Financial results for the Q1 2019

12 June 2019, Limassol, Cyprus

MHP SE

Unaudited Financial Results for the First Quarter ended 31 March 2019

MHP SE (LSE:MHPC), the parent company of a leading international agro-industrial group with headquarters in Ukraine, focusing primarily on the production of poultry and cultivation of grain, as well as other agricultural operations (meat processing and meat products ready for consumption), today announces its unaudited results for the first quarter ended 31 March 2019. Hereinafter, MHP SE and its subsidiaries are referred to as "MHP", "The Company" or "The Group".

EVENTS DURING AND POST REPORTING PERIOD

On 21 February 2019, MHP completed the acquisition of 90.69% of Perutnina Ptuj (PPJ), the largest producer of poultry meat and poultry meat products in the Balkans southeast Europe (https://www.mhp.com.ua/library/file/mhp-closes-pp-deal-final-final-docx.pdf).

On 26 April 2019, MHP announced that it had agreed a final settlement price of 22.34 EUR per share for the acquisition, representing a total enterprise value, for 100% of PPJ, of EUR 273 million, including net debt of EUR 34.5 million and a normalized value of working capital. The final purchase price for 90.69% of the equity was EUR 221 million (https://www.mhp.com.ua/library/file/pppricepr-extended-final-docx.pdf).

OPERATIONAL HIGHLIGHTS

· MHP completed the transition into live operations of two additional rearing sites (brigades) as part of Phase 2 of the Vinnytsia Poultry Complex and is currently growing chickens at five brigades

· Poultry production volumes increased by 13% to 171,272 tonnes year-on-year (Q1 2018: 152,167 tonnes)

· The average chicken meat price remained stable and constituted UAH 38.63 per kg (Q1 2018: UAH 38.78 per kg) (excluding VAT)

· Chicken meat exports increased by 47% to 93,045 tonnes (Q1 2018: 63,144 tonnes)

FINANCIAL HIGHLIGHTS

· Revenue increased by 42% year-on-year to US$ 436 million (Q1 2018: US$ 306 million)

· Export revenue increased by 65% to US$ 268 million, representing 61% of total revenue (Q1 2018: US$ 162 million, 53% of total revenue)

· Gross profit remained relatively stable and amounted to US$ 81 million; gross profit margin declined to 19% (Q1 2018: 26%)

· Adjusted EBITDA decreased to US$ 83 million from US$ 89 million, as a result of decrease in margin for all segments; adjusted EBITDA margin declined to 19% (Q1 2018: 29%)

· Net profit was US$ 33 million, compared to US$ 90 million for Q1 2018; decrease was mainly due to the impact of a non-cash foreign exchange translation gain and increase in finance costs affected by the application of IFRS 16, as well as higher depreciation charges related to the expansion of Vinnytsia Poultry Complex

Dr John Rich, Chairman of MHP SE, commented: "MHP has continued to deliver its growth strategy, with on-time and on-budget delivery of the latest phase of expansion in production capacity at Vinnytsia Poultry Complex and completion of an important strategic step with the acquisition of Perutnina Ptuj. PPJ is an excellent company with strong management and a well-established presence in its major markets in the Balkans and southeast Europe. We see good opportunities to work with PPJ team to further develop their business as part of the MHP Group.

Our financial results in the first quarter reflect significant growth in revenue as new production facilities have come on stream and include PPJ's revenue since completion of the acquisition. Operating margins for the first quarter were adversely affected by the higher labour costs experienced since the second quarter of last year. Nonetheless, we remain confident in the prospects for the Group, and our expectations for the full year remain unchanged.

FINANCIAL OVERVIEW

* pps - percentage points

Average official FX rate for Q1: UAH/US$ 27.3058 in 2019 and UAH/US$ 27.3203 in 2018

DIVIDENDS

On 21 March 2019, the Board of Directors of MHP SE approved an interim dividend of US$ 0.7474 per share, equivalent to approximately US$ 80 million, payable on 4 April 2019 to shareholders on the register as of 29 March 2019. No dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE acknowledged the consent of WTI Trading Limited (the Company's major shareholder) for its dividends to be paid later than on the declared dividend payment date (but not later than 1 November 2019), with no interest accrued on the amount of dividend paid later.

DIAL-IN DETAILS

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

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

https://event.onlineseminarsolutions.com/wcc/r/2019621-1/0CD5B7B7E2F3328A24570F7D4C02AAD6?partnerref=rss-events

For Investor Relations enquiries, please contact:

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

For Analysts enquiries, please contact:

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

Segment Performance

Poultry and related operations

* not included sales volume of Perutnina Ptuj d.d for Q1 2019 in the amount of 5,206 tones

Chicken meat

Aggregated volume of chicken meat sold to third parties increased by 21% in Q1 2019 to 164,004 tonnes (Q1 2018: 135,307 tonnes), with particularly strong growth in exports. In Q1 2019, export sales volumes were 93,045 tonnes, up 47% compared to Q1 2018. MHP continued to follow a strategy of both geographic diversification and product mix optimization, with increased sales to both MENA (KSA, Iraq and UAE predominantly) and the EU.

The average chicken meat price remained almost at the same level year-on-year. Poultry export prices decreased by 5% and prices on the domestic market were up on average by 2% year-on-year in USD term.

Vegetable oil

In Q1 2019, sunflower oil sales were 99,826 tonnes, 110% higher year-on-year mainly as a result of a change in delivery terms in addition to an increase in production. Sales of soybean oil decreased by 17% compared to Q1 2018 to 15,152 tonnes.

* pps - percentage points

As a result of the increased sales of chicken meat and vegetable oil, revenue increased by 28% in Q1 2019 compared to Q1 2018.

IAS 41 standard gain in Q1 2019 amounted to US$ 11 million mainly as a result of an increase in broiler chicken stock due to the launch of new rearing sites.

The Gross profit of the poultry and related operations segment for Q1 2019 decreased by 4% compared to Q1 2018 to US$ 69 million. The EBITDA margin decreased correspondingly from 29% to 21%, which was in line with management expectations for the 2019. This has arisen due to increase of production costs, reflecting higher cost of mixed fodder protein components as well as higher payroll costs experienced since the Q2 2018. While the dip in margin is large, poultry production costs for Q1 2019 remained almost at the same level compared to Q4 2018 with the exception of seasonal influence of utilities costs.

Adjusted EBITDA per 1 kg decreased to US$ 0.36 as a result of an increase in production and delivery costs.

Grain growing operations

Grain growing revenue for Q1 2019 amounted to US$ 52 million compared to US$ 7 million inQ1 2018. The increase was mainly attributable to the higher amount of crops in stock designated for sale as of 31 December 2018, compared to stock for sale as of 31 December 2017, mainly as a result of higher yields in 2018.

IAS 41 standard loss for Q1 2019 amounted to US$ 17 million compared with US$ 11 million in Q1 2018. The loss represents the net change in the effect of revaluation of agricultural produce (sunflower, corn, wheat and soya) as a result of lower levels of grain in stock due to internal consumption as a result of the harvest cycle and seasonality.

Other agricultural operations

* not included sales volume of Perutnina Ptuj d.d for Q1 2019 in the amount of 2,662 tones

Sales volume of meat processing products decreased by 7% year-on-year and amounted to 7,572 tonnes in Q1 2019. The average processed meat price increased by 12% year-over-year to UAH 65.73 per kg in Q1 2019.

Sales volumes of convenience food in Q1 2019 increased by 6% to 4,067 tonnes. The average price in Q1 2019 decreased by 7% to UAH 43.43 per kg (excluding VAT), mainly due to product mix changes.

* pps - percentage points

** includes milk, cattle, goose meat, foie gras and feed grains.

Segment revenue in 1Q 2019 increased by 35% compared to Q1 2018 to US$ 42 million, mainly as a result of higher prices of meat processing products as well as the inclusion of Perutnina Ptuj d.d. results after acquisition date. Adjusted EBITDA decreased to US$ 6 million mainly due to lower returns earned from milk operations partly offset by higher meat processing results.

Group cash flow

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

Cash flow from operations before changes in working capital for Q1 2019 amounted to US$ 80 million (Q1 2018: US$ 69 million).

Positive cash flow from changes in working capital during Q1 2019 compared to Q1 2018 is mostly related to lower investments in inventory during Q1 2019 due to higher stocks of crops (sunflower and soya) designated for internal consumption as of 31 December 2018 compared to 31 December 2017, as well as an increase in amounts payable for seeds and plant protection products required for the forthcoming spring sowing campaign .

In Q1 2019 total CAPEX amounted to US$ 33 million mainly related to the launch of production sites of Phase 2 of the Vinnytsia Poultry Complex.

Debt Structure and Liquidity

*Net of IFRS 16 adjustments: as if any lease that would have been treated as an operating lease under IFRS as in effect before the 1 January 2019, is treated as an operating lease for purposes of this calculation

** Calculated as if acquisitions of subsidiaries had occurred on the first day of the four-quarter reference period. LTM adjusted EBITDA of Perutnina Ptuj d.d amounted to US$ 36 million for Q1 2019

As of 31 March 2019, the share of long-term debt decreased to 83% of total debt compared to 90% of total debt as of 31 December 2018. The weighted average interest rate remains around 7%.

Cash and cash equivalents amounted to US$ 282 million. Net debt increased to US$ 1,239 million, compared to US$ 1,131 million as at 31 December 2018.

The Net Debt / LTM EBITDA ratio was 2.60 as of 31 March 2019, within the Eurobond covenant limit of 3.0.

As a hedge for currency risks, revenues from exports of grain, sunflower and soybean oil, sunflower husks, and chicken meat are denominated in hard currency, more than fully covering debt service expenses. Export revenue for Q1 2019 amounted to US$ 268 million or 61% of total revenue (US$ 162 million or 53% of total sales in Q1 2018).

OUTLOOK

The main drivers for growth in 2019 will be:

• An increase in production volume of chicken meat by around 100,000 tonnes as a result of the expansion of the Vinnytsia poultry complex (Phase 2) in Ukraine, mostly sent for exports (forecasted at around 380,000 tonnes of chicken meat), will be supported by growth in local and export prices based on current price trends

• An increase in production volume of chicken meat by around 80,000 tonnes following the acquisition of Perutnina Ptuj with expected higher financial results y/y due to cost optimization

• Gradual launch of an alternative energy biogas project of 12MW capacity (Phase 1) at Vinnytsia Poultry Complex (launch in the middle of 2019)

• Expected strong yields of crops will positively affect the overall financial result of MHP in 2019

The financial results for the first quarter reflect a significant growth in revenue as new production facilities have come on stream and include PPJ since completion of the acquisition. Operating margins for the first quarter were adversely affected by higher labour costs since the second quarter of 2018 and have also been diluted by PPJ's structurally lower margins. Nonetheless, we remain confident in the prospects for the Group, and our expectations for the full year remain unchanged.

Notes to Editors:

About MHP

MHP, an international company headquartered in Ukraine, is a vertically integrated, leading ago-industrial group. It is the leading domestic producer of poultry products with the highest market share and strongest domestic brand recognition for its products.

The Company's vision is to be a world-leading protein agri-business through steady financial, economic and operational growth and continuous business efficiencies.

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

Forward-Looking Statements

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

MHP SE AND ITS SUBSIDIARIES

Interim condensed consolidated Financial Statements

As of and for the three-month period ended 31 March 2019

CONTENTS

STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS............................................................... (a)

MANAGEMENT REPORT...................................................................................................................... (b)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE-MONTH PERIOD ENDED 31 March 2019

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME.............................................................................................................................................................. 2

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION..................................... 2

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY..................................... 2

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS................................................ 2

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................ 2

1. Corporate information...................................................................................................................... 2

2. Basis of preparation and accounting policies.................................................................................... 2

3. Changes in the group structure......................................................................................................... 2

4. Segment information........................................................................................................................ 2

5. Profit for the period......................................................................................................................... 2

6. Deferred revenues............................................................................................................................ 2

7. Property, plant and equipment.......................................................................................................... 2

8. Inventories and agricultural produce.................................................................................................. 2

9. Biological assets............................................................................................................................. 2

10. Share capital................................................................................................................................. 2

11. Bank borrowings............................................................................................................................ 2

12. Bonds issued................................................................................................................................ 2

13. Related party balances and transactions......................................................................................... 2

14. Contingencies and contractual commitments................................................................................... 2

15. Fair value of financial instruments................................................................................................... 2

16. Risk management policy................................................................................................................ 2

17. Dividends..................................................................................................................................... 2

18. Subsequent events........................................................................................................................ 2

19. Authorization of the interim condensed consolidated financial statements........................................ 2

STATEMENT OF MEMBERS OF THE BOARD OF DIRECTORS

In accordance with Article 10 of the Transparency Requirements (Securities for Trading on Regulated Market) Law 190(l)/2007 ("Law"), we the members of the Board of Directors of MHP SE confirm that to the best of our knowledge:

(a) The interim condensed consolidated financial statements for the period from 1 January 2019 to31 March 2019 that are presented on pages 5 to 24:

i. were prepared in accordance with the International Financial Reporting Standards and in accordance with the provisions of Article 10 (4) of the Law, and

ii. give a true and fair view of the assets and liabilities, the financial position and the profits of MHP SE and the businesses that are included in the interim condensed consolidated financial statements as a total, and

(b) the interim management report gives a fair review of the information required under Article 10 (6) of the Law.

11 June 2019

Members of the Board of Directors:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

Director Yuriy Melnyk

Director John Grant

Director John Clifford Rich

Director Roger Wills

Director Christakis Taoushanis

Director Roberto Banfi

MANAGEMENT REPORT

Key financial highlights

During the three-month period ended 31 March 2019 consolidated revenue increased by 43% and amounted to USD 436,324 thousand, compared to USD 305,576 thousand for the three-month period ended 31 March 2018. Export sales for the three-month period ended 31 March 2019 constituted 61% of total revenue and amounted to USD 268,071 thousand, compared to USD 162,338 thousand, 53% of total revenue for the three-month period ended 31 March 2018. Overall increase in revenue is mainly attributable to the increased sales volume exports of chicken meat.

Gross profit remained relatively stable and amounted to USD 80,647 thousand for the three-month period ended 31 March 2019 compared to USD 81,039 thousand for the three-month period ended 31 March 2018.

Operating profit decreased by 19% to USD 49,996 thousand for the three-month period ended 31 March 2019 compared to USD 61,954 thousand for the three-month period ended 31 March 2018, mainly as a result of an increase in administration, sales and distribution expenses mainly due to increased in payroll cost, logistics costs and consulting services.

Profit for the period from continuing operations for three-month period ended 31 March 2019 decreased by 63% and amounted to USD 33,347 thousand, compared to USD 89,784 thousand for the three-month period ended 31 March 2018 including foreign exchange gain of USD 20,859 thousand for three-month period ended 31 March 2019 compared to USD 54,633 thousand for the three-month period ended 31 March 2018.

Dividends

On 21 March 2019, the Board of Directors of MHP SE approved a payment of the interim dividends of USD 0.7474 per share, equivalent to approximately USD 80,000 thousand, on 4 April 2019 to shareholders on the register as of 29 March 2019. The Board of Directors approved that no dividend will be paid on the Company's shares held in treasury.

The Board of Directors of MHP SE also acknowledged the consent of WTI Trading Limited (the Company's major shareholder) to be paid later than on the declared dividend payment date (but not later than 1 November 2019), with no interest accrued on the amount of dividend paid later (Note 17).

Risks and uncertainties

There are a number of potential risks and uncertainties, which could have a material impact on the Group's performance over the remaining three months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2018. A detailed explanation of the risks, and how the Group seeks to mitigate the risks, can be found on pages 162 to 167 of the annual report which is available at www.mhp.com.cy.

11 June 2019

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board: 

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the three-month period ended 31 March 2018

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

The accompanying notes on the pages 11 to 25 form an integral part of these interim condensed consolidated financial statements

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

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

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

The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing and meat products ready for consumption). The Group's poultry and related operations integrate all functions related to the production of chicken, including hatching, fodder manufacturing, raising chickens to marketable age ("grow-out"), processing and marketing of branded chilled products and include the production and sale of chicken products, vegetable oil, mixed fodder. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of cooked meat, sausages, convenience food products, milk, goose meat, foie gras and feed grains. During the three-month period ended 31 March 2019 the Group employed about 29,042 people(31 December 2018: 28,575 people).

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

The Group's primary operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Lviv, Ternopil, Ivano-Frankivsk, Vinnytsia, Sumy and Khmelnitsk regions.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the three-month period ended 31 March 2019 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been condensed or omitted. However, such information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of the Group management, necessary to fairly state the results of interim periods. Interim results are not necessarily indicative of the results to be expected for the full year.

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

The 31 December 2018 statement of financial position was derived from the audited consolidated financial statements, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.

Adoption of new and revised International Financial Reporting Standards

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

The group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The nature and effect of these changes are disclosed below.

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

IFRS 16 Leases

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

Applying IFRS 16, the Group:

· Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments;

· Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases.

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

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

IFRS 16 Leases (continued)

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 20%. The difference between operating lease commitments disclosed as at 31 December 2018 and lease liability recognized as at 1 January 2019 arises from the effect of discounting lease payments and adjustments as a result of a different treatment of liability and advances for land lease.

Functional and presentation currencies

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

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

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

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

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

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

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

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

2. Basis of preparation and accounting policies (continued)

Functional and presentation currencies (continued)

The following exchange rates were used:

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2018, except those adopted starting from 1 January 2019 as described above in this note.

Seasonality of operations

Poultry and related operations as well as other agricultural operations are not significantly exposed to seasonal fluctuations.

Grain growing segment, due to seasonality and implications of IAS 41, in the first half of the year mainly reflects sales of carried forward agricultural produce and the effect of biological assets revaluation, while during the second half of the year it reflects sales of crops and the effect of revaluation of agricultural produce harvested during the year. Also, grain growing segment has seasonal requirements for working capital increase during November to May, due to the sowing campaign.

Reclassifications and revisions

Certain comparative information presented in the interim condensed consolidated financial statements for the three-month period ended 31 March 2018 has been revised in order to achieve comparability with the presentation used in the interim condensed consolidated financial statements for the three-month period ended 31 March 2019. Such reclassifications and revisions were not significant to the Group financial statements.

3. Changes in the group structure

Acquisitions

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

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

3. Changes in the group structure (continued)

Acquisitions (continued)

1) includes USD 15,392 thousand of lease liability recognised in accordance with the adoption of IAS 16 (Note 2).

The initial accounting for the acquisition of Perutnina Ptuj d.d. has only been provisionally determined at the end of the reporting period. At the date of finalisation of these interim condensed consolidated financial statements, the necessary market valuations and other calculations had not been finalised and they have therefore only been provisionally determined based on the directors' best estimate of the likely market values.

The fair value of the other current assets includes trade receivables with a fair value of USD 36,354 thousand and a gross contractual value of USD 36,500 thousand. The best estimate at acquisition date of the contractual cash flows not to be collected are USD 146 thousand.

The goodwill of USD 88,727 thousand arising from the acquisition attributed to the expected synergies and other benefits from combining the assets and activities of Perutnina Ptuj d.d. with those of the Group. None of the goodwill is expected to be deductible for income tax purposes.

The non-controlling interest (9.31% ownership interest Perutnina Ptuj d.d.) recognised at the acquisition date was measured as proportionate share of the acquired entity's net identifiable assets and amounted toUSD 16,729 thousand.

Acquisition-related costs amounted to USD 2,581 thousand.

Perutnina Ptuj d.d.contributed USD 25,683 thousand revenue and USD 2,112 thousand to the Group's profit for the period between the date of acquisition and the reporting date.

If the acquisition of Perutnina Ptuj d.d. had been completed on the first day of the financial year, Group revenues for the year would have been USD 483,690 thousand and Group profit would have beenUSD 35,572 thousand.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

4. Segment information

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 31 March 2019:

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

2) Depreciation and amortization for the three-month period ended 31 March 2019 does not include unallocated depreciation and amortization in the amount of USD 183 thousand.

The following table presents revenue and profit information regarding the Group's operating segments for the three-month period ended 31 March 2018:

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

2) Depreciation and amortization for the three-month period ended 31 March 2018 does not include unallocated depreciation and amortization in the amount of USD 501 thousand.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

5. Profit for the period

The Group's gross profit for the three-month period ended 31 March 2019 dereased compared to the three-month period ended 31 March 2018 and amounted to USD 80,647 thousand and USD 81,039 thousand, respectively.

Net change in fair value reflects IAS 41 adjustment relating to revaluation of crops in fields, poultry and breeder stock and other biological assets balances to the fair value as of 31 March 2019 as well as revaluation of agricultural produce to the fair value at the date of harvest.

The Group's operating profit decreased mainly due to an increase in administration, sales and distribution expenses primarily attributable to the increase in payroll cost, logistics costs and consulting services.

In line with the decrease in operating profit, the Group's profit for the period from continuing operations for the three-month period ended 31 March 2019 decreased compared to the three-month period ended31 March 2018 from USD 89,784 thousand to USD 33,347 thousand, respectively. An additional negative impact was attributable to a decrease of an unrealized foreign exchange gain amounted to USD 20,859 thousand for the three-month period ended 31 March 2019 compared to USD 54,633 thousand for the three-month period ended 31 March 2018. Unrealized foreign exchange gain mostly attributable to bonds and bank borrowings denominated in foreign currencies due to UAH appreciation against USD and EUR.

6. Deferred revenues

Ukrainian Government supports domestic agri producers and attract investments into agricultural sector. According to the Law "On the State Budget for 2019", UAH 5,709 million were allocated to support agricultural sector in 2019 via compensation program, including UAH 3,500 million to support livestock sector and up to UAH 900 million to purchase agricultural machinery produced in Ukraine. During the year ended 31 December 2018, the Group received government grants in accordance to the compensation program for construction and reconstruction of livestock farms in an amount of UAH 960,666 thousand (USD 34,371 thousand). During the three-month period ended 31 March 2019, the Group has not yet received government grants in accordance with this program.

Government grants are presented in the statement of the financial position as deferred revenues, which is recognised in profit or loss on a systematic basis over the useful life of the related assets.

7. Property, plant and equipment

During the three-month period ended 31 March 2019, the Group's additions to property, plant and equipment amounted to USD 29,814 thousand (three-month period ended 31 March 2018: USD 46,050 thousand) mainly related to construction works for Phase 2 of the Vinnytsia poultry project.

There were no significant disposals of property, plant and equipment during the three-month period ended 31 March 2019.

8. Inventories and agricultural produce

An increase in inventory balance as of 31 March 2019 compared to 31 December 2018 is mainly attributable to costs incurred by grain growing entities in respect of forthcoming spring sowing campaign, partly offset by internal consumption of sunflower for chicken feed.

A decrease of agricultural produce for three-month period ended 31 March 2019 was mainly as a result of internal consumption of corn, wheat and sunflower.

9. Biological assets

Increase in current biological assets as compared to 31 December 2018 is primarily related to crops in fields balance mainly relates to spring crops seeded in the first half of 2019 classified as biological assets as well as by increase in broiler chickens stock due to the launch of new rearing sites.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the three-month period ended 31 March 2019

(in thousands of US dollars, unless otherwise indicated)

10. Share capital

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

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

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

11. Bank borrowings

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