate the results translated at exchange rates prevailing at the dates of the transactions.

The relevant exchange rates were:


Currency	Closing rate as of 31 December 2019	Average for 2019	Closing rate as of 31 December 2018	Average for 2018
UAH/USD	23.6862	25.8373	27.6883	27.2016
UAH/EUR	26.4220	28.9406	31.7141	32.1341

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the MHP SE and its subsidiaries. Control is achieved when the Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee, if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year, are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

All significant intercompany transactions, balances and unrealized gains or losses on transactions are eliminated on consolidation, except when the intragroup losses indicate an impairment that requires recognition in the consolidated financial statements.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those adopted by the Group.

Accounting for acquisitions

The acquisitions of subsidiaries from third parties are accounted for using the acquisition method. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values.

The consideration transferred by the Group is measured at fair value, which is the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquired subsidiary and the equity interests issued by the Group in exchange for control of the subsidiary. Acquisition-related costs are generally recognised in the consolidated statement of profit or loss as incurred.

When the consideration transferred by the Group in a business combination includes assets and liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and is included as part of the consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which may not exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Accounting for acquisitions (continued)

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiary's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the subsidiary's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests, if any, are measured at fair value or, when applicable, on the basis specified in other IFRS standards.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired subsidiary, and the fair value of the Group's previously held equity interest in the acquired subsidiary (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of non-controlling interests in the subsidiary and the fair value of the Group's previously-held interest in the subsidiary (if any), the excess is recognised in the consolidated statement of profit or loss, as a bargain purchase gain.

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Parent.

When an acquisition of a legal entity does not constitute a business, the cost of the group of assets is allocated between the individual identifiable assets in the group based on their relative fair values.

Accounting for transactions with entities under common control

The assets and liabilities of subsidiaries acquired from entities under common control are recorded in these consolidated financial statements at pre-acquisition carrying values. Any difference between the carrying value of net assets of these subsidiaries, and the consideration paid by the Group is accounted for in these consolidated financial statements as an adjustment to shareholders' equity. The results of the acquired entity are reflected from the date of acquisition.

Any gain or loss on disposals to entities under common control are recognised directly in equity and attributed to owners of the Parent.

Fair value measurement

Fair value is the 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Fair value measurement (continued)

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Borrowing costs

Borrowing costs include interest expense, finance charges on leases and other interest-bearing long-term payables and debt service costs.

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.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognised in the statement of profit or loss and other comprehensive income in the period in which they are incurred.

Contingent liabilities and assets

Contingent liabilities are not recognised in the consolidated financial statements. Rather, they are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are recognised only when the contingency is resolved.

Segment information

Segment reporting is presented on the basis of management's perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal reports provided to the Group's chief operating decision maker ("CODM"). The Group has identified its top management team as its CODM and the internal reports used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented. These internal reports are prepared on the same basis as these consolidated financial statements.

Based on the current management structure, the Group has identified the following reportable segments:

• Poultry and related operations;

• Grain growing operations;

• Meat processing and other agricultural operations;

• Europe operating segment.

Reportable segments represent the Group's principal business activities. Poultry and related operations segment include sales of chicken meat, sales of by-products such as vegetable oil and related products and other poultry-related products. CODM is considering oil extraction as a part of mixed fodder production rather than a separate line of business as primarily the quality and effectiveness of mixed fodder production prevails over oil output. Grain growing operations include sale of grain other than feed grains and green-fodder. The meat processing and other agricultural operations segment primarily includes sales of other than poultry meat and processed meat products, feed grains and milk. The Europe operating segment comprises the operations of Perutnina Ptuj and include sales of meat processing and chicken meat products in Southeast Europe.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.

Non-current assets held for sale

Non-current assets and disposal groups are classiﬁed as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classiﬁcation.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classiﬁed as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classiﬁed as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Revenue recognition

The Group generates revenue primarily from the sale of agricultural products to the end customers. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

Non-monetary exchanges or swaps of goods which are of similar nature and value are not treated as transactions which generate revenue.

The Group recognises revenue from the following major sources:

• chicken meat

• vegetable oil and related products

• other poultry related sales (delivery services, sunflower and soybean meals, sunflower husk and other)

• grain

• meat processing products and other meat

• other agricultural operations (milk, feed grains and other)

Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer. The Group recognises revenue at a point in time when it transfers control of a product or service to a customer.

The major part of the Group's sales are generated from the wholesale market. Revenue is recognised when control of the goods has transferred, being when the goods have been shipped to the wholesaler's specific location or delivered to major Ukrainian sea ports. Following delivery, the wholesaler has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility when on-selling the goods, and bears the risks of obsolescence and loss in relation to the goods. A receivable is recognised by the Group when the goods are delivered to the wholesaler as this represents the point in time at which the right to consideration becomes unconditional. Under the Group's standard contract terms, customers have no right of return.

The Group sells its products for export on various terms, some of which include shipping and handling costs in the price of the product. Sales price of products for local market predominantly includes shipping and handling costs in the price of the product. Such services are recognised as a separate performance obligation. The transaction price for shipping and handling services is determined based on the costs of such services. The Group satisfies its performance obligation associated with transferring the promised goods or services to a customer when the customer obtains control of those assets.

Government grants

Government grants are recognised as income over the periods necessary to match them with the related costs, or as an offset against finance costs when received as compensation for the finance costs for agricultural producers. To the extent the conditions attached to the grants are not met at the reporting date, the received funds are recorded in the Group's consolidated financial statements as deferred income, which is recognised in profit or loss on a systematic basis over the useful life of the related assets.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Government grants (continued)

Other government grants are recognised at the moment when the decision to disburse the amounts to the Group is made.

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Property, plant and equipment

All groups of property, plant and equipment are carried at revalued amounts, being their fair value at the date of the revaluation less any subsequent depreciation and impairment losses, except for land and other fixed assets that are carried at historical cost less accumulated depreciation.

The historical cost of an item of property, plant and equipment comprises (a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the item to the location and condition necessary for it to be capable of operating in the manner intended by the management of the Group; (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, (d) the obligation for which the Group incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period; and (e) for qualifying assets, borrowing costs capitalized in accordance with the Group's accounting policy.

Subsequently capitalized costs include major expenditures for improvements and replacements that extend the useful lives of the assets or increase their revenue generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are charged to the consolidated statement of profit or loss as incurred.

For all groups of property, plant and equipment carried at revaluation the model revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the reporting date. If the asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to equity as a revaluation reserve. However, such increase is recognised in the consolidated statement of profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in the consolidated statement of profit or loss. If the asset's carrying amount is decreased as a result of a revaluation, the decrease is recognised in the consolidated statement of profit or loss.

However, such decrease is debited directly to the revaluation reserve to the extent of any credit balance existing in the revaluation reserve in respect of that asset.

Depreciation on revalued assets is charged to the consolidated statement of profit or loss. The excess of depreciation charge on the revalued asset over the depreciation that would have been charged based on the historical cost of the asset is transferred from revaluation reserve directly to retained earnings over the assets useful life. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Property, plant and equipment (continued)

Depreciation of property, plant and equipment is charged so as to write off the depreciable amount over the useful life of an asset and is calculated using a straight line method. Useful lives of the groups of property, plant and equipment are as follows:


• Buildings and structures	15 - 55 years
• Grain storage facilities	20 - 60 years
• Production machinery	10 - 25 years
• Auxiliary and other machinery	5 - 25 years
• Utilities and infrastructure	20 - 50 years
• Vehicles and agricultural machinery	5 - 15 years
• Other fixed assets	3 - 10 years

Depreciable amount is the cost of an item of property, plant and equipment, or revalued amount, less its residual value. The residual value is the estimated amount that the Group would currently obtain from disposal of the item of property, plant and equipment, after deducting the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

The residual value, the useful lives and depreciation method are reviewed at each financial year-end. The effect of any changes from previous estimates is accounted for prospectively as a change in an accounting estimate.

The gain or loss arising on sale or disposal of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated statement of profit or loss.

Construction in progress comprises costs directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads that are incurred in construction. Construction in progress is not depreciated. Depreciation of construction in progress commences when the assets are available for use, i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by the management.

Intangible assets

Intangible assets consist primarily of land lease rights, trademarks and customer relationship which are acquired in a business combination.

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset. The cost of such intangible assets is their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses.

Intangible assets assessed as having an indefinite useful life are not amortised and are examined for impairment annually or more frequently where there is an indication of impairment. Where the carrying amount of an asset is greater than the amount that it is estimated to be recoverable, it is written down to its recoverable amount.

Amortization of intangible assets is recognised on a straight line basis over their estimated useful lives. The period of estimated useful life of intangibles is as follows:


• Land lease rights	3 - 15 years
• Customer relationship	20 years
• Trademarks	not amortised
• Other intangible assets	3 - 10 years

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Intangible assets (continued)

The amortization period and the amortization method for intangible assets with finite useful lives are reviewed at least at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Right-of-use assets

Right-of-use assets mainly represents rent of land from individuals (Ukrainian citizens) for agricultural purposes. The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position. Right-of-use assets are depreciated over the period of lease term. The depreciation starts at the commencement date of the lease. The Group recognises depreciation of right-of-use assets based on the lease term, presented within cost of goods sold in the consolidated statement of profit or loss.

Impairment of tangible and intangible assets other than goodwill

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated statement of profit or loss unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Impairment of goodwill

For the purposes of impairment testing, goodwill is allocated to each of the Group's cash generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated statement of profit or loss. An impairment loss recognised on goodwill is not reversed in subsequent periods.

Income taxes

Income taxes have been computed in accordance with the laws currently enacted or substantially enacted in jurisdictions where operating entities are located. Income tax is calculated based on the results for the year

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Income taxes (continued)

as adjusted for items that are non-assessable or non-tax deductible. It is calculated using tax rates that have been enacted by the reporting date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is charged or credited to the consolidated statement of profit or loss, except when it relates to items credited or charged directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income.

Deferred tax assets and liabilities are offset when:

• The Group has a legally enforceable right to set off the recognised amounts of current tax assets and current tax liabilities;

• The Group has an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;

• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future period in which significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.

The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. These companies are exempt from income taxes and pay the Fixed Agricultural Tax instead (Note 11).

Withholding tax

Passive income (dividends, interest, royalties, etc) from Ukrainian sources that is paid to non-resident entities is generally subject to withholding tax (WHT).

The WHT tax rate of 15% (base rate) should be applied unless more favorable rates (reduced rates) are provided by a relevant double taxation treaty (DTT) signed between Ukraine and foreign country. In order to benefit from reduced tax rate in DTT, the non-resident recipient of income must confirm its tax residency and should also be considered the beneficial owner of such income.

Tax residency status should be confirmed by tax residency certificate issued by tax authorities of the recipient's country of residence for tax year in which the income is paid.

According to the Tax Code of Ukraine, agents, nominee holders, and other intermediaries in respect of received income cannot be beneficial owners of income sourced in Ukraine and are not entitled to favorable treaty provisions. The Ukrainian tax authorities use both legal and economic substance approach for the beneficial owner definition considering also economic substance of the transaction and the substance of the recipient of income.

As result, in order to prove the beneficial ownership status of the non-resident recipient, there should be additional documental support to justify the substance of transactions.

No formal requirements exist to the above documents and, in practice, such documents may include evidence that the recipient of income has a real office, employees and that the recipient is fully entitled to manage and dispose the received income without limitations.

Passive income (dividends, interest, royalties, etc) from Slovenian sources that is paid to non-resident entities is subject to WHT at the rate of 5%.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Inventories

Inventories are stated at the lower of cost and net realizable value. Costs comprise raw materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present locations and condition.

Cost is calculated using the FIFO (first-in, first-out) method. Net realizable value is determined as the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Agriculture related production process results in production of joint products: main and by-products. A by-product arising from the process is measured at net realizable value and this value is deducted from the cost of the main product.

Biological assets and agricultural produce

Agricultural activity is defined as a biological transformation of biological assets for sale into agricultural produce or into additional biological assets. The Group classifies hatchery eggs, live poultry and other animals and plantations as biological assets.

The Group recognizes a biological asset or agricultural produce when the Group controls the asset as a result of past events, it is probable that future economic benefits associated with the asset will flow to the Group, and the fair value or cost of the asset can be measured reliably.

Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any resulting gain or loss recognised in the consolidated statement of profit or loss. Costs to sell include all costs that would be necessary to sell the assets, including costs necessary to get the assets to market.

The difference between fair value less costs to sell and total production costs is allocated to biological assets held in stock as of each reporting date as a fair value adjustment.

The change in this adjustment from one period to another is recognised as "Net change in fair value of biological assets and agricultural produce" in the consolidated statement of profit or loss.

Agricultural produce harvested from biological assets is measured at its fair value less costs to sell at the point of harvest. A gain or loss arising on initial recognition of agricultural produce at fair value less costs to sell is included in the consolidated statement of profit or loss.

Based on the above policy, the principal groups of biological assets and agricultural produce are stated as follows:

Biological Assets

(i) Broiler chickens

Broilers comprise poultry held for chicken meat production. The fair value of broilers is determined by reference to the cash flows that will be obtained from the sales of 42-day aged chickens, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.

(ii) Breeders

The fair value of breeders is determined using the discounted cash flow approach based on hatchery eggs' market prices.

(iii) Cattle and pigs

Cattle and pigs comprise cattle held for regeneration of livestock population and animals raised for milk and beef and pork meat production. The fair value of livestock is determined based on market prices of livestock of similar age, breed and genetic merit. Cattle, for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable, are measured using the present value of expected net cash flows from the asset discounted at a current market-determined pre-tax rate.

(iv) Crops in fields

The fair value of crops in fields is determined by reference to the cash flows that will be obtained from sales of harvested crops, with an allowance for costs to be incurred and risks to be faced during the remaining transformation process.

(v) Hatchery eggs

The fair value of hatchery eggs is determined by reference to market prices at the point of harvest.

Agricultural Produce

(i) Dressed poultry, beef and pork

The fair value of dressed poultry, beef and pork is determined by reference to market prices at the point of harvest.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Biological assets and agricultural produce (continued)

(ii) Grain

The fair value of fodder grain is determined by reference to market prices at the point of harvest.

The Group's biological assets are classified into bearer and consumable biological assets depending upon the function of a particular group of biological assets in the Group's production process. Consumable biological assets are those that are to be harvested as agricultural produce, and include hatchery eggs and live broiler chickens intended for the production of meat, as well as pork and meat cows. Bearer biological assets include poultry held for hatchery eggs production, milk cows and breeding bulls.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities of the Group are represented by cash and cash equivalents, trade accounts receivable, net, bank borrowings, bonds issued, trade accounts payable and other financial liabilities. The accounting policies for initial recognition and subsequent measurement of financial instruments are disclosed in the respective accounting policies set out below in this Note.

Financial assets and financial liabilities are initially recognised at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

Classification of financial assets

Debt instruments that meet the following conditions are measured subsequently at amortised cost (this category is the most relevant to the Group):

- the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following conditions are measured subsequently at FVTOCI:

- the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

By default, all other financial assets are measured subsequently at FVTPL.

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Impairment of financial assets

The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive,

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Financial assets (continued)

discounted at the original effective interest rate. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

For trade accounts receivable and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12‑month ECL.

Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12‑month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward‑looking information that is available without undue cost or effort. Forward‑looking information considered includes the future prospects of the industries in which the Group's debtors operate, obtained from economic expert's reports, financial analysts, governmental bodies, as well as consideration of various external sources of actual and forecast economic information that relate to the Group's core operations.

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

Low credit risk financial instruments

Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if:

(1) The financial instrument has a low risk of default,

(2) The debtor has a strong capacity to meet its contractual cash flow obligations in the near term, and

(3) Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

Default definition

The Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Credit impaired financial assets

A financial asset is credit‑impaired when one or more events that have a detrimental impact on the estimated

future cash flows of that financial asset have occurred. Evidence that a financial asset is credit‑impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;

(b) a breach of contract, such as a default or past due event;

(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

(d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

(e) the disappearance of an active market for that financial asset because of financial difficulties.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Financial assets (continued)

Write-off policy

The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade accounts receivable, when the amounts are over three years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

Inputs, assumptions and estimation techniques used by measurement and recognition of expected credit losses are disclosed in respective Notes 14 and 19 to financial assets.

Financial liabilities

Initial recognition and measurement

The Group's financial liabilities include trade and other payables, loans and borrowings, leases and derivative financial instruments.

All financial liabilities are recognised initially at fair value and are measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

When the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between: (1) the carrying amount of the liability before the modification; and (2) the present value of the cash flows after modification should be recognised in profit or loss as the modification gain or loss.

Trade accounts receivable, net

Trade accounts receivable, net are measured at initial recognition at transaction price, and are subsequently measured at amortised cost using the effective interest rate method. Trade accounts receivable, net which are non-interest bearing, are stated at their nominal value.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, cash with banks, deposits and marketable securities with an maturity of less than three months from the date of acquisition.

Bank borrowings, corporate bonds issued and other long-term payables

Interest-bearing bank borrowings, bonds issued and other long-term payables are initially measured at fair value net of directly attributable transaction costs, and are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption amount is recognised over the term of the borrowings and recorded as finance costs.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

3. Summary of significant accounting policies (continued)

Derivative financial instruments

The Group enters into derivative financial instruments to purchase sunflower seeds and sales of grains. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately.

Trade and other accounts payable

Accounts payable are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

Lease liabilities

The Group assesses whether a contract is or contains a lease, at inception of the contract.

The Group recognises lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments. The Group does not apply the short term and low-value lease exemptions.

The Group measures the lease liability at the present value of the lease payments that are not paid at the commencement date, discounted by using the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The incremental borrowing rate is defined as the rate of interest that the lessee would have to pay to borrow over a similar term, and with a similar security the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment.

The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group recognises interest on lease liabilities based on incremental borrowing rate, presented within interest expenses in the consolidated statement of profit or loss.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

· The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

· The lease payments change due to changes in an index or rate or market rate, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

In the statement of cash flows the Group separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities).

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation (either based on legal regulations or implied) as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the obligation can be made.

4. Critical accounting judgments and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in Note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

4. Critical accounting judgements and key sources of estimation uncertainty (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects both current and future periods.

Critical judgements in applying accounting policies

The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Determination of variable lease payments

As described in Note 3, the Group measures lease liabilities at the present value of future lease payments, discounted using the lessee's incremental borrowing rate. Future lease payments consist of both fixed payments (including in-substance fixed payments) and variable lease payments. Management of the Group make significant judgement in determination of variable lease payments. Regardless of the lease payments stated in the lease contracts, customary business practices complement the contractual terms in a way that at each particular date the rate is a market rate. Since the entire market operates on the basis of expectations of a periodic revision of rates (based on current market rates), management has concluded that the rates are determined by the market mechanism. In substance non-contractual changes in lease payments are driven by the competitive forces and payments change is based on the average changes of lease payments in the region.

Revaluation of property, plant and equipment

As described in Note 3, the Group applies the revaluation model to the measurement of all groups of property, plant and equipment, except land and other fixed assets. At each reporting date, the Group carries out a review of the carrying amount of items of property, plant and equipment accounted for using a revaluation model to determine whether the carrying amount differs materially from fair value.

When determining whether to perform a fair value assessment in a given period, the management of the Group considers development of macroeconomic indicators like changes in prices, inflation rates and devaluation of Ukrainian Hryvnia ("UAH") against USD and EUR. Based on the results of this review, the management of the Group concluded that buildings and structures, grain storage facilities, utilities and infrastructure, vehicles and agricultural machinery, auxiliary and other machinery should be revalued as of 30 September 2019.

Loans to related parties

As described in Note 30, as of 31 December 2019, the Group had advanced loans to its majority shareholder, WTI Trading Limited ("WTI"), in the aggregate amount of USD 20,400 thousand pursuant to a USD 50,000 thousand facility approved by the Board of Directors. The facility was further increased by the Board to USD 80,000 thousand on 21 January 2020. The loans were granted on arm's length basis.

The Board has exercised significant judgement in assessing whether the granted loans were made on terms equivalent with those prevailing in arm's length conditions and entitle market interest rate. In addition management has exercised judgement in assessing whether the granting of loans affect the compliance of the Group with the various provisions stipulated by the indentures of Senior Notes, including assessment of compliance with criteria related to restricted payments and exemptions, assessment of compliance with limitations on transactions with affiliates, as well as compliance with loans granted with definition of permitted investments.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Key sources of estimation uncertainty (continued)

Impairment of goodwill and intangibles not amortised

As disclosed in Notes 14 and 15, the Group determines at least on an annual basis whether indefinite life intangible assets and goodwill are impaired. This requires an estimate of an asset's recoverable amount which is the higher of an asset's or cash generating unit's (CGU's) fair value less costs of disposal and its value in use and it is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows from the cash generating unit and also to choose a suitable discount rate and growth rates in order to calculate the present value of those cash flows.

Fair value measurement on business combinations and identification of cash generating units

As disclosed in Note 2, the Group acquired Perutnina Ptuj during 2019 and based on IFRS 3 recognised the underlying assets and liabilities and consideration given at fair value. The fair value has been determined by adopting a variety of techniques that are appropriate for the respective assets and liabilities and are normally assessed by market valuation practitioners. The fair value estimates and techniques used as well as the identification of cash generating units, requires significant judgement to be exercised by management.

Revaluation of property, plant and equipment

During the year ended 31 December 2019, the management of the Group appointed an independent appraiser to perform a revaluation of buildings and structures, grain storage facilities, utilities and infrastructure, vehicles and agricultural machinery, auxiliary and other machinery as of 30 September 2019.

The independent appraiser has performed the valuation in accordance with International Valuation Standards applying the following techniques:

· depreciated replacement cost for grain storage facilities, utilities and infrastructure;

· market comparable approach for vehicles and agricultural machinery; and

· depreciated replacement cost and market comparable approach, if applicable, for buildings and structures, auxiliary and other machinery.

Key assumptions used by the independent appraiser in assessing the fair value of property, plant and equipment using the depreciated replacement cost and market comparable methods were as follows:

· changes in market prices of assets and construction materials from the date of their acquisition/construction/date of previous valuation to the date of this valuation;

· external market prices for vehicles;

· normative and remaining useful lives; and

· rates of physical depreciation.

The results of revaluation based on the depreciated replacement cost and market comparable approaches were compared with a revaluation performed using the income approach to check for impairment indicators of revalued assets, if any. For all CGUs in Ukraine the Group used discount factor 12.0% and terminal growth rate 4.7% for projected cash flows beyond five-year projected period for revaluation performed using the income approach. For CGUs in Poultry and related operations segment, Grain growing operations segment and Meat processing and other agricultural operations segment the revenue growth rates within five-year period are 7.0%, 5.1% and 7.0%, respectively. Assumptions used in the impairment testing of the assets related to Perutnina Group are disclosed in Note 15.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

4. Critical accounting judgements and key sources of estimation uncertainty (continued)

The following unobservable inputs were used to measure Buildings and structures, Utilities and infrastructure, Grain storage facilities, Vehicles and agricultural machinery, Auxiliary and other machinery and Production machinery:


Description	Fair value as at 31 December 2019	Fair value as at 31 December 2018	Valuation technique(s)	Unobservable inputs	Range of unobservable inputs 2019 (average)	Range of unobservable inputs 2018 (average)	Relationship of unobservable inputs to fair value

Buildings and structures	1,029,998	N/A1)	Depreciated replacement cost method	Index of physical depreciation	0 - 70% (28.42%)	N/A1)	The higher the index of physical depreciation, the lower the fair value
				Cumulative index of inflation of construction works	1.00 - 11.23 (1.09)	N/A1)	The higher the index, the higher the fair value
Utilities and infrastructure	152,629	N/A1)	Depreciated replacement cost method	Index of physical depreciation	0 - 70% (30.47%)	N/A1)	The higher the index of physical depreciation, the lower the fair value
				Cumulative index of inflation of construction works	1.00 - 11.23 (1.08)	N/A1)	The higher the index, the higher the fair value
Grain storage facilities	105,569	N/A1)	Depreciated replacement cost method	Index of physical depreciation	0 - 70% (44.67%)	N/A1)	The higher the index of physical depreciation, the lower the fair value
				Cumulative index of inflation of construction works	1.00 - 9.57 (1.07)	N/A1)	The higher the index, the higher the fair value
Vehicles and agricultural machinery	183,258	N/A1)	Market comparable approach	Index of physical depreciation	0 - 90% (17.17%)	N/A1)	The higher the index of physical depreciation, the lower the fair value
Auxiliary and other machinery	61,717	N/A1)	Market comparable approach	Index of physical depreciation	0 - 90% (35.49%)	N/A1)	The higher the index of physical depreciation, the lower the fair value

1) Due to the absence of revaluation during the year ended 31 December 2018

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Revaluation of property, plant and equipment (continued)

If the above unobservable inputs to the valuation model were 5 percentage points higher/lower while all other variables were held constant, the carrying amount of the property, plant and equipment under revaluation would decrease/increase by USD 35,386 thousand and USD 33,466 thousand, respectively.

Determination of incremental borrowing rate

As described in Note 3, the Group uses incremental borrowing rate as discounting factor for the purpose of calculation of lease liability, if the rate implicit in the lease is not readily determinable. Incremental borrowing rate is determined as available rate for the Group adjusted for specifics of particular lease contracts.

The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 20%. If the above rate was 5 percentage points higher/lower, the carrying amount of lease liabilities recognized as of 1 January 2019 would decrease/increase by USD 21,399 thousand and USD 28,315 thousand, respectively.

Fair value less costs to sell of biological assets and agricultural produce

Biological assets are recorded at fair values less costs to sell. The Group estimates the fair values of biological assets based on the following key assumptions:

• Average meat output for broilers and livestock for meat production;

• Average productive life of breeders and cattle held for regeneration and milk production;

• Expected crops output;

• Estimated changes in future sales prices;

• Projected production costs and costs to sell; and

• Discount rate.

During the year ended 31 December 2019, the fair value of biological assets was estimated using discount factors of 12.0% and 12.0% for non-current and current assets, respectively (31 December 2018: 15.7% and 18.0%).

Although some of these assumptions are obtained from published market data, the majority of these assumptions are estimated based on the Group's historical and projected results (Note 17).

Useful lives of property, plant and equipment

The estimation of the useful life of an item of property, plant and equipment is a matter of management estimates based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates.

Deferred tax assets

Deferred tax assets, including those arising from unused tax losses are recognised to the extent that it is probable that they will be recovered, which is dependent on the generation of sufficient future taxable profit. Based on management's assessment, the Group determined it was appropriate to recognize deferred tax assets on unused tax losses, which will be utilized in future against existing deferred tax liabilities and available future tax profits.

The estimation uncertainty therefore pertains to the level of deferred tax assets to be recognised.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

5. Segment information

In 2019, following the acquisition of operations in Europe (Perutnina Ptuj), the Group's chief operating decision maker ("CODM") reviews the results and operations of the Europe operating segment separately from the other segments of the group. This is a new operating segment and therefore this change has not impacted the composition of the other operating segments. As this is a new segment for 2019, there is no need for prior year segment information to be presented.

The Group's business is managed on a worldwide basis, but operates manufacturing facilities and sales offices primarily in Ukraine and Europe.

Reportable segments are presented in a manner consistent with the internal reporting to the CODM.

Segment information is analysed on the basis of the types of goods supplied by the Group's operating divisions. The Group's reportable segments under IFRS 8 are as follows:


Poultry and related operations segment:	• sales of chicken meat • sales of vegetable oil and related products • other poultry related sales

Grain growing operations segment:	• sales of grain

Meat processing and other agricultural operations segment:	• sales of meat processing products and other meat • other agricultural operations (milk, feed grains and other)

Europe operating segment:	• sales of meat processing and chicken meat products in Southeast Europe

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 3. Sales between segments are carried out at market prices. The segment result represents operating profit under IFRS before unallocated corporate expenses and loss on impairment of property, plant and equipment. Unallocated corporate expenses include management remuneration, representative expenses, and expenses incurred in respect of the maintenance of office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.

Europe operating segment primarily includes sales of chicken meat and meat processing products, produced in the facilities of Perutnina Ptuj. However, the CODM manages this as a single segment, on the basis that each of research, development, manufacture, distribution and selling of chicken meat and meat processing products requires single marketing strategies, centralised budgeting process and centralised management of production operations.

The Group does not disclose geographical revenue information as it is not available and the cost to develop it would be excessive.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

Segment information (continued)

As of 31 December and for the year then ended the Group's segmental information from continuing operations was as follows:


Year ended 31 December 2019	Poultry and related operations	Grain growing operations	Meat processing and other agricultural operations	Europe operating segment	Total reportable segments	Eliminations	Consolidated

External sales	1,367,554	268,419	148,673	271,297	2,055,943	-	2,055,943
Sales between business segments	49,633	246,477	949	-	297,059	(297,059)	-
Total revenue	1,417,187	514,896	149,622	271,297	2,353,002	(297,059)	2,055,943
Segment result	182,778	28,972	12,820	25,196	249,766	-	249,766
Unallocated corporate expenses							(28,019)
Loss on impairment of property, plant and equipment 4)	(2,653)	(3,004)	(163)	-	(5,820)		(6,244)
Other income, net 1)							37,709
Profit before tax from continuing operations							253,212
Other information:
Additions to property, plant and equipment 2)	92,836	4,116	2,985	10,547	110,484	-	110,484
Depreciation and amortization expense 3)	98,526	80,115	7,544	18,523	204,708	-	204,708
Net change in fair value of biological assets and agricultural produce	8,732	(49,875)	1,577	51	(39,515)	-	(39,515)

1) Include finance income, finance costs, foreign exchange gain, net and other expenses, net.

2) Additions to property, plant and equipment in 2019 do not include unallocated additions in the amount of USD 9,744 thousand and additions due to acquisitions of subsidiaries in the amount of USD 179,581 thousand.

3) Depreciation and amortization for the year ended 31 December 2019 does not include unallocated depreciation and amortization in the amount of USD 983 thousand.

4)Loss on impairment of property, plant and equipment for the year ended 31 December 2019 includes unallocated loss in amount of USD 424 thousand.

As of 31 December and for the year then ended the Group's segmental information from continuing operations was as follows:


Year ended 31 December 2018	Poultry and related operations	Grain growing operations	Meat processing and other agricultural operations	Europe operating segment	Total reportable segments	Eliminations	Consolidated

External sales	1,241,181	180,976	130,049	-	1,552,206	-	1,552,206
Sales between business segments	50,181	244,151	324	-	294,656	(294,656)	-
Total revenue	1,291,362	425,127	130,373	-	1,846,862	(294,656)	1,552,206
Segment result	229,293	106,401	9,270	-	344,964	-	344,964
Unallocated corporate expenses							(28,771)
Loss on impairment of property, plant and equipment							(3,803)
Other expenses, net 1)							(132,485)
Profit before tax from continuing operations							179,905
Other information:
Additions to property, plant and equipment 2)	189,677	30,747	12,496	-	232,920	-	232,920
Depreciation and amortization expense 3)	82,093	44,503	6,668	-	133,264	-	133,264
Net change in fair value of biological assets and agricultural produce	(934)	33,028	-	-	32,094	-	32,094

1) Include finance income, finance costs, foreign exchange gain, net and other expenses, net.

2) Additions to property, plant and equipment in 2018 do not include unallocated additions in the amount of USD 5,948 thousand.

3) Depreciation and amortization for the year ended 31 December 2018 does not include unallocated depreciation and amortization in the amount of USD 802 thousand.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

5. Segment information (continued)

The Group's export sales to external customers by major product types were as follows during the years ended 31 December 2019 and 2018:


	2019	2018

Chicken meat and related products	588,903	471,177
Vegetable oil and related products	302,600	274,313
Grain	251,836	156,511
Other agricultural segment products	42,362	21,703
	1,185,701	923,704

Export sales includes revenue from shipping and handling services in the amount of USD 68,543 thousand as of 31 December 2019 (2018: USD 33,325 thousand).

Export sales of vegetable oil and related products and export sales of grains are primarily made to global trading companies. The major markets for the Group's export sales of chicken meat are MENA and EU countries.

Non-current assets based on the geographic location of the manufacturing facilities were as follows as of

31 December 2019 and 31 December 2018:


	2019	2018

Ukraine	2,251,447	1,613,243
Europe	234,209	-
	2,485,656	1,613,243

Non-current assets excluding deferred tax assets and non-current financial assets.

As of 31 December 2019 and for the year then ended, the Group's manufacturing facilities were located mainly within Ukraine. There is no single customer who contributed more than 10% amount to the Group's revenue in either 2019 or 2018.

6. Revenue

Revenue for the years ended 31 December 2019 and 2018 was as follows:


	2019	2018

Poultry and related operations segment

Chicken meat	977,576	870,851
Vegetable oil and related products	296,999	271,122
Shipping and handling services	56,199	43,586
Other poultry related sales	36,780	55,622
	1,367,554	1,241,181

Grain growing operations segment

Grain	235,095	168,118
Shipping and handling services	33,324	12,858
	268,419	180,976

Meat processing and other agricultural operations segment

Other meat	112,586	97,190
Shipping and handling services	5,583	5,313
Other agricultural sales	30,504	27,546
	148,673	130,049

Europe operating segment
Chicken meat	150,456	-
Other meat	91,679	-
Other agricultural sales	26,472	-
Shipping and handling services	2,690	-
	271,297	-
	2,055,943	1,552,206

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

7. Cost of sales

Cost of sales for the years ended 31 December 2019 and 2018 was as follows:


	2019	2018

Poultry and related operations	1,050,849	891,065
Grain growing operations	241,917	154,053
Meat processing and other agricultural operations segment	131,723	117,609
Europe operating segment	194,107	-
	1,618,596	1,162,727

For the years ended 31 December 2019 and 2018 cost of sales comprised the following:


	2019	2018

Costs of raw materials and other inventory used	1,041,184	751,747
Payroll and related expenses	236,788	161,708
Depreciation and amortization expense	186,777	124,106
Other costs	153,847	125,166
	1,618,596	1,162,727

Social security contributions, included in Payroll and related expenses above, amounted to USD 38,645 thousand for the year ended 31 December 2019 (2018: USD 25,519 thousand).

8. Selling, general and administrative expenses

Selling, general and administrative expenses for the years ended 31 December 2019 and 2018 were as follows:


	2019	2018

Payroll and related expenses	72,986	43,653
Services	45,868	21,957
Depreciation expense	18,914	9,960
Representative costs and business trips	14,392	9,830
Advertising expense	13,957	7,779
Fuel and other materials used	5,638	2,715
Insurance expense	1,381	492
Bank services and conversion fees	1,290	431
Other	4,730	2,760
	179,156	99,577

Payroll and related expenses includes social security contributions amounted to USD 7,773 thousand for the year ended 31 December 2019 (2018: USD 3,624 thousand).

Remuneration to the auditors, included in Services above, amounted to USD 1,831 thousand for the year ended 31 December 2019 (2018: USD 1,605 thousand). Such remuneration includes both audit and non-audit services, with the statutory audit fees component amounted to USD 990 thousand (2018: USD 430 thousand) for the year ended 31 December 2019 and fees for other assurance services component approximating USD 309 thousand (2018: USD 458 thousand), for tax advisory services component approximating USD 23 thousand (2018: USD 20 thousand) and for other non-audit services component approximating USD 509 thousand (2018: USD 697 thousand) for the year ended 31 December 2019.

9. Deferred revenue

The Ukrainian Government supports domestic agricultural producers and attracts investments into the agricultural sector. According to the Law "On the State Budget for 2019", UAH 5,709 million were allocated to support the agricultural sector in 2019 via a compensation program, including UAH 3,500 million to support the livestock sector and up to UAH 900 million to purchase agricultural machinery produced in Ukraine.

Also during the year ended 31 December 2019, the Group received government compensations in accordance with EU farming subsidies policy and other compensations in accordance with the EU national programs of employment, assigned contributions for employees, and refunds of excise duties.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

9. Deferred revenue (continued)

For the years ended 31 December 2019 and 2018 following government grants were received:


	2019	2018
Compensation of construction and reconstruction of livestock farms	7,554	34,371
Compensation received in EU	4,063	-
Compensation of the cost of machinery and equipment	395	-
Other compensations	923	1,000
	12,935	35,371

Government grants for compensation of construction and reconstruction of livestock farms and compensation of cost of machinery and equipment are presented in the statement of the financial position as deferred revenues, which is recognised in profit or loss on a systematic basis over the useful life of the related assets. All other compensations received were recognised in consolidated statement of profit or loss and other comprehensive income in full.

10. Finance costs

Finance costs for the years ended 31 December 2019 and 2018 were as follows:


	2019	2018

Interest on corporate bonds	94,970	93,200
Interest on obligations under leases	37,784	1,154
Interest on bank borrowings	12,951	11,852
Bank commissions and other charges	6,827	4,417
Costs related to corporate bonds (Note 27)	2,164	32,915
Total finance costs	154,696	143,538

Less:
Finance costs included in the cost of qualifying assets	(7,144)	(5,519)
	147,552	138,019

For qualifying assets, the weighted average capitalization rate on funds borrowed during the year ended 31 December 2019 was 8.10% (2018: 8.60%).

Interest on corporate bonds for the years ended 31 December 2019 and 2018 includes the amortization of premium and debt issue costs on bonds issued in the amounts of USD 6,885 thousand and USD 6,196 thousand, respectively.

11. Income tax

The majority of the Group's operating entities are located in Ukraine, therefore the effective tax rate reconciliation is completed based on Ukrainian statutory rates. The net results of the Group companies incorporated in jurisdictions other than Ukraine were insignificant during the years ended 31 December 2019 and 2018.

During the year ended 31 December 2019, the Group's companies that have the status of Corporate Income Tax (the "CIT") payers in Ukraine were subject to income tax. The Tax Code of Ukraine introduced an 18% income tax rate effective from 1 January 2014. The deferred income tax assets and liabilities as of 31 December 2019 and 2018 are measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.

The majority of the Group companies that are involved in agricultural production (poultry farms and other entities engaged in agricultural production) benefit substantially from the status of an agricultural producer. The tax rates for agricultural producers is calculated as a percentage of the target-ratio based monetary valuation per hectare of agricultural land resulting in substantially lower tax charges compared to CIT. Agricultural manufacturers are eligible to apply for a single tax if they meet both the following two requirements:

1. The share of the entity's revenue from agricultural production (i.e. sale of the entity's cultivated and processed products) to the total share of its income equals or exceeds 75 per cent; and

2. These agriproducts were cultivated on land that such agricultural manufacturers own or lease, and the ownership title and leases have been duly registered.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

11. Income tax (continued)

The components of income tax expense/(benefit) were as follows for the years ended 31 December 2019 and 2018:


	2019	2018

Current income tax expense	5,171	2,169
Withholding tax	7,073	10,927
Deferred tax expense	19,863	37,431
Income tax charge	32,107	50,527

The reconciliation between profit before tax from continuing operations multiplied by the statutory tax rate and the tax expense for the years ended 31 December 2019 and 2018 was as follows:


	2019	2018

Profit before income tax	253,212	179,905

Income tax expense calculated at rates effective during the year ended in respective jurisdictions	45,954	36,360

Tax effect of:

Income generated by FAT payers and other exempt from income tax	(13,461)	(33,400)
Derecognition and utilisation of previously recognised tax losses/ assets	(17,734)	30,802
Withholding tax	7,073	10,927
Non-deductible expenses	3,915	1,894
Expenses not deducted for tax purposes	-	2,129
Translation loss	6,360	1,815
Income tax charge	32,107	50,527

Derecognition of previously recognised tax losses results from the reversal of deferred tax liabilities related to property revaluation that were the source of taxable income relied on previously to support recognition.

As of 31 December 2019 and 2018 deferred tax assets and liabilities recognised the following:


	2019	2018

Deferred tax assets arising from:

Other current liabilities	3,244	1,235
Inventories	432	354
Tax losses	26,423	60,048

Total deferred tax assets	30,099	61,637

Deferred tax liabilities arising from:

Property, plant and equipment	(78,906)	(61,908)
Inventories	(159)	(493)
Total deferred tax liabilities	(79,065)	(62,401)
Net deferred tax liabilities	(48,966)	(764)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as of 31 December 2019 and 2018:


	2019	2018

Deferred tax assets	6,640	12,189
Deferred tax liabilities	(55,305)	(12,953)
Deferred tax assets not recognised	(4,356)	(12,189)
	(53,021)	(12,953)

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

11. Income tax (continued)

During the years ended 31 December 2019 and 2018, the Group did not recognize tax losses in the amount of USD 23,086 (USD 4,356 thousand of deferred tax assets), USD 67,717 thousand (USD 12,189 thousand of deferred tax asset), respectively, as the Group did not intend to deduct the relevant expenses for tax purposes in subsequent periods, as there are uncertainties on whether sufficient taxable profits will be generated by particular companies of the Group in the future. There is no expiration date of accounting tax losses according to the Tax Code of Ukraine.

Deferred tax liabilities have not been recognised in respect of unremitted earnings of Ukrainian subsidiaries as the earnings can be remitted free from taxation currently and in future years, based on current legislation.

The movements in net deferred tax liabilities for the years ended 31 December 2019 and 2018 were as follows:


	2019	2018

Net deferred tax liabilities as of beginning of the year	(12,953)	(23,609)

Deferred tax expense	(19,866)	(37,431)
Deferred tax liabilities acquired from the acquisition of subsidiaries	(18,338)	-
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income as result of revaluation	(17,053)	-
Deferred tax on revaluation of property, plant and equipment charged directly to other comprehensive income as result of intercompany sales	15,162	49,357
Translation difference	27	(1,270)

Net deferred tax liabilities as of end of the year	(53,021)	(12,953)

Deferred tax benefit on revaluation of property, plant and equipment is related to the intercompany sale of fixed assets from CIT-payers entity to FAT-payers (tax-exempt) entity, which has led to reversal of the respective part of the deferred tax liability.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

12. Property, plant and equipment

The following table represents movements in property, plant and equipment for the year ended 31 December 2019:


	Land	Buildings and structures	Grain storage facilities	Production machinery	Auxiliary and other machinery	Utilities and infrastructure	Vehicles and agricultural machinery	Other fixed assets1	Construction in progress2	Total
Cost or fair value:
At 31 December 2018	4,363	670,095	78,376	332,493	51,387	105,540	235,845	9,803	146,494	1,634,396
Adoption of IFRS 16	-	-	-	-	-	-	(23,857)	-	-	(23,857)
At 1 January 2019	4,363	670,095	78,376	332,493	51,387	105,540	211,988	9,803	146,494	1,610,539
Additions	1,044	19,841	5,954	9,057	7,694	6,092	6,541	596	63,409	120,228
Acquisitions of subsidiaries (Note 2)	29,689	114,757	1,193	26,794	1,388	632	405	3,051	1,672	179,581
Transfers	3,551	63,934	-	37,065	-	13,542	2,779	513	(121,384)	-
Disposals	(2)	(758)	(3)	(957)	(142)	(34)	(2,973)	(255)	(18)	(5,142)
Reclassified as held for sale	-	(320)	-	(1,854)	(113)	(388)	(1,110)	(33)	(18)	(3,836)
Revaluations	-	60,099	11,886	(6,476)	(3,368)	9,882	(50,483)	-	-	21,540
Translation difference	530	119,078	10,716	63,116	8,465	19,763	36,801	1,666	18,663	278,798
At 31 December 2019	39,175	1,046,726	108,122	459,238	65,311	155,029	203,948	15,341	108,818	2,201,708

Accumulated depreciation:
At 31 December 2018	-	23,915	5,498	34,704	6,696	5,851	52,144	7,058	-	135,866
Adoption of IFRS 16	-	-	-	-	-	-	(2,408)	-	-	(2,408)
At 1 January 2019	-	23,915	5,498	34,704	6,696	5,851	49,736	7,058	-	133,458
Depreciation charge for the year	-	31,750	6,447	50,811	7,450	6,940	53,147	3,466	-	160,011
Elimination upon disposal	-	(356)	(2)	(235)	(28)	(4)	(1,395)	(134)	-	(2,154)
Reclassified as held for sale	-	296	-	(183)	(54)	(32)	(238)	(26)	-	(237)
Elimination on revaluation	-	(45,216)	(11,038)	(2)	(13,615)	(11,462)	(96,564)	-	-	(177,897)
Impairment loss	-	949	323	2	1,496	70	3,404	-	-	6,244
Translation difference	-	5,390	1,325	9,567	1,649	1,037	12,600	1,417	-	32,985
At 31 December 2019	-	16,728	2,553	94,664	3,594	2,400	20,690	11,781	-	152,410

Net book value
At 31 December 2018	4,363	646,180	72,878	297,789	44,691	99,689	183,701	2,745	146,494	1,498,530
At 31 December 2019	39,175	1,029,998	105,569	364,574	61,717	152,629	183,258	3,560	108,818	2,049,298

1) Other fixed assets include bearer plants, office furniture and equipment;

2) Construction in progress include advances for property plant and equipment, machinery and equipment not in use, construction materials and spare parts, projects in progress.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

12. Property, plant and equipment (continued)

The following table represents movements in property, plant and equipment for the year ended 31 December 2018:


	Land	Buildings and structures	Grain storage facilities	Production machinery	Auxiliary and other machinery	Utilities and infrastructure	Vehicles and agricultural machinery	Other fixed assets1	Construction in progress2	Total
Cost or fair value:
At 1 January 2018	2,816	586,297	76,837	269,093	43,494	90,111	198,903	8,697	113,351	1,389,599
Additions	1,515	47,748	497	41,730	5,535	10,477	38,887	1,242	91,237	238,868
Disposals	-	(573)	(1)	(1,652)	(137)	(24)	(2,524)	(286)	(149)	(5,346)
Transfers	21	29,955	-	20,707	2,031	3,996	166	49	(56,925)	-
Impairment loss	-	-	-	-	-	-	(1,697)	-	(2,106)	(3,803)
Translation difference	11	6,668	1,043	2,615	464	980	2,110	101	1,086	15,078
At 31 December 2018	4,363	670,095	78,376	332,493	51,387	105,540	235,845	9,803	146,494	1,634,396

Accumulated depreciation:
At 1 January 2018	-	-	-	-	-	-	-	6,497	-	6,497
Depreciation charge for the year	-	24,090	5,596	35,511	6,838	5,960	53,720	1,134	-	132,849
Elimination upon disposal	-	(154)	-	(186)	(22)	(5)	(643)	(245)	-	(1,255)
Transfers	-	-	-	-	-	-	-	-	-	-
Translation difference	-	(21)	(98)	(621)	(120)	(104)	(933)	(328)	-	(2,225)
At 31 December 2018	-	23,915	5,498	34,704	6,696	5,851	52,144	7,058	-	135,866

Net book value
At 1 January 2018	2,816	586,297	76,837	269,093	43,494	90,111	198,903	2,200	113,351	1,383,102
At 31 December 2018	4,363	646,180	72,878	297,789	44,691	99,689	183,701	2,745	146,494	1,498,530

1) Other fixed assets include bearer plants, office furniture and equipment;

2) Construction in progress include advances for property plant and equipment, machinery and equipment not in use, construction materials and spare parts, projects in progress.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

12. Property, plant and equipment (continued)

As of 31 December 2019, included within construction in progress were prepayments for property, plant and equipment in the amount of USD 12,083 thousand (2018: USD 13,117 thousand).

As of 31 December 2019, included within property, plant and equipment were fully depreciated assets with the original cost of USD 11,096 thousand (2018: USD 7,040 thousand).

As of 31 December 2019, certain of the Group's property, plant and equipment with the carrying amount of USD 99,878 thousand (2018: USD nil thousand) were pledged as collateral to secure its bank borrowings.

Impairment assessment

The Group reviews its property, plant and equipment each period to determine if any indication of impairment exists. Based on these reviews, there were no indicators of impairment as of 31 December 2019 and 2018, except for the impairment of certain assets in the amount of USD 6,244 thousand and USD 3,803 thousand as of 31 December 2019 and 2018, respectively.

Revaluation of vehicles and agricultural machinery

During the year ended 31 December 2019, the Group engaged independent appraisers to revalue its vehicles and agricultural machinery. The effective date of revaluation was 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using market comparable approach adjusted based on age and condition of the machinery. During the year ended and as of 31 December 2018, the Group evaluated whether the fair value of vehicles and agricultural machinery was materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of producer's prices, the index of physical depreciation and the functional currency depreciation, Management assessed the fair value of vehicles and agricultural machinery not to be materially different from the reported book values.

Revaluation of production machinery

During years ended and as of 31 December 2018 and 31 December 2019, the Group evaluated if the fair value of production machinery was materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of producer's prices, the index of physical depreciation and the functional currency depreciation, Management assessed the fair value of such production machinery not to be materially different from the reported book values.

Revaluation of buildings and structures

During the year ended 31 December 2019, the Group engaged independent appraisers to revalue its buildings and structures. The effective date of revaluation was 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using depreciated replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the buildings and structures. During the year ended and as of 31 December 2018, the Group evaluated if the fair value of buildings and structures was materially different from the reported book values. Based on analysis of the fluctuations of the cumulative index of inflation of construction works and index of physical depreciation, Management assessed the fair value of such buildings and structures not to be materially different from the reported book values.

Revaluation of Grain storage facilities

During the year ended 31 December 2019, the Group engaged independent appraisers to revalue its grain storage facilities as of 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using depreciated replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the facilities. During the year ended and as of 31 December 2018, the Group evaluated if the fair value of grain storage facilities was materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of inflation of construction works and the index of physical depreciation, Management assessed the fair value of grain storage facilities not to be materially different from the reported book values.

Revaluation of Auxiliary and other machinery

During the year ended 31 December 2019, the Group engaged an independent appraiser to determine the fair value of its Auxiliary and other machinery as of 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using the market comparable approach adjusted based on age and condition of the machinery or for items of specialized nature depreciated replacement cost method. During the year ended and as of 31 December 2018, the Group evaluated if the fair value of Auxiliary and other machinery was materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of inflation of construction works and the index of physical depreciation, Management assessed the fair value of Auxiliary and other machinery not to be materially different from the reported book values.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

12. Property, plant and equipment (continued)

Revaluation of Utilities and infrastructure

During the year ended 31 December 2019, the Group engaged independent appraisers to revalue its utilities and infrastructure as of 30 September 2019. The valuation, which conformed to the International Valuation Standards, was determined using depreciated replacement cost method by reference to observable prices in an active market adjusted based on age and condition of the facilities. During the year ended and as of 31 December 2018, the Group evaluated if the fair value of utilities and infrastructure was materially different from the reported book values. Based on analysis of fluctuations of the cumulative index of inflation of construction works and the index of physical depreciation, Management assessed the fair value of utilities and infrastructure not to be materially different from the reported book values.

Had the Group's property plant and equipment been measured on a historical cost basis, their carrying amount would have been as follows:



	Fair value hierarchy	Fair value		Net book value if carried at cost
		2019	2018	2019	2018
Buildings and structures	Level 3	1,029,998	646,180	451,618	266,075
Production machinery	Level 2, 3	364,574	297,789	260,606	171,600
Vehicles and agricultural machinery	Level 2	183,258	183,701	90,043	93,489
Utilities and infrastructure	Level 3	152,629	99,689	70,669	51,771
Grain storage facilities	Level 3	105,569	72,878	40,554	31,189
Auxiliary and other machinery	Level 2, 3	61,717	44,691	35,842	27,195

There are no restrictions on the distribution of the revaluation surplus to the shareholders.

13. Right-of-use assets

The following table represents movements in right-of-use assets for the years ended 31 December 2019 and 31 December 2018:


	Land	Vehicles	Total
Cost:
As of 31 December 2018	-	-	-
Effect of adoption of IFRS 16	163,993	23,857	187,850
As of 1 January 2019	163,993	23,857	187,850
Additions	18,693	914	19,607
Disposals	(756)	(756)	(1,512)
Change in terms	12,273	-	12,273
Acquisitions of subsidiaries (Note 2)	5,677	8,887	14,564
Translation difference	30,554	3,892	34,446
As of 31 December 2019	230,434	36,794	267,228

Accumulated amortization:
As of 31 December 2018	-	-	-
Effect of adoption of IFRS 16	-	2,408	2,408
As of 1 January 2019	-	2,408	2,408
Amortization charge for the year	29,885	3,365	33,250
Disposals	(756)	(105)	(861)
Translation difference	2,594	593	3,187
As of 31 December 2019	31,723	6,261	37,984

Net book value:
As of 1 January 2019	163,993	21,449	185,442
As of 31 December 2019	198,711	30,533	229,244

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

14. Intangible assets

The following table represents movements in intangible assets for the year ended 31 December 2019:


	Land lease rights	Trademarks	Customer relations	Other intangible assets	Total
Cost:
As of 1 January 2019	70,704	-	-	6,125	76,829
Additions	-	-	-	3,701	3,701
Disposals	-	-	-	(53)	(53)
Acquisition of subsidiary (Note 2)	-	31,975	19,907	1,566	53,448
Translation difference	12,079	(648)	(404)	1,327	12,354
As of 31 December 2019	82,783	31,327	19,503	12,666	146,279

Accumulated amortization:
As of 1 January 2019	21,895	-	-	2,875	24,770
Amortization charge for the year	6,977	-	815	2,263	10,055
Disposals	-	-	-	(27)	(27)
Translation difference	4,334	-	(3)	628	4,959
As of 31 December 2019	33,206	-	812	5,739	39,757

Net book value:
As of 1 January 2019	48,809	-	-	3,250	52,059
As of 31 December 2019	49,577	31,327	18,691	6,927	106,522

The following table represents movements in intangible assets for the year ended 31 December 2018:


	Land lease rights	Trademarks	Customer relations	Other intangible assets	Total
Cost:
As of 1 January 2018	60,697	-	-	3,665	64,362
Additions	9,340	-	-	2,607	11,947
Disposals	-	-	-	(154)	(154)
Translation difference	667	-	-	7	674
As of 31 December 2018	70,704	-	-	6,125	76,829

Accumulated amortization:
As of 1 January 2018	15,287	-	-	1,728	17,015
Amortization charge for the year	6,513	-	-	1,144	7,657
Translation difference	95	-	-	3	98
As of 31 December 2018	21,895	-	-	2,875	24,770

Net book value:
As of 1 January 2018	45,410	-	-	1,937	47,347
As of 31 December 2018	48,809	-	-	3,250	52,059

Through the acquisition of subsidiaries (Note 2), the Group has recognised certain trademarks and customer relationships as a part of intangible assets. Customer relationships were identified among customers of the core products portfolio of acquired subsidiaries. The remaining useful life of customer relationships was estimated at 20 years.

The trademarks acquired by the Group mainly consist of poultry meat brands - PP and Topiko and meat processing products brand - Poli. The Group believes that, since these trademarks are well-positioned and recognizable within a stable and mature industry, there are no technical barriers that would limit their lifetime, and as a result of further promotion of the trademarks, the Group will obtain economic benefits from them for an indefinite period of time. Accordingly, the trademarks that belong to the Group are considered to have an indefinite useful life and thus are not amortized but tested for impairment by comparing their recoverable amount with their carrying amount annually.

The Group allocates trademarks to individual entities as separate cash-generating units (CGU). A summary of the allocation of trademarks values to separate CGUs is presented below:


Segment		Cash-generating unit		Trademarks carrying value
				2019		2018
Europe operating		Slovenia		17,892		-
	Serbia		2,261		-
	Bosnia and Herzegovina		5,764		-
	Croatia		5,410		-
				31,327		-

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

14. Intangible assets (continued)

The impairment testing of the value of trademarks was performed by an independent appraiser. The recoverable amount of trademarks of all cash-generating units is determined based on value in use method which uses cash flow projections covering a seven-year period, and a weighted average discount rate of 14.2%. The revenue within seven-year period was extrapolated using a weighted average 3.8% sales growth rate and 1.5% terminal growth rate for revenue beyond this period. Weighted average royalty rate used in calculation of cash flows was set at a level of 2.4%. The initial five-year period of projection was extended to gradually decrease the revenue growth rates towards the terminal growth rate. The directors believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the related CGUs.

As of 31 December 2019, no impairment of trademarks was identified.

15. Goodwill

The following table represents movements in goodwill for the years ended 31 December:


	2019	2018
Cost:
As of 1 January	2,509	2,442
Acquisitions of subsidiaries	61,518	-
Translation difference	816	67
As of 31 December	64,843	2,509

Net book value:
As of 1 January	2,509	2,442
As of 31 December	64,843	2,509

The Group allocates goodwill to individual entities as to separate cash-generating units (CGU). A summary of goodwill allocation to separate CGUs is presented below:


Segment		Cash-Generating Unit		Goodwill carrying value				Methodology assumptions and methods used for goodwill
				2019		2018
Grain growing operations (Ukraine)		Grain growing		2,933		2,509		Average sales growth: 5.1% Terminal sales growth: 4.7 % Discount rate: 12.0% Projection period: 5 years




Europe operating		Slovenia		38,818		-		Average sales growth: 3.4% Terminal sales growth: 1.5% Discount rate: 7.1% Projection period: 8 years




	Serbia		4,024		-		Average sales growth: 3.3% Terminal sales growth: 1.5% Discount rate: 9.8% Projection period: 8 years




	BiH		11,206		-		Average sales growth: 3.4% Terminal sales growth: 1.5% Discount rate: 12.1% Projection period: 8 years




	Croatia		7,862		-		Average sales growth: 3.3% Terminal sales growth: 1.5% Discount rate: 7.8% Projection period: 8 years




				64,843		2,509

The recoverable amount of cash-generating units is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the directors.

The growth rates used for cash flows extrapolations are supported by industry trends such as consumer prosperity and dietary trends. The growth rates were estimated by the directors of the Group based on past performance of the cash-generating unit and their expectations of market development. The initial five-year period of projection was extended by three years, to gradually decrease the revenue growth rates towards the terminal growth rate. The directors believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the related CGUs.

As of 31 December 2019 and 2018, no impairment of goodwill was identified.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

16. Other non-current assets, net

The balances of other non-current assets, net were as follows as of 31 December 2019 and 2018:


	2019	2018

Financial assets at amortised cost
Loan receivables	15,345	15,980
Other financial assets	2,271	1,377
Non-financial instruments
Prepayment for business acquisition (Note 2)	-	23,771
Other non-financial instruments	6,097	12,982
	23,713	54,110

Loan receivables are represented by loans with fixed interest at 2.5% with maturity as of 31 January 2022 and 31 January 2023. Total gross amortised cost of loans granted as of 31 December 2019 and 2018 is USD 19,161 thousand and USD 18,766 thousand respectively.

The Group determines the lifetime expected credit loss of other non-current loan receivables and other financial assets based on different scenarios of probability of default and expected loss applicable to each of the material underlying balances. The movement in loss allowance for loan receivables classified at amortised cost is detailed below:


	2019
1 January 2019	(2,786)
Charged during the year	(1,030)
31 December 2019	(3,816)

17. Biological assets

The balances of non-current biological assets were as follows as of 31 December 2019 and 2018:


	Thousand units	Carrying amount	Thousand units	Carrying amount
	2019		2018

Milk cows, units	15.9	25,725	18,1	19,953
Boars and sows, units	0.3	242	0.1	88
Other non-current bearer biological assets		8		539
Total bearer non-current biological assets		25,975		20,580

Non-current cattle and pigs, units	1.9	3,677	1.9	2,812
Total consumable non-current biological assets		3,677		2,812
Total non-current biological assets		29,652		23,392

The balances of current biological assets were as follows as of 31 December 2019 and 2018:


	Thousand units	Carrying amount	Thousand units	Carrying amount
	2019		2018

Breeders held for hatchery eggs production, units	4,891	78,063	3,954	66,509
Total bearer current biological assets		78,063		66,509

Broiler chickens, units	51,343	79,382	44,199	64,519
Hatchery eggs, units	57,747	10,328	33,063	8,253
Crops in fields, hectare	74	35,036	92	37,416
Cattle and pigs, units	6	1,273	6	2,132
Other current consumable biological assets		1,665		461
Total consumable current biological assets		127,684		112,781
Total current biological assets		205,747		179,290

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

17. Biological assets (continued)

The following table represents movements in major biological assets for the years ended 31 December 2019 and 2018:


	Milk cows, boars, sows	Breeders held for hatchery eggs production	Broiler chickens		Crops in fields

As of 31 December 2017	18,040	55,716	54,207		20,623
Costs incurred	2,553	129,737	585,798		295,960
Gains arising from change in fair value of biological assets less costs to sell	17,889	6,071	243,746		120,541
Transfer to consumable biological assets	-	(110,376)	110,376		-
Transfer to bearing non-current biological assets	1,395	-	-		-
Decrease due to sale	(143)	-	-		-
Decrease due to harvest	(19,918)	(15,222)	(930,190)		(399,998)
Translation difference	225	583	582		290
As of 31 December 2018	20,041	66,509	64,519		37,416
Costs incurred	11,209	161,345	720,366		318,535
Business acquisition (Note 2)	510	2,966	3,689		-
Gains arising from change in fair value of biological assets less costs to sell	8,339	(19,919)	374,537		17,154
Transfer to consumable biological assets	-	(123,100)	123,100		-
Transfer to bearing non-current biological assets	6,063	-	-		-
Decrease due to sale	(818)	-	-		-
Decrease due to harvest	(22,925)	(20,601)	(1,218,042)		(343,345)
Translation difference	3,548	10,863	11,213	5,276
As of 31 December 2019	25,967	78,063	79,382	35,036

Information on movements in hatchery eggs and cattle and pigs groups have been considered immaterial for disclosure.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

17. Biological assets (continued)

Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy, except for cattle and pigs that can be measured based on market prices of livestock of a similar age, breed and genetic merit, and which are therefore measured at fair value within Level 2 of the fair value hierarchy. There were no transfers between any levels during the year.

The following unobservable inputs were used to measure biological assets:


Description	Fair value as of 31 December 2019	Fair value as of 31 December 2018	Valuation technique(s)		Unobservable inputs	Range of unobservable inputs (average) 2019	Range of unobservable inputs (average) 2018		Relationship of unobservable inputs to fair value

Crops in fields	35,036	37,416	Discounted cash flows		Crops yield - tonnes per hectare	3.3 - 6.3 (4.5)		3.5 - 6.1 (4.9)	The higher the crops yield, the higher the fair value
				Crops price - per tonne		USD 134 - 405 ( 235)		USD 160 - 380 ( 253)	The higher the market price, the higher the fair value
				Discount rate		12.0%		18.0%	The higher the discount rate, the lower the fair value
Breeders held for hatchery eggs production	78,063	66,509	Discounted cash flows	Number of hatchery eggs produced by one breeder		165		165	The higher the number, the higher the fair value
				Hatchery egg price - per egg		USD 0.25		USD 0.25	The higher the market price, the higher the fair value
				Discount rate		12.0%		15.7%	The higher the discount rate, the lower the fair value
Broiler chickens	79,382	64,519	Cash flows	Average weight of one broiler - kg		2.45		2.33	The higher the weight, the higher the fair value
				Poultry meat price - per kg		UAH 26.38 *2.92 EUR		UAH 30.36	The higher the market price, the higher the fair value
Milk cows	25,725	19,953	Discounted cash flows	Daily milk yield - litre per cow		12.25 - 17.89 (15.81)		15.89 - 19.76 (18.55)	The higher the milk yield, the higher the fair value
				Weight of the cow - kg per cow		545 - 571 (557)		523 - 567 (548)	The higher the weight, the higher the fair value
				Milk price - per litre		UAH 8.70 - 9.31 (8.93)		UAH 7.62 - 8.68 (7.93)	The higher the market price, the higher the fair value
				Meat price - per kg		UAH 18.91 - 26.46 (23.08)		UAH 18.69 - 24.22 (22.81)	The higher the market price, the higher the fair value
				Discount rate		12.0%		15.7%	The higher the discount rate, the lower the fair value

*data of Europe operating segment

If the above unobservable inputs to the valuation model were 5% higher/lower while all the other variables were held constant, the carrying amount of the current and non-current biological assets would increase /decrease by USD 35,967 thousand (2018: USD 33,958 thousand) and USD 34,157 thousand (2018: USD 32,336 thousand), respectively.

In 2019 management has revised the unobservable inputs to the valuation model for biological assets to 5% on the basis that, in the context of the 2019 consolidated financial statements as a whole, this amount would trigger a material change in the fair value of the biological assets. Management has updated the 2018 sensitivity to align with this revision.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

18. Inventories

The balances of inventories were as follows as of 31 December 2019 and 2018:


	2019	2018

Components for mixed fodder production	70,481	157,203
Work in progress	43,205	33,155
Other raw materials	42,105	37,471
Spare parts	20,079	16,010
Mixed fodder	7,398	3,016
Sunflower oil	7,365	22,140
Meat processing products	6,774	-
Packaging materials	6,679	3,455
Other inventories	4,303	1,072
	208,389	273,522

As of 31 December 2019 and 2018, work in progress in the amount of USD 43,205 thousand and

USD 33,155 thousand was mainly comprised of expenses incurred in cultivating fields to be planted in the years 2020 and 2019, respectively.

19. Agricultural produce

The balances of agricultural produce were as follows as of 31 December 2019 and 2018:


	Thousand tonnes	Carrying amount	Thousand tonnes	Carrying amount
	2019		2018

Grain	714	118,879	1,105	168,044
Chicken meat	62.5	86,208	29.7	40,651
Other crops	N/A1)	9,438	N/A1)	13,947
Other meat	N/A1)	1,291	N/A1)	2,147
		215,816		224,789

1) Due to the diverse composition of noted produce unit of measurement is not applicable.

The fair value of Agricultural produce was estimated based on market price as of date of harvest and is within Level 2 of the fair value hierarchy.

As of 31 December 2019, agricultural produce was not pledged as collateral to secure bank borrowings (2018: USD 23,750).

20. Taxes recoverable and prepaid

Taxes recoverable and prepaid were as follows as of 31 December 2019 and 2018:


	2019	2018

VAT recoverable	24,527	39,834
Miscellaneous taxes prepaid	5,503	5,312
	30,030	45,146

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

21. Trade accounts receivable, net

The balances of trade accounts receivable were as follows as of 31 December 2019 and 2018:


	2019	2018

Chicken meat	95,824	57,834
Meat processing and convenience food	19,109	12,761
Grain	9,056	3,748
Sunflower oil sales	1,482	508
Due from related parties (Note 30)	197	111
Other agriculture operations	12,278	6,724
Less: allowance for unrecoverable amounts	(13,472)	(12,381)
	124,474	69,305

The average credit period on sales of poultry is 30 days and on sales of agricultural goods is 60 days. No interest is charged on outstanding trade accounts receivable. The Group always measures the loss allowance for trade accounts receivable at an amount equal to lifetime expected credit losses (ECL). The ECL on trade accounts receivable are estimated on a collective basis using a provision matrix and on individual basis using different scenarios of probability of default.

The provision matrix is used by reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.

An individual assessment is used for the individually significant debtors with credit risk characteristics that are not aligned with others.

The Group has recognised a loss allowance of 100% against all trade accounts receivable over 270 days past due, which are assessed on a collective basis, because historical experience has indicated that these trade accounts receivable are generally not recoverable.

There has been no change in the estimation techniques or significant assumptions made during the current reporting period. The Group writes off a trade accounts receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade accounts receivable are over 3 years past due, whichever occurs earlier. None of the trade accounts receivable that have been written off are subject to enforcement activities.

The following table details the risk profile of trade accounts receivable based on the Group's provision matrix. It discloses chicken meat Ukraine, chicken meat export and agricultural Ukraine, agricultural export sales and Europe operating segment as separate classes of financial instruments and applies the simplified approach to its trade accounts receivable so that the loss allowance is always measured at an amount equal to lifetime expected credit losses. There have been no changes in the estimation techniques or significant assumptions made during the current reporting period.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

21. Trade accounts receivable, net (continued)

The following table illustrates the use of a provision matrix as a risk profile disclosure under the simplified approach as at 31 December 2019:


	Trade accounts receivable - days past due
31 December 2019	Not past due	< 30	31-90	91-270	>270	Total
Portfolio assessment:
Chicken meat Ukraine
ECL rate, %	0.01%	0.02%	0.37%	1.16%	100%
Estimated total gross carrying amount at default	25,502	2,259	89	250	147	28,247
Lifetime ECL	(2)	(1)	-	(3)	(147)	(153)
Chicken meat export
ECL rate, %	0.20%	0.39%	1.03%	4.93%	100%
Estimated total gross carrying amount at default	13,993	8,218	4,690	609	722	28,232
Lifetime ECL	(28)	(32)	(48)	(30)	(722)	(860)
Agricultural Ukraine
ECL rate, %	0.26%	0.28%	0.51%	0.89%	100%
Estimated total gross carrying amount at default	22,442	2,961	31	1,373	1,014	27,821
Lifetime ECL	(59)	(8)	-	(12)	(1,014)	(1,093)
Agricultural export
ECL rate, %	0.13%	3.08%	10.39%	13.49%	100%
Estimated total gross carrying amount at default	8,033	54	29	13	-	8,129
Lifetime ECL	(10)	(2)	(3)	(2)	-	(17)
Europe operating segment
ECL rate, %	0.64%	1.14%	5.64%	13.91%	100%
Estimated total gross carrying amount at default	28,666	4,907	732	168	585	35,058
Lifetime ECL	(185)	(56)	(41)	(23)	(585)	(890)
Estimated total gross carrying amount at default						127,487
Total lifetime ECL						(3,013)
Individual assessment:
ECL rate, %	100%	100%	100%	100%	100%
Estimated total gross carrying amount at default	-	-	385	277	9,797	10,459
Lifetime ECL	-	-	(385)	(277)	(9,797)	(10,459)
Estimated total gross carrying amount at default						137,946
Total lifetime ECL						(13,472)

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

21. Trade accounts receivable, net (continued)

The following table illustrates the use of a provision matrix as a risk profile disclosure under the simplified approach as at 31 December 2018:


	Trade accounts receivable - days past due
31 December 2018	Not past due	< 30	31-90	91-270	>270	Total
Portfolio assessment:
Chicken meat Ukraine
ECL rate, %	0.01%	0.3%	1.24%	8.92%	100.0%
Estimated total gross carrying amount at default	19,984	1,591	54	13	30	21,672
Lifetime ECL	(2)	(4)	(1)	(1)	(30)	(38)
Chicken meat export
ECL rate, %	0.21%	0.16%	0.55%	5.71%	100.0%
Estimated total gross carrying amount at default	15,241	7,224	1,559	444	1,705	26,173
Lifetime ECL	(32)	(12)	(9)	(25)	(1,705)	(1,783)
Agricultural Ukraine
ECL rate, %	0.23%	1.30%	1.76%	3.08%	100.0%
Estimated total gross carrying amount at default	15,266	2,262	1,342	212	347	19,429
Lifetime ECL	(35)	(29)	(24)	(7)	(347)	(442)
Agricultural export
ECL rate, %	0.07%	1.47%	42.24%	42.90%	100.0%
Estimated total gross carrying amount at default	4,288	-	8	7	120	4,423
Lifetime ECL	(3)	-	(3)	(3)	(120)	(129)
Estimated total gross carrying amount at default						71,697
Total lifetime ECL						(2,392)
Individual assessment
ECL rate, %	0.00%	0.00%	0.00%	0.00%	100.0%
Estimated total gross carrying amount at default	-	-	-	-	9,989	9,989
Lifetime ECL	-	-	-	-	(9,989)	(9,989)
Estimated total gross carrying amount at default						81,686
Total lifetime ECL						(12,381)

The following table shows the movement in lifetime ECL that has been recognised for trade and other accounts receivable in accordance with the simplified approach set out in IFRS 9.


	Collectively assessed	Individually assessed
1 January 2019	2,392	9,989
Charged during the year	621	470
31 December 2019	3,013	10,459

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

22. Other current assets

The balances of other current assets, net were as follows as of 31 December 2019 and 2018:


	2019	2018

Financial assets at amortised cost
Loans and finance aid receivable from related parties (Note 30)	21,717	5,950
Other financial assets	7,620	1,409
Non-financial instruments
Prepayments to suppliers	14,495	19,106
Other non-financial instruments	8,741	6,393
	52,573	32,858

The Group determines the lifetime expected credit loss of loans and finance aid receivable from related parties and other financial assets based on different scenarios on probability of default and expected loss applicable to each of the material underlying balances.

The movement in loss is detailed below:


	2019
1 January 2019	-
Charged during the year (Note 30)	(3,128)
31 December 2019	(3,128)

23. Cash and cash equivalents

The balances of cash and cash equivalents were as follows as of 31 December 2019 and 2018:


	2019		2018
	Deposit rates	USD' 000	Deposit rates	USD' 000

Cash and cash equivalents at banks and on hand in:
Ukrainian Hryvnia		17,269		32,301
Euro		37,304		20,938
US Dollars		125,348		83,246
Other currencies		1,328		1,448

Short-term deposits with an original maturity of less than 92 days:
Ukrainian Hryvnia	11.75-16.50%	61,006	5.00-18.9%	9,835
US Dollars	1.56-3.50%	98,480	1.17-2.33%	64,000

Total cash and equivalents		340,735		211,768

In accordance with the international rating agency of Moody's, credit ratings of the banks with which the Group had the accounts opened as of 31 December were as follows:


	2019	2018
International banks with Aa3 rating	200,972	158,784
Ukrainian subsidiaries of international banks without international ratings	101,596	37,008
Ukrainian state owned bank with Caa1	36,571	9,296
Foreign banks without ratings	1,596	6,680
	340,735	211,768

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

24. Shareholders' equity

Share capital

As of 31 December 2019 and 2018 the authorized, issued and fully paid share capital of MHP SE comprised the following number of shares:


	2019	2018

Number of shares issued and fully paid	110,770,000	110,770,000
Number of shares outstanding	107,038,208	107,038,208

The authorized share capital as of 31 December 2019 and 2018 was EUR 221,540 thousand represented by 110,770,000 shares with par value of EUR 2 each.

All shares have equal voting rights and rights to receive dividends, which are payable at the discretion of the Group.

25. Non-controlling interests

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:


Name of subsidiary	Proportion of ownership interests and voting rights held by non-controlling interests		Profit/(loss) allocated to non-controlling interests		Accumulated non-controlling interests
	2019	2018	2019	2018	2019	2018
Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv	11.5%	11.5%	(524)	(900)	5,234	3,816
AgroKryazh	49.0%	49.0%	(348)	-	4,587	5,016
Agro-S	49.0%	49.0%	(2,444)	2,806	2,761	6,544
Other subsidiaries with immaterial non-controlling interests	n/a	n/a	158	1,272	990	1,160
	n/a	n/a	(3,158)	3,178	13,572	16,536

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

25. Non-controlling interests (continued)

Summarised financial information in respect of each of the Group's subsidiaries that has material non-controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.

		Myronivsky Zavod po Vygotovlennyu Krup i Kombikormiv				AgroKryazh				Agro-S
		2019		2018		2019		2018		2019		2018
---	---	---	---	---	---	---	---	---	---	---	---	---
Current assets		91,051		171,327		44,482		20,748		55,476		25,202

Non-current assets		121,956		112,646		18,441		12,013		30,044		16,234

Current liabilities		134,610		167,829		50,250		19,837		69,032		27,830

Non-current liabilities		43,544		84,971		3,505		-		4,531		-

Equity attributable to owners of the Group		29,619		27,357		4,581		7,908		9,196		7,062

Revenue		118,186		317,802		22,569		19,518		35,658		17,759

Expenses		(122,743)		(325,631)		(23,279)		(15,952)		(40,646)		(12,033)

Profit (loss) for the year		(4,557)		(7,829)		(710)		3,566		(4,988)		5,726

Profit (loss) attributable to owners of the Group		(4,033)		(6,929)		(362)		3,566		(2,544)		2,920

Profit (loss) attributable to the non-controlling interests		(524)		(900)		(348)		-		(2,444)		2,806

Profit (loss) for the year		(4,557)		(7,829)		(710)		3,566		(4,988)		5,726

Other comprehensive income attributable to owners of the Company		14,944		4,149		1,539		23		1,889		85

Other comprehensive income attributable to the non-controlling interests		1,942		539		1,478		22		1,815		82

Other comprehensive income for the year		16,886		4,688		3,017		45		3,704		167

Total comprehensive (loss)/income attributable to owners of the Company		10,911		(2,780)		1,177		3,589		(655)		3,005

Total comprehensive (loss)/income attributable to the non-controlling interests		1,418		(361)		1,130		22		(629)		2,888

Total comprehensive (loss)/income for the year		12,329		(3,141)		2,307		3,611		(1,284)		5,893

Dividends paid to non-controlling interests		-		-		(1,559)		(3,130)		(3,154)		(5,236)

Net cash inflow/(outflow) from operating activities		485		10,666		8,017		4,202		(1,889)		(1,794)

Net cash outflow from investing activities		(855)		(10,318)		(440)		(977)		(587)		(558)

Net cash outflow from financing activities		-		-		(7,568)		(3,216)		(5,500)		(5,225)

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

26. Bank borrowings

The following table summarizes bank borrowings and credit lines outstanding as of 31 December 2019 and 2018:


			2019		2018
Bank		Currency	WAIR 1)	USD' 000	WAIR 1)	USD' 000

Non-current
Foreign banks		USD	-	-	7.99%	56,718
Foreign banks		EUR	3.64%	75,880	4.72%	49,065
				75,880		105,783

Current
Ukrainian banks		EUR	-	-	3.76%	12,943
Ukrainian banks		USD	-	-	4.50%	48,000
Foreign banks		EUR	2.72%	4,406	-	-
Current portion of long-term bank borrowings	EUR			20,539		71,772
				24,945		132,715
Total bank borrowings				100,825		238,498

1) WAIR represents the weighted average interest rate on outstanding borrowings.

The Group's borrowings are drawn from various banks as term loans, credit line facilities and overdrafts. Repayment terms of principal amounts of bank borrowings vary from monthly repayment to repayment on maturity depending on the agreement reached with each bank. The interest on the borrowings drawn with the Ukrainian banks is payable on a monthly basis. Interest on borrowings drawn with foreign banks is payable semi-annually.

As of 31 December 2019 and 31 December 2018, all of the Group's bank term loans and credit lines bear floating and fixed interest rates.

Term loans and credit line facilities were as follows as of 31 December 2019 and 2018:


	2019	2018

Credit lines	3,348	60,943
Term loans	97,477	177,555
	100,825	238,498

Bank borrowings and credit lines outstanding as of 31 December 2019 and 2018 were repayable as follows:


	2019	2018

Within one year	24,945	132,715
In the second year	17,484	56,719
In the third to fifth year inclusive	27,837	42,271
After five years	30,559	6,793
	100,825	238,498

As of 31 December 2019, the Group had available undrawn facilities of USD 224,683 thousand (2018: USD 316,429 thousand). These undrawn facilities expire during the period from June 2020 until March 2023.

The Group, as well as particular subsidiaries of the Group have to comply with certain covenants imposed by the banks providing the loans. The Group shall ensure the ongoing compliance with the following maintenance covenants: EBITDA to interest expenses ratio, current ratio and liabilities to equity ratio. Separately, there are negative covenants in respect of restricted payments, including dividends, capital expenditures, additional indebtedness and restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates in case of excess of Net Debt to EBITDA ratio. The Group subsidiaries are also required to obtain approval from lenders regarding property, plant and equipment to be used as collateral. During the years ended 31 December 2019 and 2018 the Group has complied with all covenants imposed by banks providing the borrowings.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

26. Bank borrowings (continued)

As at 31 December 2019 the Net Debt to EBITDA ratio of the Group exceeded the limit imposed by the banks providing the loans, however it does not constitute the breach of the covenant. This will lead to introduction of additional control measures by the Group described above. Thus, since the moment of publication of these audited consolidated financial statements as of and for the year ended 31 December 2019, the aforementioned restrictions will be binding on the Group.

The Group's bank borrowings are jointly and severally guaranteed by Myronivsky Hliboprodukt, Myronivsky Plant of Manufacturing Feeds and Groats, Oril-Leader, Peremoga Nova, Starynska Ptakhofabryka, Zernoproduct MHP, Katerinopilskiy Elevator, Agrofort, SPF Urozhay, MHP SE, Scylla Capital Limited, Myronivska Pticefabrika, Ptakhofabryka Snyatynska Nova, Vinnytska Ptakhofabryka, Zakhid-Agro MHP, Urozhayna Krayina, Raftan Holding Limited, Merique Holding Limited.

As of 31 December 2019, the deposit with carrying amount of USD 3,298 thousand (31 December 2018: USD 3,387 thousand) was restricted as collateral to secure bank borrowings.

As of 31 December 2019, the Group had borrowings of USD 49,731 thousand that were secured by property, plant and equipment with a carrying amount of USD 99,878 thousand (31 December 2018: nill). As of 31 December 2018, the Group had borrowings of USD 19,000 thousand that were secured by agricultural produce with a carrying amount of USD 23,750 thousand.

As of 31 December 2019 and 31 December 2018, accrued interest on bank borrowings was USD 1,033 thousand and USD 3,150 thousand, respectively.

27. Bonds issued

Bonds issued and outstanding as of 31 December 2019 and 2018 were as follows:


	2019	2018

8.25% Senior Notes due in 2020	-	79,417
7.75% Senior Notes due in 2024	500,000	500,000
6.95% Senior Notes due in 2026	550,000	550,000
6.25% Senior Notes due in 2029	350,000	-
Unamortised debt issuance cost	(34,331)	(38,482)
Total long-term portion of bonds issued	1,365,669	1,090,935

As of 31 December 2019 and 2018, accrued interest on bonds issued was USD 20,756 thousand and USD 16,322 thousand, respectively.

6.25% Senior Notes

On 19 September 2019, MHP Lux S.A., a public company with limited liability (société anonyme) incorporated in 2018 under the laws of the Grand Duchy of Luxembourg, issued USD 350,000 thousand 6.25% Senior Notes due in 2029 at par value. Received funds were used to satisfy and discharge 8.25% Senior Notes due in April 2020, debt refinancing and general corporate purposes.

All expenses associated with placement of 6,25% Senior Notes amounted to USD 2,888 thousand were capitalized.

The Senior Notes are jointly and severally guaranteed on a senior basis by MHP SE, Raftan Holding Limited, PrJSC "Oril - Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, "Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator" LLC, PrJSC "Myronivsky Hliboproduct", PrJSC "Zernoprodukt MHP" and PrJSC "Agrofort".

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. If a change of control occurs, the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

27. Bonds issued (continued)

6.95% Senior Notes

On 3 April 2018, MHP Lux S.A., a public company with limited liability (société anonyme) incorporated in 2018 under the laws of the Grand Duchy of Luxembourg, issued USD 550,000 thousand 6.95% Senior Notes due in 2026 at par value. Out of the total issue amount USD 416,183 thousand were designated for redemption and exchange of existing 8.25% Senior Notes due in 2020.

Early redemption of 8.25% Senior Notes due in 2020 out of issue of 6.95% Senior Notes due in 2026, which were placed with the same holders and where the change in the net present value of the future cash flows discounted using the original effective interest rate was less than, 10% was accounted as an exchange and thus, all the related expenses, including part of consent fees, were capitalized and will be amortised over the maturity period of the 6.95% Senior Notes due in 2026.

The part of expenses, connected with placement of 6,95% Senior Notes amounted to USD 11,564 thousand were capitalized, including USD 10,413 thousands related to the exchange. All other related expenses in the amount of USD 32,915 thousand were expensed as incurred.

As a result of a non-substantial modification, the difference between the present value of the cash flows under the original and modified terms discounted at the original effective interest rate was recognised as a gain in the amount of USD 4,733 thousand at the date of modification in the consolidated statement of profit or loss.

The Senior Notes are jointly and severally guaranteed on a senior basis by MHP SE, PrJSC "Myronivsky Hliboprodukt", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, "Vinnytska Ptakhofabryka" LLC, "Peremoga Nova" SE, "Katerinopolskiy Elevator" LLC, Scylla Capital Limited and Raftan Holding Limited.

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. If a change of control occurs, the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

7.75% Senior Notes

On 10 May 2017, MHP SE issued USD 500,000 thousand 7.75% Senior Notes due in 2024 at par value. Out of the total issue amount USD 245,200 thousand were designated for redemption and exchange of existing 8.25% Senior Notes due in 2020.

Early redemption of 8.25% Senior Notes due in 2020 out of issue of 7.75% Senior Notes due in 2024, which were placed with the same holders and where the change in the net present value of the future cash flows discounted using the original effective interest rate was less than 10% was accounted as an exchange and thus, all the related expenses, including part of consent fees, were capitalized and will be amortised over the maturity period of the 7.75% Senior Notes due in 2024.

The part of expenses, connected with placement of 7.75% Senior Notes amounted to USD 9,830 thousand were capitalized, including USD 7,318 thousands related to the exchange. All other related expenses, including part of consent fees, in the amount of USD 4,599 thousand were expensed as incurred.

The carrying amount of the Senior Notes was adjusted on transition to IFRS 9. Under IFRS 9, as a result of a non-substantial modification, the difference between the present value of the cash flows under the original and modified terms discounted at the original effective interest rate should be recognised as a gain at the date of modification. The difference between the carrying amount of the Senior Notes under IAS 39 and IFRS 9 was recognised in opening retained earnings in the amount of USD 7,566 thousand.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

27. Bonds issued (continued)

7.75% Senior Notes (continued)

The Senior Notes are jointly and severally guaranteed on a senior basis by PrJSC "Myronivsky Hliboprodukt", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC "Zernoprodukt MHP", PrJSC "Agrofort", PrJSC "Oril-Leader", PrJSC "Myronivska Pticefabrika", "SPF "Urozhay" LLC, "Starynska Ptakhofabryka" ALLC, Vinnytska Ptakhofabryka LLC, SE "Peremoga Nova", "Katerinopolskiy Elevator" LLC, Scylla Capital Limited, Raftan Holding Limited.

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indenture, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. If a change of control occurs, the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

8.25% Senior Notes

On 8 April 2013, MHP SE issued USD 750,000 thousand 8.25% Senior Notes due in 2020 at an issue price of 100% of the principal amount. USD 350,000 thousand out of issued USD 750,000 thousand 8.25% Senior Notes were used to early redemption and exchange of its existed 10.25% Senior Notes due in 2015.

Early redemption of 10.25% Senior Notes due in 2015 out of issue of 8.25% Senior Notes due in 2020, which were placed with the same holders and where the change in the net present value of the future cash flows discounted using the original effective interest rate was less than 10% was accounted as an exchange and thus all the related expenses, including consent fees, were capitalized and will be amortised over the maturity period of the 8.25% Senior Notes due in 2020.

The part of expenses, connected with placement of 8.25% Senior Notes amounted to USD 28,293 thousand were capitalized, including USD 22,813 thousands related to the exchange. All other related expenses, including part of consent fees, in the amount of USD 16,515 thousand were expensed as incurred.

The Senior Notes are jointly and severally guaranteed on a senior basis by PrJSC "Myronivsky Hliboprodukt", SE "Peremoga Nova", PrJSC "Oril-Leader", PJSC "Myronivsky Plant of Manufacturing Feeds and Groats", PrJSC "Zernoproduct MHP", PrJSC "Myronivska Pticefabrika", "Starynska Ptakhofabryka" ALLC, Snyatynska Ptakhofabryka, "Katerinopolskiy Elevator" LLC, PrJSC "Agrofort", "SPF "Urozhay" LLC, Vinnytska Ptakhofabryka LLC, Scylla Capital Limited, Raftan Holding Limited, Merique Holding Limited.

Interest on the Senior Notes is payable semi-annually in arrears. These Senior Notes are subject to certain restrictive covenants including, but not limited to, limitations on the incurrence of additional indebtedness in excess of Net Debt to EBITDA ratio as defined by the indebtedness agreement, restrictions on mergers or consolidations, limitations on liens and dispositions of assets and limitations on transactions with affiliates. If the Group fails to comply with the covenants imposed, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may, upon written notice to the Group, declare all outstanding Senior Notes to be due and payable immediately. If a change of control occurs the Group shall make an offer to each holder of the Senior Notes to purchase such Senior Notes at a purchase price in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any.

On 21 October 2019 the Group redeemed all USD 79,471 thousand of the aggregate principal amount outstanding of its 8.25% Senior Notes due in 2020 in accordance with the terms of the indenture. The redemption price amounted to USD 81,917 thousand. Difference between redemption price and principal outstanding in the amount of USD 2,164 thousand was recognised in the consolidated statement of profit or loss as incurred.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

27. Bonds issued (continued)

Consent solicitation

On 12 October 2018, the Group received consent from the Holders of the outstanding USD 79,417 thousand 8.25% Senior Notes for certain proposed amendments to the Indenture and the Notes. The Amendments were implemented by way of execution of the Supplemental Indenture on 15 October 2018, and became effective from the Consent Settlement Date (17 October 2018).

In relation to the Notes, the Company has, on the Consent Settlement Date, paid to those Holders from whom valid Consents were delivered and not revoked on or prior to the Consent Expiration Date and which Consents were accepted by the Company the Consent Payment of USD 10.00 for each USD 1 thousand in principal amount of the Notes that were subject of the relevant Electronic Instructions.

Covenants

Certain restrictions under the indebtedness agreements (e.g. incurrence of additional indebtedness, restricted payments, dividends payment) are dependent on the leverage ratio of the Group. Once the leverage ratio exceeds 3.0 to 1, it is not permitted for the Group to make certain restricted payments, declare dividends exceeding USD 30 million in any financial year, incur additional debt except that is defined as a Permitted Debt. According to the indebtedness agreement, the consolidated leverage ratio is tested on the date of incurrence of additional indebtedness or restricted payment and after giving pro forma effect to such incurrence or restricted payment as if it had been incurred or done at the beginning of the most recent four consecutive fiscal quarters for which financial statements are publicly available (or are made available). The Group has tested all the transactions occurred prior to publication of these financial statements and has complied with all the covenants defined by indebtedness agreement during the reporting periods ended 31 December 2019 and 31 December 2018.

As at 31 December 2019 the leverage ratio of the Group is 3.01 to 1, higher than the defined limit 3.0 to 1. Thus, since the moment of publication of these audited consolidated financial statements as of and for the year ended 31 December 2019, the aforementioned restrictions will be binding on the Group.

28. Lease liabilities

Long-term lease obligations represent amounts due under agreements for the leasing of agricultural land, trucks, agricultural machinery and equipment. As of 31 December 2019, the weighted average interest rates on lease obligations were 4.97%, 6.5% and 20.2% for lease obligations denominated in EUR, USD and UAH respectively (2018: 6.40% and 8.61% and n/a).

The amount of interest expense on lease liabilities for the year ended 31 December 2019 was USD 37,784 thousand. The total cash outflow for leases for the year ended 31 December 2019 was USD 53,590 thousand.

The amount of depreciation charge for right-of-use assets and additions to right-of-use assets for the year ended 31 December 2019 was USD 33,250 thousand and USD 19,607 respectively.

The carrying amount of lease liabilities as at 31 December 2019 includes USD 199,233 thousand of land lease liabilities.

The following is the maturity analysis of lease payments under the lease agreements as of 31 December 2019 and 2018:



	2019	2018
Payable within one year	64,074	5,409
Payable in the second to fifth years	205,137	10,424
Payable after five years	176,219	-
	445,430	15,833
Less:
Future finance charges	(229,567)	(2,391)
Present value of lease obligations	215,863	13,442
Less:
Current portion	(64,074)	(4,355)
Lease obligations, long-term portion	151,789	9,087

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

29. Other current liabilities

Other current liabilities were as follows as of 31 December 2019 and 2018:


	2019	2018

Financial liabilities at amortised cost
Accrued payroll	42,344	37,698
Amounts payable for property, plant and equipment	14,478	16,146
Other financial liabilities	3,230	6,327
Non-financial instruments
Advances from third parties	61,293	30,388
Payroll related taxes	4,807	3,138
Other non-financial instruments	5,842	2,686
	131,994	96,383

Advances from third parties as of 31 December 2018 in the amount of USD 30,388 were recognized as revenue during the year ended 31 December 2019.

30. Related party balances and transactions

For the purposes of these financial statements, parties are considered to be related if one party controls, is controlled by, or is under common control with the other party, or exercises significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.

Transactions with related parties under common control

The Group enters into transactions with related parties that are the companies under common control of the Principal Shareholder of the Group (Note 1) in the ordinary course of business for the purchase and sale of goods and services and in relation to the provision of financing arrangements.

Terms and conditions of sales to related parties are determined based on arrangements specific to each contract or transaction. The terms of the payables and receivables related to trading activities of the Group do not vary significantly from the terms of similar transactions with third parties.

The transactions with the related parties during the years ended 31 December 2019 and 2018 were as follows:


	2019	2018

Loans provided to key management personnel	4,895	768
Sales of goods	10	-
Purchases from related parties	10	44
Loans provided	35,204	8,091
Loans repaid	17,315	5,322
Interest charged on loans and finance aid provided	854	50
Loss allowance against loans and finance aid provided	3,128	-

The balances owed to and due from related parties were as follows as of 31 December 2019 and 2018:


	2019	2018

Loans and finance aid receivable	24,845	5,950
Less: allowance for unrecoverable amounts	(3,128)	-
	21,717	5,950

Loans to key management personnel	4,945	971
Trade accounts receivable (Note 21)	197	111
Payables due to related parties	19	19

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

30. Related party balances and transactions (continued)

Loans and finance aid receivable

On 11 February 2019, the Board approved a loan facility of USD 20,000 thousand to its principal shareholder, WTI Trading Limited ("WTI") to meet WTI's general liquidity requirements and other corporate purposes for a maximum of three years. The facility was increased to USD 50,000 thousand on 4 December 2019. The facility was further increased by the Board to USD 80,000 thousand on 21 January 2020.

As of 31 December 2019, the Group had advanced loans to WTI in the aggregate amount of USD 20,400 thousand. The loans, with a maturity in July 2020, bear interest at a rate of 8.25% and are unsecured.

Subsequent to 31 December 2019, the total amount of loans advanced was increased to USD 55,400 thousand, including USD 20,000 thousand to be repaid in September 2020. The Group's Directors believe that the loans were issued at arm's length terms and for fair market value, and that they were in the best interests and for the commercial benefit of the Group and does not violate the terms of the Senior Notes (Note 27).

During the year, the Group advanced to other affiliated companies under the common control of WTI, short term unsecured loans which were fully repaid within the year and carried interest at rates between 2.5% - 8.25%.

Compensation of key management personnel

Total compensation of the Group's key management personnel included primarily in selling, general and administrative expenses in the accompanying consolidated statements of profit and loss and other comprehensive income amounted to USD 18,654 thousand and USD 16,809 thousand for the years ended 31 December 2019 and 2018, respectively. Compensation of key management personnel consists of contractual salary and performance bonuses.

Total compensation of the Group's non-executive directors, which consists of contractual salary, amounted to USD 679 thousand and USD 1,106 thousand in 2019 and 2018, respectively.

Key management personnel totalled 43 and 35 individuals as of 31 December 2019 and 2018, respectively, including 3 and 4 independent non-executive directors as of 31 December 2019 and 2018, respectively.

Loans to key management personnel

The Group has provided several of its key management personnel with short-term unsecured loans at interest-free rates. The loans to key management personnel include the loans provided by the Ukraininan subsidiaries to the Group's directors amounted to USD 4,253 thousand and USD 562 thousand in 2019 and 2018, respectively.

Other transactions with related parties

In December 2018 the Group increased its effective ownership interest in Agrofort to 100% through the acquisition of a non-controlling interest previously held by one of its key management personnel in exchange for 256,414 treasury shares held by the Group. The difference between fair value of shares transferred and their carrying value in the amount of USD 1,269 thousand was recognised as an adjustment to additional paid-in capital. The difference between fair value of shares transferred and the carrying value of non-controlling interest was recognised as an adjustment to retained earnings in the amount of USD 997 thousand.

31. Contingencies and contractual commitments

Operating Environment

Since 2016, the Ukrainian economy has demonstrated signs of stabilization after years of political and economic tension. In 2019, the Ukrainian economy continued its recovery and achieved real GDP growth of around 3.6% (2018: 3.3%), modest annual inflation of 4.1% (2018: 9.8%), and stabilization of the national currency (appreciation of the national currency by around 5% to USD and 11% to EUR comparing to previous year averages).

Ukraine continues to limit its political and economic ties with Russia, given annexation of Crimea, an autonomous republic of Ukraine, and an armed conflict with separatists continued in certain parts of Luhanska and Donetska regions. As a result of this, the Ukrainian economy is refocusing on the European Union (the "EU") market by realizing potentials of established Deep and Comprehensive Free Trade Area with the EU.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

31. Contingencies and contractual commitments (continued)

To further facilitate business activities in Ukraine, the National Bank of Ukraine (the "NBU") from 20 June 2019 has lifted the surrender requirement for foreign currency proceeds, cancelled all limits on repatriation of dividends since July 2019 and gradually decreased its discount rate for the first time in two years, from 18.0% in April 2019 to 11.0% in January 2020.

The degree of macroeconomic uncertainty in Ukraine in 2019 still remains high due to a significant amount of public debt scheduled for repayment in 2019-2020, which requires mobilizing substantial domestic and external financing in an increasingly challenging financing environment for emerging markets. At the same time, Ukraine has passed through the period of presidential and parliamentary elections. All newly elected authorities have demonstrated their commitment to introduce reforms in order to boost economic growth, while maintaining macro-fiscal stability and liberalizing economic environment. These changes have resulted in, inter alia, improved Fitch's rating of Ukraine's Long-Term Foreign- and Local-Currency Issuer Default Ratings from 'B-' to 'B', with a positive outlook.

Further economic growth depends, to a large extent, upon success of the Ukrainian government in realization of planned structural reforms and effective cooperation with the International Monetary Fund (the "IMF").

In addition, starting from early 2020 a new coronavirus disease (COVID-19) has begun rapidly spreading all over the world resulting in announcement of pandemic status by the World Health Organization in March 2020. Responses put in place by many countries to contain the spread of COVID-19 are resulting in significant operational disruption for many companies and have significant impact on global financial markets. As the situation is rapidly evolving it may have a significant effect on business of many companies across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. In addition, the Group may face the increasingly broad effects of COVID-19 as a result of its negative impact on the global economy and major financial markets. The significance of the effect of COVID-19 on the Group's business largely depends on the duration and the incidence of the pandemic effects on the world and Ukrainian economy.

Taxation and legal issues

Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. The local and national tax environment is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and fines. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and fines, and these amounts could be material. While the Group believes it has complied with local tax legislation, there are new significant changes to the tax legislation that may be introduced in the near future.

Management believes that the Group has been in compliance with all requirements of effective tax legislation.

The Group exports vegetable oil, chicken meat and related products, and performs intercompany transactions, which may potentially be in the scope of the Ukrainian transfer pricing ("TP") regulations. The Group has submitted the controlled transaction report for the year ended 31 December 2018 within the required deadline, and is in the process of preparation of all necessary documentation on controlled transactions for the years ended 31 December 2019 as required by legislation and plans to submit reports by 1st October 2020.

As of 31 December 2019, the Group's management assessed its possible exposure to tax risks for a total amount of USD 6,516 thousand related to corporate income tax (31 December 2018: USD 4,452 thousand). No provision was recognised relating to such possible tax exposure.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

31. Contingencies and contractual commitments (continued)

As of 31 December 2019, companies of the Group were engaged in ongoing litigation with tax authorities for the amount of USD 23,201 thousand (2018: USD 2,831 thousand), including USD 11,016 thousand (2018: USD 2,108 thousand) of litigations with the tax authorities related to disallowance of certain amounts of VAT refunds and deductible expenses claimed by the Group. Of this amount, USD 1,241 thousand as of 31 December 2019 (2018: USD 1,228 thousand) relates to cases where court hearings have taken place and where the court in either the first or second instance has already ruled in favour of the Group. Manage-ment believes that based on the past history of court resolutions of similar lawsuits by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and, therefore, no respective provision is required in the Group's financial statements as of the reporting date.

Contractual commitments on purchase of property, plant and equipment

During the years ended 31 December 2019 and 2018, the companies of the Group entered into a number of contracts with foreign suppliers for the purchase of property, plant and equipment for development of agricultural operations. As of 31 December 2019, purchase commitments amounted to USD 10,340 thousand (2018: USD 16,826 thousand).

32. Dividends

On 21 March 2019, the Board of Directors of MHP SE approved a payment of the interim dividends of USD 0.7474 per share, equivalent to USD 80,000 thousand, which were paid to shareholders during the year ended 31 December 2019.

33. Fair value of financial instruments

Fair value disclosures in respect of financial instruments are made in accordance with the requirements of IFRS 7 "Financial Instruments: Disclosure" and IFRS 13 "Fair value measurement". Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. As no readily available market exists for a large part of the Group's financial instruments, judgment is necessary in arriving at fair value, based on current economic conditions and specific risks attributable to the instrument. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a market exchange from the sale of its full holdings of a particular instrument.

The fair value is estimated to be the same as the carrying value for cash and cash equivalents, short-term bank deposits, trade accounts receivables, other current assets and trade accounts payable due to the short-term nature of the financial instruments.

Fair value of other non-current assets and liabilities does not differ materially from it carrying amount and are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk.

Set out below is the comparison by category of carrying amounts and fair values of all the Group's financial instruments, excluding those discussed above, that are carried in the consolidated statement of financial position:


	Carrying amount		Fair value
	2019	2018	2019	2018

Financial liabilities

Bank borrowings (Note 26)	101,858	241,648	99,417	233,898
Senior Notes due in 2020, 2024, 2026, 2029 (Note 27)	1,386,425	1,107,257	1,468,144	1,027,226
Lease obligations (Note 28)	215,863	13,442	243,352	13,726

The fair value of bank borrowings and lease obligations was estimated by discounting the expected future cash outflows by a market rate of interest for bank borrowings 5.4% (31 December 2018: 8.0%) and for lease obligations 18.0% (31 December 2018: 8.2%), and is within Level 2 of the fair value hierarchy. The market rate applied to the land lease obligations is 15.6%.

The fair value of Senior Notes was estimated based on market quotations and is within Level 1 of the fair value hierarchy.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

33. Fair value of financial instruments (continued)

Reconciliation of liabilities arising from financing activities

The tables below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.


	Bank borrowings	Bonds issued	Lease obligations	Accrued interest	Total
As of 31 December 2018	238,498	1,090,935	13,442	19,472	1,362,347
Effect of adoption IFRS 16	-	-	163,651	-	163,651
As at 1 January 2019	238,498	1,090,935	177,093	19,472	1,525,998
Cash flow from proceeds / (repayments)	(191,940)	270,583	(53,590)	(101,510)	(76,457)
Transaction costs payments	(697)	(4,751)	-	-	(5,448)
Non-cash movements
Foreign exchange movements	(45,419)	(303)	(1,945)	(3,014)	(50,681)
Acquisition of subsidiaries	58,514	-	16,446	256	75,216
Non-cash additions and change in terms	1,318	-	23,278	-	24,596
Non-cash repayments of lease liabilities	-	-	(10,842)	-	(10,842)
Interest charged	-	-	37,784	100,836	138,620
Amortisation and write-off of transaction costs	1,839	9,205	-	-	11,044
Translation difference	38,712	-	27,639	5,749	72,100
As of 31 December 2019	100,825	1,365,669	215,863	21,789	1,704,146


	Bank borrowings	Bonds issued	Lease obligations	Accrued interest	Total
As at 1 January 2018	175,734	959,262	11,450	17,955	1,164,401
Cash flow from proceeds / (repayments)	53,493	133,817	(5,569)	(92,959)	88,782
Transaction costs payments	(384)	(45,460)	-	-	(45,844)
Non-cash movements
Foreign exchange movements	(6,554)	-	(401)	(335)	(7,290)
Acquisition of subsidiaries	11,377	-	6,774	-	18,151
Interest charged	-	-	1,154	94,773	95,927
Non-cash additions and change in terms	1,232	43,336	-	-	44,568
Translation difference	3,600	(20)	34	38	3,652
As of 31 December 2018	238,498	1,090,935	13,442	19,472	1,362,347

In 2019 management has revised the format of table on changes in liabilities arising from financing activities on the basis that, in the context of the 2019 consolidated financial statements as a whole, this form would be more appropriate for disclosure. Management has updated the 2018 information to align with this revision.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

34. Risk management policies

During the years ended 31 December 2019 and 2018, there were no material changes to the objectives, policies and process for credit risk, capital risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk and commodity price and procurement risk managing.

Capital risk management

The Group manages its capital to ensure that entities of the Group will be able to continue as a going concern while maximising the return to the equity holders through maintaining a balance between the higher returns that might be possible with higher levels of borrowings and the security afforded by a sound capital position. The management of the Group reviews the capital structure on a regular basis. Based on the results of this review, the Group takes steps to balance its overall capital structure through new share issues and through the issue of new debt or the redemption of existing debt.

The Group's target is to achieve a gearing ratio of not higher than 2.5. The Group defines its gearing ratio as the proportion of total liabilities to total equity.

As of 31 December 2019 and 2018 the gearing ratio was as follows:


	2019	2018

Total Liabilities	2,094,629	1,572,659

Total Equity	1,595,866	1,098,006
Total liabilities to Equity	1.31	1.43

Major categories of financial instruments



	2019	2018

Financial assets:
Cash and cash equivalents (Note 23)	340,735	211,768
Trade accounts receivable, net (Note 21)	124,474	69,305
Other current assets (Note 22)	29,337	7,359
Other non-current assets, net (Note 16 )	17,616	17,357
Long-term bank deposits	3,298	3,387
	515,460	309,176

Financial liabilities:
Bonds issued (Note 27)	1,365,669	1,090,935
Lease obligations (Note 28)	215,863	13,442
Trade accounts payable	147,334	66,398
Bank borrowings (Note 26)	100,825	238,498
Accrued payroll (Note 29)	42,344	37,698
Accrued interest (Note 26,27)	21,789	19,472
Amounts payable for property, plant and equipment (Note 29)	14,478	16,146
Other payables (Note 29)	3,230	6,327
	1,911,532	1,488,916

The main risks inherent to the Group's operations are those related to credit risk, liquidity risk, currency risk, interest rate risk, livestock diseases risk, and commodity price and procurement risk.

Credit risk

The Group is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group does not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets. The carrying amount of financial assets disclosed in the table "Major categories of financial instruments" represent the maximum credit exposure.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one customer or group of customers. The approved credit period for major groups of customers, which include franchisees, distributors and supermarkets, is set at 10-30 days.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

34. Risk management policies (continued)

Credit risk (continued)

Limits on the level of credit risk by customer are approved and monitored on a regular basis by the management of the Group. The Group's management assesses amounts receivable from the customers for recoverability starting from 30 and 60 days for receivables on sales of poultry meat and receivables on other sales, respectively. As of 31 December 2019 around 19% (2018: 26%) of trade accounts receivable comprise amounts due from 12 large supermarket chains, which have the shortest contractual receivable settlement period among customers.

As of 31 December 2019 about 49% (2018: 72%) of cash and cash equivalents comprise amounts on the accounts with 2 banks. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to settle all liabilities as they are due. The Group's liquidity position is carefully monitored and managed. The Group has in place a detailed budgeting and cash forecasting process to help ensure that it has adequate cash available to meet its payment obligations.

The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities using the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows as of 31 December 2019 and 2018. The amounts in the table may not be equal to the statement of financial position carrying amounts since the table includes all cash outflows on an undiscounted basis.


	Carrying amount	Contractual Amounts	Less than 1 year	From 2nd to 5th year	After 5th year
Year ended 31 December 2019
Bank borrowings	101,858	108,128	27,698	80,430	-
Bonds issued	1,386,425	2,041,588	98,850	876,025	1,066,713
Lease obligations	215,863	445,430	64,074	205,137	176,219
Total	1,704,146	2,595,146	190,622	1,161,592	1,242,932

Year ended 31 December 2018
Bank borrowings	241,648	257,354	142,301	107,944	7,109
Bonds issued	1,107,257	1,639,058	83,527	390,593	1,164,938
Lease obligations	13,442	15,833	5,409	10,424	-
Total	1,362,347	1,912,245	231,237	508,961	1,172,047

All other financial liabilities (excluding those disclosed above) are repayable within one year.

The Group's target is to maintain its current ratio, defined as the proportion of current assets to current liabilities, at the level of not less than 1.2. As of 31 December 2019 and 2018, the current ratio was as follows:



	2019	2018

Current assets	1,181,641	1,036,678
Current liabilities	390,181	319,323
Current ratio	3.03	3.25

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure, but the management of the Group sets limits on the level of exposure to foreign currency fluctuations in order to manage currency risk.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

34. Risk management policies (continued)

Currency risk (continued)

The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 December were as follows:


	2019		2018
	USD	EUR	USD	EUR
ASSETS
Long-term bank deposits	-	3,298	-	3,387
Other non-current assets, net	16,381	-	15,980	-
Trade accounts receivable, net	23,635	9,431	26,072	5,434
Other current assets, net	15,998	-	3,601	-
Cash and cash equivalents	106,658	1,461	151,535	17,088
	162,672	14,190	197,188	25,909
LIABILITIES
Current liabilities
Trade accounts payable	2,101	7,211	2,536	2,543
Other current liabilities	5	2,327	31	6,916
Accrued interest	20,758	720	18,877	595
Short-term bank borrowings	-	16,683	110,771	21,944
Short-term lease obligations	74	4,238	2,290	2,066
	22,938	31,179	134,505	34,064
Non-current liabilities
Long-term bank borrowings	57	34,224	56,702	49,081
Bonds issued 1)	1,365,669	-	1,090,935	-
Long-term lease obligations	-	5,565	3,072	6,014
	1,365,726	39,789	1,150,709	55,095
	1,388,664	70,968	1,285,214	89,159

1) Bonds were issued by MHP Lux S.A. and MHP SE, which functional currency is USD. Proceeds from bonds issue were transferred in the form of USD denominated intragroup loans to Ukrainian subsidiaries of the Group, which functional currency is UAH, therefore the Group treats bonds issued balance as foreign currency denominated balance. Foreign exchange gain/loss on such intragroup loans is recognized in the consolidated statement of profit or loss, while loan balances themselves are eliminated on consolidation.

The table below illustrates the Group's sensitivity to a change in the exchange rate of the Ukrainian Hryvnia against the US Dollar and EUR. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for possible change in foreign currency rates.


	Change in foreign currency exchange rates	Effect on profit before tax, gain/(loss)

2019

Increase in USD exchange rate	10%	(122,599)
Increase in EUR exchange rate	10%	(5,678)

Decrease in USD exchange rate	5%	61,300
Decrease in EUR exchange rate	5%	2,839

2018

Increase in USD exchange rate	10%	(108,803)
Increase in EUR exchange rate	10%	(6,325)

Decrease in USD exchange rate	5%	54,401
Decrease in EUR exchange rate	5%	3,164

During the year ended 31 December 2019, the Ukrainian Hryvnia appreciated against the EUR and USD by 20.03% and 16.90% respectively (2018: appreciated against the EUR by 5.62% and 1.37% against the USD). As a result, during the year ended 31 December 2019 the Group recognised net foreign exchange gain in the amount of USD 185,291 thousand (2018: foreign exchange gain in the amount of USD 11,638 thousand) in the consolidated statement of profit or loss and other comprehensive income.

Notes to the Consolidated financial statements

for the year ended 31 December 2019

(in thousands of US dollars, unless otherwise indicated)

34. Risk management policies (continued)

Currency risk (continued)

The currency risk is mitigated by the existence of USD-denominated proceeds from sales of sunflower oil, grain and chicken meat, which are sufficient for servicing the Group's foreign currency denominated liabilities and were as follows during the years, ended 31 December 2019 and 2018:



	2019	2018

Chicken meat and related products	588,903	471,177
Vegetable oil and related products	302,600	274,313
Grain	251,836	156,511
Other agricultural segment products	42,362	21,703
	1,185,701	923,704

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect primarily borrowings by changing either their fair value (fixed rate debt) or future cash flows (variable rate debt). For variable rate borrowings, interest is linked to LIBOR or EURIBOR.

The below table illustrates the Group's sensitivity to increases or decreases of interest rates by 5% (2018: 5%). The analysis was applied to interest bearing liabilities (bank borrowings, lease obligations and accounts payable under grain purchase financing arrangements) based on the assumption that the amount of liability outstanding as of the reporting date was outstanding for the whole year.


	Increase/ (decrease) of floating rate	Effect on profit before tax, gain/(loss)
		USD ' 000
2019

LIBOR	5%	(7)
LIBOR	-5%	7
EURIBOR	5%	(3,036)
EURIBOR	-5%	3,036

2018

LIBOR	5%	(8,642)
LIBOR	-5%	8,642
EURIBOR	5%	(3,955)
EURIBOR	-5%	3,955

The effect of interest rate sensitivity on shareholders' equity is equal to that on the consolidated statement of profit or loss.

Livestock disease risk

The Group's agro-industrial business is subject to risks of outbreaks of various diseases. The Group faces the risk of outbreaks of diseases, which are highly contagious and destructive to susceptible livestock, such as avian influenza or bird flu for its poultry operations. These and other diseases could result in mortality losses. Disease control measures were adopted by the Group to minimize and manage this risk. The Group's management is satisfied that its current existing risk management and quality control processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.

Commodity price and procurement risk

Commodity price risk arises from the risk of an adverse effect on current or future earnings from fluctuations in the prices of commodities. To mitigate this risk the Group continues expansion of its grain growing segment, as part of vertical integration strategy, and also accumulates sufficient commodity stock to meet its production needs.

35. Pensions and retirement plans

The employees of the Group receive pension benefits from the government in accordance with the laws and regulations of Ukraine. The Group's contributions to the State Pension Fund for the year ended 31 December 2019 was USD 48,702 thousand, out of which USD 100 thousand correspond to directors, and is recorded in the consolidated statement of profit or loss and other comprehensive income on an accrual basis (2018: USD 33,097 thousand, out of which USD 74 thousand correspond to directors).

Notes to the Consolidated financial statements

for the year ended 31 December 2019f

(in thousands of US dollars, unless otherwise indicated)

35. Pensions and retirement plans (continued)

The employees of the Group receive pension benefits from the government. In accordance with the legislative regulations, collective contract, and internal rules, the companies of the Europe operating segment are committed to the payment of loyalty bonuses to employees and the severance payments upon their retirement for which long-term provisions are made. Provisions are recognized in other operating expenses in the consolidated statement of profit or loss and other comprehensive income and in other non-current liabilities in the statement of financial position.

36. Earnings per share

The earnings and weighted average number of ordinary shares used in calculation of earnings per share are as follows:


From continued operations	2019	2018

Profit for the year attributable to equity holders of the Parent	224,263	126,200
Earnings used in calculation of earnings per share	224,263	126,200

Weighted average number of shares outstanding	107,036,256	106,804,274
Basic and diluted earnings per share (USD per share)	2.10	1.18

The Group has neither potentially dilutive ordinary shares nor other dilutive instruments; therefore, the diluted earnings per share equal basic earnings per share. The denominators used are the same as those detailed above for both basic and diluted earnings per share from discontinued operations presented in Note 2.

37. Subsequent events

Implications of the coronavirus outbreak on the business operations

Many countries have adopted extraordinary and economically costly containment measures. Certain countries have required companies to limit or even suspend normal business operations. Governments, including the Ukraine and Slovenia, have implemented restrictions on travelling as well as strict quarantine measures.

• whether the entity can continue to operate if staff were not able to physically be present;

• the duration that the entity could survive given the availability of cash resources and the flexibility of its cost base;

• whether there has been a significant decline in revenue;

• whether there has been a significant erosion of profits due to higher costs or incurrence of unforeseen expenses;

• whether there is a likelihood of potential breach of debt covenants as a result of the adverse impact on its financials;

• whether there have been any concerns on the continuation of receipt of goods/services from suppliers.

Notes to the Consolidated financial statements

for the year ended 31 December 2019f

(in thousands of US dollars, unless otherwise indicated)

37. Subsequent events (continued)

Management has concluded that there is no significant impact in the Group's profitability position. The event is not expected to have an immediate material impact on the business operations. Management will continue to monitor the situation closely and will assess the need for addition measures in case the period of disruption becomes prolonged.

Despite COVID-19 outbreak, the Group continues to fulfill its liabilities. The Group made a coupon payments in an amount of USD 10,938 thousand on 18 March 2020 in respect of the 6.25% Senior Notes and USD 19,113 thousand on 2 April 2020 in respect of the 6,95% Senior Notes.

The event is considered as a non-adjusting event and is therefore not reflected in the recognition and measurement of the assets and liabilities in the financial statements as at 31 December 2019.

Loans and finance aid receivable

Subsequently to 31 December 2019, the limit of the facility to parent company WTI was increased by resolution of the Board of Directors to USD 80,000 thousand and the total amount of loans advanced totalled USD 55,400 thousand, including USD 20,000 thousand to be repaid in September 2020. (Note 30). The Group's Directors believe that the loans were issued at arm's length terms and for fair market value, and that they were in the best interests and for the commercial benefit of the Group.

Dividends

On 13 April 2020, the Board of Directors approved payment of an interim dividend of USD 0.2803 per share, equivalent to USD 30,000 thousand, to be paid to shareholders by the end of April 2020.

38. Authorization of the consolidated financial statements

These consolidated financial statements were authorized for issue by the Board of Directors of MHP SE on 13 April 2020.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

END

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