Q1 Results

5th Jun 2009 07:00



PRESS RELEASE

June 5, 2009 , Kyiv, Ukraine 

MHP S.A.

Unaudited Results for quarter ended 31 March 2009

MHP S.A. ("MHP" or the "Company", LSE ticker: "MHPC"), one of the leading agro-industrial companies in Ukraine, focusing on the production of poultry and the cultivation of grain, today announces its unaudited results for the first quarter ended 31 March 2009.

Key operational highlights

All the Company's chicken production facilities continued to operate at full capacity and chicken meat production volumes were unchanged compared with Q1 2008

The Company was able to sell 100% of its production, although the average chicken meat price in Ukrainian Hryvna (UAH) increased by 18% year-on-year

Cost of production per 1 kg of poultry meat in UAH slightly decreased compared to Q1 2008

US$20 million of short term borrowings were successfully refinanced, extending maturities to Q1 2010

New law enacted in February 2009 has extended indefinitely VAT and profit tax benefits for Ukrainian agricultural producers (previously effective until 1 January 2011)

Key financial highlights 

All the key financial indicators in Q1 2009 increased year-on-year as reported in local currency (UAH). However, when translated into US dollars, due to the Hryvna's 52% depreciation against the US dollar over the last year (Q1 2008: UAH 5.05 to one USD, Q1 2009 UAH 7.7), some of the key financial indicators were down year-on-year. 

EBITDA margin increased to 37% (Q1 2008: 34%), despite the cancellation of direct government grants in Q1 2009

Revenue in UAH increased 18% to UAH 1,039 million (Q1 2008: UAH 883 million); in USD, revenue decreased 23% to US $135 million (Q1 2008: US $175 million).

Gross profit in UAH increased 57% to UAH 367 million (Q1 2008: UAH 234 million); in USD increased 3% to US $48 million (Q1 2008: US $46 million).

Government grants in UAH decreased 23% to UAH 66 million (Q1 2008: UAH 86 million); in USD decreased 49% to US $9 million (Q1 2008: US $17 million)

EBITDA in UAH increased 27% to UAH 379 million (Q1 2008: UAH 297 million); in USD decreased 16% to US $49 million (Q1 2008: US $59 million).

Net income in UAH increased 145% to UAH 299 million (Q1 2008: UAH 122 million); in USD increased 60% to US $39 million (Q1 2008: US $24 million).

Net income margin increased to 29% (Q1 2008: 14%)

 Post period end

A new advertising campaign was launched in April 2009 to re-style and promote MHP's locomotive "Nasha Ryaba" brand 

Construction of Phase two of the Myronovka poultry farm continues on schedule, with the launch of the new poultry facility expected in June 2009. Annual chicken production capacity is expected to exceed 200,000 tonnes

Commenting on the results, Yuriy Kosyuk, Chief Executive Officer of MHP, said:

"We are pleased with the underlying performance of the business over the first quarter of the year, with our vertically integrated business model allowing us to drive profitability and increase margins. Despite turbulent market conditions, consumer demand for poultry remained high as our customers continue substituting imported chicken and other meats with high quality local chicken meat. We are confident that we will continue to drive volume growth and with the launch of the Myronovka poultry farm, expected in June 2009, our market position will be strengthened further. We expect to continue to at least meet current market expectations and to achieve good financial results for the full year."

-Ends-

Date: Friday, 5 June 2009

Time: 16.00 Kyiv / 14.00 London / 9.00 New York / 17.00 Moscow

 

Title:  MHP - FINANCIAL RESULTS Q1 2009

Conference ID 12953136

UK Standard International +44 (0) 1452 586 157

UK Free Call  0800 694 1541

Russia Free Call 8108 002 438 1012

USA Free Call 1 866 595 6357

A live webcast of the presentation will be available at:

https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=664095585

Event number: 664 095 585Event password:  12953136

For further information please contact:

Financial Dynamics  Ben Foster (London) Marc Cohen (London) Leonid Solovyev (Moscow) For investor relations enquiries Anastasiya Sobotyuk (Kyiv) [email protected]

London: +44 20 7831 3113 Moscow: +7 495 795 06 23 Kyiv: +38 044 207 99 55

   

Financial overview

		Q1 2009	Q1 2008	Change		Q1 2009	Q1 2008	Change
Revenue	UAH, m	1,039	883	18%	US$, m	135	175	-23%
IFRS 41 standard gains		43	4	-		6	1	-
Gross profit	UAH, m	367	234	57%	US$, m	48	46	3%
Gross margin	%	35%	26%	-	%	35%	26%	-
Operation profit	UAH, m	305	235	30%	US$, m	40	47	-15%
Operation margin	%	29%	27%	-	%	29%	27%	-
EBITDA	UAH, m	379	297	27%	US$, m	49	59	-16%
EBITDA margin	%	37%	34%	-	%	37%	34%	-
Net income (con'ing operations)	UAH, m	299	122	145%	US$, m	39	24	60%
Net income margin	%	29%	14%	-	%	29%	14%	-

In the first quarter of 2009 MHP's consolidated revenues in UAH increased by 18% to UAH 1,039 million (Q1 2008: UAH 883 million); while in USD it decreased by 23% to US $135 million (Q1 2008: US $175 million) as a result of the Hryvna's depreciation against the US dollar by 52% compared to the Q1 2008 average exchange rate (Q1 2008: UAH 5.05 to one USD, Q1 2009 UAH 7.7 to one USD).

EBITDA in UAH increased by 27% to UAH 379 million (Q1 2008: UAH 297 million); while in USD it decreased 16% to US $49 million as against the same period last year (Q1 2008: US $59 million) and EBITDA margin increased year-on-year from 34% to 37% as a result of higher prices and slightly lower poultry production costs due to the high level of the Company's vertical integration.

Net income for the first quarter increased 145% in UAH to UAH 299 million (Q1 2008: UAH 122 million) and increased by 60% in USD to US $39 million (Q1 2008: US$24 million). Net income margin increased from 14% to 29% due to the cost base remaining stable and foreign currency rate gains. (During Q1 2009, due to the Euro's decrease against the US dollar, MHP has booked non-cash foreign exchange profits resulting from a revaluation of certain balance sheet positions. In Q1 2008 non-cash losses were booked due to the Euro's appreciation against the US dollar).

Poultry and related operations

		Q1 2009	Q1 2008	Change
Revenue	US$, m	109	157	-31%
- poultry and other		90	127	-29%
- sunflower oil		19	30	-36%
IAS 41 standard gains		6	3	-
Gross profit	US$, m	46	44	6%
Gross margin	%	43%	28%	-
EBITDA	US$, m	49	56	-12%
EBITDA margin	%	45%	36%	-
Gross profit per 1 kg of poultry meat (1)	US$/kg	0,81	0,74	8%
EBITDA per 1 kg of poultry meat (1)	US$/kg	0,87	0,97	-11%
EBITDA per 1 kg of poultry meat (1)	UAH/kg	6,68	4,92	36%

 (1) Excluding effect of IAS 41

During the first three months of 2009 consumer demand for chicken meat remained high and all the Company's production facilities continued to work at full capacity. Chicken production during the first quarter of 2009 remained stable compared to the first quarter of 2008, however, chicken sales to third parties decreased by 8% to 50,459 tonnes (Q1 2008: 54,830 tonnes). This decrease in sales to third parties resulted from converting greater volumes of chicken meat into the production of value added products that increased inter-company sales, as more than 50% of meat used by Ukrainian Bacon acquired by the Company in July 2008 is chicken meat.

Average chicken meat prices through the first quarter of 2009 increased by 18.3% to 12.43 UAH per kg. of adjusted weight (excluding VAT) when compared to the first quarter of 2008 (Q1 2008: 10.51 UAH). Average sun flower oil prices through the first quarter of 2009 decreased by 54% to 651 US$/t. from 1,402 US$/t in Q1 2008.

Average chicken meat prices increases were offset by the Hryvna's depreciation against the US dollar by 52% and the decrease in the average prices of sun flower oil. As a result, the segment's revenue in UAH increased by 6% to UAH 840 million (Q1 2008: UAH 793 million); while in USD it decreased by 31% from US$ 157 million in Q1 2008 to US$ 109 million in Q1 2009.

Poultry production costs in Q1 2009 were slightly lower compared to Q1 2008, this being despite a significant increase in utility prices in general and natural gas in particular. The lower cost base was due to the Company being fully vertically integrated, favorable ratios of sunflower seeds and sunflower oil resulting in low sunflower protein costs, as well as low corn prices from 2008 yields (most of which the Company will use in 2009).  

Gross profit in the segment increased by 6% from US$ 44 million in Q1 2008 to US$ 46 million in Q1 2009 and segment gross margin increased from 28% to 43% year-on-year due to higher sales price and slightly lower production cost. 

EBITDA in the first quarter of 2009 decreased by 12% from US$ 56 million to US$ 49 million while EBITDA margin increased from 36% to 45% year-on-year. 

Grain growing  

		Q1 2009	Q1 2008	change
Revenue	US$, m	5,8	1,8	222%
IFRS 41 standard gains		0,7	(3,2)	-
Gross profit	US$, m	0,1	0,2	-70%
Gross margin	%	1%	12%	-
EBITDA	US$, m	0,1	0,4	-74%
EBITDA margin	%	2%	20%	-

Revenues from the grain segment only materialise in the second half of the year due to the harvest cycle and so Q1 2009 only contains the revenue form the sale of grain stocks, mainly wheat, that have already been revalued to market prices in 2008.

Other agriculture operations

		Q1 2009	Q1 2008	change
Revenue	US$, m	20	16	25%
- meat processing		13	11	10%
- other		8	5	62%
IFRS 41 standard gains		(1)	1	-
Gross profit	US$, m	1	2	-51%
Gross margin	%	6%	15%	-
EBITDA	US$, m	2	5	-66%
EBITDA margin	%	8%	28%	-
Sausage volume	tonnes	4 945	2 442	102%

During the first three month of 2009, sausage and cooked meat (the segment's core products) production volumes increased by 103% to 4,945 tonnes compared to 2,442 tonnes during the first quarter of 2008.  This growth was due to the acquisition of the new meat processing facilities of "Ukrainian Bacon" in July 2008. More than 50% of all meat used in production of the sausages is chicken. Average sausage and cooked meat prices during the first quarter of 2009 decreased by 4% to 17.48 UAH per kg excluding VAT (Q1 2008: 18.22 UAH per kg.). The decrease was primarily due to the fact that Ukrainian Bacon products are positioned in the mass market segment. In UAH meat processing sub-segment revenue increased year-on-year by 80%. 

As a result, the segment's revenue for the first quarter revenues in UAH increased by 91% to UAH 154 million (Q1 2008: UAH 81 million); while in USD it increased by 25% year-on-year to US $20 million (Q1 2008: US $16 million).

The segment's EBITDA decreased by 66% from US $5 million to US $2 million year-on-year mostly as a result of the cancellation of direct subsidies for Ukrainian meat producers, because this segment includes cattle and pigs breeding. Direct subsidies for pork and beef producers were higher than for poultry producers and so the cancellation of the subsidies has a stronger effect on the other agriculture operations segment. The segment's financial results were also negatively affected by biological asset revaluations under IAS 41, due to the decrease in cattle livestock. As a result, EBITDA margin decreased from 28% to 8%. 

Current financial position, cash flows and liquidity

Cash flow from operations before working capital changes was US $42 million in Q1 2009, compared to US$ 54 million in Q1 2008. Net cash generated from operating activities decreased to US $17 million in Q1 2009, from US $23 million in Q1 2008. 

In Q1 2009 the main contributors to the change in working capital were the same as in Q1 2008 and were associated with 2009 season sowing.

Total CAPEX in Q1 2009 was US$ 39 million, mostly relating to the launch of the second phase of the Myronovka poultry farm facility.

As of the period end, the Company's total debt was US $512 million with an average weighted cost of debt below 10%. The Company's total debt is mainly denominated in US dollars. As a hedge for currency risks revenue from sunflower oil exports is used, which fully covers debt service expenses. US $250 million of the debt is in Eurobonds, which are not redeemable until 30 November 2011.

At the end of Q1 2009 MHP had US$ 61 million in cash and deposits mostly nominated in US dollars.

Current trading and outlook

Consumer demand for poultry meat continues to remain high and all the Company's production facilities are operating at full capacity. The current price of chicken meat is 14.30 UAH per kg. excluding VAT. The Company expects poultry production costs in 2009 to remain at the same level as at the same period last year as a result of the decrease in corn prices and the use of sunflower protein, despite utility price increases. The Company continues to grow sausage and cooked meat production volumes as most of Ukrainian Bacon's products are positioned in the mass segment where consumer demand is still growing.

MHP expects to launch the second phase of the Myronovka chicken farm in June 2009 and it is expected that the new complex will reach its total capacity of more than 200,000 tonnes (the combined capacity of Phase #1 and Phase #2).

MHP's high level of vertical integration, self-sufficiency in corn, use of sunflower protein leading to low production costs, effective land cultivation and growing meat processing volumes all mean that the Company is well positioned to tackle the volatile market conditions and to achieve solid financial results in 2009. 

- End -

Notes to Editors:

Information on MHP

MHP is the leading producer of poultry products in Ukraine with the greatest market share and highest brand recognition for its products. MHP owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP's franchise outlets). Vertical integration reduces MHP's dependence on suppliers and its exposure to increases in raw material prices. In addition to cost efficiency, vertical integration also allows MHP to maintain strict biosecurity and to control the quality of its inputs and the resulting quality and consistency of its products through to the point of sale. To support its sales, MHP maintains a distribution network consisting of 11 distribution and logistical centres, within major Ukrainian cities. MHP uses its trucks for the distribution of its products, which Management believes reduces overall transportation costs and delivery times. 

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

Since May 15, 2008, MHP has traded 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 S.A. Such statements do not guarantee that these are actions to be taken by MHP S.A. 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 S.A. does not intend to change these statements to reflect actual results.

  

MHP S.A. 

AND ITS SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

For the three months 

ended 31 March 2009

MHP S.A. AND ITS SUBSIDIARIES

TABLE OF CONTENTS

	Page
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 31 MARCH 2009
Condensed consolidated interim statement of financial position	2
Condensed consolidated interim statement of comprehensive income	3
Condensed consolidated interim statement of changes in shareholders' equity	4
Condensed consolidated interim statement of cash flows	5-6
Notes to the condensed consolidated interim financial statements	7-16

MHP S.A. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
AS OF 31 MARCH 2009  (in US Dollars and in thousands)

g26,872

	Notes	31 March 2009		31 December 2008
ASSETS
Non-current assets
Property, plant and equipment, net		543,940		517,564
Prepayments for property, plant and equipment		22,051		22,269
Deferred tax assets		2,176		2,047
Long-term VAT prepaid		9,154		9,112
Non-current biological assets		31,360		29,480
Other non-current assets		6,171		6,458
Total non-current assets		614,852		586,930
Current assets
Inventories		51,387		38,118
Biological assets		102,467		84,095
Agricultural produce		33,022		42,765
Taxes recoverable and prepaid, net		53,101		46,338
Trade accounts receivable, net		29,754		31,531
Other current assets, net		14,346		15,370
Bank deposits with maturity over three months		13,052		25,342
Cash and cash equivalents		48,171		54,072
Total current assets		345,300		337,631
Total assets		960,152		924,561
LIABILITIES AND SHAREHOLDERS' EQUITY
Equity attributable to equity holders of the Parent
Share capital		284,505		284,505
Additional paid-in capital		178,815		178,815
Revaluation reserve		9,410		9,410
Retained earnings		118,689		82,480
Foreign currency translation reserve		(222,699)		(222,699)
		368,720		332,511
Minority interest		16,350		13,706
Total equity		385,070		346,217
Non-current liabilities
Long-term bank borrowings		60,645		57,456
Bonds issued		247,170		246,903
Long-term finance lease and vendor financing obligations		44,726		47,972
Other long-term payables		616		400
Deferred tax liabilities		6,590		6,160
Total non-current liabilities		359,747		358,891
Current liabilities
Trade accounts payable		22,849		22,170
Accounts payable for property, plant and equipment		6,304		8,116
Other current liabilities		25,494		32,992
Short-term bank borrowings and current portion of long-term bank borrowings		129,847		130,241
Interest accrued		10,339		3,520
Current portion of finance lease obligations		20,502		21,625
Deferred income				789
Total current liabilities		215,335		219,453
Total liabilities		575,082		578,344
Contingencies and contractual commitments
Total liabilities and shareholders' equity		960,152		924,561

The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements

MHP S.A. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ended 31 March 2009 (in US Dollars and in thousands, except per share data)

		Three months ended 31 March
	Notes	2009		2008
Continuing operations
Revenue		134,881		174,832
Net change in fair value of biological assets and agricultural produce		5,610		768
Cost of sales		(92,839)		(129,293)
Gross profit		47,652		46,307
Selling, general and administrative expenses		(15,379)		(15,638)
Government grants recognized as income		8,596		16,981
Other operating income and expenses		(1,293)		(1,121)
Operating profit		39,576		46,529
Finance income		1,922		-
Finance costs, net		(11,816)		(13,166)
Foreign exchange gains/(losses), net		9,561		(9,059)
Other income and expenses		(130)		218
Other expenses, net		(463)		(22,007)
Profit before tax		39,113		24,522
Income tax expense		(260)		(310)
Profit for the PERIOD from continuing operations		38,853		24,212
Discontinued operations
(Loss)/profit for the period from discontinued operations		-		(34)
Net profit for the PERIOD		38,853		24,178
Attributable to:
Equity holders of the Parent		36,209		23,464
Minority interest		2,644		748
Earnings per share
From continuing operations (USD per share):
Basic		0.33		0.23
Diluted		0.33		0.23
From continuing and discontinued operations (USD per share):
Basic		0.33		0.23
Diluted		0.33		0.23

The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.

MHP S.A. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM STATEMENT OF Changes in Shareholders' Equity
FOR THE THREE MONTHS ended 31 March 2009  (in US Dollars and in thousands)

	Attributable to Equity Holders of the Parent												Minority interest				Total equity
	Share capital		Additional paid-in capital		Revaluation reserve		Foreign currency translation reserve		Retained earnings		Total
1 January 2008	251,311		60,059		9,410		6,292		80,962		408,034		11,372			419,406
Total comprehensive income for the period	-		-		-		-		23,430		23,430		748			24,178
Acquisition and changes in non-controlling interest in subsidiaries	-		-		-		-		-		-		(283)			(283)
31 March 2008	251,311		60,059		9,410		6,292		104,392		431,464		11,837			443,301
1 January 2009	284,505		178,815		9,410		(222,699)		82,480		332,511		13,706			346,217
Total comprehensive income for the period	-		-		-		-		36,209		36,209		2,644			38,853
31 March 2009	284,505		178,815		9,410		(222,699)		118,689		368,720		16,350			385,070

The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements. 

MHP S.A. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FFLOWS
FOR THE THREE MONTHS ENDED 31 MARCH 2009
(in US Dollars and in thousands)

	Three months ended 31 March
	2009		2008
Operating activities
Profit before income tax from continuing and discontinued operations	39,113		24,488
Adjustments to reconcile profit to net cash provided by operations
Depreciation of property, plant and equipment	9,662		12,710
Finance costs, net	11,816		13,175
Finance income	(1,922)		-
Effect of fair value adjustments	(5,610)		(53)
Non-operating foreign exchange loss/(gain), net	(9,561)		9,059
Change in allowance for irrecoverable amounts and VAT  and direct write-offs	1,277		457
(Gain)/loss on disposal of property, plant and equipment	9		356
Other non-cash items	-		(68)
Operating profit before working capital changes	44,784		60,124
(Increase)/decrease in inventories	(13,518)		(6,101)
(Increase)/decrease in biological assets	(13,915)		(16,573)
Decrease in agricultural produce	11,068		8,648
Decrease in other current assets	935		(3,261)
Increase in taxes recoverable and prepaid	(7,377)		(3,448)
Decrease in trade accounts receivable	1,161		(7,737)
Increase/(decrease) in other long-term payables	216		544
Increase/(decrease) in trade accounts payable	681		(6,637)
(Decrease)/increase in other current liabilities	(3,466)		(906)
(Decrease)/increase in deferred income	(789)		4,650
Cash generated by operations	19,780		29,303
Finance costs paid	(4,434)		(6,007)
Interest received	2,193		262
Income tax paid	(296)		(310)
Net cash generated by operating activities	17,243		23,248
Investing activities
Purchases of property, plant and equipment	(31,996)		(12,589)
Purchases of other non-current assets	-		(512)
Proceeds from disposals of property, plant and equipment	35		175
Purchases of non-current biological assets	(1,929)		(703)
Short-term deposits	-		(990)
Withdrawals of short-term deposits	12,291		1,746
Loans provided to employees, net	(166)		(260)
Loans provided to related parties, net	-		(70)
Net cash used in investing activities	(21,765)		(13,203)

  

MHP S.A. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED 31 March 2008
(in US Dollars and in thousands)

Financing activities
Proceeds from loans received	99,827		60,000
Repayment of bank loans	(94,726)		(56,337)
Other financing received	(3,480)		-
Finance lease payments	(3,041)		(2,981)
Net cash generated by financing activities	(1,420)		682
Currency translation differences	41		-
Net increase /(decrease) in cash and cash equivalents	(5,901)		10,727
Cash and cash equivalents at beginning of the PERIOD	54,072		10,088
Cash and cash equivalents at end of the PERIOD	48,171		20,815

The notes on pages 7 to 16 form an integral part of these condensed consolidated financial statements.

MHP S.A. AND ITS SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE THREE MONTHS ENDED 31 March 2009

(in US Dollars and in thousands)

 

1. DESCRIPTION OF FORMATION AND THE BUSINESS  

Description of formation

MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company registered under the laws of Luxembourg, was formed on 30 May 2006. MHP S.A. was formed to serve as the ultimate holding company of OJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. The registered address of MHP S.A. is 412F, Route d'Esch, L-1030 Luxembourg, Grand-Duchy of Luxembourg.

In the course of the corporate reorganization related to the establishment of MHP S.A., Raftan Holding Limited ("RHL") was established as a subholding company under MHP S.A. and through a series of transactions became the immediate parent of MHP. As a result of these transactions (collectively referred to as the "Corporate Reorganization") MHP S.A. indirectly owned 99.8% of MHP.

References to the "Group" for periods prior to the formation of MHP S.A. are references to MHP and its subsidiaries and for periods after the formation of MHP S.A. are to MHP S.A. and its subsidiaries.

The primary subsidiaries and the principal activities of the companies forming the Group as of 31 March 2009 and 31 December 2008 were as follows:

Operating entity	Country of registration	Year established/ acquired	Principal activity	Effective ownership interest*, %
				31 March 2009		31 December 2008
Operating entity	Country of registration	Year established/ acquired	Principal activity	Effective ownership interest*, %
				31 March 2009		31 December 2008
MHP S.A.	Luxembourg	2006	Holding company	Parent		Parent
RHL	Republic of Cyprus	2006	Sub-holding  company	100		100
MHP	Ukraine	1998	Management, marketing and  sales	99.9		99.9
Myronivsky Zavod po  Vygotovlennyu Krup i  Kombikormiv ("MZVKK")	Ukraine	1998	Fodder and sunflower oil production	88.5		88.5
Peremoga Nova  ("Peremoga")	Ukraine	1999	Chicken farm	99.9		99.9
Druzhba Narodiv Nova  ("Druzhba Nova")	Ukraine	2002	Chicken farm	99.9		99.9
Oril-Leader ("Oril")	Ukraine	2003	Chicken farm	99.9		99.9
Tavriysky  Kombikormovy  Zavod ("TKZ")	Ukraine	2004	Fodder production	99.9		99.9
Ptahofabryka Shahtarska Nova ("Shahtarska")	Ukraine	2003	Breeder farm	99.9		99.9
Myronivska  Pticefabrica  ("Myronivska")	Ukraine	2004	Chicken farm	99.9		99.9
Starynska Ptahofabryka  ("Starynska")	Ukraine	2003	Breeder farm	84.9		84.9
Ptahofabryka Snyatynska  Nova ("Snyatynska")	Ukraine	2005	Geese breeder  farm	99.9		99.9
Zernoproduct	Ukraine	2005	Fodder grain cultivation	89.9		89.9
Katerynopilsky Elevator	Ukraine	2005	Fodder production  and grain storage	99.9		99.9
Druzhba Narodiv  ("Druzhba")	Ukraine	2006	Cattle breeding, plant cultivation	99.0		99.0
Crimean Fruit Company ("Crimean Fruit")	Ukraine	2006	Fruits grain cultivation	99.0		99.0
NPF Urozhay  ("Urozhay")	Ukraine	2006	Fodder grain cultivation	89.9		89.9
Agrofort ("AGF")	Ukraine	2006	Fodder grain cultivation	89.9		89.9
Zernoproduct-Lypivka  ("ZPL")	Ukraine	2006	Fodder grain cultivation	63.0		63.0
Ukrainian Bacon PE ("Ukrainian Bacon")	Ukraine	2008	Meat processing	79.9		79.9

 

Effective voting rights in subsidiaries did not differ from effective ownership rights. Direct ownership interest in subsidiaries by the Parent differs from the effective ownership interest due to cross holdings between subsidiaries.

In May 2008 MHP S.A. completed an initial public offering (IPO) in the form of global depositary receipts (GDR) on the Main Market of the London Stock Exchange. The Offering represented approximately 22.33% per cent of the Company's issued ordinary share capital.

Description of the business 

The principal business activities of the Group are poultry and related operations, grain growing and other agricultural operations (producing beef and meat products ready for consumption and cultivation and selling fruits). 

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 ("growout"), processing and marketing of branded chilled products and include the production and sale of chicken products, sunflower oil, mixed fodder and convenience food products. Grain growing comprises the production and sale of grains. Other agricultural operations comprise the production and sale of beef, goose meat, foie gras, sausages, fruits and feed grains.

The Group's operational facilities are located in different regions of Ukraine, including Kyiv, Cherkasy, Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Vinnytsya, Kherson regions and Autonomous Republic of Crimea.

.

2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated interim financial statements are prepared on the basis of accounting policies as set forth in the Group's consolidated financial statements as at and for the year ended 31 December 2008. 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 results to be expected for the full year. The 31 December 2008 statement of financial position was derived from the audited consolidated financial statements.

The functional currency of MHP S.A. and each of its subsidiaries is the Ukrainian Hryvnia ("UAH"). Transactions in currencies other than the functional currency of the Group are treated as transactions in foreign currencies. Such transactions are initially recorded at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the statement of financial position date. All realized and unrealized gains and losses arising on exchange differences are included in the consolidated statement of comprehensive income for the period.

The Group has chosen to present its consolidated financial statements in US Dollars ("USD"). The decision was taken for convenience of the users of financial statements.

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

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

Income and expenses for each statement of 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.

 

The following exchange rates were used:

Currency	Closing rate as of 31 March 2009	Average for 3 months ended 31 March 2009	Closing rate as of 31 December 2008	Average for 3 months ended 31 March 2008
UAH/USD	7,7000	7,7000	7,7000	5,0500
UAH/EUR	10,1586	10,0717	10,8555	7,5614

 

   3. PROPERTY, PLANT AND EQUIPMENT

In 2009 the Group continues investment mainly into its poultry and grain business.

During the three months ended 31 March 2009, the Group's additions to Property, plant and equipment amounted to USD 38,627 thousand. 

The main capital expenditures were incurred in connection with the second phase of Myronivka chicken farm complex construction.

There have been no significant disposals of equipment during the three months ended 31 March 2009.

 

4. RELATED PARTY BALANCES AND TRANSACTIONS

For the purposes of these financial statements, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms and conditions as transactions between unrelated parties.

The following companies and individuals are considered to be related parties to the Group as of 31 March 2009:

Name of the related party	Nature of relations with the Group
Mr. Yuriy Kosyuk	Chief Executive Officer of MHP S.A. and the Principal Shareholder of the Group
WTI	Immediate parent, company owned by Mr. Yuriy Kosyuk
Mrs. Olena Kosyuk	Wife of Mr. Yuriy Kosyuk
Allied Tech LLP (United Kingdom)	Companies owned or controlled by Mr. Yuriy Kosyuk
Allied Tech Commerce LLP (United Kingdom)
Agrofirma Berezanska Ptahofabryka
ULL Beteiligungs und Management GmbH
LLC Zolotoniske Zvirogospodarstvo
Merkaba LLC
Spector	Company owned by Merkaba LLC

During the three months ended 31 March 2009 the Group has been engaged in transactions with its related parties within the normal course of business. The revenue from sales to related parties has decreased from USD 2,771 thousand as for the three months ended 31 March 2008 to USD 1,475 thousand for the three months ended 31 March 2009. The revenue for the three months ended 31 March 2009 relates primarily to the sale of mixed fodder and its components to Agrofirma Berezanska Ptahofabryka. 

The balances of trade accounts receivable due from related parties relate primarily to the mixed fodder sale and amounted to USD 3,119 and USD 3,223 thousand as at 31 March 2009 and 31 December 2008 respectively. 

The terms and conditions of sales to related parties are determined based on arrangements, specific to each contract or transaction. Management believes that the accounts receivable due from related parties do not require allowance for irrecoverable amounts and that the amounts payable to related parties will be settled at cost.

Compensation to key management personnel

Total compensation of the Group's key management personnel (including compensation to Mr. Yuriy Kosyuk), which consist of contractual salary and performance bonuses amounted to USD 1,095 thousand and USD 956 thousand for the three months ended 31 March 2009 and 2008, respectively.

 

5. CHANGES IN INVENTORIES, BIOLOGICAL ASSETS, AND AGRICULTURAL PRODUCE

One of the main reasons of changes in the inventories, biological assets and agricultural produce as of 31 March 2009 as compared to 31 December 2008 is seasonality. The changes in the Group's inventories during the three months ended 31 March 2009 were in line with the normal course of the Group's operations and resulted mainly from accumulation of stocks of raw materials by grain growing entities.

Increase of current biological assets balances during the three months 2009 is primarily attributable to that of the crops balances. The increase refers to the costs incurred with respect to future harvest, reflecting seasonality element inherent in the grain growing segment. 

Increase in current biological assets is partly due to the positive fair value measurement effect of broiler poultry closing balances resulting from the increase of chicken meat prices and the scheduled expansion of production capacities connected with the second phase of Myronivka chicken farm complex construction. 

Agricultural produce balances have decreased as compared to 31 December 2008 owing mainly to the seasonal reduction of grain stock. 

6. TRADE ACCOUNTS RECEIVABLE

The balances of trade accounts receivable were as follows as of 31 March 2009 and 31 December 2008: 

	31 March 2009		31 December 2008
Agricultural operations	25,126		26,663
Sunflower oil sales	2,442		2,957
Due from related parties	3,119		2,791
Less: allowance for irrecoverable amounts	(933)		(1,073)
Total	29,754		31,531

 

    

7. BANK BORROWINGS

The following table summarizes bank loans and credit lines held by the Group as of 31 March 2009 and 31 December 2008: 

Bank		Currency	Interest rate	31 March 2009	Interest rate	31 December 2008
Foreign banks		EUR	4.92%	81,492	5.43%	78,697
				81,492		78,697
Ukrainian banks		USD	7.75%	109,000	6.78%	109,000
Total bank borrowings				190,492		187,697
Less:
Short-term borrowings and current  portion of long-term borrowings				(129,847)		(130,241)
		(●
Total long-term bank borrowings
				60,645		57,456

The following table summarizes bank loans and credit lines with respect to the type of interests charged held by the Group as of 31 March 2009 and 31 December 2008:

		31 March   2009		31 December 2008
Fixed interest rate		34,973		39,756
Floating interest rate		155,519		147,941
Total		190,492		187,697

Bank loans and credit lines as of 31 March 2009 were repayable as follows: 

		31 March 2009
		Foreign		Ukrainian		Total
Within one year		20,847		109,000		129,847
In the second year		22,210		-		22,210
In the third to fifth year inclusive		32,036		-		32,036
With maturity over five years		6,399		-		6,399
Total		81,492		109,000		190,492

Bank loans and credit lines as of 31 December 2008 were repayable as follows: 

		31 December 2008
		Foreign		Ukrainian		Total
Within one year		21,241		109,000		130,241
In the second year		22,703		-		22,703
In the third to fifth year inclusive		34,753		-		34,753
Total		78,697		109,000		187,697

Included in bank borrowings as of 31 March 2009 is a revolving committed credit line facility drawn with ING Bank (Ukraine) in the amount of USD 35,000 thousand. The facility is available until 2010, and may be drawn in six-months tranches.

As of 31 March 2009, the Group had available borrowings on undrawn credit facilities of USD 5,565 thousand, including USD 1,844 thousand of available overdraft facilities. These undrawn credit facilities expire during the period from April 2009 until December 2016. 

As of 31 March 2009, the Group had borrowings of USD 12,653 thousand that were secured. These borrowings were secured by property, plant and equipment with the carrying amount of USD 6,531 thousand.

In January 2009 the Group refinanced bank borrowings with OTP Bank for the total amount of USD 20,000 thousand with maturity in January 2010.

8. BONDS ISSUED

Long-term bonds outstanding as of 31 March 2009 and 31 December 2008 were as follows:

	31 March 2009		31 December 2008
10.25% Senior Notes due in 2011	250,000		250,000
Unamortized premium on bonds issued	-		-
Unamortized debt issue costs, net	(2,830)		(3,097)
Total	247,170		246,903

9. LONG-TERM FINANCE LEASE AND VENDOR FINANCING OBLIGATIONS

The finance lease obligations represent amounts due under agreements for lease of trucks, agricultural machinery and equipment with Ukrainian and foreign companies. The following are the minimum lease payments and present value of minimum lease payments under the finance lease agreements as of 31 March 2009:

	Minimum lease payments		Present value of minimum lease payments
Payable within one year	27,527		20,502
Payable in the second year	23,560		18,935
Payable in the third to fifth year inclusive	29,307		25,791
Less:
Future finance charges	(15,166)		-
Present value of lease obligations	65,228		65,228
Less:
Current portion			20,502
Finance lease obligations, long-term portion			44,726

  

10. CONTINGENCIES AND CONTRACTUAL COMMITMENTS

Recent volatility in global and Ukrainian financial markets - In recent months a number of major economies around the world have experienced volatile capital and credit markets. Macroeconomic situation both in Ukraine and globally in the world continues to be difficult. Nevertheless, during the first quarter of 2009 the official exchange rate of UAH to US dollar remained stable around UAH 7.7 for US dollar. Almost all industrial sectors reported substantial declines in economic activities during the first quarter of 2009. Thus, the industrial output dropped by 32% compared with the same period in 2008.  At the same time, the total production of agricultural products in the first quarter of 2009 compared with the corresponding period of 2008 increased by 1.7%.Despite weakening conditions in the Ukrainian financial and banking sector, the receipt of the second tranche of the IMF loan and the government participation in the equity capital of problem banks may help to stabilize and gradually improve the situation.

Operating environment − The principal business activities of the Group are within Ukraine. Laws and regulations affecting businesses operating in Ukraine are subject to rapid changes and the Group's assets and operations could be at risk if there are any adverse changes in the political and business environment.

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 Ukraine 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.

Legal issue − 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.

Contractual commitments on purchase of raw materials − As of 31 December 2008, sunflower seeds purchase commitments on forward contracts amounted to USD 1,833 thousand (31 March 2009: nil). 

Contractual commitments on purchase of property, plant and equipment − As of 31 March 2009, purchase commitments of the Group on contracts with foreign and Ukrainian suppliers for the purchase of property, plant and equipment for development of agricultural operations amounted to USD 13,566 thousand and 31 December 2008: USD 20,927 thousand.

Contractual commitments on sales of sunflower oil − As of 31 March 2009, commitments of the Group on sunflower oil sales amounted to USD 6,502 thousand and 31 December 2008: USD 6,854 thousand (UAH 64,990 thousand).

  

 11. FOREIGN CURRENCY EXCHANGE RATE CHANGE 

The Group undertakes certain transactions denominated in foreign currencies. The Group does not use any derivatives to manage foreign currency risk exposure. The Group's management believes that the currency risk is mitigated by existence of USD-denominated proceeds from sunflower oil sales, which are substantially sufficient for servicing the Group's USD- denominated liabilities.

The carrying amount of the Group's foreign currency denominated monetary assets and liabilities as of 31 March 2009 are as follows:

	USD- denominated		EUR- denominated
Assets
Trade accounts receivable		2,978		443
Other current assets		-		-
Bank deposits with maturity over three months		12,000		-
Cash and cash equivalents		42,535		725
Total assets		57,513		1,168

Liabilities
Trade accounts payable		180		3,854
Accounts payable for property, plant and equipment		6		3,626
Bank borrowings		109,000		81,492
Bonds issued		250,000		-
Finance lease and vendor financing obligations		9,141		56,087
Total liabilities		368,327		145,059

The below details the Group's sensitivity to strengthening of the Ukrainian Hryvnia against US Dollar and EURO by 5% and weakening of the Ukrainian Hryvnia against US Dollar and EURO by 10%. This sensitivity rate represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity rate is evaluated based on market developments subsequent to the financial statements date.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% and 10% change in foreign currency rates. 

	USD-denominated		EUR-denominated
Profit/(loss)		15,541/(31,081)		7,195/(14,389)

* The effect of foreign currency sensitivity on shareholders' equity is equal to that on profit or loss.

During the three months ended 31 March 2009, the official exchange rate of UAH to USD has not changed, and the official exchange rate of UAH to EUR has increased by 6%.

12. SEGMENT INFORMATION

The following is an analysis of revenue, results for the period and gain/(loss) arising on fair value recognition of biological assets and agricultural produce by the Group's primary basis of segmentation: 

	31 March 2009				31 March 2008
	Poultry and related operations	Other agricultu ral	Grain growing	Consolidat ed	Poultry and related operations	Other agricultu ral	Grain growing	Consolidated
REVENUES
Total revenue	112,438	20,033	10,454	142,925	158,471	15,995	7,034	181,500
Inter-segment eliminations	(3,400)	-	(4,644)	(8,044)	(1,441)	-	(5,227)	(6,668)
Sales to external customers	109,038	20,033	5,810	134,881	157,030	15,995	1,807	174,832
Segment results	41,270	108	91	41,469	45,426	2,993	354	48,773
Unallocated corporate expenses				(1,893)				(2,244)
Operating profit				39,576				46,529
Effect of fair value adjustments	5,702	(808)	(716)	5,610	2,721	1,172	(3,196)	768

13. NET PROFIT FOR THE PERIOD 

During the first three months of 2009 the gross profit has been relatively stable. Net profit has been negatively affected by the government's decision to abolish direct grants on processing of live animals. Notwithstanding this fact, the net profit for the three months ended 31 March 2009 has significantly increased owing mainly to the revaluation of EUR denominated outstanding statement of financial position balances. During the three months ended 31 March 2009, the official exchange rate of UAH to EUR has increased by 6%, while during the three months ended 31 March 2008 the exchange rate decreased by 7%.

 

14. SUBSEQUENT EVENTS

There have been no significant subsequent events after March 31, 2009.

 

ENDQRFUUUPWQUPBGQC

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