Q2 and H1 2012 Financial Results

PRESS RELEASE

August 29, 2012, Kyiv, Ukraine

MHP S.A.

Unaudited Financial Results for the Second Quarter 

and Six Months Ended 30 June 2012

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 second quarter and the six months ended 30 June 2012.

Operational highlights

Poultry and related operations

o During the first half of the year all the Company's chicken production facilities continued to operate at full capacity.

o Consumer demand for chicken remained high and the Company was able to sell close to 100% of the chicken meat produced.

o The Company's share of industrially produced chicken in Ukraine in H1 2012 remained around 50%.

o The volume of chicken meat sales to external customers in H1 2012 year-on-year remained unchanged and constituted 181,600 tonnes due to the stable utilization of all existing capacities.

o Due to the favorable market environment in Ukraine and seasonal trend, the average chicken meat price in Q2 2012 increased by 4% compared to Q1 2012. At the same time the average price in the second quarter of 2012 increased by 25% to UAH 17.48 per kg of adjusted weight (excluding VAT) when compared to second quarter of 2011. As a result of a stable and strong poultry prices during the first two quarters of 2012, the difference between H1 2011 and H1 2012 chicken meat prices constituted 28%, which is an increase from UAH 13.44 per kg to UAH 17.14 per kg.

o In H1 2012, 94,749 tonnes of sunflower oil were sold at an average price of US$ 1,109 per tonne, which was 15% lower in price compared to H1 2011 (US$ 1,303 per tonne) in line with world market price trends. 

o During the second quarter of 2012 the volume of exported chicken meat sales continued the growing dynamics of previous quarters, exploring new business opportunities in the countries of Africa. This resulted in around 30% growth in H1 2012 compared to the same period last year, to almost 20,000 tonnes of frozen chicken export.

Grain growing

o In 2012 the Company expects to harvest around 250,000 hectares of land in grain growing operations and to cultivate around 30,000 hectares of land in other agricultural operations. Total land bank in 2012 remains relatively stable at around 280,000 hectares.

o Despite concerns over weather conditions and significantly lower results across all early crops in Ukraine (wheat, barley, rapeseeds) and taking into account the challenging situation with harvest in the USA and Russia, our yields of early crops are good and significantly higher than Ukraine's average, due to our operational efficiency and employment of best practice.

o MHP's current yields of wheat (5.4 tonnes per hectare) and rape (3.4 tonnes per hectare) are close to twice Ukraine's average.

o The Company benefits from high world prices for early crops as well as for corn.

Other agriculture

o Sausage and cooked meat production volumes decreased from 17,300 tonnes in H1 2011 to 16,510 tonnes in H1 2012 due to the continuous product mix optimization.

o The Company's market share of Ukraine's sausage and cooked meat products in Ukraine was around 10%.

Vinnytsia - new green field expansion project

·; Construction of most sites has been completed, and equipment is being installed. Production of Phase 1 is expected to be launched by the end of 2012 and reach its full capacity of 220,000 tonnes of poultry per annum in 2015.

Treasury Shares

During the reporting period MHP has purchased 2,480,000 Global depository receipts ("GDR") with one GDR representing an interest in one ordinary share ("Share") at an average price per GDR of US$11.07, through the share buy-back programme. The number of repurchased GDRs constitutes approximately 2.3% of the Company's issued and outstanding shares.

Financial highlights

Q2 2012 highlights

o Revenue increased by 27% to US$ 357 million (Q2 2011: US$ 281 million).

o EBITDA increased by 45% to US$ 147 million (Q2 2011: US$ 101 million).

o EBITDA margin increased to 41% in Q2 2012 from 36% in Q2 2011, and significantly increased from 28% in Q1 2012.

o Net income increased by 83% to US$ 122 million (Q2 2011: US$ 67 million) mainly in line with EBITDA growth, and positively affected by foreign-exchange gains.

H1 2012 highlights

o Revenue increased by 24% to US$ 654 million (H1 2011: US$ 527 million).

o EBITDA increased by 46% to US$ 231 million (H1 2011: US$ 158 million)

o EBITDA margin increased to 35% (H1 2011: 30%).

o Net income increased by 97% to US$ 170 million (H1 2011: US$ 86 million) mainly in line with EBITDA growth.

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

"The Company has continued to perform strongly in results and operations in the first half of 2012. Poultry prices growth in H1 2012 was strong, as previously forecasted. As a result, we have delivered robust revenues and EBITDA growth in the poultry business segment, which greatly contributed to the Company's overall profitability.

Our expectations regarding results in the grain growing segment are favorable despite weather challenges during the second quarter of 2012. With regard to the early crops, MHP experienced a good harvest with good yields, which again are substantially stronger than Ukraine's average. World grain prices this year are very strong, driven mostly by trends on US market, which guarantees us good performance of our grain growing segment for the full year.

As I promised to our shareholders, since June 2012 we have started trial production at Vinnytsia project testing equipment, processes and resources.

Looking ahead, the quality of our products continues to attract consumers, and demand remains high. We are discovering new export markets, and building strong relationships with new partners. We are therefore confident that we will continue to expand in line with our strategy and to produce strong financial results."

- end -

MHP's management today will host a conference call for investors and analysts followed by a Q&A session. The dial-in details are:

Date: Wednesday, 29 August 2012

Time: 09.00 New York / 14.00 London / 16.00 Kyiv / 17.00 Moscow

Title: MHP - Q2 and H1 2012 Financial Results

International/UK Dial in: +44 (0) 1452 561 488

USA free call: +1 877 328 4999

Russia free call 8108 002 434 2044

Conference ID 21230128

A live webcast of the presentation will be available at:

 https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=664326734

Alternative URL:

https://webconnect.webex.com/

Click on "Unlisted Events"

Event number: 664 326 734Event password: N/A

Financial overview

* pps - percentage points

Q2 2012 Consolidated Financial Results

Consolidated revenue totaled US$ 357 million, which is 27% greater compared to US$ 281 million in Q2 2011, driven by growth of chicken price, sunflower oil sales volumes, and grain sales volumes. Export sales comprised 31% of total revenue in Q2 2012.

EBITDA increased by 45% to US$ 147 million (Q2 2011: US$ 101 million), with EBITDA margin rising from 36% to 41%, both driven by higher chicken meat prices.

Net income from continuing operations reached US$ 122 million, which is 83% more than US$ 67 million in Q2 2011 mainly in line with EBITDA growth and positively affected by non-cash foreign-exchange gains. Net margin increased from 24% to 34%.

H1 2012 Consolidated Financial Results

Consolidated financial results showed similar dynamics in H1 2012 as in Q2 2012. Revenue increased by 24% to US$ 654 million (H1 2011: US$ 527 million). The reasons for the increase in revenue are the same as for Q2 2012: growth of chicken price and higher grain volumes sold. Export sales constituted 31% of total revenue in H1 2012.

EBITDA increased by 46% to US$ 231 million (H1 2011: US$ 158 million), EBITDA margin went up to 35% (H1 2011: 30%).

Net income recorded US$ 170 million, almost double the same period in 2011 (H1 2011: US$ 86 million). Net margin increased from 16% to 26%.

Poultry and related operations

* pps - percentage points

Q2 2012 Poultry and related operations segment financial results

In Q2 2012, chicken meat sales volumes to external consumers on an adjusted-weight basis remained almost at the same level of 96,560 tonnes (Q2 2011: 97,800 tonnes) as soon as all MHP's existing poultry production facilities continued to operate at full capacity.

The average chicken meat sales price increased by 25% to UAH 17.48 per kg (Q2 2011: UAH 13.97 per kg). Sunflower oil prices had the opposite dynamics in Q2 2012 in line with world trends. Sunflower oil was sold for export at an average price of US$ 1,131 per tonne, which is 13% less than in Q2 2011.

The poultry segment revenue increased by 19% to US$ 283 million (Q2 2011: US$ 237 million) mainly as a consequence of growth of chicken price resulted in US$ 43 million surplus in revenue.

Consequently, gross profit rose by 73% to US$ 101 million (Q2 2011: US$ 59 million), and gross profit margin increased from 25% in Q2 2011 to 36% in Q2 2012.

Segment's EBITDA totaled US$ 107 million, reflecting 67% growth compared to the same period in 2011. In line with gross profit margin dynamic, EBITDA margin increased from 27% to 38%.

H1 2012 Poultry and related operations segment financial results

Chicken meat sales volumes to third parties on an adjusted-weight basis in H1 2012 remained almost at the same level of 181,600 tonnes compared to 182,100 tonnes in H1 2011. The average chicken meat sales price increased by 28% to UAH 17.14 per kg (H1 2011: UAH 13.44 per kg). Average sunflower oil prices decreased by 15% to US$ 1,109 per tonne (H1 2011: US$ 1,303 per tonne).

Strong growth of poultry price stimulated increase in segment's revenue by 17% to US$ 523 million from US$ 446 million in H1 2011.

Year-on-year poultry production costs in H1 2012 increased slightly mainly driven by higher gas and utilities prices. Thus, gross profit totaled US$ 179 million, which is 60% higher than in H1 2011, and gross profit margin increased from 25% in H1 2011 to 34% in H1 2012.

During the first half of 2012 poultry segment's EBITDA increased by 60% to US$ 193 million (H1 2011: US$ 121 million). EBITDA margin reached 37% in comparison to 27% in H1 2011 as a consequence of strong dynamic in chicken meat prices during the period.

Grain growing operations

The Company's grain growing segment revenue in H1 2012 was generated by the sale of 198,000 tonnes of corn at an average price of US$ 230 per tonne, 35,000 tonnes of wheat at an average price of US$ 184 per tonne, and 17,000 tonnes of soybeans at an average price of US$ 435 per tonne. Consequently, segment's revenue reached US$ 57 million in H1 2012, which is more than three times H1 2011.

Segment's EBITDA totaled US$ 42 million, almost all generated in Q2 2012. Due to the harvest cycle, there is a significant seasonality in this division, therefore financial results of the segment are weighted towards the second half of the year.

In 2012 MHP is forecasted to harvest around 250,000 hectares in grain growing operations, the same as in 2011, and to cultivate around 30,000 hectares in other agricultural operations. The harvesting campaign of early crops is successfully finished. Current yields of wheat (5.4 tonnes per hectare) and rapeseeds (3.4 tonnes per hectare) are close to twice Ukraine's average. Despite weather challenges during the second quarter of 2012, MHP expects to receive good yields across all crops and taking into account current market conditions, we expect annual results in this business segment to be strong.

Other agricultural operations

In Q2 2012 sales volumes of sausage and cooked meat products decreased by 4% to 9,010 tonnes compared to 9,400 in Q2 2011. Due to MHP's product mix optimization during the first half of 2012, the sales volume of meat processing products fell by 5% year-on-year to 16,510 tonnes. However, the market share of MHP remained stable at about 10% of the Ukrainian meat processing market.

The average sausage and cooked meat prices increased by 13% in Q2 2012 (UAH 22.07 per kg in Q2 2012 compared to UAH 19.50 per kg in Q2 2011) and by 15% in H1 2012 (UAH 21.83 per kg in H1 2012 compared to UAH 18.91 per kg in H1 2011).

The segment's revenue in Q2 2012 increased by 20% to US$ 41 million compared to US$ 34 million in Q2 2011 due to growth of meat processing products average price as well as fruit sales. In H1 2012 the revenue of other agricultural operations segment totaled US$74 million, 12% more than in H1 2011.

The gross profit of the segment totaled US$ 3 million in Q2 2012 (Q2 2011: US$ 3 million) and US$ 5 million in H1 2012 (H1 2011: US$ 6 million). The segment's EBITDA increased by 14% to US$ 5 million in Q2 2012 compared to the same period of 2011 and decreased by 7% year-on-year to US$ 7 million in H1 2012 (H1 2011: US$ 8 million). EBITDA margin decreased slightly to 11% in Q2 2012 and to 10% in H1 2012.

Current Group financial position, cash flow and liquidity

Cash flow from operations before changes in working capital increased greatly to US$ 186 million in H1 2012 (H1 2011: US$ 103) in line with EBITDA growth.

The total increase in working capital was US$ 58 million in H1 2012. The main contributors to the change in working capital were grains in fields and an increase in VAT tax recoverable increase related to the intensive CAPEX program.

In H1 2012 total CAPEX of US$ 217 million was mostly related to the Vinnytsia project. Since the start of the construction in May 2010, approximately US$ 545 million has been invested into the project.

During the six-month period ended 30 June 2012, the Group repurchased, under the share buy-back program, additional 2,480,000 of its outstanding ordinary shares for the total cash consideration of USD 27,504 thousand.

Vinnytsia - new green field project

Construction work at the Vinnytsia sites is running to schedule and on budget. Significant progress has been already achieved across all facilities of the complex. All equipment required for Phase 1 is already contracted and is being dispatched. Since June 2012 testing of production sites has neeb underway. By the end of 2012 the Vinnytsia complex is planned to be launched in industrial production.

Poultry Farm

·; Construction of hatchery is complete and launched into operations.

·; First 7 brigades (chicken rearing zones) with 38 chicken houses in each are almost complete; next 5 brigades are under construction.

·; Construction of the slaughter house for Phase 1 (220,000 tonnes of poultry per annum) is complete, equipment is being installed.

Fodder Plant and Grain Storage Facilities

·; Construction of Sunflower Crushing Plant and Fodder Plant is 90% complete; equipment is by 50% installed.

Infrastructure and Social Responsibility

·; Construction of two independent electric power substations, external transmission network and gas supply is complete

·; Construction of external water supply (60 km) is 90% complete

·; Water purifying station of 15,000 m3 capacity is complete

·; As a part of the facility, MHP will be constructing 45 km of new roads (over 90% complete)

·; 200 new residential apartments, a hostel with a capacity for 800 people and a kindergarten with a capacity for 260 children

MHP has set up a section on its website dedicated to Project Vinnystia where regular updates are provided, as well as photographs documenting the stages of the project: http://www.mhp.com.ua/en/node/1082/.

Debt Structure

As of June 30, 2012, the Company's total debt was US$ 990 million, most of which was denominated in US dollars. The average weighted cost of debt was below 9%. Approximately 60% of the Company's total debt is the Eurobond that matures in April 2015.

At the end of H1 2012, MHP's cash and short-term bank deposits comprised US$ 75 million. Net debt rose from US$ 854 million at the end of Q1 2012 to US$ 915 million at the end of Q2 2012. Despite the net debt growth, the Net Debt/EBITDA ratio at the end of the period decreased to 1.93 (Eurobond covenant: 2.5), as a consequence of 10% LTM EBITDA growth.

As a hedge for currency risks, revenue from the export of sunflower oil, sunflower husks, and chicken meat are denominated in US Dollars, fully covering debt service expenses. The export revenue from sales of sunflower oil, grain, chicken meat, sunflower husk and other constituted US$ 201 million in H1 2012, which is by 43% more than in H1 2011.

Outlook

Consumer demand for poultry meat remains strong and current chicken prices are around 8% higher compared to the same period of the previous year.

Taking into account the increase in world grain prices and quite strong MHP harvest across all crops, this year the Company expects to receive good profitability in its grain division.

We continue to optimize the product mix of sausages and cooked meat producing a wider range of value-added products at our meat processing plants.

By the end of 2012 MHP is schedule to launch the Vinnytsia complex in industrial production.

As usual the Company expects to continue to deliver strong financial results, implement our strategy and cement our position as one of the leading agro-industrial companies in Ukraine and the region.

- End -

Notes to Editors:

About 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

Interim condensed consolidated Financial Statements

For the six-month period ended 30 June 2012

CONTENT

MANAGEMENT STATEMENT................................................................................................................ (a)

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

REVIEW REPORT ON INTERIM FINANCIAL INFORMATION...................................................................... (i)

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2012

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME............................. 3

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION...................................... 4

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...................................... 5

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT......................................................... 7

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................................. 8

1. Corporate information........................................................................................................................ 8

2. Basis of preparation and accounting policies....................................................................................... 9

3. Segment information....................................................................................................................... 10

4. Profit for the period.......................................................................................................................... 10

5. Property, plant and equipment.......................................................................................................... 11

6. Long-term VAT recoverable, net........................................................................................................ 11

7. Inventories and agricultural produce.................................................................................................. 11

8. Biological assets............................................................................................................................ 11

9. Treasury shares.............................................................................................................................. 11

10. Bank borrowings........................................................................................................................... 12

11. Bonds issued............................................................................................................................... 13

12. Trade accounts payable................................................................................................................ 13

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

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

15. Currency risk............................................................................................................................... 15

16. Authorization of the interim condensed consolidated financial statements.......................................... 15

MANAGEMENT STATEMENT

To the best of our knowledge, the unaudited consolidated interim financial statements prepared in accordance with the applicable set of accounting standards give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole, and the management report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

27 August 2012

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

MANAGEMENT REPORT

Key financial highlights

During the six-month period ended 30 June 2012 consolidated revenue increased by 24% to USD 654,471 thousand compared to USD 527,380 thousand for the six-month period ended 30 June 2011. The main driver of increase in revenue was a substantial growth of chicken meat prices, while the additional drivers were higher grain prices and volumes sold. Export sales constituted 31% of total revenue for six-month period ended 30 June 2012.

Operating profit constituted USD 195,938 thousand, which is by 52% more than for the six-month period ended 30 June 2011. Operating profit margin increased from 24% for the six-month period ended 30 June 2011 to 30% for the six-month period ended 30 June 2012 as a consequence of chicken meat prices growth.

Net income from operations rose by 97% to USD 170,157 thousand (six-month period ended 30 June 2011: USD 86,311 thousand), net margin grew from 16% to 26%.

Segment results

Poultry and related operations

During the six-month period ended 30 June 2012 all the Company's chicken meat production facilities continued to operate at full capacity produced around 50% of total industrially produced chicken meat in Ukraine.

Due to high consumer demand for chicken meat the Company was able to sell close to 100% of the chicken meat produced which comprised approximately 181,600 tonnes, at average chicken meat price 28% higher, than for the six-month period ended 30 June 2011.

Grain growing

In 2012 the Company is to harvest around 250,000 hectares of land in grain growing operations and to cultivate around 30,000 hectares of land in other agricultural operations. Total land bank in 2012 remains relatively stable at around 280,000 hectares.

Despite concerns over weather conditions and significantly lower results across all early crops (wheat, barley, rapeseeds etc.) in Ukraine and taking into account challenging situation with harvest in the USA and Russia, our yields of early crops are good and significantly higher than Ukraine's average, due to our operational efficiency and employment of best practice. Company's current yields of wheat (5.4 tonnes per hectare) and rape (3.4 tonnes per hectare) are close to twice Ukraine's average.

Other agriculture

During the six-month period ended 30 June 2012 production volume of sausage and cooked meat decreased to 16,510 tonnes, comparing to 17,300 tonnes produced during the six-month period ended 30 June 2011, due to the continuous product mix optimization.

The Company's market share of Ukraine's sausage and cooked meat products in Ukraine was around 10%.

Treasury shares

During the six-month period ended 30 June 2012 Company has purchased 2,480,000 Global depository receipts ("GDR") with one GDR representing an interest in one ordinary share for the total cash consideration of USD 27,504 thousand, through the share buy-back programme. The number of repurchased GDRs constitutes approximately 2.3% of the Company's issued and outstanding shares.

27 August 2012

On behalf of the Board:

Chief Executive Officer Yuriy Kosyuk

Chief Financial Officer Viktoria Kapelyushnaya

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six-month period ended 30 June 2012

(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 8 to 15 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as of 30 June 2012

(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 8 to 15 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2012

(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 8 to 15 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six-month period ended 30 June 2011

(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 8 to 15 form an integral part of these interim condensed consolidated financial statements

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six-month period ended 30 June 2012

(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 8 to 15 form an integral part of these interim condensed consolidated financial statements

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the six-month period ended 30 June 2012

(in thousands of US dollars, unless otherwise indicated)

1. Corporate information

MHP S.A. (the "Parent" or "MHP S.A."), a limited liability company (société anonyme) 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 PJSC "Myronivsky Hliboproduct" ("MHP") and its subsidiaries. Hereinafter, MHP S.A. and its subsidiaries are referred to as the "MHP S.A. Group" or the "Group". The registered address of MHP S.A. is 5, rue Guillaume Kroll, L-1882 Luxembourg.

The controlling shareholder of MHP S.A. is the Chief Executive Officer of MHP S.A. Mr. Yuriy Kosyuk ("Principal Shareholder"), who owns 100% of the shares of WTI Trading Limited ("WTI"), which is the immediate majority shareholder of MHP S.A.

The principal business activities of the Group are poultry and related operations, grain growing, as well as other agricultural operations (meat processing, cultivation and selling fruits and producing beef 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, 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 cooked meat, sausages, beef, milk, goose meat, foie gras, fruits and feed grains.  During the six-month period ended 30 June 2012 the Group employed about 24,800 people (31 December 2011: 24,800 people).

The Group has been undertaking a large-scale investment program to expand its poultry and related operations, and in May 2010, commenced construction of the greenfield Vinnytsya poultry complex. During the six-month period ended 30 June 2012 construction works at Vinnytsia complex was performed as scheduled.

The primary subsidiaries, the principal activities of the companies forming the Group and the Parent's effective ownership interest as of 30 June 2012 and 31 December 2011 were as follows:

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2012

(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 six-month period ended 30 June 2012 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.

The 31 December 2011 statement of financial position was derived from the audited consolidated financial statements.

Functional and presentation currencies

The functional currency of the Group 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.

These interim condensed 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 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.

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

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 2011.

Seasonality of operations

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

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

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2012

(in thousands of US dollars, unless otherwise indicated)

3. Segment information

The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2012:

1) Depreciation and amortization attributable to Grain growing segment for the six-month period ended 30 June 2012 in the amount of USD 9,202 thousand was capitalized in biological assets (Note 8);

Depreciation and amortization for the six-month period ended 30 June 2012 includes unallocated depreciation and amortization in the amount of USD 1,670 thousand.

The following table presents revenue and profit information regarding the Group's operating segments for the six-month period ended 30 June 2011:

1) Depreciation and amortization attributable to Grain growing segment for the six-month period ended 30 June 2011 in the amount of USD 9,677thousand was capitalized in biological assets (Note 8);

Depreciation and amortization for the six-month period ended 30 June 2011 includes unallocated depreciation and amortization in the amount of USD 1,615 thousand.

4. Profit for the period

Increase in Group's profit for the six-month period ended 30 June 2012 compared to the six-month period ended 30 June 2011 is mainly attributable to the high returns earned from poultry and related operations segment.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2012

(in thousands of US dollars, unless otherwise indicated)

5. Property, plant and equipment

Increase of property, plant and equipment, during the six-month period ended 30 June 2012 mainly attributable to the capital expenditure incurred in respect of Vinnytsya poultry complex construction. The construction of Vinnytsya poultry complex commenced in 2010 and is being constructed according to the schedule.

During the six-month period ended 30 June 2012, the Group's additions to property, plant and equipment amounted to USD 227,727 thousand (six-month period ended 30 June 2011: USD 118,340 thousand).

There have been no significant disposals of property, plant and equipment during the six-month period ended 30 June 2012.

During the six-month period ended 30 June 2012 borrowing costs of USD 13,839 thousand (six-month period ended 30 June 2011: USD 6,057 thousand) were capitalized into property, plant and equipment. The weighted average capitalization rate on funds borrowed generally during the six-month period ended 30 June 2012 was 8.44% (six-month period ended 30 June 2011: 10.01%).

6. Long-term VAT recoverable, net

As of 30 June 2012 and 31 December 2011 the balance of long-term VAT recoverable was accumulated on continuing capital expenditures. Management expects that these balances will not be recovered within twelve months of the reporting date.

7. Inventories and agricultural produce

Inventories and agricultural produce balances have decreased as of 30 June 2012 compared to 31 December 2011 mainly due to the internal consumption of corn and sunflower, and grain sales to third parties.

As of 31 December 2011 USD 35,705 thousand of expenses incurred in cultivating fields to be planted in spring 2012 were capitalised in work in progress balance. As of 30 June 2012 these expenses were classified as crops in fields within biological assets, as the plants were already sown (Note 8).

8. Biological assets

Increase in current biological assets during the six-month period ended 30 June 2012 is primarily attributable to crops in fields balance.

The increase in crops in fields balance refers to IAS 41 revaluation adjustment and costs incurred with respect to the future harvest, reflecting seasonality element inherent in the grain growing segment.

9. Treasury shares

During the six-month period ended 30 June 2012, the Group repurchased, under the share buy-back program, additional 2,480,000 of its outstanding ordinary shares for the total cash consideration of USD 27,504 thousand.

As a result of this transaction as of 30 June 2012 the Company's repurchased ordinary shares amounted to USD 68,059 thousand and comprised 5,395,144 ordinary shares with a par value of 2 EUR each.

Notes to the INTERIM CONDENSED Consolidated financial statements

for the six-month period ended 30 June 2012

(in thousands of US dollars, unless otherwise indicated)

10. Bank borrowings

The following table summarizes bank borrowings and credit lines outstanding as of 30 June 2012 and 31 December 2011: