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Ovostar Union PLC Annual Report 2015
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ovostar union
ANNUAL REPORT
2015
Continued
Aspire. Create. Achieve.
CEO STATEMENT
Dear Shareholders,
Over 2015 Ovostar Union continued to follow its organic growth strategy and, consequently, to increase the production of eggs and egg products.
Our vertically integrated business model and dedicated work of Ovostar team resulted in solid financial performance of the Group despite the unstable macroeconomic situation in Ukraine.
Stronger focus on development of export markets will be maintained in 2016. Having started to export the egg products to the European Union in June 2015, we plan to increase our supplies further.
We continue to install the cutting-edge equipment at Stavysche production complex. All the equipment at reconstructed laying hens houses of Stavysche are certified according to and compliant with the EU standards of poultry farming.
I am grateful for the outstanding performance of Ovostar Union team and optimistically look into the future.
Sincerely,
Borys Bielikov
Chief Executive Officer
Ovostar Union N.V.
Annual Report 2015 | 3
TABLE OF CONTENTS
1 Management Report
- Key financial highlights 6
- Corporate summary 8
- Market overview and competitive position 12
- Activity in key segments 13
- Financial results overview 18
- Strategy and outlook for 2016 20
- Human resources 24
- Risk management and internal control 25
- Shareholder and share information 28
2 Corporate Governance Report
- The Board of Directors 30
- Committees of the Board 33
- Meetings with Stakeholders 34
- Corporate governance and control 37
3 Financial Statements
- Consolidated financial statements 41
- Notes to consolidated financial statements 46
- Company financial statements 96
- Notes to the company's financial statements 99
- Independent Auditor's Report 104
Ovostar Union N.V.
Annual Report 2015 | 4
1 Management Report
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Key financials
Income Statement
| 2015 | 2014 | YoY | |
|---|---|---|---|
| Revenue | 75.6 | 74.8 | 1% |
| Gross profit | 32.4 | 26.8 | 21% |
| EBITDA | 34.8 | 29.1 | 20% |
| Profit before tax | 32.7 | 26.0 | 26% |
| Net profit | 31.9 | 25.8 | 24% |
Balance Sheet
| 2015 | 2014 | YoY | |
|---|---|---|---|
| Assets | 100.7 | 101.6 | (1%) |
| Non-current assets | 59.5 | 68.2 | (13%) |
| Current assets | 41.2 | 33.4 | 23% |
| Equity and Liabilities | 100.7 | 101.6 | (1%) |
| Equity | 78.5 | 85.0 | (8%) |
| Non-current liabilities | 14.2 | 7.6 | 87% |
| Current liabilities | 8.0 | 8.9 | (11%) |
EBITDA and EBITDA margin
Net profit and net profit margin
Ovostar Union N.V.
Annual Report 2015
Key financials
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Cash Flows
| 2015 | 2014 | YoY | |
|---|---|---|---|
| Net cash generated by operating activities | 26.1 | 16.1 | 62% |
| Net cash used in investing activities | (15.2) | (17.6) | (14%) |
| Net cash generated by financing activities | (1.4) | (3.5) | (61%) |
Net debt position
| 2015 | 2014 | YoY | |
|---|---|---|---|
| Total debt | 17.0 | 9.6 | 78% |
| Cash and cash equivalents at 31 December | 10.9 | 2.5 | 4.4x |
| Net debt | 6.1 | 7.1 | (14%) |
Net cash from operations, mUSD
Net debt / EBITDA
Ovostar Union N.V.
Annual Report 2015 | 7
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Corporate Summary
Ovostar Union N.V. is a holding entity incorporated under the laws of the Netherlands consolidating companies with production assets located in Ukraine (hereinafter referred to as "we, us"). Our shares have been quoted on the Warsaw Stock Exchange since June 2011.
Our mission is to produce ecologically clean and healthy food for Ukrainians. Also as we grow and gradually increase the volume of eggs produced, we develop the export markets and supply the shell eggs and egg products of consistently high quality to our international clients.
Within the egg segment, we constantly focus on meeting the demand of Ukrainian middle class consumers. With the shell egg portfolio of over 20 sub-brands we supply branded eggs to the largest retail chains in Ukraine. Additionally, as a result of gradually increasing egg production we are developing the presence on export markets.
Within the egg products segment, we offer the full range of egg products of both liquid and dry forms. By adjusting the products to the clients' needs (while maintaining the superior quality) we achieve the loyalty of largest food processing companies in Ukraine and outside.
BUSINESS GEOGRAPHY
Our production facilities are located in the Central part of Ukraine in Kyiv and Cherkasy regions within 130 km from each other. Production premises include one breeder farm with parent flock, one hatchery producing day-old pullets, two young laying hens sites and two laying hen farms. The egg processing plant is located on the premises of one of the laying hen farms. The time between the egg is laid and supplied to the egg processing plant is less than 24 hours – this ensures the high quality of final egg products.
Auxiliary production consists of two fodder mills with a total capacity of 56 tons of fodder per hour and an oilseed processing plant that produces the oilseed meal used in poultry feed besides the oil for sale. In 2015 there was a switch from sunflower seed to rapeseed processing due to attractive spot price of sunflower meal in Ukraine.
It takes up to 24 hours to transport the fresh eggs to egg processing plant
- Laying hens farm
- Laying hens farm + Egg processing plant + Fodder mill
- Young laying hens farm
- Hatchery + Breeder farm
- Fodder mill
Ovostar Union N.V.
Annual Report 2015
Corporate Summary
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
BUSINESS MODEL
Our production sites employ the most up-to-date poultry and processing equipment and progressive technological concepts in order to ensure the efficiency of production processes and superior quality of final products.
High level of vertical integration allows us to control product quality at each stage of the production process
Having initially adopted a large-scale production approach, our vertically integrated business model makes full production cycle span from parent flock to egg processing. In addition to core business we maintain our own fodder production, processing of rapeseeds and grain storage in order to ensure the high quality of the poultry fodder provided to our poultry flock.
Our products are compliant with international quality standards ISO 9001:2008 and ISO 22000:2005, FSSC 22000 as well as applicable national Ukrainian standards and sanitary norms. We also possess the Halal Certificate to export internationally.
Ovostar Union N.V.
Annual Report 2015 | 9
Corporate Summary
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Our Brands
Shell Eggs
We supply the Ukrainian market with the widest range of packaged shell eggs under brand name Yasensvit™. Key customers in shell egg sales are large local and international retail chains in Ukraine. With growing egg production we also develop the long-term relationships with clients abroad.
Prices for branded packaged eggs are traditionally higher than the average egg price on the market. The price premium is justified by recognized consistently high quality of products under Yasensvit™ brand and the wide range of assortment adjusted to specific consumer preferences.
In 2015 we kept the position of major producer of private label eggs in Ukraine. Our eggs branded by retail network labels are supplied to Auchan, Silpo, Metro, Furshet, ATB, Velyka Kyshenya, Eko and a number of smaller regional retail chains.
First and most popular egg brand in Ukraine
- Providing consistently high product quality
- Meeting demand of the middle class consumers
- Suppling to largest retail chains in Ukraine
In 2016 Yasensvit™ celebrates its 15-year anniversary on the market
Shell eggs portfolio
- Premium
- Standard
- Economy
- Private label
Ovostar Union N.V.
Annual Report 2015 | 10
Corporate Summary
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Egg Products
We offer the whole range of separated and whole egg products in dry and liquid forms under the Ovostar™ brand. The demand for egg products mainly comes from food companies in Ukraine and abroad.
The egg products segment is B2B-oriented as the egg products are used for production of confectionary, mayonnaise, meat products. Each client demands the egg product with specific characteristics needed for the final good. Being flexible and adjusting to clients' needs maintain the loyalty of our major clients as well as our position of largest producer of liquid egg products in Ukraine.
Among our key local customers are Roshen, Kraft Foods Ukraine (part of Mondelez International), Kharkiv Biscuit, and Nestle. We are also the exclusive supplier of eggs and egg products to McDonalds Ukraine.
The wide range of assortment together with flexible transition between the products allows us to offset the seasonal price fluctuations that are present in local shell egg market throughout the year, and to even the profitability throughout the reporting periods.
OVOSTAR
Pioneer in Ukrainian egg processing market in 2006
- Leading producer of liquid egg products
- Providing consistently high product quality
- Offering the whole assortment of liquid and dry egg products
- Suppling to largest food processing companies in and outside of Ukraine
In 2016 Ovostar™ celebrates its 10-year anniversary on the market
Egg products portfolio
Dry
Whole egg
Egg white
Egg yolk and fermented egg yolk
Liquid
Whole egg
Egg white
Egg yolk and fermented egg yolk
Ovostar Union N.V.
Annual Report 2015
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Market overview and competitive position
SHELL EGGS MARKET
The total volume of eggs produced by laying hens in Ukraine within 2015 declined by 16% according to the data of State Statistics Committee of Ukraine.
The Ukrainian shell egg market is historically divided into industrial and household production. While the household egg production remained unchanged, the industrial egg production experienced a decrease of 24% to 9.8 billion pieces. The share of eggs produced in industrial format reached 58% in 2015 comparing to 64% in 2014.
The number of laying hens flock in Ukraine decreased by 14% and reached 36.8 million heads over the year.
In 2015 egg consumption rate in Ukraine reached approximately 276 eggs per capita.
EGG PRODUCTS MARKET
In 2015 Ukrainian egg products market slowed down.
Over the reporting period, the size of the liquid egg products market in Ukraine remained unchanged. We kept our leading position in this sector enjoying a 94% market share.
On the contrary, production of dry egg products in Ukraine in 2015 decreased by 55%.
94% – share of Ovostar Union in production of liquid egg products in Ukraine (2014: 90%)
13% – share of Ovostar Union in production of dry egg products in Ukraine (2014: 6%)
12% — share of Ovostar Union in industrial egg production of Ukraine (2014: 8%)
Total egg production in Ukraine, bln pcs
(excluding Crimea and parts of Donetsk and Lugansk regions)
Source: Union of Poultry Farmers in Ukraine
Production of egg products in Ukraine, ths tons
(excluding Crimea and parts of Donetsk and Lugansk regions)
Source: Union of Poultry Farmers in Ukraine
Ovostar Union N.V.
Annual Report 2015
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Activity in key segments
EGG SEGMENT
Production
In 2015 our egg production volume increased by 15% year-on-year to 1 196 mln eggs (2014: 1 038 mln eggs). Following our investment program, we are gradually expanding our production capacity. As at 31 December 2015 our total flock grew by 16% to 6.5 mln hens, while our laying hens flock increased by 0.9 mln heads and reached 5.3 mln hens.
Sales
Volume of eggs sold in 2015 grew by 18% to 862 mln eggs, what resulted into USD 53.2 million of total revenue (2014: USD 48.6 million).
Ukraine is our major market and our supply of eggs on the local market remained the same year-on-year: 634 mln eggs or 73% of our sales volume (2014: 644 mln eggs or 88%). The growth of shell eggs volume for sale was mainly directed for export. In 2015 the volume of eggs exported increased 2.6 times, from 89 to 229 mln eggs. The export price during the first three quarters of 2015 was higher than the local price in USD terms.
Our average selling price of shell eggs over the year increased by 68% to 1.374 UAH/egg compared to 0.819 UAH/egg in 2014.
mUSD 55.5
segment revenue in 2015
including 2.3 mUSD from other sales
(2014: 51.4 mUSD
including 2.8 mUSD)
Egg sales
Shell eggs sales structure in 2015
Ovostar Union N.V.
Annual Report 2015 | 13
Egg collection logistics is managed by one operator, Vasylkiv production site
Eggs are automatically collected and transported from poultry houses to the egg sorting machine and to egg processing plant, Vasylkiv production site
Nabel egg sorting machine with production capacity of 240 thousand eggs/hour, Stavysche production site
Ovostar Union N.V.
Annual Report 2015 | 14
Activity in key segments
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
EGG PRODUCTS SEGMENT
Production
In 2015 we processed 347 mln eggs (2014: 319 mln eggs) producing 6 787 tons of liquid and 1 924 tons of dry egg products.
Sales
The production plan of egg products was adjusted to the stronger focus on export-oriented dry egg products. In 2015 this segment generated USD 18.2 million of total revenue.
Sales volume of dry egg products increased by 13% to 1 941 tons, while volume of dry egg products exported reached 908 tons compared to 828 tons in 2014. Average selling price of dry egg products increased by 79% year-on-year to 107.64 UAH/kg.
Sales volume of liquid egg products increased by 3% to 6 692 tons. Average selling price of liquid egg products increased by 48% to 26.87 UAH/kg.
mUSD 18.2
segment revenue in 2015
(2014: 20.0 mUSD)
Liquid egg products sales
Dry egg products sales
Ovostar Union N.V.
Annual Report 2015 | 15
The breaking machine produces either the whole egg or separated egg yolk and egg white, Vasylkiv egg processing plan
The ultrafiltration unit installed has doubled the production capacity of dry egg white, Vasylkiv egg processing plan
Liquid egg products are ready to be delivered to European customers, Vasylkiv egg processing plan
Ovostar Union N.V.
Annual Report 2015 | 16
Activity in key segments
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
SALES GEOGRAPHY BY REVENUE
mUSD 21.6
export revenue in 2015
(2014: 11.6 mUSD)
Export markets development
The revenue from export sales over 2015 increased by 85% to USD 21.6 million and was received mostly in USD.
Middle East is our key export market as the region is rather close in distance via sea transportation and can offer an attractive price for eggs and egg products.
As EU-Ukraine deep and comprehensive free trade agreement was enforced, we started to export the egg products to the EU in June 2015.
Ovostar Union N.V.
Annual Report 2015 | 17
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Financial results overview
FINANCIAL PERFORMANCE
Despite 15% growth in egg production, our revenue maintained at the level of 2014 due to devaluation of Ukrainian Hryvnia. On the other hand, the profitability has increased mainly because the prices on shell eggs and egg products were growing faster than the prices on raw materials.
Revenue
Our revenue in 2015 increased by 1% to USD 75.6 million from USD 74.8 million. Egg segment contributed the most (USD 55.5 million) generating 73% of total revenue. The egg products segment achieved USD 18.2 million in 2015. The remaining has been contributed by the oilseed segment (USD 1.9 million).
Gross profit and cost of sales
The cost of sales decreased by 10% year-on-year due to slow recovery of prices on raw materials in USD after significant devaluation of UAH. Gross profit reached USD 32.4 million, the 21% increase compared to 2014.
EBITDA
Higher gross profit together with Increase of income from special VAT treatment by 78% that overweighed most of SG&A and other operating expenses led to EBITDA reaching USD 34.8 million, a 20% increase year-on-year.
Profitability dynamics, mUSD
Revenue structure by segments
FINANCIAL POSITION
Assets, liabilities and equity
In 2015 value of our total assets decreased by 1% to USD 100.7 million. As a result of devaluation of UAH the value of non-current assets declined by 13%, despite four newly constructed laying hens houses and 20% increase in total flock. Accumulated cash reserve together with increased inventories and prepayments to suppliers mostly compensated the decline.
The total equity declined by 8% mostly due to accumulated foreign currency translation reserve. On the contrary, the export financing loan obtained for stage 1 of investment program has increased the liabilities side by 34%.
24% increase
in net profit in 2015 (mUSD 31.9)
Ovostar Union N.V.
Annual Report 2015 | 18
Financial results overview
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Loans and borrowings
As a result of obtaining the second long-term export financing loan, our total interest-bearing loans and borrowings at the end of the year increased by 78% and amounted to USD 17.0 million. We experienced a positive effect from strengthening USD against EUR.
Historically being debt-averse, we keep our net debt low by accumulating significant amount of cash in our bank accounts (USD 10.9 million as at 31 December 2015). The net debt to EBITDA ratio at 31 December 2015 amounted to 0.17.
Cash flows, mUSD
| 2015 | 2014 | 2013 | |
|---|---|---|---|
| Operational cash flow | 26.1 | 16.1 | 25.3 |
| Investment cash flow | (15.2) | (17.6) | (13.9) |
| Financial cash flow | (1.4) | (3.5) | (4.0) |
CASH FLOW
In 2015 we maintained positive operating cash flow of USD 26.1 million. An increase was mainly caused by higher profits over the year.
Net cash flow used in investment activities mostly consisted of purchase of plant, property and equipment in the amount of USD 4.8 million and increase in biological assets by USD 10.4 million. The remaining part of investments was covered by export financing loan.
Net cash flow used in financing activities in 2015 amounted to USD 1.4 million
NOTES TO THE FINANCIAL STATEMENTS
Financial reporting standards | The Consolidated Financial Statements of Ovostar Union N.V. have been prepared in accordance with IFRS standards, as adopted by the European Union. Note 2 to the Consolidated Financial Statements contains more detailed information on this item.
Transactions with related parties | Note 25 to the Consolidated Financial Statements of Ovostar Union N.V. contains more information on transactions with related parties.
Changes in accounting policy | Note 6 to the Consolidated Financial Statements of Ovostar Union N.V. contains more information on changes in accounting policy.
Financial instruments | Note 28 to the Consolidated Financial Statements of Ovostar Union N.V. contains more information on financial instruments.
Ovostar Union N.V.
Annual Report 2015 | 19
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Strategy and outlook for 2016
STRATEGY
We aim to strengthen our market position via gradual organic growth, adjusting to customers' needs, expansion of our presence outside of Ukraine, and thorough quality control. Operating in turbulent conditions of Ukrainian economic situation we focus on consistently high quality of our products and long-term relationships with our clients.
Our vertically integrated business model provides the possibility to control the quality of eggs and egg products at each stage of production cycle.
The results we deliver are based on commitment of every employee together with teamwork across departments.
The key elements of the Group's strategy
| STRENGTHENING POSITION OF YASENSVIT AND OVOSTAR BRANDS | - Concentrate marketing efforts on strengthening brand loyalty and recognition
- Continue to secure long-term contracts with largest local and multinational food companies in and outside of Ukraine |
| --- | --- |
| GROWING ORGANICALLY WITH MAINTAINING VERTICAL INTEGRATION AND BY INSTALLING THE CUTTING-EDGE TECHNOLOGIES | - Upgrade the current production facilities with the innovative technologies
- Maximize the production process efficiency by installing the most modern equipment
- Develop auxiliary infrastructure facilities according to the increasing egg production |
| DEVELOPING FURTHER EXPORT MARKETS | - Expand geography of sales
- Widen the assortment of final products offered
- Develop the deliveries to the EU |
Ovostar Union N.V.
Annual Report 2015 | 20
Strategy and outlook for 2016
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
OUTLOOK FOR 2016
Following our investment program we continue expanding our production capacities and, consequently, increasing egg production volumes. As Ukrainian Hryvnia stayed volatile during the first three months of 2016, we strongly focus on exporting shell eggs and dry egg products more. The export revenue that is mostly generated in USD will hedge the currency risk and increase the predictability of our periodic financial results in the presentation currency.
In 2016 our export sales are expected to generate over 30% of our total revenue. We expect to export over 30% of total sales volume of shell eggs and over 50% of total sales volume of dry egg products.
INVESTMENT PROGRAM UPDATE
Following our organic growth program we continue our investment program at Stavysche production site that consists of 16 laying hens houses and is divided in two stages. The Stage 1 covers eight laying hens houses and the additional infrastructure and is planned to be completed by April 2016. Already in 2016 we plan to start the Stage 2. Overall, four laying hens houses are expected to be finished by the end of 2016: two from Stage 1 and two from Stage 2.
Regarding the infrastructure, in January 2016 we installed a new Nabel egg sorting machine with capacity of 240 thousand eggs per hour.
FORECASTED PRODUCTION VOLUMES
| Units | 2015 | YoY | 2016F | YoY | 2017F | |
|---|---|---|---|---|---|---|
| Laying hens flock | million heads | 5.3 | 19% | 6.3 | 16% | 7.3 |
| Eggs produced | millions | 1 196 | 21% | 1 450 | 17% | 1 700 |
| Dry egg products produced | tons | 1 924 | 14% | 2 200 | 9% | 2 400 |
| Liquid egg products produced | tons | 6 787 | 2% | 6 900 | 2% | 7 050 |
Ovostar Union N.V.
Annual Report 2015 | 21
Stage 1 of current investment program at Stavysche production site is finished. Stage 2 starts
Poultry houses have two floors of 6 tiers each. The total production capacity of one poultry house is 320 thousand laying hens
Equipment is certified and compliant with the EU standard "enriched cage"
Ovostar Union N.V.
Annual Report 2015 | 22
Strategy and outlook for 2016
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
INVESTMENT PROGRAM TIMELINE
The current investment program is divided into 2 stages:
Stage 1 = April 2014 - April 2016
Stage 2 = April 2016 - end of 2018
Reconstruction timeline
- Buildings will be fully compatible with EU requirements for imported Class A eggs
The eighth poultry house from Stage 1 is planned to be finished by the end of April 2016.
Another two laying hens houses from Stage 2 are scheduled for 2016
Ovostar Union N.V.
Annual Report 2015 | 23
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Human Resources
The majority of our employees are involved in production processes on the premises located in Kyiv and Cherkasy regions. We recruit, employ and promote employees on the sole basis of their qualification and abilities. Equal employment opportunities and career perspectives are provided for all employees, regardless of their gender, age, nationality or religious views.
Our personnel policy is aimed to create and retain a well consolidated and highly professional team of individuals that are able to respond effectively to changing market environment. We strive to ensure a positive, productive and successful work environment. The level of satisfaction is, among other criteria, confirmed by high employee retention rates (97% on average for the last 5 years).
| 2015 | 2014 | 2013 | |
|---|---|---|---|
| Employees, end of year | 1 266 | 1 336 | 1 334 |
97% — retention rate of our employees
We aim to maintain a fair and comprehensive system of remuneration. Overall remuneration of our employees is divided into material and non-material portions. Material remuneration consists of a basic fixed salary plus a variable component like bonuses that depend on achievement of corporate and personal targets. We also compensate our employees for mobile communication and expenses for use of personal vehicles for business purposes. Non-material remuneration consists of professional trainings, corporate team-building events and free use of corporate gym.
Legal relationships between us and our employees are regulated by the Labor Code of Ukraine and executed in the form of term and termless labor agreements. We cooperate with the State Pension Fund making monthly social insurance contributions. A corporate pension schedule has not been established.
Our employees other than some of the Board members do not have any shareholdings in Ovostar Union N.V., nor do they hold any stock options or other rights to shares nor participate in any other way in the capital of Ovostar Union N.V. Currently, no arrangements relating to such participation are planned in the short-term perspective.
Workforce areas of expertise
Full-time / part-time employment
Ovostar Union N.V.
Annual Report 2015
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Risk management and internal control
| Risk | Impact | Mitigation | 2015 status / Notes |
|---|---|---|---|
| Macroeconomic risks | Depreciation of Ukrainian Hryvnia leads to deterioration of income per household and change in consumer preferences | Worsening economic conditions do not affect consumption of eggs per capita because eggs remain the most affordable source of animal-based protein | In 2015 egg consumption amounted to 276 eggs per capita. The decrease in consumption is caused by lower production volume due to the loss of number of poultry farms in Eastern Ukraine |
| Poor economic conditions result in lack of debt financing available | Historically, we have been reliant primarily on own positive cash flow and debt financing is used only for implementation of long-term investment programs. To eliminate the current instability of Ukrainian economy, we accumulated the cash in our bank accounts in foreign-owned banks in Ukraine and outside | We use export financing with comparatively low effective interest rate. As at 31 December 2015 the net debt amounted to USD 6.1 mln, while the net debt to EBITDA ratio was 0.17. | |
| VAT reimbursement and other advantages to agricultural companies may be cancelled | We are primarily focused on operational efficiency | Starting from 2016 special treatment of VAT policy was changed to 50% refund for poultry farmers instead of 100% in 2015 | |
| Biological risks | Non-adherence to biosecurity standards and subsequent possible outbreaks of poultry diseases can severely limit our ability to perform normal operations | Adherence to biosecurity standards in line with the best international practices. Egg production and egg processing facilities are compliant with ISO 9001: 2008 and ISO 22000: 2005. Diversification of sales channels | No occurrences of dangerous poultry diseases have been ever registered on our premises. We control all the processes along the full production cycle in order to provide the highest quality and ability to react fast in case of need |
| Concentration of sales | Excessive concentration of sales may lead to financial instability in case of loss of key customer | Our customer base is mixed in terms of size and industry. We are building a balanced customer portfolio | In 2015 two clients generated more than 10% of our total revenue |
Ovostar Union N.V.
Annual Report 2015 | 25
Risk and internal control
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
| Risk | Impact | Mitigation | 2015 status / Notes |
|---|---|---|---|
| Price risk | Rapid devaluation of Ukrainian Hryvnia leads to lower item prices in USD terms and thereby decreases periodic financial results | Increase of export sales, a natural hedge against currency rate fluctuations. Higher cost incurred in UAH is gradually transferred to the final consumer through an increase of UAH-based prices for shell eggs and egg products on the local market | In 2015: |
| – share of revenue generated from export sales reached 28% (2014: 16%) | |||
| – UAH-based price of shell eggs increased by 68%, dry egg products +79%, liquid egg products +48% YoY | |||
| Liquidity risk | Current capital restrictions of National Bank of Ukraine may limit the possibility to meet the financial obligations when due | We strictly control our working capital | As at 31 December 2015 we accumulated USD 10.9 mln of cash in our bank accounts outside of Ukraine in order to meet our debt obligation in case restrictions of NBU are in place until the end of 2016 |
| Competition | Offering from the existing competitors or new market entrants may weaken our competitive position | We have a unique for Ukraine vertically integrated business model with facilities in close proximity to each other, what results in high production efficiency. Having been offering products of consistently superior quality and adjusting to the market demands, we achieved the recognition and loyalty of our customers | In 2016 Yasensvit™ brand is celebrating its 15th anniversary maintaining the position of the most-recognized brand in Ukraine. |
| We also enjoy an ability to effectively diversify our sales to destinations outside Ukraine | |||
| Climate risks | Extreme weather conditions can have a detrimental effect on the well-being of poultry flock and their production efficiency | Our egg production facilities are equipped with an automatic climate-control system | Optimal climate conditions for laying hens include 40-60% humidity and ambient temperature within 20-25°C |
Ovostar Union N.V.
Annual Report 2015 | 26
Risk and internal control
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
RISK MANAGEMENT
Risk management is an essential part of the decision-making process providing reasonable assurance that risks are controlled to the furthest extent possible. Risk management and internal control systems are being regularly discussed with the executive management and the Audit Committee. In their review of our risk profile, the main focus is placed on principal risks that could significantly deteriorate our operational and financial results.
It has to be noted that proper identification of risks significantly reduces but does not completely eliminate the possibility of human error, poor judgment in decision making, fraud or occurrence of unforeseeable events. The risks that we face in the course of regular operations are not limited to the risks described above, but those above are regarded as the most significant in the short-term perspective. Some risks are yet unknown and some risks that are insignificant at the moment could become material in the future.
INTERNAL CONTROL SYSTEM
The Board of Directors is ultimately responsible for establishing, controlling and enhancing our internal control system. We consider risk management to be a continuous process of monitoring, assessing and mitigating risks through internal control systems and procedures at each level within the organization.
We use guidelines, instructions and procedures applied to operations, financial reporting, planning, human resource and customer management etc.; these are being reviewed and updated on a regular basis. Our employees are trained to implement and comply with these guidelines, instructions and procedures.
Key elements of the internal control system are budgeting, investment management, operational management and financial reporting. They monitor the progress and the actual results of the company's operating activities. We also use a staff evaluation and appraisal system. The process of enhancement of the internal control system will be continued in 2016.
For more information on risks please refer to Note 27 of the 2015 Consolidated Financial Statements.
DEFICIENCIES OF THE SYSTEM
In 2015, we did not identify any material weaknesses of the internal control system that might adversely impact our operational activity, financial results and financial position. The risks are clearly identified and controlled to the highest possible extent by our top management within their relevant function.
Ovostar Union N.V.
Annual Report 2015 | 27
MANAGEMENT REPORT
Governance Report
Financial Statements
Other Information
Shareholder and share information
SHARE CAPITAL STRUCTURE
According to publicly available information as at 31 December 2015, shareholders of Ovostar Union N.V. with substantial participation of at least 5% of all votes at the General Meeting of Ovostar Union N.V. shareholders are listed in the table.
At 31 December 2015 total share capital of Ovostar Union N.V. was 6 000 000 shares. Each share has a nominal value of one vote at the General Meeting of Shareholders.
CHANGES IN SHAREHOLDERS' STRUCTURE
On 2 December 2015 Prime One Capital Limited decreased its share in Ovostar Union N.V. share capital to 70.24% (4 214 617 shares) thereby increasing the free float to 29.76%.
Share price dynamics in 2015: OVO vs. WIG-index
Source: Warsaw Stock Exchange
Share capital structure at 31 December
| 2015 | 2014 | 2013 | |
|---|---|---|---|
| Prime One Capital Ltd | 70% | 71% | 71% |
| Generali | 10% | 10% | 10% |
| Fairfax | 5% | - | - |
| Aviva | 5% | 5% | 5% |
| MetLife (Amplico) | - | 6% | 6% |
| Others | 10% | 8% | 8% |
| Total | 100% | 100% | 100% |
Key quotation indicators of Ovostar Union N.V.
| Share price, PLN | 2015 | 2014 | 2013 |
|---|---|---|---|
| Opening | 72 | 100 | 98 |
| Maximum | 92 | 100 | 100 |
| Minimum | 67 | 59 | 98 |
| Closing | 91 | 72 | 100 |
Source: Warsaw Stock Exchange
Market capitalization of Ovostar Union N.V. as at 31 December, mPLN
Source: Warsaw Stock Exchange
Ovostar Union N.V.
Annual Report 2015
Governance Report
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
The Board of Directors
COMPOSITION AND DUTIES OF THE BOARD
Our Board of Directors has a one-tier structure, consisting of executive and non-executive directors. The executive director is authorized to represent Ovostar Union Group in its everyday operations, while the non-executive directors monitor the activities, supervise and advise the executive director. Currently, the Board consists of four members: one executive director Mr. Borys Bielikov and three non-executive directors Mr. Vitalii Veresenko, Mr. Marc van Campen, and Mr. Sergii Karpenko.
Duties of the non-executive directors include among other things supervision of the executive management's adherence to the established corporate strategy, proper compliance with best practices of corporate governance and general operational issues. Performing their duties, the non-executive directors have participated in the meetings of the Board of Directors in 2015. No cases of non-compliance with rules and requirements that would have required the intervention of the non-executive directors have been detected in 2015. The Terms of Reference, governing the decision-making process of the Board, is available on our website: http://ovostar.ua/en/ipo/rules.
CHAIRMAN OF THE BOARD AND CORPORATE SECRETARY
The Chairman of the Board of Directors determines the agenda and heads the Board meetings and is responsible for the proper functioning of the Board. This position is always selected among the non-executive directors, and is appointed during the first meeting of the Board. Our Chairman of the Board currently is Mr. Veresenko.
Chairman of the Board is assisted by the Group's Corporate Secretary, whose duty is the observance of all necessary procedures for the Board of directors and compliance of their activities with the requirements specified in the Group's Articles of Association. The Corporate Secretary is appointed and dismissed by the Board.
VOTING
Each member of the Board is entitled to one vote taking resolutions during the Board meeting. All resolutions of the Board are taken by an absolute majority of votes. In the case of an absence of absolute majority (when an even score is achieved during the voting), the Chairman of the Board of Directors has a casting vote.
REPRESENTATION
Members of the Board represent Ovostar Union Group and the Board has the authority to appoint any official as a representative, and to determine the list of his/her powers. The executive director is authorized to represent the Group on his own and to sign documents on behalf of the Group.
Ovostar Union N.V.
Annual Report 2015 | 30
The Board of Directors
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
In case of a conflict of interest between the Group and one of the directors, the conflicted director may not participate in the decision-making process concerning the matter causing the conflict. In case all members of the Board are in conflict with the interests of the Group, the decisions shall be made by the General Meeting of Shareholders.
Members of the Board are appointed and may be suspended or dismissed from their position by the General Meeting of Shareholders. Any suspension may be extended several times, but the total period of suspension from duties shall not exceed three months. The fact of suspension is void if at the end of three months it has not been decided either to extend the suspension period, or to dismiss the Director. Share ownership in the Group is not required to qualify as a member of the Board.
SHAREHOLDING BY THE BOARD MEMBERS AND INSIDER TRADING
We have established the Securities Rules, followed by the Board members at the acquisition of securities share and transactions with them. Regarding the acquisition of shares and equity participation, the Board members and other persons related to us follow the conditions and requirements of the EU Market Abuse Directive and our Insider Trading Rules, which reflect the essence of this directive. Securities Rules and Insider Trading Rules are available on our website: http://ovostar.ua/en/ipo/rules.
STATEMENT OF THE BOARD OF DIRECTORS
The Board of Directors of Ovostar Union N.V. hereby confirms that (1) neither of the Board members is a member of the Supervisory Board of - or holds the position of non-executive director at more than two listed companies; (2) neither of the Board members holds the position of the Chairman of the Supervisory Board - or of the board of directors, in case such board consists of executive and non-executive directors - of other companies, except for our enterprises.
CHANGE IN THE BOARD STRUCTURE
During the Annual General Meeting of Shareholders, held in June 2015, the following resolutions with respect to (the composition of) the Board have been adopted:
- Mr. Oleksandr Bakumenko was officially dismissed from his position of non-executive member of the Board;
- Mr. Sergii Karpenko was officially appointed as a new non-executive member of the Board;
- Mr. Borys Bielikov was re-appointed for the position of executive member of the Board; and
- Mr. Vitalii Veresenko and Mr. Marc van Campen were re-appointed for the position of non-executive member of the Board.
Ovostar Union N.V.
Annual Report 2015 | 31
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
The Board of Directors
| Name | Borys Bielikov | Vitalii Veresenko | Marc van Campen | Sergii Karpenko |
|---|---|---|---|---|
| Biography | Mr. Bielikov has over 17 years of experience in poultry industry. Mr. Bielikov has started his career in UkrOptServis LLC in 1993. From 1997 to 1998 he occupied the position of deputy director at UkrAgroTrade LLC. Mr. Bielikov graduated from the National Aviation University in 1994. | Mr. Veresenko has over 18 years of experience in poultry industry. Mr. Veresenko formerly occupied position of director at Dyvosvit LLC. Mr. Veresenko graduated from Kiev Air Defence Radio Technical Engineers College in 1990. | Mr. van Campen held several positions at Océ van der Grinten N.V., and until 2002 had been the general counsel at NBM-Amstelland N.V. In addition Mr. Van Campen held the director's position in a number of other Dutch companies. Mr. Van Campen graduated from Nijmegen University in 1968. | Mr. Karpenko served as a Deputy Head of investment policy and agrarian business in Ministry of agrarian policy of Ukraine from 1997 to 2003. After that he joined Association "Union of Poultry Farmers of Ukraine". Mr. Karpenko graduated from National agrarian university majoring in Agricultural management (1997). |
| First appointment | 2011 | 2011 | 2011 | 2015 |
| Reappointment (Possible) | 2019 | 2019 | 2019 | 2019 |
| Dependency | Dependent | Dependent | Independent | Independent |
| External appointments | No | No | Director at Astarta Holding N.V. and in Montferland Beheer B.V., the European subsidiaries (outside Italy) of Salvatore Ferragamo SpA and Lugo Terminal Srl. | Executive Director of Association "Union of Poultry Farmers of Ukraine" |
Ovostar Union N.V.
Annual Report 2015 | 32
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Committees of the Board of Directors
AUDIT COMMITTEE
The Board of Directors has established an Audit Committee in order to meet the necessary corporate governance requirements and to ensure our financial transparency.
The Audit Committee is responsible for advising and monitoring the activities of the Board of Directors in the areas of, among other things, the completeness of financial reporting, our financial strategy, tax planning, including:
(i) functioning of control and internal risk management systems;
(ii) provision of financial information (including choice of the accounting policy, application of new rules and evaluation of their impact on our performance, interaction with internal and external auditors, etc.);
(iii) monitoring the compliance of our activities with the recommendations of internal and external auditors;
(iv) interaction with external auditors, including control of the auditor’s independence, their remuneration and provision of any services outside the audit scope;
(v) our tax planning policy;
(vi) sources of our funding;
(vii) review of the annual budget and capital investments of the Group.
At least one of the committee members must be a financial expert as defined in the Dutch Corporate Governance Code, and all committee members must be financially literate. Our Audit Committee satisfies these requirements.
The document describing Terms of Reference Governing the Audit Committee is available on our website http://ovostar.ua/en/ipo/rules.
Mr. van Campen is the Chairman of the Committee and Mr. Karpenko is the second independent member of the Audit Committee since June 2015.
Ovostar Union N.V.
Annual Report 2015 | 33
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Meetings with Stakeholders
MEETINGS OF SHAREHOLDERS (THE "GENERAL MEETING")
We, as a Dutch legal entity, must hold at least one annual General Meeting, to be held in the Netherlands and not later than six (6) months after the end of the financial year. The annual General Meeting is, among other things, entitled to discuss the annual report of the Board with respect to the general state of affairs in the company, approve the financial statements for the previous financial year, vote whether to grant discharge to members of the company's corporate bodies, and/or appoint members to fill any vacancies on any of the corporate bodies.
Notices of shareholders' meetings must be published on the company's website and via any other electronic communication method in accordance with applicable regulations in Poland, at least forty two (42) days before the day of the meeting.
The Board of Directors determines the items on the agenda for the General Meeting. Furthermore, the agenda shall contain such items as requested in writing by one or more persons entitled to attend the general meeting, representing solely or jointly at least 1% of the issued capital or holding shares of the company which according to the official price list of the regulated market represent a value of at least EUR 50,000,000 at least sixty days before the date of the meeting. The meeting shall not adopt resolutions on matters other than those that have been placed on the agenda.
An extraordinary General Meeting may be convened as often as the Board of Directors or shareholders together representing at least 10% of the issued capital deem necessary. Under Dutch law, valid shareholders' resolutions can be taken in a meeting outside the Netherlands, provided that the entire issued share capital is represented at such meeting.
Voting at the General Meeting
Shareholders may participate in the General Meeting and exercise their voting right personally or by written proxy. Each share in the capital of the company confers the right to cast one vote, subject to the relevant provisions of the Articles of Association. Every holder of shares and every other party entitled to attend the General Meeting who derives his/her rights from such shares, is only entitled to attend the General Meeting in person, or represented by a person holding a written proxy, to address the General Meeting and, in as far as he/she has voting rights, to vote at the meeting, if he/she has lodged documentary evidence of his/her voting rights. The requirement of a written proxy is also met if the proxy is recorded electronically. For this purpose, Dutch law prescribes a mandatory record date to establish which shareholders are entitled to attend and vote at the General Meeting.
Ovostar Union N.V.
Annual Report 2015 | 34
Meetings with Stakeholders
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Such record date is fixed at the twenty eighth (28th) day before said General Meeting. The voting rights and the right to attend the General Meeting shall accrue to those holding such entitlements and are registered as such in a register designated for that purpose by the Board of Directors on this record date. The convocation to the General Meeting shall state the record date, the place where and the manner in which registration shall take place.
The Chairman of the General Meeting shall further decide whether persons other than those who are entitled to admittance pursuant to the aforementioned shall be admitted to the Meeting. The Members of the Board of Directors shall have the right to attend the General Meeting. In these Meetings they shall have an advisory vote. Unless provided otherwise in the Articles of Association or the law, all resolutions are adopted by absolute majority of votes. The company must record the voting results for each resolution adopted at a shareholders' meeting. These results must be posted on the company's website not later than on the fifteenth (15th) day following the day of the shareholders' meeting and should be available on the website for at least one year.
We conducted one General Meeting of shareholders on 15 June 2015 in Amsterdam, the Netherlands. During the meeting the 2014 annual accounts have been adopted, the changes in the Board were resolved (as set out earlier under "Change in the Board structure"), the Board has been authorized to appoint the external auditor for the 2015 annual accounts, and a number of other standard items have been discussed and approved.
Amendment of the Articles of Association
The General Meeting can resolve to amend the Articles of Association upon the proposal of the Board of Directors. Such resolution is to be taken by an absolute majority of votes cast. If a proposal to amend the Articles of Association is to be submitted to the General Meeting, the convening notice must state this fact. At the same time, if the proposal is for an amendment to the Articles of Association, a copy of the motion containing a verbatim text of the proposed amendment must be deposited at the company's office for inspection by the shareholders and depositary receipt holders until the meeting is adjourned.
Issuance of Shares
The company may only issue shares pursuant to a resolution of the General Meeting or of another corporate body designated to do so by a resolution of the General Meeting for a fixed period not exceeding five (5) years. Such designation must specify the maximum number of shares that may be issued pursuant to the designation. The designation may each time be extended for a further period of up to five (5) years. The designation may not be revoked, unless the designation provides otherwise.
On 15 June 2015, by a resolution of the General Meeting the Board was designated to issue shares and to limit or exclude any pre-emptive rights in connection with such share issue for a period of 5 (five) years.
Ovostar Union N.V.
Annual Report 2015
Meetings with Stakeholders
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Pre-emptive Rights
Each shareholder has a pre-emptive right in respect of all share issuances or grants of the right to acquire shares, in proportion to the number of shares held by such holder. Shareholders, however, have no pre-emptive right in respect of the issuance of shares, or the grant of the right to acquire shares, which are issued or granted for a consideration other than cash, to employees of the company or of a group company of the company, or in respect of the issuance of shares to any person who exercises a previously existing right to subscribe for shares. Pre-emptive rights may be restricted or excluded by a resolution of the General Meeting. Pre-emptive rights may also be excluded or restricted by the corporate body to which the power to exclude or restrict pre-emptive rights has been granted by a resolution of the General Meeting for a fixed period not exceeding five (5) years.
BOARD OF DIRECTORS MEETINGS
In 2015 the Board of Directors held four meetings.
10 April 2015
The first meeting was convened on in Amsterdam, the Netherlands. During the meeting the Board of Directors approved the 2014 annual report of Ovostar Union N.V.
14 May 2015
The second meeting was held in Kyiv, Ukraine. During the meeting the Board has approved the financial statements of Ovostar Union N.V. for the first quarter of 2015.
27 August 2015
The third meeting was held in Kyiv, Ukraine. During the meeting the Board approved the 2015 semi-annual report of Ovostar Union N.V. and appointed the external auditor for financial year 2015.
11 November 2015
The fourth meeting was held in Amsterdam, the Netherlands. The Board of Directors has approved the financial statements of Ovostar Union N.V. for the nine months of 2015 and discussed the outlook for the year 2015.
AUDIT COMMITTEE MEETINGS
In 2015 the Audit Committee held three meetings.
06 April 2015
During the meeting Committee together with Baker Tilly Berk, the auditor for the year 2014, discussed the Group's results for 2014.
21 July 2015
Agenda of this meeting included discussion on 2015 audit process and the Audit committee proposed to approve Baker Tilly Berk as the auditor for the year 2015. Additionally, the operational management updated the Audit committee on Ovostar Union's plans for development in the following 2-3 years and outlook for the second half of the year.
11 November 2015
During the meeting Committee discussed potential risks for the business and their possible impact on the Group's operations and results in the year 2015.
Ovostar Union N.V.
Annual Report 2015 | 36
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Corporate governance and control
Being a Dutch holding company listed on the Warsaw Stock Exchange, we have to comply both with the applicable best practice provisions of the Dutch Corporate Governance Code (the "Code") and the requirements of the Code of Best Practice for WSE Listed Companies (the "Rules" and together referred to as the "Codes").
DUTCH CORPORATE GOVERNANCE CODE
The Code includes the principles and describes the best practices for boards of directors, supervisory boards and general meetings of share-holders, financial statements, auditors, standards compliance and procedures of information disclosure. Dutch companies listed on the stock markets are obligated, under Dutch law, to publish an annual report, regardless of whether they comply with the Code fully, partially, or do not comply at all. If a company does not comply with the conditions of the Code or does not meet the requirements and conditions described in the Code, it shall specify the reasons for non-use and/or inconsistencies in the annual report. Please refer to section "Deviations from the Dutch Corporate Governance Code" below for more information on the Group's compliance with the Code.
WSE CORPORATE GOVERNANCE RULES
Companies listed on the Warsaw Stock Exchange are guided by the Code of Best Practice for WSE Listed Companies. To date, we meet all requirements of the Best Practice principles.
DEVIATIONS FROM THE DUTCH CORPORATE GOVERNANCE CODE
The Codes are similar in their requirements and we meet most of the applicable principles and requirements of both. In case of non-compliance to certain requirements of the Codes, we undertake to publish the non-compliance items stating the reasons for existing discrepancies.
Currently, we do not comply with the following requirements of the Code:
Best Practice Provision III
Since we have a one-tier governance structure the functions attributed to supervisory board members in a two-tier governance structure are distributed among the non-executive directors of the Group.
Best Practice Provision III.5
Since we have a one-tier governance structure and only two non-executive directors, we are not obliged to have separate committees for audit, remuneration and appointment. Currently, we have established the Audit Committee. The remuneration committee and appointment committee have not been installed.
Ovostar Union N.V.
Annual Report 2015 | 37
Corporate governance and control
Management Report
GOVERNANCE REPORT
Financial Statements
Other Information
Best Practice Provision III.8.4
Under this requirement, most of the Board of Directors members shall be independent non-executive directors. We partially comply with this requirement meaning that three out of four of our directors are non-executive, but only two are independent. Mr. van Campen and Mr. Karpenko are independent non-executive directors, while Mr. Veresenko is not an independent non-executive director. The Board of Directors has decided not to overcome this non-compliance by increasing of the number of Board members, as it may directly affect the efficiency and speed of decision making by the Board.
Best Practice Provision IV.3.11
Currently we have no written survey of existing and potential anti-takeover measures in place, as referred to in Best Practice Provision IV.3.11.
DEVIATIONS FROM THE WSE CORPORATE GOVERNANCE RULES
To date, we meet all requirements of the WSE Corporate Governance Rules.
CONFIRMATIONS REQUIRED BY THE CODES
The Board of Directors confirms that during 2015 no conflicts of interest between the Directors and the Group occurred. In case of a conflict of interest, the Board would have acted in accordance with the Best Practice Provisions II.3.2, II.3.3 and III.6.1 to III.6.3 of the Dutch Corporate Governance Code.
The Board of Directors confirms that during 2015 no conflicts of interest between the Group and the shareholders owning more than 10% equity share in the Group occurred. In case of such a situation, the Board would have acted in accordance with the Best Practice Provision III.6.4 of the Dutch Corporate Governance Code.
OTHER ITEMS OF NON-COMPLIANCE
The Board of Directors hereby confirms that currently its composition is not balanced within the meaning of the Simplification and Flexibilisation Act for the Dutch companies—the Flex BV Act. At the date of publication of this report the Board (4 persons) consisted of 100% male members. At the same time, 2 out of 5 key management personnel (excluding the Board members) are female. The people are selected according to their qualifications, therefore, such composition is healthy for the Group.
Ovostar Union N.V.
Annual Report 2015 | 38
3
Financial Statements
Management Report
Governance Report
FINANCIAL STATEMENTS
Other Information
Statement of Directors' responsibilities
STATEMENT OF THE BOARD OF DIRECTORS ON COMPLIANCE OF THE ANNUAL FINANCIAL STATEMENTS
With this statement the Board of Directors of Ovostar Union N.V. confirms that, as far as their knowledge, the financial statements of the Group and its subsidiaries for the year ended 31 December 2015 have been prepared in accordance with all applicable accounting standards, and they truly and fairly reflect the data on the assets, liabilities, financial position and results of the Group and its subsidiaries, and the report of the Board of Directors for the year ended 31 December 2015 truly and fairly reflects the position of the Group and its subsidiaries as of 31 December 2015 and includes a description of the key events and results and the key risks faced by the Group and its subsidiaries during the year 2015.
STATEMENT OF THE BOARD OF DIRECTORS ON THE APPOINTMENT OF AN INDEPENDENT AUDITOR TO CONDUCT AUDIT OF THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
With this statement the Board of Directors of Ovostar Union N.V. confirms that Baker Tilly Berk N.V., acting as the independent auditor of the Group’s consolidated financial statements for the year ended 31 December 2015, was appointed in accordance with the legal requirements and that the auditing company and the person conducting the audit meet all the legal requirements for issuing an objective and independent auditor’s opinion.
STATEMENT OF THE BOARD OF DIRECTORS ON THE INTERNAL CONTROL SYSTEM
The Board of Directors assessed the effectiveness of the internal control system at the end of 2015. During the investigation on which the assessment was based, no shortcomings were identified that might possibly have a material impact on the operational results or financial reporting of the Group. Based on the assessment results the Board members have come to a decision that the internal control system of the Group provides a reasonable degree of certainty that it is functioning well. It should be noted, however, that the system of internal control cannot provide a full certainty as regards the prevention of material inaccuracies in the financial reporting and the prevention of losses and fraud.
08 April 2016
Amsterdam, the Netherlands
[signed]
Borys Bielikov
Chief Executive Officer, Executive Director
[signed]
Vitalii Veresenko
Chairman of the Board, Non-executive Director
[signed]
Marc Van Campen
Head of Audit Committee, Non-executive Director
[signed]
Sergii Karpenko
Non-executive Director
Ovostar Union N.V.
Annual Report 2015 | 40
Consolidated Financial Statements of Ovostar Union N.V.
Management Report
Governance Report
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FINANCIAL STATEMENTS
For the year ended 31 December 2015
(in USD thousand, unless otherwise stated)
Other Information
| Note | For year 2015 | For year 2014 | |
|---|---|---|---|
| Revenue | 8 | 75 606 | 74 780 |
| Changes in fair value of biological assets | 17 | 2 410 | 2 813 |
| Cost of sales | 9 | (45 601) | (50 778) |
| Gross profit | 32 415 | 26 815 | |
| Other operating income | 12 | 4 803 | 2 703 |
| Selling and distribution costs | 10 | (2 588) | (2 255) |
| Administrative expenses | 11 | (1 237) | (1 480) |
| Other operating expenses | 13 | (1 010) | (401) |
| Operating profit | 32 383 | 25 382 | |
| Finance costs | 14 | (1 236) | (997) |
| Finance income | 15 | 1 505 | 1 619 |
| Profit before tax | 32 652 | 26 004 | |
| Income tax expense | 16 | (708) | (179) |
| Profit for the year | 31 944 | 25 825 |
Other comprehensive income
Items that are or may be reclassified to profit or loss:
Exchange differences on translation to presentation currency (38 502) (80 086)
Other comprehensive income for the year, net of tax (38 502) (80 086)
Total comprehensive income for the year, net of tax (6 558) (54 261)
Profit for the period attributable to:
Equity holders of the parent company 30 954 25 339
Non-controlling interests 990 486
Total profit for the year 31 944 25 825
Other comprehensive income attributable to:
Equity holders of the parent company (37 615) (78 037)
Non-controlling interests (887) (2 049)
Total other comprehensive income (38 502) (80 086)
Total comprehensive income attributable to:
Equity holders of the parent company (6 661) (52 698)
Non-controlling interests 103 (1 563)
Total comprehensive income (6 558) (54 261)
Earnings per share:
Weighted average number of shares 6 000 000 6 000 000
Basic and diluted, profit for the year attributable to ordinary equity holders of the parent (USD per share) 5.16 4.22
Notes on pages 46-95 form an integral part of these consolidated financial statements
Ovostar Union N.V.
Annual Report 2015 | 42
Management Report
Governance Report
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FINANCIAL STATEMENTS
As at 31 December 2015
(in USD thousand, unless otherwise stated)
Other Information
| Note | 31 December 2015 | 31 December 2014 | |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Biological assets | 17 | 26 041 | 27 356 |
| Property, plant and equipment and intangible assets | 18 | 33 370 | 40 507 |
| Deferred tax assets | 16 | 145 | 314 |
| Total non-current assets | 59 556 | 68 177 | |
| Current assets | |||
| Inventories | 20 | 10 990 | 8 409 |
| Biological assets | 17 | 8 409 | 9 822 |
| Trade and other receivables | 21 | 10 355 | 11 892 |
| Prepayments to suppliers | 420 | 849 | |
| Prepayments for income tax | 26 | - | |
| Cash and cash equivalents | 22 | 10 962 | 2 471 |
| Total current assets | 41 162 | 33 443 | |
| Total assets | 100 718 | 101 620 | |
| Equity and liabilities | |||
| Equity | |||
| Issued capital | 23 | 65 | 73 |
| Share premium | 30 933 | 30 933 | |
| Foreign currency translation reserve | (115 664) | (78 057) | |
| Retained earnings | 129 783 | 104 444 | |
| Result for the year | 30 954 | 25 339 | |
| Equity attributable to equity holders of the parent | 76 071 | 82 732 | |
| Non-controlling interests | 7 | 2 436 | 2 333 |
| Total equity | 78 507 | 85 065 | |
| Non-current liabilities | |||
| Interest-bearing loans and other financial liabilities | 19 | 13 398 | 7 203 |
| Deferred tax liability | 16 | 850 | 410 |
| Total non-current liabilities | 14 248 | 7 613 | |
| Current liabilities | |||
| Trade and other payables | 24 | 4 184 | 6 356 |
| Advances received | 145 | 278 | |
| Interest-bearing loans and other financial liabilities | 19 | 3 634 | 2 308 |
| Total current liabilities | 7 963 | 8 942 | |
| Total liabilities | 22 211 | 16 555 | |
| Total equity and liabilities | 100 718 | 101 620 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
Ovostar Union N.V.
Annual Report 2015 | 43
Management Report
Governance Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FINANCIAL STATEMENTS
For the year ended 31 December 2015
(in USD thousand, unless otherwise stated)
Other Information
| Attributable to equity holders of the parent company | Non-controlling interests | Total equity | ||||||
|---|---|---|---|---|---|---|---|---|
| Issued capital | Share premium | Foreign currency translation reserve | Retained earnings | Result for the year | Total | |||
| As at 31 December 2013 | 83 | 30 933 | (30) | 73 855 | 30 589 | 135 430 | 3 896 | 139 326 |
| Profit for the year | - | - | - | - | 25 339 | 25 339 | 486 | 25 825 |
| Other comprehensive income | - | - | (78 037) | - | - | (78 037) | (2 049) | (80 086) |
| Total comprehensive income | - | - | (78 037) | - | 25 339 | (52 698) | (1 563) | (54 261) |
| Allocation of prior year result | - | - | - | 30 589 | (30 589) | - | - | - |
| Exchange differences | (10) | - | 10 | - | - | - | - | - |
| As at 31 December 2014 | 73 | 30 933 | (78 057) | 104 444 | 25 339 | 82 732 | 2 333 | 85 065 |
| Profit for the year | - | - | - | - | 30 954 | 30 954 | 990 | 31 944 |
| Other comprehensive income | - | - | (37 615) | - | - | (37 615) | (887) | (38 502) |
| Total comprehensive income | - | - | (37 615) | - | 30 954 | (6 661) | 103 | (6 558) |
| Allocation of prior year result | - | - | - | 25 339 | (25 339) | - | - | - |
| Exchange differences | (8) | - | 8 | - | - | - | - | - |
| As at 31 December 2015 | 65 | 30 933 | (115 664) | 129 783 | 30 954 | 76 071 | 2 436 | 78 507 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
Ovostar Union N.V.
Annual Report 2015 | 44
Management Report
Governance Report
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2015
(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
| Note | For year 2015 | For year 2014 | |
|---|---|---|---|
| Operating activities | |||
| Profit before tax | 32 652 | 26 004 | |
| Non-cash adjustment to reconcile profit before tax to net cash flows: | |||
| Depreciation of property, plant and equipment and amortisation of intangible assets | 9, 10, 11 | 2 427 | 3 723 |
| Net change in fair value of biological assets | 17 | (2 410) | (2 813) |
| Disposal of property, plant and equipment | 28 | 12 | |
| Disposal of biological assets | 17 | 1 734 | 1 379 |
| Finance income | 15 | (1 505) | (1 441) |
| Finance costs | 14 | 1 236 | 507 |
| Recovery of assets previously written-off | 12 | (237) | (122) |
| Impairment of doubtful accounts receivable and prepayments to suppliers | 13 | 292 | 243 |
| Liability for unused vacation | - | 79 | |
| VAT written off | 13 | 627 | 84 |
| Working capital adjustments: | |||
| Increase in trade and other receivables | (2 804) | (9 068) | |
| Decrease/(Increase) in prepayments to suppliers | 129 | (1 052) | |
| Increase in inventories | (5 399) | (3 744) | |
| (Increase)/Decrease in trade and other payables and advances received | (687) | 2 313 | |
| 26 082 | 16 104 | ||
| Income tax paid | (31) | (51) | |
| Net cash flows from operating activities | 26 051 | 16 053 | |
| Investing activities | |||
| Proceeds from sale of property, plant and equipment | - | 12 | |
| Purchase of property, plant and equipment | (4 797) | (8 424) | |
| Increase in biological assets | 17 | (10 356) | (9 152) |
| Net cash flows used in investing activities | (15 153) | (17 564) | |
| Financing activities | |||
| Proceeds from borrowings | 2 505 | - | |
| Repayment of borrowings | (3 778) | (2 983) | |
| Interest received | 345 | 105 | |
| Interest paid | (452) | (641) | |
| Net cash flows used in financing activities | (1 380) | (3 519) | |
| Net (decrease)/increase in cash and cash equivalents | 9 518 | (5 030) | |
| Effect from translation into presentation currency | (1 027) | (1 107) | |
| Cash and cash equivalents at 1 January | 2 471 | 8 608 | |
| Cash and cash equivalents at 31 December | 10 962 | 2 471 |
For translating results and financial position into a presentation currency, the Group applies IAS 21 "The Effects of Changes in Foreign Exchange Rates". Procedures and rules applied by the Group are specified in Note 2.2.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
1. Corporate information
Ovostar Union N.V. (referred to herein as the "Company"), a limited liability company registered under the laws of the Netherlands, was incorporated on 22 March 2011 in Amsterdam. Ovostar Union N.V. was formed to serve as the ultimate holding company of LLC "Ovostar Union" and its subsidiaries. Hereinafter, LLC "Ovostar Union" and its subsidiaries are referred to as the "Ovostar Union Group" or the "Group". The registered office and principal place of business of the Company is Jan van Goyenkade 8, 1075 HP Amsterdam.
Principal activities of the Group include egg production, distribution, egg products manufacturing and production of sunflower oil. The largest shareholder is Prime One Capital Ltd., Cyprus. Its principal activity is the holding of ownership interests in its subsidiary and strategic management.
The Group operates through a number of subsidiaries in Ukraine (the list of the subsidiaries is disclosed in Note 7) and has a concentration of its business in Ukraine, where its production facilities are located. All subsidiary companies are registered under the laws of Ukraine. The registered office and principal place of business of the subsidiary companies in Ukraine is 34 Petropavlivska Street, Kyiv, Ukraine.
Information on other related party relationships of the Group is provided in Note 25.
Total number of employees of all companies of the Group constituted 1 266 employees as at 31 December 2015 and 1 336 employees as at 31 December 2014.
The company is listed on Warsaw Stock Exchange.
The Group is controlled by the Beneficial Owners – Mr. Borys Bielikov and Mr. Vitalii Veresenko (hereinafter, the "Beneficial Owners")
The consolidated financial statements for the year ended 31 December 2015 were authorized by the Board of Directors on 08 April 2016.
2. Basis of preparation
2.1. Statement of compliance and basis of measurement
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS EU" hereinafter).
The companies of the Group maintain their accounting records under Ukrainian Accounting Standards ("UAS" hereinafter). UAS principles and procedures may differ from those generally accepted under IFRS EU. Accordingly, the consolidated financial statements, which have been prepared from the Group entities' UAS records, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS EU.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date.
| Items | Measurement bases |
|---|---|
| Biological assets | Fair value less costs to sell |
Details of the Group accounting policies are included in Note 5.
2.2. Going concern basis
The financial statements are prepared on a going concern basis, under which assets are sold and liabilities are repaid in the ordinary course of business. The accompanying consolidated financial statements do not include adjustments that would need to be made in case if the Group was unable to continue as a going concern.
2.3. Functional and presentation currency
The functional currency of the Company is U.S. dollar (USD). The consolidated financial statements are presented in the company's functional currency, that is, U.S. dollar (USD). The operating subsidiary have Ukrainian hryvnia (UAH) as their functional currency. All values are rounded to the nearest thousands, except when otherwise is indicated.
The USD has been selected as the presentation currency for the Group as: (a) management of the Group manages business risks and exposures, and measures the performance of its businesses in the USD; (b) the USD is widely used as a presentation currency of companies engaged primarily in agricultural; and (c) the USD is the most convenient presentation currency for non-Ukrainian users of these IFRS consolidated financial statements.
The Group translates its results and financial position into the presentation currency as the follows:
- assets and liabilities for each statement of financial position presented (ie including comparatives) shall be translated at the closing rate at the date of that statement of financial position;
- income and expenses for each statement of comprehensive income or separate income statement presented (ie including comparatives) shall be translated at exchange rates at the dates of the transactions; and
- all resulting exchange differences shall be recognised in other comprehensive income.
During 2015 and 2014, the exchange rate had significant fluctuations. Consistent with IAS 21, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate. On consolidation, the assets and liabilities of the Subsidiaries are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless the exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
Exchange differences arising, if any, are recognized in “Other comprehensive income” and accumulated in the “Foreign currency translation reserve”.
Relevant exchange rates are presented as follows:
| Closing rate as at 31 December 2015 | Average rate 2015 | Closing rate as at 31 December 2014 | Average rate 2014 | |
|---|---|---|---|---|
| USD/UAH | 24.0007 | 21.8290 | 15.7686 | 11.9095 |
| EUR/UAH | 26.2231 | 24.2054 | 19.2329 | 15.7410 |
| PLN/USD | 3.9148 | 3.7727 | 3.5407 | 3.1585 |
| EUR/USD | 0.9169 | 0.9013 | 0.8227 | 0.7537 |
3. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);
- Exposure, or rights, to variable returns from its involvement with the investee;
- The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
- The contractual arrangement with the other vote holders of the investee;
- Rights arising from other contractual arrangements;
- The Group’s voting rights and potential voting rights.
The Group re-assesses 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. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
4. Use of estimates and assumptions
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, due to uncertainty about these estimates, actual results recorded in future periods may differ from such estimates.
These consolidated financial statements include management's estimates regarding the value of assets, liabilities, revenues, expenses, and recognized contractual obligations. These estimates mainly include:
4.1. Impairment of property, plant and equipment
In accordance with IAS 36 "Impairment of Assets" the Group reviews the carrying amount of non-current tangible assets (mainly property, plant and equipment) to identify signs of impairment of these assets.
If there is an indication that an asset may be impaired, the Group uses a model of strategic planning in order to calculate the discounted cash flows (using the "value in use" method, as defined in IAS 36) and, thus, assess the recoverability of the carrying amount of property, plant and equipment. The model was based on budgets and forecasts approved by the management for the next 5 years.
Expected future cash flows reflect long-term production plans formed on the basis of past experience and market expectations. The plans take into account all relevant characteristics of poultry farming, including egg production, volume of egg processing, prices for main components of mixed fodder. Thus, the production capacity is the basis for forecasting the future production volume for each subsequent year and related production costs.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
Levels of costs included in projected cash flows are based on current long-term production plans. When conducting impairment testing, recent levels of costs are taken into account, as well as the expected cost changes based on the current condition of operating activities and in accordance with the requirements of IAS 36. IAS 36 provides a number of restrictions on future cash flows, which may be recognized in respect of future restructuring and capital modernization expenses.
Below are the key assumptions that formed the basis for forecasting future cash flows in the models:
- prices for main components of mixed fodder are based on internal forecasts of the Group's management;
- production data (production of eggs, safety of livestock, meat production volume, production of egg products) based on internal forecasts of the Group's management from past experience;
- selling prices for eggs, egg products and poultry meat are based on forecasts of the Group's management and market expectations.
Management believes that calculations of the recoverable amount are most sensitive to changes in such assumptions as the price of poultry meat, price of eggs and eggs product, price of poultry fodder and production data. Management believes that any reasonably possible change in key assumptions on which the recoverable amount of the Group is based will not cause the excess of carrying amount of the Group over its recoverable amount.
Application of IAS 36 requires extensive judgments by the management regarding estimates and assumptions related to future cash flows and discount rate. Given the nature of the current global economic environment, such assumptions and estimates have a high degree of uncertainty. Therefore, other similar assumptions may lead to significantly different results.
4.2. Fair value of biological assets
Estimation of fair value of biological assets is based on the discounted cash flow model. The fair value of biological assets might be affected by the fact that the actual future cash flows will differ from the current forecast, which typically occurs as a result of significant changes in any factors or assumptions used in the calculations.
Among such factors are:
- differences between actual prices and price assumptions used in estimating net realizable value of eggs;
- changes in productivity of laying hens;
- unforeseen operational problems inherent in the branch specificity;
- age of hens at the end of the reporting period;
- changes in production costs, costs of processing and products sales, discount and inflation rates and exchange rates that could adversely affect the fair value of biological assets.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
The key assumptions concerning biological assets based on discounted cash flow approach are presented as follows:
- cost planning at each stage of poultry farming will remain constant in future periods;
- egg production volume will not be significantly changed;
- egg sale price in future periods;
- long-term inflation rate of Ukrainian hryvnia in future periods;
- discount rate for determining the present value of future cash flows expected from the biological assets was set at 31 December 2015: 33.47% (31 December 2014: 27.58%).
Management determined that calculations of the fair value of biological assets are the most sensitive to changes in such assumptions as the volume of egg production, cost planning and prices of eggs, eggs product and poultry meat. Management believes that any reasonably possible change in key assumptions will not cause any significant change in the fair value of biological assets.
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.
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.
Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarized in Notes 17, 28.
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.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
4.3. Allowances for doubtful debts
The Group forms allowances for doubtful debts to cover any potential losses arising in case of buyer's insolvency. In assessing the adequacy of the allowance for doubtful debts the management takes into account overall current economy conditions, terms of balances for outstanding receivables, the Group's experience to write-off liabilities, customers' solvency and changes in the conditions of payment. Changes in the economy, industry or financial position of individual buyers may cause adjustment to the amount of allowance for doubtful debts reflected in the consolidated financial statements.]
4.4. Useful lives of property, plant and equipment
The Group estimates useful lives of property, plant and equipment at least at the end of each financial year and, if expectations differ from previous estimates, changes are recorded as changes in accounting estimates in accordance with IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors". These estimates can have a significant impact on the carrying amount of property, plant and equipment and depreciation expenses during the period.
4.5. Deferred tax assets
Deferred tax assets are recognized for all unused tax losses to the extent that the inflow of taxable profit is possible, at the expense of which these losses may be implemented. Significant judgments are required from the management in determining the amount of deferred tax assets that can be recognized on the basis of the possible terms of receipt and the level of future taxable profit together with the future tax planning strategy.
5. Summary of significant accounting policies
5.1. Recognition and measurement of financial instruments
Financial assets and financial liabilities are recorded in the Group's consolidated statement of financial position when the Group becomes a contractual party regarding the corresponding financial instrument. The Group records the acquisition and sale of financial assets and financial liabilities at the settlement date.
Financial assets and financial liabilities are initially measured 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.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Fair value of investments that are actively traded in organized financial markets is calculated on the basis of current market value at the close of trading on the reporting date. Regarding investments in securities for which there is no active market, fair value is calculated using other methods of valuation of financial instruments. Such valuation methods include the use of information on recent market transactions between well informed, willing to commit such transaction, independent parties, or data about the current market value of another similar instrument, discounted cash flow analysis or other pricing models.
Accounting policy for subsequent revaluation of these items is disclosed below in the appropriate sections of accounting policy.
5.2. Financial assets
Initial recognition and measurement
Financial assets are recognised initially at transaction costs that are attributable to the acquisition of the financial asset.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset
5.3. Effective interest rate method
The effective interest rate method is used to calculate the amortized cost of a financial asset and distribute interest income during the relevant period. The effective interest rate is the rate that enables discounting of estimated future cash receipts through the expected life of a financial asset or a shorter period, if applicable.
Revenues relating to debt instruments are recorded using the effective interest rate method, except for financial assets at fair value through profit or loss.
Financial assets at fair value through profit or loss - a financial asset is classified as at fair value through profit or loss if it is held for trading or designated at fair value through profit or loss.
A financial asset is classified as held-for-trading if it is:
- purchased originally for the purpose of sale / repayment within a short period of time; or
- a part of the portfolio of identified financial instruments that are managed together, and structure of which demonstrates the intention of profit earning in the short term; or
- a derivative that is not classified as a hedging instrument and is not effective for these purposes.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
A financial asset that is not a financial asset held-for-trading may be classified as a financial asset at fair value through profit or loss at the time of recognition in the accounting records if:
- application of such classification eliminates or significantly reduces discrepancies in valuation or accounting, that otherwise might arise, or
- a financial asset is a part of a group of financial assets, financial liabilities or both groups, which are managed and controlled on the basis of fair value in accordance with a documented risk or investment management strategy, and information about this group is provided internally on that basis, or
- it exists in the framework of the contract containing one or more embedded derivatives, and IAS 39 “Financial Instruments: Recognition and Measurement” permits to classify the whole contract (asset or liability) as at fair value through profit or loss.
Financial assets at fair value through profit or loss are measured at fair value with arising gains or losses recognized in the consolidated statement of comprehensive income. Net gains or losses recognized in the income statement include dividends and interest received on the relevant financial asset.
Held-to-maturity investments - investments held to maturity are measured at amortized cost using the effective interest rate method, less impairment, and income is recognized using the effective yield method. During the reporting periods presented in these financial statements, the Group had no investments of this category.
Loans and receivables - accounts receivable regarding principal activities, loans, borrowings and other receivables with fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables". Loans and receivables are measured at amortized cost using the effective interest rate method less impairment and uncollectible debts. Interest income is recognized by applying the effective interest rate, except for short-term receivables for which the amount of such interest income is insignificant.
Unquoted investments available for sale are accounted for at cost if their fair value cannot be reliably measured.
5.4. Cash and cash equivalents
Cash and cash equivalents include cash on hand and cash in bank accounts.
5.5. Short-term deposits
Short-term deposits in the statement of financial position comprise short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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Other Information
5.6. Impairment of financial assets
Financial assets, except for financial assets at fair value through profit or loss, at each reporting date are assessed for signs indicating impairment. Impairment loss is recognized when there is objective evidence of reduction of the estimated future cash flows on this asset as a result of one or more events that occurred after the financial asset was recorded in the accounting. For financial assets at amortized cost, the amount of impairment is calculated as the difference between the asset's carrying amount and present value of the expected future cash flows discounted using the effective interest rate.
Impairment loss directly reduces the carrying amount of all financial assets, except for accounts receivable on principal activities, carrying amount of which is reduced due to the allowance formed. If the accounts receivable on principal activities are uncollectible, they are written-off against the related allowance. Subsequently received reimbursements of amounts previously written-off are recorded in credit of the allowance account. Changes in the carrying amount of the allowance account are recorded in the profit and loss.
Except for equity instruments available for sale, if in a subsequent period the amount of impairment loss decreases and such decrease can be objectively related to an event occurring after the impairment was recognized, the impairment loss previously recognized is recovered by adjusting the items in the income statement. In this case, the carrying amount of financial investments at the date of recovery of impairment cannot exceed its amortized cost, which would be reflected in the case, if impairment was not recognized.
In respect of equity securities available for sale, any increase in fair value after recognition of impairment loss relates directly to equity.
5.7. Writing-off of financial assets
The Group writes-off a financial asset only if rights for cash flows under the corresponding contract terminated the treaty or if a financial asset and corresponding risks and rewards are transferred to other organization. If the Group does not transfer or retain all the principal risks and rewards of ownership of the asset and continues to control the transferred asset, it shall record its share in the asset and related liability in the amount of possible payment of corresponding amounts. If the Group retains all the principal risks and rewards of ownership of the transferred financial asset, it shall continue to account for the financial asset, and reflect a secured loan on income earned.
5.8. Financial liabilities and equity instruments issued by the Group
5.8.1. Accounting as liabilities or equity
Debt and equity financial instruments are classified as liabilities or equity based on the substance of the corresponding contractual obligations.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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5.8.2. Equity instruments
Equity instrument is any contract confirming the right for a share in the company's assets remaining after deduction of all its liabilities. Equity instruments issued by the Group are recorded in the amount of generated income net of direct expenses for their issue.
5.8.3. Liabilities under financial guarantee contracts
Liabilities under financial guarantee contracts are initially measured at fair value and subsequently recorded at the higher of:
- cost of contractual obligations determined in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, and
- cost, less, where applicable, accumulated depreciation reflected in accordance with the principles of revenue recognition set forth below.
5.8.4. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition as loans and borrowings, payables.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts.
A financial liability is classified as held for trading if it is:
- assumed mainly to be repurchased within a short period of time; or
- a part of the portfolio of identified financial instruments that are managed together, and structure of which demonstrates the intention of profit earning in the short term; or
- a derivative that is not classified as a hedging instrument and is not effective for these purposes.
A financial liability that is not a financial liability held-for-trading may be classified as a financial liability at fair value through profit or loss at the time of recognition in the accounting records if:
- application of such classification eliminates or significantly reduces discrepancies in valuation or accounting, that otherwise might arise, or
- a financial liability is a part of a group of financial assets, financial liabilities or both groups, which are managed and controlled on the basis of fair value in accordance with a documented risk or investment management strategy, and information about this group is provided internally on that basis, or
- it exists within the framework of the contract containing one or more embedded derivatives, and IAS 39 “Financial Instruments: Recognition and Measurement” permits to classify the whole contract (asset or liability) as at fair value through profit or loss.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
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Other Information
Financial liabilities at fair value through profit or loss are measured at fair value with arising gains or losses recognized in the financial results. Net gains or losses recognized in the income statement include interest paid on a financial liability.
Other financial liabilities - other financial liabilities, including borrowings, are accounted for at fair value less transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest rate method, with the recognition of interest expenses using the effective (actual) yield.
5.8.5. Trade and other accounts payable
Trade payables are recognized when the counterparty fulfills its contractual obligations and measured at amortized cost using the effective interest rate.
5.8.6. Loans and borrowings
Loans and borrowings are initially recognized at fair value less costs incurred in the transaction. Subsequently, loans and borrowings are stated at amortized cost; any difference between proceeds (net of transaction costs) and the amount of repayment is reflected in the income statement over the period for which loans and borrowings are issued using the effective interest rate method. Loans and borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the obligation to at least one year after the date of balance sheet preparation.
5.8.7. Writing-off of financial liabilities
The Group writes-off financial liabilities only when they are repaid, cancelled or expire.
5.9. Foreign currency transactions
Transactions in currencies other than the functional currency are initially recorded at exchange rates set on the dates of these transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates applicable at the reporting date. All realized and unrealized gains and losses resulting from exchange rate differences are included in profit or loss for the period.
5.10. Biological assets
Biological assets represented by the commercial herd and herd replacements are recorded at fair value less estimated selling and distribution expenses. Estimate of fair value of biological assets of the Group is based on discounted cash flow models, according to which the fair value of biological assets is calculated using present value of the expected net cash flows from biological assets discounted at the appropriate rate.
The Group recognizes a biological asset only where it controls an asset as a result of past events; it is probable that the economic benefits from the asset will flow to the Group; fair value or cost of an asset can be estimated with reasonable certainty.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Profit or loss arising on initial recognition of biological assets at fair value less estimated selling and distribution expenses is included in the consolidated income statement as incurred.
Agricultural products collected from a biological asset are measured at fair value less estimated selling and distribution expenses. Profit or loss arising on initial recognition of agricultural products at fair value, less estimated selling and distribution expenses, is recognized in the consolidated statement of comprehensive income.
5.11. Inventories
Inventories consist mainly of raw materials, package and packing materials, agricultural produce and finished goods. Inventories are valued at the lower of cost and net realisable value.
Cost of goods includes the cost of acquisition and, where appropriate, costs incurred in bringing inventories to their present condition and location. Cost is calculated using the weighted average method. Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in OCI, in respect to the purchases of raw materials.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
5.12. Property, plant and equipment
Property, plant and equipment are recorded at historical cost or deemed cost, equal to fair value at the date of transition to IFRS, less accumulated depreciation and accumulated impairment losses. Historical cost of an asset of property, plant and equipment includes (a) the purchase price, including non-recoverable import duties and taxes net of trade and other discounts; (b) any costs directly related to bringing an asset to the location and condition, which allow its functioning in accordance with the intentions of the Group's management; (c) initial assessment of the costs of dismantling and removal in the asset of property, plant and equipment and restoring the occupied territory; this obligation is assumed by the Company either upon the acquisition of an asset, or as a result of its operation for a certain period of time for the purposes not related to the production of inventories during this period. Cost of assets created in-house includes cost of materials, direct labor costs and an appropriate proportion of production overheads.
Construction in progress includes costs directly related to the construction of property, plant and equipment, including distribution of variable overheads associated with the construction and prepayments for the property, plant and equipment. Construction in progress is not depreciated. These assets are depreciated from the moment when they are used in economic activity, on the same basis as depreciation on other assets.
Subsequently capitalised 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 capitalisation are charged to the consolidated statement of comprehensive income as incurred.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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Depreciable amount is the cost of an asset of property, plant and equipment, or any other amount, less its residual value. The residual value of an asset is the estimated amount that the company would receive to date from the sale of an item of property, plant and equipment, less estimated costs of disposal if the asset reached the age and condition, in which, presumably, it will be at the end of its useful life. Assets under finance lease are depreciated over the shorter of estimated useful life on the same basis as own assets or over the period of the relevant lease.
Depreciation is provided to write-off the depreciable amount over the useful life of an asset and is calculated using the straight-line method. Useful lives of the groups of property, plant and equipment are as follows:
| Buildings | 10 - 40 years |
|---|---|
| Plant and equipment | 5 - 25 years |
| Vehicles | 3 - 10 years |
| Furniture and fittings | 3 - 5 years |
| Construction in progress and uninstalled equipment | No depreciation |
The residual value, useful life and depreciation method are reviewed at the end of each financial year. Impact of any changes arising from estimates made in prior periods is recorded as a change in an accounting estimate.
Gains or losses arising from disposal or liquidation of an asset of property, plant and equipment, are defined as the difference between sales proceeds and carrying amount of an asset and recognized in profit or loss.
5.13. Impairment of property, plant and equipment
At the end of each reporting period the Group identifies signs of possible impairment of assets. If any such indication exists, the Group reviews the carrying amount of its items of property, plant and equipment to determine whether any signs of impairment exist due to depreciation. If any such indication exists, the expected recoverable amount of an asset is estimated to determine the amount of impairment losses, if any.
In order to determine the impairment losses, assets are grouped at the lowest levels for which it is possible to identify separately the cash flows (cash generating unit).
The recoverable amount is the higher of fair value less selling and distribution expenses and value of an asset in use. In assessing the value of an asset in use, the estimated future cash flows associated with the asset, are discounted to their present value using pre-tax discount rate that reflects current market estimates of time value of money and the risks inherent in the asset.
If, according to the estimates, the recoverable amount of an asset (cash generating unit) is less than its carrying amount, the carrying amount of an asset (cash generating unit) is reduced to the recoverable amount. An impairment loss is recognized immediately in the income statement, except when the asset is recorded at a revalued amount. In this case the impairment loss is considered as a revaluation decrease.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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Other Information
In cases where impairment losses are subsequently reversed, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of recovery amount, however, in such a way that the increased carrying amount does not exceed the carrying amount that would be determined, if an impairment loss was not recognized in respect of an asset (cash generating unit) in previous years. Reversal of impairment loss is recognized immediately in the income statement, except when the asset is recorded at a revalued amount. In this case, the reversal of an impairment loss is considered as a revaluation increase.
5.14. Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Amortization is calculated on a straight line basis over the useful life of an asset, which is 10 years.
5.15. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
5.16. Leases
Leases are classified as finance leases when according to the terms of lease the lessee assumes all principal risks and rewards incident to ownership of the leased property. Other leases are classified as operating leases. Income and expenses associated with operating leases are accrued on a straight-line basis and recorded in the income statement over the lease term.
5.17. Group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the statement of comprehensive income. Operating lease payments are recognized as an expense in the income statement evenly over the lease term.
5.18. Group as a lessor
Leases where the Group does not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same base as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
5.19. Contingent assets and liabilities
Contingent liabilities are not recognized in the financial statements. Such liabilities are disclosed in the notes to the financial statements, except where the probability of outflow of resources embodying economic benefits is insignificant.
Contingent assets are not recognized in the financial statements, but disclosed in the notes to the extent that it is probable that the economic benefits will flow to the Group.
5.20. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation amount.
The amount recognized as a provision is the best estimate of compensation necessary to repay a current liability on the reporting date, which takes into account all the risks and uncertainties inherent in this liability.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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In cases where the amount of provision is estimated using cash flows that can be required to repay current liabilities, its carrying amount represents the present value of these cash flows.
Where there is a possibility that one or all of the economic benefits necessary to recover the amount of provision will be reimbursed by a third party, the receivables are recognized as an asset if there is actual assurance that such reimbursement will be received and the amount of receivables can be measured reliably.
5.21. Revenue recognition
Revenues from the sale of goods are recognized when the Group has transferred to the buyer all significant risks and rewards of ownership of the goods, and it is probable that the economic benefits associated with this transaction will flow to the Group.
Revenues from rendering of services are recognized in the reporting period in which the services were provided, based on the level of completion of the specific transaction and only when the amount of revenue can be reliably measured and it is probable that the economic benefits associated with this transaction will flow to the Group.
Income and expenses relating to the same transaction or event are recognized simultaneously. Interest income is recognized using the effective interest rate method.
5.22. Income tax
Income tax is calculated in accordance with the requirements of the applicable legislation of Ukraine. Income tax is calculated on the basis of financial results for the year adjusted to items that are not included in taxable income or that cannot be attributed to gross expenses. It is calculated using tax rates effective at 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 financial statements and the corresponding tax base used to calculate taxable income. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recorded taking into account the degree of certainty in sufficient taxable income, which enables to realize temporary differences related to gross expenses.
Deferred tax is calculated at tax rates, which presumably will be applied during the sale of related assets or repayment of related liabilities.
Assets and liabilities on deferred income tax are offset when: a) the Group has a legally enforceable right to offset the recognized current income tax assets and liabilities; b) the Group intends either to perform settlement by offsetting counterclaims, or simultaneously sell the asset and settle the liability; c) deferred tax assets and liabilities relate to income taxes levied by the same taxation authority in each future period in which it is intended to repay or reimburse a significant
Notes on pages 46-95 form an integral part of these consolidated financial statements
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amount of deferred tax liabilities and assets.
Deferred income tax is recognized in the income statement, except when it relates to items recognized directly in equity. In this case the deferred tax is also recognized in equity.
In 2015, Ukrainian corporate income tax was levied at a rate of 18% (2014: 18%)
Fixed agricultural tax: 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 16).
5.23. Value Added Tax
For the year ended 31 December 2015 and 2014, VAT was levied at two rates: 20% on Ukrainian domestic sales and imports of goods, works and services and 0% on export of goods and provision of works or services to be used outside Ukraine. In 2015 VAT rate remains at the same level.
VAT output equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to the customer or the date of receiving payment from the customer. VAT input is the amount that a taxpayer is entitled to offset against his VAT liability in the reporting period. According to Ukrainian legislation, rights to VAT input arise on the earlier of the date of payment to the supplier or the date goods are received.
5.24. Government grants
Government grants are stated at fair value when there is reasonable assurance that the grant will be received.
Ukrainian legislation provides a variety of tax benefits and subsidies for agricultural companies. Such benefits and subsidies are approved by the Supreme Council of Ukraine, the Ministry of Agrarian Policy, Ministry of Finance, local authorities. Under the applicable legislation, agricultural producers are entitled to use VAT benefit regarding agricultural transactions.
VAT refunds and other government grants
The Group's companies are subject to special tax treatment for VAT (Note 12). The Group's enterprises, which qualify as agricultural producers, are entitled to retain the net VAT payable. VAT amounts payable are not transferred to the State, but credited to the entity's separate special account to support the agriculture activities of the Group. Net result on VAT operations, calculated as excess of VAT liability over VAT credit is charged to profit or loss. VAT receivable exceeding VAT liability is used as a reduction in tax liabilities of the next period.
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.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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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 attached to them and that the grants will be received.
5.25. Partial compensation of interest rates on loans raised by the agricultural companies from financial institutions
The Group companies are entitled to compensation from the government of a share of interest expenses incurred on loans which were received for agricultural purposes. The amount of interest compensation depends on the term and purpose of the loan. Due to the fact that the payment of interest compensations depends on the capabilities of the country's budget, they are recognized on a cash basis as other operating income in the period of receipt.
5.26. Related party transactions
For the purposes of these consolidated financial statements, the parties are considered to be related if one of the parties has a possibility to control or considerably influence the operational and financial decisions of the other company. While considering any relation which can be defined as related party transactions it is necessary to take into consideration the substance of the transaction not only their legal form.
5.27. Reclassification
Certain comparative information presented in the consolidated financial statements for the year ended 31 December 2014 has been revised in order to achieve comparability with the presentation used in the consolidated financial statements for the year ended 31 December 2015. Such reclassifications and revisions were not significant to the Group financial statements.
6. New and amended standards
6.1. Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Retrospective application is required, but comparative information is not compulsory. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group's financial assets, but will potentially have no impact on the classification and measurement of the Group's financial liabilities.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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The IASB effective date is 1 January 2018 with early adoption permitted.
- IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue.
It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The IASB effective date is 1 January 2018, with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.
- IFRS 16 Leases
IFRS 16, published in January 2016, establishes a revised framework for determining whether a lease is recognised on the (Consolidated) Statement of Financial Position. It replaces existing guidance on leases, including IAS 17. The IASB effective date is 1 January 2019, with early adoption permitted. The Group will assess the potential impact on its consolidated financial statements resulting from the application of IFRS 16.
- IFRS 14 Regulatory Deferral Accounts
IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity's rate-regulation and the effects of that rate-regulation on its financial statements. IFRS 14 has not been yet endorsed by the EU. The IASB effective date is 1 January 2016. Since the Group is an existing IFRS preparer, this standard would not apply.
- Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The IASB has published 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)'. The amendments address a conflict between the requirements of IAS 28 'Investments in Associates and Joint Ventures' and IFRS 10 'Consolidated Financial Statements' and clarify that in a transaction involving an associate or joint venture the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The amendments have not been endorsed by the EU. The Group is currently assessing the impact of these amendments on the financial statements.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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- Annual improvements 2012-2014 Cycle
These improvements are endorsed by the EU. The effective date is 1 January 2016. The improvements are not expected to have a material impact on the Group. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
This improvement adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued.
IFRS 7 Financial Instruments: Disclosures (with consequential amendments to IFRS 1)
The amendment adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required.
This improvement clarifies the applicability of the amendments to IFRS 7 on offsetting disclosures to condensed interim financial statements.
IAS 19 Employee Benefits
This amendment clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level).
IAS 34 Interim Financial Reporting
The amendment clarifies the meaning of 'elsewhere in the interim report' and requires a cross-reference.
- Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party.
- Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments have been endorsed by the EU. The effective date is 1 January 2016. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets.
- Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants
The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. These improvements have been endorsed by the EU. The effective date is 1 January 2016. These amendments are not expected to have any impact to the Group as the Group does not have any bearer plants.
- Amendments to IAS 27: Equity Method in Separate Financial Statements
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. These improvements have been endorsed by the EU. The effective date is 1 January 2016. These amendments will not have any impact on the Group's consolidated financial statements.
- Amendments to IAS 1 Presentation of Financial Statements: Disclosure Initiative
The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports. These improvements have been endorsed by the EU. The effective date is 1 January 2016. These improvements are not expected to have a material impact on the Group.
- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. These improvements have not been endorsed by the EU. The IASB effective date is 1 January 2016. The Group is not an investing company and therefore the amendment has no effect.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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The following new or amended standards are not expected to have a significant impact on consolidated financial statements:
- Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (issued on 19 January 2016);
-
Amendments to IAS 7: Disclosure Initiative (issued on 29 January 2016).
-
Adoption of new and revised standards and interpretations
The Group has adopted the following amended IFRS and IFRIC which are effective for annual periods beginning on or after 1 January 2015:
- Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 February 2015. It is not expected that this amendment would be relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties.
- Annual improvements 2010-2012 Cycle
These improvements are effective from 1 February 2015 and are not expected to have a material impact on the Group, except for the potential effect on disclosures. The improvements include:
IFRS 2 Share-based Payment
This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including:
- A performance condition must contain a service condition
- A performance target must be met while the counterparty is rendering service
- A performance target may relate to the operations or activities of an entity, or to those of another entity in the same group
- A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable).
IFRS 8 Operating Segments
The amendments are applied retrospectively and clarifies that:
- An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’
- The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.
IFRS 13 Fair Value Measurement
(amendments to the basis of conclusions only, with consequential amendments to the bases of conclusions of other standards)
The amendments clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial.
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset.
IAS 24 Related Party Disclosures
The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services.
Annual improvements 2011-2013 Cycle
These improvements are effective from 1 February 2015 and are not expected to have a material impact on the Group. They include:
Notes on pages 46-95 form an integral part of these consolidated financial statements
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IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:
- Joint arrangements, not just joint ventures, are outside the scope of IFRS 3
- This scope exception applies only to the accounting in the financial statements of the joint arrangement itself.
IFRS 13 Fair Value Measurement
The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable).
IAS 40 Investment Property
The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or business combination.
7. Subsidiaries and Non-controlling interests
As at 31 December 2015 and 2014 the Group included the following subsidiaries:
| Name of the company | Business activities | As at 31 December 2015 | As at 31 December 2014 |
|---|---|---|---|
| Limited Liability Company “Ovostar Union” | Strategic management of subsidiary companies in Ukraine | 100.0% | 100.0% |
| Limited Liability Company “Yasensvit” | Breeder farms, production of hatching eggs, farms for growing young laying flock and for laying flock, production and distribution of shell eggs, poultry feed production | 98.0% | 98.0% |
| Limited Liability Company “Ovostar” | Egg-products production and distribution | 100.0% | 100.0% |
| Public Joint Stock Company “Poultry Farm Ukraine” | Production of shell eggs, assets holding | 92.0% | 92.0% |
| Public Joint Stock Company “Malynove” | Production of shell eggs, assets holding | 94.0% | 94.0% |
| Public Joint Stock Company “Krushynskyy Poultry Complex” | Trading company, egg trading – non operational activity | 76.0% | 76.0% |
| Limited Liability Company “Skybynskyy Fodder Plant” | In the process of liquidation | 98.6% | 98.6% |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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The following tables summarises the information relating to each of the Group's subsidiaries that has material NCI, before any intra-group elimination:
| As at 31 December 2015 | LLC "Yasensvit" | PJSC "Poultry Farm Ukraine" | PJSC "Malynove" | PJSC "Krushynsk yy Poultry Complex" | Intra-group eliminations | Total |
|---|---|---|---|---|---|---|
| NCI percentage | 2.0% | 8.0% | 6.0% | 24.0% | ||
| Non-current assets | 27 595 | 5 431 | 5 777 | - | ||
| Current assets | 49 650 | 2 879 | 500 | 642 | ||
| Non-current liabilities | - | (41) | (245) | (3) | ||
| Current liabilities | (3 726) | (270) | (3 192) | 9 | ||
| Net assets | 73 519 | 7 999 | 2 840 | 648 | ||
| Carrying amount of NCI | 1 470 | 640 | 170 | 156 | - | 2 436 |
| Revenue | 71 196 | 6 201 | 2 652 | - | ||
| Profit (loss) | 30 449 | 5 262 | (647) | (5) | ||
| OCI | (26 267) | (2 178) | (1 761) | (341) | ||
| Total comprehensive income | 4 182 | 3 084 | (2 408) | (346) | ||
| Profit allocated to NCI | 609 | 421 | (39) | (1) | 990 | |
| OCI allocated to NCI | (525) | (174) | (106) | (82) | (887) | |
| CF from operating activities | 11 091 | 1 150 | 3 889 | 1 | ||
| CF from investment activities | (7 684) | (1 159) | (3 817) | - | ||
| CF from financing activities (dividend to NCI: nil) | - | - | - | - | ||
| Net (decrease)/ increase in cash and cash equivalents | 2 868 | (13) | 32 | 1 | ||
| As at 31 December 2014 | LLC "Yasensvit" | PJSC "Poultry Farm Ukraine" | PJSC "Malynove" | PJSC "Krushynsk yy Poultry Complex" | Intra-group eliminations | Total |
| NCI percentage | 2.0% | 8.0% | 6.0% | 24.0% | ||
| Non-current assets | 35 637 | 2 728 | 3 669 | 2 | ||
| Current assets | 39 981 | 2 572 | 1 848 | 1 002 | ||
| Non-current liabilities | - | 29 | (7) | - | ||
| Current liabilities | (6 259) | (414) | (262) | (12) | ||
| Net assets | 69 359 | 4 915 | 5 248 | 992 | ||
| Carrying amount of NCI | 1 387 | 393 | 315 | 238 | - | 2 333 |
| Revenue | 68 027 | 554 | 55 | 20 | ||
| Profit (loss) | 26 483 | (327) | (333) | 12 | ||
| OCI | (54 670) | (4 981) | (5 428) | (965) | ||
| Total comprehensive income | (28 187) | (5 308) | (5 761) | (953) | ||
| Profit allocated to NCI | 530 | (26) | (20) | 2 | 486 | |
| OCI allocated to NCI | (1 093) | (398) | (326) | (232) | (2 049) | |
| CF from operating activities | 7 821 | 102 | 2 114 | 1 | ||
| CF from investment activities | (8 348) | (46) | (2 113) | - | ||
| CF from financing activities (dividend to NCI: nil) | (8) | (31) | (1) | - | ||
| Net (decrease)/ increase in cash and cash equivalents | (535) | 25 | - | 1 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
8. Segment information
All of the Group's operations are located within Ukraine.
Segment information is analyzed on the basis of the types of goods supplied by the Group's operating divisions. The Group's reportable segments under IFRS 8 are therefore as follows:
| Egg operations segment | • sales of egg
• sales of chicken meat |
| --- | --- |
| Egg products operations segment | • sales of egg processing products |
| Oilseed operations segment | • sales of sunflower oil, rapeseed oil and related products |
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 5. Sales between segments are mainly carried out at market prices. Operating profit before tax represents segment result. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
For the purposes of monitoring segment performance and allocating resources between segments:
- All assets are allocated to reportable segments.
- All liabilities are allocated to reportable segments.
The following table presents revenue, results of operations and certain assets and liabilities information regarding segments for the year ended 31 December 2015 and 2014:
| For the year ended
31 December 2015 | Operations segment | | | Consolidated |
| --- | --- | --- | --- | --- |
| | Egg | Egg products | Oilseed | |
| Revenue | 94 354 | 23 001 | 3 427 | 120 782 |
| Inter-segment revenue | (38 802) | (4 827) | (1 547) | (45 176) |
| Revenue from external buyers | 55 552 | 18 174 | 1 880 | 75 606 |
| Profit before tax | 28 408 | 4 244 | - | 32 652 |
| For the year ended
31 December 2014 | Operations segment | | | Consolidated |
| --- | --- | --- | --- | --- |
| | Egg | Egg products | Oilseed | |
| Revenue | 75 172 | 24 341 | 5 102 | 104 615 |
| Inter-segment revenue | (23 807) | (4 315) | (1 713) | (29 835) |
| Revenue from external buyers | 51 365 | 20 026 | 3 389 | 74 780 |
| Profit before tax | 19 829 | 6 175 | - | 26 004 |
In 2015 and 2014 no sales were settled by barter transactions.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Segment assets, liabilities and other information regarding segments as at 31 December 2015 and 2014 were presented as follows:
| As at 31 December 2015 | Operations segment | Consolidated | ||
|---|---|---|---|---|
| Egg | Egg products | Oilseed | ||
| Total segment assets | 91 569 | 9 035 | 114 | 100 718 |
| Total segment liabilities | 20 965 | 1 245 | 1 | 22 211 |
| Addition to property, plant and equipment and intangible assets | 9 483 | 237 | 52 | 9 772 |
| Net change in fair value of biological assets and agricultural produce | 1 718 | 692 | - | 2 410 |
| Depreciation and amortization | (2 243) | (170) | (14) | (2 427) |
| Interest income | 337 | 8 | - | 345 |
| Interest on debts and borrowings | (1 160) | (23) | - | (1 183) |
| Income tax expense | (435) | (273) | - | (708) |
| As at 31 December 2014 | Operations segment | Consolidated | ||
| --- | --- | --- | --- | --- |
| Egg | Egg products | Oilseed | ||
| Total segment assets | 90 741 | 9 654 | 1 225 | 101 620 |
| Total segment liabilities | 14 414 | 2 138 | 3 | 16 555 |
| Addition to property, plant and equipment and intangible assets | 8 496 | 1 978 | 4 | 10 478 |
| Net change in fair value of biological assets and agricultural produce | 2 023 | 790 | - | 2 813 |
| Depreciation and amortization | (3 371) | (326) | (26) | (3 723) |
| Interest income | 84 | 21 | - | 105 |
| Interest on debts and borrowings | (592) | (49) | - | (641) |
| Income tax expense | (1) | (178) | - | (179) |
The following table presents information about revenue from external buyers divided by geographic location for the year ended 31 December 2015 and 2014:
| Revenue by regions | For year 2015 | For year 2014 |
|---|---|---|
| Ukraine | 54 049 | 63 134 |
| Middle East | 19 161 | 8 661 |
| European Union | 1 362 | - |
| Africa | 436 | 1 816 |
| CIS | 239 | 827 |
| Other | 359 | 342 |
| Total | 75 606 | 74 780 |
Revenue for the year ended 31 December 2015 from two customers amounted to USD 10 167 thousand and USD 9 413 thousand (2014: USD 10 437 thousand and nil, respectively), arising from sales in the egg operations segment.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
9. Cost of sales
| For year 2015 | For year 2014 | |
|---|---|---|
| Costs of inventories recognised as an expense | (35 245) | (35 707) |
| Packaging costs | (4 114) | (4 633) |
| Wages, salaries and social security costs | (3 015) | (5 109) |
| Amortisation, depreciation and impairment | (2 273) | (3 585) |
| Other expenses | (954) | (1 744) |
| Total | (45 601) | (50 778) |
10. Selling and distribution costs
| For year 2015 | For year 2014 | |
|---|---|---|
| Transportation expenses | (1 452) | (1 175) |
| Wages, salaries and social security costs | (256) | (169) |
| Cost of materials | (205) | (312) |
| Marketing and advertising expenses | (45) | (144) |
| Amortisation, depreciation and impairment | (11) | (17) |
| Other expenses | (619) | (438) |
| Total | (2 588) | (2 255) |
11. Administrative expenses
| For year 2015 | For year 2014 | |
|---|---|---|
| Wages, salaries and social security costs | (402) | (592) |
| Legal, audit and other professional fees | (249) | (270) |
| Service charge expenses | (253) | (284) |
| Cost of materials | (100) | (139) |
| Amortisation, depreciation and impairment | (143) | (121) |
| Other expenses | (90) | (74) |
| Total | (1 237) | (1 480) |
12. Other operating income
| Note | For year 2015 | For year 2014 | |
|---|---|---|---|
| Income from refund under the special legislation: | |||
| Income from special VAT treatment | a) | 4 514 | 2 539 |
| Total income from refund under the special legislation | 4 514 | 2 539 | |
| Gain on recovery of assets previously written off | 237 | 122 | |
| Other income | 52 | 42 | |
| Total | 4 803 | 2 703 |
Recovery of assets previously written-off mainly represents amounts of inventory surplus identified in the reporting period during the stock-taking and recovery of amounts previously recognized as doubtful.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
a) Income from special VAT treatment
According to the Tax Code of Ukraine, companies that generated not less than 75% of gross revenues for the previous tax year from sales of own agricultural products are entitled to retain VAT on sales products, net of VAT paid on purchases, for use in agricultural production. In accordance with the Tax Code, the VAT rate is currently effective at 20%.
Included in VAT refunds for the years ended 31 December 2015, 2014 were specific VAT subsidies for the production and sale of eggs and egg products for further processing.
In accordance with the new legislation (the Law "On amending the Tax Code of Ukraine and certain legislative acts of Ukraine in terms of ensuring the balanced budget receipts in 2016" was adopted effective 1 January 2016), agricultural producers will be entitled to retain only a portion of VAT on agricultural operations. Producers of shell eggs, poultry and other agriculture producers shall retain VAT in a portion of 50%.
All members of the Group qualify for the use of VAT benefits except for Limited Liability Company "Ovostar", Open Joint Stock Company "Krushynskyy Poultry Complex", Limited Liability Company "Skybynskyy Fodder Plant", Limited Liability Company "Ovostar Union", Public Joint Stock Company "Malynove".
Reconciliation of VAT refunds for the year ended 31 December 2015, 2014 was presented as follows:
| For year 2015 | For year 2014 | |
|---|---|---|
| As at 01 January | 1 | 3 |
| Received during the year | 4 515 | 2 538 |
| Released to the statement of comprehensive income | (4 514) | (2 539) |
| Exchange differences | (2) | (1) |
| As at 31 December | - | 1 |
| Current | - | 1 |
| Non-current | - | - |
13. Other operating expenses
| For year 2015 | For year 2014 | |
|---|---|---|
| Impairment of doubtful accounts receivable and prepayments to suppliers | (292) | (243) |
| VAT written-off | (627) | (84) |
| Fines and penalties | (29) | (47) |
| Loss on disposal of inventories | - | (4) |
| Other expenses | (62) | (23) |
| Total | (1 010) | (401) |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
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Other Information
- Finance costs
| For year 2015 | For year 2014 | |
|---|---|---|
| Interest on debts and borrowings | (1 172) | (611) |
| Interest on financial lease | (11) | (30) |
| Loss from the sale of VAT bonds | - | (72) |
| Other financial expenses | (53) | (284) |
| Total | (1 236) | (997) |
- Finance income
| For year 2015 | For year 2014 | |
|---|---|---|
| Foreign currency exchange gain | 1 160 | 1 514 |
| Interest income | 345 | 105 |
| Total | 1 505 | 1 619 |
- Income tax
Companies of the Group that are involved in agricultural production pay the Fixed Agricultural Tax (the "FAT") in accordance with the applicable laws. The FAT is paid in lieu of corporate income tax, land tax, duties for geological survey works and duties for trade patents.
The FAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is valid indefinitely. FAT does not constitute an income tax, and as such, is recognized in the statement of comprehensive income in administrative expenses.
During the year ended 31 December 2015, the Group companies which have the status of the Corporate Income Tax (the "CIT") payers in Ukraine were subject to income tax at a 18% rate (31 December 2014: at a 18% rate). The deferred income tax assets and liabilities as of 31 December 2015 were measured based on the tax rates expected to be applied to the period when the temporary differences are expected to reverse.
The major components of income tax expense for year ended 31 December 2015 and 2014 were:
| For year 2015 | For year 2014 | |
|---|---|---|
| Current income tax | (26) | (71) |
| Deferred tax | (682) | (108) |
| Income tax (expense)/benefit reported in the income statement | (708) | (179) |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Reconciliation between tax expense and the product of accounting profit multiplied by Ukraine's
| For year 2015 | For year 2014 | |
|---|---|---|
| Accounting profit before income tax | 32 652 | 26 004 |
| At Ukraine’s statutory income tax rate of 18% (2014: 18%) | 5 877 | 4 681 |
| Tax effect of: | ||
| Income generated by FAT payers (exempt from income tax) | (6 343) | (4 690) |
| Current year losses for which no deferred tax asset was recognised at a rate of 25.0% (1) | 46 | 95 |
| Effect of expenses that are not deductible in determining taxable profit | 1 055 | 55 |
| Effect of translation to presentation currency | 73 | 38 |
| Income tax expense/(benefit) | 708 | 179 |
domestic tax rate for the years ended 31 December 2015 and 2014 was as follows:
(1) Current year losses for which no deferred tax asset was recognized relate to Ovostar Union N.V., the Dutch company. The income tax rate in the Netherlands is 25.0%.
Deferred tax
As at 31 December 2015 and 2014, deferred tax assets and liabilities comprised the following:
| As at 31 December 2015 | Recognized in statement of comprehensive income | Effect of translation into presentation currency | As at 31 December 2014 | |
|---|---|---|---|---|
| Advances received and other payables | 38 | 39 | (2) | 1 |
| Prepayments to suppliers | 70 | 59 | (10) | 21 |
| Trade and other receivables | 26 | 4 | (13) | 35 |
| Inventories | 15 | - | (7) | 22 |
| Tax losses | 257 | - | (134) | 391 |
| Unrecognized deferred tax assets | (261) | (174) | 69 | (156) |
| Netted off against deferred tax assets | 145 | (72) | (97) | 314 |
| Property, plant and equipment and intangible assets | (833) | (602) | 164 | (395) |
| Advances received and other payables | (17) | (8) | 6 | (15) |
| Netted off against deferred tax liabilities | (850) | (610) | 170 | (410) |
| Net deferred tax asset/(liability) | (705) | (682) | 73 | (96) |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
| As at 31 December 2014 | Recognized in statement of comprehensive income | Effect of translation into presentation currency | As at 31 December 2013 | |
|---|---|---|---|---|
| Advances received and other payables | 1 | (7) | (5) | 13 |
| Prepayments to suppliers | 21 | 7 | (17) | 31 |
| Trade and other receivables | 35 | 15 | (26) | 46 |
| Inventories | 22 | (31) | (37) | 90 |
| Property, plant and equipment and intangible assets | - | (12) | (7) | 19 |
| Tax losses | 391 | 58 | (353) | 686 |
| Unrecognized deferred tax assets | (156) | (195) | 55 | (16) |
| Netted off against deferred tax assets | 314 | (165) | (390) | 869 |
| Property, plant and equipment and intangible assets | (395) | 49 | 409 | (853) |
| Prepayments to suppliers | - | 5 | 2 | (7) |
| Advances received and other payables | (15) | 3 | 16 | (34) |
| Netted off against deferred tax liabilities | (410) | 57 | 427 | (894) |
| Net deferred tax asset/(liability) | (96) | (108) | 37 | (25) |
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off 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 balance sheet as at 31 December 2015 and 2014:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Non-current assets | 145 | 314 |
| Long term liabilities | (850) | (410) |
| Net deferred tax asset/(liability) | (705) | (96) |
17. Biological assets
As at 31 December 2015 and 2014 commercial and replacement poultry were presented as follows:
| As at 31 December 2015 | As at 31 December 2014 | |||
|---|---|---|---|---|
| Number, thousand heads | Carrying value | Number, thousand heads | Carrying value | |
| Non-current biological assets | ||||
| Replacement poultry | ||||
| Hy-line | 3 947 | 26 041 | 3 262 | 27 356 |
| Total non-current biological assets | 3 947 | 26 041 | 3 262 | 27 356 |
| Current biological assets | ||||
| Commercial poultry | ||||
| Hy-line | 2 547 | 8 409 | 2 250 | 9 745 |
| Hy-sex | - | - | 95 | 77 |
| Total current biological assets | 2 547 | 8 409 | 2 345 | 9 822 |
| Total biological assets | 6 494 | 34 450 | 5 607 | 37 178 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Classification of biological assets into non-current and current component is based on the life cycle of a biological asset. Biological assets that will generate cash flow more than one year are classified as non-current biological assets, biological assets that will generate cash flow less than one year are classified as current biological assets.
Reconciliation of commercial and replacement poultry carrying values for the year ended 31 December 2015 and 2014 was presented as follows:
| For year 2015 | For year 2014 | |
|---|---|---|
| As at 01 January | 37 178 | 58 172 |
| Increase in value as a result of assets acquisition | 1 272 | 513 |
| Increase in value as a result of capitalization of cost | 9 084 | 8 639 |
| Income/(Losses) from presentation of biological assets at fair value | 2 410 | 2 813 |
| Decrease in value as a result of assets disposal | (1 734) | (1 379) |
| Exchange differences | (13 760) | (31 580) |
| As at 31 December | 34 450 | 37 178 |
For the year ended 31 December 2015 the Group produced shell eggs in the quantity of 1 195 781 thousand items (31 December 2014: 1 038 355 thousand).
Fair value of biological assets was estimated by the Group's specialists which have experience in valuation of such assets. Fair value was calculated by discounting of expected net cash flow (in nominal measuring) at the moment of eggs produced, using corresponding discount rate which is equal to 33.47% (31 December 2014: 27.58%). Management supposes that sale price and production and distribution costs fluctuations will comply with forecasted index of consumer price in Ukraine. The major assumptions were performed on the basis of internal and external information and it reflected Management's assessment of the future agricultural prospect.
Biological assets of the Group are measured at fair value within Level 3 of the fair value hierarchy.
Value measurement is a maximum value exposed to the following assumptions which were used in fair value calculations of biological assets:
| Assumption as at 31 December 2015 | Assumption as at 31 December 2014 | |
|---|---|---|
| Eggs sale price, USD per item (UAH per item) | 0.067 (1.464) | 0.074 (0.876) |
| Discount rate, % | 33.47% | 27.58% |
| Long-term inflation rate of Ukrainian hryvnia, % | 113.50% | 115.00% |
Based on the current situation in Ukraine that provides a high degree of uncertainty in relation to many of the assumptions in the biological assets revaluation model, and guided by the prudence concept, the Group used conservative approach for calculation of fair value of biological assets as at 31 December 2015.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Changes in key assumptions that were used in fair value estimation of biological assets had the following influence on the value of biological assets as at 31 December 2015 and 2014:
| For year 2015 | For year 2014 | |
|---|---|---|
| 1% decrease in egg sale price | (926) | (799) |
| 1% increase in discount rate | (500) | (544) |
| 1% increase in long-term inflation rate of Ukrainian hryvnia | 416 | 434 |
18. Property, plant and equipment and intangible assets
| Buildings | Plant and equipment | Vehicles | Furniture and fittings | Construction-in-progress and uninstalled equipment | Intangible assets | Total | |
|---|---|---|---|---|---|---|---|
| Cost or valuation | |||||||
| As at 31 December 2013 | 36 394 | 38 765 | 1 194 | 635 | 8 261 | 74 | 85 323 |
| Additions | 2 430 | 3 413 | 164 | 64 | 4 402 | 5 | 10 478 |
| Transfer | 2 315 | 4 079 | 6 | (6 400) | - | - | |
| Disposals | - | (373) | (2) | - | (8) | (383) | |
| Currency translation difference | (19 220) | (20 862) | (614) | (328) | (1 871) | (35) | (42 930) |
| As at 31 December 2014 | 21 919 | 25 022 | 744 | 375 | 4 392 | 36 | 52 488 |
| Additions | 892 | 5 323 | 33 | 38 | 3 486 | - | 9 772 |
| Transfer | 583 | 2 375 | - | 5 | (2 963) | - | - |
| Disposals | (91) | (191) | (1) | (3) | - | - | (286) |
| Currency translation difference | (7 672) | (9 281) | (257) | (132) | (1 405) | (12) | (18 759) |
| As at 31 December 2015 | 15 631 | 23 248 | 519 | 283 | 3 510 | 24 | 43 215 |
Depreciation and amortization (D&A)
| As at 31 December 2013 | (5 998) | (11 463) | (773) | (395) | - | (16) | (18 645) |
|---|---|---|---|---|---|---|---|
| D&A charge | (1 258) | (2 315) | (69) | (81) | - | - | (3 723) |
| Disposals | - | 311 | - | 1 | - | - | 312 |
| Currency translation difference | 3 287 | 6 166 | 399 | 215 | - | 8 | 10 075 |
| As at 31 December 2014 | (3 969) | (7 301) | (443) | (260) | - | (8) | (11 981) |
| D&A charge | (920) | (1 407) | (42) | (55) | - | (2) | (2 426) |
| Disposals | 82 | 172 | 1 | 3 | - | - | 258 |
| Currency translation difference | 1 437 | 2 614 | 155 | 95 | - | 3 | 4 304 |
| As at 31 December 2015 | (3 370) | (5 922) | (329) | (217) | - | (7) | (9 845) |
Net book value
| As at 31 December 2015 | 12 261 | 17 326 | 190 | 66 | 3 510 | 17 | 33 370 |
|---|---|---|---|---|---|---|---|
| As at 31 December 2014 | 17 950 | 17 721 | 301 | 115 | 4 392 | 28 | 40 507 |
| As at 31 December 2013 | 30 396 | 27 302 | 421 | 240 | 8 261 | 58 | 66 678 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
As at 31 December 2015 net book value of property plant and equipment which was used as collateral for bank loans amounted to USD 191 thousand and property, plant and equipment via finance lease amounted USD 191 thousand (2014: USD 1 518 thousand and plant and equipment via finance lease USD 321 thousand).
As at 31 December 2015 construction-in-progress and uninstalled equipment also included prepayments for the property, plant and equipment which amounted to USD 1 553 thousand (2014: USD 229 thousand).
As at 31 December 2015, included within property, plant and equipment were fully depreciated assets with the original cost of USD 2 632 thousand (2014: USD 2 769 thousand, 2013: USD 4 127 thousand).
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 2015, 2014 and 2013.
19. Interest-bearing loans and other financial liabilities
| Currency | Effective interest rate, % | Maturity | As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|---|---|---|
| Current interest-bearing loans and other financial liabilities | |||||
| Landesbank Berlin AG / AKA Ausfuhrkredit-Gesellschaft mbH loan | EUR | 2.25% + EURIBOR (6m) | 30.12.2021 | 1 572 | - |
| Landesbank Berlin AG loan | EUR | 1.65% + EURIBOR (6m) | 30.12.2020 | 1 977 | 1 752 |
| Credit Agricole loan | EUR | 5.92% + EURIBOR (6m) | 05.07.2015 | - | 119 |
| Credit Agricole loan | EUR | 5.92% + EURIBOR (6m) | 08.08.2015 | - | 160 |
| Credit Agricole loan | EUR | 5.92% + EURIBOR (6m) | 03.10.2015 | - | 123 |
| Other current loans | UAH | - | - | 28 | 44 |
| Short-term financial lease liabilities (a) | UAH | 7.0% | 28.09.2017 | 57 | 110 |
| Total current interest-bearing loans and other financial liabilities | 3 634 | 2 308 | |||
| Non-current interest-bearing loans and other financial liabilities | |||||
| --- | --- | --- | --- | --- | --- |
| Landesbank Berlin AG / AKA Ausfuhrkredit-Gesellschaft mbH loan | EUR | 2.25% + EURIBOR (6m) | 30.12.2021 | 8 372 | - |
| Landesbank Berlin AG loan | EUR | 1.65% + EURIBOR (6m) | 30.12.2020 | 4 985 | 7 066 |
| Long-term financial lease liabilities (a) | UAH | 7.0% | 28.09.2017 | 41 | 137 |
| Total non-current interest-bearing loans and other financial liabilities | 13 398 | 7 203 | |||
| Total interest-bearing loans and other financial liabilities | 17 032 | 9 511 | |||
| --- | --- | --- |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Covenants
The Group's loan agreements contain a number of covenants and restrictions, which include, but are not limited to, financial ratios and other legal matters. Covenant breaches generally permit lenders to demand accelerated repayment of principal and interest.
As at 31 December 2015 and 2014 the Group was not in breach of any financial covenants which allow lenders to demand immediate repayment of loans.
Under normal conditions, the loans of Credit Agricole, have an interest rate of up to 5.92% + EU-RIBOR. In the case in violation of the terms of repayment of Credit Agricole loans, the interest rate increases to 10%.
As at 31 December 2015 net book value of property plant and equipment which was used as collateral for bank loans amounted to USD 191 thousand and property, plant and equipment via finance lease amounted USD 191 thousand (2014: USD 1518 thousand and plant and equipment via finance lease USD 321 thousand).
(a) Finance lease liabilities
| As at 31 December 2015 | As at 31 December 2014 | |||
|---|---|---|---|---|
| Minimum lease payments | Present value of minimum lease payments | Minimum lease payments | Present value of minimum lease payments | |
| Amounts payable under finance lease: | ||||
| Within a year | 62 | 57 | 124 | 110 |
| From one to five years | 43 | 41 | 147 | 137 |
| Above 5 years | - | - | - | - |
| 105 | 98 | 271 | 247 | |
| Less: financial expenses of future periods | (7) | (24) | ||
| Present value of lease liabilities | 98 | 98 | 247 | 247 |
| Less: amount to be paid within a year | (57) | (110) | ||
| Amount to be paid after one year | 41 | 137 |
Finance lease obligations represent amounts due under agreements for lease of poultry cage equipment with Ukrainian companies. Net carrying value of property, plant and equipment acquired via finance lease as at 31 December 2015 and 2014 was as follows:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Plant and equipment | 191 | 321 |
| Total | 191 | 321 |
As at 31 December 2015 and 2014 there were no restrictions imposed by lease arrangements, in particular those concerning dividends, additional debt or further leasing.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
- Inventories
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Raw materials | 8 099 | 4 190 |
| Agricultural produce and finished goods | 1 458 | 2 783 |
| Package and packing materials | 684 | 791 |
| Work in progress | 50 | 86 |
| Other inventories | 752 | 684 |
| (Less: impairment of agricultural produce and finished goods) | (53) | (125) |
| Total | 10 990 | 8 409 |
- Trade and other receivables
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Trade receivables | 9 092 | 7 646 |
| VAT for reimbursement | 1 431 | 4 441 |
| Receivables for securities sold but not yet settled | 70 | 107 |
| VAT for reimbursement under special legislation | - | 1 |
| Other accounts receivable | 37 | 45 |
| Provision for doubtful accounts receivable | (275) | (348) |
| Total | 10 355 | 11 892 |
Trade receivables from third parties are non-interest bearing and are generally on 30-90 days credit terms. For larger customers the Group grants credit for up to 45-180 days.
Trade and other receivables net of impairment loss provisions denominated in the following currencies:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| UAH | 7 702 | 10 616 |
| USD | 2 194 | 1 242 |
| EUR | 459 | 34 |
| Total | 10 355 | 11 892 |
- Cash and cash equivalents
| Note | As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|---|
| Cash in banks | a) | 10 955 | 2 462 |
| Cash on hand | 7 | 9 | |
| Total | 10 962 | 2 471 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
(a) Cash in banks by country of bank location denominated in the following currencies:
| Currency | As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|---|
| Ukraine | UAH | 3 727 | 788 |
| Ukraine | USD | 5 192 | 149 |
| Ukraine | EUR | 96 | 4 |
| Ukraine | PLN | 51 | - |
| Total in Ukraine | 9 066 | 941 | |
| Poland | USD | 1 782 | 1 465 |
| Poland | EUR | 57 | 43 |
| Poland | PLN | 0 | 4 |
| Total in Poland | 1 839 | 1 512 | |
| Netherlands | EUR | 47 | 4 |
| Total in Netherlands | 47 | 4 | |
| Denmark | USD | 2 | 1 |
| Denmark | EUR | 1 | 4 |
| Total in Denmark | 3 | 5 | |
| Total cash in banks | 10 955 | 2 462 |
23. Equity
Issued capital and capital distribution
For the year ended 31 December 2015 there were no changes in issued capital.
As referred to in Note 1, the Company was incorporated on 22 March 2011.
The Company's authorized share capital amounts to EUR 225 000 and consists of 22 500 000 ordinary shares with a nominal value off EUR 0.01 each. As at 31 December 2011, 6 000 000 ordinary shares were issued and fully paid. In June 2011 the shares of the Company were listed on the Warsaw Stock Exchange.
At 31 December 2015 and 2014 the shareholder interest above 5% in the Share capital of Company was as follows:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Prime One Capital Ltd. | 70.24% | 71.24% |
| Generali Otwarty Fundusz Emerytalny | 9.94% | 9.94% |
| FAIRFAX FINANCIAL Holdings Limited | 5.35% | - |
| AVIVA Otwarty Fundusz Emerytalny Aviva BZ WBK | 5.02% | 5.02% |
| MetLife (AMPLICO) OFE | - | 5.80% |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
Foreign currency translation reserve
According to section 373, Book 2 of the Dutch Civil Code, the Company's share capital has been converted at the exchange rate prevailing at the reporting date. The EUR 60 000 (equivalent to 6 000 000 shares) has been converted into USD 65 448 (31 December 2014: USD 72 936). The result arising from exchange rate differences has been recorded in the "Foreign currency translation reserve".
The foreign currency translation reserve is used also to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Share premium
As has been mentioned previously, in June 2011 the Group's shares have been placed on WSE. As a result of the transaction, USD 33 048 thousand was raised while the IPO costs amounted to USD 2 115 thousand. In these financial statements funds raised as a result of IPO are reflected in share premium as at 31 December 2011. For the years ended 31 December 2015 and 2014, there were no movements in share premium.
Dividends payable of the Company
During the year ended 31 December 2015 and 2014, no dividends have been declared and paid.
24. Trade and other payables
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Trade payables | 3 474 | 5 643 |
| Employee benefit liability | 182 | 243 |
| Taxes payable | 111 | 149 |
| Liability for unused vacation | 151 | 229 |
| VAT liabilities | 37 | 4 |
| Income tax payables | 25 | 2 |
| Other payables | 204 | 86 |
| Total | 4 184 | 6 356 |
Trade and other payables denominated in the following currencies:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| UAH | 2 674 | 2 375 |
| EUR | 1 468 | 3 938 |
| USD | 40 | 41 |
| PLN | 1 | 1 |
| RUB | 1 | 1 |
| Total | 4 184 | 6 356 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
25. Related party disclosures
For the purposes of these consolidated financial statements, the parties are considered to be related, if one of the parties has the ability to exercise control over the other party or influence significantly the other party in making financial and operating decisions. Considering the transactions with each possible related party, particular attention is paid to the essence of relationships, not merely their legal form.
Related parties may enter into transactions, which may not always be available to unrelated parties, and they may be subject to such conditions and such amounts that are impossible in transactions with unrelated parties.
According to the criteria mentioned above, related parties of the Group are divided into the following categories:
(A). Key management personnel;
(B). Companies which activities are significantly influenced by the Beneficial Owners;
(C). Other related parties.
The following companies and individuals are considered to be the Group's related parties as at 31 December 2015, and 2014:
(A). Key management personnel:
| Borys Bielikov | Executive Director / CEO |
|---|---|
| Vitalii Veresenko | Non-executive director |
| Marc van Campen | Non-executive director |
| Sergii Karpenko | Non-executive director |
| Vladimir Polishchuk | Chief Financial Officer |
| Natalia Malyovana | First Deputy CEO / Commercial director |
| Arnis Veinbergs | Deputy CEO in charge of Production activity |
| Vitalii Voron | Production director |
| Lilia Chernyak | HR director |
(B). Companies which activities are significantly influenced by the Key management personnel:
- Agrofirma Boryspilsky Hutir LLC
- Aleksa LTD LLC
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
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Other Information
As at 31 December 2015, and 2014 trade accounts receivable from related parties and advances issued to related parties were presented as follows:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Prepayments to related parties | ||
| (B). Companies which activities are significantly influenced by the Beneficial Owners: | ||
| Aleksa LTD LLC | 56 | 84 |
| Total | 56 | 84 |
Compensation of key management personnel of the Group
The amount of remuneration of key management personnel of the Group for the year ended 31 December 2015 and 2014 was presented as follows:
| For year 2015 | For year 2014 | |
|---|---|---|
| Salaries and contribution to social security fund | ||
| (short-term employee benefits): | ||
| Borys Bielikov | 9 | 19 |
| Vitalii Veresenko | 6 | 10 |
| Marc van Campen | 17 | 20 |
| Other key management personnel | 117 | 81 |
| Total | 149 | 130 |
(C). Other related parties:
For the year ended 31 December 2015, and 2014 the Group has no other related parties.
26. Commitments and contingencies
Contingent liabilities
Operating environment. In 2015, the continued political and economic turmoil in Ukraine. In 2015, Ukraine has also continued to suffer from the separatist movements in the Lugansk and Donetsk regions.
In 2015, the Ukrainian economy went through a recession, gross domestic product is estimated to contract by 11% (2014: 7%), and the annual inflation rate reached 43% (2014: 25%). Unfavorable conditions on markets where Ukraine's primary commodities where traded influenced further devaluation of the Ukrainian hryvnia against major foreign currencies. Ukrainian companies and banks continued to suffer from the lack of funding from domestic and international financial markets.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
In early 2015, the Government of Ukraine agreed with the IMF on a four-year program for a USD 17.5 billion loan aimed at supporting the economic stabilization of Ukraine. The program defines economic reforms that must be undertaken by the Government of Ukraine to reinstate sustainable economic growth in the mid-term. Significant external financing is required to support economic stabilization and the political situation depends, to a large extent, upon success of the Ukrainian government's efforts; yet further economic and political developments are currently difficult to predict and an adverse effect on the Ukrainian economy may continue. The Group does not have any assets in Crimea, Donetsk or Luhansk regions.
In 2015, political and economic relationships between Ukraine and the Russian Federation remained strained, leading to a significant reduction in trade and economic cooperation. On 1 January 2016, the free-trade section of Ukraine's Association Agreement with the European Union came into force. In late 2015, the Russian Federation denounced its free trade agreement with Ukraine and further trade restrictions were announced by both countries.
Taxation. Ukrainian tax authorities are increasingly directing their attention to the business community as a result of the overall Ukrainian economic environment. In respect of this, the local and national tax environment in Ukraine is constantly changing and subject to inconsistent application, interpretation and enforcement. Non-compliance with Ukrainian laws and regulations can lead to the imposition of severe penalties and interest. Future tax examinations could raise issues or assessments which are contrary to the Group companies' tax filings. Such assessments could include taxes, penalties and interest, and these amounts could be material. While the Group believes it has complied with local tax legislation, there have been many new tax and foreign currency laws and related regulations introduced in recent years which are not always clearly written.
From 1 January 2016 Tax Code of Ukraine was changed in part which regulates the privileged VAT regime for agricultural companies. New procedure provides redistribution of special VAT liabilities for agrarian companies:
- on transactions with grain and industrial crops – 85% is paying to the State budget, 15% is transferring to the entity's special bank account and can be used to make payments relating to the agricultural activities;
- for operations with animal products – 20% to the State budget, 80% to the special bank account;
- other transactions of agricultural goods / services – 50% to the State budget, 50% to the special bank account.
In 2015 agricultural companies did not remitted special VAT liabilities to the State budget, but used for their agricultural activities.
The Group is currently estimating the impact of these new changes but does not expect these to result in a significant change in the Group's effective tax rate.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Starting from 1 September 2013, the Tax Code of Ukraine introduced new rules, based on OECD transfer pricing guidelines, for determining and applying fair market prices, which significantly changed transfer pricing regulations in Ukraine. The Group exports goods and services, which may potentially fall under the scope of the new Ukrainian transfer pricing regulations. The Group submitted a controlled transaction report within the required deadline. Management believes that the Group is in compliance with transfer pricing regulation requirements.
Given its current economic and political issues, the Government is considering implementing certain reforms in the tax system of Ukraine by adopting the Law of Ukraine ‘On Amending the Tax Code of Ukraine and Certain Laws of Ukraine’, which is effective from 1 January 2015, except for certain provisions that will take effect at a later date. Management believes that the Group has been in compliance with all requirements of effective tax legislation and currently is assessing the possible impact of the introduced amendments.
Legal issues. As at 31 December 2015 and 2014 the Group is involved in litigations and other claims that are in the ordinary course of its business activities. Management believes that the resolution of such matters will not have a material impact on its financial position or operating results
Capital commitments. As at 31 December 2015 the Group had contract liabilities for acquisition of property, plant and equipment equal to USD 28 thousand (2014: USD nil).
27. Financial risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to shareholders through a combination of debt and equity capital. 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 the issue of new debt or the redemption of existing debt.
The capital structure of the Group consists of debt, which includes the borrowings and cash and cash equivalents disclosed in Notes 19 and 22 respectively, and equity attributable to the equity holders of the parent, comprising issued capital, share premium, reserves and retained earnings.
Gearing ratio
The Group’s management reviews quarterly the capital structure of the Group. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Debt liabilities* | 17 032 | 9 511 |
| Cash and cash equivalents and deposits | (10 962) | (2 471) |
| Net debt | 6 070 | 7 040 |
| Equity** | 78 507 | 85 065 |
| Gearing ratio | 8% | 8% |
- Debts include short-term and long-term borrowings
** Equity includes the share capital, share premium, retained earnings and foreign currency translation reserve
Financial risk management
The main risks inherent to the Group's operations are those related to credit risk exposures, liquidity risk, market movements in currency rates and interest rates and potential negative impact of livestock diseases.
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's exposure to credit risk regarding trade accounts receivable is primarily dependent on specific characteristics of each client. The Group's policy for credit risk management provides systematic work with debtors, which includes: analysis of solvency, determination of maximum amount of risk related to one customer or a group of customers and control over timeliness of debt repayment. The majority of Group's clients are longstanding clients, there were no significant losses during 2015 and 2014 resulting from non-fulfillment of obligations by clients. Concentration of credit risk on trade accounts receivable is characterized by the following indicators:
For the year ended 31 December 2015, USD 31 403 thousand or 42% of Group's sales revenue is related to sales transactions, realized with 5 major customers of the Group. As at 31 December 2015 USD 4 846 thousand or 54% of trade accounts receivable relates to 5 major debtors.
For the year ended 31 December 2014 USD 29 599 thousand or 40% of Group's sales revenue is related to sales transactions, realized with 5 major customers of the Group. As at 31 December 2014 USD 3 584 thousand or 46% of trade accounts receivable relates to 5 major debtors.
The credit quality of the gross trade receivables from related and third parties was as follows:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Fully performing | 7 421 | 7 069 |
| Past due but not impaired | 1 474 | 335 |
| Impaired | 197 | 242 |
| Total trade receivables (gross) | 9 092 | 7 646 |
As at 31 December 2015, the trade receivables past due but not impaired in the amount of USD 1 474 thousand, has a term less than 30 days (2014: USD 335 thousand).
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
As at 31 December 2015 and 2014 the ageing of trade account receivables that were not impaired was as follows:
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| 0-30 days | 6 575 | 5 277 |
| 31-90 days | 1 896 | 1 944 |
| 91-180 days | 400 | 183 |
| 181-360 days | 24 | - |
| Total | 8 895 | 7 404 |
Liquidity risk
Liquidity risk is the risk of the Group's failure to fulfill its financial obligations at the date of maturity. The Group's approach to liquidity management is to ensure, to the extent possible, permanent availability of sufficient liquidity for the Group to fulfill its financial obligations in due time (both in normal conditions and in non-standard situations), by avoiding unacceptable losses or the risk of damage to the reputation of the Group.
In accordance with plans of the Group, its working capital needs are satisfied by cash flows from operating activities, as well as by use of loans if cash flows from operating activities are insufficient for liabilities to be settled.
The table below represents the expected maturity of components of working capital:
| As at 31 December 2015 | Carrying value | Contractual cash flows | Less than 3 months | 3-6 months | 6-12 months | Over 1 year |
|---|---|---|---|---|---|---|
| Non-derivative financial liabilities: | ||||||
| Trade and other payables | 4 184 | 4 184 | 4 184 | - | - | - |
| Current interest-bearing loans and other financial liabilities | 3 634 | 3 634 | - | 1 817 | 1 817 | - |
| Non-current interest-bearing loans and other financial liabilities | 13 398 | 13 398 | - | - | - | 13 398 |
| Total | 21 216 | 21 216 | 4 184 | 1 817 | 1 817 | 13 398 |
| As at 31 December 2014 | Carrying value | Contractual cash flows | Less than 3 months | 3-6 months | 6-12 months | Over 1 year |
| --- | --- | --- | --- | --- | --- | --- |
| Non-derivative financial liabilities: | ||||||
| Trade and other payables | 6 356 | 6 356 | 6 356 | - | - | - |
| Current interest-bearing loans and other financial liabilities | 2 308 | 2 308 | 197 | 1 073 | 1 038 | - |
| Non-current interest-bearing loans and other financial liabilities | 7 203 | 7 203 | 7 203 | |||
| Total | 15 867 | 15 867 | 6 553 | 1 073 | 1 038 | 7 203 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
Currency risk
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, at the same time the management of the Group sets limits on the level of exposure by currencies.
Exposure to foreign currency risk
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities as of 31 December 2015 and 2014 were as follows:
| As at 31 December 2015 | PLN | RUB | USD | EUR | UAH | Total |
|---|---|---|---|---|---|---|
| (in conversion to USD thousand) | ||||||
| Assets | ||||||
| Cash and cash equivalents | 51 | - | 6 976 | 200 | 3 735 | 10 962 |
| Trade receivables | - | - | 2 194 | 459 | 6 094 | 8 747 |
| Liabilities | ||||||
| Current interest-bearing loans and other financial liabilities | - | - | - | (3 549) | (85) | (3 634) |
| Non-current interest-bearing loans and other financial liabilities | - | - | - | (13 357) | (41) | (13 398) |
| Trade accounts payable | - | (1) | (3) | (1 440) | (2 030) | (3 474) |
| Other payables | (1) | - | (36) | (28) | (139) | (204) |
| Net exposure to foreign currency risk | 50 | (1) | 9 131 | (17 715) | 7 534 | (1 001) |
| As at 31 December 2014 | PLN | RUB | USD | EUR | UAH | Total |
| --- | --- | --- | --- | --- | --- | --- |
| (in conversion to USD thousand) | ||||||
| Assets | ||||||
| Cash and cash equivalents | 4 | - | 1 467 | 52 | 948 | 2 471 |
| Trade receivables | - | - | 1 242 | 34 | 6 022 | 7 298 |
| Liabilities | ||||||
| Current interest-bearing loans and other financial liabilities | - | - | - | (2 154) | (154) | (2 308) |
| Non-current interest-bearing loans and other financial liabilities | - | - | - | (7 066) | (137) | (7 203) |
| Trade accounts payable | (1) | (1) | (5) | (3 910) | (1 726) | (5 643) |
| Other payables | - | - | (36) | (28) | (22) | (86) |
| Total | 3 | (1) | 2 668 | (13 072) | 4 931 | (5 471) |
This sensitivity rate represents the management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for expected change in foreign currency rates.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
Effect in USD thousand:
| Increase in currency rate against UAH | Effect on profit before tax | |
|---|---|---|
| 31 December 2015 | ||
| USD | 35% | 3 196 |
| EUR | 35% | (6 200) |
| PLN | 35% | 18 |
| 31 December 2014 | ||
| USD | 35% | 934 |
| EUR | 35% | (4 575) |
| PLN | 35% | 1 |
The effect of foreign currency sensitivity on shareholders' equity is equal to that on profit or loss.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments. The major part of the Group's borrowings bear variable interest rates which are linked to EURIBOR. Other borrowings are presented at fixed interest rates.
The below details the Group's sensitivity to increase or decrease of floating rate by 1%. The analysis was applied to interest bearing liabilities (bank borrowings under facility agreements) based on the assumption that the amount of liability outstanding as of the balance sheet date was outstanding for the whole year.
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Profit/(loss) | EURIBOR | EURIBOR |
| 169/(169) | 92/(92) |
The effect of interest rate sensitivity on shareholders' equity is equal to that on profit or loss.
Livestock diseases 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. The 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 with the its current existing risk management and quality control processes are effective and sufficient to prevent any outbreak of livestock diseases and related losses.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
28. Financial instruments
Estimated fair value disclosure of financial instruments is made in accordance with the requirements of International Financial Reporting Standard 7 “Financial Instruments: Disclosure”. 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 Group uses the following hierarchy for determining the fair value of financial instruments:
- Level 1 ("L1") - quoted (unadjusted) prices in active markets for identical assets or liabilities;
- Level 2 ("L2") - other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly; and
- Level 3 ("L3") - techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The Group does not acquire, hold or issue derivative financial instruments for trading purposes.
The following table presents the classification, subsequent measurement, carrying values and fair values of the Group’s financial assets and liabilities:
| Subsequent measurement | 31 December 2015 | 31 December 2014 | |||
|---|---|---|---|---|---|
| Carrying value | Fair value | Carrying value | Fair value | ||
| Financial assets: | |||||
| Trade and other receivables (a) | Amortized cost | 10 355 | 10 355 | 11 892 | 11 892 |
| Cash and cash equivalents | 10 962 | 10 962 | 2 471 | 2 471 | |
| 21 317 | 21 317 | 14 363 | 14 363 | ||
| Financial liabilities: | |||||
| Current interest-bearing loans and borrowings (a) | Amortized cost | 3 634 | 3 634 | 2 308 | 2 308 |
| Non-current interest-bearing loans and borrowings (b) | Amortized cost | 13 398 | 13 398 | 7 203 | 7 203 |
| Trade and other payables (current) (a) | Amortized cost | 4 184 | 4 184 | 6 356 | 6 356 |
| 21 216 | 21 216 | 15 867 | 15 867 |
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
The following methods and assumptions were used to estimate the fair values:
a) The Group's short-term financial instruments, comprising trade and other receivables, current interest-bearing loans and borrowings, trade and other payables are carried at amortized cost which, due to their short term nature, approximates their fair value.
b) The fair values of other financial assets and financial liabilities (excluding those described above) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
c) Fair value of available-for-sale financial assets is derived from quoted market prices in active markets, if available.
d) Fair value of unquoted available-for-sale financial assets is estimated using appropriate valuation techniques.
29. Subsequent events
After the reporting date, Ovostar Union N.V. signed a contract with "Big Dutchman International GmbH" for the purchase of laying hens equipment for the amount of EUR 13 650 thousand.
In January 2016 the Group received equipment for poultry house for the amount USD 1 558 thousand under contract concluded with SALMET INTERNATIONAL GMBH as part of current investment program.
Notes on pages 46-95 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
Other Information
BALANCE SHEET
As at 31 December 2015
(in USD thousand, unless otherwise stated)
| Note | As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Financial fixed assets | 2 | 91 682 | 92 129 |
| Total non-current assets | 91 682 | 92 129 | |
| Current assets | |||
| Cash and cash equivalents | 4 | 1 888 | 1 521 |
| Other accounts receivables | 3 | 24 | 20 |
| Total current assets | 1 912 | 1 541 | |
| Total assets | 93 594 | 93 670 | |
| Equity and liabilities | |||
| Equity | 5 | ||
| Issued capital | 65 | 73 | |
| Foreign currency translation reserve | (115 664) | (78 057) | |
| Legal reserve subsidiary | 91 644 | 92 091 | |
| Share premium reserve | 30 933 | 30 933 | |
| Retained earnings | 38 139 | 12 353 | |
| Profit for the year | 30 954 | 25 339 | |
| Equity attributable to owners of the parent | 76 071 | 82 732 | |
| Non-current liabilities | |||
| Non-current loans and borrowings | 6 | 13 357 | 7 066 |
| Total non-current liabilities | 13 357 | 7 066 | |
| Current liabilities | |||
| Trade and other payables | 7 | 617 | 2 120 |
| Current loans and borrowings | 6 | 3 549 | 1 752 |
| Total current liabilities | 4 166 | 3 872 | |
| Total liabilities | 17 523 | 10 938 | |
| Total equity and liabilities | 93 594 | 93 670 |
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
Other Information
PROFIT & LOSS ACCOUNT
For the year ended 31 December 2015
(in USD thousand, unless otherwise stated)
| For year 2015 | For year 2014 | |
|---|---|---|
| Profit of participation interests after taxation | 31 133 | 24 967 |
| Other income and expenses after taxation | (179) | 372 |
| Operating result | 30 954 | 25 339 |
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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NOTES TO COMPANY'S FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
1. General
The Company financial statements are prepared in accordance with Title 9 of Book 2 of the Dutch Civil Code. The Company uses the option provided in section 2:362 (8) of the Dutch Civil Code in that the principles for the recognition and measurement of assets and liabilities and determination of result (hereinafter referred to as "principles for recognition and measurement") as applied in the Consolidated financial statements are also applied in the Company financial statements. Reference is made to the notes to the Consolidated financial statements for a description of the principles for recognition and measurement. Investments in Group companies are carried at equity value, calculated according to the Group accounting policies.
The Company's parent-only income statement has been prepared in accordance with section 2:402 of the Dutch Civil Code.
For information on group companies of Ovostar Union N.V. please refer to Note 7 of the Consolidated financial statements.
Going concern
As at 31 December 2015 current liabilities of the Company exceeded its current assets. During 2014 and till the date of these financial statements were issued, dividends distribution was restricted by the Ukrainian government. Loan repayment on the level of Ovostar Union N.V. will be secured by its subsidiary either in the form of dividends to the parent company or through a repayment by subsidiary acting as the guarantor under the terms of the export financing contracts. As a consequence management of Ovostar Union N.V. considers that the Company will be able to continue its activities as a going concern and will be able to repay its liabilities due to third party creditors. Therefore Company's financial statements have been prepared under the going concern assumption.
2. Financial fixed assets
The financial fixed assets consist solely of participating interests in Group companies as follows:
| For year 2015 | For year 2014 | |
|---|---|---|
| Group companies as at 01 January | 92 129 | 140 729 |
| Further investments in a group company | 6 034 | 4 501 |
| Result | 31 133 | 24 967 |
| FX rate difference | (37 614) | (78 069) |
| Group companies as at 31 December | 91 682 | 92 129 |
Further investments in a group company amounting to USD 6 034 thousand consists of property, plant and equipment transferred to the subsidiary (USD 7 895 thousand) and investment repayment from Ovostar Union LLC (USD 1 861 thousand).
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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NOTES TO COMPANY'S FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
FINANCIAL STATEMENTS
Other Information
The degree of control exercised by Ovostar Union N.V. over significant subsidiary is as follows:
| Country of incorporation | % share as at | ||
|---|---|---|---|
| As at 31 December 2015 | As at 31 December 2014 | ||
| LLC Ovostar Union | Ukraine | 100 | 100 |
3. Other accounts receivable
| As at 31 December 2015 | As at 31 December 2014 | |
|---|---|---|
| Ovostar LLC loan | 10 | 10 |
| Ovostar Union LLC loan | 10 | 10 |
| Other | 4 | - |
| Total | 24 | 20 |
4. Cash and cash equivalents
The Company’s cash balances are available upon demand.
5. Issued capital
The authorized share capital amounts to EUR 225,000 divided into 22 500 000 ordinary shares of EUR 0.01 nominal value each. During 2011, 6 000 000 shares have been issued. The issued shares are converted into USD according to art 373 par 5 of the Dutch civil code using an exchange rate of 1 EUR = 1.091 USD.
For the movement schedule of issued capital, share premium, foreign currency translation reserve and profit for the year please refer to the specification of the Consolidated statement of changes in equity included in the Consolidated financial statements. Legal reserve subsidiary as at 31 December 2015 was in the amount of USD 91 644 thousand (in 2014: USD 92 091 thousand). The legal reserve for investments in subsidiaries (Section 2:389(6) of the Dutch Civil Code) is formed for the share in the positive results of the entities concerned and in fair value gains recognised directly in equity. Amounts are not recognised in respect of entities whose cumulative results are not positive. The reserve is reduced by the amount of dividend distributions, fair value losses recognised directly in equity and any distributions which Group would be able to effect without restriction.
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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NOTES TO COMPANY'S FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
6. Loans and borrowings
As at 31 December 2015 and 2014 loan and borrowings comprised loans received from Landesbank Berlin AG and AKA Ausfuhrkredit-Gesellschaft mbH. Landesbank Berlin AG and AKA Ausfuhrkredit-Gesellschaft mbH loan are guaranteed by subsidiaries. For detail information about loans and borrowings refer to Note 19 in the Consolidated financial statements.
7. Trade and other payables
Trade and other payables included payables from third parties and payables to supplier for property, plant and equipment in the amount of USD 552 thousand (in 2014: USD 2 054 thousand).
8. Employees
The Company has no employees other than directors.
9. Directors
The Company is managed by the Board of Directors which consists of four members: one Executive Director and three Non-Executive directors.
The Board of Directors as at 31 December 2015 comprised:
| Name | Position |
|---|---|
| V. Veresenko | Chairman of the Board, Non-Executive Director (non-independent) |
| B. Bielikov | Chief Executive Officer, (non-independent) |
| M. van Campen | Non-Executive Director |
| S. Karpenko | Non-Executive Director |
Changes in the Board of Directors of Ovostar Union N.V.
In June 2015 on the Annual General Meeting of Shareholders Board has approved (re)appointment of the members of the Board. All members of the Board have been (re)appointed for a period of 4 years. The Meeting approved Mr. Sergii Karpenko for the position of non-executive Board member.
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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NOTES TO COMPANY'S FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
(in USD thousand, unless otherwise stated)
Other Information
10. Audit fee
Fees paid to the Group’s auditor for 2015 and 2014 can be broken down into the following:
| For year 2015 | For year 2014 | |
|---|---|---|
| Baker Tilly Ukraine: | ||
| Audit and review of financial statements | 27 | 35 |
| Baker Tilly Berk N.V. | ||
| Audit fees | 33 | 28 |
| Total | 60 | 63 |
Audit fees of financial statements include the fees for professional services rendered by Baker Tilly Berk N.V. and Baker Tilly Ukraine and relate to the audit of the Company’s Consolidated and Company’s financial statements and its subsidiary.
Amsterdam, 08 April 2016
[signed]
Borys Bielikov
Chief Executive Officer, Executive Director
[signed]
Vitalii Veresenko
Chairman of the Board, Non-executive Director
[signed]
Marc Van Campen
Head of Audit Committee, Non-executive Director
[signed]
Sergii Karpenko
Non-executive Director
Notes on pages 99 -102 form an integral part of these consolidated financial statements
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FINANCIAL STATEMENTS
Other Information
Other information
Profit appropriation according to the Articles of Association
The salient points of Article 24 of the Articles of Association governing the appropriation of profit are:
Distribution of profits shall be made following the adoption of the annual accounts which show that such distribution is allowed.
The company may only make distributions to shareholders and other persons entitled to distributable profits to the extent that its equity exceeds the aggregate amount of the issued share capital and the reserves which must be maintained pursuant to the law.
Proposed appropriation of result
The board of directors proposes to add the profit to the general reserves. The proposal is not reflected in the financial statements.
Post balance sheet events
As of the date of publication of this report, the Company signed a contract with "Big Dutchman International GmbH" for the purchase of laying hens equipment for the amount of EUR 13 650 thousand.
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Independent
Auditor's
Report
Auditors
BAKER TILLY BERK
To the Shareholders and the Board of Directors of Ovostar Union N.V.
Baker Tilly Berk N.V.
Entrada 303
PO Box 94124
1090 GC Amsterdam
The Netherlands
T: +31 (0)20 644 28 40
F: +31 (0)20 646 35 07
E: [email protected]
Reg.no.: 24425560
www.bakertillyberk.nl
INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS
Report on the Audit of the Financial Statements 2015
Our opinion
We have audited the accompanying financial statements 2015 of Ovostar Union N.V. (hereafter: the company), based in Amsterdam. The financial statements include the consolidated financial statements and the company financial statements.
In our opinion:
- The consolidated financial statements give a true and fair view of the financial position of Ovostar Union N.V. as at December 31, 2015 and of its results and its cash flows in the year 2015 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
- The company financial statements give a true and fair view of the financial position of Ovostar Union N.V. as at December 31, 2015 and of its financial performance for the year 2015 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The consolidated financial statements comprise:
- the consolidated statement of financial position as at December 31, 2015; the following statements for 2015:
- the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash flows; and
- the notes comprising a summary of the significant accounting policies and other explanatory information.
The company financial statements comprise:
- the company balance sheet as at December 31, 2015;
- the company profit and loss account for the year 2015; and
- notes comprising a summary of the accounting policies and other explanatory information.
Basis for Our Opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the “Our responsibilities for the audit of the financial statements” section of our report.
Baker Tilly Berk N.V. is a limited liability company and is the exclusive contracting party in respect of all commissioned work. The company’s general terms and conditions, filed with the registry of the Dutch chamber of commerce under no. 24425560, which include a limitation of liability, are applicable to all work performed and all legal relationships with third parties.
Auditors
BAKER TILLY BERK
We are independent of Ovostar Union N.V. in accordance with the "Verordening inzake de Onafhankelijkheid van accountants bij assurance-opdrachten" (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Materiality
Misstatements can arise from fraud or error and will be 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 financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
Based on our professional judgement we determined the materiality for the financial statements as a whole at USD 1 million. The materiality is based on 1.5% of turnover. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons. We agreed with the Board of Directors that misstatements in excess of USD 0.050 million which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Scope of the Group Audit
Ovostar Union N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of Ovostar Union N.V. Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were, the size and/or risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial statements or specific items.
The group audit mainly focused on covering group's activities in Ukraine (LLC "Ovostar Union" and its subsidiaries) and also included audit procedures at Dutch holding level (Ovostar Union N.V.)
We have performed audit procedures ourselves at Dutch holding level. When auditing LLC "Ovostar Union" and its subsidiaries, we have used the work of other auditors. As required by our professional rules and standards we have issued audit instructions and reviewed the work performed by the local auditors. By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group's financial information to provide an opinion about the consolidated financial statements.
Our Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Board of Directors. The key audit matters are not a comprehensive reflection of all matters discussed.
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These matters were addressed in the context of our audit on the financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.
Devaluation of Hryvnia
The manufacturing components of the Group are incorporated in Ukraine and the Ukrainian hryvnia is the functional currency for these components. The Ukrainian hryvnia devalued in 2015 against major foreign currencies. The National Bank of Ukraine introduced a range of measures aimed at limiting the outflow of customer deposits from the banking system, improving the liquidity of banks, and supporting the exchange rate of the Ukrainian hryvnia. In 2016, the Ukrainian hryvnia continued to devalue against the US dollar.
Our audit procedures included, among others, recalculation of foreign currency translation reserve and reconciliation of the current effect of functional currency conversion to the opening and closing balances. We reviewed the conversion methodology used by the Group management for compliance with requirements of IAS 21.
Biological Assets Valuation
The Consolidated Statement of financial position as at December 31, 2015 includes Biological assets for a total amount of USD 34,450,000 as at December 31, 2015. We refer to note 17 in the financial statements.
The fair value measurement of the biological assets highly depends on the projected cash flow and discount rate. Our audit procedures included the test of input data and recalculated discount rate and evaluation of the assumptions used by management. Besides, we verified if the applied methodology has been consistent with prior periods.
VAT reimbursement
As at December 31, 2015 the Group classified and disclosed VAT assets in note 21 of the financial statements for a total amount of USD 1,431,000. Management believes that the group is able to fully reimburse VAT assets during 2016.
Our audit procedures included receipt of confirmations directly from Ukrainian tax authorities which confirmed the declared amount for reimbursement disclosed in Group financial statements. In addition to that we scrutinised transactions related to the VAT reimbursement and verified the valuation and classification.
Emphasis of Matter regarding the political and economic crisis in Ukraine
We draw your attention to Note 26 "Commitments and contingencies" to the consolidated financial statements, which describes the current political crisis in Ukraine. The impact of the continuing economic crisis and political turmoil in Ukraine and their final resolution are unpredictable and may adversely affect the Ukrainian economy and the operations of the Group. Our opinion is not qualified in respect of this matter.
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Responsibilities of Management and the Board of Directors for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern. The Board of Directors is responsible for overseeing the company’s financial reporting process.
Our Responsibilities for the Audit of the Financial Statements
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud.
We have exercised professional judgment and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements.
Our audit included e.g.:
- identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining 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;
- obtaining 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 company’s internal control;
- evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
- concluding on the appropriateness of management’s 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 company’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 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 an the company to cease to continue as a going concern;
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evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and
- evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
We provide the Board of Directors 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 the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Report on Other Legal and Regulatory Requirements
Report on the management board report and the other information
Pursuant to legal requirements of Part 9 of Book 2 of the Dutch Civil Code 393 sub 5 at e and f of the Dutch Civil Code (concerning our obligation to report about the management board report and other data), we declare that:
- We have no deficiencies to report as a result of our examination whether the management board report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed.
- Further we report that the management board report, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
Engagement
We were engaged by the Board of Directors as auditor of Ovostar Union N.V. on October 4, 2011, as of the audit for the year 2011 and have operated as statutory auditor ever since that date.
Amsterdam, April 8, 2016
Baker Tilly Berk N.V.
signed by
J.H.J. Spiekker RA
Audit Partner
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OTHER INFORMATION
Contact information and list of addresses
OVOSTAR UNION GROUP
Correspondence address:
34 Petropavlivska street, 04086 Kyiv, Ukraine
Legal address:
Ovostar Union N.V.
8 Jan van Goyenkade, 1075 HP Amsterdam, the Netherlands
Number in Trade Register: 52331008
For investor relations inquiries please contact:
Viktoriia Grygorenko
Investor Relations Department
[email protected]
Cell: +38 050 439 05 05
Landline: +38 044 354 29 60
FORWARD-LOOKING STATEMENTS NOTICE
All forward-looking statements contained in this annual report with respect to our future financial and operational performance and position are, unless otherwise stated, based on the beliefs, expectations, projections and the estimates of our management representing their judgment as at the dates on which the statements have been made. Forward-looking statements are generally identifiable by the use of the words "may", "will", "should", "plan", "forecast", "expect", "anticipate", "estimate", "believe", "intend", "project", "goal" or "target" or the negative of these words or other variations on these words or comparable terminology. Our actual operational and financial results or the same of our industry involve a number of known and unknown risks, uncertainties and other factors and they are not guaranteed to be similar to the forward-looking statements, although our management makes all effort to make forward-looking statements as accurate as possible. We do not undertake publicly to update or revise any forward-looking statement that may be made herein, whether as a result of new information, future events or otherwise.
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